<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 4, 1998
REGISTRATION NO. 333-[ ]
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
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 CLASSIFICATION IDENTIFICATION NO.)
INCORPORATION OR CODE NUMBER)
ORGANIZATION)
1700 OLD MEADOW ROAD
MCLEAN, VIRGINIA 22102
(703) 902-2800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
K. PAUL SINGH
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
1700 OLD MEADOW ROAD
MCLEAN, VIRGINIA 22102
(703) 902-2800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
JAMES D. EPSTEIN, ESQ. JOHN T. CAPETTA, ESQ.
PEPPER HAMILTON LLP KELLEY DRYE & WARREN LLP
3000 TWO LOGAN SQUARE TWO STAMFORD PLAZA
EIGHTEENTH AND ARCH STREETS 281 TRESSER BOULEVARD
PHILADELPHIA, PA 19103-2799 STAMFORD, CT 06901-3229
(215) 981-4000 (203) 324-1400
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective and all other conditions to the merger of Taurus Acquisition
Corporation, a subsidiary of the Registrant, with and into TresCom
International, Inc., pursuant to the Agreement and Plan of Merger, as amended,
described in the Joint Proxy Statement/Prospectus have been satisfied or
waived.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, 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(d)
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. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par
value per share....... 10,000,000 $9.00 $119,804,958 $35,343(2)
</TABLE>
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- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) under the Securities Act of 1933, as amended,
and based upon a Maximum Aggregate Offering Price equal to the product of
(i) $9.00 (the average of the high and low reported sale prices of the
TresCom International, Inc. common stock to be canceled in the Merger as
reported on the Nasdaq Stock Market on March 13, 1998) times (ii)
13,311,662 (the number of shares of TresCom International, Inc. common
stock outstanding as of March 17, 1998, and shares reserved for issuance
upon the exercise of options and warrants to purchase TresCom
International, Inc. common stock through December 31, 1998).
(2) Previously paid in connection with the initial filing on March 19, 1998 of
the Joint Proxy Statement forming a part of this Registration Statement.
---------------
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, AS AMENDED, OR UNTIL THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
1700 OLD MEADOW ROAD
MCLEAN, VIRGINIA 22102
(703) 902-2800
May 5, 1998
Dear Stockholder:
You are invited to attend a Meeting of the Stockholders (the "Meeting") of
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED, a Delaware corporation
("Primus"), to be held at the Sheraton Premier, Tysons Corner, 8661 Leesburg
Pike, Vienna, VA 22182, on June 4, 1998 at 10:00 a.m., local time.
The purpose of the Meeting is to approve the issuance of shares of the
common stock of Primus, par value $.01 per share ("Primus Common Stock"), in
connection with an Agreement and Plan of Merger by and among Primus, TresCom
International, Inc., a Florida corporation ("TresCom"), and Taurus Acquisition
Corporation, a Florida corporation and wholly-owned subsidiary of Primus
("TAC"), dated as of February 3, 1998, and as amended by Amendments No. 1 and
2 dated as of April 8, 1998 and as of April 16, 1998, respectively (as
amended, the "Merger Agreement"). Pursuant to the terms of the Merger
Agreement TAC will be merged with and into TresCom (the "Merger"). If the
Merger is consummated, TresCom will survive the Merger as a wholly-owned
subsidiary of Primus, and the shares of common stock of TresCom, par value
$.0419 per share (the "TresCom Common Stock"), that are issued and outstanding
at the effective time of the Merger, other than such shares held by Primus and
its affiliates, will be converted automatically into the right to receive
$12.00 per share of TresCom Common Stock, payable in shares of Primus Common
Stock in an amount to be determined pursuant to the Merger Agreement.
Approval of the issuance of Primus Common Stock in connection with the
Merger requires the affirmative vote of holders of a majority of the
outstanding shares of Primus Common Stock entitled to vote at the Meeting.
Approval and adoption of the Merger Agreement requires the affirmative vote of
holders of a majority of the outstanding shares of TresCom Common Stock.
Certain directors and executive officers of Primus who presently own, in the
aggregate, approximately 21% of the outstanding shares of Primus Common Stock
have irrevocably agreed to vote such shares in favor of the issuance of Primus
Common Stock in connection with the Merger. Additionally, Warburg, Pincus
Investors, L.P. and certain directors and executive officers of TresCom who
presently own, in the aggregate, approximately 51% of the outstanding shares
of TresCom Common Stock have irrevocably agreed to vote such shares in favor
of the Merger, and have granted to Primus options to purchase their shares of
TresCom Common Stock at an exercise price per share of $12.00, payable in
shares of Primus Common Stock, if the Merger Agreement terminates under
defined circumstances.
THE BOARD OF DIRECTORS OF TRESCOM UNANIMOUSLY HAS APPROVED AND ADOPTED THE
MERGER AGREEMENT, HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF
TRESCOM AND ITS SHAREHOLDERS AND IS RECOMMENDING THAT HOLDERS OF SHARES OF
TRESCOM COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
THE BOARD OF DIRECTORS OF PRIMUS UNANIMOUSLY HAS APPROVED AND ADOPTED THE
MERGER AGREEMENT, HAS APPROVED THE ISSUANCE OF PRIMUS COMMON STOCK IN
CONNECTION WITH THE MERGER AND IS RECOMMENDING TO ITS STOCKHOLDERS THAT THEY
VOTE THEIR SHARES IN FAVOR OF THE ISSUANCE OF PRIMUS COMMON STOCK IN
CONNECTION WITH THE MERGER. In reaching its determination regarding the Merger
Agreement, the Primus Board of Directors considered, among other things, the
opinion of BT Alex. Brown Incorporated as to the fairness, from a financial
point of view, of the consideration to be paid by Primus pursuant to the
Merger Agreement. The opinion of BT Alex. Brown Incorporated is included as
Appendix B to the attached Joint Proxy Statement/Prospectus.
<PAGE>
At the Meeting, Primus's stockholders will also be voting on the election of
nominees to the Board of Directors of Primus who will serve until the 2001
Annual Meeting of Stockholders, or until their successors are elected and
qualify. Also at the Meeting, Primus's stockholders will be voting to amend
the Primus Certificate of Incorporation to increase the number of authorized
shares of Primus Common Stock from 40,000,000 to 80,000,000. The Board of
Directors has fixed the close of business on April 27, 1998 as the record date
for the determination of Primus stockholders entitled to notice of and to vote
at the Meeting.
In view of the importance of the matters to be acted upon at the Meeting,
you are invited to personally attend. Regardless of whether you expect to be
present in person at the Meeting, you are encouraged to complete, date, sign
and return the enclosed proxy in the accompanying envelope, which requires no
postage if mailed in the United States. Once you have submitted a proxy, you
may revoke it at any time prior to its exercise at the Meeting by delivering a
written notice to the Secretary of Primus that the proxy is being revoked, by
submitting a properly executed proxy bearing a later date than the proxy being
revoked or by voting in person at the Meeting.
Sincerely,
K. Paul Singh
Chairman of the Board of Directors
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
1700 OLD MEADOW ROAD
MCLEAN, VIRGINIA 22102
(703) 902-2800
----------------
NOTICE OF MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 4, 1998
----------------
To the Stockholders of
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED:
Notice is hereby given that a Meeting of Stockholders (the "Meeting") of
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED, a Delaware corporation
("Primus"), will be held at the Sheraton Premier, Tysons Corner, 8661 Leesburg
Pike, Vienna, VA 22182, on June 4, 1998, at 10:00 a.m., local time, for the
following purposes:
(1) To approve the issuance of shares of the common stock of Primus, par
value $.01 per share ("Primus Common Stock"), in connection with an
Agreement and Plan of Merger by and among Primus, TresCom
International, Inc., a Florida corporation ("TresCom"), and Taurus
Acquisition Corporation, a Florida corporation and wholly-owned
subsidiary of Primus ("TAC"), dated as of February 3, 1998, and as
amended by Amendments No. 1 and 2 dated as of April 8, 1998 and as of
April 16, 1998, respectively (as amended, the "Merger Agreement"),
pursuant to which (i) TAC will be merged with and into TresCom (the
"Merger") with TresCom surviving the Merger and becoming a wholly-
owned subsidiary of Primus, and (ii) the shares of common stock of
TresCom, par value $.0419 per share ("TresCom Common Stock"), that
are issued and outstanding at the effective time of the Merger, other
than such shares held by Primus and its affiliates, will be converted
automatically into the right to receive $12.00 per share of TresCom
Common Stock, payable in shares of Primus Common Stock in an amount
to be determined pursuant to the Merger Agreement; and all
transactions related thereto.
(2) Election of Directors of Primus.
(3) To amend the Primus Certificate of Incorporation to increase the
number of authorized shares of Primus Common Stock from 40,000,000
to 80,000,000.
(4) To transact such other business as may properly come before the
Meeting, or any adjournment or postponement thereof.
The Merger Agreement and the Merger, and certain information relating to the
election of Primus directors, are more fully described in the accompanying
Joint Proxy Statement/Prospectus and the Appendices attached thereto.
Only holders of Primus Common Stock of record at the close of business on
April 27, 1998 are entitled to notice of and to vote at the Meeting and any
adjournment or postponement thereof. You are invited to attend the Meeting and
vote your shares in person. A list of stockholders entitled to vote at the
Meeting will be available for examination during regular business hours at
Primus's executive offices, 1700 Old Meadow Road, McLean, Virginia 22102, for
the ten days prior to the Meeting.
By Order of the Board of Directors,
John F. DePodesta
Secretary
McLean, Virginia
May 5, 1998
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND PROMPTLY RETURN IT IN THE ENCLOSED POSTAGE-PAID
ENVELOPE NO LATER THAN JUNE 4, 1998. IF YOU ATTEND THE MEETING, YOU MAY VOTE
YOUR SHARES IN PERSON IF YOU WISH, EVEN IF YOU PREVIOUSLY RETURNED YOUR
PROXY.
<PAGE>
TRESCOM INTERNATIONAL, INC.
200 EAST BROWARD BOULEVARD
FORT LAUDERDALE, FLORIDA 33301
(954) 763-4000
May 5, 1998
Dear Shareholder:
You are invited to attend a Special Meeting of the Shareholders (the
"Special Meeting") of TRESCOM INTERNATIONAL, INC., a Florida corporation
("TresCom"), to be held at The Hyatt Regency Pier 66, 2301 S.E. 17th Street
Causeway, Fort Lauderdale, Florida on June 4, 1998 at 10:00 a.m., local time.
The purpose of the Special Meeting is to approve and adopt an Agreement and
Plan of Merger by and among TresCom, Primus Telecommunications Group,
Incorporated, a Delaware corporation ("Primus"), and Taurus Acquisition
Corporation, a Florida corporation and wholly-owned subsidiary of Primus
("TAC"), dated as of February 3, 1998, and as amended by Amendments No. 1 and
2 dated as of April 8, 1998 and as of April 16, 1998, respectively (as
amended, the "Merger Agreement"), and to transact such other business which
may properly come before such Special Meeting. Pursuant to the terms of the
Merger Agreement, TAC will be merged with and into TresCom (the "Merger"). If
the Merger is consummated, TresCom will survive the Merger as a wholly-owned
subsidiary of Primus, and the shares of common stock of TresCom, par value
$.0419 per share (the "TresCom Common Stock"), that are issued and outstanding
at the effective time of the Merger, other than such shares held by Primus and
its affiliates, will be converted automatically into the right to receive
$12.00 per share of TresCom Common Stock, payable in shares of the common
stock of Primus, par value $.01 per share ("Primus Common Stock"), in an
amount to be determined pursuant to the Merger Agreement.
Approval and adoption of the Merger Agreement requires the affirmative vote
of holders of a majority of the outstanding shares of TresCom Common Stock
entitled to vote at the Special Meeting. Approval of the issuance of Primus
Common Stock in connection with the Merger requires the affirmative vote of
holders of a majority of the outstanding shares of Primus Common Stock.
Warburg, Pincus Investors, L.P. and certain directors and executive officers
of TresCom who presently own, in the aggregate, approximately 51% of the
outstanding shares of TresCom Common Stock have irrevocably agreed to vote
such shares in favor of the Merger, and have granted to Primus options to
purchase their shares of TresCom Common Stock at an exercise price per share
of $12.00, payable in shares of Primus Common Stock, if the Merger Agreement
terminates under defined circumstances. Additionally, certain directors and
executive officers of Primus who presently own, in the aggregate,
approximately 21% of the outstanding shares of Primus Common Stock have
irrevocably agreed to vote such shares in favor of the issuance of Primus
Common Stock in connection with the Merger.
THE BOARD OF DIRECTORS OF TRESCOM UNANIMOUSLY HAS APPROVED AND ADOPTED THE
MERGER AGREEMENT, HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF
TRESCOM AND ITS SHAREHOLDERS AND IS RECOMMENDING THAT HOLDERS OF SHARES OF
TRESCOM COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
THE BOARD OF DIRECTORS OF PRIMUS UNANIMOUSLY HAS APPROVED AND ADOPTED THE
MERGER AGREEMENT, HAS APPROVED THE ISSUANCE OF PRIMUS COMMON STOCK IN
CONNECTION WITH THE MERGER AND IS RECOMMENDING TO ITS STOCKHOLDERS THAT THEY
VOTE THEIR SHARES IN FAVOR OF THE ISSUANCE OF PRIMUS COMMON STOCK IN
CONNECTION WITH THE MERGER. In reaching its determination regarding the Merger
Agreement, the TresCom Board of Directors considered, among other things, the
opinion of The Robinson-Humphrey Company, LLC as to the fairness to the
TresCom shareholders, from a financial point of view, of the consideration to
be received in the Merger. The opinion of The Robinson-Humphrey Company, LLC
is included as Appendix C to the attached Joint Proxy Statement/Prospectus.
<PAGE>
The Board of Directors has fixed the close of business on April 27, 1998 as
the record date for the determination of TresCom shareholders entitled to
notice of and to vote at the Special Meeting.
TRESCOM SHAREHOLDERS WILL NOT BE ENTITLED TO DISSENTERS' RIGHTS AS A RESULT
OF THE MERGER. UNDER FLORIDA LAW, DISSENTERS' RIGHTS ARE UNAVAILABLE TO
HOLDERS OF TRESCOM COMMON STOCK BECAUSE TRESCOM COMMON STOCK WAS, ON THE
RECORD DATE, DESIGNATED AND QUOTED FOR TRADING AS A NASDAQ NATIONAL MARKET
SECURITY.
In view of the importance of the matters to be acted upon at the Special
Meeting, you are invited to personally attend. Regardless of whether you
expect to be present in person at the Special Meeting, you are encouraged to
complete, date, sign and return the enclosed proxy in the accompanying
envelope, which requires no postage if mailed in the United States. Once you
have submitted a proxy, you may revoke it at any time prior to its exercise at
the Special Meeting by delivering a written notice to the Secretary of TresCom
that the proxy is being revoked, by submitting a properly executed proxy
bearing a later date than the proxy being revoked or by voting in person at
the Special Meeting.
Sincerely,
Wesley T. O'Brien
President and Chief Executive
Officer
STOCK CERTIFICATES SHOULD NOT BE SENT WITH THE ENCLOSED PROXY. IF THE MERGER
IS CONSUMMATED, SHAREHOLDERS WILL BE FURNISHED INSTRUCTIONS FOR EXCHANGING
THEIR TRESCOM COMMON STOCK FOR PRIMUS COMMON STOCK.
<PAGE>
TRESCOM INTERNATIONAL, INC.
200 EAST BROWARD BOULEVARD
FORT LAUDERDALE, FLORIDA 33301
(954) 763-4000
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JUNE 4, 1998
----------------
To the Shareholders of TRESCOM INTERNATIONAL, INC.:
Notice is hereby given that a Special Meeting of Shareholders (the "Special
Meeting") of TRESCOM INTERNATIONAL, INC., a Florida corporation ("TresCom"),
will be held at The Hyatt Regency Pier 66, 2301 S.E. 17th Street Causeway,
Fort Lauderdale, Florida on June 4, 1998, at 10:00 a.m., local time, for the
following purposes:
(1) To approve and adopt an Agreement and Plan of Merger by and among
TresCom, Primus Telecommunications Group, Incorporated, a Delaware
corporation ("Primus"), and Taurus Acquisition Corporation, a Florida
corporation and wholly-owned subsidiary of Primus ("TAC"), dated as
of February 3, 1998, and as amended by Amendments No. 1 and 2 dated
as of April 8, 1998 and as of April 16, 1998, respectively (as
amended, the "Merger Agreement"), pursuant to which (i) TAC will be
merged with and into TresCom (the "Merger") with TresCom surviving
the Merger and becoming a wholly-owned subsidiary of Primus, and (ii)
the shares of common stock of TresCom, par value $.0419 per share
("TresCom Common Stock"), that are issued and outstanding at the
effective time of the Merger, other than such shares held by Primus
and its affiliates, will be converted automatically into the right to
receive $12.00 per share of TresCom Common Stock, payable in shares
of the common stock of Primus, par value $.01 per share, in an amount
to be determined pursuant to the Merger Agreement. A copy of the
Merger Agreement is included as Appendix A to the Joint Proxy
Statement/Prospectus accompanying this Notice; and
(2) To transact such other business as may properly come before the
Special Meeting, or any adjournment or postponement thereof.
Only holders of TresCom Common Stock of record at the close of business on
April 27, 1998 are entitled to notice of and to vote at the Special Meeting
and any adjournment or postponement thereof. You are invited to attend the
Special Meeting and vote your shares in person. A list of shareholders
entitled to vote at the Special Meeting will be available for examination
during regular business hours at TresCom's executive offices, 200 East Broward
Boulevard, Fort Lauderdale, Florida 33301, for the ten days prior to the
Special Meeting.
By Order of the Board of Directors,
Angelina Spoto
Secretary
Fort Lauderdale, Florida
May 5 , 1998
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY AND PROMPTLY RETURN IT IN THE ENCLOSED
POSTAGE-PAID ENVELOPE NO LATER THAN JUNE 4, 1998. IF YOU ATTEND THE SPECIAL
MEETING, YOU MAY VOTE YOUR SHARES IN PERSON IF YOU WISH, EVEN IF YOU
PREVIOUSLY RETURNED YOUR PROXY.
<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 MAY 4, 1998
JOINT PROXY STATEMENT/PROSPECTUS
LOGO LOGO
OF PRIMUS OF TRESCOM
TELECOMMUNICATIONS INTERNATIONAL
GROUP, INC. COMMUNICATIONS
MEETING OF SPECIAL MEETING OF
STOCKHOLDERS SHAREHOLDERS
TO BE HELD ON JUNE 4, TO BE HELD ON JUNE 4 ,
1998 1998
This Joint Proxy Statement/Prospectus is being furnished to stockholders of
Primus Telecommunications Group, Incorporated, a Delaware corporation
("Primus"), in connection with the solicitation of proxies by the Board of
Directors of Primus (the "Primus Board") for use at the meeting of stockholders
of Primus to be held on June 4, 1998, or any adjournment or postponement
thereof (the "Primus Meeting"), and to shareholders of TresCom International,
Inc., a Florida corporation ("TresCom"), in connection with the solicitation of
proxies by the Board of Directors of TresCom (the "TresCom Board") for use at
the special meeting of shareholders of TresCom to be held on June 4, 1998, or
any adjournment or postponement thereof (the "TresCom Special Meeting"). This
Joint Proxy Statement/Prospectus and accompanying forms of proxy are first
being mailed to the stockholders of Primus and to the shareholders of TresCom
on or about May 5, 1998.
The TresCom Special Meeting has been called to consider and vote on a
proposal to approve and adopt an Agreement and Plan of Merger, dated as of
February 3, 1998, as amended by Amendments No. 1 and 2 dated as of April 8,
1998 and as of April 16, 1998, respectively (as amended, the "Merger
Agreement"), by and among Primus, TresCom and Taurus Acquisition Corporation, a
Florida corporation and wholly-owned subsidiary of Primus ("TAC"), which
provides, among other things, for the merger of TAC with and into TresCom (the
"Merger") with TresCom being the surviving corporation in the Merger (the
"Surviving Corporation"), and the Primus Meeting has been called to consider
and vote upon a proposal to issue shares of common stock of Primus, par value
$.01 per share (the "Primus Common Stock"), pursuant to the Merger. Under the
terms of the Merger Agreement, TresCom shareholders, other than Primus and its
affiliates, will receive shares of Primus Common Stock having a value of $12.00
(based on the Weighted Average Sales Price as defined herein) in exchange for
each share of common stock of TresCom, par value $.0419 per share (the "TresCom
Common Stock"), held by them at the effective time of the Merger (the
"Effective Time"). Approval and adoption of the Merger Agreement requires the
affirmative vote of the holders of a majority of the outstanding shares of
TresCom Common Stock entitled to vote at the TresCom Special Meeting. The
issuance of Primus Common Stock in connection with the Merger requires the
affirmative vote of the holders of a majority of the outstanding shares of
Primus Common Stock entitled to vote at the Primus Meeting. The actual number
of shares of Primus Common Stock to be exchanged in the Merger will not be
determinable until after the vote of Primus and TresCom shareholders. At the
Primus Meeting, stockholders will also be voting on the election of nominees to
serve as directors of Primus until the 2001 Annual Meeting of Stockholders, or
until their successors are elected and qualify, as well as to amend the Primus
Certificate of Incorporation (as defined below) to increase the number of
authorized shares of Primus Common Stock from 40,000,000 to 80,000,000. See
"Summary--The Merger--Merger Consideration."
The TresCom Board has unanimously approved the Merger Agreement and
recommended that the shareholders of TresCom vote their shares for approval and
adoption of the Merger Agreement, and the Primus Board has unanimously approved
and adopted the Merger Agreement and recommended that the stockholders of
Primus approve the issuance of Primus Common Stock in connection with the
Merger. Certain directors and executive officers of Primus who presently own,
in the aggregate, approximately 21% of the outstanding shares of Primus Common
Stock have irrevocably agreed to vote such shares in favor of the issuance of
Primus Common Stock in connection with the Merger. Additionally, Warburg,
Pincus Investors, L.P., an affiliate of TresCom ("Warburg, Pincus"), and
certain directors and executive officers of TresCom who presently own, in the
aggregate, approximately 51% of the outstanding shares of TresCom Common Stock
have irrevocably agreed to vote such shares in favor of the Merger, and have
granted to Primus options to purchase their shares of TresCom Common Stock at
an exercise price per share of $12.00, payable in shares of Primus Common
Stock, if the Merger Agreement is terminated under defined circumstances.
THE SECURITIES OFFERED HEREBY 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 JOINT PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
TresCom shareholders will not be entitled to dissenters' rights as a result
of the Merger. Under Florida law, dissenters' rights are unavailable to holders
of TresCom Common Stock because TresCom Common Stock was, on the TresCom record
date, designated and quoted for trading as a Nasdaq National Market ("Nasdaq")
security. See "The TresCom Special Meeting--Absence of Dissenters' Rights."
The Merger is intended to be a tax-free reorganization in which TresCom
shareholders will not recognize taxable gain or loss, except to the extent cash
is received, and is intended to be accounted for as a purchase. See "The
Merger--Certain Federal Income Tax Consequences" and "--Accounting Treatment."
IN CONNECTION WITH THE MERGER, SHAREHOLDERS OF TRESCOM SHOULD BE AWARE OF
VARIOUS RISKS WHICH ARE SET FORTH UNDER THE CAPTION "RISK FACTORS" BEGINNING ON
PAGE 16 OF THIS JOINT PROXY STATEMENT/PROSPECTUS.
This Joint Proxy Statement/Prospectus constitutes a prospectus of Primus with
respect to the shares of Primus Common Stock to be issued in the Merger. The
Primus Common Stock is listed on Nasdaq. The TresCom Common Stock is also
listed on Nasdaq but will be delisted after consummation of the Merger. The
last reported sales price of Primus Common Stock on Nasdaq was $23.875 per
share on April 30, 1998, the most recent practicable trading day prior to the
date of this Joint Proxy Statement/Prospectus, and $20 per share on February 3,
1998, the last trading day preceding public announcement of the proposed
Merger. The last reported sales price of TresCom Common Stock on Nasdaq was
$18.75 per share on April 30, 1998, the most recent practicable trading day
prior to the date of this Joint Proxy Statement/Prospectus, and $8.625 per
share on February 3, 1998, the last trading day preceding public announcement
of the proposed Merger. Although TresCom shareholders will receive $12.00 for
each share of TresCom Common Stock (based on the Weighted Average Sales Price),
payable in shares of Primus Common Stock, the exchange ratio varies and is
subject to adjustment in the event of fluctuations in the market price of the
Primus Common Stock. There is no assurance as to the market price of Primus
Common Stock and TresCom Common Stock at any time prior to the Effective Time.
Stockholders of Primus and shareholders of TresCom are urged to obtain current
market quotations for Primus Common Stock and TresCom Common Stock.
----------
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS MAY , 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
TITLE PAGE
- ----- ----
<S> <C>
Table of Contents.......................................................... 2
Incorporation of Certain Documents by Reference............................ 3
Available Information...................................................... 4
Cautionary Statement Concerning Forward-Looking Information................ 4
Summary.................................................................... 5
Risk Factors............................................................... 16
Unaudited Pro Forma Financial Data......................................... 28
The Primus Meeting......................................................... 31
The TresCom Special Meeting................................................ 32
The Merger................................................................. 34
The Companies.............................................................. 61
Comparative Rights of Common Shareholders.................................. 83
Legal Matters.............................................................. 92
Experts.................................................................... 92
Election of Primus Director................................................ 93
Amendment to the Primus Certificate of Incorporation....................... 104
Certain Transactions of Primus............................................. 105
Annual Report of Primus.................................................... 106
Stockholder Proposals of Primus............................................ 107
Other Matters.............................................................. 107
Index to Consolidated Financial Statements and Schedule of TresCom......... F-1
</TABLE>
<TABLE>
<CAPTION>
APPENDICES
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<C> <S>
Appendix A.................. Composite Agreement and Plan of Merger by and
among Primus, TresCom and TAC, dated as of
February 3, 1998, and as amended by Amendments
No. 1 and 2, dated as of April 8, 1998 and as of
April 16, 1998, respectively.
Appendix B.................. Fairness Opinion of BT Alex. Brown Incorporated,
dated as of February 3, 1998.
Appendix C.................. Fairness Opinion of The Robinson-Humphrey
Company, LLC, dated as of February 3, 1998.
</TABLE>
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE
AVAILABLE UPON REQUEST FROM PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED,
1700 OLD MEADOW ROAD, MCLEAN, VIRGINIA 22102, ATTENTION: JOHN F. DEPODESTA,
SECRETARY, (703) 902-2800. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MAY 28, 1998, THE DATE WHICH IS FIVE
BUSINESS DAYS PRIOR TO THE DATE OF THE TRESCOM MEETING.
2
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY PRIMUS OR
TRESCOM. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE THE
SOLICITATION OF A PROXY OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
PURCHASE ANY SECURITIES BY ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER
TO SELL OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY
DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL IMPLY THAT THERE HAS BEEN NO
CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF PRIMUS OR
TRESCOM SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THIS DATE.
THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT COVER ANY RESALE OF THE
SECURITIES TO BE RECEIVED BY SHAREHOLDERS OF TRESCOM UPON THE CONSUMMATION OF
THE MERGER. NO PERSON IS AUTHORIZED TO MAKE USE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH ANY SUCH RESALE.
ALL INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS RELATING
TO TRESCOM WAS PROVIDED BY THE MANAGEMENT AND BOARD OF DIRECTORS OF TRESCOM.
PRIMUS ASSUMES NO RESPONSIBILITY FOR THE ACCURACY OF SUCH INFORMATION. ALL
INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS RELATING TO PRIMUS WAS PROVIDED BY THE MANAGEMENT AND
BOARD OF DIRECTORS OF PRIMUS. TRESCOM ASSUMES NO RESPONSIBILITY FOR THE
ACCURACY OF SUCH INFORMATION. THE PRO FORMA FINANCIAL INFORMATION CONTAINED
HEREIN REGARDING PRIMUS HAS BEEN PREPARED BY PRIMUS AND INCLUDES HISTORICAL
FINANCIAL INFORMATION REGARDING TRESCOM THAT WAS SUPPLIED BY TRESCOM. TRESCOM
AND PRIMUS HAVE MADE CERTAIN COVENANTS AND REPRESENTATIONS TO EACH OTHER WITH
RESPECT TO THE INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Securities and Exchange Commission
(the "Commission") by Primus pursuant to the Securities Exchange Act of 1934,
as amended (the "1934 Act"), are incorporated herein by reference: (1) Annual
Report on Form 10-K for the fiscal year ended December 31, 1997 (as amended on
Form 10-K/A on April 30, 1998); (2) Current Report on Form 8-K dated November
3, 1997 (as amended on Form 8-K/A on January 5, 1998 and January 7, 1998); (3)
Current Report on Form 8-K dated February 6, 1998 (as amended on Form 8-K/A on
February 6, 1998); (4) Current Report on Form 8-K dated April 10, 1998; (5)
Current Report on Form 8-K dated April 23, 1998 (as amended on Form 8-K/A on
April 23, 1998); and (6) the description of Primus Common Stock contained in
Primus's Registration Statement on Form S-1 dated June 27, 1997 (File No. 333-
30195, and as amended on Form S-1/A on July 15, 1997, July 25, 1997 and July
30, 1997).
All documents filed by Primus with the Commission pursuant to Section 13(a),
13(c), 13(d), 14 or 15(d) of the 1934 Act after the date of this Joint Proxy
Statement/Prospectus and prior to the date of the Primus Meeting and the
TresCom Special Meeting shall be deemed to be incorporated by reference into
this Joint Proxy Statement/Prospectus and to be a part hereof from the date of
filing of such documents. Any statement contained in any document incorporated
or deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Joint Proxy Statement/Prospectus
to the extent that a statement contained herein or in any other subsequently
filed document which also is or is deemed to be incorporated by reference
herein modifies or supersedes such statement. Any such statement so modified
or superseded shall not be deemed, except as modified or superseded, to
constitute a part of this Joint Proxy Statement/Prospectus. Information
appearing in this Joint Proxy Statement/Prospectus is qualified in its
entirety by the information and financial statements (including the notes
thereto) appearing in the documents incorporated by reference.
3
<PAGE>
AVAILABLE INFORMATION
Each of Primus and TresCom is subject to the informational requirements of
the 1934 Act, and in accordance therewith files reports, proxy statements and
other information with the Commission. The reports, proxy statements and other
information filed by Primus and TresCom with the Commission can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices located at 7 World Trade Center, Suite 1300, New
York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material also can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. In addition, certain of the
documents filed by Primus and TresCom with the Commission are available
through the Commission's Electronic Data Gathering and Retrieval System
("EDGAR") at http://www.sec.gov. Primus Common Stock and TresCom Common Stock
are traded on Nasdaq. Reports and other information concerning Primus and
TresCom can also be inspected at the offices of the National Association of
Securities Dealers, Inc., Market Listing Section, 1735 K Street, N.W.,
Washington, D.C. 20006.
This Joint Proxy Statement/Prospectus is included as part of a Registration
Statement on Form S-4 (together with all amendments and exhibits thereto,
including documents and information incorporated by reference, the
"Registration Statement") filed with the Commission relating to the
registration under the Securities Act of 1933, as amended (the "1933 Act"),
with respect to the shares of Primus Common Stock to be issued pursuant to the
Merger Agreement. This Joint Proxy Statement/Prospectus does not contain all
the information set forth in the Registration Statement or the exhibits
thereto. As permitted by the rules and regulations of the Commission, this
Joint Proxy Statement/Prospectus omits certain information contained or
incorporated by reference in the Registration Statement. The omitted portions
of the Registration Statement may be obtained through EDGAR at
http://www.sec.gov. Such omitted information also may be obtained from the
Commission's principal office in Washington, D.C. Statements contained in this
Joint Proxy Statement/Prospectus, or in any document incorporated by reference
in this Joint Proxy Statement/Prospectus, as to the contents of any contract
or other document referred to herein or therein are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement or such other
document, each such statement being qualified in all respects by such
reference.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
The statements contained in this Joint Proxy Statement/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. Management of Primus and
TresCom wish to caution the reader that the forward-looking statements
referred to above and contained in this Joint Proxy Statement/Prospectus
regarding matters that are not historical facts involve predictions. No
assurance can be given that the future results will be achieved as actual
events or results may differ materially as a result of risks facing Primus,
TresCom and the Company (as defined in the introduction under the caption
"Summary" below). 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 Primus's and TresCom's limited operating history, entry into
developing markets (including that resulting from the Merger), managing rapid
growth (including that resulting from the Merger), international operations
(including that resulting from the Merger), effects of natural disasters,
dependence on effective information systems and development of the Company's
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."
4
<PAGE>
SUMMARY
The following is a summary of certain important terms of the proposed Merger
and related information discussed elsewhere in this Joint Proxy
Statement/Prospectus. This summary does not purport to be complete and is
qualified in its entirety by reference to the more detailed information
included in this Joint Proxy Statement/Prospectus and the exhibits hereto,
including, but not limited to, the Merger Agreement set forth as Appendix A
hereto. As used in this Joint Proxy Statement/Prospectus, the term "Primus"
means Primus Telecommunications Group, Incorporated and its subsidiaries, and
the term "TresCom" means TresCom International, Inc. and its subsidiaries. The
term "Company" refers to the combination of Primus and TresCom.
THE MEETINGS
The Primus Meeting. The Primus Meeting will be held on June 4, 1998, at 10:00
a.m., local time, at the Sheraton Premier, Tysons Corner, 8661 Leesburg Pike,
Vienna, VA 22182. At such meeting, Primus stockholders will be asked (i) to
approve the issuance of shares of Primus Common Stock in connection with the
Merger (the "Primus Stock Issuance Proposal"), (ii) to vote upon the election
of nominees to serve as directors of Primus until the 2001 Annual Meeting of
Stockholders, or until their successors are elected and qualify, (iii) to amend
the Primus Certificate of Incorporation (as defined below) to increase the
number of authorized shares of Primus Common Stock from 40,000,000 to
80,000,000 and (iv) to vote upon such other business as may properly come
before the Primus Meeting, or any adjournment or postponement thereof. The
Primus Board knows of no business that will be presented for consideration at
the Primus Meeting other than the matters described in this Joint Proxy
Statement/Prospectus.
The date for the determination of the holders of record of the Primus Common
Stock entitled to notice of and to vote at the Primus Meeting is April 27, 1998
(the "Primus Record Date"). Accordingly, only holders of record of shares of
Primus Common Stock as of the close of business on the Primus Record Date will
be entitled to notice of and to vote at the Primus Meeting. As of the Primus
Record Date, there were outstanding 19,823,951 shares of Primus Common Stock
entitled to vote which were held by 171 holders of record. Each holder of
record of shares of Primus Common Stock on the Primus Record Date is entitled
to cast one vote per share on each proposal properly submitted for the vote of
Primus's stockholders, either in person or by properly executed proxy, at the
Primus Meeting. The presence, in person or by properly executed proxy, of the
holders of a majority of the outstanding shares of Primus Common Stock entitled
to vote at the Primus Meeting is necessary to constitute a quorum at the Primus
Meeting. Abstentions, votes withheld and broker non-votes are counted in
determining whether a quorum is present.
Pursuant to the Delaware General Corporation Law (the "DGCL") and the Primus
Certificate of Incorporation, the Primus Stock Issuance Proposal must be
approved by the holders of a majority of the issued and outstanding shares of
the Primus Common Stock entitled to vote at the Primus Meeting. Primus
stockholders are not entitled to cumulative voting in the election of
directors. Directors are elected by the affirmative votes of a plurality of the
votes of the shares entitled to vote, present in person or represented by
proxy, and votes may be cast in favor of or withheld from any director nominee.
The amendment to the Primus Certificate of Incorporation to increase the number
of authorized shares of Primus Common Stock requires the affirmative vote of
the holders of a majority of the shares entitled to vote, present in person or
represented by proxy. Abstentions with respect to the Primus Stock Issuance
Proposal and proposal to amend the Primus Certificate of Incorporation will
have the same effect as votes against such proposals because approval of such
proposals requires a vote in favor thereof by a majority of the votes entitled
to be cast by stockholders at the Primus Meeting. As of the Primus Record Date,
directors and executive officers of Primus and their affiliates held 4,760,673
shares, or approximately 24%, of the issued and outstanding Primus Common
Stock.
TresCom Special Meeting. The TresCom Special Meeting will be held on June 4,
1998, at 10:00 a.m., local time, at The Hyatt Regency Pier 66, 2301 S.E. 17th
Street Causeway, Fort Lauderdale, Florida. At such meeting, TresCom
shareholders will be asked (i) to approve and adopt the Merger Agreement and
(ii) to vote upon such other business as may properly come before the TresCom
Special Meeting, or any adjournment or postponement thereof. The TresCom Board
knows of no business that will be presented for consideration at the TresCom
Special Meeting other than the matters described in this Joint Proxy
Statement/Prospectus.
5
<PAGE>
The date for the determination of the holders of record of the TresCom Common
Stock entitled to notice of and to vote at the TresCom Special Meeting is April
27, 1998 (the "TresCom Record Date"). Accordingly, only holders of record of
shares of TresCom Common Stock as of the close of business on the TresCom
Record Date will be entitled to notice of and to vote at the TresCom Special
Meeting. As of the TresCom Record Date, there were outstanding 12,262,075
shares of TresCom Common Stock entitled to vote which were held by 56 holders
of record. Each holder of record of shares of TresCom Common Stock on the
TresCom Record Date is entitled to cast one vote per share on each proposal
properly submitted for the vote of TresCom's shareholders, either in person or
by properly executed proxy, at the TresCom Special Meeting. The presence, in
person or by properly executed proxy, of the holders of a majority of the
outstanding shares of TresCom Common Stock entitled to vote at the TresCom
Special Meeting is necessary to constitute a quorum at the TresCom Special
Meeting. Abstentions, votes withheld and broker non-votes are counted in
determining whether a quorum is present.
Pursuant to the Florida Business Corporation Act (the "FBCA") and the
Articles of Incorporation of TresCom, the Merger Agreement and the transactions
related thereto must be approved by the holders of a majority of the issued and
outstanding shares of the TresCom Common Stock entitled to vote at the TresCom
Special Meeting. Abstentions will have the same effect as votes against the
Merger because approval of the Merger requires a vote in favor thereof by a
majority of the votes entitled to be cast by shareholders at the TresCom
Special Meeting. As of the TresCom Record Date, directors and executive
officers of TresCom and their affiliates held 6,212,461 shares, or
approximately 51%, of the issued and outstanding TresCom Common Stock.
THE MERGER
General. The Merger Agreement provides that TAC will merge with and into
TresCom in accordance with the FBCA, with TresCom being the Surviving
Corporation of the Merger as a wholly-owned subsidiary of Primus, and the
separate existence of TAC will cease. The Merger will become effective upon the
filing of Articles of Merger with the Department of State of the State of
Florida. It is anticipated that such filing will be made on the third business
day after the last of the conditions precedent to the Merger set forth in the
Merger Agreement has been satisfied or waived (the "Closing Date" or the
"Effective Time"). The Closing Date is anticipated to be June 9, 1998, three
business days after the Primus Meeting and TresCom Special Meeting, or as soon
as practicable thereafter.
Merger Consideration. Under the terms of the Merger Agreement, TresCom
shareholders, other than Primus and its affiliates, will receive shares of
Primus Common Stock having a value of $12.00 (based on the Weighted Average
Sales Price) in exchange for each share of TresCom Common Stock held by them at
the Effective Time. The Merger Agreement provides for an exchange of TresCom
Common Stock at a ratio (the "Exchange Ratio") based upon the volume-weighted
average sales price per share of Primus Common Stock for the 20-trading-day
period ending on the third trading day prior to the Closing Date (the "Weighted
Average Sales Price"). The Exchange Ratio is the quotient of $12.00 divided by
the Weighted Average Sales Price.
Although TresCom shareholders will receive $12.00 in value (based on the
Weighted Average Sales Price) for each share of TresCom Common Stock, payable
in shares of Primus Common Stock, the Exchange Ratio has not yet been fixed and
will be determined at the Effective Time based on the Weighted Average Sales
Price of Primus Common Stock. Thus, the actual number of shares of the Primus
Common Stock to be received by holders of TresCom Common Stock in the Merger
will not be determined until the Effective Time, and may be substantially less
than the actual number of shares of the Primus Common Stock which they would
have received as of the date of the fairness opinion issued to the TresCom
Board by The Robinson-Humphrey Company, LLC ("Robinson-Humphrey"), the date of
execution of the Merger Agreement, the date of this Joint Proxy
Statement/Prospectus or the date on which TresCom shareholders vote on the
Merger Agreement. Interested persons may call toll free 1-888-501-9725 to
obtain a current example of the number and value of the Primus Common Stock to
be issued on a per share basis.
6
<PAGE>
No fractional shares of Primus Common Stock will be issued. In lieu of
fractional shares, any person who would otherwise be entitled to a fractional
share of Primus Common Stock will receive an amount in cash equal to the value
of such fractional share. Such value shall be the product of such fraction
multiplied by the Weighted Average Sales Price. See "The Merger --The Merger
Agreement--Merger Consideration."
Stock Options. At the Effective Time, each option or other right to purchase
or otherwise acquire TresCom Common Stock (each, a "Stock Right") which is then
outstanding and unexercised will be converted automatically into an option to
purchase Primus Common Stock having the same terms and conditions as the
converted Stock Right, except that the exercise price and the number of shares
of Primus Common Stock issuable upon exercise shall be divided and multiplied,
respectively, by the Exchange Ratio. See "The Merger--The Merger Agreement--
Stock Rights."
Representations And Warranties. The Merger Agreement contains customary
reciprocal representations of Primus and TAC, on the one hand, and TresCom, on
the other hand, relating to, among other things, (i) corporate organization;
(ii) capitalization; (iii) authorization, execution, delivery and
enforceability of the Merger Agreement; (iv) absence of certain violations; (v)
compliance with the 1933 Act and the 1934 Act; (vi) the accuracy of
information; (vii) the absence of certain material adverse events; (viii)
compliance with applicable laws; (ix) absence of brokers or finders, except for
those expressly permitted; (x) the absence of material litigation and
liabilities; (xi) taxes; (xii) receipt of their respective fairness opinions;
(xiii) employee benefit plans; and (xiv) board of directors' approval. The
respective representations and warranties of the parties do not survive beyond
the Effective Time.
Certain Covenants. Primus and TAC, on the one hand, and TresCom, on the other
hand, covenanted to: use all reasonable efforts to take all actions to
consummate the Merger Agreement, including obtaining any material
authorizations, consents and approvals of third parties and governmental
agencies (although Primus is responsible for preparing all filings with
authorities governing the telecommunications industry on behalf of each party).
TresCom also covenanted to Primus that it would: file with the Commission and
Nasdaq any required reports after giving Primus the opportunity to review such
filings; not take any action or enter into any transaction other than in the
ordinary course of business without the prior written consent of Primus; and
make all monthly, quarterly and annual financial statements of TresCom
available to Primus. Primus covenanted to TresCom: to provide each officer and
director of TresCom with liability insurance for a period of six years after
the Effective Time; to indemnify the officers and directors to the extent not
covered by such insurance; to continue at least one significant historic line
of business of TresCom; and to use a significant portion of TresCom's historic
business assets in a business. None of the covenants survive beyond the
Effective Time, except for those relating to insurance, indemnification and
certain agreements involving the continuation of the historic TresCom business
following the Effective Time.
Conditions. The obligations of Primus and TAC, on the one hand, and TresCom,
on the other hand, to effect the Merger are subject to certain customary
conditions, including, among others: that the Merger Agreement shall have
received the requisite stockholder approval; that all governmental and third-
party consents specified in the Merger Agreement, including under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
and under applicable telecommunications-related statutes, rules and regulations
shall have been obtained; the accuracy of representations and warranties;
compliance with covenants; that no statute, rule, regulation, order,
stipulation or injunction shall have been enacted, promulgated, entered,
enforced or deemed applicable to the Merger; that the Merger must be a tax-free
merger of TAC with and into TresCom pursuant to Internal Revenue Code Section
368(a)(1)(A) and 368(a)(2)(E); that the Registration Statement, of which this
Joint Proxy Statement/Prospectus forms a part of, have been declared effective
by the Commission; and that the shares of Primus Common Stock to be issued in
the Merger must have been approved for quotation on Nasdaq, subject to official
notice of issuance. The waiting period applicable under the HSR Act has
terminated. Primus has applied for or has obtained all consents and approvals
required for the Merger under applicable telecommunications-related statutes,
rules and regulations.
7
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Acquisition Proposals. Neither TresCom nor any of its officers and directors
shall, and TresCom has agreed to cause its employees, agents and
representatives not to, directly or indirectly, encourage, initiate or solicit
any inquiries or the making of any Acquisition Proposal (as defined in the
Merger Agreement) or, except to the extent required for the discharge by the
TresCom Board of its fiduciary duties to the TresCom shareholders as advised in
writing by independent legal counsel, engage in any negotiations concerning, or
provide any confidential information or data to, or have any discussions with,
any person or entity relating to an Acquisition Proposal, or otherwise assist
or facilitate any effort or attempt by any person or entity (other than Primus)
to make or implement an Acquisition Proposal. TresCom and its officers and
directors agreed, and TresCom agreed to cause its employees, agents and
representatives to, immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any persons or entities conducted
with respect to any of the foregoing.
Termination. The Merger Agreement and the Merger may be abandoned as follows:
by mutual consent; if the Merger is not consummated by October 31, 1998, or if
any court order prohibiting the Merger or otherwise having a material adverse
impact on Primus's ability to own or operate TresCom as a subsidiary, or its
assets, becomes final and non-appealable; in the event a party breaches its
representations, warranties or covenants under the Merger Agreement which
breach causes a reasonable likelihood that such party will not be able to
consummate the Merger; if, without violating its obligations relating to
Acquisition Proposals, TresCom enters into an agreement with respect to an
unsolicited Acquisition Proposal after having received the written opinion from
Robinson-Humphrey to the effect that such Acquisition Proposal is more
favorable to the TresCom shareholders from a financial point of view than the
Merger, and the written opinion of independent legal counsel that approval,
acceptance and recommendation of such Acquisition Proposal is required by
fiduciary obligations to the TresCom shareholders under applicable law; if the
TresCom Board enters into or publicly announces its intention to enter into an
agreement or agreement in principle with respect to an Acquisition Proposal, or
withdraws or materially modifies its recommendation to the TresCom shareholders
that the TresCom shareholders approve the Merger Agreement; if the Merger
Agreement fails to receive the requisite shareholder approval by the TresCom
shareholders; or if the Merger Agreement fails to receive the requisite
stockholder approval by the Primus stockholders.
Under certain circumstances relating to termination involving an Acquisition
Proposal, Primus will be entitled to receive a fee from TresCom in the amount
of $5,000,000. If a termination occurs as a result of the Merger Agreement not
receiving the requisite stockholder approval by the Primus stockholders, Primus
has agreed to pay TresCom a fee in the amount of $5,000,000.
REASONS FOR THE MERGER
Primus. Primus considers TresCom to be an attractive strategic acquisition
candidate for Primus because it (i) provides accelerated entry for Primus into
the Caribbean and the Central and South American markets, (ii) expands the
scope and geographic coverage of the Primus Network (as defined below), (iii)
provides additional opportunities to migrate traffic onto the Primus Network
thereby obtaining better utilization of the Network and reducing variable
costs, (iv) provides incremental operational capabilities, (v) adds operating
agreements and direct connections to foreign telecommunication carriers, (vi)
adds experienced management and other personnel and (vii) enables the combined
Company to realize synergies in selling, general and administrative expenses.
See "The Merger--Reasons for the Merger; Recommendations--Primus."
TresCom. The TresCom Board believes that the Merger offers TresCom and its
shareholders an exceptional opportunity to participate in a combined
organization that will be a leader in the international telecommunications
industry. In reaching its unanimous decision to approve and adopt the Merger
Agreement and to recommend that TresCom's shareholders vote to approve and
adopt the Merger Agreement, the TresCom Board considered, among other things,
the following factors: (i) the opportunity for TresCom shareholders to receive
Primus Common Stock in a tax-free exchange valued at a premium over the market
price for shares of TresCom Common Stock; (ii) the opportunity for TresCom
shareholders to participate, as holders of Primus Common Stock, in a combined
enterprise which will have greater financial, technical and marketing resources
and is expected to produce a stronger competitor in the international
telecommunications industry than TresCom
8
<PAGE>
would be on a stand-alone basis; (iii) the market prices, recent trading
patterns and financial data of TresCom and Primus and the market prices, recent
trading patterns and financial data relating to other companies engaged in the
same business as TresCom; (iv) the changing regulatory environment in the
international long-distance telecommunications industry and consolidation
trends; (v) the high degree of compatibility and geographic fit of the
businesses of Primus and TresCom, which would provide the holders of TresCom
Common Stock with a significant continuing interest in the international
telecommunications industry and would continue to provide career opportunities
and employment for many of the employees of TresCom; and (vi) the potential for
operational and financial synergies as a result of the integration of the
resources of the two companies. See "The Merger--Reasons for the Merger;
Recommendations--TresCom."
OPINION OF PRIMUS FINANCIAL ADVISOR
Primus retained BT Alex. Brown Incorporated ("BT Alex. Brown") to render its
opinion as to the fairness, from a financial point of view, of the
consideration to be paid by Primus in the Merger. BT Alex. Brown provided the
Primus Board with a fairness opinion on February 3, 1998 (the "BT Alex. Brown
Opinion"), the date of the Primus Board meeting at which the execution of the
Merger Agreement by Primus was authorized and approved. BT Alex. Brown has
advised Primus that the BT Alex. Brown Opinion remains in full force and effect
after having given due consideration to the changes in the Merger consideration
effective as of April 16, 1998. The full text of the BT Alex. Brown Opinion,
which sets forth certain assumptions made, matters considered and limitations
on the review performed, is attached as Appendix B. See "The Merger--Reasons
for the Merger; Recommendations--Opinion of Primus Financial Advisor."
RECOMMENDATION OF THE PRIMUS BOARD
The Primus Board believes that the terms of the Merger are fair to and in the
best interests of Primus and its stockholders. THE PRIMUS BOARD UNANIMOUSLY HAS
APPROVED AND ADOPTED THE MERGER AGREEMENT AND HAS APPROVED THE ISSUANCE OF
PRIMUS COMMON STOCK IN CONNECTION WITH THE MERGER AND IS RECOMMENDING TO ITS
STOCKHOLDERS THAT THEY VOTE THEIR SHARES IN FAVOR OF THE PRIMUS STOCK ISSUANCE
PROPOSAL. See "The Merger--Background of the Merger," "--Reasons for the
Merger; Recommendations--Primus" and "--Interests of Certain Persons in the
Merger."
OPINION OF TRESCOM FINANCIAL ADVISOR
TresCom retained Robinson-Humphrey to render its opinion as to the fairness,
from a financial point of view, of the consideration to be received by the
TresCom shareholders in the Merger. Robinson-Humphrey provided the TresCom
Board with a fairness opinion on February 3, 1998 (the "Robinson-Humphrey
Opinion"), the date of the TresCom Board meeting at which the execution of the
Merger Agreement by TresCom was authorized and approved. The full text of the
Robinson-Humphrey Opinion, which sets forth certain assumptions made, matters
considered and limitations on the review performed, is attached as Appendix C.
See "The Merger--Reasons for the Merger; Recommendations--Opinion of TresCom
Financial Advisor."
RECOMMENDATION OF THE TRESCOM BOARD
The TresCom Board believes that the terms of the Merger are in the best
interests of TresCom and its shareholders. THE TRESCOM BOARD UNANIMOUSLY HAS
APPROVED AND ADOPTED THE MERGER AGREEMENT, HAS DETERMINED THAT THE MERGER IS IN
THE BEST INTERESTS OF TRESCOM AND ITS SHAREHOLDERS AND RECOMMENDS THAT HOLDERS
OF SHARES OF TRESCOM COMMON STOCK VOTE FOR APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT. See "The Merger--Background of the Merger," "--Reasons for the
Merger; Recommendations--TresCom" and "--Interests of Certain Persons in the
Merger."
9
<PAGE>
TRESCOM VOTING AGREEMENTS AND STOCKHOLDER AGREEMENT
Messrs. Wesley T. O'Brien and Rudolph McGlashan, directors and executive
officers of TresCom, have executed and delivered voting agreements to Primus
(the "TresCom Voting Agreements"), and Warburg, Pincus has executed and
delivered a stockholder agreement to Primus (the "Stockholder Agreement,"
collectively with the TresCom Voting Agreements, the "TresCom Shareholder
Agreements"), granting to Primus options to purchase their shares of TresCom
Common Stock at an exercise price per share of $12.00, payable in shares of
Primus Common Stock, if the Merger Agreement terminates under defined
circumstances (the "Options"). The TresCom Shareholder Agreements also require
Warburg, Pincus and Messrs. O'Brien and McGlashan, so long as the Options
remain exercisable, to vote their shares of TresCom Common Stock in favor of
the Merger and against any action or agreement which would impede, interfere
with, delay or attempt to discourage the Merger. Approximately 51% of the total
number of shares of TresCom Common Stock outstanding on the TresCom Record Date
are subject to the TresCom Shareholder Agreements. Additionally, pursuant to
the Stockholder Agreement, if the Option granted by Warburg, Pincus is
exercised, Warburg, Pincus has agreed to use its reasonable best efforts to
cause the existing Warburg, Pincus designees to the TresCom Board to resign,
and upon such resignations TresCom has agreed to use its reasonable best
efforts to restructure the TresCom Board so that designees of Primus constitute
a majority of the members of the TresCom Board. Primus also agreed, if it
exercises the Option granted by Warburg, Pincus, to offer to acquire all
outstanding shares of TresCom Common Stock not otherwise owned by Primus or its
affiliates, at the same price, and payable in shares of Primus Common Stock,
paid to Warburg, Pincus upon exercise of the Option.
The Stockholder Agreement also provides for certain demand and piggyback
registration rights in favor of Warburg, Pincus which, if exercised, would
permit Warburg, Pincus to transfer the shares of Primus Common Stock received
by it in the Merger free of the Rule 144 volume limitations (the same as non-
affiliates of TresCom) and certain tag-along rights in favor of Warburg,
Pincus, as well as Warburg, Pincus' agreement not to purchase additional Primus
capital stock or seek to influence control over Primus. Warburg, Pincus was
also granted a right to nominate an individual, reasonably acceptable to the
non-employee directors of Primus, for membership to the Primus Board so long as
Warburg, Pincus beneficially owns 10% or more of the outstanding Primus Common
Stock. Pursuant to the TresCom Voting Agreements, Primus has agreed to grant to
Messrs. O'Brien and McGlashan certain piggyback registration rights and put
rights, which are exercisable if the Options granted by Messrs. O'Brien and
McGlashan are exercised and if, in connection with such exercise, Messrs.
O'Brien and McGlashan receive shares of Primus Common Stock which are
"restricted" within the meaning of Rule 144 under the 1933 Act. See "The
Merger--The Stockholder Agreement," "--The Voting Agreements" and "--Federal
Securities Laws Consequences."
As an alternative to Primus exercising the Option granted by Warburg, Pincus,
if the Merger Agreement is terminated pursuant to certain provisions contained
therein, and, upon or following such termination, a definitive agreement is
executed by TresCom and a third party prior to or within 90 days of such
termination, and Warburg, Pincus receives cash or non-cash consideration in
respect of all or any portion of the shares of TresCom Common Stock in
connection therewith, the Stockholder Agreement provides that Warburg, Pincus
will pay over to Primus or its designee an amount equal in value to 100% of the
excess (if any) of (x) such consideration received over (y) (A) $12.00 per
share of TresCom Common Stock multiplied by (B) the number of shares of TresCom
Common Stock with respect to which Warburg, Pincus received such consideration.
PRIMUS VOTING AGREEMENTS
Messrs. K. Paul Singh and John F. DePodesta, directors and executive officers
of Primus, have executed and delivered voting agreements to TresCom (the
"Primus Voting Agreements") requiring the parties, so long as the Merger
Agreement has not been terminated in accordance with its terms, to vote their
shares of Primus Common Stock in favor of the Merger and against any action or
agreement which would impede, interfere with, delay or attempt to discourage
the Merger. Pursuant to the Primus Voting Agreements, approximately 21% of the
total number of shares of Primus Common Stock outstanding on the Primus Record
Date are subject to the Primus Voting Agreements. See "The Merger--The Voting
Agreements."
10
<PAGE>
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the TresCom Board that the TresCom
shareholders approve and adopt the Merger Agreement, TresCom shareholders
should be aware that certain directors and executive officers of TresCom have
interests in the Merger, in addition to their interests solely as shareholders
of TresCom, as described below. The TresCom Board was aware of these interests
when it considered and approved the Merger Agreement.
The Merger Agreement also provides for the exercise by Warburg, Pincus of its
warrant, dated as of October 2, 1995, to purchase up to 358,034 shares of
TresCom Common Stock (the "Warburg, Pincus Warrant") prior to the Effective
Time, all of which will be converted into shares of Primus Common Stock at the
Exchange Ratio. Additionally, pursuant to the Merger Agreement, Primus has
agreed to indemnify, defend and hold harmless the directors and officers of
TresCom, and to provide each of them with directors' and officers' liability
insurance, subject to certain limitations.
Pursuant to the Stockholder Agreement, Warburg, Pincus was granted certain
demand and piggyback registration rights relating to shares of Primus Common
Stock it receives in the Merger, which, if exercised, would permit it to
transfer such shares free of the Rule 144 volume limitations (the same as non-
affiliates of TresCom), and the right, so long as Warburg, Pincus beneficially
owns 10% or more of the outstanding Primus Common Stock, to nominate an
individual, reasonably acceptable to the non-employee directors of Primus, to
serve as a director on the Primus Board. Additionally, pursuant to the
Stockholder Agreement, Mr. Singh granted certain rights to Warburg, Pincus to
participate with him in certain sales of Primus Common Stock on the same terms
and conditions as Mr. Singh. Messrs. O'Brien and McGlashan were granted certain
piggyback registration rights and put rights with respect to restricted Primus
Common Stock they would receive upon exercise of the Options they granted to
Primus. See "--TresCom Voting Agreements and Stockholder Agreement."
On November 20, 1997, TresCom's Compensation Committee approved, and TresCom
subsequently entered into, an amendment to the Employment Agreement of Wesley
T. O'Brien, TresCom's President and Chief Executive Officer, which provided for
a special bonus in order to induce Mr. O'Brien to remain employed (i) with
TresCom while it explored various strategic alternatives and (ii) with a
corporate successor, if so desired by the successor. Subject to certain federal
tax limitations, the amount of the special bonus is $1.5 million and is payable
over the course of two years from the date the Merger is consummated; provided,
however, if the Surviving Corporation or Primus elects not to employ Mr.
O'Brien, such bonus shall be payable at the closing of the Merger. See "The
Merger--Interests of Certain Persons in the Merger," "--The Stockholder
Agreement," "--The Voting Agreements" and "--Federal Securities Laws
Consequences."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
While Primus and TresCom intend that the Merger should, under current law,
constitute a tax-free reorganization under Section 368(a)(1)(A) and Section
368(a)(2)(E) of the Code, no ruling has been sought from the Internal Revenue
Service ("IRS") and no opinion of counsel to such effect has been or will be
obtained. For a further discussion of federal income tax consequences of the
Merger, see "The Merger--Certain Federal Income Tax Consequences."
ACCOUNTING TREATMENT
The Merger is expected to be accounted for using the purchase method of
accounting. In connection with accounting for the Merger as a purchase, the
assets and liabilities of TresCom will be recorded at their fair value. The
fair value of the net assets acquired, including the allocation of goodwill and
other intangible assets, is currently being reviewed by Primus management. The
excess of the purchase price over the fair value of the net assets acquired
will be recorded as goodwill, and will be amortized over a period of 30 years.
A substantial portion of the purchase price is expected to be recorded as
goodwill. See "The Merger--Accounting Treatment" and "Unaudited Pro Forma
Financial Data."
11
<PAGE>
RESTRICTIONS ON RESALE OF PRIMUS COMMON STOCK
The shares of Primus Common Stock issuable to TresCom shareholders will have
been registered under the 1933 Act at the Effective Time. Such shares will be
freely transferable without restriction by those TresCom shareholders who are
not deemed to be "affiliates" of TresCom or Primus, as that term is defined in
the rules under the 1933 Act. Shares of Primus Common Stock received pursuant
to the Merger by those TresCom shareholders who are deemed to be affiliates of
TresCom or Primus may be resold without registration under the 1933 Act as
permitted by Rule 145 under the 1933 Act or otherwise as permitted under the
1933 Act. Notwithstanding the foregoing, Warburg, Pincus has been granted
certain demand and piggyback registration rights which, if exercised, would
permit it to sell shares of Primus Common Stock received by it in the Merger
free of the Rule 144 volume limitations the same as non-affiliates of TresCom.
See "The Merger--The Stockholder Agreement" and "--Federal Securities Laws
Consequences."
ABSENCE OF DISSENTERS' RIGHTS
TresCom shareholders will not be entitled to dissenters' rights as a result
of the Merger. Under Florida law, dissenters' rights are unavailable to holders
of TresCom Common Stock because TresCom Common Stock was, on the TresCom Record
Date, designated and quoted for trading as a Nasdaq security. See "The TresCom
Special Meeting--Absence of Dissenters' Rights."
COMPARISON OF SHAREHOLDER AND STOCKHOLDER RIGHTS
The rights of shareholders of TresCom are governed by the FBCA and by
TresCom's Articles of Incorporation and By-laws. Upon conversion of TresCom
Common Stock into Primus Common Stock, the rights of the former holders of
TresCom Common Stock who receive Primus Common Stock will be governed by the
DGCL and by the Amended and Restated Certificate of Incorporation of Primus
(the "Primus Certificate of Incorporation" or "Primus Certificate") and the
Primus Bylaws. See "Comparative Rights of Common Shareholders" for a summary of
certain differences between the rights of the holders of TresCom Common Stock
and Primus Common Stock.
THE COMPANIES
Primus Primus, is a facilities-based global telecommunications company that
offers international and domestic long-distance telecommunication services to
business and residential customers, as well as to other carriers. Primus is
capitalizing on the increasing demand for international telecommunications
services resulting from the globalization of the world's economies and the
worldwide trend toward deregulation. Primus has targeted North America, Asia-
Pacific, Europe and, most recently, with the pending Merger with TresCom, the
Caribbean and Central and South America, as its service regions. Primus
currently provides services in the United States, Canada, Mexico, Australia,
Japan and the United Kingdom. Primus expects to continue to expand into
additional countries as worldwide deregulation continues and Primus is
permitted to offer a full range of switched public telephone services in those
countries.
