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Filed pursuant to Rule 424(b)(2)
Registration No. 333-30195
PROSPECTUS
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
392,654 shares of common stock, par value $0.01 per share
This Prospectus relates to the issuance by Primus Telecommunications Group,
Incorporated ("Primus" or the "Company") of 392,654 shares (the "Warrant
Shares") of its common stock, par value $0.01 per share (the "Common Stock")
upon exercise of 225,000 Common Stock Purchase Warrants ("Warrants"). The
Warrants were issued by the Company in a public offering of 225,000 Units (the
"Units") each consisting of $1,000 principal amount of 11 3/4% Senior Notes due
2004 (the "Notes") and a Warrant to purchase 1.74513 shares of Common Stock. The
sale of the Units, Notes and Warrants was completed on August 4, 1997, and the
Notes and Warrants became separately transferable on October 31, 1997.
Each Warrant entitles the holder thereof to purchase, after February 1,
1998, 1.74513 Warrant Shares at an exercise price of $9.075 per share, subject
to adjustment in certain circumstances. The Warrants will, unless exercised,
automatically expire after August 1, 2004. See "Description of Warrants." The
Warrants entitle the holders thereof to purchase, in the aggregate,
approximately 1.8% of the Common Stock of the Company on a fully-diluted basis,
assuming exercise of all outstanding options and warrants on the date of this
Prospectus. There is no assurance that any of the Warrants will be exercised
and, consequently, that the Company will receive any proceeds therefrom. The
Company will not receive the proceeds from any resale of the Warrant Shares.
The Common Stock is listed on the Nasdaq National Market under the symbol
"PRTL." On February 10, 1998, the last reported sale price of the Common Stock
on the Nasdaq National Market was $20 1/2 per share.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN SHARES OF THE COMMON STOCK, SEE "RISK FACTORS" BEGINNING
ON PAGE 4.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is February 11, 1998.
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information filed by the Company can be inspected and copied at public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549; Seven World Trade Center, 13th Floor, New York, New York 10048; and
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of
such material can be obtained from the Public Reference Section of the
Commission, Washington, D.C. 20549 at prescribed rates. The Commission maintains
a Web site that contains reports, proxy and information statements and other
information regarding the Company. The address of such Web site is
http://www.sec.gov. The Common Stock is quoted on the Nasdaq National Market,
and copies of the reports, proxy statements and other information filed by the
Company with the Commission may also be inspected at the offices of Nasdaq
Operation, 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the securities offered hereby. As permitted by the rules and
regulations of the Commission, this Prospectus, which is part of the
Registration Statement, omits certain information, exhibits, schedules and
undertakings set forth in the Registration Statement. For further information
pertaining to the Company and the securities offered hereby, reference is made
to such Registration Statement and the exhibits and schedules thereto.
Statements contained in the Prospectus as to any contracts, agreements or other
documents filed as an exhibit to the Registration Statement are not necessarily
complete, and in each instance reference is hereby made to the copy of such
contract, agreement or other document filed as an exhibit to the Registration
Statement for a full statement of the provisions thereof, and each such
statement in the Prospectus is qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed by Primus Telecommunications
Group, Incorporated (the "Registrant" or the "Company") with the Securities and
Exchange Commission (the "Commission") are incorporated by reference into this
Registration Statement:
(a) The Company's Annual Report on Form 10-K for the year ended December
31, 1996.
(b) The Company's Prospectus filed with the Commission on July 30, 1997
pursuant to Rule 424(b) under the Securities Act.
(c) The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1997, June 30, 1997 and September 30, 1997.
(d) The Company's Current Report on Form 8-K dated October 20, 1997 and
filed November 3, 1997, the Company's Form 8-K/A-1 filed on January 5,
1998, and the Company's Form 8-K/A-2 filed on January 7, 1998; the
Company's Current Report on Form 8-K dated February 3, 1998 and filed
February 6, 1998, and the Company's Form 8-K/A-1 filed on February
6, 1998.
(e) The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A filed with the Commission, including
any amendments or reports filed for the purpose of updating such
description.
In addition, all documents filed subsequent to the date of this
Registration Statement pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act prior to the filing of a post-effective amendment which indicates
that all securities offered have been sold or which deregisters all securities
then remaining unsold, shall be deemed to be incorporated by reference in this
Registration Statement and to be a part hereof from the date of the filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Registration Statement 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.
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UNCERTAINTY OF FORWARD LOOKING STATEMENTS
The statements contained in this Prospectus including any documents that
are incorporated by reference, that are not historical facts are "forward-
looking statements" (as such term is defined in the Private Securities
Litigation Reform Act of 1995), which can be identified by the use of forward-
looking terminology such as "believes", "expects", "may", "will", "should", or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy that involve risks and uncertainties.
In addition, from time to time, the Company or its representatives have made or
may make forward-looking statements, orally or in writing. Furthermore, such
forward-looking statements may be included in, but are not limited to, various
filings made by the Company with the Commission, or press releases or oral
statements made by or with the approval of an authorized executive officer of
any of the Company.
Management wishes to caution the reader that the forward-looking statements
referred to above and contained herein in this Prospectus regarding matters that
are not historical facts involve predictions. No assurance can be given that the
future results will be achieved; actual events or results may differ materially
as a result of risks facing the Company. Such risks include, but are not limited
to, changes in business conditions, changes in the telecommunications industry
and the general economy, competition, changes in service offerings, and risks
associated with the Company's limited operating history, entry into developing
markets, managing rapid growth, international operations, dependence on
effective information systems, and development of its network, as well as
regulatory developments that could cause actual results to vary materially from
the future results indicated, expressed or implied, in such forward-looking
statements. See "Risk Factors."
THE COMPANY
Primus is a multinational telecommunications company that focuses on the
provision of international and domestic long distance services. The Company
seeks to capitalize on the increasing business and residential demand for
international telecommunications services generated by the globalization of the
world's economies and the worldwide trend toward deregulation of the
telecommunications sector. The Company has targeted North America, Asia-Pacific
and Europe as its primary service regions (the "Targeted Regions") and currently
provides services in the United States, Canada, Australia, Japan, Mexico and the
United Kingdom, which are the most deregulated countries within the Targeted
Regions and which serve as regional hubs for expansion into additional markets
within the Targeted Regions. The Company expects to expand into additional
markets as deregulation occurs and the Company is permitted to offer a full
range of switched public telephone services in such markets. The Company was
incorporated in Delaware in February 1994. The executive offices of the Company
are located at 2070 Chain Bridge Road, Suite 425, Vienna, Virginia 22182 and its
telephone number is (703) 902-2800.
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RISK FACTORS
An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. In addition to the other matters described in
this Prospectus, prospective investors should carefully consider the following
factors before making a decision to purchase the Common Stock offered hereby.
