<PAGE>
As filed with the Securities and Exchange Commission on July 6, 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 (PRIMARY STANDARD (I.R.S. EMPLOYER
INCORPORATION) INDUSTRIAL IDENTIFICATION NUMBER)
CLASSIFICATION
CODE NUMBER)
-----------------
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
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)
-----------------
WITH A COPY TO:
JAMES D. EPSTEIN, ESQUIRE
BRIAN M. KATZ, ESQUIRE
PEPPER HAMILTON LLP
3000 TWO LOGAN SQUARE
18TH AND ARCH STREETS
PHILADELPHIA, PENNSYLVANIA 19103
(215) 981-4000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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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, 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. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
TITLE OF EACH CLASS AMOUNT TO PROPOSED PROPOSED
OF SECURITIES BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PRICE PER NOTE OFFERING PRICE REGISTRATION FEE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
9 7/8% Senior Notes due
2008.................. $150,000,000 100.00%(1) $150,000,000(1) $44,250
</TABLE>
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(1) Estimated pursuant to Rule 457(f) solely for the purpose of calculating
the registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JULY 6, 1998
PROSPECTUS
OFFER TO EXCHANGE
9 7/8% SENIOR NOTES DUE 2008
($150,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR ANY AND ALL OUTSTANDING
9 7/8% SENIOR NOTES DUE 2008 OF
[LOGO OF PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED APPEARS HERE]
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [ ,
1998] (AS SUCH DATE MAY BE EXTENDED, THE "EXPIRATION DATE").
Primus Telecommunications Group, Incorporated, a Delaware corporation (the
"Company"), hereby offers (the "Exchange Offer"), upon the terms and subject to
the conditions set forth in this Prospectus and the accompanying Letter of
Transmittal (the "Letter of Transmittal") to exchange its outstanding 9 7/8%
Senior Notes Due 2008 (the "Initial Notes"), of which $150,000,000 aggregate
principal amount is outstanding as of the date hereof, for a like aggregate
principal amount of its newly issued 9 7/8% Senior Notes Due 2008, which have
been registered under the Securities Act of 1933, as amended (the "Exchange
Notes"). The Exchange Notes are being offered hereby in order to satisfy
certain obligations of the Company under the Registration Rights Agreement (the
"Registration Rights Agreement"), dated as of May 19, 1998, among Lehman
Brothers Inc., as representative of the Initial Purchasers (the "Initial
Purchasers"), and the Company. The form and terms of the Exchange Notes will be
the same as those of the Initial Notes except that the Exchange Notes will have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), and, consequently, will not be subject to certain transfer restrictions,
registration rights and related liquidated damages provisions applicable to the
Initial Notes. The Exchange Notes will evidence the same debt as the Initial
Notes and will be entitled to the benefits of an indenture (the "Indenture"),
dated as of May 19, 1998, among the Company and First Union National Bank, as
trustee (the "Trustee"). The Indenture provides for the issuance of both the
Initial Notes and the Exchange Notes. The Initial Notes and the Exchange Notes
are referred to herein collectively as the "Notes" and holders of the Notes are
sometimes referred to herein as the "Holders."
The Company will accept for exchange any and all Initial Notes that are
validly tendered prior to 5:00 p.m., New York City time, on the Expiration
Date. Tenders of Initial Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of the Initial Notes being
tendered for exchange. However, the Exchange Offer is subject to certain
customary conditions, which may be waived by the Company, and to the terms and
provisions of the Registration Rights Agreement. The Initial Notes may be
tendered only in multiples of $1,000. See "The Exchange Offer."
-------------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR INITIAL NOTES IN
THE EXCHANGE OFFER.
-------------
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 , 1998.
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THE
INFORMATION CONTAINED HEREIN IS AS OF THE DATE HEREOF AND IS SUBJECT TO
CHANGE, COMPLETION OR AMENDMENT WITHOUT NOTICE. NEITHER DELIVERY OF THIS
PROSPECTUS AT ANY TIME NOR ANY DISTRIBUTION OF SECURITIES HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE NOTES TO ANY PERSON IN ANY JURISDICTION WHERE IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
NOTES MAY NOT BE OFFERED OR SOLD IN OR INTO THE UNITED KINGDOM EXCEPT IN
CIRCUMSTANCES THAT DO NOT CONSTITUTE AN OFFER TO THE PUBLIC WITHIN THE MEANING
OF THE PUBLIC OFFERS OF SECURITIES REGULATION 1996. ALL APPLICABLE PROVISIONS
OF THE FINANCIAL SERVICES ACT 1986 MUST BE COMPLIED WITH IN RESPECT OF
ANYTHING DONE IN RELATION TO NOTES IN, FROM OR OTHERWISE INVOLVING THE UNITED
KINGDOM.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this Prospectus that are not historical facts
are "forward-looking statements" (as such term is defined in the Private
Securities Litigation Reform Act of 1995), which can be identified by the use
of forward-looking terminology such as "believes," "expects," "may," "will,"
"should," or "anticipates" or the negative thereof or other variations thereon
or comparable terminology, or by discussions of strategy, that involve risks
and uncertainties. In addition, from time to time, the Company or its
representatives have made or may make forward-looking statements, orally or in
writing. Furthermore, such forward-looking statements may be included in, but
are not limited to, various filings made by the Company with the Commission,
or press releases or oral statements made by or with the approval of an
authorized executive officer of 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 (such as, with the recent completion of
the TresCom Merger (as defined below), the Caribbean, Central America and
South America), managing rapid growth, acquisitions and strategic investments,
international operations, dependence on effective information and billing
systems, and development of the 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."
ii
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include any
amendments thereto) on Form S-4 under the Securities Act (the "Registration
Statement") with respect to the securities offered by this Prospectus. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all the information set forth in the Registration Statement, including
the exhibits and schedules thereto, to which reference is hereby made. Each
statement made in this Prospectus referring to a document filed as an exhibit
or schedule to the Registration Statement is not necessarily complete and is
qualified in its entirety by reference to the exhibit or schedule for a
complete statement of its terms and conditions.
In addition, Primus is and, prior to June 9, 1998, TresCom International,
Inc. ("TresCom") was subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file (or have filed) reports and other information with
the Commission, which reports include the financial information of Primus and
TresCom set forth in full. Such reports and other information filed by either
Primus or TresCom can be inspected and copied at public reference facilities
maintained by the Commission at 450 Fifth Street, NW, Washington, D.C. 20549;
Seven World Trade Center, 13th Floor, New York, New York 10048; and 500 West
Madison Street, Chicago, Illinois 60661. The Commission also maintains a Web
site that contains reports, proxy and information statements, and other
information regarding registrants that file electronically with the
Commission. The site may be accessed at http://www.sec.gov. Anyone who
receives this Prospectus may obtain a copy of the Indenture without charge by
writing to Primus Telecommunications Group, Incorporated, 1700 Old Meadow
Road, McLean, VA 22102, Attention: Robert F. Stankey, Secretary.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Primus pursuant to the
Exchange Act are incorporated herein by reference: (a) the Company's Joint
Proxy Statement/Prospectus dated May 4, 1998 (the "Joint Proxy Statement");
and (b) all documents filed pursuant to sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Prospectus and prior to
termination of the Exchange Offer. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this 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 document or part thereof that is incorporated
herein by reference is available at no charge by making a request to Robert F.
Stankey, Secretary, at the address listed above.
------------------
In this Prospectus, unless otherwise specified or the context otherwise
requires, references to "dollars," "$" and "US $" are to United States
dollars, references to "C$" are to Canadian dollars, references to "DM" are to
deutsche marks, references to "(Yen)" are to Japanese yen and references to
"A$" are to Australian dollars.
iii
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in, or incorporated by reference into, this Prospectus. As used in this
Prospectus, except where the context otherwise requires, the terms "Primus" and
the "Company" refer to Primus Telecommunications Group, Incorporated and all of
its subsidiaries (including TresCom), and the term "TresCom" refers to TresCom
International, Inc. and all of its subsidiaries, the operations of such
entities which are now conducted through the Company as a result of the TresCom
Merger. As used in this Prospectus, the term "TresCom Merger" refers to the
merger between a wholly-owned subsidiary of Primus and TresCom consummated on
June 9, 1998, the "TelePassport/USFI Acquisition" refers to the October 1997
acquisition by Primus of TelePassport L.L.C. and USFI, Inc., and the "Axicorp
Acquisition" refers to the March 1996 acquisition by Primus of Axicorp Pty.,
Ltd. which changed its name to Primus Telecommunications (Australia) Pty. Ltd.
in October 1997 ("Axicorp").
THE COMPANY
OVERVIEW
Primus is a facilities-based global telecommunications company that offers
international and domestic long distance and other telecommunications services
to business, residential and carrier customers in North America and selected
markets within the Asia-Pacific region and Europe. Primus has expanded its
geographic presence in the Caribbean, Central America and South America
(collectively "Latin America") through its recent acquisition of TresCom, which
provides international long distance service primarily for calls originating in
the United States. The Company seeks to capitalize on the increasing demand for
high-quality international telecommunications services resulting from the
globalization of the world's economies and the worldwide trend toward
telecommunications deregulation. Primus provides these services over its global
intelligent telecommunications network (the "Network"), which includes (i) ten
international gateway switches in the United States, Australia, Canada, Puerto
Rico and the United Kingdom, (ii) four domestic switches in Australia, (iii) a
switching platform in Japan and (iv) both owned and leased transmission
capacity on undersea and land-based fiber optic cable systems. The Network,
along with resale arrangements and foreign carrier agreements, allows the
Company to offer quality service to its approximately 275,000 customers.
Primus is a full-service carrier and has licenses and operations in the
United States, Australia, the United Kingdom, Japan and Canada, enabling it to
complete calls to more than 230 countries. The United States, Australia and the
United Kingdom are the most deregulated countries within the Company's service
regions (the "Service Regions"), which include North America, the Asia-Pacific
region, Europe and, with the consummation of the TresCom Merger, Latin America.
The United States, Australia and the United Kingdom will serve as regional hubs
for Primus's intended expansion into additional markets as worldwide
deregulation of telecommunications markets continues. During the years ended
December 31, 1996 and 1997, and the three months ended March 31, 1998, Primus
had net revenue of $173.0 million, $280.2 million and $80.1 million,
respectively. After giving pro forma effect to the TresCom Merger and the
TelePassport/USFI Acquisition, for the year ended December 31, 1997, the
Company would have had net revenue of $448.9 million and, after giving pro
forma effect to the TresCom Merger, for the three months ended March 31, 1988
the Company would have had net revenue of $114.7 million.
The Company primarily 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 substantial international traffic. The Company provides a
broad array of competitively priced telecommunications services, including
international and domestic long distance services and private networks,
reorigination services, prepaid and calling cards and toll-free services, as
well as local, data, Internet and cellular services in Australia. The Company
markets its services through a variety of channels, including through its
direct sales force and independent agents, and through direct marketing.
1
<PAGE>
NETWORK
The Company has constructed and is expanding the Network to reduce and
control costs, improve service reliability and increase flexibility to
introduce new products and services. Management believes that, as the volume of
telecommunications traffic carried on the Network increases, the Company should
continue to improve its profitability as it more fully utilizes its Network
capacity and realizes economies of scale. As customer demand justifies the
capital investment, Primus will seek to expand the Network through additional
investment in undersea and domestic fiber optic cable systems, international
gateway and domestic switching facilities, and international satellite earth
stations. Major components of the Network include the following:
Switches. Since December 31, 1996, when the Company operated one
international gateway switch in Washington, D.C., the Network has grown to
consist of 14 switches, including ten international gateway switches (New York,
Los Angeles, Washington, D.C., Toronto, Vancouver, London and Sydney, and as a
result of the recently completed TresCom Merger, Fort Lauderdale, New York City
and Guaynabo, Puerto Rico) and four domestic switches (Adelaide, Brisbane,
Melbourne and Perth), and a switching platform in Japan. The Company also has
15 points of presence ("Pops") in additional markets within its Service
Regions. The Company's international gateway switches will serve as the base
for its global expansion of the Network into new countries when customer demand
justifies such investment and as regulatory rules permit the Company to compete
in new markets. The Company is currently installing an additional international
gateway switch in Frankfurt, Germany and, by the end of 1999, intends to add up
to three switches in North America, two switches in Europe, one switch in the
Asia-Pacific region, and three switches in Latin America.
Transmission Capacity. The Company owns and leases transmission capacity
which connects its switches to each other and to the networks of other
international and domestic telecommunications carriers. The Company's ownership
interests consist of Minimum Assignable Ownership Units ("MAOUs") and
indefeasible rights of use ("IRUs") in 12 undersea fiber optic cable systems,
including the CANTAT-3, TAT-12/TAT-13, TPC-5 and Gemini systems. As a result of
the recently completed TresCom Merger, the Company has acquired additional
MAOUs and IRUs in 11 cable systems, including the Americas 1, Columbus 2, PTAT-
1 and Taino Carib systems. The Company expects to continue to acquire
additional capacity on both existing and future international and domestic
fiber optic cable systems as anticipated customer demand justifies such
investments.
Foreign Carrier Agreements. In selected countries where competition with the
traditional incumbent post, telephone and telegraph operators ("PTTs") is
limited or is not currently permitted, the Company has entered into foreign
carrier agreements with PTTs or other service providers which permit the
Company to carry traffic into and receive return traffic from these countries.
The Company has existing foreign carrier agreements with PTTs in Cyprus,
Greece, Honduras, India, Iran, Italy and New Zealand, and additional carrier
agreements with foreign service providers in five other countries. As a result
of the recently completed TresCom Merger, the Company has acquired 27
additional foreign carrier agreements, providing access to various countries in
Latin America.
STRATEGY
Primus's objective is to become a leading global provider of international
and domestic long distance voice, data and other services in its Service
Regions. Key elements of Primus's strategy to achieve this objective include:
. Focus on Customers with Significant International Long Distance
Usage. The Company's primary focus is providing telecommunications
services, on a retail basis, to small- and medium-sized businesses with
significant international long distance traffic, to ethnic residential
customers and, on a wholesale basis, to other telecommunications
carriers and resellers with international traffic. The Company believes
that the international long distance market offers an attractive
business opportunity given its size and, as compared to the domestic
long distance market, its higher revenue per minute, gross margin and
expected growth rate.
2
<PAGE>
. Pursue Early Entry into Selected Deregulating Markets. The Company seeks
to be an early entrant into selected deregulating telecommunications
markets where it believes there is significant demand for international
long distance services as well as substantial growth and profit
potential. The Company believes that early entrance into deregulating
markets provides it with competitive advantages as it develops sales
channels, establishes a customer base, hires personnel experienced in
the telecommunications industry and achieves name recognition, prior to
the entry into these markets of a large number of competitors. The
Company focuses its expansion efforts on major metropolitan areas with
high concentrations of potential customers with international traffic.
. Expand Global Intelligent Network. Primus expects that continued
strategic development of the Network will lead to reduced transmission
and other operating costs as a percentage of net revenue, reduced
reliance on other carriers and more efficient network utilization. The
Company owns and operates its own switching facilities, and purchases
fiber optic cable capacity on an end-to-end basis when current and
expected traffic levels justify such investment.
. Deliver Quality Services at Competitive Prices. Management believes that
the Company delivers high quality services at competitive prices and
provides a high level of customer service. The Company intends to
maintain a low cost structure in order to offer its customers
international and domestic long distance services priced below those of
major carriers in the Service Regions. In addition, the Company intends
to maintain strong customer relationships through the use of trained and
experienced sales and service representatives, and through the provision
of customized billing services.
. Expand Service Offerings as Markets Deregulate. The Company typically
enters markets which are in the initial stages of deregulation by first
providing international long-distance services and, as the market
deregulates further, expanding its portfolio of service offerings within
the particular market. Management believes that international long
distance generally offers attractive margins in markets in the early
stages of deregulation and provides a platform for capturing customers
for additional services. Subsequent additions to service offerings
include, among other services, domestic long distance, data and Internet
access.
. Growth through Selected Acquisitions and Strategic Investments. As part
of its business strategy, the Company frequently evaluates potential
acquisitions, joint ventures and strategic investments. The Company
views acquisitions, joint ventures and strategic investments as a means
to enter additional markets and expand its operations within existing
markets, thereby facilitating an acceleration of its business plan.
Potential candidates include voice and data service providers with an
established customer base, complementary operations, telecommunications
licenses, experienced management or network facilities in countries into
which the Company seeks to enter.
RECENT DEVELOPMENTS
TresCom Merger. On June 9, 1998, pursuant to an Agreement and Plan of Merger
(as amended, the "Merger Agreement"), the Company acquired all of the
outstanding shares of TresCom, a facilities-based long distance
telecommunications carrier focused on international long distance traffic
originating in the United States and terminating in Latin America. The TresCom
Merger provides Primus with accelerated entry into the Latin American
international long distance markets and expands the scope and coverage of the
Network, thereby providing additional opportunities to migrate traffic onto the
Network, resulting in better utilization of the Network. The Company believes
that, in addition to providing transmission facilities, the TresCom Merger adds
foreign carrier agreements, direct connections to foreign telecommunications
carriers and experienced management, enabling the combined Company to realize
synergies in sales, marketing and administration.
3
<PAGE>
TresCom markets wholesale telecommunications services to other long distance
carriers who utilize the TresCom network to transmit international calls to
Latin America. TresCom's customers also include businesses with sales or
operations in Latin America, as well as the growing Hispanic population in the
United States. For the years ended December 31, 1995, 1996 and 1997, TresCom
had revenue of $102.6 million, $139.6 million and $157.6 million, respectively.
Pursuant to the Merger Agreement, each of the approximately 12.7 million
outstanding shares of TresCom common stock were exchanged for shares of
Primus's common stock ("Common Stock") at an exchange ratio equal to 0.6147.
See "Recent Developments--TresCom Merger" and "Business--TresCom."
Other Acquisitions and Investments. In March 1998, the Company purchased a
controlling interest in Hotkey Internet Services Pty., Ltd. ("Hotkey"), an
Australia-based Internet service provider, for a cash purchase price of
approximately $1.3 million (the "Hotkey Investment"). Thereafter, in April
1998, the Company acquired all of the outstanding stock of Eclipse
Telecommunications Pty. Ltd. ("Eclipse"), an Australia-based data
communications service provider, for a purchase price of approximately $2.5
million comprised of cash and shares of Common Stock (the "Eclipse
Acquisition"). The combination of these two transactions, together with the
Company's existing Australian operations, positions the Company to offer a
complete range of telecommunications services to corporate customers in
Australia, including fully integrated voice and data networks, as well as
Internet access. See "Recent Developments--Hotkey Investment" and "--Eclipse
Acquisition."
------------------
As of June 29, 1998, Primus had an equity market capitalization of
$559,052,316 million, based upon a closing price of $20 1/16 per share and
approximately 27,865,536 shares of Common Stock outstanding (including shares
of Common Stock issued pursuant to the recently completed TresCom Merger).
------------------
ISSUANCE OF THE INITIAL NOTES
The Initial Notes were issued in an offering to the Initial Purchasers (the
"Offering") of an aggregate of $150.0 million in principal amount of the
Initial Notes pursuant to a Purchase Agreement, dated May 14, 1998 (the
"Purchase Agreement") among the Company and the Initial Purchasers. The net
proceeds of the Offering, after deducting discounts and commissions and
offering expenses, were approximately $145.0 million and were received by the
Company on May 19, 1998 (the "Closing Date"). The Company intends to use the
net proceeds of the Offering to fund capital expenditures to expand and develop
the Company's Network. The Initial Purchasers subsequently resold the Initial
Notes in reliance on Rule 144A under the Securities Act and certain other
exemptions under the Securities Act. The Company and the Initial Purchasers
also entered into the Registration Rights Agreement, pursuant to which the
Company granted certain registration rights for the benefit of the holders of
the Initial Notes. The Exchange Offer is intended to satisfy certain of the
Company's obligations under the Registration Rights Agreement with respect to
the Initial Notes. See "The Exchange Offer--Purpose and Effect."
------------------
The executive offices of the Company are located at 1700 Old Meadow Road,
McLean, Virginia 22102, and its telephone number is (703) 902-2800.
4
<PAGE>
THE EXCHANGE OFFER
The Exchange Offer............ The Company is offering, upon the terms and
subject to the conditions set forth herein and
in the accompanying Letter of Transmittal, to
exchange $1,000 in principal amount of its 9
7/8% Senior Notes due 2008 (the "Exchange
Notes," and together with the Initial Notes,
sometimes collectively referred to herein as
the "Notes") for each $1,000 in principal
amount of the outstanding Initial Notes. As of
the date of this Prospectus, $150.0 million in
aggregate principal amount of the Initial Notes
is outstanding, the maximum amount authorized
by the Indenture for all Notes. As of ,
1998, CEDE & Co. ("CEDE") was the sole
registered holder of the Initial Notes and held
$150.0 million of aggregate principal amount of
the Initial Notes for [ ] of its
participants. See "The Exchange Offer--Terms of
the Exchange Offer."
Expiration Date............... 5:00 p.m., New York City time, on
, 1998, as the same may be
extended. See "The Exchange Offer--Expiration
Date; Extensions; Amendments."
Conditions of the Exchange
Offer......................... The Exchange Offer is not conditioned upon any
minimum principal amount of Initial Notes being
tendered for exchange. However, the Exchange
Offer is subject to the condition that it does
not violate any applicable law or
interpretation of the staff of the Commission.
In addition, as a condition to its
participation in the Exchange Offer, each
Holder of Initial Notes will be required to
furnish certain written representations to the
Company. See "The Exchange Offer--Conditions of
the Exchange Offer."
Termination of Certain
Rights........................ Pursuant to the Registration Rights Agreement
and the Initial Notes, Holders of Initial Notes
(i) have rights to receive Liquidated Damages
(as defined herein) and (ii) have certain
rights intended for the holders of unregistered
securities. "Liquidated Damages" means an
amount equal to .50% per annum of the principal
amount of Notes held by such Holder commencing
upon a Registration Default (as defined herein)
and continuing for the first 90-day period
immediately following the occurrence of such
Registration Default. The amount of the
Liquidated Damages shall increase by an
additional .50% per annum of the principal
amount of Notes with respect to each subsequent
90-day period until all Registration Defaults
have been cured, up to a maximum amount of
Liquidated Damages of 1.50% per annum of the
principal amount of Notes. Following the cure
of all Registration Defaults, the accrual of
Liquidated Damages will cease. See "The
Exchange Offer--Termination of Certain Rights,"
"--Procedures for Tendering Initial Notes" and
"Description of Exchange Notes--Registration
Rights."
5
<PAGE>
Accrued Interest on the
Initial Notes................. The Exchange Notes will bear interest at a rate
equal to 9 7/8% per annum from and including
their date of issuance. Holders whose Initial
Notes are accepted for exchange will have the
right to receive interest accrued thereon from
the date of original issuance of the Initial
Notes or the last Interest Payment Date, as
applicable, to, but not including, the date of
issuance of the Exchange Notes, such interest
to be payable with the first interest payment
on the Exchange Notes. Interest on the Initial
Notes accepted for exchange, which accrues at
the rate of 9 7/8% per annum, will cease to
accrue on the day prior to the issuance of the
Exchange Notes.
Procedures for Tendering
Initial Notes................. Unless a tender of Initial Notes is effected
pursuant to the procedures for book-entry
transfer as provided herein, each Holder
desiring to accept the Exchange Offer must
complete and sign the Letter of Transmittal,
have the signature thereon guaranteed if
required by the Letter of Transmittal, and mail
or deliver the Letter of Transmittal, together
with the Initial Notes and any other required
documents (such as evidence of authority to
act, if the Letter of Transmittal is signed by
someone acting in a fiduciary or representative
capacity), to the Exchange Agent (as defined)
at the address set forth on the back cover page
of this Prospectus prior to 5:00 p.m., New York
City time, on the Expiration Date. Any
Beneficial Owner (as defined herein) of the
Initial Notes whose Initial Notes are
registered in the name of a nominee, such as a
broker, dealer, commercial bank or trust
company and who wishes to tender Initial Notes
in the Exchange Offer, should instruct such
entity or person to promptly tender on such
Beneficial Owner's behalf. See "The Exchange
Offer-- Procedures for Tendering Initial
Notes." By tendering Initial Notes for
exchange, each registered holder will represent
to the Company that, among other things, (i)
neither the Holder nor any Beneficial Owner is
an affiliate of the Company within the meaning
of Rule 405 under the Securities Act, (ii) any
Exchange Notes to be received by the Holder or
any Beneficial Owner are being acquired in the
ordinary course of business, and (iii) neither
the Holder nor any Beneficial Owner has an
arrangement or understanding with any person to
participate in the distribution of the Exchange
Notes.
Guaranteed Delivery
Procedures.................... Holders of Initial Notes who wish to tender
their Initial Notes and (i) whose Initial Notes
are not immediately available or (ii) who
cannot deliver their Initial Notes or any other
documents required by the Letter of Transmittal
to the Exchange Agent prior to the Expiration
Date (or complete the procedure for book-entry
transfer on a timely basis) may tender their
Initial Notes according to the guaranteed
delivery procedures set forth in the Letter of
Transmittal. See "The Exchange Offer--
Procedures for Tendering Initial Notes--
Guaranteed Delivery Procedures."
6
<PAGE>
Acceptance of Initial Notes
and Delivery of Exchange
Notes......................... Upon satisfaction or waiver of all conditions
of the Exchange Offer, the Company will accept
any and all Initial Notes that are properly
tendered in the Exchange Offer prior to 5:00
p.m., New York City time, on the Expiration
Date. The Exchange Notes issued pursuant to the
Exchange Offer will be delivered as soon as
practicable after acceptance of the Initial
Notes. See "The Exchange Offer--Acceptance of
Initial Notes for Exchange; Delivery of
Exchange Notes."
Withdrawal Rights............. Tenders of Initial Notes may be withdrawn at
any time prior to 5:00 p.m., New York City
time, on the Expiration Date. See "The Exchange
Offer--Withdrawal Rights."
Certain Federal Income Tax
Considerations................ Generally, the exchange pursuant to the
Exchange Offer will not be a taxable event for
federal income tax purposes. See "Certain
Federal Income Tax Considerations--The Exchange
Offer."
The Exchange Agent............ First Union National Bank is the exchange agent
(in such capacity, the "Exchange Agent"). The
address and telephone number of the Exchange
Agent are set forth in "The Exchange Offer--The
Exchange Agent; Assistance."
Fees and Expenses............. All expenses incident to the Company's
consummation of the Exchange Offer and
compliance with the Registration Rights
Agreement will be borne by the Company. See
"The Exchange Offer--Solicitation of Tenders;
Fees and Expenses."
Resales of the Exchange
Notes......................... Based on interpretations by the staff of the
Commission set forth in no-action letters
issued to third parties, the Company believes
that Exchange Notes issued pursuant to the
Exchange Offer to a Holder in exchange for
Initial Notes may be offered for resale, resold
and otherwise transferred by such Holder (other
than (i) a broker-dealer who purchased the
Initial Notes directly from the Company for
resale pursuant to Rule 144A under the
Securities Act or any other available exemption
under the Securities Act or (ii) a person that
is an affiliate of the Company within the
meaning of Rule 405 under the Securities Act),
without compliance with the registration and
prospectus delivery provisions of the
Securities Act, provided that the Holder is
acquiring the Exchange Notes in the ordinary
course of business and is not participating,
and has no arrangement or understanding with
any person to participate, in a distribution of
the Exchange Notes. Each broker-dealer that
receives Exchange Notes for its own account in
exchange for Initial Notes, where such Initial
Notes were acquired by such broker as a result
of market making or other trading activities,
must acknowledge that it will deliver a
prospectus in connection with any resale of
such Exchange Notes. See "Plan of
Distribution."