Primus is implementing a global intelligent network (the "Network") and, to
further finance the development of the Network, has announced that it proposes
to make an offering of Senior Notes due 2008 (the "New Notes") which will not
be registered under the 1933 Act (the "Proposed Note Offering"), and which may
not be offered or sold absent registration or an exemption from the
registration requirements of the 1933 Act. Primus expects that the Proposed
Note Offering will result in net proceeds to Primus of approximately $150
million which would be available to fund the buildout of the Network. This
Joint Proxy Statement/Prospectus shall not be construed as an offer to sell, or
a solicitation of an offer to buy, any of the New Notes. The completion of the
Merger is not conditioned upon the completion of the Proposed Note Offering and
the Proposed Note Offering is not conditioned upon the completion of the
Merger. Primus believes that the continued strategic development of its Network
will lead to reduced transmission and other operating costs as a percentage of
net revenue and reduced reliance on other carriers. The Network consists of
international and domestic switches and points of presence, and a combination
of owned undersea fiber optic cable, leased facilities, resale arrangements and
correspondent agreements.
12
<PAGE>
Primus targets, on a retail basis, small- and medium-sized businesses and
ethnic residential customers with significant international long-distance
traffic and, on a wholesale basis, other telecommunications carriers and
resellers with international traffic. Primus provides a broad array of
competitively priced telecommunications services, including international long
distance, domestic long distance, international and domestic private networks,
reorigination services, prepaid and calling cards and toll-free services, as
well as local and cellular services in Australia. Primus markets its services
through a variety of channels, including direct sales, independent agents and
direct marketing.
Primus's objective is to become a leading global provider of international
and domestic long-distance, voice, data and value-added services. Key elements
of Primus's strategy include: focusing on customers with significant
international long-distance usage; pursuing early entry into selected
deregulating markets; implementing its Network; delivering quality services at
competitive prices; providing a variety of services; and growing through
selected acquisitions.
Primus's principal executive offices are located at 1700 Old Meadow Road,
McLean, Virginia 22102, telephone number (703) 902-2800.
TresCom. TresCom is a facilities-based long-distance telecommunications
carrier focused on international long-distance traffic. TresCom offers a broad
array of competitively priced services, including long distance, calling cards,
prepaid debit cards, domestic and international toll-free calling, frame relay
and bilingual operator services. TresCom provides long-distance service to
approximately 230 countries and territories through an international network
consisting of: (i) owned facilities, concentrated in a Caribbean hub linking
the United States, the Caribbean and South and Central America; (ii) direct
operating and transit agreements with various post, telegraph and telephone
organizations and foreign telecommunications administrations; and (iii) leased
capacity.
TresCom markets its services on a wholesale basis to other telecommunications
carriers and resellers and on a retail basis to residential and commercial
customers, ranging in size from small businesses to Fortune 500 companies. To
take advantage of the benefits associated with its network, TresCom targets its
United States mainland sales and marketing efforts towards customers with
significant southbound international long-distance traffic. These customers
include businesses with sales or operations in the Caribbean, South and Central
America and Mexico, as well as the rapidly growing Hispanic population in the
United States. During 1997, TresCom further increased its sales and marketing
efforts directed towards residential and commercial customers, while
maintaining its carrier and reseller customer base. In emerging markets in
Central and South America, TresCom has teamed up with local agents and expects
to generate international traffic originating from those markets. As part of
TresCom's marketing activities, TresCom has entered into joint marketing and
promotional arrangements with certain other companies, including Coca-Cola,
Shell Oil Company, Seagrams, Walgreens Drug Stores, Papa John's Pizza and
Spec's Music pursuant to which such companies have agreed to market their
products or services with those of TresCom.
TresCom was formed in December 1993 and acquired The St. Thomas and San Juan
Telephone Company, Inc., a United States Virgin Island and Puerto Rico based
long-distance carrier, in February 1994. TresCom has experienced significant
growth through a combination of internal growth and acquisitions, including the
November 1994 acquisition of Total Telecommunications, Inc., which was a Fort
Lauderdale based inter-exchange carrier. TresCom's principal executive offices
are located at 200 East Broward Boulevard, Fort Lauderdale, Florida 33301,
telephone number (954) 763-4000.
TAC. TAC, a newly formed Florida corporation, all of the issued and
outstanding common stock of which is owned by Primus, has not conducted any
substantial business to date other than entering into the Merger Agreement. As
a result of the Merger, TAC will merge with and into TresCom and its separate
existence shall cease. See "The Companies--Business of TAC."
13
<PAGE>
Comparative Market Prices and Dividends. The Primus Common Stock commenced
trading on Nasdaq on November 7, 1996 under the symbol "PRTL." Prior to that
date there was no established public trading market for the Primus Common
Stock. On February 3, 1998, the date immediately prior to the public
announcement of the transactions contemplated by the Merger Agreement, the last
reported sale price of the Primus Common Stock on Nasdaq was $20 per share. The
last reported sale price of the Primus Common Stock on Nasdaq on April 30,
1998, the most recent practicable trading day prior to the date of this Joint
Proxy Statement/Prospectus, was $23.875 per share. Primus has not paid any cash
dividends on the Primus Common Stock to date. The payment of dividends, if any,
in the future is within the discretion of the Primus Board and will depend on
the Company's earnings, its capital requirements and financial condition, and
may be restricted by credit arrangements entered into by the Company. It is the
present intention of the Primus Board to retain all earnings, if any, for use
in the Company's business operations and accordingly, the Primus Board does not
expect to declare or pay any dividends in the foreseeable future. Additionally,
the indenture (the "Indenture") governing its $225,000,000 of senior notes due
in 2004 (the "Senior Notes") contains covenants which limit the ability of
Primus to pay dividends on Primus Common Stock. Primus is not currently
permitted to pay dividends under the Indenture.
TresCom Common Stock commenced trading on Nasdaq on February 8, 1996 under
the symbol "TRES." Prior to that date there was no established public trading
market for TresCom Common Stock. On February 3, 1998, the date immediately
prior to the public announcement of the transactions contemplated by the Merger
Agreement, the last reported sale price of TresCom Common Stock on Nasdaq was
$8.625 per share. The last reported sale price of TresCom Common Stock on
Nasdaq on April 30, 1998, the most recent practicable trading day prior to the
date of this Joint Proxy Statement/Prospectus, was $11.1875 per share. TresCom
has not paid any dividends on TresCom Common Stock to date.
Comparative Per Share Data. The table below sets forth historical per share
data of Primus and TresCom and pro forma combined per share data as if the
Merger and the acquisition of Telepassport/USFI (the "Telepassport/USFI
Acquisition") had been completed on January 1, 1997. The pro forma combined
information in the following table is based upon the historical financial
statements of Primus and TresCom, and is unaudited. The pro forma combined
information is presented for comparison purposes only and is not intended to
predict Primus's actual operating results and financial position following
completion of the Merger. Neither Primus nor TresCom has ever paid any cash
dividends.
<TABLE>
<CAPTION>
AT OR FOR
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
HISTORICAL:
Per Share of Primus Common Stock:
Book value....................................................... $ 2.16
Basic and diluted net loss....................................... $(1.99)
Per Share of TresCom Common Stock:
Book value....................................................... $ 4.87
Basic and diluted net loss....................................... $(0.91)
PRO FORMA COMBINED(1):
Book value....................................................... $ 7.77
Basic and diluted net loss....................................... $(2.55)
</TABLE>
14
<PAGE>
SELECTED HISTORICAL AND PRO FORMA COMBINED FINANCIAL DATA (IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRIMUS TRESCOM COMBINED(1)
------------------ ------------------ ------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------------ ------------------ ------------
1997 1996 1997 1996 1997
-------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue............... $280,197 $172,972 $157,641 $139,621 $448,929
Cost of revenue........... 252,731 158,845 124,365 106,928 387,453
-------- -------- -------- -------- --------
Gross margin............ 27,466 14,127 33,276 32,693 61,476
-------- -------- -------- -------- --------
Operating expenses:
Selling, general and
administrative.......... 50,622 20,114 36,386 30,808 95,420
Depreciation and
amortization............ 6,733 2,164 6,599 4,928 20,230
-------- -------- -------- -------- --------
Total operating
expenses............... 57,355 22,278 42,985 35,736 115,650
-------- -------- -------- -------- --------
Loss from operations...... (29,889) (8,151) (9,709) (3,043) (54,174)
-------- -------- -------- -------- --------
Net loss.................. $(36,239) $ (8,764) $(10,855) $ (5,577) $(61,068)
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
PRO
PRIMUS TRESCOM FORMA(1)
-------- -------- --------
AS AT DECEMBER 31,1997
--------------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $115,232 $ 1,481 $101,068
Restricted investments............................ $ 73,550 $ -- $ 73,550
Total asssets..................................... $358,013 $108,429 $545,934
Long-term obligations (including current por-
tion)............................................ $231,211 $ 20,691 $236,257
Stockholders' equity.............................. $ 42,526 $ 58,950 $196,613
</TABLE>
- --------
(1) Pro Forma combined statement of operations data gives effect to the Merger
and the Telepassport/USFI Acquisition as if they occurred on January 1,
1997, and the balance sheet data gives effect to the Merger as if it
occurred on December 31, 1997. See "Unaudited Pro Forma Financial Data."
15
<PAGE>
RISK FACTORS
THE EFFECT OF STOCK PRICE FLUCTUATIONS ON THE CONSIDERATION TO BE RECEIVED BY
THE HOLDERS OF TRESCOM COMMON STOCK IN THE MERGER
The Exchange Ratio has not been fixed and will be determined at the
Effective Time based on the Weighted Average Sales Price of Primus Common
Stock. Thus, the actual number of shares of Primus Common Stock to be received
by holders of TresCom Common Stock in the Merger will not be determined until
the Effective Time, and may be more or less than the actual number of shares
of Primus Common Stock which they would have received if the Merger was
completed as of the date of the Robinson-Humphrey Opinion, the date of
execution of the Merger Agreement, the date of the Joint Proxy
Statement/Prospectus or the date on which the TresCom shareholders vote on the
Merger Agreement. In addition, although the value of Primus Common Stock to be
issued in exchange for each share of TresCom Common Stock will, under all
circumstances, be $12.00 based on the Weighted Average Sales Price, the value
of Primus Common Stock to be issued as derived by applying the Exchange Ratio
to the price of Primus Common Stock at the Effective Time may be more or less
than $12.00 per share. The Effective Time is anticipated to be June 9, 1998,
three business days after the Primus Meeting and the TresCom Special Meeting,
or as soon as practicable thereafter. The Primus Common Stock has historically
traded over a wide range on Nasdaq. Since commencing public trading, the high
and low sales prices for the Primus Common Stock have been $7.125 (during the
third quarter of 1997) and $31.25 (during the first quarter of 1998),
respectively.
Shareholders should also note that, since the Exchange Ratio will not be
calculated until the Effective Time, possible delays in receiving regulatory
approvals or in satisfying other conditions to consummation of the Merger may
result in the market value of shares of Primus Common Stock that holders of
TresCom Common Stock will receive upon consummation of the Merger varying
significantly from the market value of the shares of Primus Common Stock that
holders of TresCom Common Stock would receive if the Merger were consummated
on the date of this Joint Proxy Statement/Prospectus or the date of the
TresCom Special Meeting. See "The Merger--The Merger Agreement--Merger
Consideration" and "--Exchange of Certificates; Exchange Agent."
INTEGRATION OF PRIMUS AND TRESCOM
Achieving the anticipated benefits of the Merger will depend in part upon
whether the integration of the two companies' businesses is accomplished in an
efficient and effective manner, and there can be no assurance as to the extent
that this will occur, if at all. The combination of the two companies will
require, among other things, integration of the companies' respective
services, technologies, management information systems, distribution channels
and key personnel, and the coordination of their sales, marketing and
development efforts. There can be no assurance that such integration will be
accomplished smoothly or successfully, if at all. If significant difficulties
are encountered in the integration of the existing services or technologies or
the development of new services and technologies, resources could be diverted
from new service development, and delays in new service introductions could
occur. There can be no assurance that the combined Company will be able to
take full advantage of the combined sales forces' efforts. The integration of
operations and technologies following the Merger will require the dedication
of management and other personnel which may distract their attention from the
day-to-day business of the combined Company, the development or acquisition of
new technologies and the pursuit of other business acquisition opportunities.
Failure to successfully accomplish the integration and development of the two
companies' operations and technologies could have a material adverse effect on
the combined Company's business, financial condition and results of
operations. In addition, as commonly occurs with mergers of telecommunications
companies, during the pre-merger and integration phases, aggressive
competitors may undertake initiatives to attract customers through various
incentives which could have a material adverse effect on the business, results
of operations or financial conditions of Primus, TresCom and/or the combined
Company. See "--Acquisition Risks," "Incorporation of Certain Documents by
Reference" and "The Companies--Business of TresCom."
SUBSTANTIAL INDEBTEDNESS AND LIQUIDITY
The Company will have substantial indebtedness after the Merger. As of
December 31, 1997, on a pro forma basis after giving effect to the Merger and
the Telepassport/USFI Acquisition, the Company's total indebtedness would have
been approximately $236.3 million, its stockholders' equity would have been
approximately $196.6 million and its total assets would have been
approximately $545.9 million, of which approximately $170.4
16
<PAGE>
million would have been intangible assets. For the year ended December 31,
1997, after giving pro forma effect to the Merger and the Telepassport/USFI
Acquisition, the Company's consolidated EBITDA would have been approximately
negative $33.9 million. The Indenture limits, but does not prohibit, the
incurrence of additional indebtedness by the Company and certain of its
subsidiaries, including TresCom after completion of the Merger, 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. As the first
step in meeting its financing needs for the expansion of its Network, Primus
has announced that it proposes to make an offering of New Notes which will not
have been registered under the 1933 Act, and which may not be offered or sold
absent registration or an exemption from the registration requirements of the
1933 Act. See "--Need For Additional Financing."
The level of the Company's indebtedness could have important consequences,
including the following: (i) the debt service requirements of any additional
indebtedness could make it more difficult for it to make payments of interest
on its outstanding debt; (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. 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 delay or preclude payments of interest or
principal thereon and may cause the Primus Common Stock to have little or no
value. See "Incorporation of Certain Documents by Reference" and "The
Companies--Business of TresCom--Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
HISTORICAL AND FUTURE OPERATING LOSSES; NEGATIVE EBITDA; NET LOSSES
Since inception through December 31, 1997, Primus had negative cash flow
from operating activities of $40.4 million. In addition, Primus incurred net
losses in 1995, 1996 and 1997, of $2.4 million, $8.8 million and $36.2
million, respectively, and had an accumulated deficit of approximately $48.0
million as of December 31, 1997. On a pro forma basis, after giving effect to
the Merger and the Telepassport/USFI Acquisition, for the year ended December
31, 1997, the Company would have had a net loss of $61.1 million. Although
Primus has experienced net revenue growth in each of its last 12 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 it expands
its operations and continues to build-out and upgrade its Network. There can
be no assurance that the Company's net revenue will grow or be sustained in
future periods or that it will be able to achieve or sustain profitability or
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 and may cause the Primus Common Stock to have little or no value.
See "Incorporation of Certain Documents by Reference" and "The Companies--
Business of TresCom--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
LIMITED OPERATING HISTORY; ENTRY INTO DEVELOPING MARKETS
Primus was founded in February 1994 and began generating operating revenues
in March 1995. Axicorp Pty Ltd. ("Axicorp"), Primus's principal operating
subsidiary, was acquired in March 1996. In addition, the
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Company intends to enter markets where it has limited or no operating
experience such as, with the completion of the Merger, the Caribbean and
Central and South America. Furthermore, in many of the Company's target
markets, it intends to offer services that have previously been provided
primarily by the local post telephone and telegraph companies ("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
"Incorporation of Certain Documents by Reference," "The Companies--Business of
TresCom--General" and "--Management's Discussion and Analysis of Financial
Condition and Results of Operations."
DEVELOPMENT OF THE NETWORK; MIGRATION OF TRAFFIC ONTO 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 its management 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 it
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. Any failure 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 it 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 "Incorporation of Certain
Documents by Reference," "The Companies--Business of TresCom--General" and "--
Management's Discussion and Analysis of Financial Condition 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 its management,
operational and financial resources, and increased demands on its systems and
controls. The Company is continuing to develop its Network by adding switches
and fiber optic cable, expanding its operations within North America,
Australia and the United Kingdom, and when business and/or regulatory
conditions warrant, expanding into selected additional markets such as, with
the completion of the Merger, the Caribbean and Central and South America. 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 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 at the rate presently planned, 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 its 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 have a
material adverse effect on the Company's business, results of operations or
financial condition. See "--Dependence on Effective Information Systems."
ACQUISITION AND STRATEGIC INVESTMENT RISKS
A key element of the Company's business strategy is to acquire businesses
and assets of businesses such as TresCom, or to make strategic investments in
businesses that are complementary to those of Primus, and a major portion of
Primus's growth in recent years has resulted from such acquisitions. These
acquisitions and strategic investments involve certain operational and
financial risks. Operational risks include the possibility that an acquisition
does not ultimately provide the benefits originally anticipated by management
and the difficulty of integrating the service offerings and distribution
channels related to strategic investments, while the Company
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continues to incur operating expenses to provide the services 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, such as the Primus Common Stock to be issued to TresCom
shareholders in the Merger, dilutes the voting power and may dilute certain
other interests of existing shareholders. In carrying out its acquisition and
strategic investment strategy, Primus 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 such strategic investments and
acquisitions. There can be no assurance that the Company will be successful in
identifying attractive acquisition and strategic investment candidates,
completing and financing additional strategic investments and acquisitions on
favorable terms or integrating any acquired businesses or assets into its own.
NEED FOR ADDITIONAL FINANCING
In connection with the Merger, Primus expects to repay certain existing
indebtedness of TresCom, fund transaction costs incurred in connection with
the Merger and fund the other operating requirements of the combined
operations which have not heretofore been anticipated. Primus believes that
upon completion of the Merger it would have sufficient cash and cash
equivalents and available capital lease financing to fund its operating
losses, debt service requirements, capital expenditures (including the
development of the Network as previously contemplated) and other cash needs
for its operations until such time as the Company begins to generate positive
cash (however, this is a forward looking statement and there can be no
assurance in this regard). Additionally, as a result of the Merger, the
Company expects to further expand its Network, particularly as countries in
the Caribbean and Central and South America experience deregulation. Such
expansion may include additions to the existing TresCom network as well as
additions to the Primus Network. In order to fund its cash requirements,
including the expansion of the combined Network, Primus anticipates that it
will be required to raise a significant amount of cash in excess of its
existing cash and cash equivalents. As the first step in meeting its financing
needs for the expansion of its Network, Primus has announced that it proposes
to make an offering of New Notes which will not have been registered under the
1993 Act, and which may not be offered or sold absent registration or an
exemption from the registration requirements of the 1993 Act. This Proposed
Note Offering is expected to result in net proceeds to Primus of approximately
$144 million which would be available to fund the buildout of its Network.
This Joint Proxy Statement/Prospectus shall not be construed as an offer to
sell, or a solicitation of an offer to buy, any of the New Notes. There can be
no assurance that the Company will be able to complete the Proposed Note
Offering on commercially reasonable terms or at all. The Merger is not
conditioned upon the completion of the Proposed Note Offering.
In addition to the Proposed Note Offering, the Company expects to raise
additional capital from public or private equity or debt sources to meet its
new financing needs. The Indenture contains, and the indenture related to the
Proposed Note Offering is expected to contain, certain restrictive covenants
that will affect, and in many respects will significantly limit or prohibit,
among other things, the Company's ability to incur additional indebtedness and
to create liens. 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 additional 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 Primus Common
Stock issued in connection with the Merger 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 Primus 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, it may be required to reduce the scope of its expansion,
which could adversely affect its business, results of operations or financial
condition, its ability to compete, its ability to meet its obligations on
indebtedness, and the value of the Primus Common Stock issued in connection
with the Merger. Additionally, 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 its operations or if it experiences unexpected costs or
competitive pressures, or if existing cash and any other
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borrowings prove to be insufficient, the Company may need to seek additional
capital sooner than anticipated. See "--Historical and Future Operating
Losses; Negative EBITDA; Net Losses." See "Incorporation of Certain Documents
by Reference" and "The Companies--Business of TresCom--Management's Discussion
and Analysis of Financial Condition and Results of Operations."
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, customers can switch carriers at any time. Primus
believes that 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. 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, larger
networks, a broader portfolio of services and control transmission lines, have
stronger name recognition and loyalty, and maintain 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. Primus's
competitors include, among others: AT&T, MCI, Sprint, WorldCom Network
Services, Inc. ("WorldCom"), Frontier Communications Services, Inc., Pacific
Gateway Exchange, Inc., Qwest Communications Intl., Inc. and LCI
International, Inc. in the United States; Telstra, Optus Communications Pty.
Limited, AAPT, World Exchange and GlobalOne in Australia; British
Telecommunications plc, Mercury Communications, AT&T, WorldCom, GlobalOne, and
ACC Corporation ("ACC") in the United Kingdom; and Stentor, AT&T Canada Long
Distance Services Co., fONOROLA Inc., Sprint Canada and ACC in Canada.
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 its
business, results of operations or financial condition.
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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 its business is dependent upon whether it continues to
maintain favorable relationships with the transmission facilities-based
carriers from which it leases transmission lines. Although the Company
believes that its relationships with carriers generally are satisfactory, the
deterioration or termination of its relationships with one or more of these
carriers could have a material adverse effect upon its cost structure, service
quality, Network diversity, results of operations or financial condition.
Presently, most transmission lines used by Primus are obtained on a per-call
(or usage) basis, subjecting Primus to the possibility of unanticipated price
increases and service cancellations. Currently, usage rates generally are less
than the rates Primus 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 or results of operations. See "--Potential Adverse Effects of
Regulation," "Incorporation of Certain Documents by Reference" and "The
Companies--Business of TresCom--General."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
A key component of the Company's strategy is its planned expansion in
international markets such as those covered by TresCom. 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 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, and potentially adverse tax consequences resulting from
operating in multiple jurisdictions with different tax laws, which could have
a material adverse impact on 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
its 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,
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consequently, on its business, results of operations or financial condition,
or that the Company will not have to modify its business practices.
DEPENDENCE ON EFFECTIVE INFORMATION SYSTEMS
To complete its billing, Primus must record and process massive amounts of
data quickly and accurately. While Primus believes its management information
system is currently adequate, it will have to grow as its business expands and
to change as new technological developments occur. Primus 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. Any such delay or other
malfunction of the Company's management information systems could have a
material adverse effect on its business, financial condition or results of
operations.
Primus is reviewing its computer systems and operations to identify and
determine the extent to which any systems will be vulnerable to potential
errors and failures as a result of the "Year 2000" problem. The Year 2000
problem is the result of computer programs being written using two digits,
rather than four digits, to define the applicable year. Any of Primus's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations. The management of each operating unit within
Primus is responsible for identifying systems requiring modification or
conversion (both internal systems and those provided by or otherwise available
from outside vendors) and for periodically reporting its progress toward
meeting milestones toward compliance. TresCom has determined that it will need
to modify or replace significant portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
beyond. The majority of the software which needs to be replaced by TresCom is
under license from third party software manufacturers who have indicated that
they will provide the necessary upgrades. There can be no assurance that any
such upgrades will be successfully implemented or that additional steps will
not be necessary. A failure of Primus's computer systems or the failure of
Primus's vendors or customers to effectively upgrade their software and
systems for transition to the year 2000 could have a material adverse effect
on Primus's business and financial condition or results of operations. See
"Incorporation of Certain Documents by Reference" and "The Companies--Business
of TresCom--Management's Discussion and Analysis of 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 Primus and TresCom. 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."
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EFFECTS OF NATURAL DISASTERS
Areas in which the Company conducts its business may be affected by natural
disasters (including hurricanes and tropical storms) as evidenced by Hurricane
Marilyn, which struck certain Caribbean islands, including St. Thomas and
Puerto Rico, in September 1995. The occurrence of future hurricanes, tropical
storms and other natural disasters could have a material adverse effect on the
Company's business resulting from damage to the Company's network facilities
or from curtailed telephone traffic resulting from effects of such events,
such as destruction of homes and businesses.
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. Primus
has entered into an employment agreement with Mr. Singh, which expires on May
30, 1999. The Company does not intend to 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-United States 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 its results of operations, development efforts and ability
to expand.
POTENTIAL ADVERSE EFFECTS OF REGULATION
As a multinational telecommunications company, the Company 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
are 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 United States market to increased competition. There can be no
assurance that future regulatory, judicial or 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 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
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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, 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 United States 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 it. 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 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 and
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 or 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").
24
<PAGE>
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, it 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.
As a licensed carrier, the Company 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.
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 Primus, 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 or financial
condition.
Other Jurisdictions. Primus intends to expand its operations into other
jurisdictions as such markets deregulate and Primus 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 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 it 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
its business, results of operations or financial condition.
25
<PAGE>
CONTROL OF PRIMUS
After completion of the Merger, assuming an Exchange Ratio of 0.461
(calculated as of the latest practicable date before the printing of this
Joint Proxy Statement/Prospectus) the executive officers and directors of
Primus will continue to beneficially own 5,608,586 shares of Primus Common
Stock, representing 27.2% of the Primus Common Stock, including options to
purchase 847,913 shares of Primus Common Stock. The executive officers and
directors have also been granted additional unvested options to purchase an
758,721 shares of Primus Common Stock. Of these amounts, Mr. K. Paul Singh,
Primus's Chairman and Chief Executive Officer beneficially owns 4,611,406
shares of Primus Common Stock, including options to purchase 225,400 shares of
Primus Common Stock which are exercisable on or prior to June 20, 1998. In
addition, Mr. Singh has also been granted options to purchase an additional
212,700 shares which become exercisable after June 20, 1998. The
Soros/Chatterjee Group beneficially owns 2,808,940 shares of Primus Common
Stock. 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 Primus, amendments to Primus's
charter, other fundamental corporate transactions such as mergers, asset sales
and the sale of Primus, and otherwise the direction of Primus's business and
affairs. See "Security Ownership of Certain Beneficial Owners and Management
of Primus" and "The Companies--Business of TresCom--Security Ownership of
Certain Beneficial Owners and Management."
DEVELOPMENT AND MAINTENANCE OF PUBLIC MARKET FOR COMMON STOCK; POSSIBLE
VOLATILITY OF STOCK PRICE
Primus completed its Initial Public Offering of Primus Common Stock on
November 7, 1996, prior to which there had been no public market for the
Primus Common Stock. There can be no assurance that an active trading market
for the Primus Common Stock 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 Primus Common Stock could
be subject to significant fluctuations in response to various factors and
events, including the liquidity of the market for the Primus 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.
ANTI-TAKEOVER PROVISIONS
Primus's Certificate of Incorporation and Amended and Restated By-Laws in
effect after the Merger (the "By-Laws") include certain provisions which may
have the effect of delaying, deterring or preventing a future takeover or
change in control of Primus unless such takeover or change in control is
approved by the Primus Board. Such provisions may also render the removal of
directors and management more difficult. Specifically, the 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, the Primus Board 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
Primus 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 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 Primus. Primus has
no present intention to issue such additional shares of Preferred Stock.
In addition, Primus is subject to the anti-takeover provisions of Section
203 of the DGCL, which will prohibit it 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
26
<PAGE>
delaying or preventing a change in control of Primus. Furthermore, certain
provisions of Primus's By-Laws, including provisions that provide that the
exact number of directors shall be determined by a majority of the Primus
Board, that vacancies on the Primus Board 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
Primus, and which could adversely affect the market price of Primus Common
Stock. Additionally, certain federal regulations require prior approval of
certain transfers of control which could also have the effect of delaying or
preventing a change in control. Any change in control may require Primus to
extend an offer to redeem certain indebtedness.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of shares of Primus Common Stock in the public
market, or even the potential for such sales, could adversely affect the
prevailing market price of the Primus Common Stock and impair Primus's ability
to raise capital through the sale of equity securities. See "Security
Ownership of Certain Beneficial Owners and Management of Primus."
27
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma condensed consolidated financial
statements are based on the historical presentation of the consolidated
financial statements of Primus and TresCom, and incorporate the effects of the
October 20, 1997 Telepassport/USFI Acquisition by Primus. The Unaudited Pro
Forma Consolidated Statement of Operations for the year ended December 31,
1997 gives effect to the Merger and the Telepassport/USFI Acquisition as if
they occurred on January 1, 1997. The Unaudited Pro Forma Consolidated Balance
Sheet as of December 31, 1997 gives effect to the Merger as if it had occurred
on December 31, 1997. The unaudited pro forma consolidated financial
statements should be read in conjunction with (i) the historical financial
statements, including the notes thereto, of TresCom included in this Joint
Proxy Statement/Prospectus, (ii) the historical financial statements of Primus
included as part of its Annual Report on Form 10-K for the year ended December
31, 1997, a copy of which is being delivered with this Joint Proxy
Statement/Prospectus, and (iii) the historical financial statements, including
the notes thereto, of Telepassport and USFI, included in Primus's Current
Report on Form 8-K dated November 3, 1997, as amended on January 5, 1998 and
January 7, 1998, and incorporated into the Registration Statement of which
this Joint Proxy Statement/Prospectus forms a part. See "Incorporation of
Certain Documents by Reference" and "Available Information."
The Merger is expected to be accounted for using the purchase method of
accounting. In the unaudited pro forma consolidated balance sheet, the total
purchase price of TresCom has been allocated to tangible and intangible assets
and liabilities based upon Primus's preliminary estimate of their respective
fair values, with the excess of purchase price over the fair value of net
assets acquired allocated to goodwill. See "The Merger--Accounting Treatment."
The unaudited pro forma condensed consolidated financial statements may not
be indicative of the results that actually would have occurred if the
transactions had been in effect on the dates indicated or which may be
obtained in the future.
28
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
--------------------------------------
PRIMUS USFI, TRESCOM USFI
TELECOMMUNICATIONS INC. TELEPASSPORT INTERNATIONAL, TELEPASSPORT TRESCOM
GROUP, INCORPORATED (1) L.L.C. (1) INC. ADJUSTMENTS ADJUSTMENTS COMBINED
------------------- ------- ------------ -------------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue............. $280,197 $27,040 $3,108 $157,641 $(9,673)(3) $(4,159)(5) $448,929
(5,225)(6)
Cost of revenue......... 252,731 20,907 2,704 124,365 (8,029)(3) (5,225)(6) 387,453
-------- ------- ------ -------- ------- ------- --------
Gross margin............ 27,466 6,133 404 33,276 (1,644) (4,159) 61,476
Operating expenses:
Selling, general and
administrative........ 50,622 11,182 1,389 36,386 (4,159)(5) 95,420
Depreciation and
amortization.......... 6,733 674 74 6,599 409 (2) (2,167)(7) 20,230
8,031 (8)
(123)(9)
-------- ------- ------ -------- ------- ------- --------
Total operating
expenses............. 57,355 11,856 1,463 42,985 409 1,582 115,650
-------- ------- ------ -------- ------- ------- --------
Loss from operations.... (29,889) (5,723) (1,059) (9,709) (2,053) (5,741) (54,174)
Interest expense........ (12,914) (18) (1,146) 433 (10) (13,645)
Interest income......... 6,238 6,238
Other income (expense).. 407 25 162 594
-------- ------- ------ -------- ------- ------- --------
Loss before income
taxes.................. (36,158) (5,698) (915) (10,855) (2,053) (5,308) (60,987)
Income taxes............ (81) -- -- -- -- (4) -- (11) (81)
-------- ------- ------ -------- ------- ------- --------
Net Loss................ $(36,239) $(5,698) $ (915) $(10,855) $(2,053) $(5,308) $(61,068)
======== ======= ====== ======== ======= ======= ========
Basic and diluted net
loss per share......... $ (1.99) $ (2.55)
======== ========
Wtd. avg. shares
outstanding............ 18,250 5,653 (12) 23,903
======== ======= ========
</TABLE>
(1) Represents the historical results of operations of USFI, Inc. and
Telepassport L.L.C. for the period from January 1, 1997 through Primus's
acquisition on October 20, 1997.
USFI/Telepassport adjustments:
(2) To record amortization expense associated with acquired customer list and
the excess of purchase price over the fair value of net assets acquired.
(3) To eliminate selected net revenue and cost of revenue for a portion of
the existing customer base which was not purchased by Primus.
(4) 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.
TresCom adjustments:
(5) To reflect the reclassification of TresCom's bad debt costs from selling,
general and administrative expense to a reduction of net revenue to
conform to Primus' accounting policies.
(6) To eliminate the effects of intercompany transactions between Primus and
TresCom.
(7) To reverse amortization expense associated with TresCom's previously
acquired customer list and the excess of purchase price over the fair
value of net assets acquired.
(8) To record amortization expense associated with acquired customer list and
the excess of purchase price over the fair value of net assets acquired.
(9) To reflect reduction in amortization of deferred financing costs
resulting from the expected repayment of TresCom's credit line in
connection with the acquisition.
(10) To reflect reduction in interest expense related to the expected
repayment of TresCom's credit line in connection with the acquisition.
(11) 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.
(12) To reflect the issuance of Primus Common Stock in exchange for the
outstanding shares of TresCom Common Stock based upon an assumed
exchange ratio of 0.461.
29
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRIMUS PRO FORMA
TELECOMMUNICATIONS TRESCOM -----------------------
GROUP, INTERNATIONAL, TRESCOM
INCORPORATED INC. ADJUSTMENTS COMBINED
------------------ -------------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash
Equivalents.......... $115,232 $ 1,481 $(15,645)(1) $101,068
Restricted
investments.......... 22,774 -- -- 22,774
Accounts receivable,
net ................. 58,172 31,743 -- 89,915
Prepaid expenses and
other current
assets............... 5,152 2,406 -- 7,558
-------- -------- -------- --------
Total current
assets............. 201,330 35,630 (15,645) 221,315
RESTRICTED INVESTMENTS.. 50,776 -- -- 50,776
PROPERTY AND EQUIPMENT--
Net.................... 59,241 29,672 -- 88,913
INTANGIBLES--Net........ 33,164 42,100 95,137 (2) 170,401
DEFERRED INCOME TAXES... 2,620 -- -- 2,620
OTHER ASSETS............ 10,882 1,027 -- 11,909
-------- -------- -------- --------
TOTAL ASSETS............ $358,013 $108,429 $ 79,492 $545,934
======== ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable...... $ 56,358 $ 20,734 $ -- $ 77,092
Accrued expenses,
interest and other
current liabilities.. 23,484 8,054 -- 31,538
Deferred income
taxes................ 4,434 -- -- 4,434
Current portion of
long-term
obligations.......... 1,059 1,098 -- 2,157
-------- -------- -------- --------
Total current
liabilities........ 85,335 29,886 -- 115,221
LONG-TERM OBLIGATIONS 230,152 19,593 (15,645)(1) 234,100
-------- -------- -------- --------
Total liabilities... 315,487 49,479 (15,645) 349,321
-------- -------- -------- --------
COMMITMENTS AND
CONTINGENCIES
TOTAL STOCKHOLDERS'
EQUITY................. 42,526 58,950 95,137 (3) 196,613
-------- -------- -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY... $358,013 $108,429 $ 79,492 $545,934
======== ======== ======== ========
</TABLE>
Adjustments to the Unaudited Pro Forma Consolidated Balance Sheet as of
December 31, 1997 are as follows:
(1) To reflect the expected repayment of TresCom's credit line.
(2) To reflect the elimination of TresCom's intangibles and to establish
intangibles for customer list and excess of purchase price over the fair
value of net asset acquired.
(3) To eliminate the equity of TresCom, to reflect the issuance of Primus
Common Stock based upon an assumed exchange ratio of 0.461 and to reflect
the fair value of outstanding Trescom stock options.
30
<PAGE>
THE PRIMUS MEETING
GENERAL
The Primus Meeting will be held on June 4, 1998, at 10:00 a.m. local time,
at The Sheraton Premier, Tysons Corner, 8661 Leesburg Pike, Vienna, VA 22182.
At such meeting, Primus stockholders will be asked (i) to approve the Primus
Stock Issuance Proposal, (ii) to vote upon the election of nominees to serve
as directors of Primus until the 2001 Annual Meeting of Stockholders or until
their successors are elected and qualify, (iii) to amend the Primus
Certificate of Incorporation to increase the number of authorized shares of
Primus Common Stock from 40,000,000 to 80,000,000, and (iv) to vote upon such
other business as may properly come before the Primus Meeting, or any
adjournment or postponement thereof. The Primus Board knows of no business
that will be presented for consideration at the Primus Meeting other than the
matters described in this Joint Proxy Statement/Prospectus.
RECORD DATE; VOTING RIGHTS; PROXIES; QUORUM
The date for the determination of the holders of record of the Primus Common
Stock entitled to notice of and to vote at the Meeting is April 27, 1998.
Accordingly, only holders of record of shares of Primus Common Stock as of the
close of business on the Primus Record Date will be entitled to notice of and
to vote at the Primus Meeting. As of the Primus Record Date, there were
outstanding 19,823,951 shares of Primus Common Stock entitled to vote which
were held by 171 holders of record. Each holder of record of shares of Primus
Common Stock on the Primus Record Date is entitled to cast one vote per share
on each proposal properly submitted for the vote of Primus's stockholders,
either in person or by properly executed proxy, at the Primus Meeting. The
presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Primus Common Stock entitled to vote at
the Primus Meeting is necessary to constitute a quorum at the Primus Meeting.
Pursuant to the DGCL and the Primus Certificate of Incorporation, the Primus
Stock Issuance Proposal must be approved by the holders of a majority of the
issued and outstanding shares of the Primus Common Stock entitled to vote at
the Primus Meeting, present in person or represented by proxy. Primus
stockholders are not entitled to cumulative voting in the election of
directors. Directors are elected by the affirmative votes of a plurality of
the votes of shares entitled to vote, present in person or represented by
proxy, and votes may be cast in favor of or withheld from any director
nominee. The amendment to the Primus Certificate of Incorporation to increase
the number of authorized shares of Primus Common Stock requires the
affirmative vote of the holders of a majority of the shares entitled to vote,
present in person or represented by proxy.
Abstentions, votes withheld and broker non-votes are counted in determining
whether a quorum is present.
Abstentions with respect to the Primus Stock Issuance Proposal and proposal to
amend the Primus Certificate of Incorporation will have the same effect as
votes against such proposals because approval of such proposals requires a
vote in favor thereof by a majority of the votes entitled to be cast by
stockholders at the Primus Meeting. Similarly, if a broker indicates on a
proxy that it does not have discretionary authority as to certain shares to
vote on a particular matter, those shares will be considered as present and
entitled to vote for quorum purposes but will have the effect of votes against
the matters presented.
IF NO INSTRUCTIONS ARE GIVEN ON A PROPERLY EXECUTED AND RETURNED PROXY, THE
SHARES OF PRIMUS COMMON STOCK REPRESENTED THEREBY WILL BE VOTED IN FAVOR OF
THE PRIMUS STOCK ISSUANCE PROPOSAL, IN FAVOR OF THE ELECTION OF MR. JOHN
PUENTE AS A DIRECTOR AND IN FAVOR OF AMENDING THE PRIMUS CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF PRIMUS COMMON
STOCK FROM 40,000,000 TO 80,000,000.
PROXY SOLICITATION
The cost of solicitation of proxies by the Primus Board will be borne by
Primus. Proxies may be solicited by mail, personal interview, telephone or
telegraph and, in addition, directors, officers and regular employees of
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<PAGE>
Primus may solicit proxies by such methods without additional remuneration.
Primus has retained StockTrans, Inc., its transfer agent, to aid in its
solicitation of proxies and to verify certain records related to the
solicitation at a fee of approximately $3,500 plus expenses. Banks, brokerage
houses and other institutions, nominees or fiduciaries will be requested to
forward the proxy materials to beneficial owners in order to solicit
authorizations for the execution of proxies. Primus will, upon request,
reimburse such banks, brokerage houses and other institutions, nominees and
fiduciaries for their expenses in forwarding such proxy materials to the
beneficial owners of the Primus Common Stock.
THE TRESCOM SPECIAL MEETING
TIME, PLACE AND PURPOSE OF THE TRESCOM SPECIAL MEETING
At the TresCom Special Meeting, the shareholders of TresCom will consider
and vote upon a proposal to approve and adopt the Merger Agreement providing
for the merger of TAC with and into TresCom. This Joint Proxy
Statement/Prospectus is being furnished to TresCom shareholders in connection
with the solicitation by the TresCom Board of proxies for use at the Special
Meeting to be held at The Hyatt Regency Pier 66, 2301 S.E. 17th Street
Causeway, Fort Lauderdale, Florida, on June 4, 1998, at 10:00 a.m., local
time.
THE TRESCOM BOARD UNANIMOUSLY HAS APPROVED AND ADOPTED THE MERGER AGREEMENT,
HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF TRESCOM AND ITS
SHAREHOLDERS AND RECOMMENDS THAT HOLDERS OF TRESCOM COMMON STOCK VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. See "The Merger--Background of
the Merger," "--Reasons for the Merger; Recommendations--TresCom" and "--
Interests of Certain Persons in the Merger."
The Primus Board has approved the Merger Agreement and the issuance of
Primus Common Stock in the Merger, and the Board of Directors of TAC, and
Primus, as the sole shareholder of TAC, have respectively adopted and approved
the Merger Agreement.
RECORD DATE; VOTING RIGHTS; PROXIES
The TresCom Board has fixed the close of business on April 27, 1998 as the
TresCom Record Date for determining holders entitled to notice of and to vote
at the TresCom Special Meeting. Only holders of record of shares of TresCom
Common Stock on the TresCom Record Date are entitled to notice of and to vote
at the TresCom Special Meeting.
As of the TresCom Record Date, there were 12,262,075 shares of TresCom
Common Stock issued and outstanding, each of which entitles its holder to one
vote. All shares of TresCom Common Stock represented by properly executed
proxies will, unless such proxies have been previously revoked, be voted in
accordance with the instructions indicated in such proxies. IF NO INSTRUCTIONS
ARE INDICATED, SUCH SHARES OF TRESCOM COMMON STOCK WILL BE VOTED IN FAVOR OF
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. A shareholder who has given a
proxy may revoke it at any time prior to its exercise by (i) giving written
notice of revocation to the Secretary of TresCom, (ii) signing and returning a
later-dated proxy or (iii) voting in person at the TresCom Special Meeting.
However, mere attendance at the TresCom Special Meeting will not in and of
itself have the effect of revoking a proxy. All written notices of revocation
of proxies should be addressed as follows: TresCom International, Inc., 200
East Broward Boulevard, Fort Lauderdale, Florida 33301, Attention: Angelina
Spoto.
Votes cast by proxy or in person at the TresCom Special Meeting will be
tabulated by the election inspector appointed for the TresCom Special Meeting,
who will determine whether or not a quorum is present. The election inspector
will treat abstentions as shares that are present and entitled to vote for
purposes of determining the presence of a quorum, but because the affirmative
vote of a majority of the outstanding shares of TresCom Common Stock is
required to approve and adopt the Merger Agreement, abstentions will have the
effect of votes
32
<PAGE>
against the Merger Agreement. Similarly, if a broker indicates on a proxy that
it does not have discretionary authority as to certain shares to vote on a
particular matter, those shares will be considered as present and entitled to
vote for quorum purposes but will have the effect of votes against the matters
presented.
If the TresCom Special Meeting is adjourned or postponed for any reason,
when the TresCom Special Meeting is reconvened or convened, all proxies will
be voted in the same manner as such proxies would have been voted at the
original convening of the meeting (except for any proxies which have
theretofore effectively been revoked or withdrawn), notwithstanding that they
may have been effectively voted on the same or any other matter at a previous
meeting.
PROXY SOLICITATION
TresCom will bear its own costs and expenses for the solicitation of
proxies. Banks, brokerage houses and other institutions, nominees or
fiduciaries will be requested to forward the proxy materials to the beneficial
owners of the TresCom Common Stock held of record by such persons and entities
and will be reimbursed for their reasonable out-of-pocket expenses incurred in
connection with forwarding such material.
TresCom has retained Corporate Investor Communications, Inc. to aid in the
solicitation of proxies and to verify certain records related to the
solicitation at a fee of $4,000 plus expenses. To the extent necessary in
order to ensure sufficient representation at the TresCom Special Meeting,
TresCom may request by telephone, telegram or otherwise the return of proxy
cards. The extent to which this will be necessary depends entirely upon how
promptly proxy cards are returned. Shareholders are urged to send in their
proxies without delay.
QUORUM; REQUIRED VOTE
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of TresCom Common Stock as of
the TresCom Record Date is necessary to constitute a quorum at the TresCom
Special Meeting.
The approval and adoption of the Merger Agreement requires the affirmative
vote of the holders of a majority of the issued and outstanding shares of
TresCom Common Stock. As of the TresCom Record Date, directors and executive
officers of TresCom and their affiliates held 6,212,461 shares, or
approximately 51%, of the issued and outstanding TresCom Common Stock.
Warburg, Pincus Investors, L.P. and certain directors and executive officers
of TresCom who presently own, in the aggregate, approximately 51% of the
outstanding shares of TresCom Common Stock have irrevocably agreed to vote
such shares in favor of the Merger, and have granted to Primus options to
purchase their shares of TresCom Common Stock at an exercise price per share
of $12.00, payable in shares of Primus Common Stock, if the Merger Agreement
terminates under defined circumstances.
ABSENCE OF DISSENTERS' RIGHTS
TresCom shareholders will not be entitled to dissenters' rights as a result
of the Merger. Under Florida law, dissenters' rights are unavailable to
holders of TresCom Common Stock because the TresCom Common Stock was, on the
TresCom Record Date, designated and quoted for trading as a Nasdaq security.
1998 ANNUAL MEETING OF SHAREHOLDERS
TresCom will hold a 1998 Annual Meeting of Shareholders only if the Merger
is not consummated.
THE MATTERS TO BE CONSIDERED AT THE TRESCOM SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE SHAREHOLDERS OF TRESCOM. ACCORDINGLY, TRESCOM SHAREHOLDERS
ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS
JOINT PROXY STATEMENT/PROSPECTUS AND TO COMPLETE, DATE, SIGN AND PROMPTLY
RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
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THE MERGER
BACKGROUND OF THE MERGER
In March 1997, Primus became aware that TresCom was considering various
strategic alternatives, including a merger, sale or other business combination
transaction. Management of Primus expressed interest in learning more about
TresCom to Robinson-Humphrey, TresCom's financial advisor. On March 21, 1997,
the parties executed a reciprocal confidentiality agreement.
On April 2, 1997, Messrs. K. Paul Singh and Wesley T. O'Brien, the
respective Chief Executive Officers of Primus and TresCom, met at the Primus
executive offices in Vienna, Virginia to discuss generally the possibility of
combining the operations of the two companies. Also present at the meeting
were Mark Dunkel, a representative of Robinson-Humphrey, and Neil Hazard, the
Chief Financial Officer of Primus. Messrs. Singh, O'Brien and Hazard met in
New York City on April 9, 1997 to continue their discussions. The meeting
concluded with an arrangement for representatives of both Primus and Lehman
Brothers, Inc. ("Lehman") which, at the time, was serving as the financial
advisor to Primus, to visit the TresCom executive offices in Fort Lauderdale,
Florida to begin due diligence.
On April 15, 1997, a meeting was held at the TresCom executive offices at
which time TresCom executives made presentations to representatives of Primus
concerning its business and operations. In attendance were Messrs. O'Brien,
Rudolph McGlashan, William Paquin, Daniel O'Connor, Edward Hamilton, Ariel
Musibay, Joseph Oster, Michael Rejbeni and Ms. Denise Boerger of TresCom, and
Messrs. Hazard, Yousef Javadi, George Mattos and Jay Rosenblatt of Primus.
On April 20, 1997, Mr. O'Brien met Mr. Singh and John DePodesta, a member of
the Primus Board, in Alexandria, Virginia at Mr. DePodesta's house. During
this meeting the parties continued their discussions concerning the business
and operations of TresCom and the potential synergies between the two
companies. Thereafter, on April 22, 1997, Mr. Singh and Mr. DePodesta met for
breakfast with Mr. O'Brien, as well as Messrs. Douglas Karp and Edward Johnson
from Warburg, Pincus. At this meeting, the parties continued to discuss a
possible business combination of the two companies, although no specific
proposals were set forth, as well as Warburg, Pincus' future role, if any,
with Primus should a transaction between the two companies be consummated. On
April 30, 1997, Messrs. O'Brien, Singh and DePodesta met for lunch in New York
City and continued the discussions from the breakfast meeting at the Warburg,
Pincus offices.
On May 6, 1997, Mr. Hazard visited the offices of Kelley Drye & Warren LLP
("Kelley Drye"), outside counsel to TresCom, to review various documents and
agreements relating to the business and operations of TresCom which had been
assembled and made available to all persons expressing interest in a
transaction. Throughout May 1997, Primus continued to evaluate a possible
transaction with TresCom, as well as other strategic alternatives to grow its
business. Thereafter, on May 23, 1997, Primus formally terminated discussions
involving a business combination transaction with TresCom. On July 30, 1997,
Primus completed the sale of $225,000,000 of Senior Notes and related warrants
to purchase Primus Common Stock in a registered public offering.
From late May until October 1997, there were no contacts between or among
Primus and TresCom or their representatives regarding a potential business
combination. On October 14, 1997, Mr. O'Brien met with Messrs. Singh,
DePodesta and Javadi over dinner, advising Primus that an exclusivity
agreement which TresCom had entered into with another potential purchaser had
expired. During that meeting, Mr. O'Brien inquired whether Primus would be
interested in restarting discussions concerning a business combination between
the two companies. Mr. Singh indicated that such a transaction between the two
companies was possible, but no specific proposals were made at that meeting by
either party.
On October 15, 1997, Messrs. O'Brien, Singh, Javadi and Hazard met at the
Primus executive offices in Vienna, Virginia and continued general
discussions. At the end of that meeting, it was agreed that representatives of
Primus would visit with representatives of TresCom at TresCom's offices in
Fort Lauderdale, Florida to
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continue due diligence. This due diligence meeting occurred on October 19,
1997 and was attended by Mr. Hazard of Primus and Messrs. Musibay, Oster and
Paquin, and Ms. Boerger, of TresCom.
On October 23, 1997, Messrs. Hazard and Singh of Primus, Scott Wieler of BT
Alex. Brown, the financial advisor to Primus, and James Epstein of Pepper
Hamilton LLP ("Pepper Hamilton"), outside counsel to Primus, participated in a
conference call in which various possible transaction structures were
discussed, including the structure of the purchase price. At the conclusion of
that discussion, an offer was made by Primus to purchase TresCom for $11.00
per share in cash. The offer was contingent upon satisfactory completion of
due diligence, negotiation of definitive documentation and the approval of the
Primus Board. The offer was delivered to TresCom on October 23, 1997 with the
understanding that Primus would complete its due diligence promptly.
On October 25, 1997, a first draft of the Merger Agreement was delivered by
Kelley Drye to Primus, Pepper Hamilton and BT Alex. Brown. Also included was a
draft voting agreement between Primus and Warburg, Pincus pursuant to which,
among other things, Warburg, Pincus would agree to vote its shares of TresCom
Stock in favor of the proposed transaction so long as the contemplated Merger
Agreement had not been terminated in accordance with its terms.
On October 26, 1997, Messrs. Singh, Javadi and John Melick of Primus visited
TresCom to continue due diligence. On October 28, 1997, a conference call
among Messrs. Singh, DePodesta, Wieler, O'Brien and Dunkel was held in which
the participants discussed the Primus offer in more detail, as well as
TresCom's anticipated financial results for the third and fourth quarters of
1997. No agreements were reached during that call, but on the basis of the
progress made, Mr. Singh authorized Mr. Epstein to distribute to TresCom and
its advisors, comments to their proposed Merger Agreement and voting
agreement.
Various due diligence meetings continued through the end of October 1997.
Representatives of Primus, BT Alex. Brown and Pepper Hamilton visited the
TresCom offices to review documents and continue business discussions with
representatives of TresCom and Robinson-Humphrey. During this period,
representatives of both Pepper Hamilton and Kelley Drye engaged in preliminary
discussions regarding the legal structure of the transaction and the terms and
conditions of the definitive documents. On the basis of the due diligence,
however, Primus determined that it was not prepared to proceed with the
acquisition of TresCom at $11.00 per share in cash and this was communicated
by Mr. Wieler to representatives of TresCom, Warburg, Pincus and Robinson-
Humphrey in subsequent conversations during the week of November 17, 1997.
On January 9, 1998, Mr. Dunkel contacted Mr. Wieler to inquire whether
Primus had any interest in restarting the discussions. Later that day, Mr.
Wieler and Kenneth Jacquin of BT Alex. Brown met with Messrs. Singh, DePodesta
and Hazard at Primus, with Mr. Epstein participating by telephone, to discuss
the inquiry which came from Mr. Dunkel. On the basis of that meeting, Mr.
O'Brien was invited to come to Primus's offices on Sunday, January 11, 1998.
At that meeting, Mr. O'Brien met Messrs. Singh and DePodesta and the parties
discussed restarting the discussions. At that meeting, Mr. Singh indicated a
willingness to do so, but stated that any transaction would be at a price
lower than the $11.00 per share which was previously offered. At the end of
that meeting, Messrs. Singh and DePodesta presented to Mr. O'Brien an offer to
purchase TresCom at $8.00 per share, payable in Primus Common Stock. The offer
was contingent upon satisfactory completion of due diligence, negotiation of
definitive documentation and the approval of the Primus Board. Thereafter,
Pepper Hamilton delivered to the working group revised transaction documents
to reflect the offer proposed by Mr. Singh at the January 11, 1998 meeting,
including a revised draft of the Merger Agreement, a draft of the Stockholder
Agreement and a draft of the TresCom Voting Agreements.
On January 12, 1998, a telephonic meeting of the Primus Board was held at
which time Mr. Singh advised that discussions had been restarted between the
two companies and that Primus had made an offer to acquire TresCom for $8.00
per share payable in Primus Common Stock, subject to satisfactory completion
of due diligence, negotiation of definitive documentation and the approval of
the Primus Board. The Primus Board authorized Mr. Singh to continue the
discussions and to report back to it before proceeding.
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From January 13, 1998 through January 27, 1998, the parties continued their
respective due diligence of one another, with representatives of Primus and BT
Alex. Brown meeting with representatives of TresCom and Robinson-Humphrey. In
addition, representatives of Kelley Drye performed due diligence with respect
to Primus at Primus's offices. During the same period, Mr. Epstein
participated in several telephone conferences with Mr. John Capetta of Kelley
Drye concerning the structure of the purchase price to be paid, including
elements relating to a collar, the structure, terms and conditions of the
definitive documentation, and the rights and obligations of Warburg, Pincus,
including Warburg, Pincus' agreement to vote its shares of TresCom Common
Stock in favor of the Merger.
From January 27, 1998 through January 31, 1998, separate discussions
concerning the pricing terms and the terms of Warburg, Pincus' voting
arrangements were had between Mr. Singh on behalf of Primus, Mr. O'Brien on
behalf of TresCom and Mr. Karp on behalf of Warburg, Pincus. During the course
of these discussions, the participants generally discussed raising the per
share offer price to a valuation for the TresCom Common Stock of approximately
$10.00 per share, however, there were no commitments made by representatives
of TresCom or by representatives of Primus that either party was then willing
to proceed on that basis. There also remained substantive differences in how
to structure the purchase price, including any collar to be used in
calculating the purchase price.
On January 29, 1998, Kelley Drye delivered to Pepper Hamilton a mark-up of
the proposed definitive documents reflecting TresCom's comments to the Pepper
Hamilton draft agreements. On January 31, 1998, the TresCom Board met by
telephone at which time Mr. O'Brien advised the TresCom Board as to the
progress being made. At that meeting, Mr. O'Brien was authorized to continue
discussions with Primus and to provide daily updates to the TresCom Board.
Daily updates were made by telephone on both February 1 and 2, 1998. An
informational meeting of the Primus Board was held on February 1, 1998, at
which time Mr. Singh provided the Primus Board with an update of the
discussions. Mr. Singh was authorized to continue discussions but again to
report back to the Primus Board before proceeding.
Throughout February 1, 2 and 3, 1998, several telephone conversations
between Messrs. Wieler and Epstein, on behalf of Primus, and Messrs. Dunkel,
Karp and Capetta, on behalf of TresCom and Warburg, Pincus were held. Also
participating in certain of these conversations were representatives of
Willkie Farr & Gallagher, counsel to Warburg, Pincus. It was during the last
of these discussions on February 3, that the parties agreed upon a $10.00 per
share valuation for the TresCom Common Stock, the structure of the purchase
price (including the terms of the collar), the terms and conditions of the
Stockholder Agreement, and the terms of the various voting agreements to be
executed by Messrs. Singh, DePodesta, O'Brien and McGlashan.
On the evening of February 3, 1998, the Primus Board and the TresCom Board
each met and unanimously approved the Merger Agreement in substantially the
forms presented to them. At the meeting of the Primus Board, BT Alex. Brown
delivered its oral opinion, which was later confirmed in writing, that the
consideration to be paid by Primus was fair to Primus from a financial point
of view. At the meeting of the TresCom Board, Robinson-Humphrey delivered its
oral and written opinion that the consideration to be received by the TresCom
shareholders was fair from a financial point of view. Throughout the night,
representatives of Pepper Hamilton, on behalf of Primus, representatives of
Kelley Drye, on behalf of TresCom, and representatives of Willkie Farr &
Gallagher, on behalf of Warburg, Pincus, finalized the various agreements, all
of which were promptly executed. A public announcement of the transaction
occurred on the morning of February 4, 1998, prior to the opening of trading
on Nasdaq.
After the public announcement of the Merger, TresCom received unsolicited
indications of interest from IDT Corporation that, subject to satisfactory due
diligence, negotiation of satisfactory transaction agreements and certain
other conditions, it would be prepared to purchase all of the outstanding
TresCom Common Stock.
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On April 10, 1998, Mr. Singh indicated to Mr. O'Brien in a telephone
conversation that Primus might be willing to increase its offer if Primus
received certain rights from Warburg, Pincus and certain executive officers of
TresCom in exchange therefor.
On April 14, 1998, Mr. Karp met with Mr. Singh during which meeting, Primus
offered to increase the consideration to be received by TresCom shareholders
in exchange for the grant by Warburg, Pincus and Messrs. O'Brien and McGlashan
to Primus of an irrevocable option to purchase all TresCom Common Stock owned
by them and an extension of the irrevocable proxy to vote all TresCom Common
Stock owned by them while such Options remain exercisable. During the course
of those discussions, Mr. Karp and Mr. Singh agreed to an increase of the
consideration to $12.00 per share of Trescom Common Stock. Thereafter the
revised transaction structure was presented to the Primus Board and the
TresCom Board, each of which consulted with its financial advisors and outside
counsel, and was also presented to Messrs. O'Brien and McGlashan. The
respective boards of directors having approved the revised transaction
structure, representatives of Pepper Hamilton, Kelley Drye and Willkie Farr &
Gallagher negotiated and finalized the amendments to the existing Merger
Agreement, Stockholder Agreement and TresCom Voting Agreements, all of which
were executed by the various parties on April 16, 1998. A public announcement
of the revised transaction structure occurred on the morning of April 17,
1998, prior to the opening of trading on Nasdaq.
REASONS FOR THE MERGER; RECOMMENDATIONS
Primus. Primus believes that the acquisition of TresCom will result in
long-term stockholder value for Primus stockholders by (i) providing
accelerated entry for Primus into the Caribbean and the Central and South
American markets, (ii) expanding the scope and geographic coverage of the
Primus Network, (iii) providing additional opportunities to migrate traffic
onto the Primus Network thereby obtaining better utilization of the Network
and reducing variable costs, (iv) providing incremental operational
capabilities, (v) adding operating agreements and direct connections to
foreign telecommunication carriers, (vi) adding experienced management and
other personnel and (vii) enabling the combined Company to realize synergies
in selling, general and administrative expenses.
The Primus Board has unanimously approved the Merger Agreement. In reaching
its decision, the Primus Board considered, among other things, the following
factors: (i) the business, operations, financial condition and operating
results of Primus and TresCom; (ii) the belief that the Merger facilitates
Primus's strategic objectives, including its objective of providing global
long-distance services in those parts of the world with significant
international traffic involving calls to and from the United States; (iii) the
presentations by Primus's management and its financial advisor, BT Alex.
Brown, with respect to the global telecommunications industry generally,
Primus's strategic objectives and growth strategies, and the strategic fit of
TresCom with its own strategic objectives and growth strategies, including the
geographic compatibility of the two companies; (iv) the opinion of BT Alex.
Brown as to the fairness, from a financial point of view, of the consideration
to be paid by Primus in the Merger; (v) the structure of the transaction and
the terms of the Merger Agreement; (vi) the belief that the Merger will allow
Primus and TresCom to combine their strengths and to enjoy certain operational
and financial synergies in operations; and (vii) the opportunity for Primus
stockholders to participate in a larger, more diversified company.
The foregoing discussion of the information and factors considered and given
weight by the Primus Board is not intended to be exhaustive. In view of the
variety of factors considered in connection with its evaluation of the Merger,
the Primus Board did not find it practicable to and did not quantify or
otherwise assign relative weights to the specific factors considered in
reaching its determination. In addition, individual members of the Primus
Board may have given different weights to different factors.
THE PRIMUS BOARD HAS UNANIMOUSLY APPROVED AND ADOPTED THE MERGER AGREEMENT
AND HAS APPROVED THE ISSUANCE OF PRIMUS COMMON STOCK IN CONNECTION WITH THE
MERGER AND IS RECOMMENDING TO ITS STOCKHOLDERS THAT THEY VOTE THEIR SHARES IN
FAVOR OF THE PRIMUS STOCK ISSUANCE PROPOSAL.
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Opinion of Primus Financial Advisor. The Primus Board retained BT Alex.
Brown as of October 23, 1997 as their exclusive financial advisor in
connection with its consideration of the Merger. BT Alex. Brown rendered its
opinion to the Primus Board as to the fairness, from a financial point of
view, of the consideration to be paid by Primus pursuant to the Merger.
At the February 3, 1998 meeting of the Primus Board, representatives of BT
Alex. Brown made a presentation with respect to the then draft Merger
Agreement and rendered to the Primus Board its oral opinion, confirmed in
writing as of February 3, 1998 after reviewing the final Merger Agreement,
that, as of such date, and subject to the assumptions made, matters
considered, scope of review undertaken and procedures followed as set forth in
such opinion and summarized below, the consideration to be paid by Primus
pursuant to the Merger Agreement was fair, from a financial point of view, to
Primus. No limitations were imposed by the Primus Board upon BT Alex. Brown
with respect to the investigations made or procedures followed by it in
rendering its opinion.
The full text of BT Alex. Brown's written opinion dated February 3, 1998
(the "BT Alex. Brown Opinion") which set forth, among other things, the
assumptions made, matters considered, the scope of the review undertaken and
procedures followed by BT Alex. Brown in rendering such opinion is attached
hereto as Appendix B and is incorporated herein by reference. Primus urges its
stockholders to read the BT Alex. Brown Opinion in its entirety. The summary
of the BT Alex. Brown Opinion set forth in this Joint Proxy
Statement/Prospectus is qualified in its entirety by reference to the full
text of such opinion letter. BT Alex. Brown has consented to the inclusion of
its opinion letter in this Joint Proxy Statement/Prospectus. The BT Alex.