SUBSTANTIAL INDEBTEDNESS; LIQUIDITY
As of September 30, 1997, the Company's total indebtedness was
approximately $225.2 million, its stockholders' equity was approximately $54.0
million and the Company's total assets was approximately $372.0 million, of
which approximately $24.3 million were intangible assets. For the year ended
December 31, 1996 and the nine months ended September 30, 1997, after giving pro
forma effect to the acquisition of Axicorp (as defined below) and the sale of
the Notes, the Company's consolidated EBITDA was approximately negative $5.5
million and negative $18.2 million, respectively, and its earnings would have
been insufficient to cover fixed charges by approximately $34.8 million and
$39.9 million, respectively. The indenture entered into by the Company and First
Union National Bank on August 4, 1997 (the "Indenture") limits, but does not
prohibit, the incurrence of additional indebtedness by the Company and certain
of its subsidiaries and does not limit the amount of indebtedness incurred to
finance the cost of telecommunications equipment. The Company anticipates that
it and its subsidiaries will incur additional indebtedness in the future.
The level of the Company's indebtedness could have important consequences
to holders of the Company's securities, including the following: (i) 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; (ii) 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; (iii) the Company's level of indebtedness could limit its
flexibility in planning for, or reacting to, changes in its business; (iv) the
Company is more highly leveraged than some of its competitors, which may place
it at a competitive disadvantage; and (v) 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 may cause the Warrants and Warrant Shares to have little or no
value.
HISTORICAL AND FUTURE OPERATING LOSSES; NEGATIVE EBITDA; NET LOSSES
Since inception through September 30, 1997, the Company had negative
cash flow from operating activities of $89.7 million and negative EBITDA of
$26.9 million. In addition, the Company incurred net losses in 1995 and 1996,
and in the nine months ended September 30, 1997, of $2.4 million, $8.8 million
and $24.3 million, respectively, and had an accumulated deficit of approximately
$36.1 million as of September 30, 1997. The Company expects to continue to incur
additional operating losses, negative EBITDA and negative cash flow from
operations as the Company expands its operations and continues to build-out and
upgrade the Network. There can be no assurance that the Company's revenue will
grow or be sustained in future periods or that the Company will be able to
achieve or sustain profitability or positive cash flow from operations in any
future period. If the Company cannot achieve and sustain operating profitability
or positive cash flow from operations, it may not be able to meet its debt
service or working capital requirements (including its obligations with respect
to the Notes) and may cause the Warrant Shares to have little or no value.
LIMITED OPERATING HISTORY; ENTRY INTO DEVELOPING MARKETS
The Company was founded in February 1994 and began generating operating
revenues in March 1995. Axicorp, the Company's principal operating subsidiary
("Axicorp") , was acquired in March 1996. The Company has generated only limited
net revenue and has limited experience in operating its business. In addition,
the Company intends to enter markets where it has limited or no operating
experience. Furthermore, in many of the Company's target markets, the Company
intends to offer services that have previously been provided primarily by the
local post telephone & telegraph companies (the "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.
DEVELOPMENT OF THE NETWORK; MIGRATION OF TRAFFIC ONTO THE NETWORK
The Company has only recently begun operating its facilities-based network
(the "Network"). The long-term success of the Company is dependent upon its
ability to design, implement, operate, manage and maintain the Network,
activities in which the Company has limited experience, and its ability to
generate and maintain traffic on the Network. By expanding the Network, the
Company will incur additional fixed operating costs that typically are,
particularly with respect to international transmission lines, in excess of the
revenue attributable to the transmission capacity funded by such costs until the
Company generates additional traffic volume for such capacity. There can be no
assurance that the Network can be completed in a timely manner
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or operated efficiently. Any failure by the Company to design, implement,
operate, manage or maintain the Network, or generate or maintain traffic, could
have a material adverse effect on the Company's business, results of operations
and financial condition. In addition, the Company intends to expand the Network
as more countries deregulate their telecommunications industries, which will
require the Company to acquire additional licenses and equipment. There can be
no assurance that the Company will be able to obtain the licenses or purchase
the necessary equipment on favorable terms or, if it does, that the development
of the Network in these countries will be successful.
To date, the Company's operation of the Network and the anticipated
operating improvements that are expected to result from the use of the Network
have been adversely affected by a slower than expected migration of the
Company's existing traffic in Australia from the Telstra Corporation Ltd.
("Telstra") network to the Company's Network. In September 1997, the Company
began converting approximately 120,000 existing telephone numbers from the
Telstra network to the Company's Network under the non-code access program and
expects to complete this conversion within the next 12 months. The rate at which
these customer telephone numbers can be processed and connected will
significantly impact the Company's ability to increase its gross margin
percentages in Australia.
MANAGING RAPID GROWTH
The Company's strategy of continuing its growth and expansion has placed,
and is expected to continue to place, a significant strain on the Company's
management, operational and financial resources and increased demands on its
systems and controls. The Company is continuing to develop the Network by adding
switches, cable and satellite facilities, expanding its operations within North
America, Australia and the United Kingdom, and expanding into selected
additional markets within the Targeted Regions when business and regulatory
conditions warrant. In order to manage its growth effectively, the Company must
continue to implement and improve its operational and financial systems and
controls, purchase and utilize other transmission facilities, and expand, train
and manage its employee base. Inaccuracies in the Company's forecasts of traffic
could result in insufficient or excessive transmission facilities and
disproportionate fixed expenses. There can be no assurance that the Company will
be able to develop a facilities-based network or expand within its target
markets at the rate presently planned by the Company, or that the existing
regulatory barriers to such expansion will be reduced or eliminated. As the
Company proceeds with its development, there will be additional demands on the
Company's customer support, billings systems and support, sales and marketing
and administrative resources and network infrastructure. There can be no
assurance that the Company's operating and financial control systems and
infrastructure will be adequate to maintain and effectively manage future
growth. The failure to continue to upgrade the administrative, operating and
financial control systems or the emergence of unexpected expansion difficulties
could materially adversely affect the Company's business, results of operations
and financial condition.
ACQUISITION RISKS
A key element of the Company's business strategy is to acquire businesses
and assets of businesses that are complementary to those of the Company, and a
major portion of the Company's growth in recent years has resulted from such
acquisitions. These acquisitions involve certain operational and financial
risks. Operational risks include the possibility that an acquisition does not
ultimately provide the benefits originally anticipated by the Company's
management, while the Company continues to incur operating expenses to provide
the services formerly provided by the acquired company. Financial risks involve
the incurrence of indebtedness by the Company in order to effect the acquisition
(subject to the limitations contained in the Indenture) and the consequent need
to service that indebtedness. In addition, the issuance of stock in connection
with acquisitions dilutes the voting power and may dilute certain other
interests of existing shareholders. In carrying out its acquisition strategy,
the Company attempts to minimize the risk of unexpected
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liabilities and contingencies associated with acquired businesses through
planning, investigation and negotiation, but such unexpected liabilities may
nevertheless accompany acquisitions. There can be no assurance that the Company
will be successful in identifying attractive acquisition candidates, completing
and financing additional acquisitions on favorable terms, or integrating the
acquired businesses or assets into its own.
NEED FOR ADDITIONAL FINANCING
The Company believes that its cash and cash equivalents, restricted cash
and cash equivalents, and capital lease and other financing (subject to the
limitations in the Indenture) will be sufficient to fund the Company's operating
losses, debt service requirements, capital expenditures for expansion of the
Network and other cash needs for its operations for the foreseeable future.