7
<PAGE>
DESCRIPTION OF EXCHANGE NOTES
The Initial Notes were issued under an indenture, dated as of May 19, 1998
(the "Indenture"), between the Company and the Trustee. The Exchange Notes will
be issued under the Indenture as it relates to the Exchange Notes. The form and
terms of the Exchange Notes will be identical in all material respects to the
form and terms of the Initial Notes, except that (i) the Exchange Notes have
been registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof, (ii) subject to certain limited exceptions,
holders of Exchange Notes will not be entitled to Liquidated Damages otherwise
payable under the terms of the Registration Rights Agreement in respect of
Initial Notes held by such holders during any period in which a Registration
Default is continuing, and (iii) holders of Exchange Notes will not be, and
upon the consummation of the Exchange Offer Holders of Initial Notes will no
longer be, entitled to certain rights under the Registration Rights Agreement
intended for the holders of unregistered securities. The Exchange Offer shall
be deemed consummated upon the delivery of Exchange Notes by the Company to the
Registrar under the Indenture in the same aggregate principal amount as the
aggregate principal amount of Initial Notes that are validly tendered by
holders thereof pursuant to the Exchange Offer. See "The Exchange Offer--
Termination of Certain Rights" and "--Procedures for Tendering Initial Notes"
and "Description of Exchange Notes."
Issuer........................ Primus Telecommunications Group, Incorporated
Exchange Notes Offered........ $150,000,000 in aggregate principal amount of 9
7/8% Senior Notes due 2008.
Maturity...................... May 15, 2008.
Interest Payment Dates........ May 15 and November 15, commencing on November
15, 1998.
Ranking....................... The indebtedness evidenced by the Exchange
Notes will rank senior in right of payment to
any existing and future obligations of the
Company expressly subordinated in right of
payment to the Exchange Notes and will be pari
passu in right of payment with all other
existing and future senior unsecured
obligations of the Company including trade
payables. As of March 31, 1998, after giving
pro forma effect to the Offering and the
application of the net proceeds thereof, the
Company (on a consolidated basis) would have
had outstanding approximately $382.2 million of
indebtedness ($387.6 million after giving
effect to the TresCom Merger). Because the
Company is a holding company that conducts its
business through its subsidiaries, all existing
and future indebtedness and other liabilities
and commitments of the Company's subsidiaries,
including trade payables, will be effectively
senior to the Exchange Notes. As of March 31,
1998, the Company's consolidated subsidiaries
had outstanding aggregate liabilities of
approximately $101.0 million ($132.4 million
after giving effect to the TresCom Merger),
which includes $9.5 million of indebtedness
($14.9 million after giving effect to the
TresCom Merger).
Optional Redemption........... The Exchange Notes will be redeemable at the
option of the Company at any time after May 15,
2003, in whole or in part at the redemption
prices set forth herein plus accrued and unpaid
interest and Liquidated Damages, if any, to the
date of
8
<PAGE>
redemption. In addition, prior to May 15, 2001,
the Company may redeem from time to time up to
25% of the originally issued aggregate
principal amount of Exchange Notes at the
redemption price set forth herein plus accrued
and unpaid interest and Liquidated Damages, if
any, to the date of redemption with the Net
Cash Proceeds of one or more Public Equity
Offerings; provided, that at least 75% of the
originally issued aggregate principal amount of
the Exchange Notes remains outstanding after
such redemption. See "Description of Exchange
Notes--Optional Redemption."
Change of Control............. Upon the occurrence of a Change of Control,
each holder of Exchange Notes will have the
right to require the Company to purchase all or
any part of such holder's Exchange Notes at a
purchase price in cash equal to 101% of the
principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any,
to the date of purchase. See "Description of
Exchange Notes--Repurchase of Notes Upon a
Change of Control."
Covenants..................... The Indenture pursuant to which the Exchange
Notes will be issued will contain certain
covenants that, among other things, limit the
ability of the Company and its Restricted
Subsidiaries to incur additional indebtedness
and issue preferred stock, pay dividends or
make other distributions, repurchase Capital
Stock or subordinated indebtedness or make
certain other Restricted Payments, create
certain liens, enter into certain transactions
with affiliates, sell assets, issue or sell
Capital Stock of the Company's Restricted
Subsidiaries or enter into certain mergers and
consolidations. See "Description of Exchange
Notes--Covenants."
Exchange Offer; Registration Pursuant to the Registration Rights Agreement,
Rights........................ the Company agreed to file within the
prescribed time periods a registration
statement (the "Exchange Offer Registration
Statement") with the Commission with respect to
an offer to exchange the Initial Notes (the
"Exchange Offer") for a new issue of debt
securities of the Company with terms
substantially identical to the Notes (the
"Exchange Notes") (except that the Exchange
Notes will not contain terms with respect to
transfer restrictions). In the event that
applicable law or Commission policy does not
permit the Company to effect the Exchange
Offer, the Exchange Offer is not consummated
within the prescribed periods, or certain
holders of the Initial Notes notify the Company
they are not permitted to participate in, or
would not receive freely tradable Exchange
Notes pursuant to, the Exchange Offer, the
Company will use its reasonable best efforts to
cause to be declared effective within the
prescribed periods a registration statement
(the "Shelf Registration Statement") with
respect to resale of the Notes and to keep the
Shelf Registration Statement continuously
9
<PAGE>
effective until up to two years after the date
on which the Initial Notes were sold. If the
Company fails to satisfy these registration
obligations, it will be required to pay
Liquidated Damages to the holders of the Notes
under certain circumstances. See "Description
of Exchange Notes--Registration Rights."
Absence of a Public Market
for the Exchange Notes........ The Exchange Notes are new securities for which
there is currently no established trading
market. The Company does not intend to apply
for listing of the Exchange Notes on any
securities exchange or for quotation through
The Nasdaq Stock Market. Accordingly, there can
be no assurance as to the development or
liquidity of any market for the Exchange Notes.
For additional information concerning the Notes and the definitions of
certain capitalized terms used above, see "Description of Exchange Notes."
FOR A DISCUSSION OF CERTAIN RISKS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE EXCHANGE NOTES, SEE "RISK FACTORS" BEGINNING ON PAGE
14.
10
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA DATA
Primus. Set forth below is summary selected historical financial, geographic
and other data and summary unaudited pro forma financial and other data for
Primus. The summary selected financial data should be read in conjunction with
the consolidated financial statements of Primus, and the notes thereto,
contained elsewhere herein, and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The summary historical
statement of operations data for Primus for the years ended December 31, 1995,
1996 and 1997 have been derived from the audited financial statements of
Primus. The summary historical statement of operations data for Primus for the
three months ended March 31, 1997 and 1998, and the balance sheet data as of
March 31, 1998, have been derived from the unaudited financial statements of
Primus, which, in management's opinion include all adjustments (consisting of
only normal recurring adjustments) necessary for a fair presentation of the
information set forth therein. The summary unaudited pro forma financial data
of Primus have been derived from the audited and unaudited financial statements
of Primus, the audited and unaudited financial statements of TresCom, and the
audited financial statements of USFI, Inc., and should be read in conjunction
with the Unaudited Pro Forma Financial Data included elsewhere herein.
<TABLE>
<CAPTION>
PRO FORMA
THREE
THREE MONTHS PRO FORMA MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31, YEAR ENDED ENDED
--------------------------- ----------------- DECEMBER 31, MARCH 31,
1995 1996 1997 1997 1998 1997(1) 1998(2)
------- -------- -------- ------- -------- ------------ ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue (3)......... $ 1,167 $172,972 $280,197 $59,036 $ 80,051 $448,929 $114,664
Cost of revenue......... 1,384 158,845 252,731 55,034 68,722 387,453 97,986
------- -------- -------- ------- -------- -------- --------
Gross margin
(deficit)............ (217) 14,127 27,466 4,002 11,329 61,476 16,678
Operating expenses:
Selling, general and
administrative....... 2,024 20,114 50,622 8,829 15,377 95,420 22,822
Depreciation and
amortization......... 160 2,164 6,733 797 3,478 20,308 6,894
------- -------- -------- ------- -------- -------- --------
Total operating
expenses........... 2,184 22,278 57,355 9,626 18,855 115,728 29,716
------- -------- -------- ------- -------- -------- --------
Loss from operations.... (2,401) (8,151) (29,889) (5,624) (7,526) (54,252) (13,038)
Interest expense (4).... (59) (857) (12,914) (151) (7,175) (28,958) (11,008)
Interest income......... 35 785 6,238 785 2,384 6,238 2,384
Other income (expense).. -- (345) 407 119 -- 594 (20)
------- -------- -------- ------- -------- -------- --------
Loss before income
taxes.................. (2,425) (8,568) (36,158) (4,871) (12,317) (76,378) (21,682)
Income taxes............ -- (196) (81) (36) -- (81) --
------- -------- -------- ------- -------- -------- --------
Net loss................ $(2,425) $ (8,764) $(36,239) $(4,907) $(12,317) $(76,459) $(21,682)
======= ======== ======== ======= ======== ======== ========
Basic and diluted net
loss per common share.. $(0.48) $(0.75) $(1.99) $(0.28) $(0.62) $(2.93) $(0.79)
======= ======== ======== ======= ======== ======== ========
Weighted average number
of common shares
outstanding............ 5,019 11,660 18,250 17,779 19,717 26,086 27,553
======= ======== ======== ======= ======== ======== ========
Ratio of earnings to
fixed charges (5)...... -- -- -- -- -- -- --
======= ======== ======== ======= ======== ======== ========
GEOGRAPHIC DATA:
Net revenue:
North America (6)..... $ 1,167 $ 16,573 $ 74,359 $ 8,271 $ 26,310
Asia-Pacific (7)...... -- 151,253 183,126 46,886 44,659
Europe (8)............ -- 5,146 22,712 3,879 9,082
------- -------- -------- ------- --------
Total............... $ 1,167 $172,972 $280,197 $59,036 $ 80,051
======= ======== ======== ======= ========
OTHER DATA:
EBITDA (9).............. $(2,241) $ (5,987) $(23,156) $(4,827) $ (4,048) $(33,944) $(6,144)
Capital expenditures
(10)................... $ 974 $ 15,951 $ 43,457 $ 8,771 $ 12,044 $ 52,506 $ 13,493
Number of switches...... 1 1 11 8 11 14 14
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------
PRO FORMA
ACTUAL AS ADJUSTED (11)
------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $97,381 $226,675
Restricted investments (including current and
long term)...................................... 61,478 61,478
Working capital (12)............................. 104,726 236,100
Total assets..................................... 355,563 692,554
Long-term obligations (including current
portion)........................................ 232,238 387,571
Stockholders' equity............................. 31,828 187,417
</TABLE>
- --------
(1) Gives pro forma effect to the TelePassport/USFI Acquisition, the TresCom
Merger and the sale of the Initial Notes in the Offering, less discounts,
commissions and estimated expenses of the Offering payable by the Company,
and the application of the estimated net proceeds therefrom, as if they
had occurred on January 1, 1997.
(2) Gives pro forma effect to the TresCom Merger and the sale of the Initial
Notes, less discounts, commissions and expenses of the Offering payable by
the Company, and the application of the net proceeds therefrom, as if they
occurred on January 1, 1998.
(3) Net revenue is after provision for bad debt.
(4) Pro forma interest expense includes interest expense on the Notes and
amortization of deferred financing costs.
(5) The ratio of earnings to fixed charges is computed by dividing pre-tax
income from operations before fixed charges (other than capitalized
interest) by fixed charges. Fixed charges consist of interest charges,
whether expensed or capitalized, and that portion of rental expense the
Company believes to be representative of interest. For the years ended
December 31, 1995, 1996 and 1997, and for the three months ended March 31,
1997 and 1998, earnings were insufficient to cover fixed charges by $2.4
million, $8.6 million, $36.4 million, $5.1 million and $12.3 million,
respectively. On a pro forma basis for the year ended December 31, 1997
and for three months ended March 31, 1998, earnings were insufficient to
cover fixed charges by $76.5 million and $21.7 million, respectively.
(6) Consists primarily of net revenue from operations in the United States for
all periods prior to 1997. Net revenue for 1997 and for the three months
ended March 31, 1998 reflects commencement of operations in Canada in
April 1997.
(7) Consists solely of net revenue from operations in Australia for 1996. Net
revenue for 1997 and for the three months ended March 31, 1998 reflects
commencement of operations in Japan in October 1997.
(8) Consists solely of net revenue from operations in the United Kingdom.
(9) As used herein, "EBITDA" is defined as net income or loss plus
depreciation expense, amortization expense, interest expense and income
taxes, minus extraordinary income and gains, if any, and plus
extraordinary losses, if any. 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 Primus to meet its future
debt service, capital expenditures and working capital requirements.
EBITDA is not necessarily a measure of Primus's ability to fund its cash
needs and is not necessarily comparable to similarly titled measures of
other companies.
(10) Capital expenditures include assets acquired, committed to be acquired and
leased under capital lease agreements.
(11) Gives pro forma effect to the TresCom Merger and the sale of the Initial
Notes in the Offering, less discounts, commissions and expenses of the
Offering payable by the Company, and the application of the net proceeds
therefrom, as if they had occurred on March 31, 1998.
(12) Consists of total current assets minus total current liabilities.
12
<PAGE>
TresCom. Set forth below is summary selected historical financial and other
data of TresCom which should be read in conjunction with the consolidated
financial statements of TresCom, and the notes thereto, included elsewhere
herein, and with "Management's Discussion and Analysis of Financial Condition
and Results of Operations--TresCom". The summary statement of operations data
for the years ended December 31, 1995, 1996 and 1997 have been derived from the
audited financial statements of TresCom. The summary statement of operations
data for the three months ended March 31, 1997 and 1998 have been derived from
the unaudited financial statements of TresCom.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1995 1996 1997 1997 1998
-------- -------- -------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $102,641 $139,621 $157,641(1) $ 36,143 $ 38,137
Gross profit............ 27,962 32,693 33,276 8,331 7,166
Operating loss (2)...... (8,436) (3,043) (9,709) (1,278) (4,040)
Interest and other
(income)
expenses, net.......... 3,191 578 1,146 (2) 435
Net loss................ (11,627) (5,577)(3) (10,855) (1,276) (4,475)
OTHER DATA:
EBITDA (4).............. $ (4,336) $ (3,149) $ (2,853) $ 385 $ (1,936)
Capital expenditures
(5).................... 5,528 12,796 9,049 1,080 1,449
</TABLE>
- --------
(1) In 1997, TresCom recognized $543,000 of revenue from the sale of excess IRU
capacity on undersea digital fiber optic transmission cables.
(2) Operating loss is revenue less selling, general and administrative
expenses, cost of services and depreciation and amortization.
(3) Includes an extraordinary loss on the early extinguishment of debt of $2.0
million.
(4) As used herein, "EBITDA" is defined as net income or loss plus depreciation
expense, amortization expense, interest expense and income taxes, minus
extraordinary income and gains, if any, and plus extraordinary losses, if
any. 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 contribute to the payment
of the Company's future debt service, capital expenditures and working
capital requirements. EBITDA is not necessarily a measure of the ability to
fund cash needs and is not necessarily comparable to similarly titled
measures of other companies.
(5) Capital expenditures includes assets acquired through capital lease
financing and other debt.
13
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following risk factors,
in addition to the other information contained elsewhere in this Offering
Memorandum, in evaluating whether to purchase the Notes offered hereby.
SUBSTANTIAL INDEBTEDNESS; LIQUIDITY
The Company has substantial indebtedness. As of March 31, 1998, on a pro
forma basis after giving effect to the Offering, the Company's total
indebtedness would have been approximately $382.2 million ($387.6 million
after giving pro forma effect to the TresCom Merger). For the three months
ended March 31, 1998, after giving pro forma effect to the Offering, the
Company's consolidated EBITDA would have been approximately negative $4.0
million (negative $6.1 million after giving pro forma effect to the TresCom
Merger), and its earnings would have been insufficient to cover fixed charges
by approximately $16.1 million ($21.7 million after giving pro forma effect to
the TresCom Merger). 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 that can be
incurred to finance the cost of telecommunications equipment. The Company
anticipates that it and its subsidiaries will incur additional indebtedness in
the future. See "Description of Notes."
The level of the Company's indebtedness could have important consequences to
holders of the Notes, including the following: (i) the debt service
requirements of any additional indebtedness could make it more difficult for
the Company to make payments of interest on its outstanding debt, including
the Notes; (ii) the ability of the Company to obtain any necessary financing
in the future for working capital, capital expenditures, debt service
requirements or other purposes may be limited; (iii) a substantial portion of
the Company's cash flow from operations, if any, must be dedicated to the
payment of principal and interest on its indebtedness and other obligations
and will not be available for use in its business; (iv) the Company's level of
indebtedness could limit its flexibility in planning for, or reacting to,
changes in its business; (v) the Company is more highly leveraged than some of
its competitors, which may place it at a competitive disadvantage; and (vi)
the Company's high degree of indebtedness will make it more vulnerable in the
event of a downturn in its business.
The Company must substantially increase its net cash flow in order to meet
its debt service obligations, and there can be no assurance that the Company
will be able to meet such obligations, including its obligations under the
Notes. If the Company is unable to generate sufficient cash flow or otherwise
obtain funds necessary to make required payments, or if it otherwise fails to
comply with the various covenants under its indebtedness, it would be in
default under the terms thereof, which would permit the holders of such
indebtedness to accelerate the maturity of such indebtedness and could cause
defaults under other indebtedness of the Company. Such defaults could result
in a default on the Notes and could delay or preclude payments of interest or
principal thereon.
HISTORICAL AND FUTURE OPERATING LOSSES; NEGATIVE EBITDA; NET LOSSES
Since inception through March 31, 1998, the Company had negative cash flow
from operating activities of $41.3 million and negative EBITDA of $35.9
million. In addition, the Company incurred net losses in 1995, 1996, 1997 and
the three months ended March 31, 1998, of $2.4 million, $8.8 million, $36.2
million and $12.3 million, respectively, and had an accumulated deficit of
approximately $60.3 million as of March 31, 1998. On a pro forma basis, after
giving effect to the Offering, the TelePassport/USFI Acquisition and the
TresCom Merger, for the year ended December 31, 1997, the Company would have
had a net loss of $76.5 million. On a pro forma basis, after giving effect to
the Offering and the TresCom Merger, for the three months ended March 31,
1998, the Company would have had a net loss of $21.7 million. Although the
Company has experienced net revenue growth in each of its last 13 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 the 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
generate positive cash flow from operations in any
14
<PAGE>
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). See "Selected Financial Data,"
"Unaudited Pro Forma Financial Data" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
NEED FOR ADDITIONAL FINANCING
The Company will not receive any proceeds from the Exchange Offer. The
Company believes that the net proceeds from the Offering, together with its
existing cash and available capital lease financing (subject to limitations in
the Indenture) will be sufficient to fund the Company's operating losses, debt
service requirements, capital expenditures and other cash needs for its
operations for at least the next 18 to 24 months. The Company is continually
evaluating the expansion of the Network and plans to accelerate its investment
in international and domestic fiber optic cable capacity and other
transmission facilities. In addition, the Company expects to make additional
investments in the TresCom network in order to expand its services in Latin
America. In order to fund these additional 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 and the proceeds from the Offering. Consequently, the Company
expects to raise additional capital from public or private equity or debt
sources to meet its new financing needs, including for the continued buildout
of the Network. Additionally, if the Company's plans or assumptions change
(including those with respect to the development of the Network, the scope of
its operations and its operating cash flow), if its assumptions prove
inaccurate, if it consummates additional investments or acquisitions, if it
experiences unexpected costs or competitive pressures, or if existing cash and
any other borrowings prove to be insufficient, the Company may be required to
seek additional capital sooner than expected. Both the Indenture and the
indenture (the "1997 Indenture") relating to the 1997 Senior Notes (as
defined) contain certain restrictive covenants that will affect, and in many
respects will significantly limit or prohibit, among other things, its ability
to incur additional indebtedness and to create liens. See "Description of
Notes." 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. 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 and financial condition, its ability to compete and its ability to
meet its obligations on the Notes. There can be no assurance that the Company
will be able to raise equity capital, obtain capital lease or bank financing
or incur other borrowings on commercially reasonable terms, if at all, to fund
any such Network expansion or otherwise. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
HOLDING COMPANY STRUCTURE; RELIANCE ON SUBSIDIARIES FOR DISTRIBUTIONS TO REPAY
NOTES
Primus is a holding company, the principal assets of which are its operating
subsidiaries. As a holding company, the Company's sources of funds to meet its
cash needs, including payment of expenses and principal and interest on the
Notes, are dividends, intercompany loans and other permitted payments from its
direct and indirect subsidiaries, as well as its own credit arrangements. The
subsidiaries of the Company are legally distinct from the Company and have no
obligation, contingent or otherwise, to pay amounts due with respect to the
Notes or to make funds available for such payments and will not guarantee the
Notes. Additionally, many of the Company's subsidiaries are organized in
jurisdictions outside the United States, including Australia, Canada, the
United Kingdom and Japan. The ability of the Company's operating subsidiaries
to pay dividends, repay intercompany loans or make other distributions to the
Company may be restricted by, among other things, the availability of funds,
the terms of various credit arrangements entered into by such operating
subsidiaries, as well as statutory and other legal restrictions, and such
payments may have adverse tax consequences. The failure to pay any such
dividends, repay intercompany loans or make any such other distributions would
restrict the Company's ability to repay the Notes and its ability to utilize
cash flow from one subsidiary to cover shortfalls in working capital at
another subsidiary, and could otherwise have a material adverse effect upon
the Company's business, financial condition and results of operations.
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Because the Company is a holding company that conducts its business through
its subsidiaries, claims of creditors of such subsidiaries will generally have
priority over the assets of such subsidiaries over the claims of the Company
and the holders of the Company's indebtedness. Accordingly, the Notes will be
effectively subordinated to all existing and future indebtedness and other
liabilities and commitments of the Company's subsidiaries, including trade
payables. As of March 31, 1998, the Company's consolidated subsidiaries had
outstanding aggregate liabilities of approximately $101.0 million ($132.4
million after giving pro forma effect to the TresCom Merger). Any right of the
Company to receive assets of any subsidiary upon the liquidation or
reorganization of such subsidiary (and the consequent rights of the holders of
the Notes to participate in those assets) will be effectively subordinated to
the claims of such subsidiary's creditors, except to the extent that the
Company is itself recognized as a creditor, in which case the claims of the
Company would still be subordinate to any security in the assets of such
subsidiary and any indebtedness of such subsidiary that is senior to that held
by the Company. In addition, holders of such indebtedness of the Company would
have a claim on the assets securing such indebtedness that is prior to the
holders of the Notes and would have a claim that is pari passu with the
holders of the Notes to the extent such security did not satisfy such
indebtedness. The Company has no significant assets other than the stock of
its subsidiaries and it is expected that, if the Company were to enter into a
bank credit facility or similar arrangement, the stock of the subsidiaries
would be pledged to secure any such credit facility or arrangement.
LIMITED OPERATING HISTORY
The Company and TresCom have limited operating histories and limited
experience in operating their respective businesses. Primus was founded in
February 1994 and began generating operating revenues in March 1995. Axicorp,
the Company's principal operating subsidiary, was acquired in March 1996.
TresCom was founded in December 1993. In addition, the Company intends to
enter markets where it has limited or no operating experience such as, due to
the recently completed TresCom Merger, Latin America. Accordingly, there can
be no assurance that the Company's future operations will generate operating
or net income, and the Company's prospects must therefore be considered in
light of the risks, expenses, problems and delays inherent in establishing a
new business in a rapidly changing industry. See "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Unaudited Pro Forma Financial Data."
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 the
Company generates additional traffic volume for such capacity. There can be no
assurance that the Company will generate sufficient traffic to economically
utilize its capacity or that the Network can be completed in a timely manner
or operated efficiently. Any failure in design, or any failure to implement,
operate, manage or maintain the Network, or generate or maintain traffic,
could have a material adverse effect on the Company's business, results of
operations and financial condition. In addition, the Company intends to expand
the Network as more countries deregulate their telecommunications industries,
which will require the Company to acquire additional licenses and equipment.
There can be no assurance that the Company will be able to obtain the licenses
or purchase the necessary equipment on favorable terms or, if it does, that
the development of the Network in these countries will be successful. See
"Business--Strategy" and "--Network."
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 the Network by adding switches
and fiber optic
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cable, expanding its operations within North America, the Asia-Pacific region
and Europe, and when business and/or regulatory conditions warrant, expanding
into selected additional markets such as, due to the recently completed
TresCom Merger, Latin 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 further develop its 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, billing
and management information systems and support, sales and marketing and
administrative resources and network infrastructure. There can be no assurance
that the Company's operating and financial control systems and infrastructure
will be adequate to maintain and effectively manage future growth. The failure
to continue to upgrade the administrative, operating and financial control
systems or the emergence of unexpected expansion difficulties could materially
adversely affect the Company's business, results of operations and financial
condition. See "--Dependence on Effective Information Systems; Year 2000
Problem" and "--Acquisition and Strategic Investment Risks."
ACQUISITION AND STRATEGIC INVESTMENT RISKS
A key element of the Company's business strategy is to acquire or make
strategic investments in assets and businesses that are complementary to the
Company's operations, and a major portion of the Company's growth in recent
years has resulted from such acquisitions. These acquisitions involve certain
financial and operational risks. Financial risks include the possible
incurrence of indebtedness by the Company in order to effect an acquisition
(subject to the limitations contained in the Indenture) and the consequent
need to service that indebtedness. Operational risks include the possibility
that an acquisition does not ultimately provide the benefits originally
anticipated by management while the Company continues to incur operating
expenses to provide the services formerly provided by the acquired company,
and the difficulty of integrating the service offerings, distribution channels
and networks gained through acquisitions and strategic investments with those
of the Company. In addition, if the Company makes a strategic investment by
acquiring a minority interest in a company, the Company may lack control over
the operations and strategy of the business in which the Company invested.
There can be no assurance that such lack of control will not interfere with
the integration of services and distribution channels of the business in which
the Company invested. In addition, there can be no assurance that the Company
will be successful in identifying attractive acquisition and strategic
investment candidates, completing and financing additional acquisitions on
favorable terms, or integrating the acquired businesses or assets into its
own. In carrying out its acquisition and strategic investment strategy, the
Company attempts to minimize the risk of unexpected liabilities and
contingencies associated with acquired businesses through planning,
investigation and negotiation, but such unexpected liabilities may
nevertheless accompany such strategic investments and acquisitions.
For example, achieving the anticipated benefits of the TresCom 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, billing and 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
technologies, resources could be diverted from new service development, and
delays in new service introductions could occur. There can be no assurance
that the Company will be able to take full advantage of the combined sales
forces' efforts. The integration of operations and technologies following the
TresCom Merger will require the dedication of management and other personnel
which may distract their attention from the day-to-day business of the
Company, the development or acquisition of new technologies, and the pursuit
of other business acquisition opportunities. Failure to accomplish
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successfully the integration and development of the two companies' operations
and technologies could have a material adverse effect on the 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 the Company's customers through various incentives
which could have a material adverse effect on the business, results of
operations and financial condition of the Company.