Brown Opinion is directed only to the fairness, from a financial point of
view, of the consideration to be paid by Primus pursuant to the Merger. The BT
Alex. Brown Opinion is based on market, economic and other conditions as they
existed and could be evaluated as of February 3, 1998, and is based on the
structure of the Merger as of February 3, 1998. BT Alex. Brown did not make
any independent evaluation or make or seek to obtain an appraisal of the
assets of Primus or TresCom, nor was BT Alex. Brown furnished with any such
evaluation or appraisal. BT Alex. Brown was not asked to consider, nor did it
express any opinion with respect to, the fairness of any other transaction.
The BT Alex. Brown Opinion does not constitute a recommendation by BT Alex.
Brown to any stockholder as to how such stockholder should vote at the Primus
Meeting or the TresCom Special Meeting.
It should be understood that, although subsequent developments may affect
the BT Alex. Brown Opinion, Primus's obligation to consummate the Merger is
not conditioned upon an update of the BT Alex. Brown Opinion. All information
and analyses considered by BT Alex. Brown in rendering the BT Alex. Brown
Opinion, and presented to the Primus Board, were as of February 3, 1998. BT
Alex. Brown has advised Primus that the BT Alex. Brown Opinion remains in full
force and effect after having given due consideration to the changes in the
Merger consideration effective as of April 16, 1998.
BT Alex. Brown was selected and retained by Primus to render its opinion to
the Primus Board and will receive a fee for its services. BT Alex. Brown was
selected on the basis of its expertise, including its knowledge of the
telecommunications business and its reputation. As part of its advisory and
investment banking business, BT Alex. Brown is regularly engaged in the
valuation of businesses and their securities for corporate, estate and other
purposes.
In connection with the BT Alex. Brown Opinion, BT Alex. Brown reviewed and
analyzed, among other things, (i) certain publicly available information
concerning Primus, including the final Prospectus dated November 7, 1996 for
its initial public offering, the final prospectus dated July 30, 1997 for its
offering of Senior Notes and the Annual Report on Form 10-K of Primus for the
year ended December 31, 1996; (ii) the quarterly report on Form 10-Q of Primus
for the three and nine month periods ended September 30, 1997; (iii) certain
publicly available information concerning TresCom, including the final
Prospectus dated February 8, 1996 for its initial public offering and the
Annual Report on Form 10-K of TresCom for the year ended December 31, 1996;
(iv) the quarterly report on Form 10-Q of TresCom for the three and nine month
periods ended September 30, 1997; (v) certain other internal information,
primarily financial in nature, including unaudited estimated financial data
for the years ending December 31, 1997 and 1998 prepared by Primus management
or TresCom management, as applicable, concerning the business and operations
of Primus or TresCom, as the case may be;
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and (vi) certain publicly available information concerning the nature and
terms of selected recent business combinations in the telecommunications
industry that BT Alex. Brown considered relevant to its inquiry. BT Alex.
Brown also performed such other studies and analyses and considered such other
factors as BT Alex. Brown deemed relevant. In addition, representatives of BT
Alex. Brown discussed with certain officers and employees of Primus and
TresCom the past and current business operations and financial condition, as
well as the prospects of Primus and TresCom and the joint prospects of the
combined Company. BT Alex. Brown also took into account its assessment of
general economic, market and financial conditions as well as its experience in
connection with similar transactions and securities valuation generally. The
BT Alex. Brown Opinion is necessarily based upon conditions as they existed
and could be evaluated as of February 3, 1998.
The BT Alex. Brown Opinion states that in the course of its review and
analysis and in arriving at said opinion, BT Alex. Brown assumed and relied
upon the accuracy and completeness of all the financial and other information
provided to BT Alex. Brown or publicly available, and did not independently
verify any such information. With respect to the information relating to
financial forecasts or projections and the prospects of Primus and TresCom, BT
Alex. Brown assumed that such information reflected the best available
estimates and judgments of the managements of Primus and TresCom as of
February 3, 1998 as to the likely future financial performance of Primus and
TresCom and the combined Company.
BT Alex. Brown determined to the best of its knowledge and in good faith,
that neither it nor any of its agents or employees has a material financial
interest in Primus or TresCom.
The following is a summary of the material factors considered and principal
financial analyses performed by BT Alex. Brown in connection with the
rendering of the BT Alex. Brown Opinion.
CONTRIBUTION ANALYSIS. BT Alex. Brown reviewed with the Primus Board the
relative contribution of each of Primus and TresCom to certain income
statement and balance sheet categories of the pro forma combined Company,
including estimated revenues, gross profit, EBITDA and after-tax cash flow.
This contribution analysis was then compared to the pro forma ownership
percentages of Primus and TresCom stockholders in the combined Company. BT
Alex. Brown observed that TresCom shareholders were expected to receive
approximately 24.2% of the relative total equity value, assuming a
transaction value of $18.69 per Primus share (the 10-day volume-weighted
average sales price per share of Primus Common Stock on Nasdaq as of
February 3, 1998). BT Alex. Brown noted that for the 12 months ended
December 31, 1997, it was estimated that Primus and TresCom would have
contributed 64.8% and 35.2%, respectively, of the combined pro forma
revenues, and 48.1% and 51.9%, respectively, of the combined pro forma
gross profit. BT Alex. Brown also noted that it was estimated that for the
12 months ending December 31, 1998, Primus and TresCom will contribute
70.8% and 29.2%, respectively, of the pro forma combined revenues, and
70.4% and 29.6%, respectively, of the pro forma combined gross profit.
Actual operating results or the financial performance achieved by the
combined Company will vary from the projected results and the variations
may be material.
ANALYSIS OF CERTAIN PUBLICLY TRADED COMPANIES. BT Alex. Brown reviewed
with the Primus Board the transaction multiples based on the proposed
transaction price and estimates provided by TresCom management, as well as
the operating data, projections and ratios of the following eight selected
publicly traded telecommunications companies: ACC Corporation; Esprit
Telecom Group, plc; IDT Corporation; Pacific Gateway Exchange, Inc.; RSL
Communications, Ltd.; Star Telecommunications, Inc.; Telegroup, Inc.; and
Viatel, Inc. To the extent available, calendar year 1997, 1998 and 1999
earnings per share estimates for the selected companies have been based on
BT Alex. Brown analysts' estimates, analysts' estimates reported by
I/B/E/S, a market research database or, in the case of RSL Communications
Ltd., on Merrill Lynch analysts' estimates. In its analysis of such
selected companies, BT Alex. Brown used the closing share prices as of
February 2, 1998. BT Alex. Brown noted that the transaction price as a
multiple of latest 12 months' ("LTM") revenues and net property, plant and
equipment ("Net PP&E") were lower than the multiples for the selected
companies. The analysis indicated that the transaction price as a multiple
of LTM revenue was 1.0x compared to a range of 1.4x to 4.8x, with a mean of
3.3x, for the selected companies. The transaction price as a multiple of
Net PP&E was 4.7x compared to a range of 5.4x to 25.9x, with a mean of
16.3x, for the selected companies. On a forward basis, the transaction
price as multiple of
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EBITDA was not meaningful in 1998 and was 23.9x for 1999 compared with a
range of 10.1x to 32.1x, with a mean of 16.3x, for the selected companies.
ANALYSIS OF SELECTED RECENT TELECOMMUNICATIONS INDUSTRY MERGERS AND
ACQUISITIONS. BT Alex. Brown reviewed with the Primus Board certain
telecommunications company acquisitions which were announced and/or
completed during 1995, 1996, 1997 and 1998 in terms of the transaction
value and the multiple of revenues to the extent such information was
publicly available. In reverse order of announcement, the transactions
considered by BT Alex. Brown were ALC Communications, Inc./Frontier
Corporation (4-10-95); Corporate Telemanagement Group. Inc./LCI
International, Inc. (5-8-95); AmeriConnect, Inc./Phoenix Network, Inc. (1-
17-96); Automated Communications, Inc./Phoenix Network, Inc. (1-18-96);
Primus Telecommunications Group, Inc./Axicorp (3-1-96); US Telecenters,
Inc./View Tech, Inc. (9-5-96); Advantis/Telco Communications Group, Inc.
(3-11-97); Matrix Telecommunications, Inc./Avtel Communications, Inc. (4-
30-97); Total World Telecommunications, Inc./Worldwide Leisure Corp. (5-21-
97); Telco Communications Group, Inc./Excel Communications, Inc. (6-6-97);
L.D. Services, Inc./Star Telecommunications, Inc. (9-3-97); USLD
Communications Corp./LCI International, Inc. (9-18-97); US Wats, Inc./ACC
Corp. (10-28-97); MCI Communications Corp./WorldCom, Inc. (11-10-97);
United Digital Network Inc./Star Telecommunications, Inc. (11-19-97); ACC
Corp./Teleport Communications Group Inc. (11-26-97); MIDCOM Communications
Inc./WinStar Communications Inc. (12-17-97) and Phoenix Network, Inc./Qwest
Communications Intl., Inc. (1-6-98). For such transactions, for the period
from April 1995 to January 1998, the lowest multiple of latest twelve
months ("LTM") revenue for all transactions was 0.2x, the mean average
multiple was 1.4x, the median multiple was 1.0x and the highest multiple
was 2.9x. For the Merger, for calendar 1997, the estimated multiple of LTM
revenue is 1.0x. For such transactions, the lowest multiple of Net PP&E for
all transactions was 3.0x, the mean average multiple was 10.5x, the median
multiple was 8.3x and the highest multiple was 26.1x. For the Merger, the
estimated multiple of Net PP&E was 4.7x.
EXCHANGE RATIO ANALYSIS. BT Alex. Brown compared the exchange ratio for
the Merger pursuant to the Merger Agreement and the 15% collar Exchange
Ratio pursuant to the Merger Agreement with the 30-day trailing, the 60-day
trailing, the 90-day trailing, the 180-day trailing and the daily average
exchange ratio dating back to the date of Primus's initial public offering.
BT Alex. Brown noted that the Exchange Ratio pursuant to the Merger
Agreement represented a 17.8% premium to the 30-day trailing average
exchange ratio, and represented a discount of 7.1%, 21.8%, 34.6%, and 31.3%
to the 60-day, 90-day, 180-day and daily average since Primus's initial
public offering, respectively.
PRO FORMA MERGER MODEL. BT Alex. Brown reviewed the pro forma balance
sheets and income statements of Primus and TresCom for the calendar years
ending 1998 and 1999 at various projected purchase prices of Primus Common
Stock ranging from $14.02 per share to $22.00 per share. The equity value,
enterprise value and premium to market at such prices would be $126.2
million, $161.1 million and 15.9% at all purchase price points analyzed
ranging from $15.89 to $22.00 per share of Primus Common Stock, except at
the purchase price of $14.02 per share of Primus Common Stock at which the
pro forma equity value, pro forma enterprise value and pro forma premium
would be $111 million, $145.9 million and 2.3%. BT Alex. Brown also
concluded that, assuming a Weighted Average Sales Price of between $14.02
and $22.00 per share, the Merger would be additive to Primus's pro forma
after-tax cash flow for both 1998 and 1999 by between $0.58 and $0.52, and
between $0.49 and $0.53, respectively. In reaching this conclusion, BT
Alex. Brown assumed synergies of $9.0 million per year for each of 1998 and
1999.
The summary set forth above is not a complete description of the analyses
performed by BT Alex. Brown. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances. Therefore, such opinion is not susceptible to summary
description. No company or transaction utilized as a comparison is necessarily
comparable to Primus or TresCom, or to the Merger.
No single analytical methodology used by BT Alex. Brown was critical to its
overall conclusion, as each analytical technique has its inherent strengths
and weaknesses. The nature of available information may further
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<PAGE>
affect the value of any particular methodology or technique. BT Alex. Brown's
conclusion was based upon all the analyses and factors that it considered
taken as a whole and also upon the application of BT Alex. Brown's experience
and judgment. Its conclusion involved significant elements of subjective
judgment and qualitative analyses. Accordingly, BT Alex. Brown believes that
its analyses must be considered as a whole and that to focus upon specific
portions of such analyses and factors would create an incomplete and
misleading view of the process underlying the preparation of the BT Alex.
Brown Opinion. BT Alex. Brown's analyses and opinion also were based upon the
forecasts and projections of future results which are not necessarily
indicative of actual past or future results. Estimated values do not purport
to be appraisals and do not necessarily reflect the prices at which businesses
or companies may be sold and are inherently subject to uncertainty. In
addition, the matters considered by BT Alex. Brown in arriving at its opinion
are based on numerous assumptions with respect to industry performance,
general business conditions and economic conditions and other matters, which
are beyond Primus and TresCom control. Each of the analyses may be subject to
change depending on the availability of any new information which may affect
the valuations.
BT Alex. Brown will receive a fee of $350,000 in connection with rendering
the BT Alex. Brown Opinion and will be reimbursed for all reasonable out-of-
pocket expenses it incurred in connection therewith. The terms of the fee
arrangement with BT Alex. Brown, which are customary in transactions of this
nature, were negotiated at arms length between the Primus Board and BT Alex.
Brown and, at the time it received the BT Alex. Brown Opinion, the Primus
Board was aware of such fee arrangement.
In connection with the retention of BT Alex. Brown by Primus, Primus has
agreed to indemnify BT Alex. Brown and its directors, officers, employees,
agents and stockholders against certain claims and potential liabilities to
which it or they may be subject arising out of the performance of its services
under the retention agreement between BT Alex. Brown and the Primus Board.
BT Alex. Brown also regularly publishes research reports regarding the
telecommunications industry, which may include information regarding Primus or
TresCom and other publicly owned companies in the telecommunications industry.
In its ordinary course of business, BT Alex. Brown may also actively trade the
securities of Primus and TresCom for its own account and that of its
customers, and may at any time hold a long or short position in securities of
Primus or TresCom.
TresCom. The TresCom Board believes that the Merger offers TresCom and its
shareholders an exceptional opportunity to participate in a combined
organization that will be a leader in the international telecommunications
industry. The TresCom Board unanimously has approved and adopted the Merger
Agreement, has determined that the Merger is in the best interests of TresCom
and its shareholders and recommends that holders of shares of TresCom Common
Stock vote for approval and adoption of the Merger Agreement.
At a special meeting held on February 3, 1998, the TresCom Board, with the
assistance of Robinson-Humphrey and its legal advisors, considered and
discussed the terms of the Merger and reviewed various business, financial and
legal considerations relating thereto. In reaching its unanimous decision to
approve and adopt the Merger Agreement and to recommend that TresCom's
shareholders vote to approve and adopt the Merger Agreement, the TresCom Board
considered, among other things, the following factors: (i) the opportunity for
TresCom shareholders to receive Primus Common Stock in a tax-free exchange
valued at a premium over the market price for shares of TresCom Common Stock
prevailing prior to the public announcement of the Merger; (ii) information
with respect to the financial condition, results of operations, cash flow
requirements, business and growth prospects of TresCom and Primus, on both an
historical and estimated prospective basis, and current industry, economic and
market conditions, including the financial analysis and presentations of
Robinson-Humphrey; (iii) the opportunity for TresCom shareholders to
participate, as holders of Primus Common Stock, in a combined enterprise which
will have greater financial, technical and marketing resources and is expected
to produce a stronger competitor in the international telecommunications
industry than TresCom would be on a stand-alone basis; (iv) the market prices,
recent trading patterns and financial data of TresCom and Primus and the
market prices, recent trading patterns and financial data relating to other
companies engaged
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in the same business as TresCom; (v) the changing regulatory environment in
the international long-distance telecommunications industry and consolidation
trends; (vi) the larger public float and trading volume of shares of Primus
Common Stock compared to the public float and trading volume of shares of
TresCom Common Stock, which should provide TresCom's shareholders with greater
liquidity in their investment; (vii) the high degree of compatibility and
geographic fit of the businesses of Primus and TresCom, which would provide
the holders of TresCom Common Stock with a significant continuing interest in
the international telecommunications industry and would continue to provide
career opportunities and employment for many of the employees of TresCom;
(viii) the potential for operational and financial synergies as a result of
the integration of the resources of the two companies; (ix) the recommendation
of the management of TresCom that the Merger be approved, based in part on its
favorable view of the prospects for a strategic combination with Primus; (x)
the opinion of Robinson-Humphrey delivered to the TresCom Board on February 3,
1998 to the effect that as of such date the consideration to be received in
the Merger is fair to the holders of TresCom Common Stock from a financial
point of view (see "--Opinion of TresCom Financial Advisor"); (xi) the
structure of the transaction and the terms of the Merger Agreement, which were
the result of arms-length negotiations between TresCom and Primus; and (xii)
the alternatives to the Merger that might be available to TresCom and its
shareholders.
The foregoing discussion of the information and factors considered and given
weight by the TresCom Board is not intended to be exhaustive. With regard to
the variety of factors considered in connection with its evaluation of the
Merger, the TresCom Board found that each of the foregoing factors supported
its recommendation and conclusions, and the Board did not find it practicable
to and did not quantify or otherwise assign relative weights to the specific
factors considered in reaching its determination. In addition, individual
members of the TresCom Board may have given different weights to different
factors. For a discussion of the interests of certain members of TresCom's
management and the TresCom Board in the Merger, see "--Interests of Certain
Persons in the Merger."
THE TRESCOM BOARD UNANIMOUSLY HAS APPROVED AND ADOPTED THE MERGER AGREEMENT,
HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF TRESCOM AND ITS
SHAREHOLDERS AND RECOMMENDS THAT HOLDERS OF SHARES OF TRESCOM COMMON STOCK
VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Opinion of TresCom Financial Advisor. The TresCom Board retained Robinson-
Humphrey to act as its financial advisor and to render an opinion to the
TresCom Board as to the fairness, from a financial point of view, of the
consideration to be received by the shareholders of TresCom. Robinson-Humphrey
is an internationally recognized investment banking firm and was selected by
the TresCom Board based on Robinson-Humphrey's experience and expertise. As
part of its investment banking business, Robinson-Humphrey is regularly
engaged in the valuation of businesses and securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes.
At the February 3, 1998 meeting of the TresCom Board, Robinson-Humphrey
delivered its oral and written opinion that, based upon and subject to various
considerations, as of February 3, 1998, the consideration agreed to in the
Merger Agreement was fair to the TresCom shareholders from a financial point
of view. No limitations were imposed by the TresCom Board upon Robinson-
Humphrey with respect to the investigations made or the procedures followed by
Robinson-Humphrey in rendering its opinion. All references below to Robinson-
Humphrey's opinion refer to Robinson-Humphrey's written opinion, dated
February 3, 1998, and as of the date of this Joint Proxy Statement/Prospectus,
unless otherwise indicated.
THE FULL TEXT OF THE OPINION OF ROBINSON-HUMPHREY WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN IS
ATTACHED AS APPENDIX C TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. TRESCOM SHAREHOLDERS ARE URGED TO READ
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<PAGE>
SUCH OPINION CAREFULLY IN ITS ENTIRETY. ROBINSON-HUMPHREY'S OPINION IS
DIRECTED ONLY TO THE FAIRNESS OF THE PROPOSED EXCHANGE RATIO FROM A FINANCIAL
POINT OF VIEW AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY TRESCOM
SHAREHOLDER OR PRIMUS STOCKHOLDER AS TO HOW SUCH SHAREHOLDER SHOULD VOTE. THE
SUMMARY OF THE OPINION OF ROBINSON-HUMPHREY SET FORTH IN THIS JOINT PROXY
STATEMENT/ PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
In arriving at its opinion, Robinson-Humphrey reviewed and analyzed (i) the
Merger Agreement; (ii) publicly available information concerning TresCom and
Primus, which Robinson-Humphrey believed to be relevant to its inquiry; (iii)
financial and operating information with respect to the business operations
and prospects of TresCom and Primus furnished to Robinson-Humphrey by TresCom
and Primus; (iv) the trading histories of TresCom Common Stock and Primus
Common Stock; (v) a comparison of the historical financial results and present
financial condition of TresCom and Primus with those of other companies which
Robinson-Humphrey deemed relevant; (vi) a comparison of the financial terms of
the Merger with the financial terms of certain other transactions which
Robinson-Humphrey deemed relevant; and (vii) certain historical data relating
to percentage premiums paid in acquisitions of publicly traded companies. In
addition, Robinson-Humphrey held discussions with the management of TresCom
and the management of Primus concerning their businesses and operations,
assets, present conditions and future prospects and undertook such other
studies, analyses and investigations as Robinson-Humphrey deemed appropriate.
In connection with its review, Robinson-Humphrey relied upon the accuracy
and completeness of the financial and other information provided to it by
TresCom and Primus and did not assume any responsibility for any independent
valuation or appraisal of any of the assets or liabilities of TresCom or
Primus, nor was Robinson-Humphrey provided with any such appraisal. With
respect to financial forecasts, Robinson-Humphrey based such financial
forecasts for TresCom and Primus on forecasts supplied by the management of
TresCom and the management of Primus, respectively. Robinson-Humphrey assumed
no responsibility for and expressed no view as to such forecasts or the
assumptions on which they were based. Robinson-Humphrey did not express any
opinion about an expected price of Primus Common Stock when issued to the
holders of TresCom Common Stock pursuant to the Merger Agreement or the price
at which Primus Common Stock may trade subsequent to the Merger.
Robinson-Humphrey's opinion was necessarily based on economic, monetary,
market and other conditions as in effect on, and the information made
available to it as of, February 3, 1998. The financial markets in general and
the markets for the securities of TresCom and Primus, in particular, are
subject to volatility, and Robinson-Humphrey's opinion did not purport to
address potential developments in the financial markets or the markets for the
securities of TresCom or Primus after the date thereof. The opinion did not
address the underlying business decision of TresCom to enter into the Merger
Agreement. Robinson-Humphrey assumed that the Merger would be consummated on
the terms described in the Merger Agreement without any waiver of any material
terms or conditions by TresCom or Primus.
In connection with the preparation of its fairness opinion, Robinson-
Humphrey performed certain financial and comparative analyses, the material
portions of which are summarized below. The summary set forth below includes
the financial analyses used by Robinson-Humphrey and deemed to be material,
but does not purport to be a complete description of the analyses performed by
Robinson-Humphrey in arriving at its opinion. The preparation of a fairness
opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances, and therefore, such an opinion is not readily
susceptible to partial analysis or summary description. In addition, Robinson-
Humphrey believes that its analyses must be considered as an integrated whole,
and that selecting portions of such analyses and the factors considered by it,
without considering all of such analyses and factors, could create a
misleading or an incomplete view of the process underlying its analyses set
forth in the opinion. In performing its analyses,
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Robinson-Humphrey made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many
of which are beyond the control of TresCom or Primus. Any estimates contained
in such analyses are not necessarily indicative of actual past or future
results or values, which may be significantly more or less favorable than as
set forth therein. No public company utilized as a comparison is identical to
TresCom or Primus. An analysis of the results of such a comparison is not
mathematical; rather, it involves complex considerations and judgements
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the public trading
values of companies to which TresCom and Primus are being compared.
The following is a summary of certain analyses performed by Robinson-
Humphrey in connection with rendering its opinion. Robinson-Humphrey presented
an oral summary of the analyses discussed below at a meeting of the TresCom
Board on February 3, 1998 and provided the written analyses along with its
written opinion on such date.
COMPARABLE PUBLIC COMPANY ANALYSIS. Robinson-Humphrey compared certain
publicly available financial, operating and market valuation data for
selected public companies in the international long-distance industry to
the corresponding data for the proposed Exchange Ratio. Robinson-Humphrey
also compared certain publicly available financial, operating and market
valuation data for TresCom itself to the corresponding data for the
proposed Exchange Ratio. The public companies used by Robinson-Humphrey for
purposes of this analysis were Esprit Telecom Group PLC, IDT Corporation,
Pacific Gateway Exchange, Inc., RSL Communications, Ltd., Star
Telecommunications, Inc., Startec Global Communications Corporation,
Telegroup, Inc. and Viatel, Inc. Robinson-Humphrey evaluated, among other
things, multiples of total firm value (defined as equity market
capitalization plus net debt) to latest twelve months' revenues (which
ranged from 1.52x to 5.06x with an average of 3.03x for the comparable
group); multiples of total firm value to latest twelve months' earnings
before interest, taxes, depreciation and amortization ("EBITDA") (which
ranged from 26.4x to 87.4x with an average of 53.8x for the comparable
group); multiples of total firm value to latest quarter annualized revenues
(which ranged from 1.37x to 4.52x with an average of 2.42x for the
comparable group); multiples of total firm value to latest quarter
annualized EBITDA (which ranged from 23.6x to 50.9x with an average of
38.9x for the comparable group); and revenue growth rates from the latest
quarter over the comparable previous year quarter (which ranged from 44.7%
to 236.6% with an average of 98.2% for the comparable group). Robinson-
Humphrey then compared these multiples to the ratio of the purchase price
implied by the proposed Exchange Ratio on February 3, 1998 to TresCom's
latest twelve months' revenue, latest twelve months' EBITDA, latest quarter
annualized revenue and latest quarter annualized EBITDA. The ratio of the
total firm value implied by the proposed Exchange Ratio on February 3, 1998
to latest twelve months' revenues (0.97x) and latest quarter annualized
revenues (0.93x) represent discounts to the comparable company averages of
3.03x and 2.42x, respectively. However, the ratio of the total firm value
implied by the proposed Exchange Ratio on February 3, 1998 to latest twelve
months' revenues and latest quarter annualized revenues for Primus were
1.80x and 1.59x. In addition, TresCom's revenue growth rate from its latest
quarter over the comparable quarter the previous year was 11.5%, while
Primus's quarter over quarter growth was 40.9% and the average for the
comparable group was 98.2%. Because TresCom and Primus had negative EBITDA
for the latest twelve months as well as the latest quarter, neither company
had meaningful EBITDA multiples.
ANALYSIS OF SELECTED MERGERS AND ACQUISITIONS. Robinson-Humphrey
evaluated the financial terms of selected mergers and acquisitions in the
long-distance industry from May 4, 1994 through February 3, 1998. This
analysis included 12 such transactions, of which all had certain financial
terms and transaction multiples that Robinson-Humphrey could identify. The
analysis considered, among other things, (i) the multiples of transaction
equity value to latest twelve months' earnings (which ranged from 25.9x to
102.5x and averaged 47.0x for the comparable group); (ii) the multiples of
transaction firm value to latest twelve months' revenues (which ranged from
0.86x to 2.71x with an average of 1.96x for the comparable group) and to
latest twelve months' EBITDA (which ranged from 9.8x to 101.6x and averaged
30.8x for the comparable group); and (iii) the EBITDA margins of acquired
companies (which ranged from -0.6% to 20.7% and averaged 11.3% for the
comparable group). The ratio of the total firm value implied by the
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proposed Exchange Ratio on February 3, 1998 to latest twelve months'
revenues was 0.97x. TresCom's latest twelve months' EBITDA margin was -
0.1%. Because TresCom had negative earnings and EBITDA for the latest
twelve months, the proposed Exchange Ratio on February 3, 1998 did not
imply meaningful respective multiples.
ACQUISITION PREMIUMS ANALYSIS. Robinson-Humphrey analyzed the premiums
paid for recent mergers and acquisitions of publicly traded companies with
transaction values in the range of $100-200 million that took place between
June 30, 1997 and January 28, 1998. The average premiums paid over the
target's stock price four weeks prior to the announcement date, one week
prior to the announcement date and one day prior to the announcement date
were 36.1%, 29.4% and 23.7%, respectively. TresCom announced its intention
to pursue strategic alternatives in a press release on March 19, 1997 after
the Nasdaq market closed. Robinson-Humphrey applied the premium to
TresCom's stock price as of February 19, 1997 (four weeks prior to the
announcement of an exploration of strategic alternatives), March 12, 1997
(one week prior to the announcement of an exploration of strategic
alternatives) and March 19, 1997 (one day prior to the announcement of an
exploration of strategic alternatives). The implied per share values based
on the average percent premium paid compared to four weeks prior, one week
prior and one day prior to announcement of an exploration of strategic
alternatives applied to TresCom's stock price on the corresponding dates
listed above ranged from $7.11 to $9.87 and averaged $8.14. Robinson-
Humphrey also applied the premium to TresCom's stock price as of January 6,
1998 (four weeks prior to the proposed merger announcement), January 27,
1998 (one week prior to the proposed merger announcement) and February 3,
1998 (one day prior to the proposed merger announcement). The implied per
share values based on the average percent premium paid compared to four
weeks prior, one week prior and one day prior to the announcement date
applied to TresCom's stock price on the corresponding dates listed above
ranged from $9.87 to $11.00 and averaged $10.51.
DISCOUNTED CASH FLOW ANALYSIS. Robinson-Humphrey performed a discounted
cash flow analysis using financial projections for TresCom to estimate the
net present value of TresCom's Common Stock. Robinson-Humphrey calculated a
range of net present values of TresCom's free cash flows (defined as after
tax earnings before interest plus depreciation and amortization, less
capital expenditures and any increase in net working capital) for the years
1998 through 2002 using discount rates ranging from 14% to 18% and
calculated a range of net present values of TresCom's terminal values using
the same range of discount rates and multiples ranging from 9x to 11x
projected EBITDA for 2002. The present values of the free cash flows were
then added to the corresponding present values of the terminal values.
After deducting TresCom's net debt as of September 30, 1997, Robinson-
Humphrey arrived at an indicated range of net present value per share of
TresCom Common Stock from $7.47 to $12.64 with an average of $9.91.
Robinson-Humphrey performed a discounted cash flow analysis using
financial projections for Primus to estimate the net present value of
Primus's Common Stock. Robinson-Humphrey calculated a range of net present
values of Primus's free cash flows for the years 1998 through 2002 using
discount rates ranging from 14% to 18% and calculated a range of net
present values of Primus's terminal values using the same range of discount
rates and multiples ranging from 9x to 11x projected EBITDA for 2002. The
present values of the free cash flows were then added to the corresponding
present values of the terminal values. After deducting Primus's net debt as
of September 30, 1997, Robinson-Humphrey arrived at an indicated range of
net present value per share of Primus Common Stock from $16.36 to $24.72
with an average of $20.31.
PRO FORMA MERGER ANALYSIS. Robinson-Humphrey reviewed certain pro forma
financial effects on Primus resulting from the Merger for the projected
fiscal years ending December 31, 1998, 1999 and 2000. Robinson-Humphrey
assumed $13.8 million of pre-tax synergies resulting from the Merger in
each of the years analyzed. In each of the years analyzed, the Merger would
be additive to Primus's projected earnings per share, revenue per share and
EBITDA per share. Robinson-Humphrey assumed that the Merger would be
accounted for under the purchase method of accounting.
TresCom selected Robinson-Humphrey as its financial advisor because
Robinson-Humphrey is an internationally recognized investment banking firm
that has substantial experience in transactions similar to the Merger and
because it is familiar with TresCom and its business. Robinson-Humphrey, as
part of its investment
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banking business, is continually engaged in the valuation of businesses in
connection with mergers and acquisitions, as well as initial and secondary
offerings of securities and valuations for other purposes. Robinson-Humphrey
served as the managing underwriter for the initial public offering of TresCom
Common Stock and received usual and customary compensation of such services.
In the ordinary course of its business, Robinson-Humphrey and its affiliates
actively trade in TresCom Common Stock for their own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
Pursuant to a letter agreement, dated March 18, 1997 (the "Robinson-Humphrey
Engagement Letter"), TresCom engaged Robinson-Humphrey to provide investment
banking advice and services to TresCom in connection with TresCom's review and
analysis of potential strategic alternatives, including a potential
transaction involving TresCom and Primus. TresCom agreed to pay Robinson-
Humphrey a retainer of $25,000 upon engagement and a fee of $250,000
(collectively, the "Advisory Fee") upon rendering an opinion as to whether or
not the consideration in a proposed transaction is fair to the shareholders of
TresCom from a financial point of view. In addition, if the Merger is
consummated, TresCom has agreed to pay Robinson-Humphrey additional
compensation based on a percentage of the total transaction value, less the
amount of the Advisory Fee. This additional compensation will equal
approximately $3.3 million. Pursuant to the Robinson-Humphrey Engagement
Letter, TresCom has agreed to reimburse Robinson-Humphrey for reasonable out-
of-pocket expenses incurred by Robinson-Humphrey, including attorney's fees,
and to indemnify Robinson-Humphrey against certain liabilities in connection
with its engagement.
THE MERGER AGREEMENT
The following description of certain provisions of the Merger Agreement is
only a summary and does not purport to be complete. This description is
qualified in its entirety by reference to the complete text of the Merger
Agreement which is included in this Joint Proxy Statement/Prospectus as
Appendix A.
The Merger. The Merger Agreement provides that TAC will merge with and into
TresCom in accordance with the FBCA, with TresCom surviving the Merger as a
wholly-owned subsidiary of Primus, and the separate existence of TAC will
cease. The Merger will become effective upon the filing of Articles of Merger
with the Department of State of the State of Florida. It is anticipated that
such filing will be made on the third business day after the last of the
conditions precedent to the Merger set forth in the Merger Agreement has been
satisfied or waived, or as soon as practical thereafter.
Merger Consideration. Each of the issued and outstanding shares of TresCom
Common Stock as of the Effective Time shall be converted into the right to
receive that number of shares of Primus Common Stock equal to the product of
one, multiplied by the Exchange Ratio. The "Exchange Ratio" means the quotient
of $12.00 divided by the Weighted Average Sales Price of a share of Primus
Common Stock as of the Closing Date.
For example, the following table demonstrates the differing results using
various sample Weighted Average Sales Prices for Primus Common Stock:
<TABLE>
<CAPTION>
VALUE OF PRIMUS
PRIMUS COMMON STOCK COMMON STOCK
WEIGHTED AVERAGE SALES PRICE EXCHANGE RATIO TO BE RECEIVED
---------------------------- -------------- ---------------
<S> <C> <C>
$30.00 0.40 $12.00
$25.00 0.48 $12.00
$20.00 0.60 $12.00
$15.00 0.80 $12.00
$10.00 1.20 $12.00
</TABLE>
Assuming a Weighted Average Sales Price of $26.03, being the Weighted
Average Sales Price as of April 30, 1998, the most recent practicable trading
day prior to the date of this Joint Proxy Statement/Prospectus, 0.461 shares
of Primus Common Stock would be issued in exchange for one share of TresCom
Common Stock. Using the closing price of a share of Primus Common Stock on
April 30, 1998 ($23.875) and applying the Exchange Ratio calculated using the
assumed Weighted Average Sale Price as of such date, holders of shares of
TresCom Common Stock would receive $11.01 in value for each share of TresCom
Common Stock exchanged in the Merger if the Merger were to have occurred on
April 30, 1998. The number of shares of Primus Common Stock to be issued and
the price of a share of Primus Common Stock on the date the Merger occurs will
almost certainly vary from the example set forth above. The Exchange Ratio has
not been fixed and will be determined
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at the Effective Time based on the Weighted Average Sales Price of Primus
Common Stock. Thus, the actual number of shares of Primus Common Stock to be
received by holders of TresCom Common Stock in the Merger will not be
determined until the Effective Time, and may be more or less than the actual
number of shares of Primus Common Stock which they would have received if the
Merger was completed as of the date of the Robinson-Humphrey Opinion, the date
of execution of the Merger Agreement, the date of this Joint Proxy
Statement/Prospectus or the date on which TresCom shareholders vote on the
Merger Agreement. In addition, although the value of the Primus Common Stock
to be issued in exchange for each share of TresCom Common Stock will, under
all circumstances, be $12.00 based on the Weighted Average Sales Price, the
value of the Primus Common Stock to be issued as derived by applying the
Exchange Ratio to the price of Primus Common Stock at the Effective Time may
be more or less than $12.00 per share.
The "Weighted Average Sales Price" means the volume-weighted average sales
price per share of Primus Common Stock as reported by Bloomberg Information
Systems, Inc. during a period consisting of the third Nasdaq trading day prior
to the date as of which the Weighted Average Sales Price of a share of Primus
Common Stock is being determined and the nineteen consecutive trading days
prior to such day.
No fractional shares of Primus Common Stock shall be issued. In lieu of
fractional shares, any person who would otherwise be entitled to a fractional
share of Primus Common Stock will receive an amount in cash equal to said
fraction of a share of Primus Common Stock, multiplied by the Weighted Average
Sales Price of a share of Primus Common Stock as of the Closing Date. The
Exchange Ratio is subject to appropriate adjustment in the event of a stock
split, stock dividend or recapitalization after the date of the Merger
Agreement applicable to shares of Primus Common Stock.
Exchange of Certificates; Exchange Agent. Each share of TresCom Common Stock
shall be canceled as of the Effective Time. The shares of TAC common stock
outstanding immediately prior to the Merger will be converted into one share
of the common stock of the Surviving Corporation (the "Surviving Corporation
Common Stock"), which one share of the Surviving Corporation Common Stock
shall constitute all of the issued and outstanding capital stock of the
Surviving Corporation and shall be owned by Primus.
Immediately after the Effective Time, Primus will furnish to its transfer
agent (the "Exchange Agent") a corpus (the "Exchange Fund") consisting of
shares of Primus Common Stock and cash sufficient to permit the Exchange Agent
to make full payment of the Per Share Merger Consideration (as defined in the
Merger Agreement) to the holders of all of the issued and outstanding shares
of TresCom Common Stock. TresCom will cause its transfer agent to furnish
promptly to TAC a list, as of a recent date, of the record holders of shares
of TresCom Common Stock and their addresses, as well as mailing labels
containing the names and addresses of all record holders of shares of TresCom
Common Stock and lists of security positions of shares of TresCom Common Stock
held in stock depositories. TresCom will furnish TAC with such additional
information (including, but not limited to, updated lists of holders of shares
of TresCom Common Stock and their addresses, mailing labels and lists of
security positions) and such other assistance as Primus or TAC or their agents
may reasonably request. Primus will cause the Exchange Agent to mail a letter
of transmittal (with instructions for its use) in the form to be mutually
agreed upon by TresCom and Primus to each holder of issued and outstanding
shares of TresCom Common Stock for the holder to use in surrendering the
certificates which represented his or its shares of TresCom Common Stock
against payment of the Per Share Merger Consideration. Upon surrender to the
Exchange Agent of such certificates, together with such letter of transmittal,
duly executed and completed in accordance with the instructions thereto, the
Surviving Corporation shall promptly cause to be issued a certificate
representing that number of whole shares of Primus Common Stock and a check
representing the amount of cash in lieu of any fractional shares and unpaid
dividends and distributions, if any, to which such persons are entitled, after
giving effect to any required tax withholdings. No interest will be paid or
accrued on the cash in lieu of fractional shares and unpaid dividends and
distributions, if any, payable to recipients of shares of Primus Common Stock.
If payment is to be made to a person other than the registered holder of the
certificate surrendered, it shall be a condition of such payment that the
certificate so surrendered shall be properly endorsed or otherwise in
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proper form for transfer and that the person requesting such payment shall pay
any transfer or other taxes required by reason of the payment to a person
other than the registered holder of the certificate surrendered or establish
to the satisfaction of the Surviving Corporation or the Exchange Agent that
such tax has been paid or is not applicable. In the event any certificate
representing shares shall have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming such certificate to be
lost, stolen or destroyed, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed certificate the Per Share Merger Consideration
deliverable in respect thereof; provided, however, the Person to whom the Per
Share Merger Consideration is paid shall, as a condition precedent to the
payment thereof, give the Surviving Corporation a bond in such sum as it may
direct or otherwise indemnify the Surviving Corporation in a manner
satisfactory to it against any claim that may be made against the Surviving
Corporation with respect to the certificate alleged to have been lost, stolen
or destroyed.
No dividends or other distributions declared after the Effective Time with
respect to Primus Common Stock and payable to the holders of record thereof
shall be paid to the holder of any unsurrendered certificate until the holder
thereof shall surrender such certificate in accordance with the Merger
Agreement. After the surrender of a certificate in accordance with the Merger
Agreement, the record holder thereof shall be entitled to receive any such
dividends or other distributions, without any interest thereon, which
theretofore had become payable with respect to the Primus Common Stock
represented by such certificate. No holder of an unsurrendered certificate
shall be entitled, until the surrender of such certificate, to vote the Primus
Common Stock into which his shares of TresCom Common Stock shall have been
converted.
Stock Rights. At the Effective Time, each Stock Right granted by TresCom to
purchase TresCom Common Stock which is outstanding and unexercised immediately
prior thereto (whether or not vested or exercisable), other than the Warburg,
Pincus Warrant, shall be converted automatically into an option to purchase
Primus Common Stock in an amount and at an exercise price determined as
follows: (x) the number of shares of Primus Common Stock to be subject to the
new option shall be equal to the product of the number of shares of TresCom
Common Stock subject to the original Stock Right multiplied by the Exchange
Ratio, provided that any fractional shares of Primus Common Stock resulting
from such multiplication shall be rounded up to the next whole share; and (y)
the exercise price per share of Primus Common Stock under the new option shall
be equal to the quotient of the exercise price per share of TresCom Common
Stock under the original Stock Right divided by the Exchange Ratio, provided
that the exercise price resulting from such division shall be rounded up to
the next whole cent. The adjustment with respect to any original Stock Rights
which are "incentive stock options" (as defined in Section 422 of the Code (as
defined below)) is intended to be effected in a manner which is consistent
with Section 424(a) of the Code. The option plan of TresCom under which the
original Stock Rights were issued shall be assumed by Primus, and the duration
and other terms of the new option shall be the same as the original Stock
Right. Pursuant to the Merger Agreement, Primus has agreed to take all
corporate action necessary to reserve for issuance a sufficient number of
shares of Primus Common Stock for delivery upon exercise of the new options
and has agreed to file a registration statement on Form S-8 (or any successor
form) or another appropriate form, effective promptly after the Effective
Time, with respect to the shares of Primus Common Stock subject to the new
options, and use all reasonable efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as
such options remain outstanding.
Acquisition Proposals. Neither TresCom nor any of its officers and directors
shall, and TresCom will cause its employees, agents and representatives not
to, directly or indirectly, encourage, initiate or solicit any inquiries or
the making of any Acquisition Proposal (as defined below) or, except to the
extent required for the discharge by the fiduciary duties of the TresCom Board
to the TresCom shareholders as advised in writing by independent counsel,
engage in any negotiations concerning, or provide any confidential information
or data to, or have any discussions with, any person or entity relating to an
Acquisition Proposal, or otherwise assist or facilitate any effort or attempt
by any person or entity to make or implement an Acquisition Proposal. Under
the terms of the Merger Agreement, TresCom must notify Primus promptly if any
such inquiries or proposals are received by, any such information is requested
from, or any such negotiations or discussions are sought to be instituted or
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continued with TresCom. TresCom will also provide to Primus a copy of any such
Acquisition Proposal. TresCom and its officers and directors also caused its
employees, agents and representatives to immediately cease and terminate any
existing activities, discussions or negotiations with any parties conducted
prior to the signing of the Merger Agreement. As used herein, "Acquisition
Proposal" means any proposal or offer (including, without limitation, any
proposal or offer to TresCom shareholders) with respect to a merger,
acquisition, consolidation, recapitalization, reorganization, tender offer or
exchange offer or similar transaction involving, or any purchase of all or any
significant portion of the assets of, or any equity interest representing 25%
or more of the outstanding shares of TresCom Common Stock in TresCom or any of
its material subsidiaries.
Representations and Warranties. The Merger Agreement contains various
representations of Primus and TresCom. The respective representations and
warranties of the parties shall not survive beyond the Effective Time.
REPRESENTATIONS AND WARRANTIES OF TRESCOM. The representations and
warranties of TresCom relate generally to: (i) corporate organization,
qualification and corporate power; (ii) the capitalization of TresCom;
(iii) the authorization, execution, delivery and enforceability of the
Merger Agreement; (iv) absence of violations of, among other things, the
Articles of Incorporation, By-laws, certain contracts or laws; (v)
compliance with the 1933 Act and the 1934 Act; (vi) the accuracy of
information, including financial statements in accordance with generally
accepted accounting principles, contained in Commission filings; (vii) the
absence of any material adverse events affecting TresCom's business, any
material change by TresCom in its accounting methods or any undisclosed
liabilities; (viii) compliance with all applicable laws; (ix) absence of
brokers or finders; (x) the absence of material litigation and liabilities;
(xi) taxes; (xii) receipt of a fairness opinion from TresCom's financial
advisor; (xiii) employee benefit plans; and (xiv) TresCom Board approval of
the Merger Agreement and absence of action that would constitute a "control
share acquisition" as defined in the FBCA.
REPRESENTATIONS AND WARRANTIES OF PRIMUS. The representations and
warranties of Primus relate generally to: (i) corporate organization,
qualification and corporate power; (ii) the capitalization of Primus; (iii)
the authorization, execution, delivery and enforceability of the Merger
Agreement; (iv) absence of violations of, among other things, the
Certificate of Incorporation, Bylaws, certain contracts or laws; (v)
compliance with the 1933 Act and the 1934 Act; (vi) the accuracy of
information, including financial statements in accordance with generally
accepted accounting principles, contained in Commission filings; (vii) the
absence of any material adverse events affecting Primus's business, any
material change by Primus in its accounting methods or any undisclosed
liabilities; (viii) absence of brokers or finders; (ix) the absence of
material litigation and liabilities; (x) receipt of a fairness opinion from
Primus's financial advisor; (xi) taxes; (xii) compliance with all
applicable laws; and (xiii) the ownership of TAC.
Certain Covenants. Primus and TresCom covenanted to: use all reasonable
efforts to take all actions and to do all things necessary in order to
consummate and make effective the transactions contemplated by the Merger
Agreement; to give any notices and use all reasonable efforts to obtain any
third-party consents required to effectuate the Merger Agreement; to give any
notices, make any filings with and use all reasonable efforts to obtain any
authorizations, consents and approvals of governments and governmental
agencies (although Primus is responsible for preparing all filings with
authorities governing the telecommunications industry on behalf of each
party); prepare and file all materials required by federal and state
securities laws; to convene special meetings of stockholders as soon as
reasonably practicable to vote upon adoption of the Merger Agreement; to make
any filings required by the HSR Act; to permit the other party to have access
to all premises, properties, personnel, books, records, contracts and
documents of the other party; and to give prompt notice of any material
adverse developments. TresCom also covenanted to Primus that it would: file
with the Commission and Nasdaq any required reports after giving Primus the
opportunity to review such filings; not take any action or enter into any
transaction other than in the ordinary course of business without the prior
written consent of Primus; not encourage, initiate or solicit any inquiries
regarding an Acquisition Proposal except to the extent advised in writing by
counsel is necessary to fulfill fiduciary obligations (as described above);
and make all monthly, quarterly and annual financial statements available to
Primus. In turn, Primus covenanted to TresCom: to provide
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each officer and director of TresCom with liability insurance for a period of
six years after the Effective Time; to indemnify said parties to the extent
not covered by such insurance; to continue at least one significant historic
line of business of TresCom; and to use a significant portion of TresCom's
historic business assets in a business. The foregoing covenants of the parties
set forth in the Merger Agreement do not survive beyond the Effective Time,
except for those relating to insurance, indemnification and certain agreements
involving the continuation of the historic TresCom business following the
Effective Time.
Conditions to the Merger. The Merger Agreement contains the following
conditions to the obligations of the parties thereunder:
CONDITIONS TO OBLIGATIONS OF TRESCOM. The obligations of TresCom to
effect the Merger shall be subject to the fulfillment at or prior to the
Effective Time of the following conditions, any one or more of which may be
waived by TresCom: the Merger Agreement and the Merger shall have received
the Requisite Stockholder Approval (as defined in the Merger Agreement);
Primus and its subsidiaries shall have procured all third-party consents
specified in the Merger Agreement; the representations and warranties set
forth in the Merger Agreement are true and correct in all material respects
at and as of the Closing Date, except for changes contemplated by the
Merger Agreement or those representations and warranties which expressly
address matters only as of a particular date (which shall have been true
and correct as of such date); Primus and TAC shall have performed and
complied with all of their covenants in all material respects through the
closing; neither any statute, rule, regulation, order, stipulation or
injunction shall be enacted, promulgated, entered, enforced or deemed
applicable to the Merger nor any other action shall have been taken by any
governmental authority, administrative agency or court of competent
jurisdiction which prohibits the consummation of the transactions
contemplated by the Merger; Primus and TAC shall have delivered to TresCom
a certificate to the effect that certain of the conditions specified in the
Merger Agreement are satisfied in all respects; the Merger shall be a tax-
free merger of TAC with and into TresCom in a reorganization pursuant to
Internal Revenue Code Section 369(a)(2)(E); all applicable waiting periods
(and any extensions thereof) under the HSR Act shall have expired or
otherwise been terminated, and the parties shall have received all other
material authorizations, consents and approvals of governments and
governmental agencies referred to in the Merger Agreement, including under
applicable telecommunications-related statutes, rules and regulations; this
Registration Statement shall have been declared effective by the Commission
under the 1933 Act; and the Primus shares to be issued in the Merger shall
have been approved for quotation on Nasdaq, subject to official notice of
issuance.
CONDITIONS TO OBLIGATIONS OF PRIMUS AND TAC. The obligations of Primus to
effect the Merger shall be subject to the fulfillment at or prior to the
Effective Time of the following conditions, any one or more of which may be
waived by Primus or TAC: the Merger Agreement and the Merger shall have
received the Requisite Stockholder Approval (as defined in the Merger
Agreement); TresCom and its subsidiaries shall have procured all third-
party consents specified in the Merger Agreement; the representations and
warranties set forth in the Merger Agreement are true and correct in all
material respects at and as of the Closing Date, except for changes
contemplated by the Merger Agreement or those representations and
warranties which expressly address matters only as of a particular date
(which shall have been true and correct as of such date); TresCom shall
have performed and complied with all of its covenants in all material
respects through the closing; neither any statute, rule, regulation, order,
stipulation or injunction shall be enacted, promulgated, entered, enforced
or deemed applicable to the Merger nor any other action shall have been
taken by any governmental authority, administrative agency or court of
competent jurisdiction which prohibits the consummation of the transactions
contemplated by the Merger; TresCom shall have delivered to Primus and TAC
a certificate to the effect that certain of the conditions specified above
in the Merger Agreement are satisfied in all respects; all applicable
waiting periods (and any extensions thereof) under the HSR Act shall have
expired or otherwise been terminated, and the parties shall have received
all other material authorizations, consents and approvals of governments
and governmental agencies referred to in the Merger Agreement, including
under applicable telecommunications-related statutes, rules and
regulations; the Warburg, Pincus Warrant shall have been exercised in full,
provided, that such exercise may be conditioned upon the effectiveness of
the Merger; and
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this Registration Statement shall have been declared effective by the
Commission under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement shall have been issued by the
Commission and no proceedings for that purpose shall have been initiated or
threatened by the Commission.
Termination. If the Merger Agreement is terminated
(i) by Primus in the event that TresCom shall have breached its covenant
under Section 5(g) of the Merger Agreement regarding exclusivity which
breach shall have caused a reasonable likelihood that TresCom will not be
able to consummate the Merger;
(ii) by TresCom if, pursuant to the terms of the Merger Agreement, it
enters into an agreement with respect to an unsolicited Acquisition
Proposal after having received (A) the written opinion of its financial
advisor to the effect that such Acquisition Proposal is more favorable to
TresCom's shareholders from a financial point of view than the Merger, and
(B) the written opinion of counsel that approval, acceptance and
recommendation of such Acquisition Proposal is required by fiduciary
obligations to TresCom's shareholders under applicable law; or
(iii) by Primus, if the TresCom Board (A) enters into or publicly
announces its intention to enter into an agreement or agreement in
principle with respect to an Acquisition Proposal, (B) withdraws or
materially modifies its recommendation to the TresCom shareholders of the
Merger Agreement or (C) after the receipt of an Acquisition Proposal, fails
to confirm publicly, upon the request of Primus, its recommendation to the
TresCom shareholders that the TresCom shareholders approve the Merger
Agreement;
then, in any such case TresCom shall pay Primus $5 million in immediately
available funds.
If the Merger Agreement is terminated by TresCom as a result of Primus not
obtaining the Requisite Stockholder Approval by Primus's stockholders, then
within five days after the completion of the meeting at which the Primus
stockholders considered the Primus Stock Issuance Proposal, Primus shall pay
to TresCom $5 million in immediately available funds.
In addition to that set forth above, the Merger Agreement may be terminated
and the Merger abandoned, at any time prior to the Effective Time, under the
following circumstances, in which event all rights and obligations of the
parties shall terminate without liability: by mutual consent; or by either
TresCom or Primus if (i) the Merger is not consummated by October 31, 1998, or
(ii) if any court order prohibiting the Merger or otherwise having a material
adverse impact on Primus's ability to own or operate TresCom as a subsidiary,
or its assets, becomes final and non-appealable.
Expenses. All costs and expenses incurred in connection with the Merger
Agreement and the transactions contemplated in the Merger Agreement shall be
paid by the party incurring such costs or expenses.
Amendments and Waiver. Subject to applicable law, the parties may mutually
amend any provision of the Merger Agreement at any time prior to the Effective
Time with the prior authorization of their respective boards of directors;
provided, however, that any amendment effected subsequent to Requisite
Stockholder Approval will be subject to the restrictions contained in the FBCA
and the DGCL, to the extent applicable. No amendment of any provision of the
Merger Agreement will be valid unless in writing and signed by all of the
parties. No waiver by any party of any default, misrepresentation or breach of
warranty or covenant, whether intentional or not, will be deemed to extend to
any prior or subsequent default, misrepresentation or breach of warranty or
covenant or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
THE STOCKHOLDER AGREEMENT
The following description of certain provisions of the Stockholder Agreement
is only a summary and does not purport to be complete. This description is
qualified in its entirety by reference to the complete text of the Stockholder
Agreement which is incorporated by reference as an Exhibit to the Registration
Statement on Form S-4 of which this Joint Proxy Statement/Prospectus forms a
part.
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Agreement to Vote. As a condition to its agreement to enter into the Merger
Agreement, Primus required that Warburg, Pincus enter into the Stockholder
Agreement which provides that Warburg, Pincus will vote its shares of TresCom
Common Stock in favor of the Merger. Specifically, Warburg, Pincus agreed that
at any meeting of the shareholders of TresCom, however called, and in any
action by consent of the shareholders of TresCom, Warburg, Pincus would: (a)
vote its shares of TresCom Common Stock in favor of the Merger; (b) vote its
shares of TresCom Common Stock against any action or agreement that would
result in a breach of any covenant, representation or warranty or any other
obligation or agreement of TresCom under the Merger Agreement; (c) vote its
shares of TresCom Common Stock against any action or agreement that would
impede, interfere with, delay, postpone or attempt to discourage the Merger
including, but not limited to, (i) any extraordinary corporate transaction
(other than the Merger), such as a merger, other business combination,
recapitalization, reorganization or liquidation involving TresCom, (ii) a sale
or transfer of a material amount of assets of TresCom or any of its
Subsidiaries, (iii) any change in the management or board of directors of
TresCom, except as otherwise agreed to in writing by Primus, (iv) any material
change in the present capitalization of TresCom, or (v) any other material
change in the corporate structure or business of TresCom; and (d) without
limiting the foregoing, consult with Primus prior to any such vote and vote
its shares of TresCom Common Stock in such manner as is determined by Primus
to be in compliance with the provisions of the Stockholder Agreement. Warburg,
Pincus also granted to Primus an irrevocable proxy to vote its shares in
accordance with the terms and conditions of the Stockholder Agreement.
Option. Pursuant to the Stockholder Agreement, Warburg, Pincus also granted
the Option to Primus to purchase the shares of TresCom Common Stock owned by
it at an exercise price per share of $12.00, payable in shares of Primus
Common Stock, if the Merger Agreement terminates under defined circumstances.
If the Option is exercised, Warburg, Pincus has agreed to use its reasonable
best efforts to cause the existing Warburg, Pincus designees to the TresCom
Board to resign, and upon such resignations, TresCom has agreed to use its
reasonable best efforts to restructure the TresCom Board so that designees of
Primus constitute a majority of the members of the TresCom Board. Primus also
agreed, if it exercised the Option granted by Warburg, Pincus, to acquire all
outstanding shares of TresCom Common Stock not otherwise owned by Primus or
its affiliates, at the same price and payable in shares of Primus Common
Stock, paid to Warburg, Pincus upon exercise of the Option. The defined
circumstances under which the Option may be exercised by Primus are those in
which the Merger Agreement would be terminated by either Primus or TresCom and
Primus would be entitled to the termination fee as provided for in the Merger
Agreement. See "--The Merger Agreement--Termination."
Higher Offers. As an alternative to Primus exercising the Option granted by
Warburg, Pincus, if the Merger Agreement is terminated pursuant to certain
provisions of the Merger Agreement, and, upon or following such termination, a
definitive agreement with respect to a Third Party Transaction (as defined
below) is executed by TresCom and a Third Party (as defined below) prior to or
within 90 days of such termination, and Warburg, Pincus receives any cash or
non-cash consideration (the "Alternative Consideration") in respect of all or
any portion of its shares of TresCom Common Stock in connection with such
Third Party Transaction, the Stockholder Agreement provides that Warburg,
Pincus, within five days after receipt of the Alternative Consideration, will
pay over to Primus or its designee, an amount equal in value to 100% of the
excess (if any) of (x) such Alternative Consideration over (y) (A) $12.00 per
share of TresCom Common Stock multiplied by (B) the number of shares of
TresCom Common Stock with respect to which Warburg, Pincus received such
Alternative Consideration. If the Alternative Consideration received by
Warburg, Pincus is securities listed on a national securities exchange or
traded on Nasdaq, the per share value of such consideration will be equal to
the closing price per share listed on such national securities exchange or
Nasdaq on the date such transaction is consummated. If the Alternative
Consideration received by Warburg, Pincus is in a form other than such listed
or traded securities, the per share value will be determined in good faith as
of the date such transaction is consummated by Primus or its designee and
Warburg, Pincus, or, if Primus or its designee and Warburg, Pincus cannot
reach agreement, by a nationally recognized investment banking firm reasonably
acceptable to Primus or its designee and Warburg, Pincus. The term "Third
Party Transaction" means a transaction constituting an Acquisition Proposal
(as defined in the Merger Agreement) with a person or entity other than Primus
or any of its affiliates (a "Third Party").
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Representations and Warranties of the Parties. The Stockholder Agreement
contains various representations of Primus and Warburg, Pincus, all of which
survive the Closing. Warburg, Pincus represented and warranted to Primus that:
(i) on the date of the Stockholder Agreement Warburg, Pincus beneficially
owned 6,319,468 shares of TresCom Common Stock and that on the Closing Date
the shares would constitute all of the shares of TresCom Common Stock owned by
Warburg, Pincus; (ii) Warburg, Pincus had the legal right and authority to
enter into the Stockholder Agreement and that the Stockholder Agreement did
not violate any other agreement to which Warburg, Pincus was a party; and
(iii) that no person was entitled to finder's fees in connection with the
Stockholder Agreement. Primus represented and warranted to Warburg, Pincus
that: (i) Primus had the legal right and authority to enter into the
Stockholder Agreement and that the Stockholder Agreement did not violate any
other agreement to which Primus was a party; and (ii) that no person was
entitled to finder's fees in connection with the Stockholder Agreement.
Non-Solicitation. Except in accordance with the provisions of the
Stockholder Agreement, Warburg, Pincus agreed, prior to the termination of the
Stockholder Agreement not to, directly or indirectly: (i) sell, transfer,
pledge, encumber, assign or otherwise dispose of, or enter into any contract,
option or other arrangement or understanding with respect to the sale,
transfer, pledge, encumbrance, assignment or other disposition of, any of its
shares of TresCom Common Stock; (ii) grant any proxies, deposit any shares
into a voting trust or enter into a voting agreement with respect to any of
its shares of TresCom Common Stock; (iii) take any action to encourage,
initiate or solicit any inquiries or the making of any Acquisition Proposal
(as defined in the Merger Agreement); or (iv) engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with any person relating to an Acquisition Proposal. Warburg,
Pincus agreed to immediately cease and cause to be terminated any existing
activities, discussions or negotiations on its part with any parties conducted
previously and to notify Primus and TAC promptly if it becomes aware of any
such inquiries or if any proposals are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
instituted or continued with TresCom, as limited by any Warburg, Pincus
representative's fiduciary duties in their capacity as a board member.
Standstill Agreement. Warburg, Pincus agreed that neither it nor any of its
affiliates would, unless in any such case specifically invited in writing to
do so by the Primus Board, for a period of three years from the date of the
Stockholder Agreement, except as otherwise expressly set forth in the
Stockholder Agreement or in the Merger Agreement: (i) individually or together
with one or more persons, acquire beneficial ownership, offer to acquire or
agree to acquire, or participate in the financing of any acquisition of,
beneficial ownership of any securities of Primus entitled to vote in the
general election of directors, or securities convertible into or exercisable
for such securities (collectively, "Securities"); (ii) initiate, propose,
engage or otherwise participate in the solicitation of stockholders or their
proxies for approval of one or more stockholder proposals (including, without
limitation, the election of directors, any amendment to the charter or bylaws,
or any business combination transaction) with respect to Primus; (iii)
otherwise act alone or in concert with any other person to seek to influence
or control the management, the Primus Board, the policies or the affairs of
Primus, or to solicit, propose or encourage any other person with respect to
any form of business combination transaction with Primus, or to solicit, make
or propose or encourage any other person with respect to, or announce an
intent to make, any tender offer or exchange offer for any Securities; (iv)
request Primus or the Primus Board, officers, employees or agents, to amend or
waive, or seek any modification to, the standstill provision of the
Stockholder Agreement; or (v) take any action designed to or which can
reasonably be expected to require Primus to make a public announcement
regarding any of the matters referred to in the Stockholder Agreement. The
covenants of the Stockholder Agreement are not applicable to "Stockholder
Affiliated Entities", or to any portfolio company of Warburg, Pincus or of any
venture fund which is related to Warburg, Pincus, or to any representative or
employee of Warburg, Pincus or of any related venture fund serving as a member
of the board of directors on any such portfolio company. The term "Stockholder
Affiliated Entities" means a registered broker-dealer and any other affiliated
entity of Warburg, Pincus that is a registered investment adviser, as well as
certain registered investment companies that may be deemed to be affiliates of
Warburg, Pincus.
Warrant Exercise. Warburg, Pincus also agreed to exercise the Warburg,
Pincus Warrant in full no later than immediately prior to the Effective Time.
If the Option is exercised, Warburg, Pincus agreed to exercise the
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Warburg, Pincus Warrant in full no later than immediately prior to the Option
closing date. All shares of TresCom Common Stock obtained by Warburg, Pincus
upon the exercise of the Warburg, Pincus Warrant will be subject to the Option
and would be purchased by Primus.
Nominee to Primus Board. At the Effective Time of the Merger, Primus agreed
to cause the Primus Board to increase the number of directors by one and take
any other action to facilitate the nomination and appointment of a Warburg,
Pincus nominee to the Primus Board. Following such nomination and appointment
of a Warburg, Pincus nominee, and continuing for so long as Warburg, Pincus
beneficially owns at least 10% of the outstanding shares of Primus Common
Stock, Primus agreed to cause the nomination from time to time of a Warburg,
Pincus nominee to serve as a member of the Primus Board and to submit a
Warburg, Pincus nominee to the Primus stockholders for election to the Primus
Board. Any Warburg, Pincus nominee is subject to the reasonable approval of
the non-employee directors of the Primus.