There can be no assurance that the Company will be able to obtain capital lease
financing on commercially reasonable terms, if at all. If the Company's plans or
assumptions change (including those with respect to the development of the
Network, the level of its operations and its operating cash flow), if its
assumptions prove inaccurate, if it consummates investments or acquisitions with
companies that are complementary to the Company's current operations or if it
experiences unexpected costs or competitive pressures, or if existing cash and
any other borrowings prove to be insufficient, the Company may need to seek
additional capital sooner than anticipated.
The Company may seek to raise such additional capital from public or
private equity or debt sources. The indenture pursuant to which the Notes were
issued contains certain restrictive covenants that will affect, and in many
respects will significantly limit or prohibit, among other things, the ability
of the Company to incur additional indebtedness and to create liens. There can
be no assurance that the Company will be able to raise such capital on
satisfactory terms or at all. If the Company is able to raise additional funds
through the incurrence of debt, and it does so, it would likely become subject
to additional restrictive financial covenants. If additional funds are raised
through the issuance of equity securities, the percentage ownership of the
Company's then current equity holders, including the ownership interests
represented by the Warrants and the Warrant Shares, would be reduced and, if
such equity securities take the form of preferred stock, the holders of such
preferred stock may have rights, preferences or privileges senior to those of
holders of Common Stock. In the event that the Company is unable to obtain such
additional capital or is unable to obtain such additional capital on acceptable
terms, the Company may be required to reduce the scope of its expansion, which
could adversely affect the Company's business, results of operations and
financial condition, its ability to compete, its ability to meet its obligations
on the Notes, and the value of the Warrants and the Warrant Shares.
INTENSE DOMESTIC AND INTERNATIONAL COMPETITION
The long distance telecommunications industry is intensely competitive and
is significantly influenced by the marketing and pricing decisions of the larger
industry participants. In deregulated countries, the industry has relatively
limited barriers to entry with numerous entities competing for the same
customers. Customers frequently change long distance providers in response to
the offering of lower rates or promotional incentives by competitors. Generally,
the Company's customers can switch carriers at any time. The Company believes
that competition in all of its markets is likely to increase and that
competition in non-United States markets is likely to become more similar to
competition in the United States market over time as such non-United States
markets continue to experience deregulatory influences. This increase in
competition could adversely affect net revenue per minute and gross margin as a
percentage of net revenue. In each of its Targeted Regions, the Company competes
primarily on the basis of price (particularly with respect to its sales to other
carriers), and also on the basis of customer service and its ability to provide
a variety of telecommunications products and services. Prices for long distance
calls in several of the markets in which the Company competes have declined in
recent years and are likely to continue to decrease. There can be no assurance
that the Company will be able to compete successfully in the future.
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Many of the Company's competitors are significantly larger, have
substantially greater financial, technical and marketing resources and larger
networks than the Company and a broader portfolio of services, control
transmission lines and have stronger name recognition and loyalty, as well as
long-standing relationships with the Company's target customers. In addition,
many of the Company's competitors enjoy economies of scale that can result in a
lower cost structure for transmission and related costs, which could cause
significant pricing pressures within the industry. Several long distance
carriers in the United States have introduced pricing strategies that provide
for fixed, low rates for calls within the United States. Such a strategy, if
widely adopted, could have an adverse effect on the Company's results of
operations and financial condition if increases in telecommunications usage do
not result or are insufficient to offset the effects of such price decreases.
The Company's competitors include, among others: AT&T, MCI, Sprint, WorldCom
Network Services, Inc., Frontier Communications Services, 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 in the United Kingdom; and Stentor, AT&T Canada Long Distance
Services Co., fONOROLA Inc. , Sprint Canada and ACC in Canada.
The Company also competes with numerous other long distance providers, some
of which focus their efforts on the same customers targeted by the Company. In
addition to these competitors, recent and pending deregulation in various
countries may encourage new entrants. For example, the number of competitors is
likely to increase as a result of the new competitive opportunities created by
the World Trade Organization ("WTO"). Under the terms of an agreement under the
WTO (the "WTO Agreement"), the United States and 68 other participating
countries have committed to open their telecommunications markets to competition
starting on January 1, 1998. Further, as a result of the recently enacted
Telecommunications Act of 1996 (the "1996 Telecommunications Act") in the United
States, once certain conditions are met, the Regional Bell Operating Companies
("RBOCs") will be allowed to enter the domestic long distance market, AT&T, MCI
and other long distance carriers will be allowed to enter the local telephone
services market, and any entity (including cable television companies and
utilities) will be allowed to enter both the local service and long distance
telecommunications markets. Increased competition in the United States as a
result of the foregoing, and other competitive developments, including entry by
Internet service providers into the long distance market, could have an adverse
effect on the Company's business, results of operations and financial condition.
In addition, with the ongoing deregulation of the Australian telecommunications
market and the granting of additional carrier licenses which began in July 1997,
the Company could experience additional competition in the Australian market
from newly licensed telecommunications carriers. This increased competition
could adversely impact the Company's ability to expand its customer base and
achieve increased revenue growth, and consequently, could have an adverse effect
on the Company's business, results of operations and financial condition.
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 the Company continues
to maintain favorable relationships with the transmission facilities-based
carriers from which the Company leases transmission lines. Although the Company
believes that its relationships with carriers generally are satisfactory, the
deterioration or termination of the Company's relationships with one or more of
these carriers could have a material adverse effect upon the Company's cost
structure, service quality, Network diversity, results of operations and
financial condition.
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Presently, most transmission lines used by the Company are obtained on a
per-call (or usage) basis, subjecting the Company to the possibility of
unanticipated price increases and service cancellations. Currently, usage rates
generally are less than the rates the Company charges its customers for
connecting calls through these lines. To the extent these variable costs
increase, the Company may experience reduced or, in certain circumstances,
negative margins for some services. As its traffic volume increases between
particular international markets, the Company expects to cease using variable
usage arrangements and enter into fixed monthly or longer-term leasing
arrangements, subject to obtaining any requisite authority. To the extent the
Company does so, and incorrectly projects traffic volume in a particular
geographic area, the Company would experience higher fixed costs without the
increased revenue. Moreover, certain of the vendors from whom the Company leases
transmission lines, including RBOCs and other Local Exchange Carriers ("LECs")
in the United States, currently are subject to tariff controls and other price
constraints which in the future may be changed. Regulatory proposals are pending
that may affect the prices charged by the RBOCs and other LECs to the Company,
which could have a material adverse effect on the Company's margins, business,
financial condition and results of operations.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
A key component of the Company's strategy is its planned expansion in
international markets. In many international markets, the existing carrier will
control access to the local networks, enjoy better brand recognition and brand
and customer loyalty, and have significant operational economies, including a
larger backbone network and foreign carrier agreements with PTTs and other
service providers. Moreover, the incumbent may take many months to allow
competitors, including the Company, to interconnect to its switches within the
target market. Pursuit of international growth opportunities may require
significant investments for an extended period before returns, if any, on such
investments are realized. In addition, there can be no assurance that the
Company will be able to obtain the permits and operating licenses required for
it to operate, obtain access to local transmission facilities or to market, sell
and deliver competitive services in these markets.