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 more 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. 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 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 than the Company,
have (i) substantially greater financial, technical and marketing resources,
(ii) larger networks, (iii) a broader portfolio of services, (iv) controlled
transmission lines, (v) stronger name recognition and customer loyalty, and
(vi) 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., 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, ACC Corporation, Colt, Energis, Esprit Telecom Group, and
RSL Communications in the United Kingdom; Deutsche Telekom, O.tel.o
Communications, Mannesmann ARCOR, Colt, WorldCom, PlusNet, and RSL
Communications in Germany; Stentor, AT&T Canada Long Distance Services Co.,
fONOROLA Inc., Sprint Canada and ACC in Canada; Telmex, the other PTTs in
Latin America, AT&T, MCI and Sprint in Latin America; Kokusai Denshin Denwa
Co., Ltd. ("KDD"), Nippon Telegraph and Telephone Corporation, Japan Telecom,
IDC and a number of second tier carriers such as Cable & Wireless, WorldCom
and ATNet in Japan.
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
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 are allowed to enter the
local telephone
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services market, and any entity (including cable television companies and
utilities) is 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, the
Company could experience additional competition in the Australian market from
newly licensed telecommunications carriers. Further deregulation in other
countries such as Canada, the United Kingdom, Germany and Japan, could result
in greater competition in telecommunications services offered in these
countries. 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 and financial condition. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business--Competition."
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 other 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 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 and financial condition.
Presently, most transmission lines used by the Company are obtained on a
per-call (or usage) basis, subjecting the Company to the possibility of
unanticipated price increases and service cancellations. Currently, usage
rates generally are less than the rates the Company charges its customers for
connecting calls through these lines. To the extent these variable costs
increase, the Company may experience reduced or, in certain circumstances,
negative margins for some services. As its traffic volume increases between
particular international markets, the Company expects to cease using variable
usage arrangements between these markets and enter into fixed monthly or
longer-term leasing arrangements, subject to obtaining any requisite
authority. To the extent the Company does so, and incorrectly projects traffic
volume in a particular geographic area, the Company would experience higher
fixed costs without the increased revenue. Moreover, certain of the vendors
from whom the Company leases transmission lines, including RBOCs and other
Local Exchange Carriers ("LECs") in the United States, currently are subject
to tariff controls and other price constraints which in the future may be
changed. Regulatory proposals are pending that may affect the prices charged
by the RBOCs and other LECs to the Company, which could have a material
adverse effect on the Company's margins, business, financial condition and
results of operations. See "--Potential Adverse Effects of Regulation" and
"Business--Government Regulation."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
A key component of the Company's strategy is planned expansion in
international markets. In many international markets, the existing carrier
controls access to the local networks, enjoys better brand recognition and
brand and customer loyalty, and has significant operational economies,
including a larger backbone network and foreign carrier agreements with other
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
its own transmission facilities or switches, obtain access to local
transmission facilities or to market, sell and deliver competitive services in
these markets or that such permits and operating licenses, if obtained, will
be obtained in the time currently contemplated by the Company.
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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 holiday periods, 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 its results of operations. The Company historically has
not engaged in hedging transactions, and does not currently contemplate
engaging in hedging transactions to mitigate foreign exchange risk. In
addition, the Company's business could be adversely affected by a reversal in
the current trend toward deregulation of telecommunications markets. In
certain countries into which the Company may choose to expand in the future,
the Company may need to enter into joint venture or other strategic
relationships with one or more third parties in order to conduct 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 its
business, results of operations and financial condition, or that the Company
will not have to modify its business practices.
DEPENDENCE ON EFFECTIVE INFORMATION SYSTEMS; YEAR 2000 PROBLEM
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 its business, financial
condition and results of operations.
The Company 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 the Company'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 the
Company 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 in meeting
milestones toward compliance. TresCom management has determined that TresCom
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
Primus and 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 the Company's computer
systems or the failure of the Company's vendors or customers to upgrade
effectively their software and systems for transition to the year 2000 could
have a material adverse effect on the Company's business and financial
condition or results of operations. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
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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, assess 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 assess 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.
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 and disrupted telecommunications services in
the Caribbean. Hurricanes, tropical storms and other natural disasters could
have a material adverse effect on the Company's business as a result of 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 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 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
currently provides, or expects to provide, 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
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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 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 1996 Telecommunications Act has opened the
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 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, long distance carriers such as the Company
must purchase "access" from the LECs, including Competitive Local Exchange
Carriers. 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, absent a waiver,
certain terms of the Company's foreign carrier agreements do not meet the
requirements of the ISP or that certain actions do not constitute permissible
deviations from these policies. 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.
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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 (roughly the equivalent of access charges in the
U.S.), deregulation of the international segment of the long-distance market,
limitations on switched hubbing through the United States, international
simple resale ("ISR") and foreign ownership rules for facilities-based
carriers. In addition, Canada has committed in the WTO Agreement to eliminate
a number of barriers to competition, some of which are expected to be
eliminated in October 1998. The regulatory framework for the introduction of
competition in the provision of international services in Canada is currently
under active CRTC review. There can be no assurance that the regulatory
environment ultimately adopted for Canada will allow Primus to compete
effectively in offering telecommunications services. In addition, 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").
The Company is licensed under the Telecom Act to own and operate
transmission facilities in Australia. Under the new regulatory framework, the
Company does not require a carriage license in order to supply carriage
services to the public using network facilities owned by another carrier.
Instead, 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 is required to comply with its own license
and is 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
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. The Company's subsidiary, Primus Telecommunications
Limited, holds an ISVR license that authorizes it to provide switched voice
services over leased private lines to all international points. In addition,
Primus Telecommunications Limited has received a license from the United
Kingdom's Secretary for Trade and Industry to provide international
facilities-based voice services to all international points from the
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United Kingdom. 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.
Japan. The Company's services in Japan are subject to regulation by the
Ministry of Post and Telecommunications (the "Japanese Telecom Ministry")
under the Telecommunications Business Law (the "Japanese Telecom Law"). The
Company has obtained a license as a Special Type II business, which allows it
to provide telecommunications services over international circuits leased from
another carrier, or domestic service in Japan over leased circuits if the
volume of traffic exceeds a certain amount. The Company may also provide over
leased lines basic telecommunications services, value-added services and
services to closed user groups. The Company is preparing to apply for a
license to operate as a Type I business, which would allow the Company to
provide telecommunications services using their own facilities. There can be
no guarantee that the Company will be able to obtain any required licenses or
that once it obtains a license, the Japanese regulatory environment will allow
it to provide services in Japan at competitive rates.
Germany. The Company's services in Germany are governed by the German
Telecommunications Act of 1996 (the "German Telecom Act"), which, with respect
to most of its provisions, became effective at the end of July 1996, while all
of its market liberalizing provisions took effect on January 1, 1998. Under
the German Telecom Act, the Company must obtain a license if it (i) operates
transmission infrastructure for the provision of telecommunications services
to the public ("Class 3 License"); or (ii) offers voice telephony services to
the public through telecommunications networks operated by the Company ("Class
4 License"). The Company has obtained a Class 4 license and has entered into
an interconnection agreement with Deutsche Telekom, currently the dominant
operator in Germany, to be able to offer long-distance services on a retail
and wholesale basis. No license is required for the provision of value-added
services such as the reorigination services that the Company currently
provides in Germany, or services to closed user groups using leased lines. A
change in regulatory policy or court decisions could result in the Company
either being required to invest further in the German market in order to
continue to receive the lowest available interconnection rates or having to
pay less favorable interconnection prices. Moreover, the Company is subject to
certain regulatory requirements when it operates under its license, including
the requirement that it present its standard terms and conditions to German
regulators and possibly that it contribute to universal service mechanisms.
There can be no assurance that the regulatory environment in Germany generally
or the applicable interconnection rates with Deutsche Telekom will allow the
Company to provide telecommunications services competitively with other
providers.
Latin America. The recently completed TresCom Merger has provided the
Company with operations on several Caribbean islands and with customers in
several countries in Central America and South America. The Company may decide
to install switches and other network equipment in several of these countries.
Some countries allow only limited competition to the incumbent telephone
carrier, and others require prior authorization before providing competitive
services. Others, such as El Salvador and Guatemala, do not require prior
authorization but would require the Company to obtain numbers or
interconnection with the incumbent carrier. The Company initially will provide
to customers in several Latin American countries international call
reorigination or similar types of services that do not require the Company to
have a presence in the foreign country. Some of these countries may prohibit
some or all forms of call reorigination. There can be no guarantee that the
Company will be able to obtain any authorizations or otherwise take the
actions necessary to provide services in these countries. See "Business--
Government Regulation."
Other Jurisdictions. The Company intends to expand its operations into other
jurisdictions as such markets deregulate and it 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
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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 modify significantly 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.
CONTROL OF PRIMUS
The executive officers and directors of Primus beneficially own 9,542,041
shares of Primus Common Stock, representing 33.5% of the Common Stock. The
executive officers and directors have also been granted options to purchase an
additional 758,720 shares of Common Stock which vest after August 15, 1998. Of
these amounts, Mr. K. Paul Singh, Primus's Chairman and Chief Executive
Officer, beneficially owns 4,616,579 shares of Common Stock, including options
to purchase 225,400 shares of Common Stock. The Soros/Chatterjee Group (as
defined) beneficially owns 2,808,940 shares of Common Stock. Warburg, Pincus
(as defined) beneficially owns 3,875,689 shares of Common Stock. As a result,
the executive officers, directors, the Soros/Chatterjee Group and Warburg,
Pincus exercise significant influence over such matters as the election of the
Company's directors, 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.
Additionally, under the terms of a shareholders' agreement entered into in
connection with the TresCom Merger among Primus, Warburg, Pincus and Mr.
Singh, Primus has agreed to nominate one individual selected by Warburg,
Pincus and reasonably acceptable to the non-employee directors of Primus, to
serve as a member of the Primus board of directors. The foregoing nomination
right remains effective so long as Warburg, Pincus is the beneficial owner of
10% or more of the outstanding Common Stock. In June 1998, Douglas Karp joined
the Primus board of directors pursuant to the foregoing arrangement. See
"Management--Executive Officers and Directors," "Security Ownership of Certain
Beneficial Owners and Management," and "Certain Transactions--Private Equity
Sale," "Recent Developments--TresCom Merger."
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Exchange Notes are a new issue of securities, have no established
trading market, and may not be widely distributed. The Company does not intend
to list the Exchange Notes on any national securities exchange or to seek the
admission thereof to trading in The Nasdaq Stock Market. No assurance can be
given that an active public or other market will develop for the Exchange
Notes or as to the liquidity of or the trading market for the Exchange Notes.
If a trading market does not develop or is not maintained, holders of the
Exchange Notes may experience difficulty in reselling the Exchange Notes or
may be unable to sell them at all. If a market for the Exchange Notes
develops, any such market may be discontinued at any time. If a public trading
market develops for the Exchange Notes, future trading prices of the Exchange
Notes will depend on many factors, including, among other things, prevailing
interest rates, the Company's results of operations and the market for similar
securities, and the price at which the holders of Exchange Notes will be able
to sell such Exchange Notes is not assured and the Exchange Notes could trade
at a premium or discount to their purchase price or face value. Depending on
prevailing interest rates, the market for similar securities and other facts,
including the financial condition of the Company, the Exchange Notes may trade
at a discount from their principal amount.
ABSENCE OF REGISTRATION UNDER STATE SECURITIES LAWS
The Exchange Notes have not been registered or qualified under any state
securities laws. The Exchange Offer is being made both to U.S. institutional
investors, pursuant to exemptions from such laws for sales to such investors,
and to non-U.S. persons (within the meaning of Regulation S under the
Securities Act), as state securities laws do not apply to sales to persons who
are not residents of any state. In order to acquire the Initial Notes, each
Holder of Initial Notes was required to represent to the Company that it was
either (i) a "qualified institutional buyer" within the meaning of the Rule
144A under the Securities Act, (ii) an institutional "accredited investor"
within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under
the Securities
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<PAGE>
Act or (iii) a non-U.S. person within the meaning of Regulation S under the
Securities Act. Holders who wish to exchange their Initial Notes for Exchange
Notes pursuant to the Exchange Offer will be required to represent to the
Company that they remain institutional investors or non-U.S. persons, as they
represented at the time they acquired their Initial Notes. Any Holder who no
longer qualifies as such an institutional investor (e.g., a bank whose charter
has been revoked) or who is no longer a non-U.S. person, as the case may be,
will not be entitled to exchange such Initial Notes for Exchange Notes in the
Exchange Offer, unless another state securities law exemption is available. If
no such exemption is available, the Holder will continue to hold the Initial
Notes, which will continue to be subject to the restrictions on transfer as
set forth in the legend thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Initial Notes who do not exchange their Initial Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Initial Notes as set forth in the legend
thereon as a consequence of the issuance of the Initial Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Initial Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exemption from, or in a transaction
not subject to, the Securities Act and applicable state securities laws. The
Company does not currently anticipate that it will register the Initial Notes
for resale under the Securities Act. Exchange Notes issued pursuant to the
Exchange Offer in exchange for Initial Notes may be offered for resale, resold
or otherwise transferred by holders thereof (other than any such holder which
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act and other than any broker-dealer who purchased Initial Notes
directly from the Company for resale pursuant to Rule 144A under the
Securities Act or any other available exemption under the Securities Act)
without compliance with the registration and prospectus delivery provisions of
the Securities Act provided that such Exchange Notes are acquired in the
ordinary course of such holders' business and such holders have no arrangement
with any person to participate in the distribution of such Notes. Each broker-
dealer that acquired Initial Notes for its own account as a result of market
making or other trading activities and that receives Exchange Notes for its
own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. The
Letter of Transmittal states that, by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of Exchange Notes received in exchange for
Initial Notes where such Initial Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities. The Company
has agreed that, for a period of 180 days after the effective date of this
Prospectus, it will make this Prospectus, as it may be amended or supplemented
from time to time, available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution." However, to comply with the
securities laws of certain jurisdictions, if applicable, the Exchange Notes
may not be offered or sold unless they have been registered or qualified for
sale in such jurisdictions or an exemption from registration or qualification
is available and is complied with. To the extent that Initial Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Initial Notes will be adversely affected.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Initial Notes were sold by the Company to the Initial Purchasers on May
19, 1998, pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Initial Notes in reliance on Rule 144A under the
Securities Act and certain other exemptions under the Securities Act. The
Company and the Initial Purchasers also entered into the Registration Rights
Agreement, pursuant to which the Company agreed, with respect to the Initial
Notes, to (i) cause to be filed, on or prior to July 18, 1998, a registration
statement with the Commission under the Securities Act concerning the Exchange
Offer, (ii) use its reasonable best efforts to cause such registration
statement to be declared effective by the Commission on or prior to September
16, 1998 and (iii) to use its reasonable best efforts to cause the Exchange
Offer to remain open for a period of not less than 30 days. This Exchange
Offer is intended to satisfy the Company's exchange offer obligations under
the Registration Rights Agreement.
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to exchange $1,000
in principal amount of the Exchange Notes for each $1,000 in principal amount
of the outstanding Initial Notes. The Company will accept for exchange any and
all Initial Notes that are validly tendered on or prior to 5:00 p.m., New York
City time, on the Expiration Date. Tenders of the Initial Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Offer is not conditioned upon any minimum
principal amount of Initial Notes being tendered for exchange. However, the
Exchange Offer is subject to the conditions, terms and provisions of the
Registration Rights Agreement. The form and terms of the Exchange Notes will
be identical in all material respects to the form and terms of the Initial
Notes, except that (i) the Exchange Notes have been registered under the
Securities Act and, therefore, will not bear legends restricting the transfer
thereof, (ii) subject to certain limited exceptions, holders of Exchange Notes
will not be entitled to Liquidated Damages, and (iii) holders of Exchange
Notes will not be, and upon consummation of the Exchange Offer, Holders of
Initial Notes will no longer be, entitled to certain rights under the
Registration Rights Agreement intended for holders of unregistered securities.
See "--Conditions of the Exchange Offer."
Initial Notes may be tendered only in multiples of $1,000. Subject to the
foregoing, Holders may tender less than the aggregate principal amount
represented by the Initial Notes held by them, provided that they
appropriately indicate this fact on the Letter of Transmittal accompanying the
tendered Initial Notes (or so indicate pursuant to the procedures for book-
entry transfer).
As of the date of this Prospectus, $150.0 million in aggregate principal
amount of the Initial Notes is outstanding, the maximum amount authorized by
the Indenture for all Notes. As of , 1998, CEDE was the sole registered
holder of the Initial Notes and held $150.0 million of aggregate principal
amount of the Initial Notes for of its participants. Solely for reasons of
administration (and for no other purpose), the Company has fixed the close of
business on , 1998, as the record date (the "Record Date") for purposes
of determining the persons to whom this Prospectus and the Letter of
Transmittal will be mailed initially. Only a Holder of the Initial Notes (or
such Holder's legal representative or attorney-in-fact) may participate in the
Exchange Offer. There will be no fixed record date for determining Holders of
the Initial Notes entitled to participate in the Exchange Offer. The Company
believes that, as of the date of this Prospectus, no such the Holder is an
affiliate (as defined in Rule 405 under the Securities Act) of the Company.
The Company shall be deemed to have accepted validly tendered Initial Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering Holders
of Initial Notes and for the purposes of receiving the Exchange Notes from the
Company.
If any tendered Initial Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Initial Notes will be
returned, without expense, to the tendering Holder thereof as promptly as
practicable after the Expiration Date.
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EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Expiration Date shall be , 1998 at 5:00 p.m., New York City time,
unless the Company, in its sole discretion, extends the Exchange Offer, in
which case the Expiration Date shall be the latest date and time to which the
Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Such notice and
public announcement shall set forth the new Expiration Date of the Exchange
Offer.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Initial Notes, (ii) to extend the Exchange Offer, (iii) if any
of the conditions set forth below under "Conditions of the Exchange Offer"
shall not have been satisfied, to terminate the Exchange Offer by giving oral
or written notice of such delay, extension or termination to the Exchange
Agent, and (iv) to amend the terms of the Exchange Offer in any manner. If the
Exchange Offer is amended in a manner determined by the Company to constitute
a material change, the Company will, in accordance with applicable law, file a
post-effective amendment to the registration statement (a "Post-effective
Amendment") and resolicit the registered holders of the Initial Notes. If the
Company files a Post-effective Amendment, it will notify the Exchange Agent of
an extension of the Exchange Offer by oral or written notice, and will make a
public announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the effectiveness of such Post-effective
Amendment. Such notice and public announcement shall set forth the new
Expiration Date, which new Expiration Date shall be no less than five days
after the then applicable Expiration Date.
CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer is not conditioned upon any minimum principal amount of
Initial Notes being tendered for exchange. However, the Exchange Offer is
subject to the condition that it does not violate any applicable law or
interpretation of the staff of the Commission.
Further, as a condition to its participation in the Exchange Offer, each
Holder of Initial Notes (including, without limitation, any Holder who is a
Broker-Dealer) will be required to furnish a written representation to the
Company (which may be contained in the Letter of Transmittal to the effect
that such Holder (i) is not an affiliate of the Company, (ii) is not engaged
in, or does not intend to engage in, and has no arrangement or understanding
with any person to participate in, a distribution of the Exchange Notes to be
issued in the Exchange Offer and (iii) is acquiring the Exchange Notes in its
ordinary course of business. Each Holder using the Exchange Offer to
participate in a distribution of the Exchange Notes will be required to
acknowledge and agree that, if the resales are of Exchange Notes obtained by
such Holder in exchange for Initial Notes acquired directly from the Company
or an affiliate thereof, it (1) could not, under Commission policy as in
effect on the date of the Registration Rights Agreement, rely on the position
of the Commission enunciated in Morgan Stanley and Co., Incorporated
(available June 5, 1991) and Exxon Capital Holdings Corporation (available May
13, 1988), as interpreted in the Commission's letter to Shearman & Sterling
(available July 2, 1993) and K-III Communications Corporation (available May
14, 1993), or similar no-action or interpretive letters, and (2) must comply
with the registration and prospectus delivery requirements of the Exchange Act
in connection with a secondary resale transaction and that such a secondary
sale transaction must be covered by an effective registration statement
containing the selling security holder information required by Item 507 or
508, as applicable, of Regulation S-K, unless an exemption from registration
is otherwise available.
In addition, each Holder of Initial Notes will be required to furnish a
written representation to the Company (which may be contained in the Letter of
Transmittal to the effect that such Holder is either (A) a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act,
(B) an institutional "accredited
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investor" within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule
501 under the Securities Act or (C) a non-U.S. person within the meaning of
Regulation S under the Securities Act.
TERMINATION OF CERTAIN RIGHTS
The Registration Rights Agreement provides that, subject to certain
exceptions, in the event of a Registration Default, Holders of Initial Notes
are entitled to receive Liquidated Damages. If (i) the Company fails to file
with the Commission any of the Registration Statements required by the
Registration Rights Agreement on or before the date specified therein for such
filing, (ii) any of such Registration Statement is not declared effective by
the Commission on or prior to the date specified for such effectiveness in the
Registration Rights Agreement (the "Effectiveness Target Date"), (iii) the
Exchange Offer has not been consummated within 30 days after the Effectiveness
Target Date with respect to the Exchange Offer Registration Statement or (iv)
any Registration Statement required by the Registration Rights Agreement is
filed and declared effective but thereafter ceases to be effective or fails to
be usable for its intended purpose without being succeeded within five
business days by a post-effective amendment to such Registration Statement
that cures such failure and that is itself immediately declared effective
(each such event referred to in clauses (i) through (iv) above, a
"Registration Default"), additional cash interest ("Liquidated Damages") shall
accrue to each Holder of the Notes commencing upon the occurrence of such
Registration Default in an amount equal to .50% per annum of the principal
amount of Notes held by such Holder. The amount of Liquidated Damages will
increase by an additional .50% per annum of the principal amount of Notes with
respect to each subsequent 90-day period (or portion thereof) until all
Registration Defaults have been cured, up to a maximum rate of Liquidated
Damages of 1.50% per annum of the principal amount of Notes. All accrued
Liquidated Damages will be paid to Holders by the Company in the same manner
as interest is paid pursuant to the Indenture. Following the cure of all
Registration Defaults relating to any particular Transfer Restricted
Securities, the accrual of Liquidated Damages with respect to such Transfer
Restricted Securities will cease.
ACCRUED INTEREST ON THE INITIAL NOTES
The Exchange Notes will bear interest at a rate equal to 9 7/8% per annum
from and including their date of issuance. Holders whose Initial Notes are
accepted for exchange will have the right to receive interest accrued thereon
from the date of their original issuance or the last Interest Payment Date, as
applicable, to, but not including, the date of issuance of the Exchange Notes,
such interest to be payable with the first interest payment on the Exchange
Notes. Interest on the Initial Notes accepted for exchange, which interest
accrued at the rate of 9 7/8% per annum, will cease to accrue on the day prior
to the issuance of the Exchange Notes. See "Description of Exchange Notes--
General."
PROCEDURES FOR TENDERING INITIAL NOTES
The tender of a Holder's Initial Notes as set forth below and the acceptance
thereof by the Company will constitute a binding agreement between the
tendering Holder and the Company upon the terms and subject to the conditions
set forth in this Prospectus and in the accompanying Letter of Transmittal.
Except as set forth below, a Holder who wishes to tender Initial Notes for
exchange pursuant to the Exchange Offer must transmit such Initial Notes,
together with a properly completed and duly executed Letter of Transmittal,
including all other documents required by such Letter of Transmittal, to the
Exchange Agent at the address set forth on the back cover page of this
Prospectus prior to 5:00 p.m., New York City time, on the Expiration Date.
THE METHOD OF DELIVERY OF INITIAL NOTES, LETTERS OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
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Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Initial Notes surrendered for
exchange pursuant hereto are tendered (i) by a registered holder of the
Initial Notes who has not completed either the box entitled "Special Exchange
Instructions" or the box entitled "Special Delivery Instructions" in the
Letter of Transmittal or (ii) by an Eligible Institution (as defined). In the
event that a signature on a Letter of Transmittal or a notice of withdrawal,
as the case may be, is required to be guaranteed, such guarantee must be by a
firm which is a member of a registered national securities exchange or The
Nasdaq Stock Market, a commercial bank or trust company having an office or
correspondent in the United States or otherwise be an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(collectively, "Eligible Institutions"). If the Letter of Transmittal is
signed by a person other than the registered holder of the Initial Notes, the
Initial Notes surrendered for exchange must either (i) be endorsed by the
registered holder, with the signature thereon guaranteed by an Eligible
Institution or (ii) be accompanied by a bond power, in satisfactory form as
determined by the Company in its sole discretion, duly executed by the
registered holder, with the signature thereon guaranteed by an Eligible
Institution. The term "registered holder" as used herein with respect to the
Initial Notes means any person in whose name the Initial Notes are registered
on the books of the Registrar.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Initial Notes tendered for exchange
will be determined by the Company in its sole discretion, which determination
shall be final and binding. The Company reserves the absolute right to reject
any and all Initial Notes not properly tendered and to reject any Initial
Notes the Company's acceptance of which might, in the judgment of the Company
or its counsel, be unlawful. The Company also reserves the absolute right to
waive any defects or irregularities or conditions of the Exchange Offer as to
particular Initial Notes either before or after the Expiration Date (including
the right to waive the ineligibility of any holder who seeks to tender Initial
Notes in the Exchange Offer). The interpretation of the terms and conditions
of the Exchange Offer (including the Letter of Transmittal and the
instructions thereto) by the Company shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with
tenders of Initial Notes for exchange must be cured within such period of time
as the Company shall determine. The Company will use reasonable efforts to
give notification of defects or irregularities with respect to tenders of
Initial Notes for exchange but shall not incur any liability for failure to
give such notification. Tenders of the Initial Notes will not be deemed to
have been made until such irregularities have been cured or waived.
If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a
trustee, executor, corporation or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the Company, in
its sole discretion, of such person's authority to so act must be submitted.
Any beneficial owner of the Initial Notes (a "Beneficial Owner") whose
Initial Notes are registered in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to tender Initial Notes in the
Exchange Offer should contact such registered holder promptly and instruct
such registered holder to tender on such Beneficial Owner's behalf. If such
Beneficial Owner wishes to tender directly, such Beneficial Owner must, prior
to completing and executing the Letter of Transmittal and tendering Initial
Notes, make appropriate arrangements to register ownership of the Initial
Notes in such Beneficial Owner's name. Beneficial Owners should be aware that
the transfer of registered ownership may take considerable time.