Tag-Along Rights. If, at any time after the Effective Time, K. Paul Singh
enters into an Agreement with a Third Party purchaser (the "Third Party
Purchaser") to sell all or any portion of his shares of Primus Common Stock,
other than shares of Primus Common Stock to be sold pursuant to certain
excluded transactions, Mr. Singh agreed to make provision in his agreement
with the Third Party Purchaser pursuant to which Warburg, Pincus may sell to
the Third Party Purchaser, at the same price and otherwise on substantially
the same terms and conditions as Mr. Singh, its proportionate share of the
shares of Primus Common Stock to be sold to the Third Party Purchaser by Mr.
Singh. Mr. Singh must give written notice of the proposed transaction at least
15 days prior to the proposed closing date. Within 10 days after receipt of
such notice, Warburg, Pincus must notify Mr. Singh and the Third Party
Purchaser of the number of shares of Primus Common Stock, up to a maximum of
its proportionate share, which it intends to sell, if any, to the Third Party
Purchaser and, at the election of the Third Party Purchaser, the number of
shares of Primus Common Stock which it shall purchase either (a) shall be
increased by up to the number of Primus Common Stock sought to be sold by
Warburg, Pincus, and/or (b) the number of shares which Mr. Singh will sell to
the Third Party Purchaser will be decreased by up to that number of shares of
Primus Common Stock sought to be sold by Warburg, Pincus .
Registration Rights. The Stockholder Agreement also provides for the grant
of certain registration rights to Warburg, Pincus which, if exercised, would
permit it to transfer shares of Primus Common Stock received by it in the
Merger free of the Rule 144 volume limitations (the same as non-affiliates of
TresCom). At such time as Primus's obligations to register shares set forth in
the registration rights agreement dated as of July 31, 1996 between Primus and
Quantum Industrial Partners LDC, S-C Phoenix Holdings, L.L.C., Winston
Partners II LDC and Winston Partners II LLC have terminated (the "Prior
Agreement"), or Primus otherwise amends, or obtains a waiver of, the Prior
Agreement which permits the granting of registration rights upon the request
of Warburg, Pincus, which Primus agreed to use its commercially reasonable
efforts to secure on behalf of Warburg, Pincus, upon the written request (the
"Request") of Warburg, Pincus, Primus agreed to cause to be filed under the
1933 Act a registration statement on such form as selected by Warburg, Pincus
(with the approval of Primus, which shall not be unreasonably withheld) of all
or such portion of the Registrable Securities (as defined in the Stockholder
Agreement) so requested by Warburg, Pincus, and Primus agreed to take
reasonable actions to effect, as soon as practicable, subject to the
reasonable cooperation of Warburg, Pincus, within 120 days after the Request
is received from Warburg, Pincus, the registration under the 1933 Act, of the
Registrable Securities which Primus was requested to register by Warburg,
Pincus. Whenever Primus effects such a registration, holders of securities of
Primus who have "piggyback" registration rights may include all or a portion
of such securities in the registration, offering or sale within the limits set
by the managing underwriter of such sale as set forth in the Stockholder
Agreement.
If Primus at any time proposes to register any of its securities under the
1933 Act by registration on Forms S-1, S-2, S-3 or any successor or similar
form(s) (except registrations on such forms or similar forms solely for
registration of securities in connection with (i) an employee benefit plan or
dividend reinvestment plan or a merger or consolidation or (ii) debt
securities which are not convertible into Primus Common Stock), whether or not
for sale for its own account, Primus agreed to give written notice to Warburg,
Pincus of its intention to do so at least 30 days prior to the anticipated
filing date of a registration statement with respect to such registration
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with the Commission. Upon the written request of Warburg, Pincus made as
promptly as practicable and in any event within 10 business days after the
receipt of any such notice, which request shall specify the Registrable
Securities intended to be disposed of by Warburg, Pincus, Primus also agreed
to use its reasonable efforts to effect the registration under the 1933 Act of
all Registrable Securities which Primus has been so requested to register by
Warburg, Pincus; provided, however, that if, at any time after giving written
notice of its intention to register any securities and prior to the effective
date of the registration statement filed in connection with such registration,
Primus shall determine for any reason not to register or to delay registration
of such securities, Primus may, at its election, give written notice of such
determination to Warburg, Pincus and (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration, without prejudice; provided,
however, that Warburg, Pincus may request that such registration be effected
as a registration under another provision of the Stockholder Agreement and
(ii) in the case of a determination to delay registering, shall be permitted
to delay registering any Registrable Securities for the same period as the
delay in registering such other securities. All rights of Warburg, Pincus to
participate in a registration pursuant to the Stockholder Agreement are
conditioned upon it agreeing to offer and sell Registrable Securities in
accordance with the plan of distribution applicable to the other Primus shares
sought to be offered and sold in such registration.
If the managing underwriter of any underwritten public offering shall inform
Primus by letter of its belief that the number or type of Registrable
Securities requested to be included in such registration would materially and
adversely affect such public offering, then Primus agreed to promptly notify
Warburg, Pincus of such fact. If the managing underwriter does not agree to
include all (or such lesser amount as Warburg, Pincus shall, in its
discretion, agree to) of the number of the Registrable Securities initially
requested by Warburg, Pincus to be included in such registration, then Primus
agreed to include in such registration, to the extent of the number and type
which Primus is so advised can be sold in such Public Offering, (i) first,
Primus shares proposed to be sold by Primus; (ii) second, to the extent
additional Primus shares may be included, Primus shares proposed to be sold by
any members of the Chatterjee Group, or any of their respective affiliates or
transferees, and (iii) third, to the extent additional Primus shares may be
included, the Registrable Securities sought to be sold by Warburg, Pincus. In
the event that the proposed registration by Primus is pursuant to a
contractual demand registration right, the sale of Primus shares by such party
making the demand or by any member of the Chatterjee Group shall have priority
over the sale of the Registrable Securities.
At such time as Primus's obligations to register shares set forth in the
Prior Agreement have terminated, or Primus otherwise amends, or obtains a
waiver of, the Prior Agreement which permits the granting of registration
rights upon the request of Warburg, Pincus, upon the written request of
Warburg, Pincus, Primus agreed to cause to be filed under the Securities Act a
registration statement on Form S-2 or S-3, as selected by Warburg, Pincus, for
a shelf registration pursuant to Rule 415 pursuant to the Securities Act (the
"Shelf Registration") relating to all or such portion of the Registrable
Securities so requested by Warburg, Pincus. The obligations of Primus to file
a registration statement relating to a Shelf Registration for Registrable
Securities may be exercised on not more than two occasions and the obligation
will terminate two years from the Effective Time of the Merger.
Warburg, Pincus agreed to provide Primus with reasonable notice prior to the
distribution of the Registrable Securities (as defined in the Stockholder
Agreement) to its general and limited partners.
Primus is not obligated to effect the filing of a registration statement if,
at the time of any request, Primus is preparing, or within 30 days thereafter
engages a managing underwriter and commences to prepare, a registration
statement for a primary public offering (other than a registration effected
solely to implement an employee benefit plan), or is engaged in any material
acquisition or divestiture or other business transaction with a third party
which, in the good faith opinion of the Primus Board, would be adversely
affected by the Shelf Registration.
Primus and Warburg, Pincus also agreed to indemnify and hold harmless each
other for any liabilities which arise out of an untrue or allegedly untrue
statement of fact made by the indemnifying party contained in any registration
statement or prospectus.
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Expenses. Each party agreed to pay all of its expenses in connection with
the transactions contemplated by the Stockholder Agreement, including, without
limitation, the fees and expenses of its counsel and other advisers.
Termination. The Stockholder Agreement terminates on the earliest of (a) the
Effective Time (as defined in the Merger Agreement), (b) the date immediately
following the termination of the Merger Agreement in accordance with its
terms, and (c) October 31, 1998. However, certain terms do survive any
termination of the Stockholder Agreement, and certain other provisions survive
the Effective Time if the Stockholder Agreement otherwise terminates at the
Effective Time.
THE VOTING AGREEMENTS
The following description of certain provisions of the Voting Agreements is
only a summary and does not purport to be complete. This description is
qualified in its entirety by reference to the complete text of each of the
Voting Agreements which are incorporated by reference as Exhibits to the
Registration Statement on Form S-4 of which this Prospectus forms a part.
General. As a condition to the Merger of TAC with and into TresCom, with
TresCom surviving the Merger as a wholly-owned subsidiary of Primus, four
voting agreements were executed. The voting agreements were signed between
TresCom and K. Paul Singh regarding 4,611,406 shares of Primus Common Stock
beneficially owned by him, between TresCom and John F. DePodesta regarding
320,136 shares of Primus Common Stock beneficially owned by him, between
Primus and Wesley T. O'Brien regarding 30,595 shares of TresCom Common Stock
beneficially owned by him and between Primus and Rudolph McGlashan regarding
220,032 shares of TresCom Common Stock beneficially owned by him (K. Paul
Singh, John F. DePodesta, Wesley T. O'Brien and Rudolph McGlashan each a
"Shareholder" and collectively the "Shareholders"). Each of the Voting
Agreements was entered into on February 3, 1998 and subsequently amended on
April 16, 1998.
Agreement to Vote. The Voting Agreements provide that each Shareholder will
vote his shares in favor of the Merger. Specifically, the Shareholders agreed
that at any meeting of the shareholders of TresCom or stockholders of Primus,
however called, and in any action by consent of the stockholders of Primus or
the shareholders of TresCom, each Shareholder would: (a) vote his shares in
favor of the Merger; (b) vote his shares against any action or agreement that
would result in a breach of any covenant, representation or warranty or any
other obligation or agreement of Primus or TresCom under the Merger Agreement;
(c) vote his shares against any action or agreement that would impede,
interfere with, delay, postpone or attempt to discourage the Merger including,
but not limited to, (i) any extraordinary corporate transaction (other than
the Merger), such as a merger, other business combination, recapitalization,
reorganization or liquidation (a "Business Combination Transaction") involving
TresCom or Primus, (ii) a sale or transfer of a material amount of assets of
TresCom or Primus or any of their subsidiaries, (iii) any change in the
management or TresCom Board or Primus Board, except as otherwise agreed to in
writing by Primus, (iv) any material change in the present capitalization of
TresCom or Primus, or (v) any other material change in the corporate structure
or business of TresCom or Primus; and (d) without limiting the foregoing,
consult with the other party to the respective Voting Agreement prior to any
such vote and vote his shares in such manner as is determined by that party to
be in compliance with the provisions of the respective Voting Agreement. Each
Shareholder also granted to the respective company an irrevocable proxy to
vote his shares in accordance with the terms and conditions of the Voting
Agreement, provided that such proxy automatically terminates upon the
termination of the Merger Agreement, except in the case of the TresCom Voting
Agreements, in which case the irrevocable proxy remains in effect for so long
as the Options remain exercisable.
The Option, Piggyback Registration Rights and Put Rights. Pursuant to the
TresCom Voting Agreements, Messrs. O'Brien and McGlashan also granted an
Option to Primus to purchase their shares of TresCom Common Stock at an
exercise price per share of $12.00, payable in shares of Primus Common Stock,
if the Merger Agreement terminates under defined circumstances. Primus has
agreed to grant to Messrs. O'Brien and McGlashan certain piggyback
registration rights and put rights, which are exercisable if the Options
granted by Messrs. O'Brien and McGlashan are exercised, and if, in connection
with such exercise, Messrs. O'Brien and McGlashan receive shares of Primus
Common Stock which are "restricted" within the meaning of Rule 144 under the
1933 Act.
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Representations and Warranties. The Shareholders each represented and
warranted that: the shares specified in the Voting Agreements are all of the
shares they beneficially owned, as defined in the Voting Agreements, and that
the shares specified will be all the shares beneficially owned by the
Shareholders on the Closing Date of the Merger; they currently had and will
have at the closing of the Merger, good, valid and marketable title, free and
clear of all liens, encumbrances, restrictions, options, warrants, rights to
purchase, voting agreements or voting trusts, and claims of every kind in
regards to the shares; they had full legal right, power and authority to enter
into and perform all of the obligations under the Voting Agreements; the
Voting Agreements were duly executed and delivered and constituted legal,
valid and binding agreements of the Shareholders; that the Voting Agreements
did not (a) require any consent or approval of or filing with any governmental
or other regulatory body, or (b) constitute a violation of, conflict with or
constitute a default under, any contract, commitment, agreement,
understanding, arrangement or other restriction of any kind to which the
Shareholders were a party; and no one was entitled to any commission or
finder's fee from the Voting Agreements, except for those fees in the Merger
Agreement.
Each of the respective companies represented and warranted to the respective
Shareholders that: they had full legal right, power and authority to enter
into and perform all of the obligations under the Voting Agreements; the
Voting Agreements were duly executed and delivered constituted legal, valid
and binding agreements of the companies; that the Voting Agreements did not
(a) require any consent or approval of or filing with any governmental or
other regulatory body, or (b) constitute a violation of, conflict with or
constitute a default under, any contract, commitment, agreement,
understanding, arrangement or other restriction of any kind to which the
companies were a party; and that no one was entitled to any commission or
finder's fee from the Voting Agreement, except for those in the Merger
Agreement.
All representations, warranties, covenants and agreements made by the
Shareholder or the companies in the Voting Agreements survive regardless of
any investigation at any time made by or on behalf of any party.
Termination. The Voting Agreements (other than the provisions regarding
expenses and confidentiality, which survive termination) will terminate on the
earliest of (a) the Effective Time (as defined in the Merger Agreement), (b)
the date immediately following the termination of the Merger Agreement in
accordance with its terms, or (c) October 31, 1998; provided, however, (i) the
voting obligations contained in the TresCom Voting Agreements shall survive
for so long as the Options granted by Messrs. O'Brien and McGlashan remain
exercisable; (ii) the grant of the Option by each of Messrs. O'Brien and
McGlashan shall survive any termination; (iii) the piggyback registration
rights granted to Messrs. O'Brien and McGlashan shall survive (x) the
Effective Time if the TresCom Voting Agreements otherwise terminate or (y) if
the Options granted by Messrs. O'Brien and McGlashan are exercisable or
exercised and the TresCom Voting Agreements otherwise terminate; and (iv) the
put rights granted to Messrs. O'Brien and McGlashan shall survive if the
Options granted to them are exercisable or exercised and the TresCom Voting
Agreements otherwise terminate.
Expenses. Except if a Shareholder brings a legal proceeding under a Voting
Agreement, the Voting Agreements provide for each party to pay all of their
own expenses in connection with the transactions contemplated therein,
including, without limitation, the fees and expenses of counsel and other
advisers.
Certain Covenants of the Shareholders. The Shareholders agreed, prior to the
termination of the Voting Agreements, not to, directly or indirectly: sell,
transfer, pledge, encumber, assign or otherwise dispose of, or enter into any
contract, option or other arrangement or understanding with respect to the
sale, transfer, pledge, encumbrance, assignment or other disposition of, any
of their shares; or grant any proxies, deposit any shares into a voting trust
or enter into a voting agreement with respect to any share; and to notify the
respective company promptly of the number of any shares of Common Stock
acquired by the Shareholder after the date of the Voting Agreements. Since the
execution of the Voting Agreements, Primus has agreed to permit Messrs.
O'Brien and McGlashan to pledge their shares of TresCom Common Stock as
security for certain personal loans from brokerage firms.
FEDERAL SECURITIES LAWS CONSEQUENCES
The shares of Primus Common Stock issuable to shareholders of TresCom upon
consummation of the Merger will have been registered under the 1933 Act at the
Effective Time. Such shares will be freely
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transferable without restriction by those TresCom shareholders who are not
deemed to be "affiliates" of Primus or TresCom, as that term is defined in the
rules under the 1933 Act.
Shares of Primus Common Stock received pursuant to the Merger by those
shareholders of TresCom who are deemed to be affiliates of TresCom or Primus
may be resold without registration under the 1933 Act only as permitted by
Rule 145 under the 1933 Act or as otherwise permitted under the 1933 Act.
Warburg, Pincus has been granted certain registration rights which, if
exercised, would permit it to transfer shares of Primus Common Stock received
by it in the Merger free of the Rule 144 volume limitations (the same as non-
affiliates of TresCom). See "--The Stockholder Agreement--Registration
Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Stock for Stock Exchange. It is a condition to the obligation of TresCom to
consummate the Merger that the Merger will qualify as such a reorganization
within the meaning of Section 368(a)(1)(A) and Section 368(a)(2)(E) of the
Internal Revenue Code of 1986, as amended (the "Code"). No gain or loss will
be recognized by Primus, TAC or TresCom as a result of the Merger, and,
assuming the Merger so qualifies, no gain or loss will be recognized by a
stockholder of TresCom as a result of the Merger with respect to shares of
TresCom Common Stock converted solely into Primus Common Stock. As only Primus
Common Stock and cash in lieu of fractional shares is to be received in the
Merger, the aggregate tax basis of the Primus Common Stock received by a
TresCom Shareholder in the Merger will be the same, in each instance, as the
aggregate tax basis of the TresCom Common Stock surrendered in exchange
therefor, excluding any basis allocable to fractional share interests in
Primus Common Stock for which cash is received. In addition, the holding
period of the Primus Common Stock received by a TresCom Shareholder in the
Merger will include the period during which the shares of TresCom Common Stock
surrendered in exchange therefor were held, provided that such shares of
TresCom Common Stock were held as capital assets at the Effective Time.
Fractional Shares. A holder of TresCom Common Stock who receives cash in the
Merger in lieu of a fractional share interest in Primus Common Stock will be
treated as having received the fractional share interest and then having such
interest redeemed by Primus for the cash received. If such deemed redemption
is "substantially disproportionate" with respect to such holder, or is "not
essentially equivalent to a dividend", as such terms are used in Section 302
of the Code, after applying the constructive ownership rules of Section 318 of
the Code, the redemption will result in the recognition of gain or loss for
federal income tax purposes, measured by the difference between the amount of
cash received and the tax basis of the TresCom Common Stock allocable to such
fractional share interest. This gain or loss will be capital gain or loss,
provided that the TresCom Common Stock was held as a capital asset at the
Effective Time. In addition, in the case of an individual holder of TresCom
Common Stock, any such capital gain will be subject to a maximum federal
income tax rate of (i) 20% if the stockholder's holding period in the TresCom
Common Stock was more than 18 months at the Effective Time, and (ii) 28% if
the stockholder's holding period was more than one year but not more than 18
months at the Effective Time. If the deemed redemption is not classified as a
sale of stock under the preceding sentences, the cash received for the
fractional shares would be taxed as a dividend to the extent of Primus's
current and accumulated earnings and profits to its stockholders. However,
absent unusual facts, the current IRS administrative practice is to treat cash
received for fractional shares as payment for the sale of the fractional
share, resulting in capital gain or loss.
Backup Withholding and Information Reporting. A holder of TresCom Common
Stock may be subject to certain information reporting requirements and backup
withholding tax at a rate of 31% with respect to the exchange of TresCom
Common Stock in the Merger unless such holder (i) is a corporation or is
otherwise an exempt person and, when required, demonstrates this fact or (ii)
provides a correct taxpayer identification number (or certifies that such
holder is not subject to backup withholding) and otherwise complies with
applicable requirements of the backup withholding rules.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A COMPLETE
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ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A DECISION
WHETHER TO VOTE IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND
THE MERGER. THE DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE
RELEVANT TO A PARTICULAR TRESCOM SHAREHOLDER SUBJECT TO SPECIAL TREATMENT
UNDER CERTAIN FEDERAL INCOME TAX LAWS, SUCH AS DEALERS IN SECURITIES, BANKS,
INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS, NON-UNITED STATES PERSONS AND
STOCKHOLDERS WHO ACQUIRED THEIR SHARES OF TRESCOM COMMON STOCK PURSUANT TO THE
EXERCISE OF TRESCOM OPTIONS OR OTHERWISE AS COMPENSATION, NOR ANY CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCALITY OR FOREIGN JURISDICTION.
MOREOVER, THE TAX CONSEQUENCES TO HOLDERS OF TRESCOM OPTIONS ARE NOT
DISCUSSED. THE FOREGOING DISCUSSION IS BASED UPON THE CODE, TREASURY
REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT DECISIONS AS OF
THE DATE HEREOF. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AT ANY TIME AND
ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION.
TRESCOM SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING
THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO THEM.
ACCOUNTING TREATMENT
The Merger is expected to be accounted for using the purchase method of
accounting. In connection with accounting for the Merger as a purchase, the
assets and liabilities of TresCom will be recorded at their fair value. The
fair value of the net assets acquired, including the allocation of goodwill
and other intangible assets, is currently being reviewed by Primus management.
The excess of the purchase price over the fair value of the net assets
acquired will be recorded as goodwill, and will be amortized over a period of
thirty years. A substantial portion of the purchase price is expected to be
recorded as goodwill. See "Unaudited Pro Forma Financial Data."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the TresCom Board that the TresCom
shareholders approve and adopt the Merger Agreement, TresCom shareholders
should be aware that certain directors and executive officers of TresCom have
interests in the Merger, in addition to their interests solely as shareholders
of TresCom, as described below. The TresCom Board was aware of these interests
when it considered and approved the Merger Agreement.
Stock Options and Warrants. The Merger Agreement provides that, at the
Effective Time, each TresCom stock option granted by TresCom to purchase
shares of TresCom Common Stock which is outstanding and unexercised shall be
assumed by Primus and converted into an option to purchase Primus Common Stock
in such amount and at such exercise price as is provided below and otherwise
having the same terms and conditions as are in effect immediately prior to the
Effective Time. The number of shares of Primus Common Stock to be subject to
the new option will be equal to the number of shares that the holder of such
TresCom stock option would have been entitled to receive pursuant to the
Merger had such holder exercised such option in full immediately prior to the
Effective Time (whether or not such option was in fact exercisable). The
exercise price per share of Primus Common Stock under the new option will be
equal to (x) the exercise price for TresCom Common Stock purchasable pursuant
to such TresCom stock option divided by (y) the Exchange Ratio, provided that
the exercise price resulting from such division shall be rounded up to the
next whole cent.
The Merger Agreement also provides that the Warburg, Pincus Warrant,
providing for the purchase of 358,034 shares (the "Warrant Shares") of TresCom
Common Stock, shall be exercised in full prior to the Merger being effected.
Accordingly, with the Warrant Shares, Warburg, Pincus will beneficially own
6,319,468 shares of TresCom Common Stock (approximately 52% of the issued and
outstanding shares of TresCom Common Stock) prior to the Merger. E.M. Warburg,
Pincus & Co., LLC, a New York limited liability company ("E.M. Warburg"),
manages Warburg, Pincus. Warburg, Pincus & Co., a New York general partnership
("WP"), the sole general partner of Warburg, Pincus, has a 20% interest in the
profits of Warburg, Pincus. Lionel I. Pincus is the managing partner of WP and
the managing member of E.M. Warburg and may be deemed
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to control both WP and E.M. Warburg. The members of E.M. Warburg are
substantially the same as the partners of WP. Douglas M. Karp, Henry Kressel
and Gary D. Nusbaum, each a director of TresCom, are each a Managing Director
and member of E.M. Warburg and a general partner of WP. As such, Messrs. Karp,
Kressel and Nusbaum may be deemed to have an indirect pecuniary interest,
within the meaning of Rule 16a-1 under the 1934 Act in an indeterminate
portion of the shares of TresCom Common Stock beneficially owned by Warburg,
Pincus and WP.
Indemnification. The Merger Agreement provides that, from and after the
Effective Time, Primus shall, to the fullest extent permitted under applicable
law or under the Surviving Corporation's Articles of Incorporation or By-laws,
indemnify and hold harmless each present and former director or officer of
TresCom or any of its subsidiaries against any and all actions, suits,
proceedings, hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues, penalties,
fines, costs, amounts paid in settlement, liabilities, obligations, taxes,
liens, losses, expenses and fees, including all court costs and reasonable
attorneys' fees and expenses (i) arising out of, relating to or caused by the
Merger Agreement or any of the transactions contemplated therein or (ii)
otherwise with respect to any acts or omissions occurring at or prior to the
Effective Time, to the same extent as provided in TresCom's Articles of
Incorporation or By-laws or any applicable indemnification or employment
agreements as in effect on the date of the Merger Agreement, in each case for
a period of six years from the Effective Time. The Merger Agreement also
provides that, for a period of six years after the Effective Time, Primus will
provide directors' and officers' liability insurance to those persons who
served as a director or officer of TresCom at any time prior to the Effective
Time, on terms comparable to those applicable to directors and officers of
TresCom as of the date of the Merger Agreement; provided, however, that in no
event shall Primus be required to expend in excess of 150% of the annual
premium currently paid by TresCom for such coverage; and provided further,
that if the premium for such coverage exceeds such amount, Primus shall
purchase a policy with the greatest coverage available for 150% of such annual
premium.
Registration, Tag-Along and Put Rights. Pursuant to the Stockholder
Agreement, Warburg, Pincus was granted certain demand and piggyback
registration rights relating to shares of Primus Common Stock it receives in
the Merger, which, if exercised, would permit it to transfer such shares free
of the Rule 144 volume limitations (the same as non-affiliates of TresCom),
and the right, so long as Warburg, Pincus beneficially owns 10% or more of the
outstanding Primus Common Stock, to nominate an individual, reasonably
acceptable to the non-employee directors of Primus, to serve as a director on
the Primus Board. Additionally, pursuant to the Stockholder Agreement, Mr.
Singh granted certain rights to Warburg, Pincus to participate with him in
certain sales of Primus Common Stock on the same terms and conditions as Mr.
Singh. In addition, pursuant to the TresCom Voting Agreements, Primus has
agreed to grant to Messrs. O'Brien and McGlashan certain piggyback
registration rights and put rights, which are exercisable if the Options
granted by Messrs. O'Brien and McGlashan are exercised, and if, in connection
with such exercise, Messrs. O'Brien and McGlashan receive shares of Primus
Common Stock which are "restricted" within the meaning of Rule 144 under the
1933 Act. See "The Merger--The Stockholder Agreement" and "--The Voting
Agreements."
Executive Employment Agreement. On November 20, 1997, TresCom's Compensation
Committee approved, and TresCom subsequently entered into, an amendment to the
Employment Agreement of Wesley T. O'Brien, TresCom's President and Chief
Executive Officer, which provided for a special bonus in order to induce Mr.
O'Brien to remain employed (i) with TresCom while it explored various
strategic alternatives and (ii) with a corporate successor, if so desired by
the successor. Subject to certain federal tax limitations, the amount of the
special bonus is $1.5 million and is payable over the course of two years from
the date the Merger is consummated; provided, however, if the Surviving
Corporation or Primus elects not to employ Mr. O'Brien, such bonus shall be
payable at the closing of the Merger.
ABSENCE OF DISSENTERS' RIGHTS
TresCom shareholders will not be entitled to dissenters' rights as a result
of the Merger. Under Florida law, dissenters' rights are unavailable to
holders of TresCom Common Stock because TresCom Common Stock was, on the
TresCom Record Date, designated and quoted for trading as a Nasdaq security.
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THE COMPANIES
BUSINESS OF PRIMUS
General. Primus is a global facilities-based telecommunications company that
offers international and domestic long-distance telecommunication services to
business and residential customers, as well as to other carriers. Primus is
capitalizing on the increasing demand for international telecommunications
services resulting from the globalization of the world's economies and the
worldwide trend toward deregulation. Primus has targeted North America, Asia-
Pacific, Europe and, most recently, with the pending Merger with TresCom, the
Caribbean and Central and South America, as its service regions. Primus
currently provides services in the United States, Canada, Mexico, Australia,
Japan and the United Kingdom. Primus expects to continue to expand into
additional countries as worldwide deregulation continues and Primus is
permitted to offer a full range of switched public telephone services in those
countries. Primus is implementing the Network and, to further finance the
development of the Network, has announced that it proposes to make an offering
of New Notes which will not be registered under the 1933 Act, and which may
not be offered or sold absent registration or an exemption from the
registration requirements of the 1933 Act. Primus expects that the Proposed
Note Offering will result in net proceeds of approximately $144 million. This
Joint Proxy Statement/Prospectus shall not be construed as an offer to sell,
or a solicitation of an offer to buy, any such New Notes. The completion of
the Merger is not conditioned upon the completion of the Proposed Note
Offering, and the Proposed Note Offering is not conditioned upon the
completion of the Merger.
Primus targets, on a retail basis, small- and medium-sized businesses and
ethnic residential customers with significant international long-distance
traffic and, on a wholesale basis, other telecommunications carriers and
resellers with international traffic. Primus provides a broad array of
competitively priced telecommunications services, including international long
distance, domestic long distance, international and domestic private networks,
reorigination services, prepaid and calling cards and toll-free services, as
well as local and cellular services in Australia. Primus markets its services
through a variety of channels, including direct sales, independent agents and
direct marketing.
Primus Strategy. Primus's objective is to become a leading global provider
of international and domestic long distance, voice, data and value-added
services. Key elements of Primus's strategy to achieve this objective include:
. Focusing on Customers with Significant International Long-Distance
Usage.
. Pursuing Early Entry into Selected Deregulating Markets.
. Implementing its Intelligent International Network.
. Delivering Quality Services at Competitive Prices.
. Providing a Variety of Services.
. Growing through Selected Acquisitions.
Services. Primus offers a broad array of telecommunications services through
its own global intelligent network and through interconnection with the
networks of other carriers. The Company offers the following services:
international and domestic long distance; private network services; toll-free
services; prepaid and calling cards; reorigination services; cellular
services; and local switched services.
Network. Primus believes that the continued strategic development of its
Network will lead to reduced transmission and other operating costs as a
percentage of net revenue and reduced reliance on other carriers. The
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Network consists of international and domestic switches and points of
presence, and a combination of owned undersea fiber optic cable, leased
facilities, resale arrangements and correspondent agreements.
The Network currently is comprised of 11 switches, including 7 international
gateway switches in Washington, D.C., New York, Los Angeles, Toronto,
Vancouver, London and Sydney, and additional domestic switches in Melbourne,
Brisbane, Perth and Adelaide. Primus is currently installing an additional
international gateway switch in Frankfurt, Germany. These international
gateway switches are connected to the domestic and international networks of
both Primus and other carriers in each country.
Primus owns and leases international fiber optic cable capacity and
currently has capacity via ownership and indefeasible rights of use ("IRUs").
Primus was incorporated in Delaware in February 1994. The executive offices
of Primus are located at 1700 Old Meadow Road, McLean, Virginia 22102 and its
telephone number is (703) 902-2800.
BUSINESS OF TRESCOM
General. TresCom is a facilities-based long-distance telecommunications
carrier focused on international long-distance traffic. TresCom offers a broad
array of competitively priced services, including long distance, calling
cards, prepaid debit cards, domestic and international toll-free calling,
frame relay and bilingual operator services. TresCom provides long-distance
service to approximately 230 countries and territories through an
international network consisting of: (i) owned facilities, concentrated in a
Caribbean hub linking the United States, the Caribbean and South and Central
America; (ii) direct operating and transit agreements with various PTTs and
foreign telecommunications administrations ("TAs"); and (iii) leased capacity.
TresCom markets its services on a wholesale basis to other
telecommunications carriers and resellers and on a retail basis to residential
and commercial customers, ranging in size from small businesses to Fortune 500
companies. To take advantage of the benefits associated with its network,
TresCom targets its United States mainland sales and marketing efforts towards
customers with significant southbound international long-distance traffic.
These customers include businesses with sales or operations in the Caribbean,
South and Central America and Mexico (referred to collectively herein as
"Latin America"), as well as the rapidly growing Hispanic population in the
United States. During 1997, TresCom further increased its sales and marketing
efforts directed towards residential and commercial customers, while
maintaining its carrier and reseller customer base. In emerging markets in
Central and South America, TresCom has teamed up with local agents and expects
to generate international traffic originating from those markets. As part of
TresCom's marketing activities, TresCom has entered into joint marketing and
promotional arrangements with certain other companies, including Coca-Cola,
Shell Oil Company, Seagrams, Walgreens Drug Stores, Papa John's Pizza and
Spec's Music pursuant to which such companies have agreed to market their
products or services with those of TresCom.
TresCom was formed in December 1993 and acquired The St. Thomas and San Juan
Telephone Company, Inc. ("STSJ"), a United States Virgin Islands ("U.S.V.I.")
and Puerto Rico based long-distance carrier, in February 1994. TresCom has
experienced significant growth through a combination of internal growth and
acquisitions, including the November 1994 acquisition of Total
Telecommunications, Inc. ("TTI"), which was a Fort Lauderdale based inter-
exchange carrier. STSJ and TTI are referred to collectively herein as the
"Predecessors."
Services. TresCom offers a broad array of services to its customers, both
through its owned facilities and through contractual arrangements with other
carriers. TresCom's service offerings include direct dial "1 plus" and toll-
free long distance, calling and debit cards, international toll-free service,
24-hour bilingual operator services, intra-island local service in Puerto
Rico, private lines, frame relay, international inbound service and
international callthrough services from selected markets. TresCom markets its
products under a number of registered and common law service marks including
TresCom SM, Terafon SM, Express USA SM, as well as various
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registered logos. TresCom has the capability to route calls over multiple
alternative paths, thus offering full redundancy. TresCom also offers
customized country calling plans that help customers manage their long-
distance costs for high-volume destinations.
In addition to direct dial "1 plus" and toll-free long-distance services,
TresCom's service offerings include:
. Calling and Debit Cards. TresCom's international calling cards provide
access to more than 230 countries and territories and international
origination and termination. TresCom's debit cards provide payment
convenience and are rechargeable.
. International Toll-Free Service. Also known as "International 800," this
service permits customers to place calls terminating in the United States
(including the U.S.V.I. and Puerto Rico) from a foreign country on a
toll-free basis. As of December 31, 1997, TresCom's international toll-
free service was available for origination from over 40 countries.
. 24-hour Bilingual Operator Services. TresCom offers a full range of
operator services to residential and commercial customers. A staff of
operators fluent in English and Spanish can be accessed to complete
collect, third party, person-to-person, station-to-station and credit
card validation calls.
. Intra-Island Local Service. TresCom offers local calling services in
Puerto Rico, pursuant to which customers can make local calls on the
island at very competitive rates.
. Private Lines. TresCom leases to customers dedicated private lines that
provide high capacity between predetermined locations for voice and data
services.
. Frame Relay. TresCom offers frame relay, a transmission standard which
utilizes multiplex technology. Frame relay enables multiple users to
share communications bandwidth for enhanced data transmission. TresCom's
frame relay capabilities are compatible with frame relay networks around
the world.
. International Inbound Services. TresCom offers international inbound
calling services which provide collect calling to the United States and
calling card services with United States terminations. In 1997, TresCom
expanded its marketing programs in Honduras, Nicaragua and Panama and
intends to launch new programs in the Dominican Republic. Planning is
underway for similar services in key South American countries. There can
be no assurance, however, that TresCom will be able to launch such
services or that, if launched, such services will be successful.
. International Callthrough Services. In 1997, TresCom began providing
international callthrough services from selected markets, which enables
offshore customers to place international calls at significantly reduced
rates.
. Wholesale and Retail Billing Services. TresCom offers the capability for
wholesale and retail traffic repricing for international and domestic
traffic as well as advanced personal computer billing services.
New services TresCom expects to introduce in 1998 include:
. International Call-Center Services. TresCom intends to offer products
supporting U.S.-based international call centers with prepaid long
distance.
. International Marketlink. TresCom intends to provide products enabling
off-shore businesses to offer toll-free access for customers in the
United States.
There can be no assurance that TresCom will be able to launch any of the
proposed services in 1998 or thereafter, or that, if launched, such services
will be successful.
Marketing and Sales. TresCom markets its services on a wholesale basis to
other telecommunications carriers and resellers and on a retail basis to
residential and commercial customers ranging in size from small businesses to
Fortune 500 companies. Through its direct sales force and through independent
sales and telemarketing agents, TresCom targets customers in the United
States, the U.S.V.I. and Puerto Rico with significant international telephone
usage, particularly southbound calls to Latin America.
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WHOLESALE. TresCom's wholesale customers include both facilities-based
carriers and switched and switchless resellers who purchase TresCom's services
for resale to their own customers. TresCom uses its direct sales force to
market its services to wholesale customers and participates in and advertises
at key carrier industry trade shows. During 1997, TresCom was not dependent on
any one customer to provide more than 5% of its total annual revenues.
RETAIL. TresCom's retail customer base is comprised of residential and
commercial customers. TresCom markets its services to retail customers
primarily through direct sales representatives and through independent sales
representatives and telemarketing agents. Sales techniques such as joint
marketing arrangements, direct mail, promotions and advertising are employed
by TresCom as well.
DIRECT SALES. TresCom's direct sales force targets major accounts and
small to medium size businesses with significant southbound traffic to Latin
America. The sales representatives receive commissions based upon the revenues
received by TresCom from new customers. As of December 31, 1997, TresCom had
approximately 100 direct sales and marketing employees. TresCom intends to
expand its direct sales force as a part of its growth strategy by adding sales
representatives to its sales offices located in New York, Florida, Georgia,
southern California, the U.S.V.I and Puerto Rico. During 1997, TresCom began
performing a portion of its telemarketing activities in house.
U.S. INDEPENDENT SALES REPRESENTATIVES AND TELEMARKETING AGENTS. TresCom
supplements its direct sales efforts by marketing through a network of
independent sales representatives and telemarketing agents. As of December 31,
1997, TresCom had approximately 150 independent sales representatives and
telemarketing agents. Independent sales representatives generally enter into
sales agreements with TresCom providing for commissions to be paid based on
revenues generated for TresCom. Telemarketing agents are generally paid on an
hourly basis or on a per sale basis and receive no commission. TresCom
typically grants a nonexclusive right to solicit customers and requires that
its agents maintain a minimum quota.
INTERNATIONAL/OFFSHORE SALES AND MARKETING AGENTS. TresCom has entered
into agreements with independent sales representatives in non-U.S. locations
to sell its international calling services from that country to the United
States and beyond. Offshore sales and marketing support programs continue to
increase revenues from TresCom's offshore phonebooths, international calling
cards and in-country access networks.
JOINT MARKETING ARRANGEMENTS. TresCom enters into joint marketing
arrangements with other companies to increase name recognition and customer
awareness and to generate referrals of potential customers who can then be
contacted by TresCom's sales representatives and telemarketing agents.
PROMOTIONS AND ADVERTISING. TresCom engages in various promotional
activities, such as sponsorship of the Shell Air and Sea Show and various
civic and charity events. TresCom engages in such promotional opportunities to
target specific customer groups. In addition, TresCom has continued utilizing
print advertising which targets heavy users of international
telecommunications services. TresCom advertises in publications such as World
Trade Magazine, Latin Trade Magazine and Global Sites Magazine. In the
residential market, TresCom has targeted Spanish speaking consumers by
advertising in Spanish language newspapers, direct mail campaigns and Spanish
radio and television advertising. TresCom believes that continued focus on the
growing domestic Hispanic market will attract customers with heavy long-
distance usage to Latin America.
Customer Service. TresCom strives to provide superior customer care and
believes that the quality of its customer service is one of its competitive
advantages. TresCom has a fully staffed multilingual Customer Care Department
available through "toll-free" access, as well as a Trouble Reporting Center
with extensive industry and technical expertise to cater to TresCom's
wholesale customers. In order to facilitate quality customer service, TresCom
has designed and implemented computerized customer profiles and billing
information to permit rapid access by its customer service professionals to
billing records, thus enabling a prompt response to inquiries.
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TresCom direct bills certain wholesale customers, its larger business
accounts, and a small percentage of its small business and residential
customers. In many cases, these customers and accounts have customized billing
arrangements, including bilingual billing, to help them achieve better
management of their long-distance telecommunications needs. TresCom has
multiple billing and delivery methods including billing files delivered via
bulletin board system, software to allow commercial customers to better manage
their long-distance bills through various sorting and classification
functions, magnetic media, bill image or diskette. TresCom believes that
flexible customized billing is an important value-added service that is a key
factor in attracting and retaining commercial customers. TresCom's small
business and residential customers are generally billed by their respective
LECs, which charge for TresCom's services in a monthly, all-inclusive invoice
sent to the customer.
Network. Under direct operating and transit agreements with PTTs and TAs,
TresCom transmits customer calls through an international network consisting
of ownership interests in undersea digital fiber optic transmission cables and
leased capacity from other carriers. Through its owned switching facilities
and network infrastructure, TresCom continuously monitors its network to
optimize routing of calls over the least cost route available on its
international network.
OWNED FACILITIES. TresCom's international network utilizes digital fiber
optic circuits to transmit long-distance calls. TresCom's transmission
facilities include ownership interests in international undersea digital fiber
optic transmission cables linking the United States, Europe, the Caribbean and
South and Central America. TresCom's owned network also includes wholly-owned
microwave relay and satellite earth station equipment linking the mainland
United States, Puerto Rico and the U.S.V.I. that provide redundancy and
diversity to its ownership interests in digital fiber optic transmission
cables.
The international undersea digital fiber optic cables in which TresCom has
an investment are owned and operated through consortium arrangements between
various international telecommunications service providers, which include
United States carriers, foreign PTTs and foreign TAs. Typically, participation
in a consortium includes those carriers which have the operating authority to
provide direct international service and have direct operating agreements with
the PTTs or TAs in the countries served by the cables. In most cases,
ownership in cables is acquired solely through the purchase of minimum
increments of capacity or Minimum Investment Units ("MIUs"). In instances
where a carrier has not purchased ownership interests in the cable prior to
the time it was placed in service, the carrier is only permitted to acquire
capacity on that cable through the purchase, by way of a lump sum payment, of
an IRU. The fundamental difference between an IRU holder and an owner of MIUs
is that the IRU holder is not entitled to participate in management decisions
relating to the cable system. TresCom currently owns MIUs in the Americas 1
Cable System, the Americas II Cable System, the Columbus II Cable System, the
Columbus III Cable System, the Eastern Caribbean Fiber Cable System, the
Taino-Carib Cable System, the Antillas I Cable System, the Bahamas II Cable
System and the Pan American Cable System. TresCom obtained MIUs in the
Americas II Cable System and the Columbus III Cable System during 1997.
TresCom's investments in the TCS-1 Cable System, the Bahamas I Cable System,
the PTAT-1, the CARAC Cable Systems, the CANUS Cable System, the CANTAT 3
Cable System, the ODIN Cable System and the RIOJA Cable System are in the form
of IRUs. The various consortium arrangements to which TresCom is a party
contain restrictions on the transfer of use, provide for the acquisition of
additional capacity, designate maintenance responsibility and contain
arrangements regarding system design modifications. TresCom's investment in
certain cables is currently limited to the portion of the cable in which
TresCom is routing traffic. TresCom has a right to acquire capacity on the
remaining portions of the system through the payment of additional amounts.
TresCom's network infrastructure and digital switches provide the means to
maximize its owned and leased international facilities. Digital switches
located in Fort Lauderdale, Florida; New York, New York; and Guaynabo, Puerto
Rico; provide the entry and exit gateways for TresCom's international network.
An enhanced services switch located in Miami, Florida, allows TresCom to offer
value-added services such as calling and debit cards and international
callthrough services.
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During 1997, TresCom completed several strategic projects that enable it
to utilize its international network more efficiently. Advanced C7, or
international signaling, enhancements were implemented on several key
international routes; compression equipment technology, both traditional DCME
based and advanced voice over frame relay and secured domestic facilities was
implemented; and construction of a Network Management Center in Fort
Lauderdale was begun to effectively control TresCom's network from one
centralized location.
TresCom's owned switching systems and network infrastructure permit
TresCom to maximize the portion of its call traffic that is carried on
TresCom's own network rather than by other carriers, and therefore to realize
economies of scale. Switches are digital computerized routing facilities that
receive calls, route calls through transmission lines to their destination and
record information about the source, destination and duration of calls.
TresCom also uses its computerized network switching equipment to continuously
monitor its network to optimize the routing of calls over the least cost route
available on its international network. To maintain effectiveness and minimize
its costs, TresCom continuously evaluates the addition of new switches, points
of presence and other facilities as its customer base expands.
LEASED CAPACITY AND DIRECT OPERATING AND TRANSIT AGREEMENTS. TresCom's
international network is composed of leased capacity from other carriers and
direct operating and transit agreements with PTTs and TAs. These arrangements
permit TresCom to transmit and terminate calls over networks of other
carriers. TresCom's contracts with these entities typically have terms ranging
from one to five years, with clauses providing for negotiated renewals.
Contracts with PTTs and TAs typically have longer terms than those with
domestic United States carriers.
TresCom uses leased capacity to provide long-distance services in areas
where it does not own transmission facilities and to provide redundancy where
it does own such facilities. TresCom's ability to operate profitably depends,
in part, on planning the mix of circuits and transmission capacity to be
leased or used for each switching center, so that calls are completed on a
cost effective basis without compromising service, transmission quality or
reliability. As TresCom expands its services into a new area, services are
provided via leased capacity from other carriers on a variable cost, usage-
sensitive basis. When the volume of traffic in a market is sufficient to
justify additional investment, TresCom will enter into long-term fixed-price
arrangements such as fiber optic cable or satellite transmission capacity.
For international traffic, TresCom can terminate traffic via leased
capacity from other carriers or through direct operating agreements with
foreign PTTs and TAs. Direct operating agreements provide for the termination
of traffic in, and return of traffic to, the parties' respective countries for
mutual compensation through negotiated settlement rates. Direct operating
agreements between a United States based international carrier and a foreign
carrier provide that a foreign carrier will return the same percentage of
total United States terminating traffic as it receives from the United States
based carrier and also provide for network coordination and accounting and
settlement procedures. In addition to specifying the terms for accounting and
settlement procedures, certain of the direct operating agreements to which
TresCom is a party also specify the services to be provided (e.g., switched
services, operator-assisted calls or debit card services), the currency to be
used to determine payment, the time of payment and the duration of the
arrangement. These agreements help to reduce costs on TresCom's network by
allowing for the termination of calls at rates lower than those available in
some cases and create opportunities for revenue enhancement through the
receipt of return traffic as well as the transmission of traffic on a
wholesale basis for other carriers and resellers which do not have similar
agreements.
As of April 27, 1998, TresCom had 26 direct operating and transit
agreements with PTTs and TAs. Currently, TresCom is negotiating direct
operating and transit agreements with PTTs and TAs in certain other countries,
although there can be no assurance that TresCom will be able to enter into
such agreements.
Included in the group of carriers providing leased capacity to TresCom's
network are AT&T, MCI, WorldCom, Sprint, niche carriers with direct operating
agreements to specific countries and resellers with large volume and long-term
contracts for international capacity on AT&T, MCI, WorldCom and Sprint
facilities.
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Competition. The telecommunications industry is highly competitive and
affected by rapid regulatory and technological change, as well as corporate
consolidation. TresCom believes that the principal competitive factors in its
business include customer service, pricing, network quality, service offerings
and the flexibility to adapt to changing market conditions. TresCom's future
success will depend upon its ability to compete with AT&T, MCI, WorldCom,
Sprint and other United States based and foreign carriers, many of which have
considerably greater financial and other resources than TresCom. Certain of
the larger United States based carriers have entered into joint ventures with
foreign carriers to provide international services. In addition, certain
foreign carriers have entered into joint ventures with other foreign carriers
to provide international services and have begun to compete or invest in the
United States market, creating greater competitive pressures on TresCom. See
"--Management's Discussion and Analysis of Financial Condition and Results of
Operations--Certain Factors Which May Affect TresCom's Future Results--
Competition."
TresCom believes it competes favorably in its targeted markets, due to its
bilingual operator and billing services, competitive pricing, high network
quality and broad array of service offerings. TresCom also believes that its
success will increasingly depend on its ability to offer, on a timely basis,
new services based on evolving technologies and industry standards. There can
be no assurance that new technologies or services will be available to TresCom
on favorable terms.
Regulatory trends have had, and may have in the future, significant effects
on competition in the industry. See "--Regulatory Environment."
Regulatory Environment. TresCom's business operations are subject to
extensive federal and state regulation. Federal laws and regulations of the
FCC apply to interstate telecommunications (including international
telecommunications that originate or terminate in the United States), while
particular state regulatory authorities have jurisdiction over
telecommunications originating and terminating within the same state. The laws
of other countries only directly apply to carriers doing business in those
countries. Thus, when TresCom conducts business with its foreign
correspondent, it is affected indirectly by such laws insofar as they affect
the foreign carrier. There can be no assurance that future regulatory,
judicial and legislative changes will not have a material adverse effect on
TresCom, that domestic or international regulators or third parties will not
raise material issues with regard to TresCom's compliance with applicable
regulations or that regulatory activities will not have a material adverse
effect on TresCom. See "--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Certain Factors Which May Affect
TresCom's Future Results--Regulatory and Legislative Risks."
FEDERAL. The FCC has classified TresCom as a non-dominant interexchange
carrier. Generally, the FCC has chosen not to exercise its statutory power to
closely regulate the charges, practices or classifications of non-dominant
carriers. Nevertheless, the FCC acts upon complaints against such carriers for
failure to comply with statutory obligations or with the FCC's rules,
regulations and policies. To date, there have been no such complaints against
TresCom. The FCC also has the power to impose more stringent regulatory
requirements on TresCom and to change its regulatory classification. In the
current regulatory atmosphere, TresCom believes that the FCC is unlikely to do
so.
Among domestic carriers, only the LECs are currently classified as
dominant carriers. Thus, the FCC regulates many of the LECs' rates, charges
and services to a greater degree than TresCom's. Until October 1995, AT&T was
classified as a dominant carrier but AT&T successfully petitioned the FCC for
non-dominant status in the domestic interstate and inter-exchange market.
Therefore, certain pricing restrictions that once applied to AT&T have been
eliminated, likely making AT&T's prices more competitive with TresCom's.
TresCom has the authority to provide domestic, interstate
telecommunications services. TresCom has also been granted authority by the
FCC to provide switched international telecommunications services through the
resale of switched services of United States facilities-based carriers and to
provide certain international telecommunications services by acquiring
circuits on various undersea cables or leasing certain satellite facilities.
The FCC reserves the right to condition, modify or revoke such domestic and
international authority for
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violations of the Communications Act of 1934, as amended (the "1934
Communications Act"), or the FCC's regulations, rules or policies promulgated
thereunder. Although TresCom believes the probability to be remote, a
rescission by the FCC of TresCom's domestic or international authority or a
refusal by the FCC to grant additional international authority would have a
material adverse effect on TresCom.
Both domestic and international non-dominant carriers must maintain
tariffs on file with the FCC. TresCom is required to file tariffs containing
detailed actual rate schedules for both its domestic and international
tariffs. In 1995, the FCC adopted new rules which have required TresCom to
cancel and withdraw its tariffs covering interstate domestic services by
September 22, 1997. The FCC's order was appealed and effectively has been
stayed pending resolution of the appeal.
As a non-dominant carrier, TresCom is also subject to a variety of
miscellaneous regulations that, among other things, govern the documentation
and verifications necessary to change a consumer's long-distance carrier;
limit the use of toll-free long distance; require certain disclosures
regarding operator services; in some cases, limit foreign ownership and
control; and require prior approval of transfers of control. For instance,
TresCom could not continue to hold certain radio licenses it now holds if its
foreign ownership level reaches 20%.
To date, the FCC has exercised its regulatory authority to supervise
closely the rates only of dominant carriers. However, the FCC has increasingly
relaxed its control in this area. As an example, the FCC is in the process of
repricing local access charges (the fee for the use of the LECs' transmission
facilities connecting the LECs' central offices and the inter-exchange
carrier's access point). In addition, the LECs have been afforded a degree of
pricing flexibility in setting access charges where adequate competition
exists, and the FCC is considering certain proposals which would relax further
LEC access regulation. The impact of such repricing and pricing flexibility on
facilities based inter-exchange carriers, such as TresCom, cannot be
determined at this time.
On February 1, 1996, the United States Congress enacted comprehensive
telecommunications reform legislation, which the President signed into law as
the Telecommunications Act of 1996 on February 8, 1996. The Telecommunications
Act of 1996 amended the 1934 Communications Act to impose a legal duty on all
telecommunications carriers (i) not to prohibit or unduly restrict resale of
their services; (ii) to provide dialing parity and nondiscriminatory access to
telephone numbers, operator services, directory assistance and directory
listings; (iii) to afford access to poles, ducts, conduits and rights-of-way;
and (iv) to establish reciprocal compensation arrangements for the transport
and termination of telecommunications.
In addition, under the terms of the Telecommunications Act of 1996, the
RBOCs were released from the constraints of the Modification of Final
Judgment, the judicial consent decree resulting from the Bell System
divestiture. On February 28, 1996, the Department of Justice recommended that
the presiding judge terminate the decree.
The Telecommunications Act of 1996 transferred enforcement of the
obligations of the Modification of Final Judgment from the District Court to
the FCC, eliminated some of the restrictions immediately and created
requirements and timetables for the removal of others. As a consequence, the
RBOCs may offer long-distance services outside their local telephone service
territories almost immediately, including international services which compete
with TresCom. Subject to the FCC finding that the necessary prerequisites have
been met, the RBOCs will be authorized to provide such services within their
local telephone service areas at some future point. As a result, TresCom will
likely face additional competition from RBOCs.
The FCC has determined that call-back services using uncompleted call-
signaling violates neither United States domestic nor international law. Call-
back services involve calls originating in a foreign country directed in such
a manner as to give the foreign caller the advantage of the lower charges for
outbound United States calls. However, United States call-back providers are
not authorized to provide service to customers in countries which expressly
have declared such call-back services to be illegal. The FCC will receive
documentation from any government which seeks to place United States carriers
on notice that call-back services
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using uncompleted call signaling has been expressly declared illegal in its
country. TresCom provides services to resellers and other carriers that
provide such call-back services. In the event that call-back services are
determined to be illegal in a given country, TresCom may lose revenues that
are derived from call-back services to that country.
The microwave and satellite communications licenses held by TresCom are
subject to FCC regulations. Such licenses were granted for fixed terms. The
majority of these licenses expire within five years, and the remainder will
expire within nine years. TresCom intends to seek renewal of its licenses and
anticipates that they will be renewed in the ordinary course. Failure to
obtain renewal of its licenses could have a material adverse effect on
TresCom.
Authorizations held under Section 214 of the 1934 Communications Act (such
as those held by TresCom) for international services traditionally have been
granted for the provision of services or use of facilities between the United
States and countries specified in the authorizations and may now be granted,
in appropriate circumstances, on a global basis. TresCom holds all necessary
Section 214 authorizations for conducting its present business but may need
additional authority in the future. In some cases, carriers may not be able to
lease lines between the United States and an international point for the
purpose of offering switched services, unless the FCC first determines that
the foreign country affords opportunities to United States carriers equivalent
to those available under United States law. In addition, if TresCom is acting
as a reseller, it cannot provide a service interconnected with the public
switched network at only one end to a country that has not been found
equivalent. Facilities-based carriers can do so however. The FCC adopted an
Order on February 29, 1996, that reduced the regulatory burdens imposed on
international carriers, making it easier for TresCom to provide and expand its
international services but also making it easier for competitive entry by
other carriers.
The FCC has promulgated certain rules governing the offering of
international switched telecommunications. Such calls typically involve a
bilateral, correspondent relationship between a carrier in the United States
and a carrier in the foreign country. Until recently, the United States was
one of a few countries to allow multiple carriers to handle international
calls; almost all foreign countries authorized only a single carrier, often a
state-owned monopoly, to provide telecommunications services. In light of the
disparate bargaining positions of the United States carriers, the FCC imposed
certain requirements to try to minimize the opportunities that dominant
foreign telecommunications providers would have to counterpose one United
States carrier against another. These policies include the International
Settlement Policy, which requires that the accounting or settlement rate for
all carriers be uniform on parallel routes and traffic received by a United
States carrier from a foreign carrier must be proportional to the traffic that
the United States carrier terminates to a foreign carrier. The FCC has adopted
a policy to consider proposals for deviation from uniform settlements in the
case of countries with competitive multi-carrier markets. TresCom has numerous
agreements with foreign carriers providing for the handling of switched calls.
The FCC also has adopted new rules that set the maximum rate that United
States carriers should pay foreign carriers for terminating switched voice
traffic in their country. A number of foreign carriers and government entities
have appealed this ruling. Even if upheld on appeal, it is impossible at this
time to predict how the new rules would affect TresCom's business.
Additionally, the FCC enforces certain requirements which derive from the
regulations of the International Telecommunications Union. These regulations
may further circumscribe the correspondent relationships described above. In
addition to settlement rates, these regulations govern certain aspects of
transit arrangements, wherein the originating carrier may contract with an
interim carrier in a second country to terminate service in a third country.
TresCom has transit agreements with foreign carriers. Such agreements may
allow TresCom to pay less than the full accounting rate it would have to pay
if it had a direct operating agreement with the terminating country. However,
TresCom is unaware of any instance in which a terminating country has objected
with respect to any of TresCom's traffic. If a terminating country objects in
the future to such transit arrangements, TresCom may be required to secure
alternative arrangements.
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The trade agreement reached on February 15, 1997 among the 68 countries in
the WTO Agreement also may have an impact on worldwide competitive market
conditions. Pursuant to the WTO Agreement, which went into effect on February
5, 1998, the United States has made certain commitments to permit access to
the United States market by foreign telecommunications service providers. In
November 1997, the FCC completed its proceeding to review and modify its
international telecommunications policies and regulations in light of United
States obligations under the WTO Agreement. As a result of this proceeding,
the FCC eliminated its reciprocity requirements and in general eased its entry
and other regulatory requirements applicable to carriers from WTO member
countries. Correspondingly, telecommunications markets in many foreign
countries are expected to be significantly liberalized, creating additional
competitive market opportunities for United States telecommunications
operators such as TresCom.
STATE. The intrastate, long-distance telecommunications operations of
TresCom are also subject to various state laws, regulations, rules and
policies. Currently, TresCom is certified, tariffed or otherwise qualified to
provide service in 48 states and Puerto Rico. Additionally, TresCom provides
service in certain states that do not require certification or registration of
any form. TresCom intends to obtain any necessary authorization in all states
that require certification or registration.
The vast majority of states require TresCom to apply for certification to
provide telecommunications services before commencing intrastate service and
to file and maintain detailed tariffs listing the rates for intrastate
service. Many states also impose various reporting requirements and require
prior approval for all transfers of control of certified carriers, assignments
of carrier assets, carrier stock offerings and the incurrence by carriers of
certain debt obligations. In some states, prior regulatory approval may be
required for acquisitions of telecommunications operations.
FOREIGN. TresCom provides international services by either reselling the
services of other carriers or by entering into direct operating or transit
agreements with PTTs and TAs. Generally, PTTs are state-owned and operated
monopolies and TAs are former PTTs which have been privatized. Although the
services currently provided by TresCom are not directly subject to the laws of
other countries, the foreign carriers with whom TresCom conducts business are
subject to those laws. Consequently, any changes to the laws of a country
served by TresCom could have a material adverse effect on TresCom.
Employees. As of April 27, 1998, TresCom had approximately 250 employees.
None of TresCom's employees are members of a labor union or are covered by a
collective bargaining agreement. Management believes that TresCom's
relationship with its employees is good.
Properties. TresCom's headquarters in Fort Lauderdale, Florida consist of
approximately 20,600 square feet of office space under leases that expire
through April 2003. In addition, TresCom leases an aggregate of approximately
70,000 square feet where it maintains its sales offices or switches. TresCom's
sales offices are located in Fort Lauderdale, Florida; Hollywood, Florida;
Tampa, Florida; New York, New York; Los Angeles, California; Atlanta, Georgia;
Guaynabo, Puerto Rico; St. Thomas, U.S.V.I.; and its switches are located in
Fort Lauderdale, Florida; Miami, Florida; New York, New York; and Guaynabo,
Puerto Rico.
Management believes that TresCom's present office facilities, together with
additional space available under expansion options, are adequate for its
operations for the foreseeable future and that similar additional space can
readily be obtained as needed.
Legal Proceedings. TresCom is from time to time involved in litigation
incidental to the conduct of its business. There is no pending legal
proceeding to which TresCom is a party which, in the opinion of TresCom's
management, is likely to have a material adverse effect on TresCom's financial
condition or results of operations; however, due to the inherent uncertainty
of litigation, there can be no assurance that the resolution of any particular
claim or proceeding would not have a material adverse effect on TresCom's
financial condition or results of operations for the fiscal period in which
such resolution occurred.
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Selected Financial Data. The following selected consolidated financial data
for TresCom and the Predecessors should be read in conjunction with the
attached financial statements and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included below.
The selected consolidated financial data of the combined Predecessors, the
combined Predecessors and TresCom and TresCom presented below under "Statement
of Operations Data" for the year ended December 31, 1993, the period from
January 1, 1994 to November 30, 1994, the year ended December 31, 1994 for
both the combined Predecessors and TresCom and TresCom, and the years ended
December 31, 1995, 1996 and 1997 for TresCom and "Balance Sheet Data" as of
December 31, 1994, 1995, 1996 and 1997, have been derived from the audited
consolidated financial statements of TresCom and the Predecessors. The
selected consolidated financial data as of December 31, 1993 has been derived
from the unaudited financial statements of TresCom and the Predecessors, which
include all adjustments TresCom considers necessary for a fair presentation of
the financial information set forth therein.
<TABLE>
<CAPTION>
COMBINED
PREDECESSORS
COMBINED PREDECESSORS AND TRESCOM TRESCOM
------------------------- ------------ --------------------------------------
PERIOD FROM
YEAR JANUARY 1, YEAR
ENDED 1994 TO ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, NOVEMBER 30, DECEMBER 31, --------------------------------------
1993(1) 1994(2) 1994(3) 1994(4) 1995 1996 1997
------------ ------------ ------------ -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND REVENUE PER MINUTE OF USE)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $27,900 $18,871 $ 50,290 $ 31,419 $102,641 $139,621 $157,641(5)
Cost of services........ 15,994 11,802 32,603 20,801 74,679 106,928 124,365
------- ------- -------- -------- -------- -------- --------
Gross profit............ 11,906 7,069 17,687 10,618 27,962 32,693 33,276
Selling, general and
administrative......... 11,078 7,222 29,432 22,210 32,437 30,808 36,386
Depreciation and
amortization........... 602 252 2,156 1,904 3,961 4,928 6,599
------- ------- -------- -------- -------- -------- --------
Operating income
(loss)................. 226 (405) (13,901) (13,496) (8,436) (3,043) (9,709)
Interest and other
(income) expense, net.. 130 134 693 559 3,191 578 1,146
------- ------- -------- -------- -------- -------- --------
Net income (loss) before
taxes and extraordinary
item................... 96 (539) (14,594) (14,055) (11,627) (3,621) (10,855)
Provision for income
taxes.................. 99 13 13 -- -- -- --
------- ------- -------- -------- -------- -------- --------
Loss before
extraordinary item..... (3) (552) (14,607) (14,055) (11,627) (3,621) (10,855)
Extraordinary item...... -- -- -- -- -- 1,956 --
Net loss................ $ (3) $ (552) $(14,607) $(14,055) $(11,627) $ (5,577) $(10,855)
======= ======= ======== ======== ======== ======== ========
Weighted average number
of shares of common
stock outstanding(6)... 3,120 10,671 11,890
Basic and Diluted net
loss per share of
Common Stock(6)........ $ (5.29) $ (.59) $ (.91)
OPERATING DATA:
Minutes of use.......... 81,724 175,568 93,843 330,296 455,481 537,867
Revenue per minute of
use.................... $ .23 $ .29 $ .33 $ .31 $ .31 $ .29
EBITDA(7)............... $ 828 $ (153) $ (6,299) $ (6,146) $ (4,336) $ 3,149 $ (2,853)
</TABLE>
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<TABLE>
<CAPTION>
COMBINED
COMBINED PREDECESSORS AND
PREDECESSORS TRESCOM TRESCOM
------------ ---------------- ------------------------------------
DECEMBER 31,
DECEMBER 31, DECEMBER 31, ------------------------------------
1993(1) 1994(3) 1994(4) 1995 1996 1997
------------ ---------------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.................... $ 1,786 $ -- $ -- $ 2,052 $ 6,020 $ 1,481
Working capital
(deficiency)........... 122 (8,674) (8,674) (30,012) 8,201 5,744
Total assets............ 13,718 61,565 61,565 72,630 101,610 108,429
Long-term obligations
due within one year.... 1,408 174 174 25,290 817 1,098
Long-term obligations... 8,817 26,114 26,114 702 3,965 19,593
Stockholders' (deficit)
equity ................ (2,147) 14,875 14,875 21,508 67,322 58,950
</TABLE>
- --------
(1) Includes approximately $25 of start-up costs incurred by TresCom from its
formation on December 8, 1993 through December 31, 1993.