In addition to the uncertainty as to the Company's ability to expand its
international presence, there are certain risks inherent in doing business on an
international level, such as unexpected changes in regulatory requirements,
tariffs, customs, duties and other trade barriers, difficulties in staffing and
managing foreign operations, problems in collecting accounts receivable,
political risks, fluctuations in currency exchange rates, foreign exchange
controls which restrict or prohibit repatriation of funds, technology export and
import restrictions or prohibitions, delays from customs brokers or government
agencies, seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world, and potentially adverse tax
consequences resulting from operating in multiple jurisdictions with different
tax laws, which could materially adversely impact the Company's international
operations. A significant portion of the Company's net revenue and expenses is
denominated, and is expected to continue to be denominated, in currencies other
than United States dollars, and changes in exchange rates may have a significant
effect on the Company's results of operations. In addition, the Company's
business could be adversely affected by a reversal in the current trend toward
deregulation of telecommunications carriers. In Mexico, and in certain other
countries into which the Company may choose to expand in the future, the Company
may need to enter into a joint venture or other strategic relationship with one
or more third parties in order to conduct successfully its operations (often
with the PTT or other dominant carrier in a developing country). There can be no
assurance that such factors will not have a material adverse effect on the
Company's future operations and, consequently, on the Company's business,
results of operations and financial condition, or that the Company will not have
to modify its current business practices.
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DEPENDENCE ON EFFECTIVE INFORMATION SYSTEMS
To complete its billing, the Company must record and process massive
amounts of data quickly and accurately. While the Company believes its
management information system is currently adequate, it will have to grow as the
Company's business expands and to change as new technological developments
occur. The Company believes that the successful implementation and integration
of new information systems and backroom support will be important to its
continued growth, its ability to monitor and control costs, to bill customers
accurately and in a timely fashion and to achieve operating efficiencies. There
can be no assurance that the Company will not encounter delays or cost-overruns
or suffer adverse consequences in implementing these systems. Any such delay or
other malfunction of the Company's management information systems could have a
material adverse effect on the Company's business, financial condition and
results of operations.
RISKS OF INDUSTRY CHANGES AFFECTING COMPETITIVENESS AND FINANCIAL RESULTS
The international telecommunications industry is changing rapidly due to
deregulation, privatization of PTTs, technological improvements, expansion of
telecommunications infrastructure and the globalization of the world's
economies. There can be no assurance that one or more of these factors will not
vary in a manner that could have a material adverse effect on the Company. In
addition, deregulation in any particular market may cause such market to shift
unpredictably. There can be no assurance that the Company will be able to
compete effectively or adjust its contemplated plan of development to meet
changing market conditions.
The telecommunications industry generally is in a period of rapid
technological evolution, marked by the introduction of new product and service
offerings and increasing satellite and undersea cable transmission capacity for
services similar to those provided by the Company. Potential developments that
could adversely affect the Company if not anticipated or appropriately responded
to include improvements in transmission equipment, development of switching
technology allowing voice/data/video multimedia transmission simultaneously and
commercial availability of Internet-based domestic and international switched
voice/data/video services at prices lower than comparable services offered by
the Company. The Company's profitability will depend on its ability to
anticipate, access and adapt to rapid technological changes and its ability to
offer, on a timely and cost-effective basis, services that meet evolving
industry standards. There can be no assurance that the Company will be able to
access or adapt to such technological changes at a competitive price, maintain
competitive services or obtain new technologies on a timely basis or on
satisfactory terms.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its management team and its key
technical, marketing and sales personnel, particularly those of K. Paul Singh,
its Chairman and Chief Executive Officer. The loss of services of one or more of
these key individuals, particularly Mr. Singh, could materially and adversely
affect the business of the Company and its future prospects. The Company has
entered into an employment agreement with Mr. Singh, which expires on May 30,
1999. The Company does not maintain any key person life insurance on the lives
of any officer, director or key employee. The Company's future success will also
depend on its ability to attract and retain additional key management and
technical and sales personnel required in connection with the growth and
development of its business. Competition for qualified employees and personnel
in the telecommunications industry is intense, particularly in non-U.S. markets
and, from time to time, there are a limited number of persons with knowledge of
and experience in particular sectors of the telecommunications industry. There
can be no assurance that the Company will be successful in attracting and
retaining such executives and personnel. The loss of the services of key
personnel, or the inability to attract additional qualified personnel, could
have a material adverse effect on the Company's results of operations,
development efforts and ability to expand.
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POTENTIAL ADVERSE EFFECTS OF REGULATION
As a multinational telecommunications company, Primus is subject to varying
degrees of regulation in each of the jurisdictions in which it provides its
services. Local laws and regulations, and the interpretation of such laws and
regulations, differ significantly among the jurisdictions in which the Company
operates. There can be no assurance that future regulatory, judicial and
legislative changes will not have a material adverse effect on the Company, that
domestic or international regulators or third parties will not raise material
issues with regard to the Company's compliance or noncompliance with applicable
regulations or that regulatory activities will not have a material adverse
effect on the Company. Certain risks regarding the regulatory framework in the
principal jurisdictions in which the Company provides its services are briefly
described below.
United States. In the United States, the provision of the Company's
services is subject to the provisions of the Communications Act of 1934, as
amended by the 1996 Telecommunications Act (the "Communications Act") and the
Federal Communications Commission (the "FCC") regulations thereunder, as well as
the applicable laws and regulations of the various states administered by the
relevant state public service commission ("PSC"). The recent trend in the United
States, for both federal and state regulation of telecommunications service
providers, has been in the direction of reduced regulation. Although this trend
facilitates market entry and competition by multiple providers, it has also
given AT&T, the largest international and domestic long distance carrier in the
United States, increased pricing and market entry flexibility that has permitted
it to compete more effectively with smaller carriers, such as the Company. In
addition, the recently enacted Communications Act has opened the Company's
United States market to increased competition. There can be no assurance that
future regulatory, judicial and legislative changes in the United States will
not result in a material adverse effect on the Company.
Despite recent trends toward deregulation, the FCC and relevant state PSCs
continue to exercise extensive authority to regulate ownership of transmission
facilities, provision of services and the terms and conditions under which the
Company's services are provided. In addition, the Company is required by federal
and state law and regulations to file tariffs listing the rates, terms and
conditions of the services it provides. Any failure to maintain proper federal
and state tariffs or certification or any finding by the federal or state
agencies that the Company is not operating under permissible terms and
conditions may result in an enforcement action or investigation, either of which
could have a material adverse effect on the Company.
To originate and terminate calls in connection with providing their
services, long distance carriers such as the Company must purchase "access" from
the LECs or Competitive Local Exchange Carriers ("CLECs"). Access charges
represent a significant portion of the Company's cost of revenue and, generally,
such access charges are regulated by the FCC. The FCC has recently reformed its
regulation of LEC access charges to better account for increasing levels of
local competition. Under the new rules, LECs will be permitted to allow certain
volume discounts in the pricing of access charges. While the import of these new
rules is not yet certain, it is possible that many long distance carriers,
including the Company, could be placed at a significant cost disadvantage to
larger competitors.