By tendering, each registered holder will represent to the Company that,
among other things (i) the Exchange Notes to be acquired in connection with
the Exchange Offer by the Holder and each Beneficial Owner of the Initial
Notes are being acquired by the Holder and each Beneficial Owner in the
ordinary course of business of the Holder and each Beneficial Owner, (ii) the
Holder and each Beneficial Owner are not participating, do not intend to
participate, and have no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes, (iii) the Holder and
each Beneficial Owner acknowledge and agree that any person participating in
the Exchange Offer for the purpose of distributing the Exchange Notes
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must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of the
Exchange Notes acquired by such person and cannot rely on the position of the
staff of the Commission set forth in no-action letters that are discussed
herein under "Resales of Exchange Notes," (iv) that if the Holder is a broker-
dealer that acquired Initial Notes as a result of market making or other
trading activities, it will deliver a prospectus in connection with any resale
of Exchange Notes acquired in the Exchange Offer, (v) the Holder and each
Beneficial Owner understand that a secondary resale transaction described in
clause (iii) above should be covered by an effective registration statement
containing the selling security holder information required by Item 507 of
Regulation S-K of the Commission, and (vi) neither the Holder nor any
Beneficial Owner is an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company except as otherwise disclosed to the Company in
writing. In connection with a book-entry transfer, each participant will
confirm that it makes the representations and warranties contained in the
Letter of Transmittal.
Guaranteed Delivery Procedures. Holders who wish to tender their Initial
Notes and (i) whose Initial Notes are not immediately available or (ii) who
cannot deliver their Initial Notes or any other documents required by the
Letter of Transmittal to the Exchange Agent prior to the Expiration Date (or
complete the procedure for book-entry transfer on a timely basis), may tender
their Initial Notes according to the guaranteed delivery procedures set forth
in the Letter of Transmittal. Pursuant to such procedures: (i) such tender
must be made by or through an Eligible Institution and a Notice of Guaranteed
Delivery (as defined in the Letter of Transmittal) must be signed by such
Holder, (ii) on or prior to the Expiration Date, the Exchange Agent must have
received from the Holder and the Eligible Institution a properly completed and
duly executed Notice of Guaranteed Delivery (by facsimile transmission, mail
or hand delivery) setting forth the name and address of the Holder, the
certificate number or numbers of the tendered Initial Notes, and the principal
amount of tendered Initial Notes, stating that the tender is being made
thereby and guaranteeing that, within three business days after the date of
delivery of the Notice of Guaranteed Delivery, the tendered Initial Notes, a
duly executed Letter of Transmittal and any other required documents will be
deposited by the Eligible Institution with the Exchange Agent, and (iii) such
properly completed and executed documents required by the Letter of
Transmittal and the tendered Initial Notes in proper form for transfer (or
confirmation of a book-entry transfer of such Initial Notes into the Exchange
Agent's account at the Depositary) must be received by the Exchange Agent
within three business days after the Expiration Date. Any Holder who wishes to
tender Initial Notes pursuant to the guaranteed delivery procedures described
above must ensure that the Exchange Agent receives the Notice of Guaranteed
Delivery and Letter of Transmittal relating to such Initial Notes prior to
5:00 p.m., New York City time, on the Expiration Date.
Book-Entry Delivery. The Exchange Agent will establish an account with
respect to the Initial Notes at the Depositary ("Book-Entry Transfer
Facility") for purposes of the Exchange Offer promptly after the date of this
Prospectus. Any financial institution that is a participant in the Book-Entry
Transfer Facility's system may make book-entry delivery of the Initial Notes
by causing such facility to transfer Initial Notes into the Exchange Agent's
account in accordance with such facility's procedure for such transfer. Even
though delivery of Initial Notes may be effected through book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility, a
properly completed and duly executed Letter of Transmittal (or a manually
signed facsimile thereof), with any required signature guarantees, or an
Agent's Message (as defined below) in connection with a book-entry transfer,
and other documents required by the Letter of Transmittal, must, in any case,
be transmitted to and received by the Exchange Agent at one of its addresses
set forth on the back cover of this Prospectus before the Expiration Date, or
the guaranteed delivery procedure set forth above must be followed. Delivery
of the Letter of Transmittal and any other required documents to the Book-
Entry Transfer Facility does not constitute delivery to the Exchange Agent.
The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to, and received by, the Exchange Agent and forming a part
of a book-entry confirmation, which states that such Book-Entry Transfer
Facility has received an express acknowledgment from the participant in such
Book-Entry Transfer Facility tendering the Initial Notes that such participant
has received and agrees to be bound by the terms of the Letter of Transmittal
and that the Company may enforce such agreement against such participant.
31
<PAGE>
ACCEPTANCE OF INITIAL NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all the conditions to the Exchange Offer, the
Company will accept any and all Initial Notes that are properly tendered in
the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration
Date. The Exchange Notes issued pursuant to the Exchange Offer will be
delivered as soon as practicable after acceptance of the Initial Notes. For
purposes of the Exchange Offer, the Company shall be deemed to have accepted
validly tendered Initial Notes, when, as, and if the Company has given oral or
written notice thereof to the Exchange Agent.
In all cases, issuances of Exchange Notes for Initial Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of such Initial Notes, a properly
completed and duly executed Letter of Transmittal and all other required
documents (or of confirmation of a book-entry transfer of such Initial Notes
into the Exchange Agent's account at the Depositary); provided, however, that
the Company reserves the absolute right to waive any defects or irregularities
in the tender or conditions of the Exchange Offer. If any tendered Initial
Notes are not accepted for any reason, such unaccepted Initial Notes will be
returned without expense to the tendering Holder thereof as promptly as
practicable after the expiration or termination of the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of the Initial Notes may be withdrawn by delivery of a written
notice to the Exchange Agent, at its address set forth on the back cover page
of this Prospectus, at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Initial Notes to be withdrawn (the
"Depositor"), (ii) identify the Initial Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Initial Notes, as
applicable), (iii) be signed by the Holder in the same manner as the original
signature on the Letter of Transmittal by which such Initial Notes were
tendered (including any required signature guarantees) or be accompanied by a
bond power in the name of the person withdrawing the tender, in satisfactory
form as determined by the Company in its sole discretion, duly executed by the
registered holder, with the signature thereon guaranteed by an Eligible
Institution together with the other documents required upon transfer by the
Indenture, and (iv) specify the name in which such Initial Notes are to be re-
registered, if different from the Depositor, pursuant to such documents of
transfer. Any questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company, in its
sole discretion and such determination shall be final and binding. The Initial
Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Initial Notes which have been
tendered for exchange but which are withdrawn will be returned to the Holder
thereof without cost to such Holder as soon as practicable after withdrawal.
Properly withdrawn Initial Notes may be retendered by following one of the
procedures described under "The Exchange Offer--Procedures for Tendering
Initial Notes" at any time on or prior to the Expiration Date.
THE EXCHANGE AGENT; ASSISTANCE
First Union National Bank is the Exchange Agent. All tendered Initial Notes,
executed Letters of Transmittal and other related documents should be directed
to the Exchange Agent. Questions and requests for assistance and requests for
additional copies of the Prospectus, the Letter of Transmittal and other
related documents should be addressed to the Exchange Agent as follows:
BY MAIL, HAND OR OVERNIGHT DELIVERY: FACSIMILE TRANSMISSION:
First Union Customer Information Center (704) 590-7628
Reorganization Department, 3C3-NC 1153 To confirm receipt: (704) 590-7408
1525 West W.T. Harris Boulevard
Charlotte, N.C. 28262
32
<PAGE>
SOLICITATION OF TENDERS; FEES AND EXPENSES
No person has been authorized to give any information or to make any
representation in connection with the Exchange Offer other than those
contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any exchange made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the respective dates as
of which information is given herein. The Exchange Offer is not being made to
(nor will offers be accepted from or on behalf of) holders of Notes in any
jurisdiction in which the making of the Exchange Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction.
However, the Company may, at its discretion, take such action as it may deem
necessary to make the Exchange Offer in any such jurisdiction and extend the
Exchange Offer to holders of Notes in such jurisdiction.
All expenses incident to the Company's consummation of the Exchange Offer
and compliance with the Registration Rights Agreement will be borne by the
Company, including, without limitation: (i) all registration and filing fees
(including, without limitation, fees and expenses of compliance with state
securities laws), (ii) printing expenses (including, without limitation,
expenses of printing certificates for the Exchange Notes in a form eligible
for deposit with The Depositary and of printing Prospectuses), (iii)
messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, (v) fees and disbursements of independent certified
public accountants, (vi) rating agency fees, (vii) internal expenses of the
Company (including, without limitation, all salaries and expenses of officers
and employees of the Company performing legal or accounting duties), and (ix)
fees and expenses incurred in connection with the listing, if any, of the
Exchange Notes on a securities exchange.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptance of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Initial Notes, as reflected in the Company's accounting records on the date of
the exchange. Accordingly, no gain or loss will be recognized by the Company
for accounting purposes. The expenses of the Exchange Offer will be amortized
over the term of the Exchange Notes.
RESALES OF THE EXCHANGE NOTES
Based on interpretations by the staff of the Commission set forth in no-
action letters issued to third parties, the Company believes that the Exchange
Notes issued pursuant to the Exchange Offer to a Holder in exchange for
Initial Notes may be offered for resale, resold and otherwise transferred by
such Holder (other than (i) a broker-dealer who purchased Initial Notes
directly from the Company for resale pursuant to Rule 144A under the
Securities Act or any other available exemption under the Securities Act, or
(ii) a person that is an affiliate of the Company within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the Holder
is acquiring the Exchange Notes in the ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. The Company has not
requested or obtained an interpretive letter from the Commission staff with
respect to this Exchange Offer, and the Company and the Holders are not
entitled to rely on interpretive advice provided by the staff to other
persons, which advice was based on the facts and conditions represented in
such letters. However, the Exchange Offer is being conducted in a manner
intended to be consistent with the facts and conditions represented in such
letters. If any Holder acquires Exchange Notes in the Exchange Offer for the
purpose of distributing or participating in a distribution of the Exchange
Notes, such Holder cannot rely on the position of the staff of the Commission
enunciated in
33
<PAGE>
Morgan Stanley & Co., Incorporated (available June 5, 1991) and Exxon Capital
Holdings Corporation (available May 13, 1988), as interpreted in the
Commission's letters to Shearman and Sterling (available July 2, 1993) and K-
III Communications Corporation (available May 14, 1993), or similar no-action
or interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction, unless an exemption from registration is otherwise
available. Each broker-dealer that receives Exchange Notes for its own account
in exchange for Initial Notes, where such Initial Notes were acquired by such
broker-dealer as a result of market making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Company has agreed that for a period of 180 days
after the effective date of this Prospectus, it will make this Prospectus, as
amended and supplemented, available to any broker-dealer who receives Exchange
Notes in the Exchange Offer for use in connection with any such resale. See
"Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Initial Notes who do not exchange their Initial Notes for
Exchange Notes pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Initial Notes as set forth in the legend
thereon as a consequence of the offer or sale of the Initial Notes pursuant to
an exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Initial Notes may not be offered or sold, unless registered under
the Securities Act, except pursuant to an exception from, or in a transaction
not subject to, the Securities Act and applicable states securities laws. The
Company does not currently anticipate that it will register the Initial Notes
under the Securities Act. See "Risk Factors--Consequences of Failure to
Exchange."
OTHER
Participation in the Exchange Offer is voluntary, and holders of Initial
Notes should carefully consider whether to participate. Holders of the Initial
Notes are urged to consult their financial and tax advisers in making their
own decisions on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Initial Notes pursuant to the terms of, this Exchange Offer,
the Company will have fulfilled a covenant contained in the Registration
Rights Agreement. Holders of Initial Notes who do not tender their Initial
Notes in the Exchange Offer will continue to hold such Initial Notes and will
be entitled to all the rights, and limitations applicable thereto, under the
Indenture, except for any such rights under the Registration Rights Agreement
that by their terms terminate or cease to have further effectiveness as a
result of the making of this Exchange Offer. See "Description of Exchange
Notes." All untendered Initial Notes will continue to be subject to the
restrictions on transfer set forth in the Indenture. To the extent that
Initial Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered Initial Notes could be adversely affected.
The Company may in the future seek to acquire untendered Initial Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plan to acquire any Initial
Notes which are not tendered in the Exchange Offer.
34
<PAGE>
RECENT DEVELOPMENTS
TRESCOM MERGER
On June 9, 1998, pursuant to the Merger Agreement, the Company acquired all
of the outstanding shares of TresCom, a facilities-based long distance
telecommunications carrier focused on international long distance traffic
originating in the United States and terminating in Latin America. The TresCom
Merger has provided Primus with accelerated entry into the Latin American
international long distance markets and expanded scope and coverage of the
Network, thereby providing additional opportunities to migrate traffic onto
the Network, resulting in better utilization of the Network and reduced
variable costs per minute of use. The Company believes that, in addition to
providing transmission facilities, and adding foreign carrier agreements and
direct connection to foreign telecommunications carriers, the TresCom Merger
adds experienced management, and will enable the combined Company to realize
synergies in selling, general and administrative expenses. Under the terms of
the Merger Agreement, TresCom shareholders received approximately 0.6147
shares of Common Stock for each share of TresCom common stock exchanged in the
TresCom Merger.
TELEPASSPORT/USFI ACQUISITION
In October 1997, Primus completed the acquisition of all of the equity and
ownership interests of TelePassport and substantially all of the assets of
USFI for an aggregate purchase price of $11.5 million in cash. TelePassport
and USFI were under common control and engaged in the business of providing
international and domestic long distance and reorigination services in Europe,
Asia, and South Africa. The acquisition gave Primus a customer base in Germany
and a facilities-based carrier in Japan.
HOTKEY INVESTMENT
In March 1998, Primus purchased a controlling interest in Hotkey, a
Melbourne, Australia based Internet service provider. The Company's 60%
ownership of Hotkey was purchased for approximately $1.3 million in cash and,
under certain circumstances, the Company has the right to acquire 100% of the
equity interest in Hotkey. Hotkey will allow Primus to offer Internet access
to its customers in Australia and will serve as the Company's entrance into
Internet protocol based telephony. 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 approximately 4% of Hotkey. See "Certain
Transactions."
ECLIPSE ACQUISITION
In April 1998, Primus acquired all of the outstanding stock of Eclipse, a
data communications service provider based in Sydney, Australia. Eclipse
commenced operations in early 1996 and has approximately 100 business
customers, annualized revenues of approximately $4 million and data switches
and operational centers in all five capital cities in Australia. Primus paid
approximately $2.5 million for the stock of Eclipse, comprised of cash and
27,500 shares of Common Stock. With the acquisition of Eclipse, Primus now
offers a complete range of telecommunications services for corporate customers
in Australia, including fully integrated voice and data networks, as well as
Internet access services.
35
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1998: (i) the actual
capitalization of the Company; and (ii) the actual capitalization of the
Company after giving pro forma effect to the TresCom Merger and the sale of
the Initial Notes in the Offering, less discounts, commissions, and expenses
of the Offering payable by the Company, and the application of the net
proceeds therefrom. This table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Unaudited Consolidated Financial Statements of each of
Primus and TresCom, and notes thereto, and the Unaudited Pro Forma Financial
Data, and the notes thereto, all of which are included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------
ACTUAL PRO FORMA
------------ ---------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
Cash and cash equivalents.................. $ 97,381 $ 226,675
Restricted investments (including current
and long-term)............................ 61,478 61,478
------------ ------------
Total cash, cash equivalents and
restricted investments.................. $ 158,859 $ 288,153
============ ============
Debt and capital lease obligations:
11 3/4% Senior Notes due 2004............ $ 222,706 $ 222,706
9 7/8% Senior Notes due 2008............. -- 150,000
Notes payable............................ 189 189
Long-term obligations.................... -- 396
Capital lease obligations................ 9,343 14,280
------------ ------------
Total debt and capital lease
obligations........................... 232,238 387,571
Stockholders' Equity:
Common Stock, $.01 par value--40,000,000
shares actual and pro forma authorized;
19,822,945 shares actual and 27,659,311
shares pro forma, issued and
outstanding............................. 198 277
Additional paid-in capital............... 92,696 248,206
Accumulated deficit...................... (60,322) (60,322)
Cumulative translation adjustment........ (744) (744)
------------ ------------
Total stockholders' equity............. 31,828 187,417
------------ ------------
Total capitalization................... $ 264,066 $ 574,988
============ ============
</TABLE>
36
<PAGE>
SELECTED FINANCIAL DATA
PRIMUS
The following selected financial data should be read in conjunction with the
consolidated financial statements of Primus, and the notes thereto, contained
elsewhere in this Prospectus, and with "Management's Discussion and Analysis
of Financial Condition and Results of Operations." The statement of operations
data for Primus from inception to December 31, 1994, for the years ended
December 31, 1995, 1996, 1997, and the balance sheet data as of December 31,
1994, 1995, 1996 and 1997 have been derived from the consolidated financial
statements of Primus, which have been audited by Deloitte & Touche LLP,
independent auditors. The statement of operations data for Primus for the
three months ended March 31, 1997 and 1998, and the balance sheet data as of
March 31, 1998, has been derived from the unaudited consolidated financial
statements of Primus, which, in management's opinion, include all adjustments
(consisting of only normal recurring adjustments) necessary for a fair
presentation of the information set forth therein.
<TABLE>
<CAPTION>
THREE MONTHS
PERIOD FROM YEAR ENDED ENDED
INCEPTION THROUGH DECEMBER 31, MARCH 31,
DECEMBER 31, --------------------------- -----------------
1994 1995 1996 1997 1997 1998
----------------- ------- -------- -------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net revenue............. $ -- $ 1,167 $172,972 $280,197 $59,036 $ 80,051
Cost of revenue......... -- 1,384 158,845 252,731 55,034 68,722
------ ------- -------- -------- ------- --------
Gross margin
(deficit)............. -- (217) 14,127 27,466 4,002 11,329
------ ------- -------- -------- ------- --------
Operating expenses:
Selling, general and
administrative........ 557 2,024 20,114 50,622 8,829 15,377
Depreciation and
amortization.......... 12 160 2,164 6,733 797 3,478
------ ------- -------- -------- ------- --------
Total operating
expenses............ 569 2,184 22,278 57,355 9,626 18,855
------ ------- -------- -------- ------- --------
Loss from operations.... (569) (2,401) (8,151) (29,889) (5,624) (7,526)
Interest expense........ (13) (59) (857) (12,914) (151) (7,175)
Interest income......... 5 35 785 6,238 785 2,384
Other income (expense).. -- -- (345) 407 119 --
------ ------- -------- -------- ------- --------
Loss before income
taxes.................. (577) (2,425) (8,568) (36,158) (4,871) (12,317)
Income taxes............ -- -- (196) (81) (36) --
------ ------- -------- -------- ------- --------
Net loss................ $ (577) $(2,425) $ (8,764) $(36,239) $(4,907) $(12,317)
====== ======= ======== ======== ======= ========
Basic and diluted net
loss per common share.. $(0.07) $ (0.48) $ (0.75) $ (1.99) $ (0.28) $ (0.62)
====== ======= ======== ======== ======= ========
Weighted average number
of common shares
outstanding............ 8,560 5,019 11,660 18,250 17,779 19,717
====== ======= ======== ======== ======= ========
Ratio of earnings to
fixed charges (1)...... -- -- -- -- -- --
====== ======= ======== ======== ======= ========
GEOGRAPHIC DATA:
Net revenue
North America (2)...... $ -- $ 1,167 $ 16,573 $ 74,359 $ 8,271 $ 26,310
Asia Pacific (3)....... -- -- 151,253 183,126 46,886 44,659
Europe (4)............. -- -- 5,146 22,712 3,879 9,082
------ ------- -------- -------- ------- --------
Total.................. $ -- $ 1,167 $172,972 $280,197 $59,036 $ 80,051
====== ======= ======== ======== ======= ========
OTHER DATA:
EBITDA (5).............. $ (557) $(2,241) $ (5,987) $(23,156) $(4,827) $ (4,048)
Capital expenditures
(6).................... $ 124 $ 974 $ 15,951 $ 43,457 $ 8,771 $ 12,044
Number of switches...... -- 1 1 11 8 11
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------ ---------
1994 1995 1996 1997 1998
---- ------ -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short term
investments......................... $221 $2,296 $ 60,599 $115,232 $ 97,381
Restricted investments (including
current and long-term).............. -- -- -- 73,550 61,478
Working capital (deficit)............ (295) 1,295 39,282 115,995 104,726
Total assets......................... 487 5,042 140,560 358,013 355,563
Total debt (including current
portion)............................ 13 528 17,248 231,211 232,238
Stockholders' equity ................ 71 2,562 76,440 42,526 31,828
</TABLE>
- --------
(1) The ratio of earnings to fixed charges is computed by dividing pre-tax
income from operations before fixed charges (other than capitalized
interest) by fixed charges. Fixed charges consist of interest charges,
whether expensed or capitalized, and that portion of rental expense the
Company believes to be representative of interest. For 1994, 1995, 1996
and 1997, and for the three months ended March 31, 1997 and 1998, earnings
were insufficient to cover fixed charges by $0.6 million, $2.4 million,
$8.6 million, $36.4 million, $5.1 million and $12.3 million, respectively.
(2) Consists primarily of net revenue from operations in the United States for
all periods prior to April 1997. Net revenue for 1997 and for the three
months ended March 31, 1998 reflects commencement of operations in Canada
beginning in April, 1997.
(3) Consists solely of net revenue from operations in Australia for 1996. Net
revenue for 1997 and for the three months ended March 31, 1998 reflects
commencement of operations in Japan beginning in October 1997.
(4) Consists solely of net revenue from operations in the United Kingdom.
(5) As used herein, "EBITDA" is defined as net income or loss plus
depreciation expense, amortization expense, interest expense and income
taxes, minus extraordinary income and gains, if any, and plus
extraordinary losses, if any. 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 Primus to meet its future
debt service, capital expenditures and working capital requirements.
EBITDA is not necessarily a measure of Primus's ability to fund its cash
needs and is not necessarily comparable to similarly titled measures of
other companies.
(6) Capital expenditures include assets acquired, committed to be acquired and
leased under capital lease agreements.
38
<PAGE>
TRESCOM
The following selected consolidated financial data for TresCom and its
predecessors should be read in conjunction with the consolidated financial
statements of TresCom, and the notes thereto, contained elsewhere herein and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--TresCom." The selected consolidated financial data of (i) St.
Thomas and San Juan Telephone Company, Inc. ("SJTC") and Total
Telecommunications, Inc. ("TTI"), TresCom's combined predecessors, (ii)
TresCom's combined predecessors and TresCom and (iii) TresCom alone 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 TresCom's combined predecessors and TresCom, 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 its predecessors. The
statement of operations data for TresCom for the three months ended March 31,
1997 and 1998, and the balance sheet data as of March 31, 1998, has been
derived from the unaudited consolidated financial statements of TresCom which,
in management's opinion, include all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of the information
set forth therein. The selected consolidated financial data as of December 31,
1993 have been derived from the unaudited financial statements of TresCom and
its predecessors, which the Company believes include all adjustments TresCom
considers necessary for a fair presentation of the financial information set
forth therein.
<TABLE>
<CAPTION>
COMBINED
COMBINED PREDECESSORS
PREDECESSORS AND TRESCOM TRESCOM
------------------------- ------------ -------------------------------------------------------------
PERIOD THREE
FROM MONTHS
YEAR JANUARY 1, YEAR YEAR ENDED ENDED
ENDED 1994 TO ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, NOVEMBER 30, DECEMBER 31, ----------------------------------------- ----------------
1993(1) 1994(2) 1994(3) 1994(4) 1995 1996 1997 1997 1998
------------ ------------ ------------ -------- -------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <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) $36,143 $38,137
Cost of
services........ 15,994 11,802 32,603 20,801 74,679 106,928 124,365 27,812 30,971
------- ------- -------- -------- -------- -------- -------- ------- -------
Gross profit..... 11,906 7,069 17,687 10,618 27,962 32,693 33,276 8,331 7,166
Selling, general
and
administrative.. 11,078 7,222 29,432 22,210 32,437 30,808 36,386 8,108 9,262
Depreciation and
amortization.... 602 252 2,156 1,904 3,961 4,928 6,599 1,501 1,944
------- ------- -------- -------- -------- -------- -------- ------- -------
Operating income
(loss).......... 226 (405) (13,901) (13,496) (8,436) (3,043) (9,709) (1,278) (4,040)
Interest and
other (income)
expense, net.... 130 134 693 559 3,191 578 1,146 (2) 435
------- ------- -------- -------- -------- -------- -------- ------- -------
Net income (loss)
before taxes and
extraordinary
item............ 96 (539) (14,594) (14,055) (11,627) (3,621) (10,855) (1,276) (4,475)
Provision for
income taxes.... 99 13 13 -- -- -- -- -- --
------- ------- -------- -------- -------- -------- -------- ------- -------
Loss before
extraordinary
item............ (3) (552) (14,607) (14,055) (11,627) (3,621) (10,855) (1,276) (4,475)
Extraordinary
item............ -- -- -- -- -- 1,956 -- -- --
------- ------- -------- -------- -------- -------- -------- ------- -------
Net loss......... $ (3) $ (552) $(14,607) $(14,055) $(11,627) $ (5,577)(6) $(10,855) $(1,276) $(4,475)
======= ======= ======== ======== ======== ======== ======== ======= =======
OTHER DATA:
EBITDA(7)........ $ 828 $ (153) $ (6,299) $ (6,146) $ (4,336) $ (3,149) $ (2,853) $ 385 $(1,936)
Capital
expenditures.... N/A N/A N/A $ 5,612 $ 5,528 $ 12,796 $ 9,049 $ 1,080 $ 1,449
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
COMBINED
PREDECESSORS
COMBINED AND
PREDECESSORS TRESCOM TRESCOM TRESCOM
DECEMBER 31, DECEMBER 31, DECEMBER 31, MARCH 31,
---------------- ----------------- ----------------- ---------
1993 1994 1994 1995 1996 1997 1998
------- ------- ------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.................... $ 1,786 $ -- $ -- $ 2,052 $ 6,020 $ 1,481 $ 102
Working capital
(deficiency)........... 122 (8,674) (8,674) (30,012) 8,201 5,744 2,182
Total assets............ 13,718 61,565 61,565 72,630 101,610 108,429 101,991
Long-term obligations
due within one year.... 1,408 174 174 25,290 817 1,098 1,299
Long-term obligations... 8,817 26,114 26,114 702 3,965 19,593 19,842
Stockholders' (deficit)
equity................. (2,147) 14,875 14,875 21,508 67,322 58,950 54,781
</TABLE>
- --------
(1) Includes approximately $25,000 of start-up costs incurred by TresCom from
its formation on December 8, 1993 through December 31, 1993.
(2) Includes operations for St. Thomas and SJTC 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
TresCom 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 $543,000 of revenue from the sale of excess
IRU capacity on undersea digital fiber optic transmission cables.
(6) Includes an extraordinary loss on the early extinguishment of debt of $2.0
million.
(7) As used herein, "EBITDA" is defined as net income or loss plus
depreciation expense, amortization expense, interest expense and income
taxes, minus extraordinary income, if any, and plus extraordinary losses,
if any. EBITDA also includes an adjustment of $5.4 million 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 contribute to
the payment of the Company's future debt service, capital expenditures and
working capital requirements. EBITDA is not necessarily a measure of the
ability to fund cash needs and is not necessarily comparable to similarly
titled measures of other companies.
40
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma consolidated financial statements are
based on the historical presentation of the consolidated financial statements
of the Company and TresCom. The Unaudited Pro Forma Consolidated Statement of
Operations for the three months ended March 31, 1998 gives effect to the
TresCom Merger and the Offering as if they had occurred on January 1, 1998.