(2) Includes operations for STSJ from January 1, 1994 through February 22,
1994 and operations for TTI from January 1, 1994 through November 30,
1994.
(3) Includes results of operations or period-end amounts, as applicable, for
each of TresCom and the Predecessors, as if the acquisition of each of the
Predecessors had occurred on January 1, 1994.
(4) Includes results of operations for STSJ from February 23, 1994 through
December 31, 1994 and results of operations for TTI from December 1, 1994
through December 31, 1994.
(5) In 1997, TresCom recognized $543 of revenue from the sale of excess IRU
capacity on undersea digital fiber optic transmission cables.
(6) The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Accounting Standards
No. 128, Earnings Per Share. For a further discussion of earnings per
share and the impact of Statement No. 128 see Notes 2, 5 and 13 to the
consolidated financial statements attached hereto.
(7) As used herein, "EBITDA" is defined as net income or loss plus
depreciation expense, amortization expense, interest and other expense,
income taxes and other non-cash charges, minus extraordinary income and
gains and non-cash income, if any, and plus extraordinary losses, if any.
EBITDA also includes an adjustment of $5,446 associated with the
revaluation of an acquired customer base for the combined Predecessors and
TresCom during 1994. While EBITDA should not be construed as a substitute
for operating income or a better measure of liquidity than cash flow from
operating activities, which are determined in accordance with generally
accepted accounting principles, it is included herein to provide
additional information regarding the ability of TresCom to meet its future
debt service, capital expenditures and working capital requirements.
EBITDA is not necessarily a measure of TresCom's ability to fund its cash
needs and is not necessarily comparable to similarly titled measures of
other companies.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
SUMMARY. TresCom is a facilities-based long-distance telecommunications
carrier focused on international long-distance traffic originating in the
United States. TresCom offers a broad array of competitively priced services,
including long distance, calling cards, prepaid debit cards, domestic and
international toll-free calling, frame relay and bilingual operator services.
TresCom derives its revenues by providing international and domestic long-
distance services on a wholesale basis to other telecommunications carriers
and resellers and on a retail basis to residential and commercial customers,
ranging in size from small businesses to Fortune 500 companies. Service
revenues are based on minutes of use and charged at a rate per minute which
varies according to the termination point of the traffic and time of day. All
revenues are billed in United States dollars.
Since its formation, TresCom has expanded its revenues, customer base and
network through internal growth and acquisitions. TresCom seeks to continue to
expand its revenues from internal growth through four distinct sales channels:
(i) direct sales efforts; (ii) an agent sales network; (iii) ethnic focused
telemarketing programs; and (iv) wholesale sales activities. In addition,
TresCom is constantly evaluating potential acquisition opportunities. TresCom
believes that it has established the network, operations, customer service,
infrastructure and systems necessary to support its expanding sales and
customer base for the foreseeable future.
A portion of TresCom's revenues are derived from wholesale sales.
Increased worldwide competition has continued to drive down wholesale prices.
Because of these changing market conditions, TresCom has carefully managed its
rate of growth to ensure continued profitability in the wholesale division.
TresCom intends to continue to pursue a growth strategy designed to leverage
its network capabilities and further expand its retail sales distribution
channels. TresCom also intends to continue to pursue its strategy of
increasing revenues derived
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from retail customers by increasing the focus on its sales and marketing
efforts to customers with significant southbound long-distance traffic. These
customers include businesses with sales or operations in Latin America and the
rapidly growing Hispanic population in the United States.
Cost of services includes those costs associated with the transmission
and termination of services over TresCom's international network. Transmission
and termination costs are TresCom's most significant expense, and TresCom
seeks to lower these costs through: (i) increasing volume on its owned
facilities, thereby spreading the allocation of fixed costs over a larger
number of minutes; (ii) negotiating lower cost direct operating and transit
agreements with PTTs and TAs; and (iii) optimizing the routing of calls over
the least cost route on its international network. Consistent with its
strategy of maximizing traffic carried on TresCom's own network, TresCom
significantly expanded its network switch capacity in 1997.
The majority of TresCom's cost of services is variable and consists of
payments for leased capacity from other carriers and payments to PTTs and TAs
with which TresCom has direct operating and transit agreements. See "--
Network--Leased Capacity and Direct Operating and Transit Agreements." Under
its direct operating agreements, TresCom agrees to send United States
originated traffic to the PTTs or TAs and the PTTs or TAs agree to send a
proportionate amount of return traffic at agreed upon accounting rates. If
there is an imbalance in the volume of traffic sent and received in return,
the carrier that originates more traffic pays for the difference to compensate
the other carrier. The difference is the settlement payment. Under TresCom's
direct operating agreements, TresCom's net settlement revenues and payments
are denominated in United States dollars.
TresCom's profitability is driven by the difference between net revenues
and the cost of leased capacity and settlement payments to PTTs and TAs. In
order to minimize the costs of leased capacity and settlement payments,
TresCom utilizes a Least Cost Routing System designed to transmit TresCom's
traffic over the least cost route choice on its network. Based on FCC data for
the period from 1989 through 1996, per minute settlement payments from United
States carriers to PTTs and TAs have declined at a significantly faster rate
than per minute billed revenues. Due to the WTO Agreement, TresCom expects
this trend to continue. See "--Regulatory Environment--Federal."
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996.
Revenues. Revenues increased 12.9%, or $18.0 million, from $139.6 million
in 1996 to $157.6 million in 1997 due to an increase in the volume of traffic
carried, offset, in part, by a decrease in average revenue per minute. Minutes
of use increased 18.1%, or 82.4 million, from 455.5 million in 1996 to 537.9
million in 1997. Although international traffic accounted for approximately
80.0% of TresCom's revenue in both 1997 and 1996, the overall revenue per
minute decreased to approximately $0.29 in 1997 from approximately $0.31 in
1996 as a result of continued international wholesale price pressures and a
change in the mix of international terminations. Historically, international
traffic has commanded a higher per minute rate than domestic traffic, however,
this gap has continued to decrease due to increased international competition.
Costs of Services. Costs of services increased 16.4%, or $17.5 million,
from $106.9 million in 1996 to $124.4 million in 1997. The increased costs are
a factor of increased minutes of use, the costs of which are variable in
nature, partially offset by a fractional decrease in the overall cost per
minute resulting from changes in the mix of international terminations and
lower termination costs derived from certain direct operating agreements.
Gross Profit. Gross profit increased 1.8%, or $0.6 million, from $32.7
million in 1996 to $33.3 million in 1997. As a percentage of revenues, gross
profit decreased from 23.4% in 1996 to 21.1% in 1997 reflecting the impact of
the international wholesale price pressures referred to above.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased 18.2%, or $5.6 million, from $30.8 million in
1996 to $36.4 million in 1997. After giving effect to a one-time $1.5 million
promotional credit for services rendered by a vendor in 1996, selling, general
and administrative expense, as a percentage of revenues, was approximately
23.1% for both 1997 and 1996. On an
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absolute basis, the increase was primarily due to variable costs associated
with growth in the retail business, such as advertising, commissions and
billing costs.
Depreciation and Amortization. Depreciation and amortization expense
increased 34.7%, or $1.7 million, from $4.9 million in 1996 to $6.6 million in
1997. The increased expense is due to depreciation of assets acquired to
support continued expansion of TresCom's network and amortization related to
acquired businesses and customer bases.
Interest and Other Expenses, Net. Interest and other expenses, net,
increased 83.3%, or $0.5 million, from $0.6 million in 1996 to $1.1 million in
1997. The increase is primarily due to additional borrowings under the
Revolving Credit Agreement.
Extraordinary Item. Extraordinary expense decreased 100%, or $2.0
million, from 1996 to 1997. The extraordinary expense in 1996 of $2.0 million
was a result of the early extinguishment of $35.8 million of indebtedness in
February of such year. Approximately $1.5 million was attributable to debt and
warrants payable to a major shareholder of TresCom and approximately $0.5
million was related to the write-off of deferred financing costs associated
with the Bank Facility (as hereinafter defined).
Net Loss. Net loss increased 94.6%, or $5.3 million, from $5.6 million in
1996 to $10.9 million in 1997 due to the above factors.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995.
Revenues. Revenues increased 36.1%, or $37.0 million, from $102.6 million
in 1995 to $139.6 million in 1996 due to a 37.9% increase in minutes of use
from 330.3 million in 1995 to 455.5 million in 1996, offset in part by a
fractional decrease in average revenue per minute resulting from pricing
pressures and a change in the mix of international terminations. In 1996,
approximately 80.0% of TresCom's revenue was derived from international
traffic compared with approximately 75.0% in 1995. Historically, international
traffic has commanded a higher per minute rate than domestic traffic, however
this gap is decreasing due to increased international competition.
Costs of Services. Costs of services increased 43.1%, or $32.2 million,
from $74.7 million in 1995 to $106.9 million in 1996. This increase resulted
from a greater percentage of international traffic in 1996 (approximately
80.0%) compared to 1995 (approximately 75.0%) as discussed above. The cost per
minute also increased in absolute terms due to higher cost countries within
the international mix.
Gross Profit. Gross profit increased 16.8%, or $4.7 million, from $28.0
million in 1995 to $32.7 million in 1996. As a percentage of revenues, gross
profit decreased from 27.3% in 1995 to 23.4% in 1996. The primary factors
contributing to the increase in gross profit are TresCom's mix of business and
continued international competitive pressures as described above in "Revenues"
and "Costs of Services."
Selling, General and Administrative Expense. Selling, general and
administrative expense decreased 4.9%, or $1.6 million, from $32.4 million in
1995 to $30.8 million in 1996. The 1995 selling, general and administrative
expense reflects a $4.1 million charge for a settlement with a major customer,
and a $1.7 million charge for expenses relating to Hurricane Marilyn (which
hit St. Thomas, a significant base of operations for TresCom, in September
1995). The 1996 expense reflects a $1.5 million promotional credit for
services rendered by a vendor and $0.6 million associated with a one-time cash
compensation charge relating to changes in executive management during the
year. After giving effect to these items, selling, general and administrative
expense, as a percentage of revenues, decreased from 26.0% in 1995 to 22.7% in
1996.
Depreciation and Amortization. Depreciation and amortization expense
increased 22.5%, or $0.9 million, from $4.0 million in 1995 to $4.9 million in
1996. The increased expense is due to depreciation of assets acquired during
1996 to support continued expansion of TresCom's network and corporate
infrastructure.
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Interest and Other Expenses, Net. Interest and other expense, net,
decreased 81.3%, or $2.6 million, from $3.2 million in 1995 to $0.6 million in
1996. The decrease is primarily due to the repayment of borrowings under a
Bank Facility between TresCom Network Services, Inc., a wholly-owned
subsidiary of TresCom, and a commercial bank (the "Bank Facility") and due to
the repayment of borrowings from a major shareholder, each in February 1996.
Extraordinary Item. The extraordinary expense in 1996 of $2.0 million was
a result of the early extinguishment of $35.8 million of indebtedness in
February of such year. Approximately $1.5 million was attributable to debt and
warrants payable to a major shareholder of TresCom and approximately $0.5
million was related to the write-off of deferred financing costs associated
with the Bank Facility.
Net Loss. Net loss decreased 51.7%, or $6.0 million, from $11.6 million
in 1995 to $5.6 million in 1996 due to the above factors.
LIQUIDITY AND CAPITAL RESOURCES. TresCom's liquidity requirements arise
from working capital needs, primarily the costs of services, selling, general
and administrative expenses, debt service and capital costs associated with
the expansion of switching and network capacity. TresCom is a holding company,
the principal assets of which are the capital stock of its direct subsidiaries
and has no independent means of generating revenues. As a holding company,
TresCom's internal sources of funds to meet its cash needs, including payment
of expenses, are dividends and other permitted payments from its direct and
indirect subsidiaries. Historically, TresCom's working capital requirements
have been funded primarily from the sale of equity securities, bank borrowings
and loans from shareholders.
During the fourth quarter of 1996, TresCom established a $5.0 million
line of credit with a commercial bank secured by certain accounts receivable
(the "Credit Facility"). The Credit Facility, as amended on March 27, 1997,
contained standard debt covenants relating to financial position and
performance, as well as restrictions on the declaration and payment of
dividends. Through July 31, 1997, TresCom was either in compliance with or
received waivers with respect to all covenants under the Credit Facility.
On July 31, 1997, TresCom entered into a $25.0 million Revolving Credit
and Security Agreement with a commercial bank (the "Revolving Credit
Agreement"). On such date, all borrowings under the Credit Facility were
repaid in full with borrowings under the Revolving Credit Agreement and the
Credit Facility was terminated. As of April 27, 1998, availability under the
Revolving Credit Agreement was $21.0 million, of which $16.5 million
(including $0.7 million of letters of credit) had been utilized. TresCom is
currently in compliance with all covenants contained in the Revolving Credit
Agreement.
During the third quarter of 1996, TresCom established a relationship with
a commercial bank to provide asset financing. TresCom utilized approximately
$4.3 million in the fourth quarter of 1996 for capital projects. An additional
$1.1 million was utilized in the second quarter of 1997 and an additional $0.6
million was utilized in the first quarter of 1998. Approximately $1.5 million
remains available for future capital expenditures.
TresCom currently has capital commitments of approximately $1.2 million.
Pending available financing, TresCom has identified approximately $9.0 million
of additional capital expenditures designed to expand TresCom's operations.
TresCom is currently reviewing various alternative financing arrangements.
There can be no assurance, however, that such alternative financing
arrangements will be available, or if available, on terms acceptable to
TresCom.
Based on management's projections, TresCom anticipates having sufficient
funds for its needs. If additional funds are needed and sources are not
available, TresCom's business and results of operations could be materially
adversely affected.
From time to time, TresCom evaluates acquisitions of businesses and
customer bases which complement the business of TresCom. Depending on the cash
requirements of potential transactions, TresCom
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may finance transactions with cash flow from operations, or TresCom may raise
additional funds by pursuing various financing vehicles such as new bank
financing or one or more public offerings, or private placements of TresCom's
securities. TresCom, however, has no present understanding, commitment or
agreement with respect to any material acquisition, and there can be no
assurance that any such acquisition will occur, or that the funds to finance
any such acquisition will be available on reasonable terms or at all.
Inflation is not a material factor affecting TresCom's results of
operations or financial condition. General operating expenses such as
salaries, employee benefits and occupancy costs are, however, subject to
normal inflationary pressures.
YEAR 2000. TresCom has determined that it will need to modify or replace
significant portions of its software so that its computer systems will
function properly with respect to dates in the year 2000 and beyond. The
majority of the software which needs to be replaced by TresCom is under
license from third-party software manufacturers who have indicated that they
will provide the necessary upgrades. TresCom also has initiated discussions
with its significant suppliers, large customers and financial institutions to
ensure that those parties have appropriate plans to remediate Year 2000 issues
where their systems interface with TresCom's systems or otherwise impact its
operations. TresCom is assessing the extent to which its operations are
vulnerable should those organizations fail to remediate properly their
computer systems.
TresCom's comprehensive Year 2000 initiative is being managed by a team
of internal staff and outside consultants. The team's activities are designed
to ensure that there is no adverse effect on TresCom's core business
operations and that transactions with suppliers, customers and financial
institutions are fully supported. TresCom is well under way with these
efforts, which are scheduled to be completed in early 1999. While TresCom
believes its planning efforts are adequate to address its Year 2000 concerns,
there can be no assurance that the systems of other companies on which
TresCom's systems and operations rely will be converted on a timely basis and
that such conversion will not have a material effect on TresCom. The cost of
the Year 2000 initiatives is not expected to be material to TresCom's results
of operations or financial position.
RECENT DEVELOPMENTS. In February 1998, TresCom entered into the Merger
Agreement with Primus and TAC. Pursuant to the terms of the Merger Agreement,
it is contemplated that TAC will merge with and into TresCom, that TresCom
will be the Surviving Corporation and that Primus will acquire 100% of the
issued and outstanding shares of TresCom Common Stock. The transaction is
expected to be completed during the second quarter of 1998 and is subject to,
among other things, the approval of both Primus's and TresCom's shareholders
and certain regulatory authorities.
INCOME TAXES. TresCom has generated significant net operating losses
("NOLs") both in Puerto Rico and in the United States. These NOLs may be
available to offset future taxable income, subject to the limitations
discussed below. STSJ generated NOL carryforwards totaling $3.4 million in
Puerto Rico before the date on which it was acquired by TresCom ("Puerto Rico
preacquisition NOLs"). TresCom has generated NOLs totaling $4.2 million in
Puerto Rico ("Puerto Rico postacquisition NOLs"), $4.9 million in the U.S.V.I.
("U.S.V.I. post acquisition NOLs") and $24.3 million in the United States
("United States post acquisition NOLs") since February 22, 1994. The Puerto
Rico preacquisition NOLs expire in the years 1998 through 2000; the Puerto
Rico post acquisition NOLs expire in the years 2001 through 2004; the U.S.V.I.
post acquisition NOLs expire in the years 2010 through 2012; and the United
States post acquisition NOLs expire in the years 2009 through 2012. The
availability of the NOL carryforwards is subject to certain factual and legal
uncertainties relating to the reporting positions of TresCom, and there can be
no assurance that the IRS will not require the NOL carryforwards to be
reduced.
Upon certain changes in the ownership of TresCom's stock occurring over a
three-year measuring period, TresCom's ability to use its United States post
acquisition NOLs would become subject to an annual limitation under Section
382 of the Code. Under Section 382 of the Code, if an ownership change occurs,
TresCom's United States post acquisition NOLs would be subject to an annual
limitation, subject to adjustment for certain recognized built-in gains, in an
amount equal to the total value of TresCom on the day preceding the
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<PAGE>
ownership change times the highest adjusted federal long-term rate for the
three months preceding the ownership change. The Puerto Rico preacquisition
NOLs are not subject to limitations imposed under Section 382 of the Code.
On July 17, 1989, the Industrial Development Commission of the U.S.V.I.
granted STSJ tax benefits to cover long-distance telecommunications services
in the U.S.V.I. These benefits include a 100% exemption from gross receipts
taxes, a 100% exemption from real property taxes, a 90% exemption from income
taxes and a 100% exemption from various excise taxes. These tax benefits are
for a ten-year period effective January 1, 1989. There are various conditions
to such grant, including the employment of a minimum of six employees. In
addition, at least 80% of all employees of STSJ must be U.S.V.I. residents.
CERTAIN FACTORS WHICH MAY AFFECT TRESCOM'S FUTURE RESULTS.
Proposed Merger. On February 3, 1998, TresCom entered into the Merger
Agreement with Primus and TAC, a wholly-owned subsidiary of Primus. Pursuant
to the terms of the Merger Agreement, TAC will merge with and into Trescom,
and each issued and outstanding share of TresCom Common Stock, at the time of
the Merger, will be converted into the right to receive $12.00 worth of Primus
Common Stock (based on the Weighted Average Sales Price) for each share of
TresCom Common Stock held by TresCom's shareholders. The transaction is
anticipated to be tax-free to TresCom's shareholders. The transaction is
expected to be completed during the second quarter of 1998 and is subject to,
among other things, the approval of both TresCom's and Primus's shareholders
and certain regulatory authorities. There can be no assurances that the
conditions to closing provided for in the Merger Agreement will be met or
waived in order to permit the consummation of the Merger. At this time, the
effect of the completion of the Merger on forward-looking statements contained
herein is not determinable.
Limited Operating History; Ability to Manage Growth. TresCom has a limited
operating history and has incurred significant losses from operations since
its inception. There can be no assurance that TresCom will become profitable.
Since its formation, TresCom has required substantial capital. TresCom's
growth has placed, and will continue to place, significant demands on
TresCom's financial and other resources. If TresCom's management is unable to
manage growth effectively or new employees are unable to achieve anticipated
performance levels, TresCom's results of operations could be adversely
affected.
Competition. The telecommunications industry is highly competitive and
affected by rapid regulatory and technological change, as well as corporate
consolidation. TresCom's future success will depend upon its ability to
compete with AT&T, MCI, WorldCom, Sprint and other United States based and
foreign carriers, many of which have considerably greater financial and other
resources than TresCom. Certain of the larger United States based carriers
have entered into joint ventures with foreign carriers to provide
international services. In addition, certain foreign carriers have entered
into joint ventures with other foreign carriers to provide international
services and have begun to compete or invest in the United States market,
creating greater competitive pressures on TresCom. The ability of TresCom to
compete effectively will depend on its ability to provide high-quality service
at competitive prices.
Regulatory and Legislative Risks. Federal regulations, regulatory actions
and court decisions have had, and may have in the future, negative effects on
TresCom and its ability to compete. TresCom is subject to regulation by the
FCC, and the regulations promulgated by the FCC are subject to change in the
future. There can be no assurance that future regulatory, judicial and
legislative changes will not have a material adverse effect on TresCom, that
regulators or third parties will not raise material issues with regard to
TresCom's compliance with applicable regulations or that regulatory activities
will not have a material adverse effect on TresCom. TresCom is also subject to
state regulation that varies by jurisdiction and is subject to change. For
example, TresCom must obtain and maintain Certificates of Public Convenience
and Necessity from most state regulatory authorities where it offers
intrastate long-distance services. In most cases, it must also file tariffs
for its intrastate offerings. There can be no assurance that TresCom will not
experience difficulties or delays in obtaining necessary state authorizations
in the future or that such difficulties or delays will not adversely affect
TresCom's
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<PAGE>
business. The multiplicity of state regulations makes full compliance with all
such regulations a challenge for companies such as TresCom which have certain
business activities in numerous states. There can be no assurance that
regulators or third parties will not raise material issues with regard to
TresCom's compliance with applicable regulations or that regulatory activities
will not have a material adverse effect on TresCom. Additionally, many states
are relaxing the regulatory restrictions currently imposed on the LECs. There
can be no assurance that future regulatory, judicial and legislative changes
will not have a material adverse effect on TresCom.
The services currently provided by TresCom are not directly subject to
laws of other countries, but the foreign carriers with which TresCom conducts
business are subject to those laws. For instance, TresCom's use of transit
agreements may be affected by regulations in either the transmitted or the
terminating foreign jurisdiction. Certain countries are considering opening up
their markets to competition. In the process, they may impose regulatory
requirements that could have a material adverse effect on TresCom.
Effects of Natural Disasters. Areas in which TresCom conducts its business
may be affected by natural disasters (including hurricanes and tropical
storms) as evidenced by Hurricane Marilyn, which struck certain Caribbean
islands, including St. Thomas and Puerto Rico, in September 1995. The
occurrence of future hurricanes, tropical storms and other natural disasters
could have a material adverse effect on TresCom's business resulting from
damage to TresCom's network facilities or from curtailed telephone traffic
resulting from effects of such events, such as destruction of homes and
businesses.
Unavailability of Leased Capacity; Changes in Technology. TresCom's
profitability will depend, in part, on its ability to obtain and utilize
leased capacity on a cost-effective basis, on its ability to anticipate and
adapt to rapid technological changes occurring in the telecommunications
industry and on its ability to offer, on a timely basis, services that meet
evolving industry standards. There can be no assurance that leased capacity
will be available at cost-effective rates in the future or that TresCom will
be able to adapt to such technological changes or offer such products on a
timely basis.
Dependence on Effective Information Systems. TresCom's management
information systems must grow as TresCom's business expands and are expected
to change as new technological developments occur. There can be no assurance
that TresCom will not encounter delays or cost-overruns or suffer adverse
consequences in implementing new systems when required. Any of TresCom's
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000 and are vulnerable to the Year 2000
problem which could result in a major system failure or miscalculations. There
can be no assurance that TresCom will be able to successfully implement
upgrades to its systems to correct any year 2000 problem. A failure of
TresCom's computer systems, or the failure of TresCom's vendors or customers
to effectively upgrade their software and systems for transition to the year
2000, could have a material adverse effect on TresCom's business, financial
condition or results of operations.
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<PAGE>
Security Ownership of Certain Beneficial Owners and Management. The
following table sets forth certain information regarding the beneficial
ownership of TresCom Common Stock, as of April 27, 1998, by (i) each person
known to TresCom to own beneficially more than 5% of the outstanding shares of
TresCom Common Stock, (ii) each director of TresCom, (iii) each person serving
as TresCom's Chief Executive Officer or acting in a similar capacity during
fiscal 1997 and TresCom's other most highly compensated executive officers
whose aggregate cash and cash equivalent compensation exceeded $100,000 and
(iv) all executive officers and directors of TresCom, as a group. All
information with respect to beneficial ownership has been furnished to TresCom
by the respective shareholders of TresCom (except as set forth in
footnote(1)). See "--Management's Discussion and Analysis of Financial
Condition and Results of Operations--Certain Factors Which May Affect
TresCom's Future Results--Proposed Merger."
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENTAGE
NAME OWNERSHIP(1) OF CLASS
---- ----------------- ----------
<S> <C> <C>
Warburg, Pincus Investors, L.P. (2)(3)
466 Lexington Avenue
New York, New York 10017..................... 6,319,468 50.1%
Rockefeller Financial Services
30 Rockefeller Plaza
New York, New York 10112..................... 929,480 7.6
Wesley T. O'Brien............................. 183,741 1.5
Rudolph McGlashan............................. 310,199 2.5
William Paquin................................ 147,000 1.2
Douglas M. Karp (3)(4)........................ 6,319,468 50.1
Henry Kressel, Ph.D. (3)(4)................... 6,319,468 50.1
Gary Nusbaum (3)(4)........................... 6,319,468 50.1
Helen Seltzer................................. 200 *
Read McNamara................................. 200 *
All executive officers and directors as a
group (seven persons)........................ 6,813,808 53.0
</TABLE>
- --------
* Represents beneficial ownership of less than 1% of the outstanding shares
of TresCom Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. In computing the number of shares beneficially owned by a
person and the percentage ownership of that person, shares of TresCom
Common Stock subject to options and warrants held by that person that are
currently exercisable or exercisable within 60 days of April 27, 1998 are
deemed outstanding. Such shares, however, are not deemed outstanding for
the purpose of computing the percentage ownership of any other person.
Except as indicated in the footnotes to this table, the shareholder named
in the table has sole voting and investment power with respect to the
shares set forth opposite such shareholder's name. In connection with the
Merger, Primus entered into a Stockholder Agreement with Warburg, Pincus
and the TresCom Voting Agreements with Messrs. O'Brien and McGlashan, and
has since filed a Schedule 13D, and an amendment thereto, with the
Commission due to certain limited voting rights and option rights relating
to the Merger contained in these agreements.
(2) E.M. Warburg, Pincus & Co., LLC, a New York limited liability TresCom
("E.M. Warburg"), manages Warburg, Pincus. Warburg, Pincus & Co., a New
York general partnership ("WP"), the sole general partner of Warburg,
Pincus, has a 20% interest in the profits of Warburg, Pincus as the
general partner. Lionel I. Pincus is the managing partner of WP and the
managing member of E.M. Warburg and may be deemed to control both WP and
E.M. Warburg. The members of E.M. Warburg are substantially the same as
the partners of WP. Messrs. Karp, Kressel and Nusbaum, each a director of
TresCom, are each a Managing Director and member of E.M. Warburg and a
general partner of WP. As such, Messrs. Karp, Kressel and Nusbaum may be
deemed to have an indirect pecuniary interest, within the meaning of Rule
16a-1 under the 1934 Act, in an indeterminate portion of the shares of
TresCom Common Stock beneficially owned by Warburg, Pincus and WP. See
Note 4 below.
(3) Includes 358,034 shares of TresCom Common Stock which Warburg, Pincus has
the right to acquire through exercise of the Warburg, Pincus Warrant
entered into with TresCom.
(4) All of the shares indicated as owned by Messrs. Karp, Kressel and Nusbaum
are owned directly by Warburg, Pincus and are included because of Messrs.
Karp's, Kressel's and Nusbaum's affiliation with Warburg, Pincus. Messrs.
Karp, Kressel and Nusbaum disclaim "beneficial ownership" of these shares
within the meaning of Rule 13d-3 under the 1934 Act. See Note 2 above.
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BUSINESS OF TAC
TAC is a newly formed Delaware corporation, all of the issued and
outstanding common stock of which is owned by Primus, and has not conducted
any substantial business to date other than in connection with the Merger
Agreement. As a result of the Merger, TAC will merge with and into TresCom
with TresCom being the Surviving Corporation in the Merger and, accordingly,
the separate existence of TAC shall cease.
MARKET PRICE INFORMATION
The Primus Common Stock commenced trading on Nasdaq on November 7, 1996
under the symbol "PRTL." Prior to that date there was no established public
trading market for the Primus Common Stock. The following table sets forth for
the periods indicated the high and low sale prices of Primus Common Stock as
reported during each quarterly period since its initial public offering in
November 1996 on the Nasdaq. The prices do not include retail mark ups, mark
downs or commissions.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1996
Fourth Quarter............................................ $14 5/8 $10 1/2
1997
First Quarter............................................. $17 $ 7 3/8
Second Quarter............................................ $11 1/8 $ 7 1/8
Third Quarter............................................. $10 5/8 $ 7 5/8
Fourth Quarter............................................ $16 5/8 $10
1998
First Quarter............................................. $31 1/4 $14 3/4
Second Quarter (through April 30)......................... $30 7/8 $21 1/2
</TABLE>
On February 3, 1998, the date immediately prior to the public announcement
of the transactions contemplated by the Merger Agreement, the last reported
sale price of the Primus Common Stock on Nasdaq was $20.00 per share. The last
reported sale price of the Primus Common Stock on Nasdaq on April 30, 1998,
the most recent practicable trading day prior to the date of this Joint Proxy
Statement/Prospectus, was $23.875 per share. There were approximately 171
holders of record of Primus Common Stock as of April 27, 1998.
Primus has not paid any cash dividends on the Primus Common Stock to date.
The payment of dividends, if any, in the future is within the discretion of
the Primus Board and will depend on the Company's earnings, its capital
requirements and financial condition, and may be restricted by credit
arrangements entered into by the Company. It is the present intentions of the
Primus Board to retain all earnings, if any, for use in the Company's business
operations and accordingly, the Primus Board does not expect to declare or pay
any dividends in the foreseeable future. In addition, under the terms of the
Indenture, the payment of cash dividends is restricted. See Note 5 of the
Notes to Primus's Consolidated Financial Statements incorporated herein by
reference under "Incorporation of Certain Documents by Reference."
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TresCom Common Stock commenced trading on February 8, 1996 and is listed on
Nasdaq under the symbol "TRES." The high and low sales prices for TresCom
Common Stock as reported by Nasdaq follows:
<TABLE>
<CAPTION>
HIGH LOW
------- --------
<S> <C> <C>
1996
First Quarter........................................... $16 5/8 $13 1/4(1)
Second Quarter.......................................... $20 1/4 $ 9
Third Quarter........................................... $13 1/4 $ 7 1/2
Fourth Quarter.......................................... $14 $ 7
1997
First Quarter........................................... $ 9 1/4 $ 4 3/4
Second Quarter.......................................... $ 8 3/4 $ 4 7/16
Third Quarter........................................... $11 7/8 $ 6 5/8
Fourth Quarter.......................................... $11 1/2 $ 7
1998
First Quarter........................................... $10 1/4 $ 7
Second Quarter (through April 30)....................... $12 $ 9 7/8
</TABLE>
- --------
(1) The first quarter of 1996 is the period from February 8, 1996 (the date
the TresCom Common Stock commenced trading) to March 31, 1996.
On February 3, 1998, the date immediately prior to the public announcement
of the transactions contemplated by the Merger Agreement, the last reported
sale price of TresCom Common Stock on Nasdaq was $8.625 per share. The last
reported sale price of TresCom Common Stock on Nasdaq on April 30, 1998, the
most recent practicable trading day prior to the date of this Joint Proxy
Statement/Prospectus, was $11.1875 per share. There were approximately 56
holders of record of TresCom Common Stock as of April 27, 1998. TresCom has
not declared or paid any dividends on its Common Stock. TresCom does not
currently anticipate the payment of dividends on its Common Stock.
Primus and TresCom believe that TresCom Common Stock presently trades on the
basis of the value of the Primus Common Stock expected to be issued in
exchange for such TresCom Common Stock, discounted for the uncertainties
associated with such transaction. TresCom shareholders are advised to obtain
current market quotations for Primus Common Stock and TresCom Common Stock. No
assurance can be given as to the market prices of Primus Common Stock and
TresCom Common Stock at any time before the Effective Time or as to the market
price of Primus Common Stock at any time thereafter. Following the Merger, all
TresCom Common Stock will be owned by Primus and, as a result, TresCom Common
Stock will no longer be listed on Nasdaq.
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<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth for Primus Common Stock and TresCom Common
Stock, for the periods indicated, selected historical per share data and pro
forma combined and pro forma equivalent per share amounts as of and for the
year ended December 31, 1997, giving effect to the proposed Merger and the
Telepassport/USFI Acquisition as if they occurred on January 1, 1997 for the
operations data and as if they occurred on December 31, 1997 for the balance
sheet data. The data presented are based upon the consolidated financial
statements and related notes of each of Primus, TresCom and USFI either
included or incorporated by reference in this Joint Proxy
Statement/Prospectus. This information should be read in conjunction with, and
is qualified in its entirety by, the historical financial statements and
related notes thereto. This data is not necessarily indicative of the results
of the future operations of the combined company or the actual results that
would have occurred if the Merger and Telepassport/USFI Acquisition had been
consummated prior to the periods indicated. See "Incorporation of Certain
Documents By Reference."
<TABLE>
<CAPTION>
TRESCOM
PRIMUS TRESCOM PRO FORMA PRO FORMA
HISTORICAL HISTORICAL COMBINED EQUIVALENT(1)
---------- ---------- ----------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Book Value Per Common Share
Outstanding:
As at December 31, 1995..... $ 0.36 $ 9.01 * *
As at December 31, 1996..... $ 4.30 $ 5.70 * *
As at December 31, 1997..... $ 2.16 $ 4.87 $ 7.77 $ 3.58
Basic and Diluted Net Loss Per
Common Share:
Year ended December 31,
1995....................... $(0.48) $(5.29) * *
Year ended December 31,
1996....................... $(0.75) $(0.59) * *
Year ended December 31,
1997....................... $(1.99) $(0.91) $(2.55) $(1.18)
</TABLE>
- --------
(1) The TresCom pro forma equivalent represents the pro forma combined book
value and basic and diluted net loss per common share multiplied by an
assumed Exchange Ratio of 0.461 shares of Primus Common Stock for each
share of TresCom Common Stock so that the TresCom pro forma equivalent
amounts represent the respective values of one share of TresCom Common
Stock. The actual Exchange Ratio will be determined at the closing of the
Merger based on the Weighted Average Sales Price per share of Primus
Common Stock. See "Risk Factors--The Effect of Stock Price Fluctuations on
the Consideration to be Received by the Holders of TresCom Common Stock in
the Merger," "Unaudited Pro Forma Financial Data," "The Merger--The Merger
Agreement--Merger Consideration" and "--Exchange of Certificates; Exchange
Agent."
* Not presented for these periods.
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COMPARATIVE RIGHTS OF COMMON SHAREHOLDERS
Primus is incorporated under the laws of the State of Delaware. TresCom is
incorporated under the laws of the State of Florida. The holders of shares of
TresCom Common Stock, whose rights as shareholders are currently governed by
Florida law, the TresCom Third Amended and Restated Articles of Incorporation
(the "TresCom Articles") and the TresCom Second Amended and Restated By-laws
(the "TresCom Bylaws"), upon the exchange of their shares pursuant to the
Merger, will become holders of shares of Primus Common Stock and their rights,
as such, will be governed by Delaware law, the Primus Certificate and the
Primus Bylaws. The material differences between the rights of holders of
shares of TresCom Common Stock and the rights of holders of shares of Primus
Common Stock, which result from differences in their governing corporate
documents and differences in Delaware and Florida corporate law, are
summarized below.
The following summary is not intended to be complete and is qualified in its
entirety by reference to the FBCA, the DGCL, the TresCom Articles, the TresCom
Bylaws, the Primus Certificate of Incorporation and the Primus Bylaws, as
appropriate. The identification of specific differences is not meant to
indicate that other equally or more significant differences do not exist.
Copies of the TresCom Articles, the TresCom Bylaws, the Primus Certificate and
the Primus Bylaws are incorporated by reference herein and will be sent to
holders of Common Stock upon request. See "Incorporation of Certain Documents
by Reference" and "Available Information."
AUTHORIZED CAPITAL
The TresCom Articles provide for authorized stock consisting of 50,000,000
shares of TresCom Common Stock, $0.0419 par value per share, of which
12,262,791 shares are issued and outstanding, and 1,000,000 shares of TresCom
Preferred Stock, $0.01 par value per share, none of which are issued and
outstanding. The TresCom Articles provide that the TresCom Board shall have
authority to adopt a resolution or resolutions setting forth the powers,
preferences, limitations and relative rights of any class or series of TresCom
Preferred Stock.
The Primus Certificate provides for authorized stock consisting of
40,000,000 (80,000,000, if the proposed amendment to the Primus Certificate is
approved by the Primus stockholders) shares of Primus Common Stock, $0.01 par
value per share, of which 19,914,357 shares are issued and outstanding, and
2,000,000 shares of Primus Preferred Stock, $0.01 par value per share, none of
which are issued and outstanding. The Primus Certificate grants the Primus
Board authority to adopt a resolution or resolutions setting forth the rights,
designations, preferences and limitations of any class or series of Primus
Preferred Stock.
ELECTION AND SIZE OF BOARD OF DIRECTORS
The FBCA requires that a board of directors consist of one or more
individuals, as set forth in a corporation's articles of incorporation or
bylaws. The FBCA permits staggered boards of directors of up to three separate
classes if authorized in the articles of incorporation or by an initial bylaw,
or by a bylaw adopted by a vote of the shareholders. The TresCom Articles
provide for three classes of board members serving staggered three-year terms.
The TresCom Bylaws fix the number of directors at not less than three and no
more than nine, unless a number outside of such range shall be set by a
resolution of the TresCom Board. Currently, there are two directors serving in
each of two classes and three directors serving in one class, for a total of
seven directors.
Nominations for the TresCom Board may be made by the TresCom Board or by any
shareholder entitled to vote for the election of directors and who complies
with certain notice provisions in the TresCom Bylaws.
Under Delaware law, directors, unless their terms are staggered, are elected
at each annual stockholder meeting. Vacancies on the board of directors may be
filled by the stockholders or directors, unless the certificate of
incorporation or a bylaw provides otherwise. The certificate of incorporation
may authorize the election of certain directors by one or more classes or
series of shares, and the certificate of incorporation, an initial bylaw or a
bylaw adopted by a vote of the shareholders may provide for staggered terms
for the directors. The certificate of incorporation or the bylaws also may
allow the shareholders or the board of directors to fix or change the
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<PAGE>
number of directors, but a corporation must have at least one director. Under
Delaware law, shareholders do not have cumulative voting rights unless the
certificate of incorporation so provides.
The Primus Bylaws provide for three classes of board members serving
staggered three-year terms, and designate two board members from a total of
six directors for each class. They also provide that the size of the Primus
Board may be fixed by resolution at such other number as the board of
directors desires.
REMOVAL OF DIRECTORS
The FBCA entitles shareholders to remove directors either for cause or
without cause unless the articles of incorporation provide that removal may be
for cause only. Directors elected by a voting group of shareholders may only
be removed by the shareholders of that voting group. The TresCom Bylaws
provide that any director may be removed, with or without cause at a special
meeting of the shareholders called for that purpose, by a majority vote of the
holders of the outstanding shares of the capital stock of TresCom then
entitled to vote at an election of directors.
Under the DGCL, a director of a corporation that does not have a classified
board of directors or cumulative voting may be removed (with or without cause)
with the approval of a majority of the outstanding shares entitled to vote. In
the case of a corporation with a classified board, unless otherwise provided
in the certificate of incorporation, a director may be removed only for cause
by the stockholders. The Primus Bylaws provide that any director may be
removed, only for cause, by the holders of a majority of eligible voting
shares at a special meeting of the stockholders called for that purpose.
VACANCIES ON THE BOARD OF DIRECTORS
The FBCA provides that, unless the articles of incorporation provide
otherwise, vacancies arising on the board of directors may be filled by a
majority of the remaining directors, even if no quorum remains, or by the
shareholders. When directors are divided into classes, vacancies may be filled
by the shareholders or, if at least one director remains in the class, by the
remaining directors of that class. Where a vacancy will be known to occur at
some point in the future, it may be filled in advance, although the new
director will not take office until the vacancy actually occurs. The TresCom
Articles provide that any vacancies on the TresCom Board shall be filled in
accordance with the TresCom Bylaws. The TresCom Bylaws provide that any
vacancies on the TresCom Board occurring for any reason, including the
creation of a new directorship or directorships, shall be filled by the
affirmative vote of a majority of the remaining directors, although less than
a quorum. Directors so appointed shall hold office until the next regularly
scheduled election of directors for the class to which he is appointed or for
the class of his or her predecessor. If there are no directors in office, any
officer or shareholder may call a special meeting of the shareholders for the
express purpose of electing a new board of directors. The shareholders may not
otherwise fill any vacancies on the board.
Under Delaware law, the board of directors of a corporation, unless
otherwise provided by the certificate of incorporation or bylaws, may fill any
vacancy on the board, including vacancies resulting from an increase in the
number of directors, even though the remaining directors may not constitute a
quorum. When directors are divided into classes, vacancies may be filled by
the remaining director or directors of that class. The Primus Bylaws provide
that any vacancy may be filled by a majority of directors then in office,
although less than a quorum.
ACTION BY WRITTEN CONSENT
Unless the articles of incorporations provide otherwise, the FBCA allows
shareholders having the requisite number of votes of each voting group
entitled to vote thereon, or all of the directors, unless the articles of
incorporation or bylaws provide otherwise, to take action without a meeting
through the use of a written consent unless provided otherwise in the articles
of incorporation. The TresCom Articles provide that the actions of
shareholders may only be taken at properly called annual or special meetings
of shareholders and that
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shareholders may not act by written consent. The TresCom By-Laws provide that
any action of the TresCom Board or of any committee thereof, which is required
or permitted to be taken at a meeting, may be taken without a meeting if a
consent in writing, setting forth the action to be taken, signed by all of the
members of the TresCom Board or of the committee, as the case may be, is filed
in the minutes of the proceedings of the TresCom Board or committee.
Delaware law provides that, unless limited by the certificate of
incorporation, any action that could be taken by stockholders at a meeting may
be taken without a meeting if a consent (or consents) in writing, setting
forth the action so taken, is signed by the holders of record of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. The Primus Certificate provides that any
action which is required by law to be taken or which may be taken at any
annual or special meeting of shareholders may not be taken by written consent.
AMENDMENTS TO CHARTER
Amendments to any section of the TresCom Articles are governed by the FBCA
which, with certain limited exceptions, generally requires approval by a
majority of the shareholders entitled to vote thereon.
Under Delaware law, unless a higher vote is required in the certificate of
incorporation, an amendment to the certificate of incorporation of a
corporation may be approved by a majority of the outstanding shares entitled
to vote upon the proposed amendment. The Primus Certificate provides Primus
with the right to amend, alter, change or repeal any provision contained in
the Primus Certificate in the manner prescribed by law and states that the
rights and powers conferred therein on shareholders, directors and officers
are subject to such reserved power.
AMENDMENTS TO BYLAWS
Under the FBCA, bylaws may be amended by the directors or the shareholders
unless the articles of incorporation or the FBCA expressly provide that only
shareholders may do so. Bylaws adopted by the shareholders may provide that
they may not be amended or repealed by the directors. The TresCom Bylaws
provide that a majority of the TresCom Board may alter, amend, repeal or add
to the bylaws pursuant to the provisions of the FBCA at a regular or special
meeting of the board, provided that a quorum of the directors shall be present
at such meeting.
The DGCL provides that a corporation's bylaws may be amended by that
corporation's stockholders, and, if so provided in the corporation's
certificate of incorporation, the power to amend the corporation's bylaws may
also be conferred on the corporation's directors. The Primus Certificate and
Bylaws give both the directors and eligible voting stockholders the power to
make, alter, amend, change, add to or repeal the Primus Bylaws by majority
vote. The Primus Bylaws provide that they may be amended or repealed at any
regular or special meeting of either the board or stockholders.
SPECIAL MEETINGS OF SHAREHOLDERS
Under the FBCA, a special meeting of shareholders may be called by a
corporation's board of directors or any other person authorized to do so in
the articles of incorporation or bylaws. Special meetings may also be called
on demand of at least 10% of all shares eligible to vote on the matter to be
considered, although this percentage may be increased in the articles of
incorporation to a maximum of 50%. Only business within the purpose of the
special meeting notice may be conducted at such meeting. The TresCom Articles
and Bylaws provide that special meetings may be called by the Chairman of the
Board, the Chief Executive Officer, the President, a majority of the TresCom
Board or when requested in writing by the holders of at least 50% of all
eligible voting shares shall be entitled to call a special meeting.
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Delaware law provides that special meetings of the stockholders of a
corporation may be called by the corporation's board of directors or by such
other persons as may be authorized in the corporation's certificate of
incorporation or bylaws. The Primus Bylaws provide that special meetings of
stockholders may be held at any place within or without the State of Delaware,
and may be called by the Chairman, Chief Executive Officer, the President or
the Primus Board.
VOTE ON EXTRAORDINARY CORPORATE TRANSACTIONS
Under the FBCA, and subject to certain exceptions (including those described
in "--Business Combination Restrictions"), the approval of a merger, plan of
liquidation or sale of all or substantially all of a corporation's assets
other than in the regular course of business requires the recommendation of
the corporation's board of directors and an affirmative vote of holders of at
least a majority of the shares eligible to vote thereon. The TresCom Articles
do not impose any extraordinary requirements with respect to corporate
actions.
Delaware law provides that, unless otherwise specified in a corporation's
certificate of incorporation or unless the provisions of Delaware law relating
to business combinations discussed below under "--Business Combination
Restrictions" are applicable, a sale or other disposition of all or
substantially all of the corporation's assets, a merger or consolidation of
the corporation with another corporation or a dissolution of the corporation
requires the affirmative vote of the board of directors (except in certain
limited circumstances) plus, with certain exceptions, the affirmative vote of
a majority of the outstanding stock entitled to vote thereon. The Primus
Certificate does not contain vote requirements for extraordinary corporate
transactions in addition to the approvals mandated by law.
INSPECTION OF DOCUMENTS
Under the FBCA, a shareholder is entitled to inspect and copy the articles
of incorporation, bylaws, certain board and shareholder resolutions, minutes,
certain written communications to shareholders, a list of the names and
business addresses of the corporation's directors and officers, and the
corporation's most recent annual report, during regular business hours if the
shareholder gives at least five business days' prior written notice to the
corporation. In addition, a shareholder of a Florida corporation is entitled
to inspect and copy other books and records of the corporation during regular
business hours if the shareholder gives at least five business days, prior
written notice to the corporation and (1) the shareholder's demand is made in
good faith and for a proper purpose, (2) the demand describes with reasonable
particularity its purpose and the records to be inspected and (3) the
requested records are directly connected with such purpose. The FBCA also
provides that a corporation may deny any demand for inspection if the demand
was made for an improper purpose or if the demanding shareholder has within
two years preceding such demand sold or offered for sale any list of
shareholders of the corporation or any other corporation, has aided or abetted
any person in procuring a list of shareholders for such purpose, or has
improperly used any information secured through any prior examination of the
records of the corporation or any other corporation.
The DGCL allows any stockholder, upon written demand under oath stating the
purpose thereof, the right to inspect, during the usual hours for business and
for any proper purpose, the corporation's stock ledger, a list of its
shareholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose means a purpose reasonably related to such
person's interest as a shareholder.
DIVIDENDS
The FBCA permits a corporation's board of directors to make distributions to
its shareholders so long as the corporation is not left unable to pay its
debts as they become due in the ordinary course of business, or the
corporation is not left with total assets that are less than the sum of the
corporation's total liabilities plus (unless the articles of incorporation
permit otherwise) its obligations upon dissolution to satisfy preferred
shareholders whose preferential rights are superior to those receiving the
distribution. Under the FBCA, a corporation's redemption of its own capital
stock is deemed to be a distribution. The TresCom Articles provide that,
subject to
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the rights of the holders of preferred stock, the TresCom Board may declare
and pay dividends on shares of TresCom Common Stock out of legally available
funds. The TresCom Bylaws prohibit the TresCom Board from declaring a dividend
when the company is insolvent or would be rendered insolvent by the payment of
such dividend.
Subject to any restrictions contained in a corporation's certificate of
incorporation, Delaware law generally provides that a corporation may declare
and pay dividends out of "surplus" (defined as the excess, if any, of net
assets (total assets less total liabilities) over capital) or, when no such
surplus exists, out of net profits for the fiscal year in which the dividend
is declared and/or the preceding fiscal year, except that dividends may not be
paid out of net profits if the capital of the corporation is less than the
amount of capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets. In accordance
with the DGCL, "capital" is determined by the board of directors and shall not
be less than the aggregate par value of the outstanding capital stock of the
corporation having par value.
LIQUIDATION RIGHTS AND CONVERSION PREFERENCES OF PREFERRED SHAREHOLDERS
Under the FBCA, the articles of incorporation must prescribe, prior to the
issuance of each class of shares, the preferences, limitations and relative
rights of each such class, including those relating to liquidation, conversion
or voting. If the articles of incorporation so provide, a board of directors
may approve of such designations and such designations may become effective
without shareholder approval. The TresCom Articles authorize the TresCom Board
to adopt a resolution or resolutions with respect to preferred stock. The
TresCom Board has not adopted any such resolution or resolutions, nor filed
articles of amendment relating to the issuance of shares of preferred stock.
Under Delaware law, a certificate of incorporation or a resolution by a
board of directors (which resolutions shall be set forth in a certificate of
designation filed with the Delaware Secretary of State) may set forth the
characteristics of a class of stock or of series of stock within any class,
which characteristics may include voting powers, par value, conversion rights,
and such designations, preferences and relative, participating, optional or
other special rights, and qualifications, limitations or restrictions thereof.
Other than shares of Series A Preferred Stock which have been retired and may
not be reissued, the Primus Board has not adopted any such resolution or
resolutions, nor filed articles of amendment relating to the issuance of
shares of preferred stock.
APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS
The FBCA provides that unless a corporation's articles of incorporation
provide otherwise, which TresCom's Articles do not, a shareholder does not
have dissenters' rights with respect to a plan of merger, share exchange or
proposed sale or exchange of property if the shares held by the shareholder
are either registered on a national securities exchange or designated as a
national market systems security on an interdealer quotation system designated
by the NASD or held of record by 2,000 or more shareholders. Consequently,
appraisal rights are not available to holders of TresCom Common Stock in
connection with the Merger.
Under Delaware law, a stockholder of a Delaware corporation is generally
entitled to demand appraisal and obtain payment of the judicially determined
fair value of his or her shares in the event of any plan of merger or
consolidation to which the corporation is a party, provided such stockholder
(a) continuously holds such shares through the effective date of the merger,
(b) otherwise complies with the requirement of Delaware law for the perfection
of appraisal rights and (c) does not vote in favor of the merger. However,
this right to demand appraisal does not apply to stockholders if: (1) they are
stockholders of a surviving corporation and if a vote of the stockholders of
such corporation is not necessary to authorize the merger or consolidation;
and (2) the shares held by the stockholders are of a class or series
registered on the New York Stock Exchange (the "NYSE") or the American Stock
Exchange (the "ASE"), designated as a national market system security on an
interdealer quotation system by the NASD or are held of record by more than
2,000 shareholders as of the record date. Notwithstanding the above, appraisal
rights are available for the shares of any class or series of stock of a
Delaware corporation if the holders thereof are required by the terms of an
agreement of merger or consolidation
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to accept for their stock anything except: (i) shares of stock of the
corporation surviving or resulting from the merger or consolidation; (ii)
shares of stock of any other corporation which at the effective date of the
merger or consolidation will be listed on the NYSE or the ASE, designated as a
national market system security on an interdealer quotation system by the NASD
or held of record by more than 2,000 shareholders; (iii) cash in lieu of
fractional shares of the corporations described in (i) and (ii); or (iv) any
combination of the shares of stock and cash in lieu of fractional shares
described in (i), (ii) and (iii).
A Delaware corporation may provide in its certificate of incorporation that
appraisal rights shall be available for the shares of any class or series of
its stock as the result of an amendment to its certificate of incorporation,
any merger or consolidation to which the corporation is a party or a sale of
all or substantially all of the assets of the corporation. The Primus
Certificate does not contain any provision regarding appraisal rights.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The FBCA permits a corporation to indemnify officers, directors, employees
and agents for actions taken in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation,
and with respect to any criminal action, which they had no reasonable cause to
believe was unlawful. The FBCA provides that a corporation may advance the
reasonable expenses of defense (upon receipt of an undertaking to reimburse
the corporation if indemnification is ultimately determined not to be
appropriate) and must reimburse a successful defendant for expenses, including
attorneys, fees, actually and reasonably incurred. The FBCA also permits a
corporation to purchase liability insurance for its directors, officers,
employees and agents. The FBCA provides that indemnification may not be made
for any claim, issue or matter as to which a person has been adjudged by a
court of competent jurisdiction to be liable, unless and only to the extent a
court determines that the person is entitled to indemnity for such expenses as
the court deems proper. The TresCom Articles and TresCom Bylaws provide for
the indemnification of any present or former director or officer to the
fullest extent permitted by the FBCA, and for the advance payment of expenses
for the defense of any such director or officer so long as the TresCom Board
receives an undertaking from the indemnified person pledging repayment of any
such advance in the event that it is ultimately deemed not to be appropriate.
The TresCom Bylaws permit the purchase and maintenance of insurance on behalf
of directors, officers, employee and agents to protect against liabilities
arising in connection to their duties to the corporation.
Under Delaware law, a corporation may indemnify any person made a party or
threatened to be made a party to any type of proceeding (other than an action
by or in the right of the corporation) because he is or was an officer,
director, employee or agent of the corporation or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation or entity, against expenses, judgments, costs and amounts paid in
settlement actually and reasonably incurred in connection with such
proceeding: (1) if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation; or
(2) in the case of a criminal proceeding, he had no reasonable cause to
believe that his conduct was unlawful. A corporation may indemnify any person
made a party, or threatened to be made a party to any threatened, pending or
completed action or suit brought by or in the right of the corporation because
he was an officer, director, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation or other entity, against expenses actually and
reasonably incurred in connection with such action or suit if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that there may be no such
indemnification if the person is found liable to the corporation unless, in
such a case, the court determines the person is entitled thereto. A
corporation must indemnify a director, officer, employee or agent against
expenses actually and reasonably incurred by him who successfully defends
himself in a proceeding to which he was a party because he was a director,
officer, employee or agent of the corporation. Expenses incurred by an officer
or director (or other employees or agents as deemed appropriate by the board
of directors) in defending a civil or criminal proceeding may be paid by the
corporation in advance of the final disposition of such proceeding upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation. The indemnification and expense
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advancement provisions are not exclusive of any other rights which may be
granted by the bylaws, a vote of or disinterested directors, agreement or
otherwise.
The Primus Certificate and Bylaws provide for the indemnification to the
fullest extent law of any person made, or threatened to be made a party to an
action or proceeding (whether, civil, criminal, administrative or
investigative) by reason of the fact that he is or was a director or officer
of Primus or serves or served any other enterprise as a director, officer,
employee or agent at the request of Primus. The Primus Certificate and Bylaws
provide for the advance payment of expenses for the defense of any such
director or officer so long as the Primus Board receives an undertaking from
the indemnified person pledging repayment of any such advance in the event
that it is ultimately deemed not to be appropriate. The Primus Bylaws permit
the purchase and maintenance of insurance on behalf of directors, officers,
employee and agents to protect against liabilities arising in connection to
their duties to the corporation.
LIMITATION OF LIABILITY
The FBCA provides that a director is not personally liable for monetary
damages to the corporation or any other person for any statement, vote,
decision or failure to act, regarding corporate management or policy unless
the director breached or failed to perform his duties as a director and such
breach or failure (1) constitutes a violation of criminal law, unless the
director had reasonable cause to believe his conduct was lawful or had no
reasonable cause to believe his conduct was unlawful, (2) constitutes a
transaction from which the director derived an improper personal benefit, (3)
results in an unlawful distribution, (4) in a derivative action or an action
by a shareholder, constitutes conscious disregard for the best interests of
the corporation or willful misconduct or (5) in a proceeding other than a
derivative action or an action by a shareholder, constitutes recklessness or
an act or omission which was committed in bad faith or with malicious purpose
or in a manner exhibiting wanton and willful disregard of human rights, safety
or property.
Delaware law permits a corporation to adopt a provision in its certificate
of incorporation eliminating or limiting the personal liability of a director
to the corporation or its shareholders for monetary damages for beach of
fiduciary duty as a director, except that such provision shall not limit the
liability of a director for (i) any breach of the director's duty of loyalty
to the corporation or its shareholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) liability under Section 174 of the DGCL for unlawful payment of
dividends or stock purchases or redemptions or (iv) any transaction from which
the director derived an improper personal benefit.
PREEMPTIVE RIGHTS
Under the FBCA, shareholders of a corporation have no preemptive rights
unless provided for in the articles of incorporation. The TresCom Articles
provide that, unless otherwise specified with respect to any series of
preferred stock, and unless provided for by contract, no shareholder shall
have any preemptive right.
Delaware law does not provide (except in limited instances) for preemptive
rights to acquire a corporation's unissued stock. However, such right may be
expressly granted to the stockholders in a corporation's certificate or
articles of incorporation. The Primus Certificate does not provide preemptive
rights to any holders of Primus Common Stock.
SPECIAL REDEMPTION PROVISIONS
The FBCA permits a corporation to acquire its own shares. The TresCom
Articles, subject to any terms to be set forth with regard to any series of
preferred stock, contain no provision for special redemptions of shares of
TresCom capital stock.
Under the DGCL, a corporation may purchase or redeem shares of any class of
its capital stock, but subject generally to the availability of sufficient
lawful funds therefor and provided that, at the time of any such
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redemption, the corporation shall have outstanding shares of one or more
classes or series of capital stock which have full voting rights that are not
subject to redemption. The Primus Certificate contains no provision for
special redemptions of shares of its capital stock.
SHAREHOLDER SUITS
Under the FBCA, a person may not bring a derivative action unless the person
was a shareholder of the corporation at the time of the challenged transaction
or unless the person acquired his shares by operation of law from a person who
was a shareholder at such time.
Under Delaware law, a stockholder may institute a lawsuit against one or
more directors, either on his own behalf, or derivatively on behalf of the
corporation. An individual stockholder may also commence a lawsuit on behalf
of himself and other similarly situated shareholders when the requirements for
maintaining a class action under Delaware law have been met.
BUSINESS COMBINATION RESTRICTIONS
Section 607.0901 of the FBCA provides that the approval of the holder of
two-thirds of the voting shares of a company, other than the shares
beneficially owned by an Interested Shareholder (as defined below), would be
required to effectuate certain transactions, including, without limitation, a
merger, consolidation, certain sales of assets, certain sales of shares,
liquidation or dissolution of the corporation, and reclassification of
securities involving a corporation and an Interested Shareholder (an
"Affiliated Transaction"). An "Interested Shareholder" is defined as the
beneficial owner of more than 10% of the voting shares outstanding. The
foregoing special voting requirement is in addition to the vote required by
any other provision of the FBCA.
The special voting requirement does not apply in any of the following
circumstances: (i) the Affiliated Transaction is approved by a majority of the
corporation's disinterested directors; (ii) the Interested Shareholder has
owned at least 80% of the corporation's voting stock for five years; (iii) the
Interested Shareholder owns more than 90% of the corporation's voting shares;
(iv) the corporation has not had more than 300 shareholders of record at any
time during the three years preceding the announcement of the event; (v) the
corporation is an investment company registered under the Investment Company
Act of 1940; (vi) all of the following conditions are met: (a) the cash and
fair value of other consideration to be paid per share to all holders of
voting shares equals the highest per share price paid by the Interested
Shareholder; (b) the consideration to be paid in the Affiliated Transaction is
in cash or in the same form as previously paid by the Interested Shareholder
(or certain alternative benchmarks if higher); (c) during the portion of the
three years proceeding the announcement date that the Interested Shareholder
has been an Interested Shareholder, except as approved by a majority of the
disinterested directors, there shall have been no default in payment of any
full periodic dividends, no decrease in common stock dividends, no increase in
the voting shares owned by the Interested Shareholder; (d) during such three-
year period no benefit to the Interested Shareholder in the form of loans,
guaranties or other financial assistance or tax advantages shall have been
provided by the corporation; and (e) unless approved by a majority of the
disinterested directors, a proxy statement shall have been mailed to holders
of voting shares at least 25 days prior to the consummation of the Affiliated
Transaction. Under the specified exceptions, this provision is not applicable
to the Merger and related transactions.
The TresCom Bylaws provide that the Florida Control-Share Acquisitions
Statute (FBCA Section 607.0902) does not apply to control-share acquisitions
of stock of TresCom.