The FCC and certain state agencies also impose prior approval requirements
on transfers of control, including pro forma transfers of control resulting from
corporate reorganizations, and assignments of regulatory authorizations. Such
requirements may delay, prevent or deter a change in control of the Company. The
FCC has established and administered a variety of international service
regulations, including the International Settlements Policy ("ISP") which
governs the settlement between U.S. carriers and their foreign correspondents of
the cost of terminating traffic over each other's networks, the "benchmark"
accounting rates for such settlement and permissible exceptions to these
policies. The FCC could find that certain settlement rate terms of the Company's
foreign carrier agreements do not meet the ISP requirements, absent a waiver.
Although the
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FCC generally has not issued penalties in this area, it could, among other
things, issue a cease and desist order or impose fines if it finds that these
agreements conflict with the ISP. The Company does not believe that any such
fine or order would have a material adverse effect on the Company. The FCC also
regulates the nature and extent of foreign ownership in radio licenses and
foreign carrier affiliations of the Company.
Regulatory requirements pertinent to the Company's operations have recently
changed and will continue to change as a result of the WTO Agreement, federal
legislation, court decisions, and new and revised policies of the FCC and state
public service commissions. In particular, the FCC continues to refine its
international service rules to promote competition, reflect and encourage
liberalization in foreign countries, and reduce international accounting rates
toward cost. Among other things, such changes may increase competition, alter
the ability of the Company to compete with other service providers, to continue
providing the same services, or to introduce services currently planned for the
future. The impact on the Company's operations of any changes in applicable
regulatory requirements cannot be predicted.
Canada. In Canada, telecommunications carriers are regulated generally by
the Canadian regulatory agency known as the Canadian Radio-television and
Telecommunications Commission ("CRTC"). The CRTC has enacted policies and
regulations that affect the Company's ability to successfully compete in the
Canadian marketplace. These policies and regulations include the establishment
of contribution charges (the equivalent of access charges in the U.S.),
deregulation of the international segment of the long-distance market,
limitations on switched hubbing, international simple resale ("ISR") and foreign
ownership rules for facilities-based carriers. Canada is expected to eliminate
many of these regulatory restrictions by October 1998. In addition, Canada has
committed in the WTO Agreement to eliminate barriers to competition. Although
these policies currently do not apply to resellers such as the Company, this
deregulatory trend will likely create new market opportunities for
telecommunications companies, thereby increasing competition within Canada.
However, there can be no assurance that any future changes in or additions to
law, regulations, government policy or administrative rulings will not have a
material adverse impact on the Company's competitive position, growth and
financial performance.
Australia. In Australia, the provision of the Company's services is subject
to federal regulation. Two primary instruments of regulation have been the
Telecommunications Act 1991 and federal regulation of anti-competitive practices
pursuant to the Trade Practices Act 1974 (the "Trade Practices Act"). The
regulatory climate changed in July 1997 with the implementation of the
Telecommunications Act 1997 (the "Telecom Act").
In connection with the Telecom Act, the Company became one of five licensed
carriers permitted to own and operate transmission facilities in Australia, and
it is expected that additional licenses will be issued. Under the new regulatory
framework, the Company does not require a carriage license in order to supply
carriage services to the public using network facilities owned by another
carrier. Instead, the Company must comply with legislated "service provider"
rules contained in the Telecom Act covering matters such as compliance with the
Telecom Act, operator services, regulation of access, directory assistance,
provision of information to allow maintenance of an integrated public number
database, and itemized billing.
Also, in connection with the Telecom Act, two federal regulatory
authorities now exercise control over a broad range of issues affecting the
operation of the Australian telecommunications industry. The Australian
Communications Authority ("the ACA") regulates matters including the licensing
of carriers and technical matters, and the Australian Competition and Consumer
Commission ("the ACCC") has the role of promotion of competition and consumer
protection. The Company, as a licensed carrier, will be required to comply with
its own license and will be under the regulatory control of the ACA and the
ACCC.
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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. Since the
break up of the United Kingdom telecommunications duopoly consisting of British
Telecom and Mercury in 1991, it has been the stated goal of Oftel to create a
competitive marketplace from which detailed regulation could eventually be
withdrawn. The regulatory regime currently being introduced by Oftel has a
direct and material effect on the ability of the Company to conduct its
business. Oftel has imposed mandatory rate reductions on British Telecom in the
past, which reductions are expected to continue for the foreseeable future, and
this has had, and may continue to have, the effect of reducing the prices the
Company can charge its customers. Primus Telecommunications, Inc., a wholly-
owned subsidiary of the Company, holds a license to provide ISR services to all
international points from the United Kingdom and its subsidiary, Primus
Telecommunications Ltd., has recently been awarded a license to provide
international facilities-based voice services. There can be no assurance that
future changes in regulation and government will not have a material adverse
effect on the Company's business, results of operations and financial condition.
Other Jurisdictions. The Company currently provides limited services in
Mexico and intends to expand its operations into other jurisdictions as such
markets deregulate and the Company is able to offer a full range of switched
public telephone services to its customers. In addition, in countries that enact
legislation intended to deregulate the telecommunications sector or that have
made commitments to open their markets to competition in the WTO Agreement,
there may be significant delays in the adoption of implementing regulations and
uncertainties as to the implementation of the deregulatory programs which could
delay or make more expensive the Company's entry into such additional markets.
The ability of the Company to enter a particular market and provide
telecommunications services, particularly in Mexico and other developing
countries, is dependent upon the extent to which the regulations in a particular
market permit new entrants. In some countries, regulators may make subjective
judgments in awarding licenses and permits, without any legal recourse for
unsuccessful applicants. In the event the Company is able to gain entry to such
a market, no assurances can be given that the Company will be able to provide a
full range of services in such market, that it will not have to significantly
modify its operations to comply with changes in the regulatory environment in
such market, or that any such changes will not have a material adverse effect on
the Company's business, results of operations or financial condition.
CONTROL OF THE COMPANY
If the executive officers and directors of the Company act together with
certain investors affiliated with George Soros and Dr. Pernundu Chatterjee, then
they will exercise significant influence over such matters as the election of
the directors of the Company, amendments to the Company's charter, other
fundamental corporate transactions such as mergers, asset sales, and the sale of
the Company, and otherwise the direction of the Company's business and affairs.
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DEVELOPMENT AND MAINTENANCE OF PUBLIC MARKET FOR COMMON STOCK; POSSIBLE
VOLATILITY OF STOCK PRICE
The Company completed its initial public offering of Common Stock on
November 7, 1996, prior to which there had been no public market for the Common
Stock. There can be no assurance that an active trading market for the Common
Stock will develop or, if developed, will be maintained. Historically, the
market prices for securities of emerging companies in the telecommunications
industry have been highly volatile. The market price of the Common Stock could
be subject to significant fluctuations in response to various factors and
events, including the liquidity of the market for the Common Stock, variations
in the Company's quarterly operating results, regulatory or other changes (both
domestic and international) affecting the telecommunications industry generally,
announcements of business developments by the Company or its competitors, the
addition of customers in connection with acquisitions, changes in the cost of
long distance service or other operating costs and changes in general market
conditions.
ANTI-TAKEOVER PROVISIONS
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation") and Amended and Restated By-Laws (the "By-Laws")
include certain provisions which may have the effect of delaying, deterring or
preventing a future takeover or change in control of the Company unless such
takeover or change in control is approved by the Company's Board of Directors.