The Unaudited Pro Forma Consolidated Statement of Operations for the year
ended December 31, 1997, gives effect to the TresCom Merger, the
TelePassport/USFI Acquisition and the Offering as if they had occurred on
January 1, 1997. The Unaudited Pro Forma Consolidated Balance Sheet as of
March 31, 1998 gives effect to the TresCom Merger and the Offering, as if they
had occurred on March 31, 1998. The unaudited pro forma consolidated financial
statements should be read in conjunction with the historical financial
statements, including notes thereto, of Primus, TresCom, and USFI, Inc.
included elsewhere herein.
The TresCom Merger has been 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 management'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.
The unaudited pro forma 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.
41
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA AS ADJUSTED
NOTES AS ADJUSTED TRESCOM AND
OFFERING NOTES TRESCOM NOTES
PRIMUS ADJUSTMENTS OFFERING TRESCOM ADJUSTMENTS OFFERING
-------- ----------- ----------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue............. $ 80,051 $ -- $ 80,051 $38,137 $(1,817)(2) $114,664
(1,707)(3)
Cost of revenue......... 68,722 -- 68,722 30,971 (1,707)(3) 97,986
-------- ------- -------- ------- ------- --------
Gross margin............ 11,329 -- 11,329 7,166 (1,817) 16,678
Operating expenses:
Selling, general and
administrative........ 15,377 -- 15,377 9,262 (1,817)(2) 22,822
Depreciation and
amortization.......... 3,478 -- 3,478 1,944 (587)(4) 6,894
2,083 (5)
(24)(7)
-------- ------- -------- ------- ------- --------
Total operating
expenses.............. 18,855 -- 18,855 11,206 (345) 29,716
-------- ------- -------- ------- ------- --------
Loss from operations.... (7,526) -- (7,526) (4,040) (1,472) (13,038)
Interest expense........ (7,175) (3,828)(1) (11,003) (415) 410 (6) (11,008)
Interest income......... 2,384 -- 2,384 -- -- 2,384
Other income (expense).. -- -- -- (20) -- (20)
-------- ------- -------- ------- ------- --------
Loss before income
taxes.................. (12,317) (3,828) (16,145) (4,475) (1,062) (21,682)
Income taxes............ -- -- -- -- -- (8) --
-------- ------- -------- ------- ------- --------
Net loss................ $(12,317) $(3,828) $(16,145) $(4,475) $(1,062) $(21,682)
======== ======= ======== ======= ======= ========
Basic and diluted loss
per common share....... $ (0.62) $ (0.79)
======== ========
Weighted average number
of common shares
outstanding............ 19,717 7,836 (9) 27,553
======== ======= ========
</TABLE>
- --------
Notes Offering:
(1) To reflect interest expense on the Notes, at an interest rate of 9.875%,
and amortization on $5.0 million of deferred financing costs.
TresCom Adjustments:
(2) To reflect the reclassification of TresCom's bad debt costs from SG&A to a
reduction of revenue to conform to Primus's accounting policies.
(3) To eliminate the effects of intercompany transactions between Primus and
TresCom.
(4) To reverse amortization expense associated with TresCom's previously
acquired customer list and the excess of purchase price over the fair
value of assets acquired.
(5) To record amortization expense associated with acquired customers list and
the excess of purchase price over the fair value of net assets acquired.
(6) To reflect reduction in interest expense related to the repayment of
TresCom's credit line in connection with the TresCom Merger.
(7) To reflect reduction in amortization of deferred financing costs resulting
from repayment of credit line in connection with the TresCom Merger.
(8) 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.
(9) To reflect the issuance of Primus Common Stock in exchange for the
outstanding shares of TresCom.
42
<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
AS ADJUSTED,
PRO FORMA AS ADJUSTED TRESCOM, USFI/
USFI/TELEPASSPORT AND TELEPASSPORT AND
NOTES OFFERING NOTES OFFERING
-------------------------------------- -----------------------
USFI/ NOTES
USFI, TELEPASSPORT TELEPASSPORT OFFERING TRESCOM
PRIMUS INC.(1) L.L.C.(1) ADJUSTMENTS ADJUSTMENTS COMBINED TRESCOM ADJUSTMENTS COMBINED
-------- ------- ------------ ------------ ----------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenue......... $280,197 $27,040 $ 3,108 $(9,673)(2) $ -- $300,672 $157,641 $(4,159)(6) $448,929
(5,225)(7)
Cost of revenue..... 252,731 20,907 2,704 (8,029)(2) -- 268,313 124,365 (5,225)(7) 387,453
-------- ------- ------- ------- -------- -------- -------- ------- --------
Gross margin........ 27,466 6,133 404 (1,644) -- 32,359 33,276 (4,159) 61,476
Operating expenses:
Selling, general
and
administrative.... 50,622 11,182 1,389 -- -- 63,193 36,386 (4,159)(6) 95,420
Depreciation and 6,733 674 74 409 (3) -- 7,890 6,599 (2,167)(8) 20,308
amortization...... 8,109 (9)
(123)(10)
-------- ------- ------- ------- -------- -------- -------- ------- --------
Total operating
expenses.......... 57,355 11,856 1,463 409 -- 71,083 42,985 1,660 115,728
-------- ------- ------- ------- -------- -------- -------- ------- --------
Loss from
operations......... (29,889) (5,723) (1,059) (2,053) -- (38,724) (9,709) (5,819) (54,252)
Interest expense.... (12,914) -- (18) -- (15,313)(5) (28,245) (1,146) 433 (11) (28,958)
Interest income..... 6,238 -- -- -- -- 6,238 -- -- 6,238
Other income
(expense).......... 407 25 162 -- 594 -- -- 594
-------- ------- ------- ------- -------- -------- -------- ------- --------
Loss before income
taxes.............. (36,158) (5,698) (915) (2,053) (15,313) (60,137) (10,855) (5,386) (76,378)
Income taxes........ (81) -- -- -- (4) -- (81) -- -- (12) (81)
-------- ------- ------- ------- -------- -------- -------- ------- --------
Net loss............ $(36,239) $(5,698) $ (915) $(2,053) $(15,313) $(60,218) $(10,855) $(5,386) $(76,459)
======== ======= ======= ======= ======== ======== ======== ======= ========
Basic and diluted
net loss per common
share.............. $ (1.99) $ (2.93)
======== ========
Weighted average
number of common
shares
outstanding........ 18,250 7,836 (13) 26,086
======== ======= ========
</TABLE>
- -------
(1) Represents the historical results of operations of USFI, Inc. and
TelePassport L.L.C. for the period from January 1, 1997 through the
Company's acquisition on October 20, 1997.
USFI/TelePassport adjustments:
(2) To eliminate net revenue and cost of revenue for a portion of the
customer base which was not purchased by Primus.
(3) To record amortization expense associated with acquired customer list and
the excess of purchase price over the fair value of net assets acquired.
(4) The pro forma adjustment to the income tax provision is zero because a
valuation reserve was applied in full to the tax benefit associated with
the pro forma loss before income taxes.
Notes Offering:
(5) To reflect estimated interest expense on the Notes, at an interest rate
of 9.875%, and amortization on $5.0 million of deferred financing costs.
TresCom adjustments:
(6) 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's accounting policies.
(7) To eliminate the effects of intercompany transactions between Primus and
TresCom.
(8) 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.
(9) To record amortization expense associated with acquired customer list and
the excess of purchase price over the fair value of net assets acquired.
(10) To reflect reduction in amortization of deferred financing costs
resulting from the expected repayment of credit line in connection with
the acquisition.
(11) To reflect reduction in interest expense related to the expected
repayment of TresCom's credit line in connection with the acquisition.
(12) The pro forma adjustment to the income tax provision is zero because a
valuation reserve was applied in full to the tax benefit associated with
the pro forma loss before income taxes.
(13) To reflect the issuance of Primus Common Stock in exchange for the
outstanding shares of TresCom.
43
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA AS ADJUSTED,
AS ADJUSTED TRESCOM TRESCOM AND
PRIMUS NOTES OFFERING TRESCOM ADJUSTMENTS NOTES OFFERING
-------- -------------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash
Equivalents.......... $ 97,381 $242,381 $ 102 $(15,808)(1) $226,675
Restricted
investments.......... 23,795 23,795 -- -- 23,795
Accounts receivable,
net.................. 69,124 69,124 26,956 -- 96,080
Prepaid expenses and
other current
assets............... 7,048 7,048 2,492 -- 9,540
-------- -------- -------- -------- --------
Total current
assets............. 197,348 342,348 29,550 (15,808) 356,090
RESTRICTED INVESTMENTS.. 37,683 37,683 -- -- 37,683
PROPERTY AND EQUIPMENT--
Net.................... 70,023 70,023 29,895 -- 99,918
INTANGIBLES--Net........ 36,436 36,436 41,606 100,808 (2) 178,850
DEFERRED INCOME TAXES... 2,667 2,667 -- -- 2,667
OTHER ASSETS............ 11,406 16,406 940 -- 17,346
-------- -------- -------- -------- --------
TOTAL ASSETS............ $355,563 $505,563 $101,991 $ 85,000 $692,554
======== ======== ======== ======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable...... $ 69,116 $ 69,116 $ 19,574 $ -- $ 88,690
Accrued expenses,
interest and other
current liabilities.. 18,797 18,797 6,495 -- 25,292
Deferred income
taxes................ 3,057 3,057 -- -- 3,057
Current portion of
long-term
obligations.......... 1,652 1,652 1,299 -- 2,951
-------- -------- -------- -------- --------
Total current
liabilities........ 92,622 92,622 27,368 -- 119,990
LONG-TERM OBLIGATIONS... 230,586 380,586 19,842 (15,808)(1) 384,620
OTHER LIABILITIES....... 527 527 -- -- 527
-------- -------- -------- -------- --------
Total liabilities... 323,735 473,735 47,210 (15,808) 505,137
-------- -------- -------- -------- --------
COMMITMENTS AND
CONTINGENCIES
TOTAL STOCKHOLDERS'
EQUITY................. 31,828 31,828 54,781 100,808 (3) 187,417
-------- -------- -------- -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY... $355,563 $505,563 $101,991 $ 85,000 $692,554
======== ======== ======== ======== ========
</TABLE>
- --------
(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 assets acquired.
(3) To eliminate the equity of TresCom and to reflect the issuance of
approximately 7.8 million shares of Common Stock based upon an exchange
ratio of 0.6147 for each share of TresCom common stock.
44
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
applicable consolidated financial statements and notes thereto contained
elsewhere in this Prospectus.
OVERVIEW
Primus is a facilities-based global telecommunications company that offers
international and domestic long distance and other telecommunications services
to business, residential and carrier customers in North America and selected
markets within the Asia-Pacific region and Europe. Primus has recently
expanded its geographic presence in Latin America through its acquisition of
TresCom, which currently provides international long distance service
primarily for calls originating in the United States. The Company seeks to
capitalize on the increasing demand for high-quality international
telecommunications services resulting from the globalization of the world's
economies and the worldwide trend toward telecommunications deregulation.
Primus provides these services over its global intelligent network and through
resale arrangements and foreign carrier agreements. Currently the Company
serves approximately 275,000 customers in its Service Regions. The United
States, Australia and the United Kingdom are the most deregulated countries
within the Company's Service Regions and will serve as regional hubs for
Primus's intended expansion into additional markets as worldwide deregulation
of telecommunications markets continues.
The Company was founded in February 1994, and through the first half of 1995
was a development stage enterprise involved in various start-up activities,
including raising capital, obtaining licenses, acquiring equipment, leasing
space, developing markets and recruiting and training personnel. The Company
began generating revenue during March 1995. On March 1, 1996 the Company
acquired Axicorp, the fourth largest telecommunications provider in Australia.
The acquisition of Axicorp has had a material effect on the Company's results
of operations for the year ended December 31, 1996. The Company's Australian
operations generated approximately $177.6 million, or 89%, of the Company's
pro forma net revenue for the year ended December 31, 1996.
The Company has invested substantial resources to transform Axicorp's
strategy and operations to those of a facilities-based carrier focused on the
provision of international and domestic long distance services. Prior to the
acquisition, Axicorp was a switchless reseller of long distance, local and
cellular service. Since the acquisition, the Company has installed and begun
to carry traffic on a five-switch network in Australia, has leased fiber
capacity connecting Australia with the United States and, in July 1997, became
one of the initial five licensed carriers permitted to own and operate
transmission facilities in Australia. In addition, the Company has focused on
migrating existing traffic onto the Company's Network while increasing the
number of higher-margin, higher-volume business customers with significant
international long distance traffic. As part of its focus on business
customers, the Company has increased Axicorp's direct sales force and reduced
its reliance on marketing through trade and professional associations. The
Company has experienced and expects to continue to experience lower gross
margin as a percentage of net revenue for Axicorp's local switched and
cellular services, as compared to long distance services. The Company expects
to continue to upgrade Axicorp's facilities, increase its traffic capacity and
introduce new products and services. In that regard, the Company expanded its
service offerings in Australia with its acquisition in March 1998 of a
controlling interest in Hotkey, an Australia-based Internet service provider,
and its acquisition in April 1998 of all the outstanding stock of Eclipse, an
Australia-based data communications service provider.
On June 9, 1998, pursuant to the Merger Agreement, the Company acquired the
operations of TresCom. After giving pro forma effect to the TresCom Merger and
the TelePassport/USFI Acquisition, for the year ended December 31, 1997, the
Company would have had net revenue of $448.9 million. After giving pro forma
effect to the TresCom Merger, for the three months ended March 31, 1998, the
Company would have had net revenue of $114.7 million. The TresCom Merger
provides Primus with accelerated entry into the Latin American international
long distance markets and expands the scope and coverage of the Network,
thereby providing
45
<PAGE>
additional opportunities to migrate traffic onto the Network, resulting in
better utilization of the Network and reduced variable costs. The Company
believes that, in addition to providing transmission facilities, the TresCom
Merger adds foreign carrier agreements, direct connections to foreign
telecommunications carriers and experienced management, and enables the
combined Company to realize synergies in sales, marketing and administration.
See "Unaudited Pro Forma Financial Data."
Net revenue is earned based on the number of minutes billable by the Company
and is recorded upon completion of a call, adjusted for sales allowance. The
Company generally prices its services at a savings compared to the major
carriers operating in the Service Regions. The Company's net revenue is
derived from carrying a mix of business, residential and wholesale carrier
long distance traffic and, in Australia, also from the provision of local and
cellular services. The Company expects to continue to generate net revenue
from internal growth through sales and marketing efforts focused, on a retail
basis, toward small- and medium-sized businesses with significant
international long distance traffic and ethnic residential customers and, on a
wholesale basis, to other telecommunications carriers and resellers with
international traffic in the Company's service areas.
Prices in the long distance industry in the United States and the United
Kingdom have declined in recent years and, as competition continues to
increase, the Company believes that prices are likely to continue to decrease.
Additionally, the Company believes that because deregulatory influences only
recently have begun to affect non-United States and non-United Kingdom
telecommunications markets, the deregulatory trend in such markets is expected
to result in greater competition which could adversely affect net revenue per
minute and gross margin as a percentage of net revenue. The Company believes,
however, that such decreases in prices will be at least partially offset by
increased telecommunications usage and decreased costs.
Cost of revenue is primarily comprised of costs incurred from other domestic
and foreign telecommunications carriers to originate, transport and terminate
calls. The majority of the Company's cost of revenue is variable, based upon
the number of minutes of use, with transmission and termination costs being
the Company's most significant expense. As the Company increases the portion
of traffic transmitted over leased or owned facilities, cost of revenue
increasingly will be comprised of fixed costs. In order to manage such costs,
the Company pursues a flexible approach with respect to Network expansion. In
most instances, the Company initially obtains transmission capacity on a
variable-cost, per-minute leased basis, next acquires additional capacity on a
fixed-cost basis when traffic volume makes such a commitment cost-effective,
and ultimately purchases and operates its own facilities when traffic levels
justify such investment. The Company also seeks to lower its cost of revenue
through (i) optimizing the routing of calls over the least cost routing, (ii)
increasing volumes on its fixed cost leased and owned lines, thereby spreading
the allocation of fixed costs over a larger number of minutes, (iii)
negotiating lower variable usage based costs with domestic and foreign service
providers and negotiating additional and lower cost foreign carrier agreements
with foreign PTTs and others, and (iv) continuing to expand the Network when
traffic volumes justify such investment. See "Risk Factors--Managing Rapid
Growth" and "Business--Network."
Typical of the long distance telecommunications industry, the Company
generally realizes a higher gross margin as a percentage of net revenue on its
international as compared to its domestic long distance services and expects
to realize a higher gross margin as a percentage of net revenue on its retail
(business and residential) services compared to those realized on its
wholesale services. In addition, the Company generally realizes a higher gross
margin as a percentage of net revenue on its long distance services as
compared to those realized on local switched and cellular services. Wholesale
services, which generate a lower gross margin as a percentage of net revenue
than retail services, are an important part of the Company's net revenue
because the additional traffic volume of such wholesale customers improves the
utilization of the Network and allows the Company to obtain greater volume
discounts from its suppliers than it otherwise would realize. The Company's
overall gross margin as a percentage of net revenue may fluctuate based on its
relative volumes of international versus domestic long distance services,
wholesale versus retail long distance services, and the proportion of traffic
carried on the Company's Network versus resale of other carriers' services.
46
<PAGE>
Selling, general and administrative expenses are comprised primarily of
salaries and benefits, commissions, occupancy costs, sales and marketing
expenses, advertising and administrative costs. These expenses have been
increasing consistent with the expansion of the Company's operations and the
transformation of Axicorp's operations. The Company expects this trend to
continue and believes that additional selling, general and administrative
expenses will be necessary to support the expansion of sales and marketing
efforts and operations in current markets as well as new markets in the
Service Regions.
Since its inception, the Company has made, and expects to continue to make,
significant investments in the development of its operations in its Service
Regions and the development and expansion of the Network. The TresCom Merger
is expected to accelerate the timing, as well as the extent, of the expansion
of the Network. The costs of developing its operations and expanding the
Network, including the purchase and installation of switches, sales and
marketing expenses and other organizational costs, are significant. In
addition, increased capital investment activity in the future can be expected
to affect the Company's operating results in the near term due to increased
depreciation charges and interest expense in connection with borrowings to
fund such expenditures, which costs will be incurred in advance of the
realization of the expected improvements in operating results from such
investments. Such costs and investment activity have resulted in negative cash
flows and operating losses for the Company on an historical basis, which are
expected to continue to increase in the near future as the Company uses the
proceeds of the Offering to accelerate the expansion of its business and the
build-out of the Network. See "Use of Proceeds" and "--Liquidity and Capital
Resources."
Although the Company's functional currency is the United States dollar, the
majority of the Company's net revenue is derived from its sales and operations
outside the United States. In the future, the Company expects to continue to
derive the majority of its net revenue and incur a significant portion of its
operating costs outside the United States and changes in exchange rates may
have a significant effect on the Company's results of operations. The Company
historically has not engaged in hedging transactions, and does not currently
contemplate engaging in hedging transactions to mitigate foreign exchange
risk. See "Risk Factors--Risk Associated with International Operations."
Other Operating Data. The following information for the seven quarters ended
March 31, 1998 is provided for informational purposes and should be read in
conjunction with the Company's Consolidated Financial Statements and the notes
thereto contained elsewhere herein.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1996 1996 1997 1997 1997 1997 1998
------------- ------------ --------- -------- ------------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MINUTES OF LONG DISTANCE USE:
International:
North America................. 9,199 12,160 17,629 45,784 57,199 75,950 78,950
Asia-Pacific.................. 1,967 1,876 2,384 6,222 11,844 18,944 24,596
Europe........................ 1,713 3,192 4,253 5,131 9,852 17,403 22,944
------ ------ ------ ------- ------- ------- -------
Total international........... 12,879 17,228 24,266 57,137 78,895 112,297 126,490
------ ------ ------ ------- ------- ------- -------
Domestic:
North America................. 3,972 5,533 6,346 18,498 17,131 17,653 20,138
Asia-Pacific.................. 56,932 58,336 59,481 61,304 61,544 61,496 61,151
Europe........................ 1,512 3,051 4,533 5,775 6,973 9,626 11,462
------ ------ ------ ------- ------- ------- -------
Total domestic................ 62,416 66,920 70,360 85,577 85,648 88,775 92,751
------ ------ ------ ------- ------- ------- -------
Total minutes of long
distance use................. 75,295 84,148 94,626 142,714 164,543 201,072 219,241
====== ====== ====== ======= ======= ======= =======
</TABLE>
47
<PAGE>
RESULTS OF OPERATIONS
For the three months ended March 31, 1998 as compared to the three months
ended March 31, 1997
Net revenue increased $21.1 million or 36%, from $59.0 million for the three
months ended March 31, 1997 to $80.1 million for the three months ended March
31, 1998. Of the increase, $18 million was associated with the North American
operations, which represents a growth rate of approximately 218%
(approximately 167% exclusive of net revenue associated with the
Telepassport/USFI operations acquired in the fourth quarter of 1997), as a
result of increased traffic volumes primarily in its wholesale carrier
operations and, to a lesser extent, in its business and residential customer
base. The European operations contributed $5.2 million to the period-over-
period net revenue growth, which represents a growth rate of approximately
134%. The European net revenue increased from $3.9 million for the three
months ended March 31, 1997 to $9.1 million for the three months ended March
31, 1998, resulting primarily from wholesale traffic being carried in 1998,
and to a lesser extent, growth in retail customer traffic. The Company's Asia-
Pacific net revenue decreased by $2.2 million or 5%, from $46.9 million for
the three months ended March 31, 1997 to $44.7 million for the three months
ended March 31, 1998. The decrease in the Asia-Pacific net revenue was
primarily a result of a 14% drop in the Australian dollar's average exchange
rate and, to a lesser extent, a change in traffic mix away from lower-margin
local traffic in favor of higher-margin long distance traffic.
Cost of revenue increased $13.7 million, from $55.0 million, or 93% of net
revenue, for the three months ended March 31, 1997 to $68.7 million, or 86% of
net revenue, for the three months ended March 31, 1998. The increase in the
cost of revenue is attributable to the increase in traffic volumes. The
decrease in the cost of revenue as a percentage of net revenue is reflective
of the expansion of the Company's global network, the continuing migration of
existing and newly generated customer traffic onto the Company's network,
especially in Australia with the advent of equal access, and a change in the
Australian traffic mix away from lower-margin local traffic.
Gross margin increased $7.3 million, from $4.0 million, or 6.8% of net
revenue, for the three months ended March 31, 1997 to $11.3 million, or 14.2%
of net revenue, for the three months ended March 31, 1998. The approximately
740 basis point increase in the gross margin as a percentage of net revenue is
due to the reduction in cost of revenue factors stated above.
Selling, general and administrative expenses increased $6.6 million, from
$8.8 million to $15.4 million for the three months ended March 31, 1997 and
1998, respectively. The increase is attributable to the hiring of additional
sales and marketing staff and engineering personnel, the addition of expenses
from acquired operations, and increased advertising and promotional expenses
associated primarily with the Company's residential marketing campaigns in
Australia.
Depreciation and amortization expense increased from $0.8 million for the
three months ended March 31, 1997 to $3.5 million for the three months ended
March 31, 1998. The increase is associated with increased depreciation expense
from capital expenditures for fiber, switching and other network equipment
being placed into service and increased amortization expense associated with
intangible assets acquired in the Company's acquisitions.
Interest expense increased from $0.2 million for the three months ended
March 31, 1997 to $7.2 million for the three months ended March 31, 1998. The
increase is primarily attributable to the interest expense associated with the
Company's 1997 Senior Notes and Warrants Offering.
Interest income of $2.4 million for the three months ended March 31, 1998 is
attributable to the investment of the Company's cash, cash equivalents and
restricted investment balances.
48
<PAGE>
For the year ended December 31, 1997 as compared to the year ended December
31, 1996
Net revenue increased $107.2 million or 62%, from $173.0 million for the
year ended December 31, 1996 to $280.2 million for the year ended December 31,
1997 (the net revenue increase in 1997 was $80.9 million or 40.6% when
compared to the Company's net revenue during 1996 after giving pro forma
effect to the acquisition of Axicorp as of January 1, 1996). Of the increase,
$57.8 million was associated with the Company's North American operations and
reflects a growth rate of approximately 350% (approximately 300% exclusive of
net revenue associated with the TelePassport/USFI Acquisition and operations
acquired in Canada during 1997). The growth is a result of increased traffic
volumes in wholesale carrier operations and, to a lesser extent, in ethnic
residential and business customer traffic. The Asia-Pacific operations
contributed $31.9 million to the year-over-year net revenue growth, resulting
primarily from the residential customer marketing campaigns commenced in early
1997. The 1997 results also reflect a full year of the Australian operations
as compared to ten months in 1996 as a result of the March 1, 1996 acquisition
of these operations. The Asia-Pacific net revenue growth was negatively
impacted by weakness in the Australian dollar during 1997 as compared to 1996.
The remaining net revenue growth of $17.6 million, a year-over-year growth
rate in excess of 300%, came from the European operations as a result of
expansion into the wholesale carrier marketplace during the third quarter of
1997 and continued growth in the ethnic residential and business marketplaces.
Cost of revenue increased $93.9 million, from $158.8 million, or 91.8% of
net revenue, for the year ended December 31, 1996 to $252.7 million, or 90.2%
of net revenue, for the year ended December 31, 1997. The increase in the cost
of revenue is a direct reflection of the increase in traffic volumes. The
decrease in the cost of revenue as a percentage of net revenue reflects the
investments made by the Company in its Network and the associated migration of
customer traffic onto the Network, particularly in Australia with the
introduction of equal access in the second half of 1997.
Gross margin increased $13.3 million, from $14.1 million, or 8.2% of net
revenue, for the year ended December 31, 1996 to $27.5 million, or 9.8% of net
revenue, for the year ended December 31, 1997.
Selling, general and administrative expenses increased $30.5 million, from
$20.1 million or 11.6% of net revenue for the year ended December 31, 1996 to
$50.6 million or 18.1% of net revenue for the year ended December 31, 1997, as
compared to the year ended December 31, 1996 (the increase in 1997 was $28.4
million when compared to the Company's selling, general and administrative
expenses during 1996 after giving pro forma effect to the acquisition of
Axicorp as of January 1, 1996). The increase is attributable to the hiring of
additional sales and marketing staff, additional operations and engineering
personnel to operate the Company's Network; the TelePassport/USFI Acquisition
and operations acquired in Canada during 1997; a full year of the Company's
Australian operations versus ten months in the prior year; and increased
advertising and promotional expenses associated with the Company's residential
marketing campaigns.
Depreciation and amortization increased $4.5 million or 211.1%, from $2.2
million for the year ended December 31, 1996 to $6.7 million for the year
ended December 31, 1997. The majority of the increase is associated with
capital expenditures for international fiber, telephone switches and related
transmission equipment being placed into service. Additionally, amortization
expense increased as a result of the additional intangible assets associated
with the Company's acquisitions during 1997.
Interest expense increased $12.0 million, from $0.9 million for the year
ended December 31, 1996 to $12.9 million for the year ended December 31, 1997.
The increase is attributable to the interest expense associated with the
Company's 1997 Senior Notes issued in August 1997.