In general, Section 203 of the DGCL prevents an "Interested Shareholder"
(defined generally as a person with 15% or more of a corporation's outstanding
voting stock, with the exception of any person who owned and has continued to
own shares in excess of the 15% limitation since December 23, 1967) from
engaging in a Business Combination (as defined below) with a Delaware
corporation for three years following the date such person became an
Interested Shareholder. The term "Business Combination" includes mergers or
consolidations
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with an Interested Shareholder, and certain other transactions with an
Interested Shareholder, including, without limitation: (i) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition (except
proportionately as a shareholder of such corporation) to or with the
Interested Shareholder of assets (except proportionately as a shareholder of
the corporation) having an aggregate market value equal to 10% or more of (a)
the aggregate market value of all assets of the corporation or of certain
subsidiaries thereof determined on a consolidated basis, or (b) the aggregate
market value of all the outstanding stock of the corporation; (ii) any
transaction which results in the issuance or transfer by the corporation or by
certain subsidiaries thereof of stock of the corporation or such subsidiary to
the Interested Shareholder, except pursuant to certain transfers in a
conversion or exchange or pro rata distribution to all shareholders of the
corporation or certain other transactions, none of which increase the
Interested Shareholder's proportionate ownership of any class or series of the
corporation's or such subsidiary's stock; (iii) any transaction involving the
corporation or certain subsidiaries thereof which has the effect, directly or
indirectly, of increasing the proportionate share of the stock of any class or
series, or securities convertible into stock of the corporation or any
subsidiary which is owned by the Interested Shareholder (except as a result of
immaterial changes due to fractional share adjustments or as a result of any
purchase or redemption of any shares of stock not caused directly or
indirectly by the Interested Shareholder); or (iv) any receipt by the
Interested Shareholder of the benefit (except proportionately as a shareholder
of such corporation) of any loans, advances, guarantees, pledges, or other
financial benefits provided by or through the corporation or certain
subsidiaries.
The three-year moratorium may be avoided if: (i) before such person became
an Interested Shareholder, the board of directors of the corporation approved
either the Business Combination or the transaction in which the Interested
Shareholder became an Interested Shareholder; or (ii) upon consummation of the
transaction which resulted in the shareholder becoming an Interested
shareholder, the shareholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (excluding
shares held by directors who are also officers of the corporation and by
employee stock ownership plans that do not provide employees with 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 following the date on
which such person became an Interested Shareholder, the Business Combination
is approved by the board of directors of the corporation and authorized at an
annual or special meeting of shareholders (not by written consent) by the
affirmative vote of the shareholders of at least 66 2/3% of the outstanding
voting Stock of the corporation not owned by the Interested Shareholder.
The Business Combination restrictions described above do not apply if, among
other things: (i) the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by the statute;
(ii) the corporation by action by the holders of a majority of the voting
stock of the corporation approves an amendment to its certificate of
incorporation or bylaws expressly electing not to be governed by the statute
(effective twelve (12) months after the amendment's adoption), which amendment
shall not be applicable to any business combination with a person who was an
Interested Shareholder at or prior to the time of the amendment; or (iii) the
corporation does not have a class of voting stock that is (a) listed on a
national securities exchange, (b) authorized for quotation on Nasdaq or a
similar quotation system, or (c) held of record by more than 2,000
shareholders. The statute also does not apply to certain Business Combinations
with an Interested Shareholder when such combination is proposed after the
public announcement of, and before the consummation or abandonment of, a
merger or consolidation, a sale of 50% or more of the aggregate market value
of the assets of the corporation on a consolidated basis or the aggregate
market value of all outstanding shares of the corporation, or a tender offer
for 50% or more of the outstanding voting shares of the corporation, if the
triggering transaction is with or by a person who either was not an Interested
Shareholder during the previous three years or who became an Interested
Shareholder with board of director approval, and if the transaction is
approved or not opposed by a majority of the current directors who were also
directors prior to any person becoming an Interested Shareholder during the
previous three years. Primus is subject to the Business Combination
restrictions described above. The Primus Certificate does not contain a
provision electing not to be governed by the Business Combination
restrictions.
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LEGAL MATTERS
The validity of the shares of Primus's Common Stock offered hereby will be
passed upon for Primus by Pepper Hamilton LLP. Certain legal matters in
connection with the merger will be passed upon for TresCom by Kelley Drye &
Warren LLP, Stamford, Connecticut. Mr. John F. DePodesta, "of counsel" to
Pepper Hamilton LLP, is a director and an Executive Vice President of Primus,
and the beneficial owner of 320,136 shares of Primus Common Stock.
EXPERTS
The consolidated financial statements of Primus as of December 31, 1997,
1996 and 1995, and for the years then ended, incorporated in this Joint Proxy
Statement/Prospectus by reference to Primus's Annual Report on Form 10-K for
the year ended December 31, 1997, which are referred to herein and made part
of the Registration Statement of which this Joint Proxy Statement/Prospectus
is a part, have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their report, which is incorporated herein by reference and have
been so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements of TresCom at December 31, 1997 and
1996, and for each of the three years in the period ended December 31, 1997,
which are referred to and made a part of this Registration Statement of which
this Joint Proxy Statement/Prospectus is a part, have been audited by Ernst &
Young LLP, independent auditors, as stated in their report, which is
incorporated herein by reference and have been so incorporated in reliance
upon the report of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of USFI, Inc. appearing in Primus's
Current Report on Form 8-K dated November 3, 1997, and the amendments to such
Current Report dated January 5, 1998 and January 7, 1998, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
(which as to the report dated September 30, 1997 contains an explanatory
paragraph describing conditions that raise substantial doubt about USFI,
Inc.'s ability to continue as a going concern as described in Note 2 to the
Notes to Consolidated Financial Statements) included therein and incorporated
herein by reference. Such consolidated financial statements are incorporated
herein by reference in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
It is expected that representatives of Deloitte & Touche LLP will be present
at the Primus Meeting to respond to appropriate questions of Primus
stockholders and to make a statement if they desire.
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ELECTION OF PRIMUS DIRECTOR
The following information is provided to the Primus Stockholders in
connection with their consideration of the proposal regarding the election of
a Primus director, and to TresCom Shareholders in satisfaction of the
obligations under the 1934 Act Section 14(f) and Rule 14f-1 promulgated
thereunder:
GENERAL
Primus's Board is divided into three classes, with staggered three-year
terms. Currently, the Board has five members. Unless otherwise specified in
the accompanying proxy, the shares voted pursuant thereto will be cast for
John Puente, for a term expiring at the Annual Meeting of Stockholders to be
held following fiscal 2000 (the "2001 Annual Meeting"). If, for any reason, at
the time of election, the nominee named should decline or be unable to accept
his nomination or election, it is intended that such proxy will be voted in
favor of the election, in the nominee's place, of a substituted nominee, who
would be recommended by the Primus Board. The Primus Board, however, has no
reason to believe that Mr. Puente will be unable to serve as a director.
The Primus Board recommends that Primus Stockholders vote in favor of Mr.
Puente to serve as a member of the Primus Board. If no instructions are given
on a properly executed and returned proxy, the shares of Primus Common Stock
represented thereby will be voted in favor of Mr. Puente's election to the
Primus Board.
NOMINEE/DIRECTOR BIOGRAPHICAL INFORMATION
The following biographical information is furnished as to each nominee for
election as a director and each of the current directors:
NOMINEE FOR ELECTION TO THE BOARD OF DIRECTORS
FOR A THREE TERM EXPIRING AT THE 2001 ANNUAL MEETING
John G. Puente became a director of Primus 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.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
TERM EXPIRING AT 1999 ANNUAL MEETING
K. Paul Singh co-founded Primus in 1994 with Mr. DePodesta and serves as its
Chairman, President and Chief Executive Officer. From 1991 until he co-founded
Primus, 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 Overseas Telecommunications, Inc. ("OTI"), a provider of private digital
communications in over 26 countries which he founded in 1984 and was purchased
by MCI in 1991.
John F. DePodesta co-founded Primus 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 Primus, Mr. DePodesta also currently serves as
Chairman of the Board of Iron Road Railways Incorporated, which he co-founded
in 1994, and served as Senior Vice President, Law and Public Policy, of
Genesis Health Ventures, Inc. from January 1996 through March 1998.
Additionally, since 1994 he has been "of counsel" to the law firm of Pepper
Hamilton llp, where he was previously a partner since 1979. Before joining
Pepper Hamilton llp, Mr. DePodesta served as the General Counsel of
Consolidated Rail Corporation. See "Certain Transactions of Primus."
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<PAGE>
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
TERM EXPIRING AT 2000 ANNUAL MEETING
Herman Fialkov became a director of Primus in 1995. He is currently a
consultant to Newlight Management LLC and is also the General Partner of
PolyVentures Associates, L.P., a venture capital firm. He 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 Primus 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.
There are no family relationships among any of the directors of Primus.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Primus Board consists of Messrs. Fialkov
and Hershberg, who were not at any time officers or employees of Primus. No
executive officer of Primus serves as a member of the board of directors or
compensation committee of another entity which has one or more executive
officers that will serve as a member of the Primus Board or the Primus
Compensation Committee.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
During the year ended December 31, 1997, the Primus Board held 4 meetings.
Each director attended at least 75% of the aggregate of the total number of
meetings of the Primus Board and committees of the Primus Board on which he
served.
During the year ended December 31, 1997 the Audit Committee, which currently
consists of Messrs. Fialkov and Puente held 2 meetings. The Audit Committee
has the authority and responsibility to hire one or more independent public
accountants to audit Primus's books, records and financial statements and to
review Primus'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 Primus Board with respect to its findings.
During the year ended December 31, 1997, the Compensation Committee, which
consists of Messrs. Fialkov and Hershberg, held 3 meetings. The Compensation
Committee 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 Primus's Stock Option Plan ("Stock
Option Plan") and Director Stock Option Plan ("Director Option Plan"),
including the award of options under the Stock Option Plan, and approving
certain aspects of Primus's management bonus plan.
During the year ended December 31, 1997, the Nominating Committee, which
consists of Messrs. Singh and Puente, did not hold any meetings. The
Nominating Committee is responsible for selecting those persons to be
nominated to the Primus Board.
COMPENSATION OF DIRECTORS
During 1997, Primus paid each director $500 for each Primus Board meeting
and each Primus Committee meeting attended by such director in person.
Commencing with 1998, Primus will pay directors an annual fee of $10,000 and
has discontinued paying any meeting fees. In addition, Primus grants each
person who becomes an Eligible Director (as defined in the Director Option
Plan) options to purchase 15,000 shares of the Common
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<PAGE>
Stock pursuant to Primus's Director Option Plan which vest one-third upon the
grant date, and one-third on each of the first and second anniversary of the
grant dates. Primus did not grant any such options in 1997.
EXECUTIVE OFFICERS AND DIRECTORS
The following table and biographies set forth information concerning the
individuals who serve as executive officers and directors of Primus:
<TABLE>
<CAPTION>
YEAR OF EXPIRATION
NAME AGE POSITION OF TERM AS DIRECTOR
---- --- -------- -------------------
<S> <C> <C> <C>
K. Paul Singh(1)(2)..... 47 Chairman of the Board of Directors, 1999
President, and Chief Executive
Officer
Neil L. Hazard.......... 45 Executive Vice President and Chief N/A
Financial Officer
John F. DePodesta(1).... 53 Executive Vice President, Law and 1999
Regulatory Affairs, and Director
Yousef Javadi........... 42 Chief Operating Officer of Primus N/A
North America
Ravi Bhatia............. 49 Chief Operating Officer, Primus N/A
Australia
John Melick............. 39 Vice President of International N/A
Business Development
Herman 2000
Fialkov(1)(3)(4)....... 76 Director
David E. 2000
Hershberg(1)(3)........ 60 Director
John G. 1998
Puente(1)(2)(4)........ 67 Director
</TABLE>
- --------
(1) Background presented above. See "Election of Primus Director."
(2) Member of Nominating Committee.
(3) Member of Compensation Committee.
(4) Member of Audit Committee.
Neil L. Hazard joined Primus in 1996 as its Executive Vice President and
Chief Financial Officer. Prior to joining Primus, 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.
Yousef Javadi joined Primus in March 1997 as Chief Operating Officer of
Primus North America. Prior to joining Primus, Mr. Javadi was Vice President
of Business Development at GE Americom (a GE Capital company) from 1995-1997.
From 1991-1995 Mr. Javadi was Director of Global Services of MCI. From 1985-
1991 he was at OTI as Vice President of Sales and Marketing.
Ravi Bhatia joined Primus in October 1995 as the Managing Director of Primus
Telecommunications Pty., Ltd. (Australia) and in March 1996 became the Chief
Operating Officer of Primus Australia and as such is responsible for
implementing Primus's business strategy in Australia. Mr. Bhatia has over 26
years of international experience in the telecommunications industry, which
includes nine 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.
John Melick joined Primus in 1994 as its Vice President of Sales and
Marketing and has served as Vice President of International Business
Development since 1996. Prior to joining Primus, he was a Senior Manager
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<PAGE>
with MCI responsible for the day-to-day management of its global product
portfolio in Latin America 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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Primus's
directors and executive officers, and persons who own more than ten percent of
a registered class of Primus's equity securities (collectively, "Reporting
Persons"), to file with the Securities and Exchange Commission initial reports
of ownership and reports of changes in ownership of the Common Stock and other
equity securities of Primus. Reporting Persons are additionally required to
furnish Primus with copies of all Section 16(a) forms they file.
To Primus's knowledge, based solely on review of the copies of such reports
furnished to Primus and written representations of Reporting Persons, all
Section 16(a) filing requirements applicable to the Reporting Persons were
complied with, except that: Ravi Bhatia filed one report relating to one
transaction approximately one month late; John Puente filed an annual report
relating to three transactions approximately one year late; David Hershberg
filed one report relating to one transaction approximately three months late;
Herman Fialkov filed an annual report relating to one transaction
approximately one month late; John Melick filed one report relating to one
transaction approximately nine months late; and George Mattos (formerly Vice
President of Operations) filed one report relating to one transaction
approximately two months late.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee has furnished the following report on executive
compensation:
General. During 1997, the compensation of the executive officers was
administered and determined by the Compensation Committee of the Primus Board.
Primus's executive compensation programs are designed to attract, motivate and
retain the executive talent needed to optimize stockholder value in a
competitive environment. The programs are intended to support the goal of
increasing stockholder value while facilitating the business strategies and
long-range plans of Primus.
The following is the Compensation Committee's report addressing the
compensation of Primus's executive officers for 1997.
Compensation Policy and Philosophy. Primus's executive compensation policy
(i) is designed to establish an appropriate relationship between executive pay
and Primus's annual performance, its long term growth objectives and its
ability to attract and retain qualified executive officers, and (ii) is based
on the belief that the interests of the executives should be closely aligned
with Primus's stockholders. The Compensation Committee attempts to achieve
these goals by integrating competitive annual base salaries with (i) annual
incentive bonuses based on corporate performance and on the achievement of
specified performance objectives set forth in Primus's financial plan for such
fiscal year and (ii) stock options through Primus's Stock Option Plan. In
support of this philosophy, a meaningful portion of each executive's
compensation is placed at-risk and linked to the accomplishment of specific
results that are expected to lead to the creation of value for Primus's
stockholders from both the short-term and long-term perspectives. The
Compensation Committee believes that cash compensation in the form of salary
and performance-based incentive bonuses provides company executives with short
term rewards for success in operations, and that long term compensation
through the award of stock options encourages growth in management stock
ownership which leads to expansion of management's stake in the long term
performance and success of Primus. The Compensation Committee considers all
elements of compensation and the compensation policy when determining
individual components of pay.
The Compensation Committee believes that leadership and motivation of
Primus's employees are critical to achieving the objectives of Primus. The
Compensation Committee is responsible for ensuring that its executive officers
are compensated in a way that furthers Primus's business strategies and which
aligns their interests with those
96
<PAGE>
of the stockholders. To support this philosophy, the following principles
provide a framework for executive compensation: (i) offer compensation
opportunities that attract the best talent to Primus; (ii) motivate
individuals to perform at their highest levels; (iii) reward outstanding
achievement; (iv) retain those with leadership abilities and skills necessary
for building long-term stockholder value; (v) maintain a significant portion
of executives' total compensation at risk, tied to both the annual and long-
term financial performance of Primus and the creation of incremental
stockholder value; and (vi) encourage executives to manage from the
perspective of owners with an equity stake in Primus.
Executive Compensation Components. As discussed below, Primus's executive
compensation package is primarily comprised of three components: base salary,
annual incentive bonuses and stock options.
BASE SALARY. For 1997, the Compensation Committee approved the base
salaries of the executive officers based on (i) salaries paid to executive
officers with comparable responsibilities employed by companies with
comparable businesses, (ii) performance and accomplishment of Primus in
fiscal 1997, which is the most important factor, and (iii) individual
performance reviews for fiscal 1997 for most executive officers. The
Compensation Committee reviews executive officer salaries annually and
exercises its judgment based on all the factors described above in making
its subject to the terms of such officer's employment agreement. No
specific formula is applied to determine the weight of each criteria.
ANNUAL INCENTIVE BONUSES. Annual incentive bonuses for the Chief Executive
Officer and the other named executive officers are based upon the following
criteria: (i) Primus's financial performance for the current fiscal year,
(ii) the furthering of Primus's strategic position in the marketplace; and
(iii) individual merit.
LONG TERM INCENTIVE COMPENSATION. Stock options encourage and reward
effective management which results in long-term corporate financial
success, as measured by stock price appreciation. The number of options
granted during 1997 to each executive officer or employee was based
primarily on the executive's or employee's ability to influence Primus's
long term growth and profitability. The Compensation Committee believes
that option grants afford a desirable long term compensation method because
they closely ally the interests of management with stockholder value and
that grants of stock options are the best way to motivate executive
officers to improve long-term stock market performance. The vesting
provisions of options granted under Primus's Stock Option Plan are designed
to encourage longevity of employment with Primus and generally extend over
a three-year period.
Compensation of Chief Executive Officer. The Compensation Committee believes
that K. Paul Singh, Primus's Chief Executive Officer, provides valuable
services to Primus and that his compensation should therefore be competitive
with that paid to executives at comparable companies. In addition, the
Compensation Committee believes that an important portion of his compensation
should be based on performance. Mr. Singh's annual base salary for 1997 was
$250,000. The factors which the Compensation Committee considered in setting
his annual base salary were his individual performance and pay practices of
peer companies relating to executives of similar responsibility. The annual
incentive bonus paid to Mr. Singh for 1997 was $160,000. Such bonus was paid
to Mr. Singh for his performance and role in implementing Primus's strategy
relating to acquisitions, financing and operations, including overseeing the
implementation of Primus's network.
Internal Revenue Code Section 162. Under Section 162 of the Internal Revenue
Code, the amount of compensation paid to certain executives that is deductible
with respect to Primus's corporate taxes is limited to $1,000,000 annually. It
is the current policy of the Compensation Committee to maximize, to the extent
reasonably possible, Primus's ability to obtain a corporate tax deduction for
compensation paid to executive officers of Primus to the extent consistent
with the best interests of Primus and its stockholders.
The Compensation Committee
Herman Fialkov
David E. Hershberg
97
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth, for the years ended December 31, 1997, 1996
and 1995 certain compensation information with respect to Primus's Chief
Executive Officer and the other Company officers named therein (the "Named
Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------- --------------------- -------
SECURITIES
OTHER UNDER-
ANNUAL RESTRICTED LYING ALL OTHER
COMPEN- STOCK OPTIONS/ LTIP COMPEN-
SALARY BONUS SATION AWARD(S) SARS PAYOUTS SATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- --------------------------- ---- ------- ------- ------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
K. Paul Singh ........... 1997 247,692 160,000 -- -- 100,000 -- --
Chairman of the Board of
Directors, 1996 185,000 100,000 -- -- 338,100 -- --
President and Chief
Executive Officer 1995 185,000(1) -- -- -- -- -- --
Neil L. Hazard .......... 1997 159,231 100,000 -- -- 40,000 -- --
Executive Vice President 1996 118,461 60,000 -- -- 304,290 -- --
and Chief Financial
Officer 1995 -- -- -- -- -- -- --
Yousef B. Javadi......... 1997 121,154 60,000 -- -- 170,000 -- --
Chief Operating
Officer-- 1996 -- -- -- -- -- -- --
Primus North America 1995 -- -- -- -- -- -- --
John F. DePodesta ....... 1997 100,000 -- -- -- 180,000 -- --
Executive Vice
President, 1996 -- 10,000 -- -- -- -- --
Law and Regulatory
Affairs 1995 -- -- -- -- 101,430 -- --
Ravi Bhatia.............. 1997 105,004 50,000 -- -- 30,000 -- --
Chief Operating
Officer-- 1996 96,740 30,000 -- -- 33,810 -- --
Primus Australia 1995 21,580 -- -- -- 67,620 -- --
</TABLE>
- --------
(1) Of this amount, payment of $77,200 was deferred and subsequently paid on
July 31, 1996.
EMPLOYMENT AGREEMENT
Primus 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 Primus as Chairman of the
Board, President and Chief Executive Officer. Primus is required to compensate
Mr. Singh at an annual rate of $250,000 effective January 1, 1997 (which
amount is reviewed annually by the Primus Board and is subject to increase at
their discretion). Mr. Singh, however, 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. Primus is also obligated to (i) allow Mr. Singh to
participate in any bonus or incentive compensation plan approved for senior
management of Primus, (ii) provide life insurance in an amount equal to three
times Mr. Singh's base salary and disability insurance which provides monthly
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.
Primus 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 Primus at any time without penalty (other than the non-competition
obligations discussed below). If Primus terminates the Singh Agreement for
disability or cause, Primus will have no further obligations to Mr. Singh. If,
however, Primus terminates the Singh Agreement other than for disability or
cause, Primus will have the following obligations: (i) if the termination is
after May 30,
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<PAGE>
1999, Primus 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, Primus
must pay to Mr. Singh, as they become due, all amounts otherwise payable if he
had remained employed by Primus until June 1, 1999. If Mr. Singh resigns, he
may not directly or indirectly compete with Primus's business until six months
after his resignation. If Primus terminates Mr. Singh's employment for any
reason, Mr. Singh may not directly or indirectly compete with Primus's
business until six months after the final payment of any amounts owed to him
under the Singh Agreement become due.
STOCK OPTIONS GRANTED TO CERTAIN EXECUTIVE OFFICERS DURING 1997
Under the Stock Option Plan, options to purchase Primus Common Stock are
available for grant to selected employees of Primus. Options are also
available for grant to eligible directors under Primus's Director Stock Option
Plan. The following table sets forth certain information regarding options for
the purchase of Common Stock that were awarded to the Named Executive Officers
during 1997.
OPTION GRANTS IN THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------
POTENTIAL REALIZABLE
NUMBER OF PERCENT OF VALUE AT ASSUMED
SECURITIES TOTAL ANNUAL RATE OF STOCK
UNDERLYING OPTIONS/ PRICE APPRECIATION FOR
OPTIONS/ SARS GRANTED EXERCISE OF OPTION TERM
SARS TO EMPLOYEES BASE PRICE EXPIRATION -----------------------
NAME GRANTED (#) IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ----------- -------------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
K. Paul Singh........... 100,000 9% $14.00 12/22/02 386,820 854,700
Chairman of the Board
of Directors, President
and Chief Executive
Officer
Neil L. Hazard.......... 40,000 4% $14.00 12/22/02 154,728 341,880
Executive Vice
President and Chief
Financial Officer
Yousef B. Javadi........ 150,000 14% $ 8.25 3/21/02 341,921 755,494
Chief Operating 20,000 2% $14.00 12/22/02 77,364 170,940
Officer--Primus North
America.
John F. DePodesta....... 180,000 17% $14.00 12/22/02 696,276 1,538,460
Executive Vice
President for Law and
Regulatory Affairs
Ravi Bhatia............. 30,000 3% $14.00 12/22/02 116,046 256,410
Chief Operating
Officer--Primus
Australia
</TABLE>
<TABLE>
<S> <C>
Total Options Granted to
Employees..................... 1,062,250
Future Value Factor--5 Years @
5%............................ 1.2763
Future Value Factor--5 Years @
10%........................... 1.6105
</TABLE>
There were no options exercised by Primus's Chief Executive Officer or the
Named Executive Officers during the year ended December 31, 1997.
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<PAGE>
STOCK PRICE PERFORMANCE GRAPH
The graph below compares Primus's cumulative total stockholder return on the
Common Stock for the period from the date Primus's Common Stock commenced
trading on the Nasdaq National Market System (November 7, 1996) through
December 31, 1997, with the cumulative total return of the Standard & Poor's
Midcap 400 Index and the Standard & Poor's Telecommunications (Long Distance)
Index. The comparison assumes $100 was invested on November 7, 1996 in Primus's
Common Stock and in each of the foregoing indices and assumes reinvestment of
dividends.
[STOCKHOLDER RETURN GRAPH REPLACED BY TABLE BELOW]
TOTAL STOCKHOLDER RETURN
YEAR ENDING
--------------------------------------
11/7/96 12/31/96 12/31/97
---------- ----------- ----------
( D O L L A R S )
PRIMUS TELECOMMUNICATIONS
GROUP, INC. 100.00 115.91 146.59
TELECOM (LONG DISTANCE)-
500 100.00 114.98 162.82
S&P MIDCAP 400 100.00 102.79 135.95
100
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF PRIMUS
The following table sets forth information, as of April 27, 1998, except as
otherwise noted, with respect to the beneficial ownership of shares of the
Primus Common Stock by each person or group who is known to Primus to be the
beneficial owner of more than five percent of the outstanding Primus Common
Stock, by each director or nominee for director, by each of the Named
Executive Officers, 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 PERCENT
NAME BENEFICIAL OWNERSHIP(1) OF CLASS
- ---- ----------------------- --------
<S> <C> <C>
K. Paul Singh............................... 4,611,406(2) 22.9%
1700 Old Meadow Road
McLean, VA 22102
Quantum Industrial Partners LDC............. 1,406,283(3) 7.1%
c/o Curacao Corporation Company N.V.
Kaya Flamboyan 9
Willemstad, Curacao
Netherlands Antilles
S-C Phoenix Holdings, L.L.C. ............... 843,769(4) 4.3%
c/o The Chatterjee Group
888 Seventh Avenue
New York, NY 10106
Winston Partners II LLC..................... 175,785(5) *
c/o Chatterjee Advisors LLC
c/o The Chatterjee Group
888 Seventh Avenue
New York, NY 10106
Winston Partners II LDC..................... 383,103(6) 1.9%
c/o Curacao Corporation Company N.V.
Kaya Flamboyan 9
Willemstad, Curacao
Netherlands Antilles
Franklin Resources, Inc. ................... 1,366,750(7) 6.9%
777 Mariners Island Boulevard
San Mateo, CA 94404
John F. DePodesta........................... 320,136(8) 1.6%
Herman Fialkov.............................. 30,000 *
David E. Hershberg.......................... 51,667(9) *
John Puente................................. 166,760(10) *
Neil L. Hazard.............................. 205,843(11) 1.0%
Yousef B. Javadi............................ 52,256(12) *
Ravi Bhatia................................. 70,119(13) *
All executive officers and directors as a
group (9 people)........................... 5,608,586(14) 27.2%
</TABLE>
- --------
* Less than 1% of the outstanding Primus Common Stock.
(1) As of April 27, 1998, there were 19,823,951 outstanding shares of Primus
Common Stock. Beneficial ownership is determined in accordance with the
rules of the 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 which, on or prior to
June 27, 1998, become exercisable, are also 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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<PAGE>
(2) Includes 377,786 shares of Primus Common Stock owned by Mr. Singh's wife
and children, 500,000 shares of Primus Common Stock held by a private
foundation of which Mr. Singh is the president and a director, 396,828
shares of Primus 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, and 640 shares held
in a 401(k) plan of which Mr. Singh is a beneficiary. Also includes
225,400 shares of Primus Common Stock issuable upon the exercise of
options granted to Mr. Singh.
(3) Based on a Schedule 13G dated March 6, 1998, Quantum Industrial Partners
LDC ("Quantum Industrial") has reported that it may be deemed to be the
beneficial owner of 1,406,283 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 Primus 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.
(4) Based on a Schedule 13G dated March 6, 1998, S-C Phoenix Holdings, L.L.C.
("Phoenix Holdings") has reported that it may be deemed to be the
beneficial owner of 843,769 shares of Primus Common Stock. According to
the Schedule 13G, George Soros and Winston Partners, L.P. are the
managing members of Phoenix Holdings with respect to its investment in
the shares of Primus 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 Primus Common Stock held by
Phoenix Holdings.
(5) Based on a Schedule 13G dated March 6, 1998, Winston Partners II LLC
("Winston LLC") has reported that it may be deemed to be the beneficial
owner of 175,785 shares of Primus Common Stock. According to the Schedule
13G, 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 Primus Common Stock
held by Winston LLC.
(6) Based on a Schedule 13G dated March 6, 1998, Winston Partners II LDC
("Winston LDC") has reported that it may be deemed to be the beneficial
owner of 383,103 shares of Primus Common Stock. According to the Schedule
13G, Chatterjee Management has investment discretion over the shares of
Primus 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 Primus Common Stock
held by Winston LDC.
(7) Based on a Schedule 13G dated February 6, 1998, Franklin Resources, Inc.
("Franklin") has reported that it may be deemed to be the beneficial
owner of 1,366,750 shares of Primus Common Stock. According to the
Schedule 13G, such shares are also beneficially owned by Franklin
Advisers, Inc., an investment advisory subsidiary (the "Adviser") of
Franklin, which has all investment and/or voting power over the shares
pursuant to an advisory contract. In addition, Charles B. Johnson and
Rupert H. Johnson, Jr. each own in excess of 10% of the outstanding
common stock of Franklin and are the principal shareholders of FRI and
may, therefore, be deemed to be the beneficial owner of the shares of
Primus Common Stock
102
<PAGE>
held by Franklin. Franklin, the Adviser, and Messrs. Charles and Rupert
Johnson disclaim any economic interest or beneficial ownership in such
shares.
(8) Includes 101,430 shares of Primus Common Stock issuable upon the exercise
of options granted to Mr. DePodesta.
(9) Includes 50,715 shares of Primus Common Stock issuable upon the exercise
of options granted to Mr. Hershberg and 953 shares of Common Stock owned
by a partnership of which Mr. Hershberg is a general partner.
(10) Includes 50,715 shares of Primus Common Stock issuable upon the exercise
of options granted to Mr. Puente.
(11) Includes 202,860 shares of Primus Common Stock issuable upon the exercise
of options granted to Mr. Hazard.
(12) Includes 50,000 shares of Primus Common Stock issuable upon the exercise
of options granted to Mr. Javadi.
(13) Includes 67,619 shares of Primus Common Stock issuable upon the exercise
of options granted to Mr. Bhatia.
(14) Includes 847,913 shares of Primus Common Stock issuable upon the exercise
of options granted to directors and executive officers.
103
<PAGE>
AMENDMENT TO THE PRIMUS CERTIFICATE OF INCORPORATION
(FOR STOCKHOLDERS OF PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED ONLY)
The Primus Board recommends that the Primus stockholders approve an
amendment to the Primus Certificate of Incorporation to increase the number of
authorized shares of Primus Common Stock from 40,000,000 to 80,000,000.
On April 30, 1998, Primus had issued and outstanding 19,914,357 shares of
Primus Common Stock, excluding shares reserved for issuance pursuant to its
stock option plans. As a result of the TresCom Merger, Primus will issue an
indeterminate number of additional shares of Primus Common Stock and reserve
an indeterminate number of additional shares of Primus Common Stock for
issuance pursuant to options which are to be converted into Primus options.
The Primus Board has determined that it is advisable for the Primus
stockholders to approve the proposed increase in the authorized Primus Common
Stock to have shares available for such corporate purposes as future equity
financings, acquisitions, stock splits and stock options. Authorizing
additional shares avoids the delay and expense of a special stockholders'
meeting if opportunities arise which would require the issuance of shares in
excess of the present limit since the Primus Board will have the authority to
issue such shares without stockholder approval, subject to the requirements of
the Nasdaq National Market. Other than issuances of Primus Common Stock in
connection with the Merger Agreement, Primus does not have any definitive
plans to issue additional shares of Primus Common Stock.
The additional shares of Primus Common Stock for which authorization is
sought would have rights equivalent to the shares of Primus Common Stock now
authorized. This amendment of the Certificate of Incorporation requires the
approval of a majority of the outstanding Primus Common Stock.
The Primus Board recommends that Primus Stockholders vote in favor of the
amendment to the Primus Certificate of Incorporation to increase the number of
authorized shares of Primus Common Stock from 40,000,000 to 80,000,000. If no
instructions are given on a properly executed and returned proxy, the shares
of Primus Common Stock represented thereby will be voted in favor of the
amendment.
104
<PAGE>
CERTAIN TRANSACTIONS OF PRIMUS
PRIVATE EQUITY SALE
In July 1996, Primus completed the sale of 965,999 shares of Primus 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 Primus 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 Primus Common
Stock (the "Soros/Chatterjee Warrants"). The Soros/Chatterjee Warrants have
been exercised in full.
The Soros/Chatterjee Group was granted registration rights pursuant to a
registration rights agreement with Primus (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 Primus Common
Stock after the first demand registration. Primus 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 Primus 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 Primus'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. Primus and the Soros/Chatterjee
Group have entered into customary indemnification and contribution provisions.
Additionally, members of the Soros/Chatterjee Group are entitled to tag-
along 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 Primus Common Stock decide to
sell 80% or more of the outstanding capital stock of Primus. A securityholders
agreement by and among Primus, K. Paul Singh and the Soros/Chatterjee Group
provides that members of the Soros/Chatterjee Group will not transfer shares
of Primus Common Stock to a company, or any affiliate, that competes with
Primus 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
Primus entered into an agreement on January 12, 1996 with Teleglobe USA,
Inc. ("Teleglobe"), pursuant to which Teleglobe purchased 410,808 shares of
Primus Common Stock (the "Teleglobe Shares") 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 Primus. The loan, which was repaid in full with the
proceeds from the offering of the Senior Notes, bore interest at 6.9% per
annum (payable quarterly), was scheduled to mature on February 9, 1998, and
was secured by all the assets of Primus, comprised principally of the stock of
the subsidiaries (65% of the stock of foreign subsidiaries was pledged).
Related to the Teleglobe investments, Primus 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, Primus and Mr. Singh entered into a
stockholders' agreement (the "Teleglobe Agreement") providing Teleglobe the
same consent, preemptive and registration rights as may be
105
<PAGE>
granted in the future to other stockholders of an equal or lesser percentage
ownership in Primus, and participation and tag-along rights whereby Teleglobe
is entitled to sell its shares of Primus Common Stock when certain other
stockholders sell or when Primus issues equity securities that would result in
a change of control of Primus. The Teleglobe Agreement also obligated
Teleglobe to sell the Teleglobe Shares if certain other stockholders sell and
specified conditions are met, and grants Primus a right of first refusal upon
a sale of the Teleglobe Shares to any competitor of Primus. Teleglobe waived
any preemptive rights and registration rights that arose as a result of the
private equity sale, which occurred on July 31, 1996, whereby the
Soros/Chatterjee Group purchased an equity interest in Primus for an aggregate
purchase price of approximately $16.0 million. Teleglobe has sold all of the
Teleglobe Shares pursuant to Rule 144, and the Teleglobe Agreement has
terminated.
NSI PRIVATE PLACEMENTS
In 1995 and 1996, Primus engaged Northeast Securities, Inc. ("NSI") to serve
as the placement agent for two private placements of Primus 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, Primus paid Mr. Krieger cash commissions aggregating
approximately $1,007,000. Primus 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, Primus issued a total
of 193,718 shares of Primus Common Stock to Krieger Associates and Mr.
Krieger, and at the direction of Mr. Krieger issued a total of 74,003 shares
of Primus Common Stock to other individuals associated with the transaction.
Primus also issued, in connection with these private placements, a total of
245,555 shares of Primus Common Stock to NSI and certain of its employees
associated with the transactions.
LOAN FROM OFFICER
In connection with the initial organization of Primus, K. Paul Singh,
Primus's Chairman of the Board, President and Chief Executive Officer, loaned
Primus approximately $320,000, accruing interest at a variable rate tied to
the prime rate. On March 31, 1995, Primus and Mr. Singh converted all then
outstanding principal and interest due ($350,000) into 555,559 shares of
Primus Common Stock, at a price per share of $0.63, which shares were issued
on such date.
MANAGEMENT FEES
Prior to Primus's acquisition of Axicorp, Axicorp paid a management fee
based on a percentage of revenue to a company owned primarily by certain
officers of Primus, including Paul Keenan, Sim Thiam Soon and Peter Slaney.
Mr. Keenan and Mr. Slaney are no longer employed by Primus. 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, Primus has retained the law firm of Pepper Hamilton llp,
of which John F. DePodesta, a director and an Executive Vice President of
Primus, is "of counsel," to perform legal services for Primus.
HOTKEY INVESTMENT
In March 1998, Primus purchased a controlling interest in Hotkey, a
Melbourne, Australia based Internet service provider. Primus's 60% ownership
of Hotkey was purchased for approximately $1.3 million in cash. Prior to the
Hotkey Investment, Primus's chairman, K. Paul Singh, owned approximately 14%
of Hotkey. As a result of the transaction, Mr. Singh owns 4% of Hotkey.
ANNUAL REPORT OF PRIMUS
A copy of Primus's Annual Report on Form 10-K for the year ended December
31, 1997 accompanies this Proxy Statement.
106
<PAGE>
STOCKHOLDER PROPOSALS OF PRIMUS
To be eligible for inclusion in Primus's proxy materials for the 1999 Annual
Meeting of Stockholders, a proposal intended to be presented by a stockholder
for action at that meeting must, in addition to meeting the stockholder
eligibility and other requirements of the Securities and Exchange Commission's
rules governing such proposals, be received not later than January 4, 1998 by
the Secretary of Primus at Primus's principal executive offices, 1700 Old
Meadow Road, McLean, Virginia 22102.
OTHER MATTERS
As of the date of this Joint Proxy Statement/Prospectus, neither the Primus
Board nor the TresCom Board knows of any matters that will be presented for
consideration at the Primus Meeting or the TresCom Special Meeting other than
as described in this Joint Proxy Statement/Prospectus. If any other matters
shall properly come before the Primus Meeting or the TresCom Special Meeting,
or any adjournments or postponements thereof, and be voted upon, the enclosed
proxies will be deemed to confer discretionary authority on the individuals
named as proxies therein to vote the shares represented by such proxies as to
any such matters. The person named as proxies intend to vote or not to vote in
accordance with the recommendation of the respective managements of Primus and
TresCom.
107
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE OF TRESCOM
<TABLE>
<CAPTION>
PAGE NO.
---------
<S> <C>
Financial Statements:
TresCom International, Inc.:
Report of Independent Auditors................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996..... F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995................................ F-4
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1997, 1996 and 1995.......................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995................................ F-6
Notes to Consolidated Financial Statements....................... F-7
Consolidated Financial Statement Schedule:
Report of Independent Auditors................................... S-1
Schedule II--Valuation and Qualifying Accounts................... S-2
</TABLE>
All other schedules are omitted because they are inapplicable or the
requested information is shown in the consolidated financial statements or
related notes.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
TresCom International, Inc.
We have audited the accompanying consolidated balance sheets of TresCom
International, Inc. and its subsidiaries ("TresCom") as of December 31, 1997
and 1996 and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of TresCom's
management. Our responsibility is to express an opinion on these 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 audits 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, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TresCom
International, Inc. and subsidiaries at December 31, 1997 and 1996 and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Atlanta, Georgia
February 27, 1998
F-2
<PAGE>
TRESCOM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- --------
(IN THOUSANDS,
EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents................................ $ 1,481 $ 6,020
Accounts receivable, net of allowance for doubtful
accounts of $8,149 and $7,588, respectively............. 31,743 29,063
Other current assets..................................... 2,406 3,441
-------- --------
Total current assets....................................... 35,630 38,524
Property and equipment, at cost:
Transmission and communications equipment................ 29,720 24,691
Furniture, fixtures and other............................ 9,620 5,600
-------- --------
39,340 30,291
Less accumulated depreciation and amortization............. (9,668) (5,755)
-------- --------
29,672 24,536
Other assets:
Customer bases, net of accumulated amortization of $2,385
and $1,358, respectively................................ 3,274 3,806
Excess of cost over net assets of businesses acquired,
net of accumulated amortization of $3,508 and $2,368,
respectively............................................ 38,826 34,260
Other.................................................... 1,027 484
-------- --------
Total assets............................................... $108,429 $101,610
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable......................................... $ 1,237 $ 2,758
Accrued network costs.................................... 19,497 19,546
Other accrued expenses................................... 6,365 5,395
Long-term obligations due within one year................ 1,098 817
Deferred revenue and other current liabilities........... 1,689 1,807
-------- --------
Total current liabilities.................................. 29,886 30,323
Long-term obligations (Notes 3 and 4)...................... 19,593 3,965
Shareholders' equity:
Preferred stock, $.01 par value per share; 1,000,000
shares
authorized, no shares issued and outstanding............ -- --
Common stock, $.0419 par value per share; 50,000,000
shares authorized; 12,104,960 and 11,804,675 shares
issued and outstanding, respectively.................... 505 493
Deferred compensation.................................... (551) (808)
Additional paid-in capital............................... 108,354 106,140
Accumulated deficit...................................... (49,358) (38,503)
-------- --------
Total shareholders' equity................................. 58,950 67,322
-------- --------
Total liabilities and shareholders' equity................. $108,429 $101,610
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
TRESCOM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER
31,
---------------------------------
1997 1996 1995
---------- ---------- ---------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C> <C>
Revenues................................... $ 157,641 $ 139,621 $ 102,641
Cost of services........................... 124,365 106,928 74,679
---------- ---------- ---------
Gross profit............................... 33,276 32,693 27,962
Selling, general and administrative (Notes
2, 9 and 12).............................. 36,386 30,808 32,437
Depreciation and amortization.............. 6,599 4,928 3,961
---------- ---------- ---------
Operating loss............................. (9,709) (3,043) (8,436)
Interest and other expenses, net........... 1,146 578 3,191
---------- ---------- ---------
Loss before extraordinary item............. (10,855) (3,621) (11,627)
Extraordinary loss on early extinguishment
of debt................................... -- 1,956 --
---------- ---------- ---------
Net loss................................... $ (10,855) $ (5,577) $ (11,627)
========== ========== =========
Net loss applicable to common stock........ $ (10,855) $ (6,267) $ (16,504)
========== ========== =========
Basic and diluted per share data:
Loss before extraordinary item........... $ (.91) $ (.41) $ (5.29)
Extraordinary item....................... -- (.18) --
---------- ---------- ---------
Net loss per share of common stock......... $ (.91) $ (.59) $ (5.29)
========== ========== =========
Weighted average number of shares of common
stock outstanding......................... 11,890,047 10,671,096 3,119,590
========== ========== =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
TRESCOM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK TRESCOM COMMON STOCK
-------------------------------------------- ----------------------------
ACCRUED ADDITIONAL
UNDECLARED STOCK PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT DIVIDENDS SUBSCRIPTIONS SHARES AMOUNT CAPITAL COMPENSATION DEFICIT
-------- -------- ---------- ------------- ---------- ------ ---------- ------------ -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1994............. 283,594 $ 28,359 $ 1,652 $ 511 202,864 $ 9 $ 76 $ -- $(15,732)
Issuance of
Common Stock..... -- -- -- -- 2,183,799 91 824 -- --
Issuance of
Preferred Stock:
Series A........ 1,467 147 -- -- -- -- -- -- --
Series C........ 151,421 15,142 -- (511) -- -- -- -- --
Accrued dividends
on Preferred
Stock............ -- -- 4,877 -- -- -- -- -- (4,877)
Grant of stock
options.......... -- -- -- -- -- -- 796 (796) --
Non-cash
compensation..... -- -- -- -- -- -- -- 139 --
Issuance of
Common Stock
Warrants......... -- -- -- -- -- -- 2,428 -- --
Net loss......... -- -- -- -- -- -- -- -- (11,627)
-------- -------- ------- ----- ---------- ---- -------- ------- --------
Balance at
December 31,
1995............. 436,482 43,648 6,529 -- 2,386,663 100 4,124 (657) (32,236)
Conversion of
Preferred Stock
to Common Stock
and accrued
dividends........ (436,482) (43,648) (7,219) -- 4,558,155 191 50,676 -- --
Accrued dividends
on Preferred
Stock............ -- -- 690 -- -- -- -- -- (690)
Initial public
offering of
Common Stock..... -- -- -- -- 4,545,455 190 50,537 -- --
Costs associated
with initial
public offering
of Common Stock.. -- -- -- -- -- -- (2,160) -- --
Grant of stock
options.......... -- -- -- -- -- -- 1,701 (1,701) --
Non-cash
compensation
expense.......... -- -- -- -- -- -- -- 1,264 --
Exercise of stock
options.......... -- -- -- -- 141,988 6 54 -- --
Forfeiture of
stock options.... -- -- -- -- -- -- (286) 286 --
Net loss......... -- -- -- -- -- -- -- -- (5,577)
Common Stock
issued in
connection with
acquisitions..... -- -- -- -- 172,414 6 1,494 -- --
-------- -------- ------- ----- ---------- ---- -------- ------- --------
Balance at
December 31,
1996............. -- -- -- -- 11,804,675 493 106,140 (808) (38,503)
Non-cash
compensation
expense.......... -- -- -- -- -- -- -- 257 --
Exercise of stock
options.......... -- -- -- -- 16,769 1 6 -- --
Common stock
issued in
connection with
acquisitions..... -- -- -- -- 283,516 11 2,208 -- --
Net loss......... -- -- -- -- -- -- -- -- (10,855)
-------- -------- ------- ----- ---------- ---- -------- ------- --------
Balance at
December 31,
1997............. -- $ -- $ -- $ -- 12,104,960 $505 $108,354 $ (551) $(49,358)
======== ======== ======= ===== ========== ==== ======== ======= ========
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
-------------
<S> <C>
Balance at
December 31,
1994............. $ 14,875
Issuance of
Common Stock..... 915
Issuance of
Preferred Stock:
Series A........ 147
Series C........ 14,631
Accrued dividends
on Preferred
Stock............ --
Grant of stock
options.......... --
Non-cash
compensation..... 139
Issuance of
Common Stock
Warrants......... 2,428
Net loss......... (11,627)
-------------
Balance at
December 31,
1995............. 21,508
Conversion of
Preferred Stock
to Common Stock
and accrued
dividends........ --
Accrued dividends
on Preferred
Stock............ --
Initial public
offering of
Common Stock..... 50,727
Costs associated
with initial
public offering
of Common Stock.. (2,160)
Grant of stock
options.......... --
Non-cash
compensation
expense.......... 1,264
Exercise of stock
options.......... 60
Forfeiture of
stock options.... --
Net loss......... (5,577)
Common Stock
issued in
connection with
acquisitions..... 1,500
-------------
Balance at
December 31,
1996............. 67,322
Non-cash
compensation
expense.......... 257
Exercise of stock
options.......... 7
Common stock
issued in
connection with
acquisitions..... 2,219
Net loss......... (10,855)
-------------
Balance at
December 31,
1997............. $ 58,950
=============
</TABLE>
See accompanying notes.
F-5
<PAGE>
TRESCOM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss before extraordinary item............. $ (10,855) $ (3,621) $ (11,627)
Extraordinary loss on early extinguishment
of debt................................... -- (1,956) --
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............ 6,599 4,928 3,961
Non-cash interest expense................ -- 431 607
Non-cash interest expense on note to
shareholder............................. -- 297 --
Non-cash compensation.................... 257 1,264 139
Changes in operating assets and
liabilities, net of effects of
acquisitions:
Accounts receivable.................... (2,118) (11,770) (5,511)
Other current assets................... 1,045 (2,139) (943)
Accounts payable....................... (2,805) 564 (2,307)
Accrued network costs.................. (49) 7,911 1,180
Other accrued expenses................. (772) 754 (1,942)
Deferred revenue and other current
liabilities........................... (1,427) 1,513 --
---------- ---------- ----------
Net cash used in operating activities...... (10,125) (1,824) (16,443)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment........ (6,914) (8,086) (5,637)
Expenditures for line installations........ (577) (144) (418)
Cash paid for purchases of businesses,
net....................................... (1,201) (522) --
---------- ---------- ----------
Net cash used in investing activities...... (8,692) (8,752) (6,055)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common
stock..................................... -- 50,727 915
Costs relating to initial public offering.. -- (2,160) --
Proceeds from the issuance of preferred
stock..................................... -- -- 14,778
Proceeds from debt......................... -- -- 7,572
Proceeds from issuance of warrants
associated with debt...................... -- -- 2,428
Proceeds from revolving credit agreement,
net....................................... 15,645 -- --
Payment of loan acquisition costs.......... (482) (86) (533)
Repayment of cash overdraft................ -- -- (382)
Repayment of revolving credit facility..... -- (24,173) --
Repayment of sellers' note................. -- (1,000) --
Repayment of notes payable to stockholder.. -- (8,476) --
Repayment of debt.......................... (15) (18) (27)
Proceeds from stock option exercise........ 7 60 --
Principal payments on capital lease
obligations............................... (877) (330) (201)
---------- ---------- ----------
Net cash provided by financing activities.. 14,278 14,544 24,550
---------- ---------- ----------
Net change in cash and cash equivalents.... (4,539) 3,968 2,052
Cash and cash equivalents at beginning of
period.................................... 6,020 2,052 --
---------- ---------- ----------
Cash and cash equivalents at end of
period.................................... $ 1,481 $ 6,020 $ 2,052
========== ========== ==========
Interest paid.............................. $ 806 $ 1,352 $ 2,257
========== ========== ==========
Capital lease obligations incurred......... $ 1,156 $ 4,310 $ --
========== ========== ==========
</TABLE>
See accompanying notes.
F-6
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. BUSINESS
Organization and Basis of Presentation
TresCom International, Inc. ("TresCom") was incorporated in Florida on
December 8, 1993 as TeraCom Communications, Inc. Effective June 30, 1994,
TresCom changed its name to TresCom International, Inc.
TresCom is a facilities-based long-distance telecommunications carrier
focused on international long- distance traffic. TresCom offers
telecommunications services, including direct dial "1 plus" and toll-free long
distance, calling and debit cards, international toll-free service, 24-hour
bilingual operator services, intra-island local service in Puerto Rico,
private lines, frame relay, international inbound service, international
country to country calling services and international callthrough from
selected markets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
TresCom and its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
Cash and Cash Equivalents
TresCom considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. Cash equivalents are recorded at
cost, which approximates fair market value.
Property and Equipment
Property and equipment is recorded at cost. Depreciation and amortization is
provided for financial reporting purposes using the straight-line method over
the following estimated useful lives:
<TABLE>
<S> <C>
Transmission and communications equipment.................... 3 to 20 years
Furniture, fixtures and other................................ 3 to 7 years
</TABLE>
The costs of software and software upgrades purchased for internal use are
capitalized. Significant capital projects are constantly being initiated as
TresCom continues to expand its network. Beginning in 1996, a substantial
amount of employee time was required to properly plan, install, test and
certify the equipment associated with these projects. In connection with these
projects, TresCom capitalized $1,229 and $1,450 in direct and indirect
employee costs during 1997 and 1996, respectively.
Change in Accounting Estimate
During the first quarter of 1997, TresCom changed the estimated useful life
of fiber optic undersea cables from 10 to 20 years to conform to the
predominant industry standard. The change in depreciation expense associated
with the revised estimated useful life of fiber optic undersea cables was
approximately $120 for 1997.
Advertising
Pursuant to American Institute of Certified Public Accountants (AICPA)
Statement of Position No. 93-7, "Reporting on Advertising Costs," TresCom
expenses advertising costs as incurred except for direct-
F-7
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
response advertising costs, which are capitalized and amortized over the
expected period of future benefit. Direct-response advertising programs were
implemented during 1996 and consist of fees paid to various telemarketing
entities and internal costs of performing telemarketing activities. The
capitalized costs are amortized over a nine month period beginning in the
month revenues associated with those costs are first generated.
At December 31, 1997 and 1996, advertising costs totaling $770 and $1,390,
respectively, were recorded as other current assets. Advertising expense for
the years ended December 31, 1997, 1996 and 1995 were $4,865, $2,047 and
$1,359, respectively.
Other Assets
The excess of cost over net assets of businesses acquired represents the
excess of the consideration paid over the fair value of the net assets
acquired and is amortized on a straight-line basis over 35 years. Customer
bases are recorded based on the estimated value of the customer bases acquired
in the acquisition of businesses and are amortized on a straight-line basis
over periods ranging from three to seven years.
Other assets are periodically reviewed by TresCom for impairments where the
fair value is less than the carrying value.
Legal expenses and other direct costs incurred in connection with obtaining
financing agreements are deferred and amortized over the life of the financing
agreements. Such capitalized costs amounted to $482 and $86 during the years
ended December 31, 1997 and 1996, respectively. Accumulated amortization of
deferred financing costs was $133 and $10 at December 31, 1997 and 1996,
respectively.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenues
Revenues are derived primarily from the provision of long-distance
telecommunications services and are recognized when the services are provided.
In 1997, TresCom recognized $543 of revenue from the sale of excess
Indefeasible Rights of Use ("IRU") on undersea digital fiber optic
transmission cables.
Cost of Services
Cost of services include payments to local exchange carriers ("LECs"),
interexchange carriers, post, telegraph and telephone organizations ("PTTs")
and telecommunications administrations ("TAs") primarily for access and
transport charges.
Concentrations of Credit Risk and Major Customers
TresCom derives a majority of its operating revenues from wholesale
customers as well as commercial customers in Florida, New York, St. Thomas and
Puerto Rico. Financial instruments which potentially subject TresCom to
concentrations of credit risk consist principally of accounts receivable.
TresCom's allowance for doubtful accounts is based upon management's estimates
and historical experience. In situations
F-8
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
where TresCom deems appropriate, prepayment and/or cash deposits or letters of
credit are required for the provision of services.
Income Taxes
TresCom accounts for income taxes under the liability method. Under the
liability method, deferred income taxes are recorded to reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting and the amounts used for income tax
purposes.
New Accounting Pronouncements
In 1996, TresCom adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("SFAS 121"). The adoption of SFAS 121 did not have
any effect on the financial statements. In 1996, TresCom also adopted the
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123") (See Note 5).
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share" (see Note 13). Statement No. 128 replaced the calculation
of primary and fully diluted earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where appropriate, restated to conform to
the Statement No. 128 requirements.
Comparative net loss per share data have been restated for prior periods. In
connection therewith, common stock, options and warrants issued within one
year prior to the original filing of TresCom's initial public offering (the
"IPO") at prices below the IPO price, which had previously been considered
outstanding for all periods presented even though antidilutive, have been
reflected in the computations of basic and diluted net loss per share in
accordance with Statement of Financial Accounting Standards No. 128 and
Securities and Exchange Commission Staff Accounting Bulletin No. 98, issued
February 3, 1998. Such common stock has been treated as outstanding only since
issuance, and options and warrants have been excluded from the computations as
they are considered antidilutive.
In June of 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting
Comprehensive Income" and Statement of Financial Accounting Standards No. 131
("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
Information" which are both effective for fiscal years beginning after
December 15, 1997. Management believes that the adoption of SFAS 130 and SFAS
131 will not have a material adverse effect on TresCom's consolidated
financial statements.
Reclassification
Certain prior year amounts have been reclassified to conform with current
year presentation.
F-9
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
3. LONG-TERM OBLIGATIONS
A summary of long-term obligations is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
------- ------
<S> <C> <C>
Revolving Credit Agreement
Interest payable monthly at rates based upon the lender's
commercial lending rate plus .50% (8.75% at December 31,
1997), maturing in July 2002................................ $15,645 $ --
Loans payable to the Small Business Administration,
bearing interest at 4%, due in monthly principal and
interest payments of $3 through February 2015,
collateralized by a security agreement covering certain
assets ..................................................... 401 416
Capital leases bearing interest at rates ranging from 9% to
11% and payable in monthly installments totaling $129....... 4,645 4,366
------- ------
20,691 4,782
Less amounts due within one year............................. 1,098 817
------- ------
$19,593 $3,965
======= ======
</TABLE>
In November 1994, a wholly-owned subsidiary of TresCom obtained from a bank
a revolving credit facility (the "Bank Facility") with an aggregate commitment
of $27,000, which expired on June 30, 1996. On February 16, 1996, TresCom
repaid all outstanding amounts borrowed under the Bank Facility. Extraordinary
expense of $432 was recognized to write-off the remaining deferred financing
costs associated with the Bank Facility.
Under the terms of the Bank Facility, TresCom was required to maintain at
least 50% of its debt on a fixed rate basis and, as a result, entered into an
interest rate swap agreement and interest rate cap agreement (the
"Instruments") with the lending bank to convert variable interest rate
payments to fixed payments. The estimated fair value (i.e., the net present
value of the amount TresCom was required to pay the counterpart over the
remaining term of the agreement) of the Instruments, based upon the quoted
market price provided by the financial institution was $562 at December 31,
1995. On September 18, 1996, when the net settlement value was $302, the
Instruments were paid off in full.
In October and November 1995, TresCom borrowed $7,000 and $3,000,
respectively, under one-year notes bearing interest at 12% compounded
quarterly from a major shareholder of TresCom. In connection with these notes,
TresCom issued a warrant to purchase 358,034 shares of common stock at an
exercise price of $0.42 per share. The warrants are exercisable immediately
and expire on October 2, 2007. Of the $10,000 in borrowings, approximately
$2,400 has been allocated to the value of the warrants. On February 14, 1996,
TresCom repaid the entire balance relating to the notes. Accordingly,
extraordinary interest expense in the amount of $1,524 was recognized in the
first quarter of 1996.
During the third quarter of 1996, TresCom established a relationship with a
commercial bank to provide asset financing. TresCom utilized approximately
$4,310 in the fourth quarter of 1996 for capital projects. An additional
$1,156 was utilized in the second quarter of 1997.
During the fourth quarter of 1996, TresCom established a $5,000 line of
credit with a commercial bank (the "Credit Facility") secured by certain
accounts receivable. The Credit Facility, as amended on March 27, 1997,
contained standard debt covenants relating to financial position and
performance, as well as restrictions on
F-10
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
the declaration and payment of dividends. Through July 31, 1997, TresCom was
either in compliance or received waivers with respect to all covenants under
the Credit Facility.
On July 31, 1997, TresCom entered into a Revolving Credit and Security
Agreement (the "Revolving Credit Agreement") secured by TresCom's accounts
receivable and certain intangible assets. The maximum borrowing under this
agreement is $25,000; however, the amount available to be borrowed is based
upon TresCom's pledged accounts receivable and intangible assets.
On July 31, 1997, all borrowings under the Credit Facility were repaid in
full with borrowings under the Revolving Credit Agreement and the Credit
Facility was terminated. As of December 31, 1997, availability under the
Revolving Credit Agreement was approximately $19,702, of which $15,645
(including approximately $600 of letters of credit) had been utilized. At
December 31, 1997, TresCom was in compliance with all covenants under the
Revolving Credit Agreement.
Principal payments on all debt obligations are:
<TABLE>
<S> <C>
1998............................................................ $ 17
1999............................................................ 17
2000............................................................ 18
2001............................................................ 19
2002............................................................ 20
Thereafter...................................................... 310
Revolving Credit Agreement...................................... 15,645
-------
Total......................................................... $16,046
=======
</TABLE>
4. LEASE OBLIGATIONS
TresCom occupies office facilities and leases certain equipment and software
under noncancelable operating leases. Rental expense for the years ended
December 31, 1997, 1996 and 1995 was $ 1,703, $1,421 and $1,341, respectively.
During the years ended December 31, 1997 and 1996, TresCom acquired
communication equipment of approximately $1,156 and $4,310, respectively,
under capital lease obligations. Asset balances for property acquired under
capital leases consist of:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
------ ------
<S> <C> <C>
Transmission and communication equipment................... $5,871 $4,715
Furniture, fixtures and other.............................. 213 270
------ ------
6,084 4,985
Accumulated depreciation................................... (916) (311)
------ ------
$5,168 $4,674
====== ======
</TABLE>
Depreciation expense associated with assets acquired under capital leases is
included with depreciation and amortization expense on the Statements of
Operations. The present value of minimum capital lease payments are included
in the balance sheet as a part of long-term obligations. Future minimum lease
payments for all noncancelable leases at December 31, 1997 are:
F-11
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES TOTAL
------- --------- ------
<S> <C> <C> <C>
1998............................................... $1,637 $1,168 $2,805
1999............................................... 1,471 915 2,386
2000............................................... 1,419 731 2,150
2001............................................... 1,073 566 1,639
2002............................................... 90 507 597
Thereafter......................................... -- 138 138
------ ------ ------
Total future minimum lease payments................ 5,690 $4,025 $9,715
====== ======
Less amounts representing interest................. 1,045
------
Present value of net minimum lease payments........ $4,645
======
</TABLE>
5. CAPITALIZATION
Preferred Stock
The Board of Directors of TresCom is authorized to issue up to one million
shares of preferred stock, par value $.01 per share, in one or more series and
to fix the powers, voting rights, designations and preferences of each series.
Common Stock
On February 13, 1996, TresCom sold 4,545,455 shares of its common stock at
$12 per share in its IPO. The net proceeds of this sale were approximately
$48,600. The net proceeds were used to retire debt and accrued interest of
approximately $35,800.
Stock Option Plan
TresCom has a stock option plan under which 936,432 options to purchase
shares of common stock may be granted to officers, key employees, consultants
and directors. The plan allows the granting of incentive stock options, which
may not have an exercise price below the greater of par value or the market
value on the date of grant, and non-qualified stock options, which may not
have an exercise price below par value. All options must be exercised no later
than 10 years from the date of grant. No option may be granted under the plan
after February 22, 2004.
Options generally vest as to 20% on the first anniversary of the vesting
commencement date or grant date and as to an additional 20% on each
anniversary thereafter. All options expire on the tenth anniversary of the
grant date, unless sooner terminated under the terms of the stock option plan.
In the event of certain changes in control of TresCom, all options become
fully vested.
F-12
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following table summarizes all options activity for the years ended
December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISABLE EXERCISE
GRANTED OPTIONS PRICE
--------- ----------- --------
<S> <C> <C> <C>
Outstanding as of December 31, 1994........... 110,840 $0.42
Canceled...................................... 110,840 0.42
Granted....................................... 484,955 0.42
Forfeited..................................... 12,749 0.42
------- ------- -----
Outstanding as of December 31, 1995........... 472,206 19,826 0.42
Canceled...................................... 220,622 0.42
Granted....................................... 534,119 12.53
Forfeited..................................... 147,452 10.82
Exercised..................................... 141,988 0.42
------- ------- -----
Outstanding as of December 31, 1996........... 496,263 23,713 10.37
Canceled...................................... 2,000 7.50
Granted....................................... 447,000 7.76
Forfeited..................................... 61,790 9.48
Exercised..................................... 16,769 0.42
------- ------- -----
Outstanding as of December 31, 1997........... 862,704 103,733 $9.28
======= ======= =====
</TABLE>
The following table summarizes options at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
------------------------------ ----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE NUMBER AVERAGE
NUMBER OF EXERCISE CONTRACTUAL OF EXERCISE
RANGE OF EXERCISE PRICE OPTIONS PRICE LIFE (YEARS) OPTIONS PRICE
----------------------- --------- -------- ----------- ------- --------
<S> <C> <C> <C> <C> <C>
$0.42..................... 75,585 $ 0.42 7.66 24,309 $ 0.42
12.00--17.63............. 372,119 12.76 8.26 74,424 12.00
7.50--12.00.............. 415,000 7.76 9.13 5,000 12.00
</TABLE>
Non-cash compensation expense was recorded over the vesting period of the
options. Accordingly, $257, $1,264 and $139 of non-cash compensation expense
was recorded in the years ended December 31, 1997, 1996 and 1995,
respectively.