Such provisions may also render the removal of directors and management more
difficult. Specifically, the 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 Company's Board of
Directors has the authority to issue up to 2,000,000 additional shares of
preferred stock (the "Preferred Stock") and to determine the price, rights,
preferences, and privileges of those shares without any further vote or actions
by the stockholders. The rights of the holders of Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of such additional shares
of Preferred Stock, while potentially providing desirable flexibility in
connection with possible acquisitions and serving other corporate purposes,
could have the effect of making it more difficult for a third party to acquire,
or may discourage a third party from attempting to acquire, a majority of the
outstanding voting stock of the Company. The Company has no present intention to
issue such additional shares of Preferred Stock. In addition, the Company is
subject to the anti-takeover provisions of Section 203 of the Delaware General
Corporation Law, which will prohibit the Company from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested stockholder
unless the business combination is approved in a prescribed manner. The
application of Section 203 also could have the effect of delaying or preventing
a change of control of the Company. Furthermore, certain provisions of the
Company's By-Laws, including provisions that provide that the exact number of
directors shall be determined by a majority of the Board of Directors, that
vacancies on the Board of Directors may be filled by a majority vote of the
directors then in office, though less than a quorum, and that limit the ability
of new majority stockholders to remove directors, all of which may have the
effect of delaying or preventing changes in control or management of the
Company, and which could adversely affect the market price of the Company's
Common Stock. Additionally, certain Federal regulations require prior approval
of certain transfers of control which could also have the effect of delaying,
deferring or preventing a change of control. Any Change of Control (as defined)
may require the Company to extend an offer to redeem the Notes.
SHARES ELIGIBLE FOR FUTURE SALE
The Company has a significant number of shares of Common Stock that are
"restricted securities" eligible for public resale, subject to the provisions of
Rule 144 promulgated under the Securities Act. Sales of substantial amounts of
shares of Common Stock in the public market, or even the potential for such
sales, could adversely affect the prevailing market price of the Common Stock
and impair the Company's ability to raise capital through the sale of equity
securities.
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USE OF PROCEEDS
The Warrants will be exercisable to purchase an aggregate of 392,654 shares
of Common Stock at an exercise price of $9.075 per share (the "Exercise Price").
The Exercise Price and the number of shares of Common Stock issuable upon
exercise of a Warrant are both subject to adjustment in certain circumstances.
See "Description of Warrants."
The Company will use the net proceeds from the exercise of the Warrants for
general corporate purposes. There can be no assurance that any Warrants will be
exercised resulting in any proceeds to the Company. The Company will not receive
the proceeds from any resale of the Warrant Shares.
PLAN OF DISTRIBUTION
The Warrant Shares will be issued from time to time upon exercise of the
Warrants by the holders thereof at $9.075 per Warrant Share. No broker, dealer,
agent or underwriter will receive any compensation, whether in the form of a
discount, commission, fee or otherwise, in connection with the issuance of the
Warrant Shares upon exercise of the Warrants. The Warrants were previously
registered under the Securities Act on July 30, 1997. The Company has agreed to
indemnify the holders of Warrants against certain liabilities arising under the
Securities Act. The Company has agreed to pay all expenses incident to its
registration obligations under the Warrant Agreement.
DESCRIPTION OF WARRANTS
GENERAL
The Warrants were issued pursuant to a warrant agreement (the "Warrant
Agreement") between the Company and First Union National Bank of Virginia, as
Warrant Agent (the "Warrant Agent"). The following summary of certain provisions
of the Warrant Agreement does not purport to be complete and is qualified in its
entirety by reference to the Warrants and the Warrant Agreement, including the
definitions therein of certain terms used below. Capitalized terms used in this
summary and not otherwise defined herein have the meanings ascribed to such
terms in the Warrant Agreement. A copy of the proposed form of the Warrant
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part and is available as set forth under "Available
Information."
Each Warrant, when exercised, will entitle the holder thereof to receive
1.74513 fully paid and non-assessable shares of Common Stock of the Company at
an exercise price of $9.075 per share. The Exercise Price and the number of
shares of Common Stock issuable upon exercise of a Warrant are both subject to
adjustment in certain circumstances described below. The Warrants will be
exercisable to purchase an aggregate of 392,654 shares of Common Stock
representing, (on a fully diluted basis, assuming all outstanding options and
warrants are exercised on the date of this Prospectus) approximately 1.8% of the
shares of Common Stock currently outstanding.
The Warrants may be exercised at any time six months after August 4, 1997
(the "Closing Date"); provided, however, that in such case, holders of Warrants
will be able to exercise their Warrants only if the Registration Statement of
which this Prospectus forms a part is effective or the exercise of such Warrants
is exempt from the registration requirements of the Securities Act, and such
securities are qualified for sale or exempt from qualification under the
applicable securities laws of the states or other jurisdictions in which such
holders reside. The Warrants may also be exercised upon an Exercise Event
pursuant to an effective Demand Registration Statement (as defined in the
Warrant Agreement). Unless earlier exercised, the Warrants will expire on August
1, 2004 (the "Expiration Date"). The Company will give notice of expiration not
less than
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90 nor more than 120 days prior to the Expiration Date to the registered holders
of the then outstanding Warrants. If the Company fails to give such notice, the
Warrants will nevertheless expire and become void on the Expiration Date.
In order to exercise all or any of the Warrants, the holder thereof is
required to surrender to the Warrant Agent the related registered certificate
issued by the Company representing the Warrants (the "Warrant Certificate") with
the accompanying form of election to purchase properly completed and executed,
and to pay in full the Exercise Price for each share of Common Stock or other
securities issuable upon exercise of such Warrants. The Exercise Price may be
paid (i) in cash or by certified or official bank check or by wire transfer to
an account designated by the Company for such purpose or (ii) without the
payment of cash, by reducing the number of shares of Common Stock that would be
obtainable upon the exercise of a Warrant and payment of the Exercise Price in
cash so as to yield a number of shares of Common Stock upon the exercise of such
Warrant equal to the product of (a) the number of shares of Common Stock for
which such Warrant is exercisable as of the date of exercise (if the Exercise
Price were being paid in cash) and (b) the Cashless Exercise Ratio (the
"Cashless Exercise"). The "Cashless Exercise Ratio" shall equal a fraction, the
numerator of which is the excess of the Current Market Value per share of Common
Stock on the Exercise Date over the Exercise Price per share as of the Exercise
Date and the denominator of which is the Current Market Value per share of the
Common Stock on the Exercise Date. Upon surrender of a Warrant Certificate
representing more than one Warrant in connection with the holder's option to
elect a Cashless Exercise, the number of shares of Common Stock deliverable upon
a Cashless Exercise shall be equal to the number of shares of Common Stock
issuable upon the exercise of Warrants that the holder specifies are to be
exercised pursuant to a Cashless Exercise multiplied by the Cashless Exercise
Ratio. All provisions of the Warrant Agreement shall be applicable with respect
to a surrender of a Warrant Certificate pursuant to a Cashless Exercise for less
than the full number of Warrants represented thereby. Upon surrender of the
Warrant Certificate and payment of the Exercise Price, the Company will deliver
or cause to be delivered to or upon the written order of such holder, a stock
certificate representing 1.74513 shares of Common Stock of the Company for each
Warrant evidenced by such Warrant Certificate, subject to adjustment as
described herein. If less than all of the Warrants evidenced by a Warrant
Certificate are to be exercised, a new Warrant Certificate will be issued for
the remaining number of Warrants. No fractional shares of Common Stock will be
issued upon exercise of the Warrants. The Company will pay to the holder of the
Warrant at the time of exercise an amount in cash equal to the Current Market
Value (as defined below) of any such fractional share of Common Stock.