Interest income increased $5.4 million, from $0.8 million for the year ended
December 31, 1996 to $6.2 million for the year ended December 31, 1997. The
increase is due to investment of the proceeds from the Company's 1997 Senior
Notes offering and its initial public equity offering.
Other income (expense) for the year ended December 31, 1997 was $0.4 million
compared to an expense of $0.3 million for the year ended December 31, 1996.
Other income (expense) is the result of foreign currency
49
<PAGE>
transaction gains/losses on Australian dollar-denominated debt incurred by the
Company for its acquisition of Axicorp, due to the fluctuations of the
Australian dollar against the United States dollar during the year. This debt
was paid in full during 1997.
Income taxes were attributable to the operations of the Company's United
Kingdom and Australian subsidiaries.
For the year ended December 31, 1996 as compared to the year ended December
31, 1995
Net revenue increased $171.8 million, from $1.2 million for the year ended
December 31, 1995 to $173.0 million for the year ended December 31, 1996. Of
the increase, $151.3 million was associated with the Company's Australian
operations, which were acquired March 1, 1996, while the remaining $20.5
million of net revenue growth was associated primarily with the commencement
and expansion of the Company's operations in the United States and the United
Kingdom.
Cost of revenue increased $157.4 million, from $1.4 million for the year
ended December 31, 1995 to $158.8 million for the year ended December 31, 1996
as a direct result of the increase in traffic volume. Most of the Company's
costs of revenue are variable, since the Company had a limited Network during
this period and functioned primarily as a switchless reseller. The cost of
revenue in the United States reflects the start-up nature of the network
operations and traffic being carried on more expensive carriers until adequate
capacity on lower cost carriers could be established.
Selling, general and administrative expenses increased $18.1 million, from
$2.0 million to $20.1 million for the year ended December 31, 1996 as compared
to the year ended December 31, 1995. Approximately $11.4 million of the
increase was attributable to the ten months of activity associated with the
Australian operations, and the remaining $6.7 million related to the non-
Australian operations was a result of increased staffing levels, increased
sales and marketing activity and network operations costs. The non-Australian
selling, general and administrative costs as a percentage of non-Australian
net revenue for the year ended December 31, 1996 was 40%, which is reflective
of the growth in the infrastructure necessary to support future non-Australian
net revenues. The Australian selling, general and administrative expense as a
percentage of Australian net revenue was 7.5% for the 10 months ended December
31, 1996.
Depreciation and amortization increased from $0.2 million for the year ended
December 31, 1995 to $2.2 million for the year ended December 31, 1996. The
majority of the increase is a result of the acquisition of Axicorp and is
comprised of amortization of goodwill and the customer list which totaled $1.3
million. The remaining depreciation is related primarily to Axicorp's assets
and increased depreciation expense for the Company as a result of additional
capital expenditures for switching and network related equipment.
Other income (expense) for the year ended December 31, 1996 related to
foreign currency transaction losses on the Australian dollar-denominated debt
incurred by the Company payable to the sellers for its acquisition of Axicorp
as a result of the appreciation of the Australian dollar against the U.S.
dollar during the period.
Income taxes were primarily attributable to the operations of Axicorp for
the 10 months from the date of purchase, and represent the amount of expense
for Australian taxes.
Pro Forma Results of Operations for the Year Ended December 31, 1996 Compared
to the Year Ended December 31, 1995
As a result of the Company's acquisition of Axicorp on March 1, 1996 and the
development stage nature of the Company in the first quarter of 1995, the
Company believes that a discussion of the pro forma results of operations for
the 12 months ended December 31, 1995 and 1996, which results give effect to
the acquisition of Axicorp as if it had occurred on January 1, 1995, is
helpful to an understanding of the Company's results of operations.
50
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1995 1996
---------------------- ----------------------
$ % $ %
----------- --------- ----------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGE DATA)
<S> <C> <C> <C> <C>
Net revenue:
United States and United
Kingdom..................... $ 1,167 0.9% $ 21,719 10.9%
Australia.................... 124,461 99.1 177,621 89.1
----------- -------- ----------- --------
Total net revenue.......... 125,628 100.0 199,340 100.0
Cost of revenue ............... 114,639 91.3 182,601 91.6
----------- -------- ----------- --------
Gross margin ................ 10,989 8.7 16,739 8.4
Operating expenses:
Selling, general and
administrative.............. 12,955 10.3 22,198 11.1
Depreciation and
amortization................ 1,842 1.5 2,464 1.2
----------- -------- ----------- --------
Total operating expenses... 14,797 11.8 24,662 12.4
----------- -------- ----------- --------
Loss from operations........... (3,808) (3.0) (7,923) (4.0)
Interest expense............... (885) (0.7) (995) (0.5)
Interest income................ 132 0.1 909 0.5
Other income (expense)......... -- -- (345) 0.2
----------- -------- ----------- --------
Loss before income taxes....... (4,561) (3.6) (8,354) (4.2)
Income taxes................... 124 0.1 477 0.2
----------- -------- ----------- --------
Net loss....................... $ (4,685) (3.7)% $ (8,831) (4.4)%
=========== ======== =========== ========
</TABLE>
Net revenue increased $73.7 million or 59%, from $125.6 million for the year
ended December 31, 1995 to $199.3 million for the year ended December 31,
1996. The Australian net revenue increased 43%, or $53.1 million, from $124.5
million to $177.6 million. The increase was attributable to an increase in
minutes of traffic from small- to medium-sized business customers, as well as
growth in the number of customers. Non-Australian net revenue was $21.7
million for the year ended December 31, 1996 as compared to net revenue of
$1.2 million for the year ended December 31, 1995. The $20.5 million increase
is the result of an increase of $15.4 million in the United States, primarily
associated with increased wholesale traffic volume and, to a lesser extent,
from consumer customers resulting from the ethnic marketing program and
business customers resulting from the Company's build-up of its direct sales
force, and an increase of $5.1 million in the United Kingdom associated with
the commencement of operations in late 1995.
Cost of revenue increased $68.0 million or 59%, from $114.6 million for the
year ended December 31, 1995 to $182.6 million for the year ended December 31,
1996. The increase was the direct result of increased traffic volumes the
Company carried for its customers. The Australian cost of revenue increased
43%, or $48.1 million, from $113.3 million for the year ended December 31,
1995 to $161.4 million for the year ended December 31, 1996. The Australian
cost of revenue increase is primarily driven by an increased number of
business customers and associated traffic volumes. The Australian cost of
revenue as a percentage of Australian revenue was essentially flat and
reflects the continued resale of carrier services and lack of network
facilities. The non-Australian cost of revenue increased $19.8 million from
$1.4 million for the year ended December 31, 1995 to $21.2 million for the
year ended December 31, 1996, as a result of increased traffic volumes for
business, consumer, and wholesale customers in the United States and the
commencement of operations in the United Kingdom. Non-Australian cost of
revenue as a percentage of non-Australian net revenue was 97.6% in the year
ended December 31, 1996 versus 118.6% in the year ended December 31, 1995. The
non-Australian cost of revenue as a percentage of non-Australian net revenue
reflects the start up nature of network operations in the United States and
the United Kingdom, the absence of network facilities, traffic being carried
on more expensive carriers until adequate capacity on lower cost carriers
could be established, and lack of return traffic on newly initiated foreign
carrier agreements.
51
<PAGE>
Gross margin increased $5.7 million or 52%, from $11.0 million for the year
ended December 31, 1995 to $16.7 million for the year ended December 31, 1996.
The Australian gross margin as a percentage of Australian net revenue remained
constant for the years ended December 31, 1995 and 1996. The non-Australian
gross margin increased from a deficit of $(0.2) million for the year ended
December 31, 1995 to a gross margin of $0.5 million for the year ended
December 31, 1996.
Selling, general and administrative expenses increased $9.2 million or 71%,
from $13.0 million for the year ended December 31, 1995 to $22.2 million for
the year ended December 31, 1996. The Australian operations increased selling,
general and administrative expenses by $2.5 million as a result of increased
salaries and benefits for additional sales and operations staff to support
construction of a new five city switched network. The Australian selling,
general and administrative expenses as a percentage of Australian net revenue
decreased from 9% to 8% for the years ended December 31, 1995 and 1996,
respectively. The non-Australian operations account for the remaining increase
of $6.7 million which is due to increased staffing in sales and marketing,
network operations, and customer service. The non-Australian selling, general
and administrative expenses as a percentage of non-Australian net revenue
decreased to 40% for the year ended December 31, 1996, from 173% for the year
ended December 31, 1995, as a result of these costs being spread over an
increasing revenue base.
Depreciation and amortization increased $0.7 million or 34%, from $1.8
million for the year ended December 31, 1995 to $2.5 million for the year
ended December 31, 1996. The increase reflects depreciation for capital
expenditures for network equipment associated with the Company's network
construction.
Interest expense increased 12% as a result of additional capital leases to
finance network switching equipment.
Interest income increased from $0.1 million for the year ended December 31,
1995 to $0.9 million for the year ended December 31, 1996 as a result of the
interest earned on the cash balance generated from the private placements in
February 1996 and July 1996, and the initial public offering in November 1996.
Other income (expense) is comprised of foreign currency transaction loss of
$0.3 million for the year ended December 31, 1996 associated with the debt
related to the acquisition of Axicorp, which is denominated in Australian
dollars. Fluctuations in the currency exchange rates between the Australian
and United States dollar will cause currency transaction gains or losses which
are recognized in the current period results of operations.
Income taxes are based on the income before taxes generated primarily by the
operations in Australia.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise from net cash used in operating
activities; purchases of network equipment including switches, related
transmission equipment, and international and domestic fiber cable capacity;
interest and principal payments on outstanding indebtedness; and acquisitions
of and strategic investments in businesses. The Company has financed its
growth to date through the August 1997 offering of the 1997 Senior Notes, the
November 1996 initial public offering of Common Stock, several private
placements of Common Stock, and capital lease financing. The semi-annual
interest payments due under the 1997 Senior Notes through August 1, 2000 have
been pre-funded and will be paid from restricted investments.
Net cash used in operating activities was $17.1 million for the three months
ended March 31, 1998, and net cash provided by operating activities was $1.8
million for the three months ended March 31, 1997. Net cash used in operating
activities was $14.8 million for the year ended December 31, 1997, $6.9
million for the year ended December 31, 1996, and $2.0 million for the year
ended December 31, 1995. The increase in cash used in operating activities for
the three month period ended March 31, 1998 is primarily comprised of $7.4
million for an increase in the net loss and a $6.3 million increase in accrued
interest payable related to the 1997 Senior Notes. The increase in cash used
in operating activities for the year ended December 31, 1997 was primarily the
result of the increase in the negative operating cash flow for the period as
compared to the same period in 1996.
52
<PAGE>
The increased cash usage for the years ended December 31, 1996 and 1995 was
the result of an increase in the net loss partially offset by increases in
accounts payable and accrued expenses.
Net cash used in investing activities was $0.9 million for the three months
ended March 31 1998 and net cash provided by investing activities was $11.0
million for the three months ended March 31, 1997. Net cash used in investing
activities was $104.2 million for the year ended December 31, 1997, $39.6
million for the year ended December 31, 1996 and $0.4 million for the year
ended December 31, 1995. Net cash used in investing activities during the
three months ended March 31, 1998 includes $11.4 million of capital
expenditures primarily for the expansion of the Company's global network, and
$1.6 million for business acquisitions and investments, partially offset by
cash provided by the sale of restricted investments used to fund interest
payments on the 1997 Senior Notes. Cash used in investing activities for the
year ended December 31, 1997 was the result of capital expenditures made
during the year of $39.5 million to expand the Network, the TelePassport/USFI
Acquisition and the acquisition of the Company's Canadian operations net of
cash acquired, and the purchase of $73.6 million of restricted investments
with proceeds from the offering of the 1997 Senior Notes for escrowed interest
payments, offset by the sale of $25.1 million of short term cash investments.
The cash utilized during the year ended December 31, 1996 includes $12.7
million for capital expenditures to expand the Network and $1.7 million for
the purchase of Axicorp, net of cash acquired.
Net cash provided by financing activities was $0.1 million for the three
months ended March 31, 1998 and net cash used by financing activities of $4.4
million during the three months ended March 31, 1997. Net cash provided by
financing activities was $200.1 million for the year ended December 31, 1997,
$79.5 million for the year ended December 31, 1996 and $4.5 million for the
year ended December 31, 1995. Cash provided by financing activities in the
three months ended March 31, 1998 resulted from the issuance of the Company's
Common Stock through the exercise of employee options. Net cash provided by
financing activities for the year ended December 31, 1997 resulted primarily
from the proceeds of the offering of 1997 Senior Notes less deferred financing
costs. In 1996, the Company completed private placements of Common Stock
generating net proceeds of approximately $21.9 million, and in November 1996,
the Company completed an initial public offering of its Common Stock and
generated net proceeds of approximately $54.4 million.
The Company anticipates aggregate capital expenditures of approximately $225
million during 1998 and 1999 (of which approximately $11.4 million was
expended in the three months ended March 31, 1998). Such capital expenditures
will be primarily for international and domestic switches and Pops,
international and domestic fiber optic cable capacity and satellite earth
station facilities for new and existing routes, and other transmission
equipment and support systems. The Company is currently installing an
additional international gateway switch in Frankfurt, Germany and, by the end
of 1999, intends to add up to three switches in North America, two switches in
Europe, one switch in the Asia-Pacific region, and three switches in Latin
America.
The Company believes that the net proceeds from the Offering, together with
its existing cash and available capital lease financing (subject to
limitations in the Indenture) will be sufficient to fund the Company's
operating losses, debt service requirements, capital expenditures and other
cash needs for its operations for at least the next 18 to 24 months. The
Company is continually evaluating the expansion of the Network and plans to
accelerate its investment in international and domestic fiber optic cable
capacity and other transmission facilities. In addition, the Company expects
to make additional investments in the TresCom network in order to expand
services in Latin America. In order to fund these additional 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. Consequently, the Company
expects to raise additional capital from public or private equity or debt
sources to meet its new financing needs, including for the continued buildout
of the Network. 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 additional investments or acquisitions or if it
experiences unexpected costs or competitive pressures, or if existing cash and
any other borrowings prove to be insufficient, the Company may be required to
seek additional capital sooner than expected. See "Risk Factors--Need for
Additional Financing."
53
<PAGE>
Since inception through March 31, 1998, the Company had negative cash flow
from operating activities of $41.3 million and negative EBITDA of $35.9
million. In addition, the Company incurred net losses in 1995, 1996, 1997 and
the three months ended March 31, 1998, of $2.4 million, $8.8 million, $36.2
million and $12.3 million, respectively, and had an accumulated deficit of
approximately $60.3 million as of March 31, 1998. On a pro forma basis, after
giving effect to the Offering, TelePassport/USFI Acquisition and the TresCom
Merger, for the year ended December 31, 1997, the Company would have had a net
loss of $76.5 million. On a pro forma basis, after giving effect to the
Offering and the TresCom Merger, for the three months ended March 31, 1998,
the Company would have had a net loss of $21.7 million. Although the Company
has experienced net revenue growth in each of its last 13 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 the Network. There can be no
assurance that the Company's 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 (including its obligations with respect to the Notes).
From time to time the Company evaluates acquisitions of businesses which
complement the business of the Company. Depending on the cash requirements of
potential transactions, the Company may finance such transactions with bank
borrowings, through other debt financing vehicles, or through the issuance of
capital stock. The Company, however, presently has no understanding,
commitment or agreement with respect to any acquisition. There can be no
assurance that if the Company were to pursue such an opportunity, any such
acquisition would occur or that the funds to finance any such acquisition
would be available on reasonable terms, if at all.
Year 2000 Compliance. In accordance with Securities and Exchange Commission
Staff Legal Bulletin No. 5, dated October 8, 1997, the Company has begun a
review and assessment of the anticipated costs, problems and uncertainties
associated with Year 2000 issues. The Company is implementing a Year 2000
compliance plan whereby each operating unit is responsible for identifying
systems requiring modification or conversion (both internal systems and those
provided by or otherwise available from outside vendors) and periodically
reporting its progress in meeting milestones toward compliance. The Company
believes that Year 2000 issues will not materially affect its products,
services, or competitive conditions and that its costs of addressing Year 2000
compliance will not materially impact future operating results or financial
condition. See "Risk Factors--Dependence on Effective Information Systems;
Year 2000 Problem."
TRESCOM
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. 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 substantial portion of TresCom's
revenues are derived from wholesale sales. Increased worldwide competition has
continued to drive down wholesale prices.
54
<PAGE>
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 foreign telecommunications administrations ("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 the 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. 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 the 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.
For the three months ended March 31, 1998 compared to the three months ended
March 31, 1997
Revenues. Revenues increased 5.5%, or $2.0 million, from $36.1 million in
the first quarter of 1997, to $38.1 million in the first quarter of 1998.
Minutes of use increased 11.5%, or 13.4 million minutes, from 116.8 million in
the first quarter of 1997, to 130.2 million in the first quarter of 1998.
International traffic accounted for approximately 79% of total revenue in the
first quarter of 1997, and approximately 77% of total revenue in the first
quarter of 1998. This, combined with continued international wholesale price
pressures and changes within the mix of international terminations, caused the
overall rate per minute to decline from approximately $0.31 in the first
quarter of 1997, to $0.29 in the first quarter of 1998. Historically,
international traffic has commanded a higher per minute rate than domestic
traffic; however, this gap has been decreasing due to increased international
competition and declining international termination costs.
Costs of Services. Costs of services increased 11.5%, or $3.2 million, from
$27.8 million in the first quarter of 1997, to $31.0 million in the first
quarter of 1998. Costs of services increased instep with the increased volume
of traffic carried. On a per minute basis, however, the variable portion of
the cost per minute decreased from approximately $0.23 in the first quarter of
1997, to approximately $0.21 in the first quarter of 1998. This decline was
offset by TresCom's investment in the expansion of its network, represented by
higher fixed per minute costs of services.
Gross Profit. Gross profit decreased 13.3%, or $1.1 million, from $8.3
million in the first quarter of 1997, to $7.2 million in the first quarter of
1998. As a percentage of revenues, gross profit decreased from approximately
23% in the first quarter of 1997 to approximately 19% in the first quarter of
1998.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased 14.8%, or $1.2 million, from $8.1 million in
the first quarter of 1997, to $9.3 million in the first quarter of 1998. This
increase was due primarily to increased expenses, such as additional reserves
for bad debt. Bad debt expense was $1.0 million and $1.8 million in the first
quarter of 1997 and 1998, respectively.
Depreciation and Amortization. Depreciation and amortization expense
increased 26.7%, or $0.4 million, from $1.5 million in the first quarter of
1997, to $1.9 million in the first quarter of 1998. This increased expense
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is due to the depreciation of assets acquired to support continued expansion
of TresCom's network and amortization related to acquired businesses and
customer bases.
Interest Expense, Net. Interest expense, net, increased to $0.4 million in
the first quarter of 1998 due to interest associated with TresCom's capital
leases and borrowings under the revolving credit agreement.
Net Loss. Net loss increased 71.1%, or $3.2 million, from $1.3 million in
the first quarter of 1997, to $4.5 million in the first quarter of 1998, due
to the above factors.
For the 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.
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 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 TresCom's
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 TresCom's bank facility.
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.
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For the 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.
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.
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 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. 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.
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
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operations. TresCom is assessing the extent to which its operations are
vulnerable should the 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.
Liquidity and Capital Resources
A separate liquidity and capital resources section has not been presented
for TresCom on a stand-alone basis as it would not be meaningful to an
understanding of the operations of Primus subsequent to consummation of the
recently completed TresCom Merger. See"--Liquidity and Capital Resources."
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BUSINESS
GENERAL
Primus
Primus is a facilities-based global telecommunications company that offers
international and domestic long distance and other telecommunications services
to business, residential and carrier customers in North America, and selected
markets within the Asia-Pacific region and Europe. Primus has expanded its
geographic presence in Latin America through its recent acquisition of
TresCom, which provides international long distance service primarily for
calls originating in the United States. The Company seeks to capitalize on the
increasing demand for high-quality international telecommunications services
resulting from the globalization of the world's economies and the worldwide
trend toward telecommunications deregulation. Primus provides these services
over its Network, which includes (i) ten international gateway switches in the
United States, Australia, Canada, Puerto Rico and the United Kingdom, (ii)
four domestic switches in Australia, (iii) a switching platform in Japan and
(iv) both owned and leased transmission capacity on undersea and land-based
fiber optic cable systems. The Network, along with resale arrangements and
foreign carrier agreements, allows the Company to offer quality service to
approximately 275,000 customers.
Primus is a full-service carrier and has licenses and operations in the
United States, Australia, the United Kingdom, Japan and Canada, enabling it to
complete calls to more than 230 countries. The United States, Australia and
the United Kingdom are the most deregulated countries within the Company's
Service Regions and will serve as regional hubs for Primus's intended
expansion into additional markets as worldwide deregulation of
telecommunications markets continues. During the years ended December 31, 1996
and 1997, Primus had net revenue of $173.0 million and $280.2 million,
respectively. After giving pro forma effect to the TresCom Merger and the
TelePassport/USFI Acquisition, for the year ended December 31, 1997, the
Company would have had net revenue of $448.9 million.
The Company primarily 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 substantial international traffic. The Company
provides a broad array of competitively priced telecommunications services,
including international and domestic long distance services and private
networks, reorigination services, prepaid and calling cards and toll-free
services, as well as local, data, Internet and cellular services in Australia.
The Company markets its services through a variety of channels, including
through its direct sales force and independent agents, and through direct
marketing.
The Company has constructed and is expanding the Network to reduce and
control costs, improve service reliability and increase flexibility to
introduce new products and services. Management believes that, as the volume
of telecommunications traffic carried on the Network increases, the Company
should continue to improve its profitability as it more fully utilizes its
Network capacity and realizes economies of scale. As customer demand justifies
the capital investment, Primus will seek to expand the Network through
additional investment in undersea and domestic fiber optic cable systems,
international gateway and domestic switching facilities, and international
satellite earth stations. Major components of the Network include the
following:
Switches. Since December 31, 1996, when the Company operated one
international gateway switch in Washington, D.C., the Network has grown to
consist of 14 switches, including ten international gateway switches (New
York, Los Angeles, Washington, D.C., Toronto, Vancouver, London and Sydney,
and as a result of the recently completed TresCom Merger, Fort Lauderdale, New
York City and Guaynabo, Puerto Rico) and four domestic switches (Adelaide,
Brisbane, Melbourne and Perth), and a switching platform in Japan. The Company
also has 15 Pops in additional markets within its Service Regions. The
Company's international gateway switches will serve as the base for its global
expansion of the Network into new countries when customer demand justifies
such investment and as regulatory rules permit the Company to compete in new
markets. The Company is currently installing an additional international
gateway switch in Frankfurt, Germany and, by the end of 1999, intends to add
up to three switches in North America, two switches in Europe, one switch in
the Asia-Pacific region, and three switches in Latin America.
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Transmission Capacity. The Company owns and leases transmission capacity
which connects its switches to each other and to the networks of other
international and domestic telecommunications carriers. The Company's
ownership interests consist of MAOUs and IRUs in 12 undersea fiber optic cable
systems, including the CANTAT-3, TAT-12/TAT-13, TPC-5 and Gemini systems. As a
result of the recently completed TresCom Merger, the Company has acquired
additional MAOUs and IRUs in 11 cable systems, including the Americas 1,
Columbus 2, PTAT-1 and Taino Caribe systems. The Company expects to continue
to acquire additional capacity on both existing and future international and
domestic fiber optic cable systems as anticipated customer demand justifies
such investments.
Foreign Carrier Agreements. In selected countries where competition with the
traditional incumbent PTTs is limited or is not currently permitted, the
Company has entered into foreign carrier agreements with PTTs or other service
providers which permit the Company to carry traffic into and receive return
traffic from these countries. The Company has existing foreign carrier
agreements with PTTs in Cyprus, Greece, Honduras, India, Iran, Italy and New
Zealand, and additional carrier agreements with foreign service providers in
five other countries. As a result of the recently completed TresCom Merger,
the Company has acquired 27 additional foreign carrier agreements, providing
access to various countries in Latin America.
TresCom Merger
On June 9, 1998, pursuant to the Merger Agreement, the Company acquired all
of the outstanding shares of TresCom. The TresCom Merger provides Primus with
accelerated entry into the Latin American international long distance markets
and expands the scope and coverage of the Network, thereby providing
additional opportunities to migrate traffic onto the Network, obtaining better
utilization of the Network and variable costs. The Company believes that, in
addition to providing transmission facilities, the TresCom Merger adds foreign
carrier agreements, direct connections to foreign telecommunications carriers
and experienced management, enabling the combined Company to realize synergies
in sales, marketing and administration.
TresCom
TresCom is a facilities-based long-distance telecommunications carrier
focused on international long distance traffic originating in the United
States and terminating in Latin America. TresCom offers a broad array of
services, including long distance, calling cards, prepaid debit cards,
domestic and international toll-free calling and frame relay. TresCom provides
its customers with international long distance service and is able to complete
calls 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, South America and Central America;
(ii) direct operating and transit agreements with various PTTs and TAs; and
(iii) owned and leased transmission capacity. TresCom also provides local
service in Puerto Rico and the United States Virgin Islands ("U.S.V.I.").
A substantial portion of TresCom's business is providing services on a
wholesale basis to other telecommunications carriers and resellers. TresCom
also markets 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 international long distance traffic to Latin America. These
customers include businesses with sales or operations in Latin America, as
well as the 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 Latin America, TresCom has
teamed up with local agents and has begun generating international traffic
originating from those markets.
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 linking the United States, Europe and
Latin America. TresCom's owned network also includes wholly-owned microwave
relay and satellite
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earth station equipment linking the mainland United States, Puerto Rico and
the U.S.V.I. TresCom's international network is further composed of leased
capacity from other carriers and direct operating and transit agreements with
PTTs and TAs. 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 contracts with PTTs
and TAs typically have terms ranging from one to five years, with clauses
providing for negotiated renewals.
TresCom employs a direct sales force, numbering approximately 80 individuals
as of June 15, 1998, and independent sales and telemarketing agents to market
its services. TresCom maintains sales offices in Florida, New York, Puerto
Rico and St. Thomas, U.S.V.I. As part of TresCom's marketing activities to
residential customers, TresCom has entered into joint marketing and
promotional arrangements with other companies, including Coca-Cola, Shell Oil
Company, Seagrams and Walgreens Drug Stores. Additionally, TresCom utilizes
direct mail, participates in a variety of promotional activities which target
specified customers, and sponsors various civic and charity activities.
INDUSTRY OVERVIEW
General. The international long distance industry, which involves the
transmission of voice and data from one country to another, is undergoing a
period of fundamental change that has resulted, and is expected to continue to
result, in significant growth in usage of international telecommunications
services. According to TeleGeography, in 1996, the international long distance
industry accounted for $61 billion in revenues and 70 billion minutes of use,
up from $22 billion in revenues and 17 billion minutes of use in 1986.
According to TeleGeography, it is estimated that by the year 2000 this market
will have expanded to $86 billion in revenues and 122 billion minutes of use,
representing compound annual growth rates from 1996 of 9.0% and 15.0%,
respectively.