TresCom follows the requirements of Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" to account for its stock option
plan and, accordingly, compensation cost is recognized in the consolidated
statements of operations for the stock option plan to the extent the options
are granted at prices below fair market value. TresCom adopted SFAS 123, which
requires certain disclosures about stock-based employee compensation
arrangements. SFAS 123 requires pro forma disclosure of the impact on net
income and earnings per share if the fair value method defined in SFAS 123 had
been used. The fair value for these options was estimated at the date of grant
using a minimum value option valuation method for options granted prior to the
IPO and a Black-Scholes option valuation model for options granted after the
IPO with the following weighted-average assumptions: a risk-free interest rate
of 6.1%; a dividend yield of 0%; a volatility factor of the expected market
price of the TresCom common stock of 1.207 for options granted during 1997 and
.729 for options granted during 1996 and 1995, and an expected life of five
years.
F-13
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because TresCom's stock options have characteristics significantly different
from those of traded options, and because change in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.
The weighted average grant date fair value of options granted in 1997, 1996
and 1995 is $6.46, $7.88 and $10.50 per share, respectively. The options
granted during 1995 had exercise prices below market value and the options
granted during 1997 and 1996 had exercise prices at or above fair market
value.
For purposes of pro-forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of the options. The
SFAS 123 pro-forma information is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Pro forma net loss............................. $(12,583) $(5,713) $(11,627)
Pro forma basic and diluted loss per share..... (1.06) (0.60) (5.29)
</TABLE>
6. INCOME TAXES
The significant components of TresCom's deferred tax assets and liabilities
are:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Deferred tax assets
Allowance for bad debts....................... $ 3,251 $ 2,975 $ 1,139
Net operating loss carry-forward.............. 12,256 6,229 6,311
Accruals...................................... 218 566 279
Depreciation and amortization................. -- 101 873
Other......................................... 15 11 270
Valuation allowance........................... (14,053) (8,479) (8,793)
-------- ------- -------
1,687 1,403 79
Deferred tax liabilities
Depreciation and amortization................. (1,558) -- --
Acquisition basis differences................. (129) (1,403) (79)
-------- ------- -------
$ -- $ -- $ --
======== ======= =======
</TABLE>
The net change in TresCom's valuation allowance was $5,574, $(314) and
$3,056 for the years ended December 31, 1997, 1996 and 1995, respectively.
On July 17, 1989, the Industrial Development Commission of the U.S. Virgin
Islands ("U.S.V.I.") granted STSJ tax benefits to cover long-distance
telecommunications services in the U.S. Virgin Islands. These benefits include
a 90% exemption from income taxes for a ten-year period effective January 1,
1989.
F-14
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The reconciliation of income tax attributable to operations computed at the
U.S. federal statutory rates to income tax expense is:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Tax at U.S. statutory rate......................... (34.0)% (34.0)% (34.0)%
State taxes, net of federal benefit................ (3.6) (2.0) (2.0)
Amortization of excess of cost over net assets of
businesses acquired............................... 3.8 6.5 2.7
Foreign tax rate differences....................... 2.0 7.1 3.7
Unrecognized benefit of net operating loss......... 31.8 22.4 29.6
----- ----- -----
-- -- --
===== ===== =====
</TABLE>
At December 31, 1997, TresCom has U.S. and foreign net operating loss
carryforwards for tax purposes of $24,335 and $12,354, respectively. These net
operating loss carryforwards expire in the years 1997 through 2012.
7. RETIREMENT PLAN
TresCom maintains the TresCom 401(k) Savings and Retirement Plan for all
U.S. and U.S.V.I. subsidiaries and the TresCom 165(e) Savings and Retirement
Plan for the Puerto Rican subsidiary. Employees age 21 or older are eligible
to participate six months after their date of hire and to elect to defer a
percentage of his/her salary. TresCom has the discretion to make contributions
to the TresCom 401(k) Savings and Retirement Plan and TresCom 165(e) Saving
and Retirement Plan. In 1996, 25,000 shares of stock in TresCom were
authorized as retirement plan contributions. In 1997 and 1996, 4,439 and 2,065
shares, respectively, were allocated to the TresCom 401(k) Savings and
Retirement Plan and the TresCom 165(e) Savings and Retirement Plan for
aggregate amounts of approximately $31 and $16, respectively.
8. COMMITMENTS AND CONTINGENCIES
TresCom is involved in various claims and is subject to possible actions
arising out of the normal course of its business. Although the ultimate
outcome of these claims cannot be ascertained at this time, it is the opinion
of TresCom's management, based on knowledge of the facts and advice of
counsel, that the resolution of such claims and actions will not have a
material adverse effect on TresCom's financial condition or results of
operations.
TresCom has commitments under various types of agreements for the purchase
of property and equipment to continue expansion of its network. Portions of
such agreements not completed at year end are not reflected in the
consolidated financial statements. These commitments were approximately $1,000
at year end 1997.
9. SETTLEMENTS
In the past, TresCom incurred some significant charges as a result of
disputes with carriers. These charges amounted to $4,100 and $900 in the first
and second quarter of 1995, respectively. In addition, significant losses
resulting from settlements with customers totaled $4,069 during the first
quarter of 1995.
F-15
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
10. FINANCIAL INSTRUMENTS
The carrying amounts reflected in the consolidated balance sheets for cash,
accounts receivable, accounts payable and accrued expenses approximate the
respective fair values due to the short-term nature of these items. The fair
values for long-term obligations at December 31, are as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Loans payable to the Small Business Adminis-
tration.................................... $401 $323 $416 $335
==== ==== ==== ====
</TABLE>
The fair values of all other long-term obligations approximate the carrying
values and are therefore not disclosed.
11. RELATED PARTY TRANSACTIONS
During 1996, an affiliate of a major shareholder of TresCom owned
approximately 20% of LCI International, Inc. ("LCI"). TresCom buys network
services from and provides network services to LCI. At December 31, 1996, the
net amount due to LCI was $1,935. During 1996, $7,140 of services were
provided and $5,453 were used. During 1997, the affiliate of TresCom's major
shareholder reduced their ownership stake to an insignificant percentage.
In December 1996, TresCom acquired 100% of the common stock of Intex
Telecommunications, Inc. from LCI. The purchase price consideration was
394,095 shares of TresCom common stock.
12. NATURAL DISASTER
On September 16, 1995, Hurricane Marilyn damaged the island of St. Thomas
where TresCom has significant operations. TresCom's Property and Business
Interruption Insurance covered a significant portion of the damages to
equipment and certain losses from operations. At September 30, 1995, TresCom
estimated its exposure relating to the hurricane to be $2,500. Based on visits
to the affected area, review of accounts receivable and actual settlements
with customers, management revised its estimate of losses resulting from the
hurricane to $1,717. Accordingly, the net loss for the quarter ended December
31, 1996 included this change in estimate of $783.
F-16
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Numerator:
Loss before extraordinary item............ $ (10,855) $ (3,621) $ (11,627)
Extraordinary loss on early extinguishment
of debt.................................. -- 1,956 --
---------- ---------- ---------
Net loss.................................. (10,855) (5,577) (11,627)
Preferred stock dividends................. -- 690 4,877
---------- ---------- ---------
Numerator for basic and diluted earnings
per share--net loss applicable to common
stock.................................... $ (10,855) $ (6,267) $ (16,504)
========== ========== =========
Denominator:
Denominator for basic and diluted earnings
per share--weighted average shares....... 11,890,047 10,671,096 3,119,590
========== ========== =========
Basic and diluted per share data:
Loss before extraordinary item............ $ (0.91) $ (0.41) $ (5.29)
Extraordinary item........................ -- (0.18) --
---------- ---------- ---------
Net loss per share of common stock ....... $ (0.91) $ (0.59) $ (5.29)
========== ========== =========
</TABLE>
The earnings per share amounts in the above table have been calculated in
compliance with Statement of Financial Accounting Standards No. 128, "Earnings
Per Share." For further information regarding earnings per share and
capitalization of TresCom, see Notes 2 and 5.
14. SUBSEQUENT EVENTS
In February 1998, TresCom entered into a definitive Agreement and Plan of
Merger, which was subsequently amended by Amendments No. 1 and 2 to Agreement
and Plan of Merger dated as of April 8, 1998 and as of April 16, 1998,
respectively, with Primus Telecommunications Group, Inc. ("Primus") and Taurus
Acquisition Corporation, a wholly-owned subsidiary of Primus ("Taurus").
Pursuant to the terms of the Agreement and Plan of Merger, as amended, it is
contemplated that Taurus will merge with and into TresCom, that TresCom will
be the surviving corporation and that Primus will acquire 100% of the issued
and outstanding shares of TresCom common stock. The transaction is expected to
be completed during the second quarter of 1998 and is subject to, among other
things, the approval of both Primus's and TresCom's shareholders and certain
regulatory authorities.
F-17
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
TresCom International, Inc.
We have audited the consolidated financial statements of TresCom
International, Inc. and its subsidiaries ("TresCom") as of December 31, 1997
and 1996, and for each of the three years in the period ended December 31,
1997, and have issued our report thereon dated February 27, 1998. Our audit
also included the accompanying financial statement schedule of TresCom. This
schedule is the responsibility of TresCom's management. Our responsibility is
to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
Atlanta, Georgia
February 27, 1998
S-1
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SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
TRESCOM INTERNATIONAL, INC.
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ------------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1997:
Reserve and allowance
deducted from asset
accounts:
Allowance for doubtful
accounts............. $7,588 $4,159 $500(1) $4,098(3) $8,149
Valuation allowance
for deferred taxes... 8,479 5,574 -- -- 14,053
Year ended December 31,
1996:
Reserve and allowance
deducted from asset
accounts:
Allowance for doubtful
accounts............. 4,140 5,036 -- 1,588(3) 7,588
Valuation allowance
for deferred taxes... 8,793 -- -- 314(2) 8,479
Year ended December 31,
1995:
Reserve and allowance
deducted from asset
accounts:
Allowance for doubtful
accounts............. 3,761 1,791 700(4) 2,112(3) 4,140
Valuation allowance
for deferred taxes... 5,737 3,056 -- -- 8,793
</TABLE>
- --------
(1) In connection with acquisitions.
(2) Change in deferred taxes.
(3) Write-off of uncollectible accounts.
(4) Uncollectible accounts in U.S. Virgin Islands resulting from Hurricane
Marilyn.
S-2
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APPENDIX A
COMPOSITE
AGREEMENT AND PLAN OF MERGER
(INCLUDING AMENDMENTS NO. 1 AND 2 DATED AS OF APRIL 8, 1998 AND AS OF APRIL
16, 1998, RESPECTIVELY)
Agreement and Plan of Merger (the "Agreement") entered into as of February
3, 1998, by and among Primus Telecommunications Group, Inc., a Delaware
corporation (the "Purchaser"), Taurus Acquisition Corporation, a Florida
corporation and a wholly-owned Subsidiary of the Purchaser (the "Purchaser
Subsidiary"), and TresCom International, Inc., a Florida corporation (the
"Target"). The Purchaser, the Purchaser Subsidiary and the Target are referred
to collectively herein as the "Parties."
WITNESSETH:
Whereas, this Agreement contemplates a transaction in which the Purchaser
will acquire all of the outstanding capital stock of the Target through a
merger of the Purchaser Subsidiary with and into the Target.
Whereas, each Board of Directors of the Purchaser, the Purchaser Subsidiary
and the Target has approved the acquisition of the Target by the Purchaser,
including the merger of the Purchaser Subsidiary with and into the Target (the
"Merger"), upon the terms and subject to the conditions set forth herein;
Whereas, the Board of Directors of the Target has determined that the Merger
is fair to and in the best interests of the holders of the Target's common
stock, par value $0.0419 per share (the "Target Shares"), and has resolved to
recommend the acceptance and approval of the Merger by the Target Stockholders
(as defined in (S)1 below);
Whereas, the Board of Directors of the Purchaser has determined that the
Merger is fair to and in the best interests of the holders of the Purchaser's
common stock, par value $0.01 per share (the "Purchaser Shares"), and has
resolved to recommend the acceptance and approval of the Merger by the
Purchaser Stockholders (as defined in (S)1 below);
Whereas, to induce the Purchaser and the Purchaser Subsidiary to enter into
this Agreement, the Purchaser, the Purchaser Subsidiary and K. Paul Singh, the
Chairman of the Board and Chief Executive Officer of the Purchaser, have
entered into a Stockholder Agreement (the "Stockholder Agreement") with
Warburg, Pincus, Investors, L.P. (the "Stockholder") pursuant to which the
Stockholder, among other things, has agreed to vote its Target Shares in favor
of the Merger and has granted the Purchaser Subsidiary an option to purchase
certain Target Shares beneficially owned by the Stockholder, the Purchaser has
agreed to grant certain registration rights to the Stockholder, and the
Purchaser's Chief Executive Officer has granted certain other rights to the
Stockholder, all upon the terms and subject to the conditions set forth in the
Stockholder Agreement;
Whereas, to induce the Purchaser and the Purchaser Subsidiary on the one
hand, and the Target on the other hand, to enter into this Agreement, certain
other stockholders of the Target and the Purchaser, respectively, have entered
into voting agreements, pursuant to which such stockholders, among other
things, have agreed to vote their shares in favor of the Merger, all upon the
terms and subject to the conditions set forth in said agreements;
Whereas, this Agreement contemplates a tax-free merger of the Purchaser
Subsidiary with and into the Target in a reorganization pursuant to Code
(S)368(a)(2)(E), and the Target Stockholders will receive capital stock in the
Purchaser in exchange for their capital stock in the Target;
Now, Therefore, in consideration of the premises and the mutual promises set
forth herein, and in consideration of the representations, warranties and
covenants set forth herein, the Parties agree as follows:
1. Definitions.
"Acquisition Proposal" means any proposal or offer (including, without
limitation, any proposal or offer to Target Stockholders) with respect to a
merger, acquisition, consolidation, recapitalization, reorganization, tender
A-1
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offer or exchange offer or similar transaction involving, or any purchase of
all or any significant portion of the assets of, or any equity interest
representing 25% or more of the outstanding Target Shares in, the Target or
any of its material Subsidiaries.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act; provided, however, in the case
of the Target or the Stockholder, (i) no portfolio company of the Stockholder
or of any related venture fund, (ii) no representative or employee of the
Stockholder or of any related venture fund serving as a member of the board of
directors on any such portfolio company, and (iii) no registered broker-dealer
or any other Affiliated entity of Stockholder that is a registered investment
adviser, as well as certain registered investment companies that may be deemed
to be Affiliates of the Stockholder, shall be considered an Affiliate of the
Target or the Stockholder for purposes of this Agreement.
"Agreement" has the meaning set forth in the preambles.
"Articles of Merger" has the meaning set forth in (S)2(c) below.
"Benefit Plan" and "Benefit Plans" has the meaning set forth in (S)3(m)(i).
"Blue Sky Filings" has the meaning set forth in (S)5(c)(i).
"Closing" has the meaning set forth in (S)2(b) below.
"Closing Date" has the meaning set forth in (S)2(b) below.
"Code" has the meaning set forth in (S)3(m)(ii).
"Common Stock" has the meaning set forth in the preambles.
"Confidentiality Agreement" means the letter agreement dated March 21, 1997
between the Purchaser and The Robinson-Humphrey Company, Inc., as
representative of the Target, providing that, among other things, each Party
would maintain confidential certain information of the other Party.
"Confidential Information" means Confidential Evaluation Material, as
defined in the Confidentiality Agreement.
"Delaware General Corporation Law" means Title 8, Chapter 1 of the Delaware
Code, as amended.
"Effective Time" has the meaning set forth in (S)2(d)(i) below.
"Employees" has the meaning set forth in (S)3(m)(i).
"ERISA" has the meaning set forth in (S)3(m)(i).
"ERISA Affiliate" has the meaning set forth in (S)3(m)(iii).
"Exchange Agent" has the meaning set forth in (S)2(e)(i).
"Exchange Fund" has the meaning set forth in (S)2(e)(i).
"Exchange Ratio" has the meaning set forth in (S)2(d)(v).
"Florida Business Corporation Law" means the Florida Business Corporation
Act, as amended.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
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"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Indemnified Party" has the meaning set forth in (S)5(h)(ii) below.
"Joint Proxy Statement/Prospectus" has the meaning set forth in (S)5(c)(i)
below.
"Merger" has the meaning set forth in the preambles.
"Nasdaq" has the meaning set forth in (S)5(c)(ii) below.
"Order" has the meaning set forth in (S)6(a)(v) below.
"Outstanding Debt" has the meaning set forth in (S)5(d)(iv) below.
"Party" has the meaning set forth in the preambles.
"Pension Plan" has the meaning set forth in (S)3(m)(ii).
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization or a governmental entity (or any
department, agency or political subdivision thereof).
"Per Share Merger Consideration" has the meaning set forth in (S)2(d)(v)
below.
"Potential Buyer" has the meaning set forth in (S)5(g) below.
"Purchase Warrant" means that certain warrant to purchase Target Shares
issued to the Stockholder and dated October 2, 1995.
"Purchaser" has the meaning set forth in the preambles.
"Purchaser 10-K" has the meaning set forth in (S)4(f) below.
"Purchaser 10-Q" has the meaning set forth in (S)4(f) below.
"Purchaser Board" means the board of directors of the Purchaser.
"Purchaser Companies" means the Purchaser, the Purchaser Subsidiary and any
of their respective Affiliates.
"Purchaser Disclosure Letter" has the meaning set forth in (S)4(a) below.
"Purchaser Fairness Opinion" means an opinion of BT Alex. Brown
Incorporated, addressed to the Purchaser Board, as to the fairness of the
Merger to the Purchaser from a financial point of view.
"Purchaser Reports" has the meaning set forth in (S)4(e) below.
"Purchaser Shares" has the meaning set forth in the preambles.
"Purchaser Special Meeting" has the meaning set forth in (S)5(c)(ii) below.
"Purchaser Stockholder" means any Person who or which holds any Purchaser
Shares.
"Purchaser Subsidiary" has the meaning set forth in the preambles.
"Purchaser-owned Share" means any Target Share that is beneficially owned by
any Purchaser Company, except for any Target Shares beneficially owned by any
Purchaser Company due to any provisions contained in (i) the Stockholder
Agreement, dated as of February 3, 1998, and as subsequently amended as of
April 16, 1998, by and among Stockholder, Purchaser, Purchaser Subsidiary, K.
Paul Singh and Target; and (ii) the Voting Agreements, dated as of February 3,
1998, and as subsequently amended as of April 16, 1998, by and between Messrs.
Wesley T. O'Brien and Rudolph McGlashan, on the one hand, and Purchaser, on
the other hand."
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<PAGE>
"Purchaser's Most Recent Audited Fiscal Year End" has the meaning set forth
in (S)4(f) below.
"Registration Statement" has the meaning set forth in (S)5(c)(i) below.
"Requisite Stockholder Approval" means, with respect to the Target, the
affirmative vote of the holders of a majority of the outstanding Target Shares
in favor of this Agreement and the Merger in accordance with the Florida
Business Corporation Law, or, with respect to the Purchaser, the affirmative
vote of the holders of a majority of the outstanding Purchaser Shares in favor
of this Agreement and the Merger in accordance with the Delaware General
Corporation Law to the extent necessary to satisfy the requirements of Nasdaq.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge or
other security interest, other than (a) mechanic's, materialman's and similar
liens; (b) liens for taxes not yet due and payable or for taxes that the
taxpayer is contesting in good faith through appropriate proceedings; (c)
purchase money liens and liens securing rental payments under capital lease
arrangements; and (d) other liens arising in the ordinary course of business
and not incurred in connection with the borrowing of money.
"Stock Rights" means each option, warrant, purchase right, subscription
right, conversion right, exchange right or other contract, commitment or
security providing for the issuance or sale of any capital stock, or otherwise
causing to become outstanding any capital stock.
"Stockholder" has the meaning set forth in the preambles.
"Stockholder Agreement" has the meaning set forth in the preambles.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the voting stock or otherwise has
the power to vote or direct the voting of sufficient securities to elect a
majority of the directors.
"Surviving Corporation" has the meaning set forth in (S)2(a) below.
"Target" has the meaning set forth in the preambles.
"Target 10-K" has the meaning set forth in (S)3(f) below.
"Target 10-Q" has the meaning set forth in (S)3(f) below.
"Target Board" means the board of directors of the Target.
"Target Disclosure Letter" has the meaning set forth in (S)3(a) below.
"Target Fairness Opinion" means an opinion of The Robinson-Humphrey Company,
LLC, addressed to the Target Board, as to the fairness of the Merger to the
Target Stockholders from a financial point of view.
"Target Reports" has the meaning set forth in (S)3(e) below.
"Target Shares" has the meaning set forth in the preambles.
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<PAGE>
"Target Special Meeting" has the meaning set forth in (S)5(c)(ii) below.
"Target Stockholder" means any Person who or which holds any Target Shares.
"Target's Most Recent Audited Fiscal Year End" has the meaning set forth in
(S)3(f) below.
"Tax Return" means any report, return, declaration or other information
required to be supplied to a taxing authority in connection with Taxes.
"Taxes" means all taxes or other like assessments including, without
limitation, income, withholding, gross receipts, excise, real or personal
property, asset, sales, use, license, payroll, transaction, capital, net worth
and franchise taxes imposed by or payable to any federal, state, county, local
or foreign government, taxing authority, subdivision or agency thereof,
including interest, penalties, additions to tax or additional amounts thereto.
"Valuation Period" has the meaning set forth in (S)2(d)(v) below.
"Weighted Average Sales Price of a Purchaser Share" has the meaning set
forth in (S)2(d)(v) below.
2. The Transaction.
(a) The Merger. On and subject to the terms and conditions of this
Agreement, the Purchaser Subsidiary will merge with and into the Target at the
Effective Time. The Target shall be the corporation surviving the Merger (the
"Surviving Corporation").
(b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Kelley Drye &
Warren LLP, 101 Park Avenue, New York, New York, commencing at 9:00 a.m. local
time on the third business day following the satisfaction or waiver of all
conditions to the obligations of the Parties to consummate the transactions
contemplated hereby (other than conditions with respect to actions the
respective Parties will take at the Closing itself) or such other date as the
Parties may mutually determine (the "Closing Date").
(c) Actions at the Closing. At the Closing, (i) the Target will deliver to
the Purchaser and the Purchaser Subsidiary the various certificates,
instruments and documents referred to in (S)6(a) below; (ii) the Purchaser and
the Purchaser Subsidiary will deliver to the Target the various certificates,
instruments and documents referred to in (S)6(b) below; (iii) the Target and
the Purchaser Subsidiary will file with the Department of State of the State
of Florida Articles of Merger in the form attached hereto as Exhibit A (the
"Articles of Merger"); and (iv) the Purchaser will deliver the Exchange Fund
to the Exchange Agent in the manner provided below in this (S)2.
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time (the
"Effective Time") the Target and the Purchaser Subsidiary file the Articles
of Merger with the Department of State of the State of Florida. The Merger
shall have the effect set forth in the Florida Business Corporation Law.
The Surviving Corporation may, at any time after the Effective Time, take
any action (including executing and delivering any document) in the name
and on behalf of either the Target or the Purchaser Subsidiary in order to
carry out and effectuate the transactions contemplated by this Agreement.
(ii) Articles of Incorporation. The Articles of Incorporation of the
Surviving Corporation shall be the Articles of Incorporation of the
Purchaser Subsidiary, except that its name shall be changed to TresCom
International, Inc.
(iii) Bylaws. The Bylaws of the Surviving Corporation shall be amended
and restated at and as of the Effective Time to read as did the Bylaws of
the Purchaser Subsidiary immediately prior to the Effective Time (except
that the name of the Surviving Corporation will be TresCom International,
Inc.).
(iv) Directors and Officers. The directors and officers of the Purchaser
Subsidiary shall become the directors and officers of the Surviving
Corporation at and as of the Effective Time (retaining their respective
positions and terms of office).
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(v) Conversion of Target Shares. At and as of the Effective Time, (A)
each issued and outstanding Target Share (other than any Purchaser-owned
Shares) shall be converted into the right to receive the Per Share Merger
Consideration, and all such Target Shares shall no longer be outstanding,
shall be canceled and retired, shall cease to exist, and each holder of a
certificate representing any such Target Shares shall thereafter cease to
have any rights with respect to such Target Shares, except the right to
receive the Per Share Merger Consideration for such Target Shares upon the
surrender of such certificate in accordance with (S)2(e) below, and (B)
each Purchaser-owned Share and each Target Share held in the treasury of
the Target or by any Subsidiary of the Target shall be canceled without
payment therefor; provided, however, that the Per Share Merger
Consideration shall be subject to proportionate adjustment in the event of
any stock split, stock dividend or reverse stock split. No Target Share
shall be deemed to be outstanding or to have any rights other than those
set forth above in this (S)2(d)(v) after the Effective Time. As used
herein, the term "Per Share Merger Consideration" shall mean that number of
Purchaser Shares determined by applying to each Target Share an exchange
ratio (the "Exchange Ratio") determined as follows: the Exchange Ratio
shall be the quotient of $12.00 divided by the Weighted Average Sales Price
of a Purchaser Share as of the Closing Date. Notwithstanding anything in
this (S)2(d)(v), no fractional Purchaser Shares shall be issued to holders
of Target Shares. In lieu thereof, each holder of shares of Target Shares
who would otherwise have been entitled to receive a fraction of a Purchaser
Share (after taking into account all certificates delivered by such holder
at any one time) shall receive an amount in cash equal to such fraction of
a Purchaser Share, multiplied by the Weighted Average Sales Price of a
Purchaser Share as of the Closing Date. "Weighted Average Sales Price of a
Purchaser Share" means the volume-weighted average sales price per
Purchaser Share as reported by Bloomberg Information Systems, Inc. during a
period consisting of the third Nasdaq trading day prior to the date as of
which the Weighted Average Sales Price of a Purchaser Share is being
determined and the nineteen (19) consecutive trading days prior to such day
(the "Valuation Period").
(vi) Conversion of Stock Rights. At the Effective Time, each Stock Right
granted by the Target to purchase Target Shares which is outstanding and
unexercised immediately prior thereto (whether or not vested or
exercisable), other than the Purchase Warrant, shall be converted
automatically into an option to purchase Purchaser Shares in an amount and
at an exercise price determined as follows:
(x) The number of Purchaser Shares to be subject to the new option
shall be equal to the product of the number of Target Shares subject to
the original Stock Right multiplied by the Exchange Ratio, provided
that any fractional Purchaser Shares resulting from such multiplication
shall be rounded up to the next whole share; and
(y) The exercise price per Purchaser Share under the new option shall
be equal to the quotient of the exercise price per Target Share under
the original Stock Right divided by the Exchange Ratio, provided that
the exercise price resulting from such division shall be rounded up to
the next whole cent.
The adjustment provided herein with respect to any original Stock Rights
which are "incentive stock options" (as defined in Section 422 of the Code)
shall be and are intended to be effected in a manner which is consistent with
Section 424(a) of the Code. The option plan of the Target under which the
original Stock Rights were issued shall be assumed by the Purchaser, and the
duration and other terms of the new option shall be the same as the original
Stock Right, except that all references to the Target shall be deemed to be
references to the Purchaser. At the Effective Time, the Purchaser shall
deliver to holders of original Stock Rights appropriate option agreements
representing the right to acquire Purchaser Shares on the terms and conditions
set forth in this Section 2(d)(vi).
The Purchaser shall take all corporate action necessary to reserve for
issuance a sufficient number of Purchaser Shares for delivery upon exercise of
the new options in accordance with this Section 2(d)(vi). The Purchaser shall
file a registration statement on Form S-8 (or any successor form) or another
appropriate form, effective promptly after the Effective Time, with respect to
Purchaser Shares subject to the new options and shall
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use all reasonable efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such options
remain outstanding. With respect to those individuals who subsequent to the
Merger will be subject to the reporting requirements under Section 16(a) of
the Securities Exchange Act, the Purchaser shall administer the option plans
assumed pursuant to this Section 2(d)(vi) in a manner that complies with rule
16b-3 promulgated under the Securities Exchange Act to the extent the Target
option plan complied with such rule prior to the Merger.
(vii) Conversion of Capital Stock of the Purchaser Subsidiary. At and as
of the Effective Time, each share of common stock, $.01 par value per
share, of the Purchaser Subsidiary shall be converted into one share of
common stock, $.01 par value per share, of the Surviving Corporation.
(e) Procedure for Exchange.
(i) Immediately after the Effective Time, (A) the Purchaser will furnish
to StockTrans, Inc., its transfer agent, or such bank or trust company
reasonably acceptable to Target, to act as exchange agent (the "Exchange
Agent") a corpus (the "Exchange Fund") consisting of Purchaser Shares and
cash sufficient to permit the Exchange Agent to make full payment of the
Per Share Merger Consideration to the holders of all of the issued and
outstanding Target Shares (other than any Purchaser-owned Shares), and (B)
the Purchaser will cause the Exchange Agent to mail a letter of transmittal
(with instructions for its use) in the form to be mutually agreed upon by
the Target and the Purchaser to each holder of issued and outstanding
Target Shares (other than any Purchaser-owned Shares) for the holder to use
in surrendering the certificates which represented his or its Target Shares
against payment of the Per Share Merger Consideration. Upon surrender to
the Exchange Agent of such certificates, together with such letter of
transmittal, duly executed and completed in accordance with the
instructions thereto, the Surviving Corporation shall promptly cause to be
issued a certificate representing that number of whole Purchaser Shares and
a check representing the amount of cash in lieu of any fractional shares
and unpaid dividends and distributions, if any, to which such Persons are
entitled, after giving effect to any required tax withholdings. No interest
will be paid or accrued on the cash in lieu of fractional shares and unpaid
dividends and distributions, if any, payable to recipients of Purchaser
Shares. If payment is to be made to a Person other than the registered
holder of the certificate surrendered, it shall be a condition of such
payment that the certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the Person requesting such
payment shall pay any transfer or other taxes required by reason of the
payment to a Person other than the registered holder of the certificate
surrendered or establish to the satisfaction of the Surviving Corporation
or the Exchange Agent that such tax has been paid or is not applicable. In
the event any certificate representing Shares shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such certificate to be lost, stolen or destroyed, the Exchange
Agent will issue in exchange for such lost, stolen or destroyed certificate
the Per Share Merger Consideration deliverable in respect thereof;
provided, however, the Person to whom the Per Share Merger Consideration is
paid shall, as a condition precedent to the payment thereof, give the
Surviving Corporation a bond in such sum as it may direct or otherwise
indemnify the Surviving Corporation in a manner satisfactory to it against
any claim that may be made against the Surviving Corporation with respect
to the certificate alleged to have been lost, stolen or destroyed. No
dividends or other distributions declared after the Effective Time with
respect to Purchaser Shares and payable to the holders of record thereof
shall be paid to the holder of any unsurrendered certificate until the
holder thereof shall surrender such certificate in accordance with this
(S)2(e). After the surrender of a certificate in accordance with this
(S)2(e), the record holder thereof shall be entitled to receive any such
dividends or other distributions, without any interest thereon, which
theretofore had become payable with respect to the Purchaser Shares
represented by such certificate. No holder of an unsurrendered certificate
shall be entitled, until the surrender of such certificate, to vote the
Purchaser Shares into which his Target Shares shall have been converted.
(ii) The Target will cause its transfer agent to furnish promptly to the
Purchaser Subsidiary a list, as of a recent date, of the record holders of
Target Shares and their addresses, as well as mailing labels containing
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the names and addresses of all record holders of Target Shares and lists of
security positions of Target Shares held in stock depositories. The Target
will furnish the Purchaser Subsidiary with such additional information
(including, but not limited to, updated lists of holders of Target Shares
and their addresses, mailing labels and lists of security positions) and
such other assistance as the Purchaser or the Purchaser Subsidiary or their
agents may reasonably request.
(iii) The Purchaser may cause the Exchange Agent to invest the cash
included in the Exchange Fund in one or more investments selected by the
Purchaser; provided, however, that the terms and conditions of the
investments shall be such as to permit the Exchange Agent to make prompt
payment of the Per Share Merger Consideration as necessary. The Purchaser
may cause the Exchange Agent to pay over to the Surviving Corporation any
net earnings with respect to the investments, and the Purchaser will
replace promptly any portion of the Exchange Fund which the Exchange Agent
loses through investments.
(iv) The Purchaser may cause the Exchange Agent to pay over to the
Surviving Corporation any portion of the Exchange Fund (including any
earnings thereon) remaining 180 days after the Effective Time, and
thereafter all former stockholders of the Target shall be entitled to look
to the Surviving Corporation (subject to abandoned property, escheat and
other similar laws) as general creditors thereof with respect to the cash
payable upon surrender of their certificates.
(v) The Purchaser shall pay, or shall cause the Surviving Corporation to
pay, all charges and expenses of the Exchange Agent.
(f) Closing of Transfer Records. After the Effective Time, no transfer of
Target Shares outstanding prior to the Effective Time shall be made on the
stock transfer books of the Surviving Corporation. If, after the Effective
Time, certificates representing such shares are presented for transfer to the
Exchange Agent, they shall be canceled and exchanged for certificates
representing Purchaser Shares and cash in lieu of fractional shares, if any,
as provided in (S)2(e).
3. Representations and Warranties of the Target. The Target represents and
warrants to the Purchaser and the Purchaser Subsidiary that the statements
contained in this (S)3 are true and correct as of the date of this Agreement.
(a) Organization, Qualification and Corporate Power. Each of the Target and
its Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. Each of the
Target and its Subsidiaries is duly authorized to conduct business and is in
good standing under the laws of each jurisdiction where such qualification is
required, except where the lack of such qualification would not have a
material adverse effect on the business, financial condition or results of
operations of the Target and its Subsidiaries taken as a whole or on the
ability of the Parties to consummate the transactions contemplated by this
Agreement. Each of the Target and its Subsidiaries has full corporate power
and corporate authority, and all material foreign, federal and state
governmental permits, licenses and consents, to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it.
The Target does not own any equity interest in any corporation or other entity
other than the Subsidiaries listed in (S)3(a) of the Target Disclosure Letter
accompanying this Agreement (the "Target Disclosure Letter").
(b) Capitalization. The entire authorized capital stock of the Target
consists of 1,000,000 shares of preferred stock, $.01 par value per share,
none of which are issued and outstanding, and 50,000,000 Target Shares, of
which 12,130,571 Target Shares were issued and outstanding as of January 26,
1998 and no Target Shares were held in treasury. All of the issued and
outstanding Target Shares have been duly authorized and are validly issued,
fully paid and nonassessable, and none have been issued in violation of any
preemptive or similar right. Except as set forth in (S)3(b) of the Target
Disclosure Letter, neither the Target nor any of its Subsidiaries has any
outstanding or authorized Stock Rights. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation or similar rights with
respect to the Target or any of its Subsidiaries. The Target owns, directly or
indirectly, 100% of the outstanding shares of capital stock of each of its
Subsidiaries and each such share of capital stock has been duly authorized and
is validly issued, fully paid and nonassessable, and none of such shares of
capital stock has been issued in violation of any preemptive or similar right.
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(c) Authorization of Transaction. The Target has full power and authority
(including full corporate power and corporate authority) and has taken all
required action necessary to properly execute and deliver this Agreement and
to perform its obligations hereunder, and this Agreement constitutes the valid
and legally binding obligation of the Target, enforceable in accordance with
its terms and conditions, except as limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally and (ii) general
principles of equity, regardless of whether asserted in a proceeding in equity
or at law; provided, however, that the Target cannot consummate the Merger
unless and until it receives the Requisite Stockholder Approval.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree or other restriction of any government, governmental agency or
court to which the Target or any of its Subsidiaries is subject or any
provision of the charter or bylaws of the Target or any of its Subsidiaries or
(ii) conflict with, result in a breach of, constitute a default under, result
in the acceleration of, create in any party the right to accelerate,
terminate, modify or cancel or require any notice under any agreement,
contract, lease, license, instrument or other arrangement to which the Target
or any of its Subsidiaries is a party or by which it is bound or to which any
of its assets is subject, except where the violation, conflict, breach,
default, acceleration, termination, modification, cancellation, or failure to
give notice would not have a material adverse effect on the business,
financial condition or results of operations of the Target and its
Subsidiaries taken as a whole or on the ability of the Parties to consummate
the transactions contemplated by this Agreement. Other than in connection with
the provisions of the Hart-Scott-Rodino Act, the Florida Business Corporation
Law, the Securities Exchange Act, the Securities Act, state securities laws,
and with regard to any required governmental or regulatory approvals or
consents relating to the telecommunications industry, the laws, rules or
regulations of the United States, the several states or the District of
Columbia, the Commonwealth of Puerto Rico, the United States Virgin Islands
and of any other jurisdiction in which such approvals or consents may be
required, and any other statutes, rules or regulations set forth in (S)3(d) of
the Target Disclosure Letter, neither the Target nor any of its Subsidiaries
needs to give any notice to, make any filing with or obtain any authorization,
consent or approval of any government or governmental agency in order for the
Parties to consummate the transactions contemplated by this Agreement, except
where the failure to give notice, to file or to obtain any authorization,
consent or approval would not have a material adverse effect on the business,
financial condition or results of operations of the Target and its
Subsidiaries taken as a whole or on the ability of the Parties to consummate
the transactions contemplated by this Agreement.
(e) Filings with the SEC. Except as set forth in (S)3(e) of the Target
Disclosure Letter, the Target has made all filings with the SEC that it has
been required to make under the Securities Act and the Securities Exchange Act
(collectively, the "Target Reports"). Each of the Target Reports has complied
with the Securities Act and the Securities Exchange Act in all material
respects. None of the Target Reports, as of their respective dates, contained
any untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(f) Financial Statements. The Target has filed an Annual Report on Form 10-K
(the "Target 10-K") for the fiscal year ended December 31, 1996 (the "Target's
Most Recent Audited Fiscal Year End") and a Quarterly Report on Form 10-Q (the
"Target 10-Q") for the fiscal quarter ended September 30, 1997. The financial
statements included in the Target 10-K and the Target 10-Q (including the
related notes and schedules) have been prepared from the books and records of
the Target and its Subsidiaries in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby, and present fairly in
all material respects the financial condition of the Target and its
Subsidiaries as of the indicated dates and the results of operations and cash
flows of the Target and its Subsidiaries for the indicated periods, except
that unaudited interim results are subject to year-end adjustments.
(g) Events Subsequent to Target's Most Recent Fiscal Year. Since the
Target's Most Recent Audited Fiscal Year End, except as disclosed in the
Target Reports and except as set forth in (S)3(g) of the Target
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Disclosure Letter, (i) the Target and its Subsidiaries have conducted their
respective businesses only in, and have not engaged in any transaction other
than according to, the ordinary and usual course of such businesses, and (ii)
there has not been (A) any change in the financial condition, business or
results of operations of the Target or any of its Subsidiaries, or any
development or combination of developments relating to the Target or any of
its Subsidiaries of which management of the Target has knowledge, and which
could reasonably be expected to have a material adverse effect upon the
business, financial condition or results of operations of the Target and its
Subsidiaries taken as a whole; (B) any declaration, setting aside or payment
of any dividend or other distribution with respect to the capital stock of the
Target, or any redemption, repurchase or other reacquisition of any of the
capital stock of the Target; (C) any change by the Target in accounting
principles, practices or methods; (D) any increase in the compensation of any
officer or grant of any general salary or benefits increase to their employees
other than in the ordinary course of business consistent with past practices;
(E) any issuance or sale of any capital stock or other securities (including
any Stock Rights) by the Target or any of its Subsidiaries of any kind, other
than upon exercise of Stock Rights issued by or binding upon the Target; (F)
any modification, amendment or change to the terms or conditions of any Stock
Right; (G) any split, combination, reclassification, redemption, repurchase or
other reacquisition of any capital stock or other securities of the Target or
any of its Subsidiaries; or (H) the taking by the Target of, or the entry into
any agreement by the Target to take, any action prohibited under clauses (i),
and (iv) through (vi), of (S)5(d) below.
(h) Compliance. Except as set forth in (S)3(h) of the Target Disclosure
Letter, the Target and its Subsidiaries are in compliance with all applicable
foreign, federal, state and local laws, rules and regulations except where the
failure to be in compliance could not reasonably be expected to have a
material adverse effect on the business, financial condition or results of
operations of the Target and its Subsidiaries taken as a whole.
(i) Brokers' and Other Fees. Except as set forth in (S)3(i) of the Target
Disclosure Letter, none of the Target and its Subsidiaries has any liability
or obligation to pay any fees or commissions to any broker, finder or agent
with respect to the transactions contemplated by this Agreement. Attached to
(S)3(i) of the Target Disclosure Letter are true and complete copies of the
Target's engagement or similar letters with (i) the brokers, finders and
agents referred to in such section of the Target Disclosure Letter, and (ii)
Kelley Drye & Warren LLP as to its legal services to be performed in
connection with transactions involving a possible change in control of the
Company, including this Agreement and the transactions contemplated hereby.
(j) Litigation and Liabilities. Except as disclosed in the Target Reports,
or the Target Disclosure Letter, there are (i) no actions, suits or
proceedings pending or, to the knowledge of the management of the Target,
threatened against the Target or any of the Subsidiaries, or any facts or
circumstances known to the management of the Target which may give rise to an
action, suit or proceeding against the Target or any of its Subsidiaries,
which (x) could reasonably be expected to have a material adverse effect upon
the business, financial condition or results of operations of the Target and
its Subsidiaries taken as a whole or (y) could reasonably be expected to
impair or delay the Target's ability to consummate the transactions
contemplated by this Agreement, or (ii) no obligations or liabilities of the
Target or any of its Subsidiaries, whether accrued, contingent or otherwise,
known to the management of the Target which could reasonably be expected to
have a material adverse effect upon the business, financial condition or
results of operations of the Target and its Subsidiaries taken as a whole.
(k) Taxes. Except as set forth in (S)3(k) of the Target Disclosure Letter,
the Target has duly filed all federal, state, local and foreign tax returns
required to be filed by it, and has duly paid, caused to be paid or made
adequate provision for the payment of all Taxes required to be paid in respect
of the periods covered by such returns, except where the failure to pay such
Taxes would not have a material adverse effect upon the business, financial
condition or results of operations of the Target and its Subsidiaries taken as
a whole. Except as set forth in (S)3(k) of the Target Disclosure Letter, no
claims for Taxes have been asserted against the Target and no material
deficiency for any Taxes has been proposed, asserted or assessed which has not
been resolved or paid in full. To the knowledge of the Target's management, no
Tax Return or taxable period of the Target is under examination by any taxing
authority, and Target has not received written notice of any pending audit by
any
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taxing authority. There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any Tax Return for any period of
the Target. To the knowledge of the management of the Target, the Target has
no obligation or liability to pay Taxes of or attributable to any other person
or entity. No issue or claim has been asserted for Taxes by any taxing
authority for any prior period. Except as set forth in (S)3(k) of the Target
Disclosure Letter, there are no tax liens other than liens for Taxes not yet
due relating to the Target. The Target is not a party to any agreement or
contract which would result in payment of any "excess parachute payment"
within the meaning of Section 280G of the Code. The Target has not filed any
consent pursuant to Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset owned
by the Target or any of the Subsidiaries. The Target has not been and is not a
United States real property holding company (as defined in Section 897(c)(2)
of the Code) during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code).
(l) Fairness Opinion. (i) The Robinson-Humphrey Company, LLC has delivered
to the Target Board the Target Fairness Opinion, and a true and complete copy
thereof has been furnished to the Purchaser. (ii) The Robinson-Humphrey
Company, LLC has not withdrawn the Target Fairness Opinion.
(m) Employee Benefits.
(i) All pension, profit-sharing, deferred compensation, savings, stock
bonus and stock option plans, and all employee benefit plans, whether or
not covered by the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") which are sponsored by the Target or any ERISA Affiliate
(as defined below) of the Target or to which the Target or any ERISA
Affiliate of the Target makes contributions, and which cover employees of
the Target (the "Employees") or former employees of the Target, all
employment or severance contracts with officers of the Target, and any
applicable "change of control" or similar provisions in any plan, contract
or arrangement that cover Employees (collectively, "Benefit Plans" and
individually a "Benefit Plan") are accurately and completely listed in
(S)3(m) of the Target Disclosure Letter. No Benefit Plan is a multi-
employer plan, money purchase plan or defined benefit plan and no Benefit
Plan is covered by Title IV of ERISA. True and complete copies of all
Benefit Plans (other than medical and other similar welfare plans made
generally available to all Employees) have been made available to the
Purchaser.
(ii) All Benefit Plans to the extent subject to ERISA, are in compliance
in all material respects with ERISA and the rules and regulations
promulgated thereunder. Each Benefit Plan which is an "employee pension
benefit plan" within the meaning of Section 3(2) of ERISA ("Pension Plan")
and which is intended to be qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), has received a favorable
determination letter from the Internal Revenue Service, which determination
letter is currently in effect, and there are no proceedings pending or, to
the best knowledge of the management of the Target, threatened, or any
facts or circumstances known to the management of the Target, which are
reasonably likely to result in revocation of any such favorable
determination letter. There is no pending or, to the best knowledge of the
management of the Target, threatened litigation relating to the Benefit
Plans. Neither the Target nor any of the Subsidiaries has engaged in a
transaction with respect to any Benefit Plan that, assuming the taxable
period of such transaction expired as of the date hereof, is reasonably
likely to subject the Target or any of the Subsidiaries to a tax or penalty
imposed by either Section 4975 of the Code or Section 502(i) of ERISA.
(iii) No liability under Title IV of ERISA has been or is reasonably
likely to be incurred by the Target or any of the Subsidiaries with respect
to any ongoing, frozen or terminated Benefit Plan that is a "single-
employer plan", within the meaning of Section 4001(a)(15) of ERISA,
currently or formerly maintained by any of them, or the single-employer
plan of any entity which is considered a predecessor of the Target or one
employer with the Target under Section 4001 of ERISA (an "ERISA
Affiliate"); provided, however, for purposes hereof, the Stockholder, its
Affiliates and its partners, and their respective Affiliates, shall not be
considered an ERISA Affiliate. All contributions required to be made under
the terms of any Benefit Plan have been timely made or reserves therefor on
the balance sheet of the Target have been established, which reserves are
adequate. Except as required by Part 6 of Title I of ERISA, the Target does
not have any unfunded obligations for retiree health and life benefits
under any Benefit Plan.
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(n) Florida Business Corporation Law. For purposes of Section 607.0902 of
the Florida Business Corporation Law, the execution and delivery of the
Stockholder Agreement, and the purchase of Target Shares or other securities
issued by the Target by Purchaser Companies, including pursuant to the
Stockholder Agreement and the voting agreements referred to in the preambles
of this Agreement, will not constitute a "control share acquisition" as
defined in Section 607.0902(2) of the Florida Business Corporation Law.
4. Representations and Warranties of the Purchaser and the Purchaser
Subsidiary. Each of the Purchaser and the Purchaser Subsidiary, jointly and
severally, represents and warrants to the Target that the statements contained
in this (S)4 are true and correct as of the date of this Agreement.
(a) Organization, Qualification and Corporate Power. Each of the Purchaser
and its Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation. Each of
the Purchaser and its Subsidiaries is duly authorized to conduct business and
is in good standing under the laws of each jurisdiction where such
qualification is required, except where the lack of such qualification would
not have a material adverse effect on the business, financial condition or
results of operations of the Purchaser and its Subsidiaries taken as a whole
or on the ability of the Parties to consummate the transactions contemplated
by this Agreement. Each of the Purchaser and its Subsidiaries has full
corporate power and corporate authority, and all material foreign, federal and
state governmental permits, licenses and consents, to carry on the businesses
in which it is engaged and to own and use the properties owned and used by it.
The Purchaser does not own any equity interest in any corporation or other
entity other than the Subsidiaries listed in (S)4(a) of the Purchaser's
disclosure letter accompanying this Agreement (the "Purchaser Disclosure
Letter").
(b) Capitalization. The entire authorized capital stock of the Purchaser
consists of 2,000,000 shares of preferred stock, $.01 par value per share,
none of which are issued and outstanding, and 40,000,000 Purchaser Shares, of
which 19,676,057 Purchaser Shares were issued and outstanding as of January
30, 1998 and no Purchaser Shares were held in treasury. All of the issued and
outstanding Purchaser Shares have been duly authorized and are validly issued,
fully paid and nonassessable, and none have been issued in violation of any
preemptive or similar right. Except as set forth in (S)4(b) of the Purchaser
Disclosure Letter, neither the Purchaser nor any of its Subsidiaries has any
outstanding or authorized Stock Rights. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation or similar rights with
respect to the Purchaser or any of its Subsidiaries. Except as set forth in
(S)4(b) of the Purchaser Disclosure Letter, the Purchaser, directly or
indirectly, owns 100% of the outstanding shares of capital stock of each of
its Subsidiaries and each such share of capital stock has been duly authorized
and is validly issued, fully paid and nonassessable, and none of such shares
of capital stock has been issued in violation of any preemptive or similar
right.
(c) Authorization of Transaction. Each of the Purchaser and the Purchaser
Subsidiary has full power and authority (including full corporate power and
corporate authority), and has taken all required action necessary, to properly
execute and deliver this Agreement and to perform its obligations hereunder,
and this Agreement constitutes the valid and legally binding obligation of
each of the Purchaser and the Purchaser Subsidiary, enforceable in accordance
with its terms and conditions, except as limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally and (ii) general
principles of equity, regardless of whether asserted in a proceeding in equity
or at law; provided, however, that the Purchaser cannot consummate the Merger
unless and until it receives the Requisite Stockholder Approval.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree or other restriction of any government, governmental agency or
court to which either the Purchaser or its Subsidiaries is subject or any
provision of the charter or bylaws of either the Purchaser or its Subsidiaries
or (ii) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify or cancel or require any notice under any agreement,
contract, lease, license, instrument or other arrangement to which either the
Purchaser or its Subsidiaries is a
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party or by which it is bound or to which any of its assets is subject, except
in the case of clause (ii) where the violation, conflict, breach, default,
acceleration, termination, modification, cancellation or failure to give
notice would not have a material adverse effect on the business, financial
condition or results of operations of the Purchaser and its Subsidiaries taken
as a whole or on the ability of the Parties to consummate the transactions
contemplated by this Agreement. Other than in connection with the provisions
of the Hart-Scott-Rodino Act, Nasdaq, the Securities Exchange Act, the
Securities Act, state securities laws, and with regard to any required
governmental or regulatory approvals or consents relating to the
telecommunications industry, the laws, rules or regulations of the United
States, the several states or the District of Columbia, the Commonwealth of
Puerto Rico, the United States Virgin Islands and of any other jurisdiction in
which such approvals or consents may be required, and any other statutes,
rules or regulations set forth in (S)4(d) of the Purchaser Disclosure Letter,
neither the Purchaser nor its Subsidiaries needs to give any notice to, make
any filing with or obtain any authorization, consent or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement, except where the failure to give
notice, to file or to obtain any authorization, consent or approval would not
have a material adverse effect on the ability of the Parties to consummate the
transactions contemplated by this Agreement.
(e) Filings with the SEC. The Purchaser has made all filings with the SEC
that it has been required to make under the Securities Act and the Securities
Exchange Act (collectively, the "Purchaser Reports"). Each of the Purchaser
Reports has complied with the Securities Act and the Securities Exchange Act
in all material respects. None of the Purchaser Reports, as of their
respective dates, contained any untrue statement of a material fact or omitted
to state a material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
(f) Financial Statements. The Purchaser has filed an Annual Report on Form
10-K (the "Purchaser 10-K") for the fiscal year ended December 31, 1996 (the
"Purchaser's Most Recent Audited Fiscal Year End") and a Quarterly Report on
Form 10-Q (the "Purchaser 10-Q") for the fiscal quarter ended September 30,
1997. The financial statements included in the Purchaser 10-K and the
Purchaser 10-Q (including the related notes and schedules) have been prepared
from the books and records of the Purchaser and its Subsidiaries in accordance
with GAAP applied on a consistent basis throughout the periods covered
thereby, and present fairly in all material respects the financial condition
of the Purchaser and its Subsidiaries as of the indicated dates and the
results of operations and cash flows of the Purchaser and its Subsidiaries for
the indicated periods, except that unaudited interim results are subject to
year-end adjustments.
(g) Events Subsequent to Purchaser's Most Recent Audited Fiscal Year. Since
the Most Recent Fiscal Year End, there has not been any change in the
financial condition, business or results of operations of the Purchaser or any
of its Subsidiaries, or any development or combination of developments
relating to the Purchaser or any of its Subsidiaries of which management of
the Purchaser has knowledge, and which could reasonably be expected to have a
material adverse effect upon the business, financial condition or results of
operations of the Purchaser and its Subsidiaries taken as a whole.
(h) Brokers' Fees. Except as set forth in (S)4(h) of the Purchaser
Disclosure Letter, none of the Purchaser or its Subsidiaries has any liability
or obligation to pay any fees or commissions to any broker, finder or agent
with respect to the transactions contemplated by this Agreement.
(i) Litigation and Liabilities. Except as disclosed in the Purchaser Reports
or the Purchaser Disclosure Letter, there are no actions, suits or proceedings
pending or, to the knowledge of the management of the Purchaser, threatened
against the Purchaser or any of the Subsidiaries, or any facts or
circumstances known to the management of the Purchaser which may give rise to
an action, suit or proceeding against the Purchaser or any of its
Subsidiaries, which (x) could reasonably be expected to have a material
adverse effect upon the business, financial condition or results of operations
of the Purchaser and its Subsidiaries taken as a whole or (y) could reasonably
be expected to impair or delay the Purchaser's ability to consummate the
transactions contemplated by this Agreement.
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(j) Fairness Opinion. (i) BT Alex. Brown Incorporated has delivered to the
Purchaser Board the Purchaser Fairness Opinion, and a true and complete copy
thereof has been furnished to the Target. (ii) BT Alex. Brown Incorporated has
not withdrawn the Purchaser Fairness Opinion.
(k) Taxes. The Purchaser has duly filed all federal, state, local and
foreign tax returns required to be filed by it, and has duly paid, caused to
be paid or made adequate provision for the payment of all Taxes required to be
paid in respect of the periods covered by such returns, except where the
failure to pay such Taxes would not have a material adverse effect upon the
business, financial condition or results of operations of the Purchaser and
its Subsidiaries taken as a whole. Except as set forth in (S)4(k) of the
Purchaser Disclosure Letter, no claims for Taxes have been asserted against
the Purchaser and no material deficiency for any Taxes has been proposed,
asserted or assessed which has not been resolved or paid in full. To the
knowledge of the Purchaser's management, no Tax Return or taxable period of
the Purchaser is under examination by any taxing authority, and Purchaser has
not received written notice of any pending audit by any taxing authority.
There are no outstanding agreements or waivers extending the statutory period
of limitation applicable to any Tax Return for any period of the Target. To
the knowledge of the management of the Purchaser, the Purchaser has no
obligation or liability to pay Taxes of or attributable to any other person or
entity. No issue or claim has been asserted for Taxes by any taxing authority
for any prior period. Except as set forth in (S)4(k) of the Purchaser
Disclosure Letter, there are no tax liens other than liens for Taxes not yet
due relating to the Purchaser. The Purchaser is not a party to any agreement
or contract which would result in payment of any "excess parachute payment"
within the meaning of Section 280G of the Code. The Purchaser has not filed
any consent pursuant to Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset owned
by the Purchaser or any of the Subsidiaries. The Purchaser has not been and is
not a United States real property holding company (as defined in Section
897(c)(2) of the Code) during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code).
(l) Compliance. The Purchaser and its Subsidiaries are in compliance with
all applicable foreign, federal, state and local laws, rules and regulations
except where the failure to be in compliance could not reasonably be expected
to have a material adverse effect on the business, financial condition or
results of operations of the Purchaser and its Subsidiaries taken as a whole.
(m) Ownership of the Purchaser Subsidiary; No Prior Activities. The
Purchaser Subsidiary is a direct, wholly-owned Subsidiary of the Purchaser and
was formed solely for the purpose of engaging in the transactions contemplated
by this Agreement. Except for obligations or liabilities incurred in
connection with its incorporation or organization and the transactions
contemplated by this Agreement and except for this Agreement and any other
agreements or arrangements contemplated by this Agreement, the Purchaser
Subsidiary has not and will not have incurred, directly or indirectly, through
any Subsidiary or Affiliate, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any Person which could adversely effect the
ability of the Purchaser to consummate the transactions contemplated hereby.
5. Covenants. The Parties agree as follows with respect to the period from
and after the execution of this Agreement through and including the Closing
Date (except for (S)5(h) and (S)5(i), which will apply from and after the
Effective Time in accordance with their respective terms).
(a) General. Each of the Parties will use all reasonable efforts to take all
actions and to do all things necessary in order to consummate and make
effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in (S)6
below).
(b) Notices and Consents. The Target and the Purchaser will give any notices
(and will cause each of their respective Subsidiaries to give any notices) to
third parties, and will use all reasonable efforts to obtain (and will cause
each of their respective Subsidiaries to use all reasonable efforts to obtain)
any third-party consents, that may be required in connection with the matters
referred to in (S)3(d) and (S)4(d) above.
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(c) Regulatory Matters and Approvals. Each of the Parties, promptly after
the date hereof, will (and the Target, promptly after the date hereof, will
cause each of its Subsidiaries to) give any notices to, make any filings with
and use all reasonable efforts to obtain any authorizations, consents and
approvals of governments and governmental agencies in connection with the
matters referred to in (S)3(d) and (S)4(d) above. Purchaser shall be
responsible for preparing and filing the appropriate applications and
documentation which are necessary or appropriate to request the
authorizations, consents and approvals from governmental authorities with
jurisdiction over the telecommunications industry to the Merger and the
transactions contemplated hereby and, the Target at its sole cost and expense
will cooperate with the Purchaser in that regard, providing such assistance as
the Purchaser shall reasonably request. The Purchaser will provide the Target
with drafts of all applications and other documents to be filed with any such
regulatory authority prior to such filing and shall give the Target a
reasonable opportunity to review and comment thereon. Without limiting the
generality of the foregoing:
(i) Federal Securities Laws. As promptly as practicable following the
date hereof, the Purchaser and the Purchaser Subsidiary shall, in
cooperation with the Target, prepare and file with the SEC preliminary
proxy materials which shall constitute the Joint Proxy Statement/Prospectus
(such proxy statement/prospectus, and any amendments or supplements
thereto, the "Joint Proxy Statement/Prospectus") and a registration
statement on Form S-4 with respect to the issuance of Purchaser Shares in
the Merger (the "Registration Statement"), and file with state securities
administrators such registration statements or other documents as may be
required under applicable blue sky laws to qualify or register such
Purchaser Shares in such states as are designated by the Target (the "Blue
Sky Filings"). The Joint Proxy Statement/Prospectus will be included in the
Registration Statement as the Purchaser's prospectus. The Registration
Statement and the Joint Proxy Statement/Prospectus shall comply as to form
in all material respects with the applicable provisions of the Securities
Act and the Exchange Act and the rules and regulations thereunder. Each of
the Purchaser and the Purchaser Subsidiary shall use all reasonable efforts
to have the Registration Statement declared effective by the SEC as
promptly as practicable after filing with the SEC and to keep the
Registration Statement effective as long as is necessary to consummate the
Merger. The Purchaser and the Purchaser Subsidiary agree that none of the
information supplied or to be supplied by the Purchaser or the Purchaser
Subsidiary for inclusion or incorporation by reference in the Joint Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time
of mailing thereof and at the time of the Target Special Meeting or the
Purchaser Special Meeting, will 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, in light of the circumstances
under which they were made, not misleading. The Target agrees that none of
the information supplied or to be supplied by the Target for inclusion or
incorporation by reference in the Joint Proxy Statement/Prospectus and each
amendment or supplement thereto, at the time of mailing thereof and at the
time of the Target Special Meeting or the Purchaser Special Meeting, will
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, in light of the circumstances under which they were made, not
misleading. For purposes of the foregoing, it is understood and agreed that
information concerning or related to the Purchaser and the Purchaser
Special Meeting will be deemed to have been supplied by the Purchaser and
information concerning or related to the Target and the Target Special
Meeting shall be deemed to have been supplied by the Target. The Purchaser
will provide the Target with a reasonable opportunity to review and comment
on any amendment or supplement to the Joint Proxy Statement/Prospectus
prior to filing such with the SEC, will provide the Target with a copy of
all such filings made with the SEC and will notify the Target as promptly
as practicable after the receipt of any comments from the SEC or its staff
or from any state securities administrators and of any request by the SEC
or its staff or by any state securities administrators for amendments or
supplements to the Registration Statement or any Blue Sky Filings or for
additional information, and upon request of the Target, will supply the
Target and its legal counsel with copies of all correspondence between the
Purchaser or any of its representatives, on the one hand, and the SEC, its
staff or any state securities administrators, on the other hand, with
respect to the Registration Statement. No amendment or supplement to the
information supplied by the Target for inclusion in the Joint Proxy
Statement/Prospectus shall be made without the approval of the Target,
which approval shall not be unreasonably withheld or delayed. If, at any
time prior to the Effective Time, any event relating to the Target or the
Purchaser or any of their respective Affiliates, officers
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or directors is discovered by the Target or the Purchaser, as the case may
be, that is required by the Securities Act, the Exchange Act, or the rules
or regulations thereunder, to be set forth in an amendment to the
Registration Statement or a supplement to the Joint Proxy
Statement/Prospectus, the Target or the Purchaser, as the case may be, will
as promptly as practicable inform the other, and such amendment or
supplement will be promptly filed with the SEC and disseminated to the
stockholders of the Target and the Purchaser, to the extent required by
applicable securities laws. All documents which the Target or the Purchaser
files or is responsible for filing with the SEC and any other regulatory
agency in connection with the Merger (including, without limitation, the
Registration Statement and the Joint Proxy Statement/Prospectus) will
comply as to form and content in all material respects with the provisions
of applicable law. Notwithstanding the foregoing, the Target, on the one
hand, and the Purchaser and the Purchaser Subsidiary, on the other hand,
make no representations or warranties with respect to any information that
has been supplied in writing by the other, or the other's auditors,
attorneys, financial advisors, specifically for use in the Registration
Statement or the Joint Proxy Statement/Prospectus, or in any other
documents to be filed with the SEC or any other regulatory agency expressly
for use in connection with the transactions contemplated hereby.
(ii) Florida Business Corporation Law and Delaware General Corporation
Law. The Target will take all action, to the extent necessary in accordance
with applicable law, its articles of incorporation and bylaws to convene a
special meeting of its stockholders (the "Target Special Meeting"), as soon
as reasonably practicable in order that the stockholders may consider and
vote upon the adoption of this Agreement and the approval of the Merger in
accordance with the Florida Business Corporation Law. The Purchaser will
take all action, to the extent necessary in accordance with applicable law,
its certificate of incorporation and bylaws to convene a special meeting of
its stockholders (the "Purchaser Special Meeting"), as soon as reasonably
practicable in order that the stockholders may consider and vote upon the
adoption of this Agreement and the approval of the Merger in order to
satisfy the requirements of the Nasdaq Stock Market ("Nasdaq"). The Target
and the Purchaser shall mail the Joint Proxy Statement/Prospectus to their
respective stockholders simultaneously and as soon as reasonably
practicable. The Joint Proxy Statement/Prospectus shall contain the
affirmative unanimous recommendations of the respective boards of directors
of the Target and Purchaser in favor of the adoption of this Agreement and
the approval of the Merger; provided, however, that no director of either
the Target or the Purchaser shall be required to take any action if it is
advised in writing by Kelley Drye & Warren LLP, in the case of the Target
Board, or by Pepper Hamilton LLP, in the case of the Purchaser Board, that
such action would violate its fiduciary duty to stockholders.