The holders of unexercised Warrants are not entitled, by virtue of being
such holders, to receive dividends, to vote, to consent, to exercise any
preemptive rights or to receive notice as stockholders of the Company in respect
of any stockholders meeting for the election of directors of the Company or any
other purpose, or to exercise any other rights whatsoever as stockholders of the
Company.
No service charge will be made for registration of transfer or exchange
upon surrender of any Warrant Certificate at the office of the Warrant Agent
maintained for that purpose. The Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration or transfer or exchange of Warrant Certificates.
In the event a bankruptcy or reorganization is commenced by or against the
Company, a bankruptcy court may hold that unexercised Warrants are executory
contracts which may be subject to rejection by the Company with approval of the
bankruptcy court. As a result, holders of the Warrants may not, even if
sufficient funds are available, be entitled to receive any consideration or may
receive an amount less than they would be entitled to receive if they had
exercised their Warrants prior to the commencement of any such bankruptcy or
reorganization.
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NOTWITHSTANDING THE FOREGOING, THE EXERCISE OF THE WARRANTS (AND THE
OWNERSHIP OF COMMON STOCK ISSUABLE UPON THE EXERCISE THEREOF) MAY BE LIMITED BY
THE COMPANY IN ORDER TO ENSURE COMPLIANCE WITH THE FCC'S RULES AND THE WARRANTS
WILL NOT BE EXERCISABLE BY ANY HOLDER IF SUCH EXERCISE WOULD CAUSE THE COMPANY
TO BE IN VIOLATION OF THE COMMUNICATIONS ACT OR THE FCC'S RULES, REGULATIONS OR
POLICIES. SEE "RISK FACTORS--POTENTIAL ADVERSE EFFECTS OF REGULATION."
ADJUSTMENTS
The number of shares of Common Stock of the Company issuable upon the
exercise of the Warrants and the Exercise Price will be subject to adjustment in
certain circumstances, including:
(i) the payment by the Company of dividends and other distributions on
its Common Stock payable in Common Stock or other equity interests
of the Company;
(ii) subdivisions, combinations and certain reclassifications of the
Common Stock of the Company;
(iii) the issuance to all holders of Common Stock of rights, options or
warrants entitling them to subscribe for additional shares of Common
Stock, or of securities convertible into or exercisable or
exchangeable for additional shares of Common Stock at an offering
price (or with an initial conversion, exercise or exchange price
plus such offering price) which is less than the current market
value per share of Common Stock;
(iv) the distribution to all holders of Common Stock of any assets of the
Company (including cash), debt securities of the Company or any
rights or warrants to purchase any securities (excluding those
rights and warrants referred to in clause (iii) above and cash
dividends and other cash distributions from current or retained
earnings);
(v) the issuance of shares of Common Stock for a consideration per share
which is less than the Current Market Value per share of Common
Stock; and
(vi) the issuance of securities convertible into or exercisable or
exchangeable for Common Stock for a conversion, exercise or exchange
price per share which is less than the Current Market Value per
share of Common Stock.
The events described in clauses (v) and (vi) above are subject to certain
exceptions described in the Warrant Agreement, including, without limitation,
certain bona fide public offerings and private placements and certain issuances
of Common Stock pursuant to employee stock incentive plans.
No adjustment in the Exercise Price will be required unless and until such
adjustment would result, either by itself or with other adjustments not
previously made, in an increase or decrease of at least 1% in the Exercise Price
or the number of shares of Common Stock issuable upon exercise of Warrants
immediately prior to the making of such adjustment; provided, however, that any
adjustment that is not made as a result of this paragraph will be carried
forward and taken into account in any subsequent adjustment. In addition, the
Company may at any time reduce the Exercise Price (but not to an amount that is
less than the par value of the Common Stock) for any period of time (but not
less than 20 business days) as deemed appropriate by the Board of Directors of
the Company.
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In case of certain consolidations or mergers of the Company, or the sale of
all or substantially all of the assets of the Company to another Person, each
Warrant will thereafter be exercisable for the right to receive the kind and
amount of shares of stock or other securities or property to which such holder
would have been entitled as a result of such consolidation, merger or sale had
the Warrants been exercised immediately prior thereto. However, if (i) the
Company consolidates, merges or sells all or substantially all of its assets to
another person and, in connection therewith, the consideration payable to the
holders of Common Stock in exchange for their shares is payable solely in cash
or (ii) there is a dissolution, liquidation or winding-up of the Company, then
the holders of the Warrants will be entitled to receive distributions on an
equal basis with the holders of Common Stock or other securities issuable upon
exercise of the Warrants, as if the Warrants had been exercised immediately
prior to such event, less the Exercise Price. Upon receipt of such payment, if
any, the Warrants will expire and the rights of holders thereof will cease. In
the case of any such consolidation, merger or sale of assets, the surviving or
acquiring person and, in the event of any dissolution, liquidation or winding-up
of the Company, the Company must deposit promptly with the Warrant Agent the
funds, if any, required to pay the holders of the Warrants. After such funds and
the surrendered Warrant Certificates are received, the Warrant Agent is required
to deliver a check in such amount as is appropriate (or, in the case of
consideration other than cash, such other consideration as is appropriate) to
such Persons as it may be directed in writing by the holders surrendering such
Warrants.
In the event of a taxable distribution to holders of Common Stock of the
Company which results in an adjustment to the number of shares of Common Stock
or other consideration for which a Warrant may be exercised, the holders of the
Warrants may, in certain circumstances, be deemed to have received a
distribution subject to United States federal income tax as a dividend.
RESERVATION OF SHARES
The Company has authorized and reserved for issuance such number of shares
of Common Stock as will be issuable upon the exercise of all outstanding
Warrants. Such shares of Common Stock, when issued and paid for in accordance
with the Warrant Agreement, will be duly and validly issued, fully paid and
nonassessable, free of preemptive rights and free from all taxes, liens, charges
and security interests.
PROVISION OF FINANCIAL STATEMENTS AND REPORTS
The Company will be required (a) to provide to each holder, without cost to
such holder, copies of such annual and quarterly reports and documents that the
Company files with the Commission, (to the extent such filings are accepted by
the Commission and whether or not the Company has a class of securities
registered under the Exchange Act) or that the Company would be required to file
were it subject to Section 13 or 15 of the Exchange Act, within 15 days after
the date of such filing or the date on which the Company would be required to
file such reports or documents, and all such annual reports or quarterly reports
shall include the geographic segment financial information currently disclosed
by the Company in its public filings with the Commission, and (b) if filing such
reports and documents with the Commission is not accepted by the Commission or
is prohibited under the Exchange Act, to supply at the Company's cost copies of
such reports and documents to any prospective holder promptly upon request.