The Company believes the growth in international long distance services is
being driven by (i) globalization of the world's economies and the worldwide
trend toward telecommunications deregulation, (ii) declining prices and a
wider choice of products and services driven by greater competition resulting
from privatization and deregulation, (iii) increased telephone accessibility
resulting from technological advances and greater investment in
telecommunications infrastructure, including deployment of wireless networks,
and (iv) increased international business and leisure travel. The Company
believes that growth of traffic originated in markets outside the United
States will be higher than growth in traffic originated within the United
States due to recent deregulation in many foreign markets and increasing
access to telecommunications facilities in emerging markets.
The competition spurred by privatization and deregulation, which in turn has
prompted carriers to offer a wider choice of products and services, has
resulted in lower prices. In recent years, prices for long distance services
have decreased substantially and are expected to continue to decrease in most
of the markets in which Primus currently competes. Several long distance
carriers in the United States have introduced pricing strategies that provide
fixed, low rates for both domestic and international calls originating in the
United States. The Company believes that the lower-price environment and
resulting revenue losses from increased competition have been more than offset
by cost decreases, as well as an increase in telecommunications usage. For
example, based on the most current FCC data which management believes is
publicly available, for the period 1989 through 1996, per minute settlement
payments by United States-based carriers to foreign PTTs fell 38.6%, from
$0.70 per minute to $0.43 per minute while, over this same period, per minute
international billed revenue fell only 27.5%, from $1.02 in 1989 to $0.74 in
1996. The Company believes that as settlement rates and costs for leased
capacity continue to decline, international long distance will continue to
provide high revenue and gross profit per minute. See "Risk Factors--Intense
Domestic and International Competition."
Facilities-based Carriers. International long distance carriers generally
can be categorized according to ownership and use of transmission facilities
and switches. Although no carrier utilizes exclusively owned facilities for
the transmission of all of its long distance traffic, carriers vary from being
primarily facilities-based
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(i.e., they own and operate their own land based or undersea cable and
switches) to those that are purely resellers of another carrier's transmission
network.
Regulatory and Competitive Environment. Prior to deregulation, the long
distance carriers in any particular country generally were government-owned
monopoly carriers, such as British Telecom in the United Kingdom, Telstra in
Australia, NTT in Japan, Teleglobe in Canada and Telmex in Mexico.
Deregulation of a particular telecommunications market typically has begun
with the introduction of a second long distance carrier, followed by the
governmental authorization of multiple carriers. In the United States, one of
the first highly deregulated markets, deregulation began in the 1960's with
MCI's authorization to provide long distance service and was followed in 1984
by AT&T's divestiture of the RBOCs and, most recently, by the passage of the
1996 Telecommunications Act. Deregulation has occurred elsewhere, such as in
the United Kingdom and Australia, and is being implemented in other countries,
including most European Union countries, Japan and several Latin American
countries, including Chile, Brazil and Argentina.
On February 15, 1997, the United States and 68 other countries, including
Australia, the United Kingdom, Canada, Germany and Japan, signed the WTO
Agreement and agreed to open their telecommunications markets to competition
and foreign ownership starting January 1, 1998. These 69 countries generate a
substantial majority of worldwide telecommunications traffic. The Company
believes that the WTO Agreement will provide it with significant opportunities
to compete in markets where it did not previously have access, and allow it to
provide end-to-end, facilities-based services to and from these countries.
In addition, the FCC recently released an order that significantly changes
United States regulation of international services in order to implement the
United States' "open market" commitments under the WTO Agreement. Among other
measures, the FCC's order (i) eliminated the FCC's Effective Competitive
Opportunities ("ECO") test for applicants affiliated with carriers in WTO
member countries, while imposing new conditions on participation by dominant
foreign carriers, (ii) allowed nondominant United States carriers to enter
into exclusive arrangements with nondominant foreign carriers and scaled back
the prohibition on exclusive arrangements with dominant carriers and (iii)
adopted rules that will facilitate approval of flexible alternative settlement
payment arrangements. The Company believes that the recent FCC order will have
the following effects on United States carriers: (i) reduce impediments to
investment in United States carriers by foreign entities, (ii) increase
opportunities to enter into innovative traffic arrangements with foreign
carriers located in WTO member countries, (iii) add new opportunities to
engage in ISR to additional foreign countries and (iv) modify settlement rates
offered by foreign affiliates of United States carriers to United States
carriers to comply with the FCC's settlement rate benchmarks.
International Traffic Dynamics. A long distance telephone call consists of
three parts: origination, transport and termination. Generally, a domestic
long distance call originates on a local exchange network and is transported
to the network of a long distance carrier, which in many countries is the same
as the local carrier. The call is then carried along the long distance network
to another local exchange network where the call is terminated. An
international long distance call is similar to a domestic long distance call,
but typically involves at least two long distance carriers with the first
carrier transporting the call from the country of origination, and the second
carrier terminating the call in the country of termination. These long
distance telephone calls are classified as one of three types of traffic:
outbound, inbound and international transit. Outbound traffic is calls going
from a country of origination, and inbound traffic is calls going into a
country of destination. For example, a call made from the United States to the
United Kingdom is referred to as outbound traffic for the United States
carrier and inbound traffic for the United Kingdom carrier. The third type of
traffic, international transit traffic, originates and terminates outside a
particular country, but is transported through that country on a carrier's
network. Since most major international fiber optic cable systems are
connected to the United States, and international long distance prices are
substantially lower in the United States than in other countries, a large
volume of international transit traffic is routed through the United States.
International calls are transported by land based or undersea cable or via
satellites. A carrier can obtain voice circuits on cable systems either
through ownership or leases. Ownership in cables is acquired either through
IRUs
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or MAOUs. The fundamental difference between an IRU holder and an owner of
MAOUs is that the IRU holder is not entitled to participate in management
decisions relating to the cable system. Between two countries, a carrier from
each country owns a "half-circuit" of a cable, essentially dividing the
ownership of the cable into two equal components. Additionally, any carrier
may generally lease circuits on a cable from another carrier. Unless a carrier
owns a satellite, satellite circuits also must be leased from one of several
existing satellite systems.
Accounting Rate Mechanism. Under the accounting rate mechanism ("ARM"),
which is the traditional model for handling long distance traffic between
international carriers, traffic is exchanged under bilateral carrier
agreements, or operating agreements, between carriers in two countries.
Foreign carrier agreements generally are three to five years in length and
provide for the termination of traffic in, and return traffic to, the
carriers' respective countries at a negotiated accounting rate, known as the
Total Accounting Rate ("TAR"). In addition, foreign carrier agreements provide
for network coordination and accounting and settlement procedures between the
carriers. Both carriers are responsible for costs and expenses related to
operating their respective halves of the end-to-end international connection.
Settlement costs, which typically equal one-half of the TAR, are the fees
owed to another international carrier for transporting traffic on its
facilities. Settlement costs are reciprocal between each party to a foreign
carrier agreement at a negotiated rate (which must be the same for all United
States-based carriers, unless the FCC approves an exception). For example, if
a foreign carrier charges a United States carrier $0.30 per minute to
terminate a call in the foreign country, the United States carrier would
charge the foreign carrier the same $0.30 per minute to terminate a call in
the United States Additionally, the TAR is the same for all carriers
transporting traffic into a particular country, but varies from country to
country. The term "settlement costs" arises because carriers essentially pay
each other on a net basis determined by the difference between inbound and
outbound traffic between them.
Foreign carrier agreements typically provide that a carrier will return
terminating traffic ("return traffic") in proportion to the traffic it
receives. Return traffic generally is more profitable than outgoing traffic
because the settlement rate per minute is substantially greater than the
incremental cost of terminating a call in the country due to the lack of
marketing expense and billing costs, as well as the lower cost structure
associated with terminating calls within country. Generally, there is a six-
month lag between outbound traffic and the allocation of the corresponding
return traffic and, in certain instances, a minimum volume commitment must be
achieved before qualifying for receipt of return traffic.
Alternative Calling Procedures. As the international long distance market is
being deregulated, long distance companies have devised alternative calling
procedures ("ACPs") in order to complete calls more economically than under
the ARM. Some of the more significant ACPs include (i) transit, (ii) refiling
or "hubbing," (iii) ISR and (iv) reorigination. The most common method is
transit which allows traffic between two countries to be carried through a
third country on another carrier's network. This procedure, which requires
agreement among the particular long distance companies and the countries
involved, generally is used either for overflow traffic during peak periods or
where the direct circuit may not be available or justified based on traffic
volume. Refiling or "hubbing" of traffic, which takes advantage of disparities
in settlement rates between different countries, allows traffic to a
particular country to be treated as if it originated in another country that
enjoys lower settlement rates with the destination country, thereby resulting
in lower overall costs on an end-to-end basis. United States-based carriers
generally are beneficiaries of refiling on behalf of other carriers because of
low international rates. The difference between transit and refiling is that,
with respect to transit, the carrier in the destination country has a direct
relationship with the originating carrier, while with refiling, the carrier in
the destination country is likely not to even know the identity of the
originating carrier. The choice between transit and refiling is determined
primarily by cost. With ISR, a carrier may completely bypass the settlement
system by connecting an international leased or owned line directly to the
public-switched telephone network of a foreign country or directly to a
customer premise through an international gateway switch deployed in the
foreign country. ISR currently is allowed by applicable regulatory authorities
between a limited number of international
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routes, including Canada-United Kingdom, United States-United Kingdom, United
States-Sweden and United Kingdom-Australia and is currently experiencing
increasing usage. Reorigination avoids the high international rates in a
particular country of origin by providing dial tone in a second country with a
lower rate, typically the United States.
Industry Strategies. Strategies to provide international long distance
services are driven by the emergence of ACPs and the increased demand for
seamless services on a global basis. First-tier service providers, which
largely utilize their own network facilities, primarily utilize foreign
carrier agreements in order to provide international service. Second-tier
carrier and new entrants which, to a greater extent must rely on the network
facilities of other carriers, primarily are utilizing ACPs and are developing
networks to compete with the first-tier carriers and gain market share. Other
entrants, including the Company, are establishing their own operations in
multiple countries and, to the extent required to serve other selected
markets, alliances or other arrangements with other carriers. In response,
first-tier carriers have formed alliances to provide seamless services and
one-stop shopping on a global basis.
STRATEGY
Primus's objective is to become a leading global provider of international
and domestic long distance voice, data and other services in its Service
Regions. Key elements of Primus's strategy to achieve this objective include:
. Focus on Customers with Significant International Long Distance
Usage. The Company's primary focus is providing telecommunications
services, on a retail basis, to small- and medium-sized businesses with
significant international long distance traffic, to ethnic residential
customers and, on a wholesale basis, to other telecommunications carriers
and resellers with international traffic. The Company believes that the
international long distance market offers an attractive business
opportunity given its size and, as compared to the domestic long distance
market, its higher revenue per minute, gross margin and expected growth
rate.
. Pursue Early Entry into Selected Deregulating Markets. The Company seeks
to be an early entrant into selected deregulating telecommunications
markets where it believes there is significant demand for international
long distance services as well as substantial growth and profit
potential. The Company believes that early entrance into deregulating
markets provides it with competitive advantages as it develops sales
channels, establishes a customer base, hires personnel experienced in the
telecommunications industry and achieves name recognition, prior to the
entry into these markets by a large number of competitors. The Company
focuses its expansion efforts on major metropolitan areas with high
concentrations of potential customers with international traffic.
. Expand Global Intelligent Network. Primus expects that continued
strategic development of its Network will lead to reduced transmission
and other operating costs as a percentage of net revenue, reduced
reliance on other carriers and more efficient network utilization. The
Company owns and operates its own switching facilities, and purchases
fiber optic cable capacity on an end-to-end basis when current and
expected traffic levels justify such investment.
. Deliver Quality Services at Competitive Prices. Management believes that
the Company delivers high quality services at competitive prices and
provides a high level of customer service. The Company intends to
maintain a low cost structure in order to offer its customers
international and domestic long distance services priced below those of
major carriers in the Service Regions. In addition, the Company intends
to maintain strong customer relationships through the use of trained and
experienced sales and service representatives, and through the provision
of customized billing services.
. Expand Service Offerings as Markets Deregulate. The Company typically
enters markets which are in the initial stages of deregulation by first
providing international long-distance services and, as the market
deregulates further, expanding its portfolio of service offerings within
the particular market. Management believes that international long
distance generally offers attractive margins in markets in the early
stage
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of deregulation and provides a platform for capturing customers for
additional services. Subsequent additions to service offerings may
include, among other services, domestic long distance, data and Internet
access.
. Growth through Selected Acquisitions and Strategic Investments. As part
of its business strategy, the Company frequently evaluates potential
acquisitions, joint ventures and strategic investments. The Company
views acquisitions, joint ventures and strategic investments as a means
to enter additional markets and expand its operations within existing
markets, thereby facilitating an acceleration of its business plan.
Potential candidates include voice and data service providers with an
established customer base, complementary operations, telecommunications
licenses, experienced management or network facilities in countries into
which the Company seeks to enter.
DESCRIPTION OF OPERATING MARKETS
The following is a summary of the market size, competitive dynamics and
regulatory environments of the domestic and international long distance
industries in the principal jurisdictions in which the Company provides its
services and a description of the Company's operations in each of its four
Service Regions:
North America. The United States long distance market is highly deregulated
and is the largest in the world. According to the FCC, in 1996 long distance
telephone revenue in the United States was approximately $99.7 billion,
including approximately $17.1 billion from international services
(representing 17.2% of the total market). AT&T is the largest long distance
carrier in the United States market, with market share of approximately 50.2%
of international outgoing minutes in 1996. MCI and Sprint had market shares of
28.4% and 13.2%, respectively in 1996. AT&T, MCI and Sprint constitute what
generally is regarded as the first-tier in the United States long distance
market. Other large long distance companies with more limited ownership of
transmission capacity, such as WorldCom, Frontier and LCI, constitute the
second-tier of the industry. The remainder of the United States long distance
market is comprised of several hundred smaller companies, largely resellers,
which are known as third-tier carriers.
In the United States, Primus provides long distance services to small- and
medium-sized businesses, residential customers, and other telecommunication
carriers. The Company operates international gateway telephone switches in the
New York City area, Washington D.C. and Los Angeles which are connected with
European countries and countries in the Asia-Pacific region through owned and
leased international fiber cable systems. The Company maintains a direct sales
organization in each of these cities to sell to business customers, and has a
telemarketing center for small business sales in Tampa. To reach residential
customers, the Company advertises nationally in ethnic newspapers and other
publications, offering discounted rates for international calls to targeted
countries. The Company utilizes independent agents to reach and enhance sales
to both business and residential customers and has established a direct sales
force for marketing wholesale international services to other long distance
carriers. The Company maintains a national customer service center staffed
with multi-lingual representatives and operates a global Network Management
Center that monitors the Network from its McLean, Virginia location.
As a result of the recently completed TresCom Merger, the Company has
acquired all of the operations and facilities of TresCom. In the United
States, TresCom markets wholesale telecommunications services to other long
distance carriers who utilize the TresCom network to transmit international
calls to Latin America. TresCom's customers also include businesses with sales
or operations in Latin America, as well as the growing Hispanic population in
the United States. TresCom employs a direct sales force, numbering
approximately 80 individuals as of June 15, 1998, and independent sales and
telemarketing agents to market its services. TresCom maintains sales offices
in Florida, New York, California, Georgia, Puerto Rico and St. Thomas,
U.S.V.I. As part of TresCom's marketing activities to residential customers,
TresCom has entered into joint marketing and promotional arrangements with
other companies, including Coca-Cola, Shell Oil Company, Seagrams and
Walgreens Drug Stores. Additionally, TresCom utilizes direct mail,
participates in a variety of promotional activities which target specified
customers, and sponsors various civic and charity activities.
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According to the International Telecommunications Union ("ITU"), the total
telecommunications market in Canada accounted for approximately $13.2 billion
in revenues in 1996. In Canada, Stentor, a partnership of Canadian regional
telephone companies, is the largest provider of long distance services with a
market share of approximately 67% in 1997. Two types of long distance
providers compete with Stentor. The first, which includes AT&T LDS, fONOROLA
and Sprint Canada, own and operate interexchange circuits and offer
essentially the same services as Stentor. The second type of competitor
consists of other long distance providers that lease but do not own
interexchange circuits and sell their services primarily to distinct niche
markets, such as ethnic communities, affinity associations or small business
associations. In Canada, Primus Canada provides long distance services to
small- and medium-sized businesses, residential customers and other
telecommunication carriers. Primus Canada operates switches in Toronto and
Vancouver, maintains points-of-presence in Ottawa, Montreal and Calgary, and
has sales and customer service offices in Vancouver, Toronto, and Montreal.
According to the ITU, the total telecommunications market in Mexico
accounted for approximately $6.9 billion in 1996. As of January 1, 1997, the
local and long distance market was opened to facilities-based competition in
Mexico. Mexico, however, imposes foreign ownership restrictions that limit the
ownership of facilities-based carriers by non-Mexican persons to below 50%.
The Mexican government has granted licenses to 10 companies (many of them
affiliated with U.S.-based long distance carriers such as AT&T and MCI) to
operate as facilities-based long distance carriers. Resale of basic switched
voice long distance services, however, is still not allowed in Mexico. Primus
provides customers with United States-Mexico cross border private line
services, but is prohibited by the private ownership limitations from
providing other services.
As of June 15, 1998, the Company had approximately 25,000 business customers
and 95,000 residential customers in North America, including the recently
acquired TresCom customer base.
Asia-Pacific. According to the ITU, in 1996, the total telecommunications
market in Australia accounted for approximately $13.4 billion in revenues.
Telstra and Optus, the leading full-service carriers in Australia, own and
operate local, national and international transmission networks. Telstra,
which is majority-owned by the Australian government, is a traditional
facilities-based carrier with a market share of approximately 62.0% in 1996.
In addition to the Company and Optus, Telstra currently competes against other
facilities-based carriers such as AAPT, several switchless resellers and call-
back service providers, including CorpTel, and mobile telecommunications
carriers, such as Vodafone. Australia has further deregulated its long-
distance market by allowing service providers other than Telstra and Optus to
own domestic transmission facilities and mandating Telstra to provide equal
(non-code) access to customers of select service providers such as the
Company. The Company is a licensed carrier permitted to own and operate
transmission facilities in Australia.
Primus is the fourth largest long distance company in Australia, providing
domestic and international long distance services, data and Internet access
services, as well as local and cellular service on a resale basis, to small-
and medium-sized business customers and ethnic residential customers. The
Company has invested substantial resources over the past two years to build a
domestic and international long distance network to transform its Australian
operations into a full facilities-based telecommunications carrier. During
1997, the Company installed and began operating a five-city switched network
using Northern Telecom switches in Sydney, Melbourne, Perth, Adelaide, and
Brisbane. The Company purchased international fiber cable capacity during 1997
and linked the Australian network to the United States via the TPC-5, APCN,
and Jassaurus cable systems, as well as to New Zealand. Primus Australia
became a fully licensed facilities-based telecommunications carrier on July 1,
1997. In August 1997, equal access was introduced in Australia, and the
Company began the process of migrating and connecting customers directly to
its own Network. In 1998, the Company completed the Hotkey Investment and the
Eclipse Acquisition, positioning it to offer a complete range of
telecommunications services for corporate customers in Australia, including
fully integrated voice and data networks, as well as Internet access. The
Company markets its services through a combination of direct sales to small-
and medium-sized business customers, independent agents which market to
business and residential customers, and media advertising aimed at ethnic
residential customers living in Australia who make a high
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volume of international calls. As of June 15, 1998, the Company had
approximately 25,000 business customers and 105,000 residential customers in
Australia.
The Company entered the Japanese market in late 1997 through the
TelePassport/USFI Acquisition. According to the ITU, in 1996, the total
telecommunications market in Japan accounted for approximately $93.6 billion
in revenues. The Company maintains an office in downtown Tokyo and a switching
platform to provide international calling services to resellers and small
businesses. The Company has interconnected its Tokyo switch to Los Angeles via
the TPC-5 fiber cable system. The Company plans to apply for a full Class-I
carrier license in Japan. The Company plans to market its services in Japan
through direct sales and relationships that it is establishing with business
partners.
Europe. Oftel estimates that the market for international and domestic long
distance services in the United Kingdom accounted for approximately $6.6
billion in revenues in the 12 months ended March 31, 1996. In the United
Kingdom, British Telecom historically has dominated the telecommunications
market and is the largest carrier. Mercury, which owns and operates
interchange transmission facilities, is the second largest carrier. The
remainder of the United Kingdom long distance market is comprised of an
emerging market of licensed telecommunications service providers, such as
Energis, and switch-based resellers, such as AT&T, WorldCom, MFS, ACC and
Esprit.
Primus Telecommunications, Ltd. is a fully licensed carrier in the United
Kingdom and provides domestic and international long distance services to
residential customers, small businesses, and other telecommunications
carriers. The Company operates an Ericsson AXE-10 international gateway
telephone switch in London, which is directly connected to the United States
and will be directly connected to the international gateway switch currently
being installed in Frankfurt, Germany. Primus's European operations are
headquartered in London, where it also maintains a 24-hour customer service
call center. The Company markets its services in the United Kingdom using a
combination of direct sales, agents, and direct media advertising primarily to
ethnic customers who make a higher-than-average percentage of international
calls. As of June 15, 1998, Primus Telecommunications, Ltd. had approximately
25,000 residential customers in the United Kingdom.
The Company is in the process of expanding its services and Network to
continental Europe which has recently begun the process of deregulation of its
telecommunications markets. For example, the Company was recently awarded a
Class-4 switched voice telephone license in Germany. According to the ITU, in
1996, the German telecommunications market generated approximately $44.6
billion in revenues. Through the TelePassport/USFI Acquisition, Primus
acquired a base of small business customers in Germany to whom it provides
reorigination services, establishing a platform for the Company's expansion
into that market. Additionally, the Company has opened its first sales office
in Frankfurt, and has purchased an Ericsson AXE-10 international gateway
switch which is currently being installed. The Company has also applied for a
license and expects to begin operations in France during 1998.
Latin America. As a result of the recently completed TresCom Merger, the
Company will accelerate the targeting of businesses and residential customers
in Latin America to capitalize on the existing TresCom relationships with
customers having operations in those countries. TresCom offers international
inbound calling services which provide collect calling from parts of Latin
America to the United States and calling card services with United States
terminations. In 1997, TresCom began marketing these services in Honduras,
Nicaragua and Panama. Additionally, TresCom began providing international
callthrough services from portions of Latin America enabling its customers
located in that region to place international calls at reduced rates. TresCom
maintains a multi-lingual customer service department available through "toll-
free" access, as well as a "Trouble Reporting Center" which caters to its
wholesale customers. In addition to international long distance services,
TresCom provides local service in Puerto Rico, and the U.S.V.I.
SERVICES
The Company offers a broad array of telecommunications services through the
Network and through interconnection with the networks of other carriers. The
Company's decision to offer certain services in a market
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is based on competitive factors and regulatory restraints within the market.
Below is a summary of services offered by the Company:
. International and Domestic Long Distance. The Company provides
international long distance voice services terminating in approximately
230 countries, and provides domestic long distance voice services within
selected countries within its Service Regions. Access methods required to
originate a call vary according to regulatory requirements and the
existing domestic telecommunications infrastructure.
. Private Network Services. For business customers, the Company designs and
implements international private network services that may be used for
voice, data and video applications.
. Prepaid Cards, Calling Cards and Collect Calling. The Company offers
prepaid and calling cards that may be used by customers for domestic and
international telephone calls both within and outside of their home
country. If the TresCom Merger is consummated, the Company will offer
customers in selected Latin American markets collect calling services to
the United States and calling card services for calls terminating in the
United States. TresCom is currently marketing such services in Honduras,
Nicaragua and Panama.
. Reorigination and Callthrough Services. In selected countries, including
Germany and Japan, the Company provides call reorigination services which
allow non-United States country to country calling to originate from the
United States, thereby taking advantage of lower United States accounting
rates. As a result of the recently completed TresCom Merger, the Company
also offers international callthrough services from selected countries in
Latin America.
. Local Switched Services. The Company in the future intends to provide
local service on a resale basis as part of its "multi-service" marketing
approach, subject to commercial feasibility and regulatory limitations.
The Company currently provides local service in Australia and, as a
result of the recently completed TresCom Merger, provides competitively-
priced local calling services within Puerto Rico and the U.S.V.I.
. Toll-free Services. The Company offers domestic and international toll-
free services.
. Data Services. With the Hotkey Investment and the Eclipse Acquisition,
the Company is positioned to offer ATM, a transmission standard which
utilizes statistical multiplexing technology, and frame relay and other
data services, including Internet access services, in Australia.
. Cellular Services. The Company resells Telstra analog and digital
cellular services in Australia.
NETWORK
General. Since its inception in 1994, the Company has been deploying a
global intelligent telecommunications network consisting of international and
domestic switches, related peripheral equipment, undersea fiber optic cable
systems and leased satellite and cable capacity. Primus believes that the
Network allows it to control both the quality and cost of the on-net
telecommunications services it provides to its customers. To ensure high-
quality telecommunications services, the Network employs digital switching and
fiber optic technologies, uses SS7 signaling and is supported by comprehensive
monitoring and technical services. The Company's Network consists of (i) a
global backbone network connecting intelligent gateway switches in the Service
Regions, (ii) a domestic long distance network presence within certain
countries within the Service Regions, and (iii) a combination of owned and
leased transmission facilities, resale arrangements and foreign carrier
agreements.
Each of the international gateway switches will be connected to the domestic
and international networks of both the Company and other carriers in a
particular market, allowing the Company to (i) provide seamless service, (ii)
package and market the voice and data services purchased from other carriers
under the "Primus" brand name and (iii) divert a portion of that market's
United States-bound return traffic through the Company's switches in the
United States. In addition, until the Company's customer base grows and it
penetrates other
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deregulating telecommunications markets, the Company intends to transit a
significant portion of its traffic through the United States.
The Company has targeted North America, the Asia-Pacific region, Europe and,
as a result of the recently completed TresCom Merger, Latin America, for the
development of the Network. The Company has selected the United States,
Australia and the United Kingdom as regional hubs for expansion into
additional markets within North America, the Asia-Pacific region and Europe,
respectively. These countries were selected based on their market size,
potential growth and favorable regulatory environments. The Company expects to
expand into additional markets as deregulation occurs and the Company is
permitted to offer a full range of switched public telephone services. For
instance, the Company is using its United Kingdom operations to coordinate
efforts to enter other major metropolitan European markets in the European
Union in conjunction with the deregulation of the telecommunications industry
in certain European Union countries which began in 1998. The initial step in
this expansion involves the Company's current installation of an international
gateway switch in Frankfurt, Germany.
The following chart illustrates an international long distance call using
the Network from the United States to another market where the Company has an
international gateway switch:
[GRAPH APPEARS HERE]
International Gateway and Domestic Switches. As of March 31, 1998, the
Company operated 11 switches, including seven international gateway switches
(New York, Los Angeles, Washington, D.C., Toronto, Vancouver, London, Sydney),
four domestic switches (Adelaide, Brisbane, Melbourne and Perth) and a
switching platform in Japan. As a result of the recently completed TresCom
Merger, the Company has acquird three additional international gateway
switches located in Fort Lauderdale, New York City and Guaynabo, Puerto Rico.
The Company also currently operates approximately 15 Pops in other major
metropolitan areas of its Service Regions. The equipment deployed in the
Network, including the switches, consists primarily of equipment manufactured
by Nortel, Ericsson and Siemens.