(iii) Hart-Scott-Rodino Act. As soon as possible after the date hereof,
each of the Parties will file (and the Target will cause each of its
Subsidiaries to file) any Notification and Report Forms and related
material that it may be required to file with the Federal Trade Commission
and the Antitrust Division of the United States Department of Justice under
the Hart-Scott-Rodino Act, will use all reasonable efforts to obtain (and
the Target will cause each of its Subsidiaries to use all reasonable
efforts to obtain) an early termination of the applicable waiting period,
and will make (and the Target will cause each of its Subsidiaries to make)
any further filings pursuant thereto that may be necessary.
(iv) Periodic Reports. Unless an exemption shall be expressly applicable
to the Target, or unless the Purchaser agrees otherwise in writing, the
Target will file with the SEC and Nasdaq all reports required to be filed
by it pursuant to the rules and regulations of the SEC. Such reports and
other information shall comply in all material respects with all of the
requirements of the SEC rules and regulations and, when filed, will not
include 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, in light of the circumstances under which they were made, not
misleading. The Purchaser and the Purchaser Subsidiary, and their counsel,
shall be given an opportunity to review such filings prior to their being
filed with the SEC and Nasdaq, and shall be provided with final copies
thereof concurrently with their filing with the SEC.
(d) Operation of Business. The Target will not (and will not cause or permit
any of its Subsidiaries to), without the written consent of the Purchaser,
take any action or enter into any transaction other than in the
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ordinary course of business. Without limiting the generality of the foregoing,
except as expressly provided in this Agreement or (S)5(d) of the Target
Disclosure Letter, without the written consent of the Purchaser:
(i) none of the Target and its Subsidiaries will authorize or effect any
change in its charter or bylaws;
(ii) none of the Target and its Subsidiaries will grant any Stock Rights
or issue, sell or otherwise dispose of any of its capital stock (except
upon the conversion or exercise of Stock Rights outstanding as of the date
of this Agreement and except for options to purchase up to 330,000 Target
Shares to employees to be designated by the Target with the approval of the
Purchaser, it being understood that all such options shall be granted at
the fair market value of the Target Shares as of the date of grant, shall
vest one-third on each of the first, second and third anniversary of the
grant date, but shall not vest as a result of the completion of the
Merger);
(iii) none of the Target and its Subsidiaries will declare, set aside or
pay any dividend or distribution with respect to its capital stock (whether
in cash or in kind), or redeem, repurchase or otherwise acquire any of its
capital stock;
(iv) after April 16, 1998 and prior to May 31, 1998, without first having
consulted with the Purchaser, none of the Target or its Subsidiaries will
enter into any legally binding written commitment or obligation with
respect to, or incur any indebtedness for borrowed money with respect to,
(1) any capitalized lease, (2) any capital expenditure, including equipment
purchases, (3) any fees, costs or expenses relating to the transactions
contemplated hereby, (4) any acquisition earn-out payments or (5) any
compensation (including, without limitation, "stay-bonus" or similar
arrangements or fees) to employees, stockholders or consultants (or any
Affiliates thereof) of the Target as a result of the consummation of the
Merger which, individually or, when taken together with related
incurrences, commitments or obligations, exceeds $250,000; it being
understood that if the Effective Time shall not have occurred on or prior
to May 31, 1998, and the Agreement has not otherwise terminated in
accordance with its terms, the Parties agree to negotiate in good faith
with each other an appropriate extension of this covenant to relate to
periods after May 31, 1998;
(v) none of the Target and its Subsidiaries will impose any Security
Interest upon any of its assets other than in the ordinary course of
business provided, that no such Security Interest could reasonably be
expected to have a material adverse effect on the business, financial
condition or results of operations of the Target and its Subsidiaries taken
as a whole;
(vi) none of the Target and its Subsidiaries will make any capital
investment in, make any loan to or acquire the securities or assets of any
other Person other than to or from wholly-owned Subsidiaries in the
ordinary course of business;
(vii) none of the Target and its Subsidiaries will make any change in
employment terms for any of its directors, officers and employees other
than customary increases to employees who are neither executive officers or
directors of the Target or any Subsidiary awarded in the ordinary course of
business consistent with past practices (except as provided for in section
5(d)(vii) of the Target Disclosure Schedule); and
(viii) none of the Target and its Subsidiaries will commit to any of the
foregoing.
In the event the Target shall request the Purchaser to consent in writing to
an action otherwise prohibited by this (S)5(d), the Purchaser shall use all
reasonable efforts to respond in a prompt and timely fashion, but may
otherwise respond affirmatively or negatively in its sole discretion.
(e) Access. Each Party will (and will cause each of its Subsidiaries to)
permit representatives of the other Party to have access at all reasonable
times and in a manner so as not to materially interfere with the normal
business operations of the Target and its Subsidiaries, or the Purchaser and
its Subsidiaries, as applicable, to all premises, properties, personnel,
books, records (including tax records), contracts and documents of or
pertaining to such Party. Each Party and all of their respective
representatives will treat and hold as such any Confidential Information it
receives from the other Party or any of its representatives in accordance with
the Confidentiality Agreement.
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(f) Notice of Developments. Each Party will give prompt written notice to
the others of any material adverse development causing a breach of any of its
own representations and warranties in (S)3 and (S)4 above. No disclosure by
any Party pursuant to this (S)5(f), however, shall be deemed to amend or
supplement the Target Disclosure Letter or Purchaser Disclosure Letter or to
prevent or cure any misrepresentation, breach of warranty or breach of
covenant.
(g) Exclusivity. Neither the Target nor any of its officers and directors
shall, and the Target will cause its employees, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by the Target) not to, directly or indirectly, encourage, initiate or
solicit any inquiries or the making of any Acquisition Proposal or, except to
the extent required for the discharge by the Target Board of its fiduciary
duties to the Target Stockholders as advised in writing by Kelley Drye &
Warren LLP, engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any Person relating to
an Acquisition Proposal, or otherwise assist or facilitate any effort or
attempt by any Person or entity (other than the Purchaser and the Purchaser
Subsidiary, or their officers, directors, representatives, agents, Affiliates
or associates) to make or implement an Acquisition Proposal. The Target will
notify the Purchaser promptly if any such inquiries or proposals are received
by, any such information is requested from, or any such negotiations or
discussions are sought to be instituted or continued with, the Target, and
will provide to the Purchaser a copy of such Acquisition Proposal. The Target
and its officers and directors will, and the Target will cause its employees,
agents and representatives (including, without limitation, any investment
banker, attorney or accountant retained by the Target) to, immediately cease
and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing. The Target will promptly request that each Person to whom any
confidential documents or information concerning the Target was disclosed by
the Target since January 1, 1997 for the purpose of discussing a possible
change in control transaction involving the Target (a "Potential Buyer"),
either return all of such confidential documents and information, and all
copies thereof, to the Target or deliver a written certification of such
destruction to the Target. The Target shall use all reasonable efforts to
cause each such Potential Buyer to comply with such request.
(h) Insurance and Indemnification.
(i) The Purchaser will provide each individual who served as a director
or officer of the Target at any time prior to the Effective Time with
liability insurance for a period of six years after the Effective Time no
less favorable in coverage and amount than any applicable insurance of the
Target in effect immediately prior to the Effective Time; provided,
however, if the existing liability insurance expires, or is terminated or
canceled by the insurance carrier during such six-year period, the
Surviving Corporation will use its best efforts to obtain as much liability
insurance as can be obtained for the remainder of such period for a premium
not in excess (on an annualized basis) of 150% of the last annual premium
paid prior to the date hereof. In fulfillment of its obligations under this
clause (i), the Purchaser may arrange insurance providing coverage that in
the aggregate is no less favorable to the Target's officers and directors
than that which is currently in effect for the Purchaser's officers and
directors.
(ii) The Purchaser (A) will not take or knowingly permit to be taken any
action to alter or impair any exculpatory or indemnification provisions now
existing in the articles of incorporation, bylaws or indemnification and
employment agreements of the Target or any of its Subsidiaries for the
benefit of any individual who served as a director or officer of the Target
or any of its Subsidiaries (an "Indemnified Party") at any time prior to
the Effective Time, and (B) shall cause the Surviving Corporation to honor
and fulfill such provisions until the date which is six years from the
Effective Date; provided, however, in the event any claim or claims are
asserted within such period, all rights to indemnification in respect of
such claim or claims shall continue until the final disposition thereof.
(iii) To the extent clause (i) above shall not serve to indemnify and
hold harmless an Indemnified Party, the Purchaser, subject to the terms and
conditions of this clause (iii), will indemnify, for a period of six years
from the Effective Date, to the fullest extent permitted under applicable
law each Indemnified Party from and against any and all actions, suits,
proceedings, hearings, investigations, charges, complaints,
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claims, demands, injunctions, judgments, orders, decrees, rulings, damages,
dues, penalties, fines, costs, amounts paid in settlement, liabilities,
obligations, taxes, liens, losses, expenses and fees, including all court
costs and reasonable attorneys' fees and expenses, resulting from, arising
out of, relating to or caused by this Agreement or any of the transactions
contemplated herein; provided, however, in the event any claim or claims
are asserted or threatened within such six-year period, all rights to
indemnification in respect of any such claim or claims shall continue until
final disposition of any and all such claims. Any Indemnified Party wishing
to claim indemnification under this clause (iii), and notwithstanding the
provisions set forth in the Target's articles of incorporation, by-laws or
other agreements respecting indemnification of directors or officers, upon
learning of any such claim, action, suit, proceeding or investigation,
shall promptly notify the Purchaser thereof, but the failure to so notify
shall not relieve the Purchaser of any liability it may have to such
Indemnified Party if such failure does not materially prejudice the
Purchaser. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (A) the
Purchaser or the Surviving Corporation shall have the right to assume the
defense thereof and the Purchaser shall not be liable to such Indemnified
Parties for any legal expenses of other counsel or any other expenses
subsequently incurred by such Indemnified Parties in connection with the
defense thereof, except that if the Purchaser or the Surviving Corporation
fails to assume such defense or counsel for the Purchaser advises that
there are issues which raise conflicts of interest between the Purchaser or
the Surviving Corporation, on the one hand, and the Indemnified Parties, on
the other hand, the Indemnified Parties may retain counsel satisfactory to
them, and the Target, the Purchaser or the Purchaser Subsidiary shall pay
all reasonable fees and expenses of such counsel for the Indemnified
Parties promptly as statements therefor are received; provided, however,
that the Purchaser shall be obligated to pay for only one firm of counsel
for all Indemnified Parties in any jurisdiction unless the use of one
counsel for such Indemnified Parties would present such counsel with a
conflict of interest, in which case the Purchaser need only pay for
separate counsel to the extent necessary to resolve such conflict; (B) the
Indemnified Parties will reasonably cooperate in the defense of any such
matter; and (C) the Purchaser shall not be liable for any settlement
effectuated without its prior written consent, which consent shall not be
unreasonably withheld or delayed. Purchaser shall not settle any action or
claim identified in this (S)5(h)(iii) in any manner that would impose any
liability or penalty on an Indemnified Party not paid by the Purchaser or
the Surviving Corporation without such Indemnified Party's prior written
consent, which consent shall not be unreasonably withheld or delayed.
(iv) Notwithstanding anything contained in clause (iii) above, the
Purchaser shall not have any obligation hereunder to any Indemnified Party
(A) if the indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable law, (B) the conduct of the
Indemnified Party relating to the matter for which indemnification is
sought involved bad faith or willful misconduct, or (C) with respect to
actions taken by any such Indemnified Party in its individual capacity,
including, without limitations, with respect to any matters relating,
directly or indirectly, to the purchase, sale or trading of securities
issued by the Target other than a tender or sale pursuant to a stock tender
agreement or (D) if such Indemnified Party shall have breached its
obligation to cooperate with the Purchaser in the defense of any claim in
respect of which indemnification is sought.
(i) Financial Statements. As soon as they are made available to and reviewed
by senior management of the Target, the Target shall make available to the
Purchaser copies of all internally generated monthly, quarterly (including,
quarterly statements for the three-month period ended December 31, 1997) and
annual financial statements, consisting of consolidated balance sheets, and
statements of income and of cash flows. The delivery of any such quarterly and
annual financial statements shall constitute a representation and warranty by
the Target that such financial statements were prepared from the books and
records of the Target, in accordance with GAAP consistently applied during the
periods involved and fairly present the financial condition, results of
operations and cash flows, as the case may be, of the Target as at and for the
periods set forth therein (subject in the case of quarterly financial
statements to the absence of complete footnotes other than as may be required
by GAAP and subject to normal year-end audit adjustments).
(j) Continuity of Business Enterprise. The Purchaser, Purchaser Subsidiary
or any other member of the qualified group (as defined in Treasury Regulation
(S)1.368-1(d)) shall, for the foreseeable future, continue at least
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one significant historic business line of the Target and use at least a
significant portion of the Target's historic business assets in a business, in
each case within the meaning of Treasury Regulation (S)1.368-1(d).
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Purchaser and the Purchaser
Subsidiary. The obligation of each of the Purchaser and the Purchaser
Subsidiary to consummate the transactions to be performed by it in connection
with the Closing is subject to satisfaction or waiver by Purchaser or
Purchaser Subsidiary of the following conditions at or prior to the Closing
Date:
(i) this Agreement and the Merger shall have received the Requisite
Stockholder Approval;
(ii) the Target and its Subsidiaries shall have procured all third-party
consents specified in (S)5(b) above which are applicable to the Target and
its Subsidiaries;
(iii) the representations and warranties set forth in (S)3 above shall be
true and correct in all material respects at and as of the Closing Date,
except for (A) changes contemplated by this Agreement, (B) those
representations and warranties which address matters only as of a
particular date (which shall have been true and correct as of such date),
and (C) those representations and warranties set forth in
(S)(S)3(g)(ii)(A), 3(j) and 3(l)(ii) which shall have been true and correct
as of February 3, 1998;
(iv) the Target shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(v) neither any statute, rule, regulation, order, stipulation or
injunction (each an "Order") shall be enacted, promulgated, entered,
enforced or deemed applicable to the Merger nor any other action shall have
been taken by any governmental authority, administrative agency or court of
competent jurisdiction (A) which prohibits the consummation of the
transactions contemplated by the Merger; (B) which prohibits the
Purchaser's or the Purchaser Subsidiary's ownership or operation of all or
any material portion of their or the Target's business or assets, or which
compels the Purchaser or the Purchaser Subsidiary to dispose of or hold
separate all or any material portion of the Purchaser's or the Purchaser
Subsidiary's or the Target's business or assets as a result of the
transactions contemplated by the Merger; (C) which makes the purchase of,
or payment for, some or all of the Target Shares illegal; or (D) which
imposes material limitations on the ability of the Purchaser or the
Purchaser Subsidiary to acquire or hold or to exercise effectively all
rights of ownership of Target Shares, including, without limitation, the
right to vote any Target Shares purchased by the Purchaser on all matters
properly presented to the Target Stockholders; or (E) which imposes any
limitations on the ability of the Purchaser or the Purchaser Subsidiary, or
any of their respective Subsidiaries, effectively to control in any
material respect the business or operations of the Target or any of its
Subsidiaries;
(vi) the Target shall have delivered to the Purchaser and the Purchaser
Subsidiary a certificate to the effect that each of the conditions
specified above in (S)6(a)(i)-(S)6(a)(iv) is satisfied in all respects;
provided, however, with respect to (S)6(a)(i), the Target shall only be
required to certify that this Agreement and the Merger received the
Requisite Stockholder Approval of the Target Stockholders;
(vii) all applicable waiting periods (and any extensions thereof) under
the Hart-Scott-Rodino Act shall have expired or otherwise been terminated,
and the Parties shall have received all other material authorizations,
consents and approvals of governments and governmental agencies referred to
in (S)3(d) and (S)4(d) above;
(viii) the Purchase Warrant shall have been exercised in full, provided,
that such exercise may be conditioned upon the effectiveness of the Merger;
(ix) Intentionally Omitted; and
(x) the Registration Statement shall have been declared effective by the
SEC under the Securities Act. No stop order suspending the effectiveness of
the Registration Statement shall have been issued by the SEC and no
proceedings for that purpose shall have been initiated or threatened by the
SEC.
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Subject to the provisions of applicable law, the Purchaser and Purchaser
Subsidiary may waive, in whole or in part, any condition specified in this
(S)6(a) if they execute a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Target. The obligation of the Target to
consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction or waiver by the Target of the following
conditions at or prior to the Closing Date:
(i) this Agreement and the Merger shall have received the Requisite
Stockholder Approval;
(ii) the Purchaser and its Subsidiaries shall have procured all material
third-party consents specified in (S)5(b) above which are applicable to the
Purchaser and its Subsidiaries;
(iii) the representations and warranties set forth in (S)4 above shall be
true and correct in all material respects at and as of the Closing Date,
except for (A) changes contemplated by this Agreement, (B) those
representations and warranties which address matters only as of a
particular date (which shall have been true and correct as of such date),
and (C) those representations and warranties set forth in (S)(S)4(g), 4(i)
and 4(j)(ii) which shall have been true and correct as of February 3, 1998;
(iv) each of the Purchaser and the Purchaser Subsidiary shall have
performed and complied with all of its covenants hereunder in all material
respects through the Closing;
(v) neither any Order shall be enacted, promulgated, entered, enforced or
deemed applicable to the Merger nor any other action shall have been taken
by any governmental authority, administrative agency or court of competent
jurisdiction (A) which prohibits the consummation of the transactions
contemplated by the Merger; (B) which prohibits the Purchaser's or the
Purchaser Subsidiary's ownership or operation of all or any material
portion of their or the Target's business or assets, or which compels the
Purchaser or the Purchaser Subsidiary to dispose of or hold separate all or
any material portion of the Purchaser's or the Purchaser Subsidiary's or
the Target's business or assets as a result of the transactions
contemplated by the Merger; or (C) which makes the purchase of, or payment
for, some or all of the Target Shares illegal;
(vi) each of the Purchaser and the Purchaser Subsidiary shall have
delivered to the Target a certificate to the effect that each of the
conditions specified above in (S)6(b)(i)-(iv) is satisfied in all respects;
provided, however, with respect to (S)6(b)(i), each of the Purchaser and
the Purchaser Subsidiary shall only be required to certify that this
Agreement and the Merger received the Requisite Stockholder Approval of the
Purchaser Stockholders;
(vii) the Merger shall be a tax-free merger of the Purchaser Subsidiary
with and into the Target in a reorganization pursuant to Code Section
368(a)(2)(E);
(viii) all applicable waiting periods (and any extensions thereof) under
the Hart-Scott-Rodino Act shall have expired or otherwise been terminated
and the Parties shall have received all other material authorizations,
consents and approvals of governments and governmental agencies referred to
in (S)3(d) and (S)4(d) above;
(ix) the Registration Statement shall have been declared effective by the
SEC under the Securities Act; and
(x) the Purchaser Shares to be issued in the Merger shall have been
approved for quotation on Nasdaq, subject to official notice of issuance.
Subject to the provisions of applicable law, the Target may waive, in whole
or in part, any condition specified in this (S)6(b) if it executes a writing
so stating at or prior to the Closing.
7. Termination.
(a) Termination of Agreement. The Parties may terminate this Agreement with
the prior authorization of their respective board of directors as provided
below:
(i) The Parties may terminate this Agreement, and the Merger may be
abandoned, by mutual written consent at any time prior to the Effective
Time;
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(ii) This Agreement may be terminated and the Merger may be abandoned by
action of the Board of Directors of either the Purchaser or the Target if
(i) the Merger shall not have been consummated by October 31, 1998 (unless
the failure to consummate the Merger by such date is due to the action or
failure to act of the Party seeking to terminate), or (iii) if any Order
shall have become final and non-appealable;
(iii) This Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, before or after the approval by the
Target Stockholders or the Purchaser Stockholders, by action of the Target
Board, in the event that the Purchaser or the Purchaser Subsidiary shall
have breached any of their representations, warranties or covenants under
this Agreement which breach shall have caused a reasonable likelihood that
the Purchaser and the Purchaser Subsidiary will not be able to consummate
the Merger;
(iv) This Agreement may be terminated and the Merger may be abandoned at
any time prior to the Effective Time, before or after the approval by the
Target Stockholders or the Purchaser Stockholders, by action of the
Purchaser Board, in the event that the Target shall have breached any of
its representations, warranties or covenants under this Agreement which
breach shall have caused a reasonable likelihood that the Target will not
be able to consummate the Merger;
(v) (A) This Agreement may be terminated by the Target and the Merger may
be abandoned at any time, before or after the approval by the Target
Stockholders or the Purchaser Stockholders, if, without violating its
obligations under (S)5(g) hereof, the Target enters into an agreement with
respect to an unsolicited Acquisition Proposal after having received (A)
the written opinion from The Robinson-Humphrey Company, Inc. to the effect
that such Acquisition Proposal is more favorable to the Target Stockholders
from a financial point of view than the Merger, and (B) the written opinion
of Kelley Drye & Warren LLP that approval, acceptance and recommendation of
such Acquisition Proposal is required by fiduciary obligations to the
Target Stockholders under applicable law;
(B) This Agreement may be terminated by the Purchaser, and the Merger
may be abandoned, if the Target Board (i) enters into or publicly
announces its intention to enter into an agreement or agreement in
principle with respect to an Acquisition Proposal, (ii) withdraws or
materially modifies its recommendation to the Target Stockholders of
this Agreement or the Merger or (iii) after the receipt of an
Acquisition Proposal, fails to confirm publicly, upon the request of
the Purchaser, its recommendation to the Target Stockholders that the
Target Stockholders approve this Agreement and the Merger;
(vi) Intentionally omitted;
(vii) Any Party may terminate this Agreement, and the Merger may be
abandoned, by giving written notice to the other Parties at any time after
the Target Special Meeting in the event that this Agreement and the Merger
fail to receive the Requisite Stockholder Approval by the Target
Stockholders; or
(viii) Any Party may terminate this Agreement, and the Merger may be
abandoned, by giving written notice to the other Parties at any time after
the Purchaser Special Meeting in the event that this Agreement and the
Merger fail to receive the Requisite Stockholder Approval by the Purchaser
Stockholders.
(b) Effect of Termination.
(i) Except as provided in clauses (ii) or (iii) of this (S)7(b), if any
Party terminates this Agreement pursuant to (S)7(a) above, all rights and
obligations of the Parties hereunder shall terminate without any liability
of any Party to any other Party (except for any liability of any Party then
in breach); provided, however, that the provisions of the Confidentiality
Agreement, this (S)7(b) and (S)8(l) below, shall survive any such
termination.
(ii) If this Agreement is terminated (x) by the Purchaser pursuant to
(S)7(a)(iv), but only with respect to a breach by Target of (S)5(g), (y) by
Target pursuant to (S)7(a)(v)(A) or (z) by Purchaser pursuant to
(S)7(a)(v)(B), then, within five (5) days after such termination, the
Target shall pay the Purchaser the sum of $5,000,000 in immediately
available funds, which the Parties agree is a reasonable sum to reimburse
the Purchaser for costs and expenses incurred in connection with this
Agreement.
A-22
<PAGE>
(iii) If this Agreement is terminated by the Target as a result of the
Purchaser not obtaining the Requisite Stockholder Approval by the Purchaser
Stockholders, then the Purchaser shall pay the Target, within five (5) days
after the completion of the meeting at which the Purchaser Stockholders
considered the approval of this Agreement and the Merger, the sum of
$5,000,000 in immediately available funds, which the Parties agree is a
reasonable sum to reimburse the Target for costs and expenses incurred in
connection with this Agreement.
8. Miscellaneous.
(a) Survival. None of the representations, warranties and covenants of the
Parties (other than the provisions in (S)2 above concerning payment of the Per
Share Merger Consideration and the provisions in (S)5(h) above concerning
insurance and indemnification and (S)5(i) concerning continuity of business
enterprise) will survive the Effective Time.
(b) Press Releases and Public Announcements. No Party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement without the prior written approval of the other Parties; provided,
however, that any Party may make any public disclosure it believes in good
faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing Party
will use all reasonable efforts to advise the other Parties prior to making
the disclosure).
(c) No Third-Party Beneficiaries. This Agreement shall not confer any rights
or remedies upon any Person other than the Parties and their respective
successors and permitted assigns; provided, however, that (i) the provisions
in (S)2 above (A) concerning payment of the Per Share Merger Consideration are
intended for the benefit of the Target Stockholders and (B) concerning the
conversion of the stock options are intended for the benefit of the holders of
such stock options, and (ii) the provisions in (S)5(h) above concerning
insurance and indemnification are intended for the benefit of the individuals
specified therein and their respective legal representatives.
(d) Entire Agreement. This Agreement (including the Confidentiality
Agreement and the other documents referred to herein) constitutes the entire
agreement among the Parties and supersedes any prior understandings,
agreements or representations by or among the Parties, written or oral, to the
extent they related in any way to the subject matter hereof.
(e) Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties and their respective successors and
permitted assigns. No Party may assign or delegate either this Agreement or
any of its rights, interests or obligations hereunder, by operation of law or
otherwise, without the prior written approval of the other Parties. Any
purported assignment or delegation without such approval shall be void and of
no effect.
(f) Counterparts. This Agreement may be executed (including by facsimile) in
one or more counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims and other communications
hereunder shall be in writing. Any notice, request, demand, claim or other
communication hereunder shall be deemed duly given if (and then two business
days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid and addressed to the intended recipient as set
forth below:
If to the Target: TresCom International, Inc.
200 East Broward Blvd.
Ft. Lauderdale, FL 33301
Attention: Chief Executive Officer
Fax: (954) 463-4353
A-23
<PAGE>
With a Copy to:
Kelley Drye & Warren LLP
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901-3229
Fax: (203) 351-8115
Attention: John T. Capetta, Esquire
If to the Purchaser: PRIMUS TELECOMMUNICATIONS GROUP, INC.
2070 Chain Bridge Road
Vienna, VA 22182
K. Paul Singh, Chairman and Chief Executive
Officer
Fax: (703) 902-2814
With a Copy to: Pepper Hamilton LLP
3000 Two Logan Square
Eighteenth & Arch Streets
Philadelphia, PA 19103-2799
Fax: (215) 981-4750
Attention: James D. Epstein, Esquire
If to the Purchaser Subsidiary:
TAURUS ACQUISITION CORPORATION
2070 Chain Bridge Road
Vienna, VA 22182
K. Paul Singh, Chairman and Chief Executive
Officer
Fax: (703) 902-2814
With a Copy to: Pepper Hamilton LLP
3000 Two Logan Square
Eighteenth & Arch Streets
Philadelphia, PA 19103-2799
Fax: (215) 981-4750
Attention: James D. Epstein, Esquire
Any Party may send any notice, request, demand, claim or other communication
hereunder to the intended recipient at the address set forth above using
personal delivery, expedited courier, messenger service, telecopy or ordinary
mail, but no such notice, request, demand, claim or other communication shall
be deemed to have been duly given unless and until it actually is received by
the intended recipient. Any Party may change the address to which notices,
requests, demands, claims and other communications hereunder are to be
delivered by giving the other Parties notice in the manner set forth in this
(S)8(h), provided that no such change of address shall be effective until it
actually is received by the intended recipient.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF FLORIDA WITHOUT GIVING
EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE
STATE OF FLORIDA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION
OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF FLORIDA.
(j) Amendments and Waivers. The Parties may mutually amend any provision of
this Agreement at any time prior to the Effective Time with the prior
authorization of their respective boards of directors; provided, however, that
any amendment effected subsequent to Requisite Stockholder Approval will be
subject to the restrictions contained in the Florida Business Corporation Law
and the Delaware General Corporation Law, to the extent applicable. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by all of the Parties. No waiver by any party
of any default, misrepresentation or breach of
A-24
<PAGE>
warranty or covenant hereunder, whether intentional or not, shall be deemed to
extend to any prior or subsequent default, misrepresentation or breach of
warranty or covenant hereunder or affect in any way any rights arising by
virtue of any prior or subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. Except as expressly set forth elsewhere in this Agreement,
each of the Parties will bear its own costs and expenses (including legal fees
and expenses) incurred in connection with this Agreement and the transactions
contemplated hereby.
(m) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if
drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation. The phrase "business
day" shall mean any day other than a day on which banks in the State of New
York are required or authorized to be closed. Any disclosure made with
reference to one or more sections of the Target Disclosure Schedule shall be
deemed disclosed with respect to each other section therein as to which such
disclosure is relevant provided that such relevance is reasonably apparent.
Disclosure of any matter in the Target Disclosure Schedule or the Purchaser
Disclosure Schedule shall not be deemed an admission that such matter is
material.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(o) Definition of Knowledge. As used herein, the words "knowledge", "best
knowledge" or "known" shall, (i) with respect to the Target or Target
management, mean the actual knowledge of the corporate executive officers of
the Target, in each case after such individuals have made due and diligent
inquiry as to the matters which are the subject of the statements which are
"known" by the Target or made to the "knowledge" or "best knowledge" of the
Target, (ii) with respect to the Purchaser or the Purchaser management, mean
the actual knowledge of the corporate executive officers of the Purchaser, in
each case after such individuals have made due and diligent inquiry as to the
matters which are the subject of the statements which are "known" by the
Purchaser or made to the "knowledge" or "best knowledge" of the Purchaser, and
(iii) with respect to the Purchaser Subsidiary or the Purchaser Subsidiary
management, mean the actual knowledge of the corporate executive officers of
the Purchaser or the Purchaser Subsidiary, in each case after such individuals
have made due and diligent inquiry as to the matters which are the subject of
the statements which are "known" by the Purchaser Subsidiary or made to the
"knowledge" or "best knowledge" of the Purchaser Subsidiary.
(p) WAIVER OF JURY TRIAL. EACH OF THE PURCHASER, THE PURCHASER SUBSIDIARY
AND THE TARGET, AND EACH INDEMNIFIED PARTY, HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY.
A-25
<PAGE>
In Witness Whereof, the Parties hereto have executed this Agreement as of the
date first above written.
Primus Telecommunications Group,
Inc.
By: /s/ K. Paul Singh
---------------------------------
Name: K. Paul Singh
Title: President and Chief
Executive Officer
Taurus Acquisition Corporation
By: /s/ K. Paul Singh
---------------------------------
Name: K. Paul Singh
Title: President
TresCom International, Inc.
By: /s/ Wesley T. O'Brien
---------------------------------
Name: Wesley T. O'Brien
Title: President and Chief
Executive Officer
A-26
<PAGE>
EXHIBIT A
ARTICLES OF MERGER
OF
MERGER SUB,
A FLORIDA CORPORATION,
INTO
TARGET,
A FLORIDA CORPORATION
----------------
Pursuant to Section 607.1105 of the Florida Business Corporation Act, the
undersigned corporations adopt the following Articles of Merger:
First: Merger Sub, a Florida corporation ("Merger Sub"), shall be merged with
and into Target, a Florida corporation ("Target"), whereby Target shall be the
surviving corporation (the "Merger").
Second: The Merger shall become effective as of the day on which these
Articles of Merger are filed with the Department of State of the State of
Florida.
Third: The Agreement and Plan of Merger, dated as of February , 1998,
pursuant to which Merger Sub shall be merged with and into Target, was adopted
by the shareholder of Merger Sub on the day of , 1998, and was adopted
by the shareholders of Target on the day of , 1998.
In Witness Whereof, these Articles of Merger have been executed on behalf of
Merger Sub and Target by their authorized officers as of , 1998.
TARGET
By: _________________________________
Name:
Title:
MERGER SUB
By: _________________________________
Name:
Title:
A-27
<PAGE>
APPENDIX B
BT ALEX. BROWN INCORPORATED
February 3, 1998
Board of Directors
Primus Telecommunications Group, Inc.
2070 Chain Bridge Road
Vienna, Virginia 22182
Attention: K. Paul Singh
Chairman, President and Chief Executive Officer
Dear Sirs:
Primus Telecommunications Group, Inc. ("Primus" or the "Company") and a to
be formed wholly-owned subsidiary of Primus (the "Merger Sub") intend to enter
into an Agreement and Plan of Merger (the "Agreement") on February 3, 1998 or
as soon thereafter as is practical. Pursuant to the Agreement, which is
contingent upon approval by Primus stockholders and certain other terms and
conditions set forth in the Agreement, the Merger Sub will be merged with and
into TresCom International Communications (the "Target") and the Target will
survive as a wholly-owned subsidiary of the Company.
At the Effective Time (as defined in this Agreement) each share of the
common stock, par value $.0419 per share, of the Target (the "Target Share")
issued and outstanding immediately prior to the Effective Time of the Merger
will be converted into the number of shares of common stock, par value $.01
per share, of the Company (the "Company Shares") calculated as defined in the
Agreement (the "Exchange Ratio"). We have assumed, with your consent, that the
Merger will be accounted for as a purchase and will be a tax free
reorganization for purposes of federal income taxation for the stockholders of
the Company. You have requested our opinion as to whether the Exchange Ratio
is fair, from a financial point of view, to the Company.
BT Alex. Brown Incorporated ("BT Alex. Brown"), as a customary part of its
investment banking business, is engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and
other purposes. We have acted as financial advisor to the Board of Directors
of the Company in connection with the transaction described above and will
receive a fee for our services, a portion of which is contingent upon the
consummation of the Merger. BT Alex. Brown regularly publishes research
reports regarding the telecommunications industry, which may include
information regarding the Company or the Target and other publicly-owned
companies in the telecommunications industry. In the ordinary course of
business, BT Alex. Brown may actively trade the securities of the Company or
the Target for our own account and the account of our customers and,
accordingly, may at any time hold a long or short position in securities of
the Company or the Target.
In connection with this opinion, we have reviewed certain publicly available
financial information and other information concerning the Company and the
Target and certain internal analyses and other information furnished to us by
management of the Company and the Target. We have also held discussions with
the members of the senior managements of the Company and the Target regarding
the businesses and prospects of their respective companies and the joint
prospects of a combined company. In addition, we have (i) reviewed the
reported prices and trading activity for the common stock of the Company and
the Target, (ii) compared certain stock market information for the Company and
the Target with similar information for certain other companies in the
telecommunications industry whose securities are publicly traded, (iii)
reviewed the financial terms of
B-1
<PAGE>
certain recent business combinations in the telecommunications industry which
we deemed comparable in whole or in part, (iv) reviewed the terms of the
January 31, 1998 draft of the Agreement and certain related documents, and (v)
performed such other studies and analyses and considered such other factors as
we deemed appropriate.
We have not independently verified the information described above and for
purposes of this opinion have assumed the accuracy, completeness and fairness
thereof. With respect to the information relating to the prospects of the
Company and the Target, we have assumed that such information reflects the
best currently available judgments and estimates of the managements of the
Company and the Target as to the likely future financial performances of their
respective companies. In addition, we have not made nor been provided with an
independent evaluation or appraisal of the assets of the Company or the
Target, nor have we been furnished with any such evaluations or appraisals.
Our opinion is based on market, economic and other conditions as they exist
and can be evaluated as of the date of this letter.
We have been retained by the Board of Directors of the Company as financial
advisor solely for the purpose of rendering this opinion and accordingly, we
have not been requested to and have not provided any other services in
connection with the Merger.
Our opinion expressed herein was prepared for the use of the Board of
Directors of the Company and does not constitute a recommendation to the
Company's stockholders as to how they should vote at the stockholders' meeting
in connection with the Merger. Our opinion may not be used for any other
purpose without our prior written consent. We hereby consent, however, to the
inclusion of this opinion as an exhibit to any proxy statement or registration
statement distributed in connection with the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the Exchange Ratio is fair, from a financial point of
view, to the Company.
Very truly yours,
BT ALEX. BROWN INCORPORATED
By: /s/ Scott Wieler
-----------------------------------
Name: Scott Wieler
---------------------------------
B-2
<PAGE>
APPENDIX C
THE ROBINSON-HUMPHREY COMPANY, INC.
February 3, 1998
Board of Directors
TresCom International, Inc.
200 East Broward Boulevard
Fort Lauderdale, Florida 33301
To the Members of the Board:
We understand that TresCom International, Inc. (the "Company" or "TresCom")
is considering a proposed merger of the Company with a subsidiary of Primus
Telecommunications Group, Inc. ("Primus"). We understand that under this
merger (the "Proposed Transaction"), stockholders of TresCom will receive
shares of Common Stock of Primus, which, as of the date of this letter and
subject to certain exceptions, would have a market value of $10.00, in
exchange for each share of TresCom Common Stock held by them immediately prior
to the implementation of the Merger, as described in detail in the Agreement
and Plan of Merger dated February 3, 1998 between TresCom and Primus (the
"Agreement").
We have been requested by the Company to render our opinion with respect to
the fairness to the Company's stockholders, as of February 3, 1998, of the
consideration to be received in the Proposed Transaction from a financial
point of view.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement, (2)
the exchange ratio and the mechanism for its adjustment, (3) publicly
available information concerning the Company and Primus, which we believe to
be relevant to our inquiry, (4) financial and operating information with
respect to the business, operations and prospects of the Company and Primus
furnished to us by the Company and Primus, (5) trading histories of the
Company's Common Stock and the Primus Common Stock, (6) a comparison of the
historical financial results and present financial condition of the Company
and Primus with those of other companies which we deemed relevant, (7) a
comparison of the financial terms of the Proposed Transaction with the
financial terms of certain other transactions which we deemed relevant, and
(8) certain historical data relating to percentage premiums paid in
acquisitions of public traded companies. In addition, we held discussions with
the management of the Company and of Primus concerning their business and
operations, assets, present condition and future prospects and undertook such
other studies, analyses and investigations as we deemed appropriate.
C-1
<PAGE>
Board of Directors
TresCom International, Inc.
February 3, 1998
Page 2
We have relied upon the accuracy and completeness of the financial and other
information used by us in arriving at our opinion without independent
verification. In arriving at our opinion, we have not conducted a physical
inspection of the properties and facilities of the Company or of Primus. We
have not made nor obtained any evaluations or appraisals of the assets or
liabilities of the Company or of Primus. Our opinion is necessarily based upon
market, economic and other conditions as they exist and can be evaluated as of
the date of this letter. The financial markets in general and the markets for
the securities of TresCom and Primus, in particular, are subject to
volatility, and this letter does not purport to address potential developments
in the financial markets or the markets for the securities of TresCom and
Primus after the date hereof.
We have acted as a financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee from the Company for our services,
a portion of which is contingent on the consummation of the Proposed
Transaction. In addition, the Company has agreed to indemnify us for certain
liabilities arising out of the rendering of this opinion. We have served as
managing underwriter for one public offering of the Company's securities, for
which we have received customary fees, and have provided general advice from
time to time for the Company in the past. In the ordinary course of our
business, we actively trade in the Common Stock of the Company for our own
account and for the accounts of our customers and, accordingly, may at any
time hold a long or short position in such securities.
Based upon and subject to the foregoing, we are of the opinion that as of
February 3, 1998, the consideration to be received in the Proposed Transaction
is fair to the stockholders of TresCom from a financial point of view.
Very truly yours,
/s/ The Robinson-
Humphrey Company, LLC
THE ROBINSON-HUMPHREY COMPANY, LLC
C-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of 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 Primus's Amended and Restated By-Laws provides that
Primus, to the full extent permitted by Section 145 of the DGCL, shall
indemnify all past and present directors or officers of Primus and may
indemnify all past or present employees or other agents of Primus. To the
extent that a director, officer, employee or agent of Primus 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 Primus against actually and
reasonably incurred expenses in connection therewith. Such expenses may be
paid by Primus 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 Primus's
Amended and Restated Certificate of Incorporation provides that no director of
Primus shall be liable to Primus 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 Primus 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
Primus's capital stock or (iv) for any transaction from which the director
derived an improper personal benefit.
Primus has obtained a policy insuring it and its directors and officers
against certain liabilities, including liabilities under the 1933 Act.
Pursuant to Section 5(h) of the Merger Agreement, Primus will provide each
individual who served as a director or officer of TresCom at any time prior to
the Effective Time with liability insurance for a period of six years after
the Effective Time, having no less favorable coverage than any applicable
insurance of TresCom in effect immediately prior to the Effective Time;
provided, however, if the existing liability insurance expires, or is
terminated or canceled by the insurance carrier during such six-year period,
the Surviving Corporation will use its best efforts to obtain as much
liability insurance as can be obtained for the remainder of such period for a
premium not in excess (on an annualized basis) of 150% of the last annual
premium paid prior to the date of the Merger Agreement.
ITEM 21. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
2.1 Agreement and Plan of Merger by and among Primus, TresCom and TAC,
dated as of February 3, 1998, and as amended by Amendments No. 1 and 2
to Agreement and Plan of Merger dated as of April 8, 1998 and as of
April 16, 1998, respectively; Included as Appendix A to the Joint
Proxy Statement/Prospectus. (The schedules to the Agreement and Plan
of Merger have been omitted in accordance with Item 601(b)(2) of
Regulation S-K. A copy of such schedules shall be furnished
supplementally to the Commission upon request.)
2.2 Asset Purchase Agreement by and among USFI, Inc. Primus
Telecommunications, Inc., Primus and US Cable Corporation dated as of
October 20, 1997; Incorporated by reference to Exhibit 2.1 of Primus's
Current Report on Form 8-K dated November 3, 1997. (The exhibits and
schedules listed in the table of contents to the Asset Purchase
Agreement have been omitted in accordance with Item 601(b)(2) of
Regulation S-K. A copy of such exhibits and schedules shall be
furnished supplementally to the Commission upon request.)
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
2.3 Equity Purchase Agreement by and among Messrs. James D. Pearson,
Stephen E. Myers, Michael C. Anderson, Primus Telecommunications,
Inc., and Primus, dated as of October 20, 1997; Incorporated by
reference to Exhibit 2.2 of Primus's Current Report on Form 8-K dated
November 3, 1997. (The exhibits and schedules listed in the table of
contents to the Equity Purchase Agreement have been omitted in
accordance with Item 601(b)(2) of Regulation S-K. A copy of such
exhibits and schedules shall be furnished supplementally to the
Commission upon request.
2.4 Amendment No. 1 to Agreement and Plan of Merger among Primus, TresCom
and TAC, dated as of April 8, 1998; Incorporated by reference to
Exhibit 2.1 of the Primus Current Report on Form 8-K dated April 10,
1998.
2.5 Amendment No. 2 to Agreement and Plan of Merger among Primus, TresCom
and TAC, dated as of April 16, 1998; Incorporated by reference to
Exhibit 2.1 of the Primus Current Report on Form 8-K dated April 23,
1998 (the "Form 8-K for Amendments"), as amended by the Primus Current
Report on Form 8-K/A dated April 23, 1998.
3.1 Amended and Restated Certificate of Incorporation of Primus;
Incorporated by reference to Exhibit 3.1 of the Registration Statement
on Form S-1, No. 333-10875 (the "IPO Registration Statement").
3.2 Certificate of Amendment of Certificate of Incorporation of Primus;
Incorporated by reference to Exhibit 3.2 of Primus's Annual Report on
Form 10-K for the year ended December 31, 1996.
3.3 Amended and Restated Bylaws of Primus; Incorporated by reference to
Exhibit 3.2 of the IPO Registration Statement.
4.1 Specimen Certificate of Primus Common Stock; Incorporated by reference
to Exhibit 4.1 of the IPO Registration Statement.
4.2 Form of Indenture of Primus; Incorporated by reference to Exhibit 4.1
of the Registration Statement on Form S-1, No 333-30195 (the "Senior
Note Registration Statement").
4.3 Form of Warrant Agreement of Primus; Incorporated by reference to
Exhibit 4.2 of the Senior Note Registration Statement.
5.1 Opinion of Pepper Hamilton LLP regarding the validity of the
securities being registered.
10.1 Stockholder Agreement among Warburg, Pincus, K. Paul Singh and Primus,
dated as of February 3, 1998; Incorporated by reference to Exhibit
10.1 of the Primus Current Report on Form 8-K dated February 6, 1998
(the "Form 8-K")
10.2 Voting Agreement between Primus and Wesley T. O'Brien, dated as of
February 3, 1998; Incorporated by reference to Exhibit 10.4 of the
Form 8-K.
10.3 Voting Agreement between Primus and Rudy McGlashan, dated as of
February 3, 1998; Incorporated by reference to Exhibit 10.5 of the
Form 8-K.
10.4 Voting Agreement between TresCom and K. Paul Singh, dated as of
February 3, 1998; Incorporated by reference to Exhibit 10.2 of the
Form 8-K.
10.5 Voting Agreement between TresCom and John F. DePodesta, dated as of
February 3, 1998; Incorporated by reference to Exhibit 10.3 of the
Form 8-K.
10.6 Switched Transit Agreement, dated June 5, 1995, between Teleglobe USA,
Inc. and Primus for the provision of services to India; Incorporated
by reference to Exhibit 10.2 of the IPO Registration Statement.
10.7 Hardpatch Transit Agreement, dated February 29, 1996, between
Teleglobe USA, Inc. and Primus for the provision of services to Iran;
Incorporated by reference to Exhibit 10.3 of the IPO Registration
Statement.
10.8 Agreement for Billing and Related Services, dated February 23, 1995,
between Primus and Electronic Data System Inc.; Incorporated by
reference to Exhibit 10.4 of the IPO Registration Statement.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
10.9 Employment Agreement, dated June 1, 1994, between Primus and K. Paul
Singh, Inc.; Incorporated by reference to Exhibit 10.5 of the IPO
Registration Statement.
10.10 Primus 1995 Stock Option Plan; Incorporated by reference to Exhibit
10.6 of the IPO Registration Statement.
10.11 Primus 1995 Director Stock Option Plan; Incorporated by reference to
Exhibit 10.7 of the IPO Registration Statement.
10.12 Registration Rights Agreement, dated July 31, 1996, among Primus,
Quantum Industrial Partners LDC, S-C Phoenix Holdings, L.L.C., Winston
Partners II LDC and Winston Partners LLC; Incorporated by reference to
Exhibit 10.11 of the IPO Registration Statement.
10.13 Service Provider Agreement between Telstra Corporation Limited and
Axicorp Pty., Ltd., dated May 3, 1995; Incorporated by reference to
Exhibit 10.12 of the IPO Registration Statement.
10.14 Dealer Agreement between Telstra Corporation Limited and Axicorp Pty.,
Ltd. dated January 8, 1996; Incorporated by reference to Exhibit 10.13
of the IPO Registration Statement.
10.15 Hardpatch Transit Agreement dated October 5, 1995 between Teleglobe
USA, Inc. and Primus the provision of services to India; Incorporated
by reference to Exhibit 10.14 of the IPO Registration Statement.
10.16 Securities Purchase Agreement dated as of July 31, 1996 among Primus,
Quantum Industrial Partners LDC, S-C Phoenix Holdings L.L.C., Winston
Partners II LLC, and Winston Partners II, LDC; Incorporated by
reference to Exhibit 10.15 of the IPO Registration Statement.
10.17 Master Lease Agreement dated as of November 21, 1997 between NTFC
Capital Corporation and Primus Telecommunications, Inc.; Incorporated
by reference to Exhibit 10.17 of Primus's Annual Report on Form 10-K
for the year ended December 31, 1997 (the "1997 10-K"), as amended on
Form 10-K/A dated April 30, 1998.
10.18 Primus Employee Stock Purchase Plan; Incorporated by reference to
Exhibit 10.15 of the Senior Note Registration Statement.
10.19 Primus 401(k) Plan; Incorporated by reference to Exhibit 4.4 of the
Primus Registration Statement on Form S-8 (No. 333-35005).
10.20 Amendment No. 1 to Stockholder Agreement among Warburg, Pincus, K.
Paul Singh, Primus, and TresCom, dated as of April 16, 1998;
Incorporated by reference to Exhibit 10.1 of the Form 8-K for
Amendments.
10.21 Amendment No. 1 to Voting Agreement between Wesley T. O'Brien and
Primus, dated as of April 16, 1998; Incorporated by reference to
Exhibit 10.2 of the Form 8-K for Amendments.
10.22 Amendment No. 1 to Voting Agreement between Rudolph McGlashan and
Primus, dated as of April 16, 1998; Incorporated by reference to
Exhibit 10.3 of the Form 8-K for Amendments.
21.1 Subsidiaries of the Registrant; Incorporated by reference to Exhibit
22.1 of the 1997 10-K.
23.1 Consent of Deloitte & Touche LLP (included on page II-5 of this
Registration Statement).
23.2 Consent of Ernst & Young LLP (included on page II-6 of this
Registration Statement).
23.3 Consent of Ernst & Young LLP (included on page II-7 of this
Registration Statement).
23.4 Consent of Pepper Hamilton LLP (included in Exhibit 5.1).
23.5 Consent of The Robinson-Humphrey Company, LLC.
23.6 Consent of BT Alex. Brown Incorporated (included in Appendix B).
24.1 Power of Attorney (included on page II-8 of this Registration
Statement).
27.1 Financial Data Schedule for Primus for the year ended December 31,
1997; Incorporated by reference to Exhibit 27.1 of the 1997 10-K.
99.1 Form of Primus Proxy Card.
99.2 Form of TresCom Proxy Card.
</TABLE>
II-3
<PAGE>
ITEM 2. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the 1933 Act, each filing of the registrant's
annual report pursuant to Section 13(a) or 15(d) of the 1934 Act (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the 1934 Act) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the joint proxy statement/prospectus, to each person to whom
the joint proxy statement/prospectus is sent or given, the latest annual
report, to security holders that is incorporated by reference in the joint
proxy statement/prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the 1934 Act; and, where
interim financial information required to be presented by Article 3 of
Regulation S-X is not set forth in the joint proxy statement/prospectus, to
deliver, or cause to be delivered to each person to whom the joint proxy
statement/prospectus is sent or given, the latest quarterly report that is
specifically incorporated by reference in the joint proxy statement/prospectus
to provide such interim financial information.
(c) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this Registration Statement, by any
person or party who is deemed to be an underwriter within the meaning of
Rule 145(c), the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the 1933 Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the Registration Statement and will not
be used until such amendment is effective, and that, for purposes of
determining any liability under the 1933 Act, each such post-effective
amendment shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the joint proxy
statement/prospectus pursuant to Items 4, 10(b), 11 or 13 of this form, within
one business day of receipt of such request, and to send the incorporated
documents by first-class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the Registration Statement through the date of responding to the request.
(e) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(f) Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers and controlling person of the
registrant pursuant to the provisions described in Item 20 above, or
otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the
1933 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 such action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement of
Primus Telecommunications Group, Incorporated on Form S-4 of our report dated
February 12, 1998, except for Note 15 as to which the date is March 8, 1998,
appearing in the Annual Report on Form 10-K of Primus Telecommunications
Group, Incorporated for the year ended December 31, 1997, and to the reference
to us under the heading "Experts" in the Joint Proxy/Prospectus, which is part
of this Registration Statement.
DELOITTE & TOUCHE LLP
Washington, DC
May 4, 1998
II-5
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4 dated May 4, 1998) and related Joint Proxy
Statement/Prospectus of Primus Telecommunications Group, Inc. for the
registration of shares of its common stock and to the incorporation by
reference therein of our reports dated September 30, 1997 and January 31,
1996, with respect to the consolidated financial statements of USFI, Inc.
included in the Current Report on Form 8-K dated November 3, 1997, and the
amendments to such Current Report dated January 5, 1998 and January 7, 1998,
of Primus Telecommunications Group, Inc., filed with the Securities and
Exchange Commission.
ERNST & YOUNG LLP
Hackensack, New Jersey
April 30, 1998
II-6
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated February 27, 1998, with respect to the financial
statements and schedule of TresCom International, Inc. included in the
Registration Statement (Form S-4 No. 333- ) and related Prospectus of Primus
Telecommunications Group, Incorporated for the registration of 10,000,000
shares of its common stock.
ERNST & YOUNG LLP
Atlanta, Georgia
May 1, 1998
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN MCLEAN, VIRGINIA ON MAY 1, 1998.
Primus Telecommunications Group,
Incorporated
By: /s/ K. Paul Singh
--------------------------------
K. Paul Singh
PRESIDENT, CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below on this Registration Statement hereby constitutes and appoints K. Paul
Singh and Neil L. Hazard and each of them, with full power to act without the
other, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him and in his name, place and stead, in
any and all capacities (until revoked in writing), to sign any and all
amendments (including post-effective amendments thereto) to this Form S-4
Registration Statement of Primus Telecommunications Group, Incorporated and to
file the same, with all Exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary fully to all
intents and purposes as he might or could do in person thereby ratifying and
confirming all that said attorney-in-fact and agents, or any of them, or their
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ K. Paul Singh Chairman, President May 1, 1998
- ------------------------------------- and Chief Executive
K. PAUL SINGH Officer (principal
executive officer)
and Director
/s/ Neil L. Hazard Executive Vice May 1, 1998
- ------------------------------------- President and Chief
NEIL L. HAZARD Financial Officer
(principal
financial officer
and principal
accounting officer)
/s/ John F. DePodesta Executive Vice May 1, 1998
- ------------------------------------- President, Law and
JOHN F. DEPODESTA Regulatory Affairs
and Director
/s/ Herman Fialkov Director May 1, 1998
- -------------------------------------
HERMAN FIALKOV
/s/ David E. Hershberg Director May 1, 1998
- -------------------------------------
DAVID E. HERSHBERG
/s/ John Puente Director May 1, 1998
- -------------------------------------
JOHN PUENTE
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
5.1 Opinion of Pepper Hamilton LLP regarding the validity of the securities
being registered.
23.5 Consent of The Robinson-Humphrey Company, LLC.
99.1 Form of Primus Proxy Card.
99.2 Form of TresCom Proxy Card.
</TABLE>
<PAGE>
[Pepper Hamilton LLP Letterhead]
April 23, 1998
Primus Telecommunications Group, Incorporated
1700 Old Meadow Road
McLean, VA 22102
Gentlemen:
We have acted as counsel to Primus Telecommunications Group, Incorporated,
a Delaware corporation (the "Company"), and Taurus Acquisition Corporation, a
Florida corporation ("Taurus"), in connection with the preparation,
authorization, execution and delivery of, and the consummation of the
transactions contemplated by, the Agreement and Plan of Merger (as amended, the
"Merger Agreement"), dated as of February 3, 1998, by and among the Company,
Taurus and TresCom International, Inc. ("TresCom"), dated as of February 3,
1998, by and among the Company, Taurus and TresCom International, Inc.
("TresCom"), as amended by Amendment No. 1 to Agreement and Plan of Merger,
dated as of April 8, 1998 an Amendment No. 2 to Agreement and Plan of Merger,
dated as of April 16, 1998.
In acting as counsel to the Company, we have examined the Merger Agreement
and originals or copies, certified or otherwise identified to our satisfaction,
of such corporate records, agreements, documents and other instruments, and such
certificates or comparable documents of public officials and of officers and
representatives of the Company, and have made such inquiries of such officers
and representatives, as we have deemed relevant and necessary as a basis for the
opinions hereinafter set forth.
In such examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified, conformed or
photostatic copies and the authenticity of the originals of such latter
document. As to all questions of fact material to this opinion that have not
been independently established, we have relied upon certificates or comparable
documents of officers and representatives of the Company and upon the
representations and warranties of the Company contained in the Merger Agreement.
<PAGE>
Primus Telecommunications Group, Incorporated
Page 2
April 23, 1998
Based on the foregoing, and subject to the qualifications stated herein, we
are of the opinion that the shares to be issued by the Company pursuant to the
Merger Agreement (the "Shares") have been duly authorized and, when issued as
contemplated by the Merger Agreement, will be validly issued, fully paid and
nonassessable.
The opinions expressed herein are limited to the General Corporation Law of
the State of Delaware, and we express no opinion as to the effect on the matters
covered by this letter of the laws of any other jurisdiction.
We hereby consent to the filing of a copy of this opinion with the
Securities and Exchange Commission as an exhibit to the Form S-4 Registration
Statement of the Company relating to the issuance of the Shares and to the
reference of this firm under the caption "Legal Matters" in the Prospectus filed
as part of such Registration Statement. However, we do not admit that we 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 LLP
Pepper Hamilton LLP
<PAGE>
EXHIBIT 23.5
------------
CONSENT OF THE ROBINSON-HUMPHREY COMPANY, LLC
We hereby consent to the inclusion of our opinion dated February 3, 1998 in
the Joint Proxy Statement/Prospectus which forms a part of the Registration
Statement (No. 333-_______) on Form S-4 of Primus Telecommunications Group,
Incorporated. In giving such consent, we do not admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules and regulations of the Securities and
Exchange Commission thereunder, nor do we thereby admit that we are experts with
respect to any part of such Registration Statement within the meaning of the
term "experts" as used in the Securities Act of 1933, as amended, or the rules
and regulations of the Securities and Exchange Commission thereunder.
THE ROBINSON-HUMPHREY COMPANY, LLC
Atlanta, Georgia
May 4, 1998
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all previous proxies, hereby appoints K. Paul Singh
and John F. DePodesta, and each of them acting individually, as the attorney
and proxy of the undersigned, with full power of substitution, to vote, as
indicated below and in their discretion upon such other matters as may properly
come before the meeting, all shares which the undersigned would be entitled to
vote at the Annual Meeting of the Stockholders of Primus Telecommunications
Group, Incorporated to be held on June 4, 1998, and at any adjournment or
postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED IN FAVOR OF THE ISSUANCE OF PRIMUS COMMON STOCK IN CONNECTION WITH THE
MERGER, IN FAVOR OF THE ELECTION OF MR. PUENTE AS DIRECTOR AND IN FAVOR OF
AMENDING THE PRIMUS CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF PRIMUS COMMON STOCK FROM 40,000,000 TO 80,000,000.
- --------------------------------------------------------------------------------
1. Approval of the issuance of Primus Common Stock in connection with the
Merger:
[_] FOR [_] AGAINST [_] ABSTAIN
2. Election of Directors:
[_] FOR THE NOMINEE [_] WITHHOLD AUTHORITY
LISTED BELOW TO VOTE FOR THE
NOMINEE LISTED
BELOW
Nominee: For a three-year term
expiring at the 2001
Annual Meeting--John
Puente
3. Proposal to Increase the Number of Authorized Shares of Primus Common Stock
from 40,000,000 to 80,000,000:
[_] FOR [_] AGAINST [_] ABSTAIN
PLEASE DATE AND SIGN YOUR PROXY ON THE REVERSE SIDE AND RETURN IT PROMPTLY
<PAGE>
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. UNLESS OTHERWISE
SPECIFIED, THE SHARES WILL BE VOTED (1) "IN FAVOR OF" APPROVAL OF THE ISSUANCE
OF PRIMUS COMMON STOCK IN CONNECTION WITH THE MERGER, (2) "IN FAVOR OF" THE
ELECTION OF THE NOMINEE FOR DIRECTOR LISTED ON THE REVERSE SIDE HEREOF AND (3)
"IN FAVOR OF" THE PROPOSAL TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF
PRIMUS COMMON STOCK . THIS PROXY ALSO DELEGATES DISCRETIONARY AUTHORITY WITH
RESPECT TO ANY OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE MEETING AND
ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING
AND PROXY STATEMENT.
------------------------------------------
Signature of Stockholder
------------------------------------------
Print Name of Stockholder
Date: , 1998
---------------------
NOTE: PLEASE SIGN THIS PROXY EXACTLY AS
NAME(S) APPEAR ON YOUR STOCK CERTIFICATE.
WHEN SIGNING AS ATTORNEY-IN-FACT, EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE
ADD YOUR TITLE AS SUCH, AND IF SIGNER IS A
CORPORATION, PLEASE SIGN WITH FULL CORPORATE
NAME BY A DULY AUTHORIZED OFFICER OR
OFFICERS AND AFFIX THE CORPORATE SEAL. WHERE
STOCK IS ISSUED IN THE NAME OF TWO (2) OR
MORE PERSONS, ALL SUCH PERSONS SHOULD SIGN.
<PAGE>
TRESCOM INTERNATIONAL, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all previous proxies, hereby appoints Wesley T.
O'Brien, as the attorney and proxy of the undersigned, with full power of
substitution, to vote, as indicated below and in his discretion upon such other
matters as may properly come before the meeting, all shares which the
undersigned would be entitled to vote at the Special Meeting of the
Shareholders of TresCom International, Inc. to be held on June 4, 1998, and at
any adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED IN FAVOR OF THE AGREEMENT AND PLAN OF MERGER, DATED AS OF FEBRUARY 3,
1998, AS AMENDED BY AMENDMENTS NO. 1 AND 2 TO AGREEMENT AND PLAN OF MERGER,
DATED AS OF APRIL 8, 1998 AND AS OF APRIL 16, 1998, RESPECTIVELY.
1. Approval of the Agreement and Plan of Merger, dated as of February 3, 1998,
as amended by Amendments No. 1 and 2 to Agreement and Plan of Merger, dated
as of April 8, 1998 and as of April 16, 1998, respectively:
[_] FOR [_] AGAINST [_] ABSTAIN
PLEASE DATE AND SIGN YOUR PROXY ON THE REVERSE SIDE AND RETURN IT PROMPTLY.
<PAGE>
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. UNLESS OTHERWISE
SPECIFIED, THE SHARES WILL BE VOTED "IN FAVOR OF" APPROVAL OF THE AGREEMENT AND
PLAN OF MERGER, DATED AS OF FEBRUARY 3, 1998, AS AMENDED BY AMENDMENTS NO. 1
AND 2 TO AGREEMENT AND PLAN OF MERGER, DATED AS OF APRIL 8, 1998 AND AS OF
APRIL 16, 1998, RESPECTIVELY. THIS PROXY ALSO DELEGATES DISCRETIONARY AUTHORITY
WITH RESPECT TO ANY OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE MEETING
AND ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING
AND PROXY STATEMENT.
-----------------------------------
Signature of Shareholder
-----------------------------------
Name of Shareholder
Date: _____________ , 1998
NOTE: PLEASE SIGN THIS PROXY EX-
ACTLY AS NAME(S) APPEAR ON YOUR
STOCK CERTIFICATE. WHEN SIGNING AS
ATTORNEY-IN-FACT, EXECUTOR, ADMIN-
ISTRATOR, TRUSTEE OR GUARDIAN,
PLEASE ADD YOUR TITLE AS SUCH, AND
IF SIGNER IS A CORPORATION, PLEASE
SIGN WITH FULL CORPORATE NAME BY A
DULY AUTHORIZED OFFICER OR OFFI-
CERS AND AFFIX THE CORPORATE SEAL.
WHERE STOCK IS ISSUED IN THE NAME
OF TWO (2) OR MORE PERSONS, ALL
SUCH PERSONS SHOULD SIGN.