AMENDMENT
Any amendment or supplement to the Warrant Agreement that has an adverse
effect on the interests of the holders of the Warrants will require the written
consent of the holders of a majority of the then outstanding Warrants (excluding
any Warrants held by the Company or any of its Affiliates). Notwithstanding the
foregoing, from time to time, the Company and the Warrant Agent, without the
consent of the holders of the Warrants, may amend or supplement the Warrant
Agreement for certain purposes, including to cure any
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ambiguities, defects or inconsistencies or to make any change that does not
adversely affect the rights of any holder. The consent of each holder of the
Warrants affected will be required for any amendment pursuant to which the
Exercise Price would be increased or the number of shares of Common Stock
issuable upon exercise of the Warrants would be decreased (other than pursuant
to adjustments provided for in the Warrant Agreement) or the exercise period
with respect to the Warrants would be shortened.
REGISTRATION RIGHTS
Registration of Underlying Common Stock. The Company has amended the
registration statement (of which this Prospectus forms a part) under the
Securities Act covering the issuance of shares of Common Stock to the holders of
the Warrants upon exercise of the Warrants by the holders thereof (the "Common
Shelf Registration Statement") and is required to use its reasonable efforts to
cause the Common Shelf Registration Statement to be declared effective on or
before 180 days after the Closing Date and to remain effective until the earlier
of (i) such time as all Warrants have been exercised and (ii) the Expiration
Date.
During any consecutive 365-day period, the Company shall be entitled to
suspend the availability of the Common Shelf Registration Statement for up to
two 45 consecutive-day periods (except for the 45 consecutive-day period
immediately prior to the Expiration Date) if the Board of Directors determines
in the exercise of its reasonable judgment that there is a valid business
purpose for such suspension and provides notice that such determination was made
to the holders of the Warrants; provided, however, that in no event shall the
Company be required to disclose the business purpose for such suspension if the
Company determines in good faith that such business purpose must remain
confidential. There can be no assurance that the Company will be able to file,
cause to be declared effective, or keep continuously effective a registration
statement until all of the Warrants have been exercised or have expired.
Demand Registration Rights. Upon the occurrence of an Exercise Event, the
Holders of at least 25% of the Warrants will be entitled to require the Company
to use its best efforts to effect one registration under the Securities Act in
respect of an underwritten sale of Warrant Shares (a "Demand Registration"),
subject to certain limitations, unless an exemption from the registration
requirements of the Securities Act is then available for the sale of such
Warrant Shares. Upon a demand, the Company will prepare, file and use its best
efforts to cause to be effective within 120 days of such demand a registration
statement in respect of all Warrant Shares (a "Demand Registration Statement");
provided that in lieu of filing such registration statement the Company may make
an offer to purchase all of the Warrant Shares underlying Warrants being offered
in the Demand Registration at the Current Market Value.
"Current Market Value" per share of Common Stock or any other security at
any date is defined to mean: (i) if the security is not registered under the
Exchange Act, (a) the value of the security, determined in good faith by the
Board and certified in a board resolution, based on the most recently completed
arm's-length transaction between the Company and a Person other than an
Affiliate of the Company, the closing of which occurred on such date or within
the six-month period preceding such date, or (b) if no such transaction shall
have occurred on such date or within such six-month period, the value of the
security as determined by an Independent Financial Expert (as defined in the
Warrant Agreement); or (ii) if the security is registered under the Exchange
Act, the average of the last reported sale price of the Common Stock (or the
equivalent in an over-the-counter market) for each Business Day (as defined in
the Warrant Agreement) during the period commencing 15 Business Days before such
date and ending on the date one day prior to such date, or if the security has
been registered under the Exchange Act for less than 15 consecutive Business
Days before such date, the average of the daily closing bid prices (or such
equivalent) for all of the Business Days before such date for which daily
closing bid prices are available (provided, however, that if the closing bid
price is not determinable for at least 10 Business Days in such period, the
"Current Market Value" of the security shall be determined as if the security
were not registered under the Exchange Act).
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"Exercise Event" is defined to mean, with respect to each Warrant as to
which such event is applicable, the earlier of: (i) a Change of Control and (ii)
any date when the Company (A) consolidates or merges into or with another Person
(but only where holders of Common Stock receive consideration in exchange for
all or part of such Common Stock other than common stock in the surviving
Person) if the Common Stock (or other securities) thereafter issuable upon
exercise of the Warrants is not registered under the Exchange Act or (B) sells
all or substantially all of its assets to another Person if the Common Stock (or
other securities) thereafter issuable upon exercise of the Warrants is not
registered under the Exchange Act; provided, that the events in (A) and (B) will
not be deemed to have occurred if the consideration for the Common Stock in
either such transaction consists solely of cash.
FOREIGN OWNERSHIP RESTRICTIONS
The Company's Certificate of Incorporation, as amended, permits the Company
to limit the number of shares of capital stock which may be owned by non-U.S.
citizens or entities. Under the Certificate of Incorporation, the Board of
Directors is empowered to implement such limitations as it deems necessary.
Under the Communications Act, non-U.S. citizens or their representatives,
foreign governments or their representatives, or corporations organized under
the laws of a foreign country may not own, in the aggregate, more than 20% of a
common carrier radio licensee, or more than 25% of the parent of a common
carrier radio licensee if the FCC determines that the public interest would be
served by prohibiting such ownership. The Company does not hold any radio
licenses.
LISTING
The Common Stock is quoted on the Nasdaq National Market under the symbol
"PRTL."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is StockTrans, Inc.
LEGAL MATTERS
The validity of the shares of Common Stock are being passed upon for the
Company by Pepper Hamilton LLP. Mr. John DePodesta, "of counsel" to Pepper
Hamilton LLP, is a director and an Executive Vice President of the Company, and
the beneficial owner of shares of Common Stock.
INDEPENDENT ACCOUNTANTS
The Consolidated Financial Statements of the Company as of December 31,
1995 and 1996, and for the period from inception (February 4, 1994) to December
31, 1994, and the years ended December 31, 1995 and 1996 incorporated by
reference into this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein. Such
Consolidated Financial Statements have been included herein in reliance upon the
report of such firm given their authority as experts in accounting and auditing.
The Financial Statements of Axicorp, as of March 31, 1995 and 1996, and for
the nine months ended March 31, 1995 and the twelve months ended March 31, 1996
incorporated by reference into this Prospectus have been audited by Price
Waterhouse, independent chartered accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements of USFI, Inc. ("USFI") appearing in
the Company's Current Report on Form 8-K dated October 20, 1997 and the
amendments to such Current Report filed on 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's ability to continue as a going concern as described in Note 2 to
the 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.
19
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
____________________
TABLE OF CONTENTS
Page
----
Available Information...................... 2
Incorporation of Certain Documents By
Reference............................. 2
Uncertainty of Forward-Looking Statements.. 3
The Company................................ 3
Risk Factors............................... 4
Use of Proceeds............................ 14
Plan of Distribution....................... 14
Description of Warrants.................... 14
Legal Matters.............................. 19
Independent Accountants.................... 19
PRIMUS TELECOMMUNICATIONS
GROUP, INCORPORATED
392,654 Shares
of Common Stock of
Primus Telecommunications
Group, Incorporated
____________________
PROSPECTUS
February 11, 1998