Fiber Optic Cable Systems. Where the Company's customer base has developed
sufficient traffic, the Company has purchased and leased undersea and land-
based fiber optic cable transmission capacity to connect to its various
switches. Where traffic is light or moderate, the Company obtains capacity to
transmit traffic on a per-minute variable cost basis. When traffic volume
increases and such commitments are cost effective, the Company intends to
either lease or purchase lines on a monthly or longer term basis at a fixed
cost and acquire
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economic interests in transmission capacity through MAOUs and IRUs to
international traffic destinations. The following chart sets forth a listing
of the undersea fiber optic cable systems in which the Company has capacity
after the recently completed TresCom Merger (which includes both MAOUs and
IRUs):
<TABLE>
<CAPTION>
CABLE SYSTEM COUNTRIES SERVED STATUS
----------------- ---------------------------- --------
<C> <S> <C>
PRIMUS:
United States--United
TAT 12/13 Kingdom Existing
United States--United
Gemini Kingdom Existing
CANTAT United States--Germany Existing
United States--Canada Existing
CANUS United States--Canada Existing
Flag United Kingdom--Italy Existing
Italy--Japan Existing
UK--France 5 United Kingdom--France Existing
Arianne France--Greece Existing
CIOS Greece--Cyprus Existing
Aphrodite Greece--Italy Existing
TPC 5 United States--Japan Existing
APCN Japan--Indonesia Existing
Jasaurus Indonesia--Australia Existing
Southern Cross United States--Australia Planned
JPN--US United States--Japan Planned
SEA ME WE Italy--Japan Planned
TRESCOM:
Columbus II United States--Mexico Existing
Americas I United States--Brazil Existing
United States--U.S.V.I. Existing
U.S.V.I.--Trinidad Existing
PTAT-1 United States--U.S.V.I. Existing
CARAC United States--U.S.V.I. Existing
Taino--Carib U.S.V.I.--Puerto Rico Existing
Bahamas I United States--Bahamas Existing
U.S.V.I.--Antigua--St.
ECFS Martin-- Existing
St. Kitts--Martinique--
Guyana
Americas II United States--Argentina Planned
Columbus II United States--Spain Planned
Pan American U.S.V.I.--Aruba--Venezuela-- Planned
Panama--Columbia--Ecuador--
Peru--Chile--Panama
Bahamas 2 United States--Bahamas Planned
Puerto Rico--Dominican
MONA Republic Planned
Puerto Rico--Dominican
Antilles 1 Republic Planned
CANTAT 3 United States--Denmark Existing
CANUS United States--Canada Existing
ODIN Netherlands--Denmark Existing
RIOJA Netherlands--Belgium Existing
</TABLE>
Foreign Carrier Agreements. In selected countries where competition with the
traditional incumbent PTTs is limited or is not currently permitted, the
Company has entered into foreign carrier agreements with PTTs or other service
providers which permit the Company to provide traffic into and receive return
traffic from these countries. The Company has existing foreign carrier
agreements with PTTs in Cyprus, Greece, Honduras, India,
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Iran, Italy and New Zealand, and additional agreements with other foreign
carriers in 5 other countries. As a result of the recently completed TresCom
Merger, the Company has acquired 27 additional foreign carrier agreements,
providing access to various countries in Latin America.
Network Management and Control. The Company owns and operates a network
management control center (a "NMCC") in Sydney, Australia which is used to
monitor and control all switches and other transmission equipment used in its
Australia Network. This NMCC operates seven days a week, 24 hours per day, 365
days a year. In the United States, United Kingdom and Canada, the Company
currently monitors and controls each switch locally. The Company has begun to
construct a NMCC in McLean, Virginia, and plans to use a portion of the net
proceeds of this Offering to build a new NMCC in London and to upgrade the
existing Sydney NMCC. Each of the NMCCs will be capable of monitoring and
controlling the Network in all regions.
Planned Expansion of Network. The Company is currently installing an
additional international gateway switch in Frankfurt, Germany and, by the end
of 1999, intends to add up to three switches in North America, two switches in
Europe, one switch in Asia-Pacific and three switches in Latin America.
Additionally, the Company intends to continue to invest in additional switches
and Pops in major metropolitan areas of the Service Regions as the traffic
usage warrants the expenditure. The Company also intends to acquire capacity
in land based fiber optic cable systems in its Service Regions, particularly
in North America and Europe. To augment the Network, the Company intends to
construct and own international satellite earth stations to connect the
Network to developing countries in which fiber optic cable connections are
unavailable or uneconomical.
CUSTOMERS
The Company's primary focus is providing telecommunications services, on a
retail basis, to small- and medium-sized businesses with significant
international long distance traffic and ethnic residential consumers and, on a
wholesale basis, other carriers and resellers with international traffic. As
of June 15, 1998, Primus had in excess of 275,000 customers, including the
recently acquired TresCom customer base.
Businesses. The Company's business sales and marketing efforts target small-
and medium-sized businesses with significant international long distance
traffic. The Company believes that these users are attracted to the Company
primarily due to its price savings compared to first-tier carriers and,
secondarily, its personalized approach to customer service and support,
including customized billing and bundled service offerings.
Residential Consumers. The Company's residential sales and marketing
strategy targets ethnic residential consumers who generate high international
traffic volumes. The Company believes that they are attracted to the Company
because of price savings as compared to first-tier carriers, simplified
pricing structure, and multilingual customer service and support.
Telecommunications Carriers and Resellers. The Company competes for the
business of other telecommunications carriers and resellers primarily on the
basis of price and service quality. Sales to other carriers and resellers help
the Company maximize the utilization of the Network and thereby reduce the
Company's fixed costs per minute of use.
Customer Service. The Company strives to provide personalized customer
service and believes that the quality of its customer service is one of its
competitive advantages. The Company's larger customers are actively covered by
dedicated account and service representatives who seek to identify, prevent
and solve problems. The Company provides toll-free, 24-hour a day customer
service in the United States, Canada, the United Kingdom and Australia. As of
June 15, 1998, the Company employed approximately 190 full-time customer
service employees, many of whom are multi-lingual. The Company intends to
integrate the TresCom staff of operators fluent in English and Spanish, which
can be accessed to complete collect, third party, person-to-person, station-
to-station and credit card validation calls. The TresCom Merger will
accelerate the Company's ability to offer wholesale and retail traffic
repricing for international and domestic traffic, as well as advanced personal
computer billing services. TresCom also maintains a "Trouble Reporting Center"
for its wholesale customers.
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SALES AND MARKETING
The Company markets its services through a variety of sales channels, as
summarized below:
Direct Sales Force. The Company's direct sales force is comprised of full-
time employees who focus on small- to medium-sized business customers with
substantial international traffic or traffic potential. The Company also
employs full-time direct sales representatives focused on ethnic residential
consumers and direct sales representatives who exclusively sell wholesale
services to other long-distance carriers and resellers. Direct sales personnel
are compensated with a base salary plus commissions.
The Company's direct sales efforts are organized into regional sales
offices. The Company currently has offices in Washington, D.C., New York City,
Los Angeles, Tampa, Toronto, Vancouver, Montreal, Mexico City, London,
Frankfurt, Melbourne, Sydney, Adelaide, Brisbane, Perth and Tokyo. With the
recent completion of the TresCom Merger, the Company has additional sales
offices in Fort Lauderdale, Puerto Rico and St. Thomas, U.S.V.I.
Agents and Independent Sales Representatives. The Company supplements its
direct sales efforts with agents and independent sales representatives. These
agents and representatives, who typically focus on small- and medium-sized
businesses, as well as ethnic residential consumers, are paid commissions
based on long distance revenue generated. Within major metropolitan regions,
the Company usually grants only nonexclusive sales rights, requires its agents
and representatives to maintain minimum quotas and prohibits them from selling
competitors' products.
Telemarketing. The Company employs full-time telemarketing sales personnel
to supplement sales efforts to ethnic residential consumers and small- and
medium-sized business customers.
Media and Direct Mail. The Company uses a variety of print, television and
radio advertising to increase name recognition and generate new customers. The
Company reaches ethnic residential consumers by print advertising campaigns in
ethnic newspapers, and advertising on select radio and television programs.
MANAGEMENT INFORMATION AND BILLING SYSTEMS
The Company uses various management information, network and customer
billing systems in its different operating subsidiaries to support the
functions of network and traffic management, customer service and customer
billing. For financial reporting, Primus utilizes a common system in each of
its markets. It is expected that TresCom's financial reporting will be
integrated with that of the Company. For its billing requirements in the
United States, the Company uses a customer billing system developed by
Electronic Data Systems Inc. ("EDS") which supplies, operates and maintains
this system and is responsible for providing back-up facilities and disaster
recovery. The EDS system is widely used in the telecommunications industry and
has been customized to meet the Company's specific needs. Elsewhere, the
Company uses advanced systems to handle its billing requirements. The Company
direct bills all of its business, resellers and residential customers in all
of its Service Regions.
Management believes that its financial reporting and billing systems are
adequate to meet the Company's needs in the near term, including integration
of TresCom's operations, but as the Company continues to grow, it will need to
invest additional capital to purchase hardware and software, license more
specialized software, increase capacity and link its systems among different
countries. The Company 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. See "Risk
Factors--Dependence on Effective Information Systems; Year 2000 Problem" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000 Compliance."
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COMPETITION
The international telecommunications industry is highly competitive and
significantly affected by regulatory changes, marketing and pricing decisions
of the larger industry participants and the introduction of new services made
possible by technological advances. The Company believes that long distance
service providers compete on the basis of price, customer service, product
quality and breadth of services offered. In each country of operation, the
Company has numerous competitors. The Company believes that as the
international telecommunications markets continue to deregulate, competition
in these markets will increase, similar to the competitive environment that
has developed in the United States following the AT&T divestiture in 1984.
Prices for long-distance calls in the markets in which the Company competes
have declined historically and are likely to continue to decrease. Many of the
competitors are significantly larger, have substantially greater financial,
technical and marketing resources and larger networks than the Company. See
"Risk Factors--Intense Domestic and International Competition."
Privatization and deregulation have had, and are expected to continue to
have, significant effects on competition in the industry. For example, as a
result of legislation enacted in the United States, RBOCs will be allowed to
enter the long distance market, AT&T, MCI and other long distance carriers
will be allowed to enter the local telephone services market, and cable
television companies and utilities will be allowed to enter both the local and
long distance telecommunications markets. In addition, competition has begun
to increase in the European Union telecommunications markets in connection
with the deregulation of the telecommunications industry in most European
Union countries, which began in January 1998. This increase in competition
could adversely affect net revenue per minute and gross margin as a percentage
of net revenue.
The following is a brief summary of the competitive environment in selected
countries within each of the Service Regions:
North America. In the United States, which is the most competitive and among
the most deregulated long distance markets in the world, competition is based
upon pricing, customer service, network quality, and the ability to provide
value-added services. AT&T is the largest supplier of long distance services,
with MCI, Sprint and WorldCom being the next largest providers. In the future,
under provisions of recently enacted federal legislation, the Company
anticipates that it will also compete with RBOCs, LECs and Internet providers
in providing domestic and international long-distance services. The Canadian
telecommunications market is highly competitive and is dominated by a few
established carriers whose marketing and pricing decisions have a significant
impact on the other industry participants including the Company. The Company
competes with facilities-based carriers, other resellers and rebillers,
primarily on the basis of price. The principal facilities-based competitors
include the Stentor Companies, in particular, Bell Canada, the dominant
supplier of local and long-distance services in Canada, AT&T LDS, Sprint
Canada and fONOROLA. The Company also competes with ACC Canada, one of the
large resellers. Based upon current market share estimates, the Stentor
Companies control approximately 70% of the entire Canadian long distance
market and approximately 66% of the business long distance market.
Asia-Pacific. Australia is one of the most deregulated and competitive
telecommunications markets in the Asia-Pacific region. The Company's principal
competitors in Australia are Telstra, the dominant carrier, Optus and AAPT and
a number of other switchless resellers. The Company competes in Australia by
offering a comprehensive menu of competitively-priced products and services,
including value-added services, and by providing superior customer service and
support. The Company believes that competition in Australia will increase as
more companies are awarded carrier licenses in the future. The Company's
principal competitor in Japan is KDD, the dominant carrier, as well as Japan
Telecom, IDC and a number of second tier carriers, including Cable & Wireless,
WorldCom and ATNet.
Europe. The Company's principal competitors in the United Kingdom are
British Telecom, the dominant supplier of telecommunications services in the
United Kingdom, and Cable & Wireless Communications. Other competitors in the
United Kingdom include Colt, Energis, Esprit Telecom Group and RSL
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Communications. The Company competes in the United Kingdom, and expects to
compete in other European countries, by offering competitively-priced bundled
and stand-alone services, personalized customer service and value-added
services. The Company's principal competitor in Germany is Deutsche Telekom,
the dominant carrier. The Company also competes with O.tel.o Communications,
Mannesmann ARCOR, VIAG Interkom, MobilCom, Talkline, MFS/Colt, WorldCom,
PlusNet, and RSL Communications. Additionally, the Company also faces
competition from other licensed public telephone operators that are
constructing their own facilities-based networks, cable companies and switch-
based resellers, including the emerging German local exchange carriers known
as "City Carriers".
Latin America. The Company's principal competitors in Latin America are the
traditional PTTs in each country within this region, including Telmex in
Mexico.
GOVERNMENT REGULATION
As a global 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. See "Risk Factors--Potential Adverse Effects of
Regulation."
Regulation of the telecommunications industry is changing rapidly both
domestically and globally. The FCC is considering a number of international
service issues in the context of several policy rulemaking proceedings in
response to specific petitions and applications filed by other international
carriers. The Company is unable to predict how the FCC will resolve the
pending international policy issues or how such resolution will effect its
international business. In addition, the WTO Agreement, which reflects efforts
to dismantle government-owned telecommunications monopolies throughout Europe
and Asia may affect the Company. Although the Company believes that these
deregulation efforts will create opportunities for new entrants in the
telecommunications service industry, there can be no assurance that they will
be implemented in a manner that would benefit the Company.
The regulatory framework in certain jurisdictions in which the Company
provides its services is described below:
United States
In the United States, the Company's services are subject to the provisions
of the Communications Act, FCC regulations thereunder, as well as the
applicable laws and regulations of the various states and state regulatory
commissions.
As a carrier offering services to the public, the Company must comply with
the requirements of common carriage under the Communications Act, including
the offering of service on a non-discriminatory basis at just and reasonable
rates, and obtaining FCC approval prior to any assignment of authorizations or
any transfer of de jure or de facto control of the Company. The Company is
classified as a non-dominant common carrier for domestic service and is not
required to obtain specific prior FCC approval to initiate or expand domestic
interstate services.
International Service Regulation. International common carriers, including
the Company, are required to obtain authority under Section 214 of the
Communications Act and file a tariff containing the rates, terms, and
conditions applicable to their services prior to initiating their
international telecommunications services. The Company has obtained all
required authorizations from the FCC to use, on a facilities and resale basis,
various transmission media for the provision of international switched
services and international private line services.
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In addition to the general common carrier principles, the Company must
conduct its international business in compliance with the FCC's international
settlements policy, the rules that establish the permissible boundaries for
U.S.-based carriers and their foreign correspondents to settle the cost of
terminating each others' traffic over their respective networks. Under the
ISP, absent approval from the FCC, international telecommunications service
agreements with foreign carriers must provide that settlement rates paid to
each party are one-half of the accounting rate, and U.S. carriers may not
accept more than a proportionate share of return traffic. The ISP also
provides for a mechanism by which the FCC can review the rates contained in
such foreign carrier agreements. The FCC could find that the Company does not
meet certain ISP requirements with respect to certain of the Company's foreign
carrier agreements. Although the FCC generally has not issued penalties in
this area, it could, among other things, issue a cease and desist order,
impose fines or allow the collection of damages if it finds that the Company
is not in compliance with the ISP. The Company does not believe that any such
fine or order would have a material adverse effect on the Company.
The Company is also subject to other FCC requirements regarding the routing
of telecommunications services between the United States and foreign
countries. These requirements include compliance with the FCC's limitations on
the routing of international traffic via international private lines and on
accepting "special concessions" from certain carriers, as well as the filing
of periodic reports with the FCC. In implementing the WTO Agreement, the FCC
recently reduced the applicability of some of these requirements to the
activities of telecommunications carriers such as the Company. Moreover, the
Company has a number of customers in foreign countries that access the
Company's services through international call reorigination. In providing
service to these customers, the Company is required by the FCC to offer such
services in compliance with the laws of foreign countries where its customers
are located. Certain countries prohibit some or all forms of call
reorigination. For example, Honduras and Nicaragua have informed the
International Telecommunications Union that they prohibit call reorigination.
The Company may be prevented in the future from providing such services or
penalized either by the foreign country or, in certain circumstances, by the
FCC.
The FCC continues to refine its international service rules, including ISP
requirements, to promote competition, reflect and encourage liberalization in
foreign countries and reduce accounting rates toward cost. In that regard, the
FCC has determined that it would permit U.S. carriers to enter into "flexible"
international termination arrangements where such arrangements promote
competition. Under this new policy, the FCC has allowed the Company to enter
into an alternative termination arrangement with its Australian subsidiary
Axicorp, which allows the Company and Axicorp to terminate each other's
traffic under favorable terms that deviate from the ISP.
Domestic Service Regulation. The Company is considered a non-dominant
domestic interstate carrier subject to minimal regulation by the FCC. The
Company is not required to obtain FCC authority to expand its domestic
interstate operations, but is required to maintain a tariff on file at the
FCC. The 1996 Telecommunications Act is intended to increase competition in
the U.S. telecommunications markets. The legislation opens the local services
markets by requiring LECs to permit interconnection to their networks and by
establishing LEC obligations with respect to unbundled access, resale, number
portability, dialing parity, access to rights-of-way, mutual compensation and
other matters. In addition, the legislation codifies the LECs' equal access
and nondiscrimination obligations and preempts inconsistent state regulation.
The legislation also contains special provisions that eliminate the
restrictions on incumbent LECs such as the RBOCs and the GTE Operating
Companies (the "GTOCs") from providing long distance services. These new
provisions permit an RBOC to enter the "out-of-region" long distance market
immediately upon the receipt of any state and/or federal regulatory approvals
otherwise applicable to the provision of long distance service. These new
provisions also permit an RBOC to enter the "in-region" long distance market
if it satisfies procedural and substantive requirements, including obtaining
FCC approval upon a showing that in certain situations facilities-based
competition is present in its market, and that it has entered into
interconnection agreements which satisfy a 14-point "checklist" of competitive
requirements. The GTOCs are permitted to enter the long distance market as of
the date of enactment of the 1996 Telecommunications Act, without regard to
limitations by region, although necessary regulatory approvals to provide long
distance services must be obtained, and the GTOCs are subject to the
provisions of the 1996
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Telecommunications Act that impose interconnection and other requirements on
LECs. The 1996 Telecommunications Act also addresses a wide range of other
telecommunications issues that may potentially impact the Company's
operations. It is unknown at this time precisely the nature and extent of the
impact that the legislation will have on the Company. On August 1, 1996, the
FCC adopted an Interconnection Order implementing the requirements that
incumbent LECs make available to new entrants interconnection and unbundled
network elements, and offer retail services for resale at wholesale rates.
Portions of that order were vacated by the U.S. Court of Appeals for the
Eighth Circuit. The U.S. District court for the Northern District of Texas
recently ruled that the long distance conditions in Sections 271-275 of the
1996 Telecommunications Act are unconstitutional. Higher courts, including the
U.S. Supreme Court, will be reviewing some of these decisions. The result of
such review cannot be predicted and the Company could be adversely affected to
the extent that conditions of RBOC entry into the long distance market are
relaxed or eliminated.
The Company's costs of providing long distance services will be affected by
changes in the access charge rates imposed by incumbent LECs for origination
and termination of calls over local facilities. The FCC has significantly
revised its access charge rules in recent years to permit incumbent LECs
greater pricing flexibility and relaxed regulation of new switched access
services in those markets where there are other providers of access services.
The FCC continues to adjust its access charge rules and has indicated that it
will promulgate additional rules sometime in 1998 that may grant certain LECs
further flexibility.
The FCC has also significantly revised the universal service subsidy regime
to be funded by interstate carriers and certain other entities. The FCC
recently established new universal service funds to support qualifying
schools, libraries, and rural health care providers and expanded subsidies for
low income consumers. The FCC is continuing to revise its universal service
rules which may result in further substantial increases in the overall cost of
the subsidy program. The outcome of these proceedings or its effect on the
Company cannot be predicted.
State Regulation. The Company's intrastate long distance operations are
subject to various state laws and regulations, including, in most
jurisdictions, certification and tariff filing requirements. The Company has
received the necessary certificate and tariff approvals to provide intrastate
long distance service in 48 states. Certificates of authority can generally be
conditioned, modified, canceled, terminated, or revoked by state regulatory
authorities for failure to comply with state law and/or the rules,
regulations, and policies of the state regulatory authorities. Fines and other
penalties also may be imposed for such violations. PSCs also regulate access
charges and other pricing for telecommunications services within each state.
The RBOCs and other local exchange carriers have been seeking reduction of
state regulatory requirements, including greater pricing flexibility which, if
granted, could subject the Company to increased price competition. The Company
may also be required to contribute to universal service funds in some states.
Foreign Ownership Affiliations and Limitations. The Communications Act
limits the ownership of an entity holding a common carrier radio license by
non-U.S. citizens, foreign corporations and foreign governments. Through
TresCom, the Company holds common carrier wireless licenses. In its order
implementing the U.S. commitments under the WTO Agreement, the FCC established
new rules that effectively relax the foreign ownership limits for common
carrier wireless licensees. The new rules permit up to 100% foreign indirect
ownership of wireless licenses by foreign interests from members of the WTO.
FCC rules also require international carriers to notify the FCC 60 days in
advance of an acquisition of a 25% or greater controlling interest by a
foreign carrier in that U.S. carrier or an acquisition by the U.S. carrier of
a 25% or greater controlling interest in a foreign carrier. After receiving
this notification, the FCC can require the Company to meet certain "dominant
carrier" reporting and other conditions if the Commission finds that the
acquisition creates an affiliation with a dominant foreign carrier. In
addition, if the Company becomes affiliated with a dominant carrier from a
country that is not a member of the WTO, the FCC will apply an "effective
competitive opportunities" test and could prevent the Company from providing
services between the United States and that country. The effect on the Company
of the WTO Agreement or other new legislation, or the outcome of the FCC's
rulemaking regarding implementing WTO regulations which may become applicable
to the Company, cannot be determined.
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Canada
Telecommunications carriers are regulated generally by the CRTC which has
enacted policies and regulations that include the establishment of
contribution charges (the equivalent of access charges in the U.S.),
deregulation of the international segment of the long-distance market,
limitations on switched hubbing through the United States and restrictions on
foreign ownership for facilities-based carriers. In addition, Canada has
committed in the WTO Agreement to eliminate a number of barriers to
competition, some of which are expected to be eliminated in October 1998.
Teleglobe Canada, Inc. ("Teleglobe"), which currently has a monopoly over
international transmission services until October 1, 1998, offers
international carrier service on a nondiscriminatory basis to both facilities-
based carriers and resellers, who may have direct access to its international
gateways. The Company is permitted to provide ISR of private leased lines to
any country which permits such arrangements on a reciprocal basis. Routing of
basic intra-Canada traffic or basic traffic destined to third countries
through U.S. facilities is, however, prohibited. Despite these restrictions,
Primus as a reseller is virtually unregulated by the CRTC. In particular,
because the Company does not own and operate transmission facilities in
Canada, it is not subject to the Canadian Telecommunications Act or the
regulatory authority of the CRTC. The Company may therefore provide resold
Canadian long distance service without rate, price or tariff regulation,
ownership limitations, or other regulatory requirements.
Competition. Long distance competition has been in place in Canada since
1990 for long distance resellers and since 1992 for facilities-based carriers.
Since 1994, the ILECs have been required to provide "equal access" which
eliminated the need for customers of competitive long distance providers to
dial additional digits when placing long distance calls. In June 1992, the
CRTC issued its ground-breaking Telecom Decision CRTC 92-12 requiring the
largest telephone companies to interconnect their networks with their
facilities-based as well as resale competitors. The dominant Stentor group of
companies, including Bell Canada, offers both local and long distance services
in the respective regions of each of the group's member telephone companies.
Other nationwide providers are AT&T Canada Long Distance Services, Sprint
Canada and fONOROLA, Inc. Additional long distance services competition is
provided by a substantial resale long distance industry in Canada. Although
resellers do not own facilities, they are able to provide the same range of
domestic services and long distance services as facilities-based carriers by
leasing capacity and other services from facilities-based carriers.
Foreign Ownership Restrictions. Under Canada's Telecommunications Act and
certain regulations promulgated pursuant to such Act, foreign ownership
restrictions are applicable to facilities-based carriers (known as "Canadian
carriers"), but not resellers, which may be wholly foreign-owned and
controlled. These restrictions limit the amount of direct foreign investment
in Canadian carriers to no more than 20% of the voting equity of a Canadian
carrier operating company and no more than 33 1/3% of the voting equity of a
Canadian carrier holding company. The restrictions also limit the number of
seats which may be occupied by non-Canadians on the Board of Directors of a
Canadian carrier operating company to 20%. In addition, under Canadian
companies law, a majority of Canadians must occupy the seats on the Board of
Directors of a Canadian carrier holding company. Although it is possible for
foreign investors to also hold non-voting equity in a Canadian carrier, the
law requires that the Canadian carrier not be "controlled in fact" by non-
Canadians. Based on Canada's commitment in the WTO Agreement, the restriction
on foreign investment in facilities-based telecommunications service providers
remains largely intact, but will be eliminated as October 1, 1998 for
operations conducted under an international submarine cable license and for
certain satellites.
Australia
The provision of the Company's services is subject to federal regulation.
Two primary instruments of regulation have been the Telecommunications Act
1991 and federal regulation of anti-competitive practices pursuant to the
Trade Practices Act. The regulatory climate changed in July 1997 with the
implementation of the Telecom Act. These latest changes to the regulatory
framework have been described by the Australian Government as the achievement
of the Government's long-term objective of an internationally competitive
telecommunications industry in Australia through full and open competition.
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The Company is licensed under the Telecom Act to own and operate
transmission facilities in Australia. Under the new regulatory framework, the
Company does not require a carriage license in order to supply carriage
services to the public using network facilities owned by another carrier.
Instead, with respect to carriage services, the Company must comply with
legislated "service provider" rules contained in the Telecom Act covering
matters such as compliance with the Telecom Act, operator services, regulation
of access, directory assistance, provision of information to allow maintenance
of an integrated public number database, and itemized billing.
Also, in connection with the Telecom Act, two federal regulatory authorities
now exercise control over a broad range of issues affecting the operation of
the Australian telecommunications industry. The ACA is the authority
regulating matters including the licensing of carriers and technical matters,
and the ACCC has the role of promotion of competition and consumer protection.
The Company is required to comply with the terms of its own license, is
subject to the greater controls applicable to licensed facilities-based
carriers and is 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 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.
In the Australian context, a distinction is drawn in the Telecom Act between
carriers and other providers of telecommunications services. However,
distinctions are no longer drawn between types of carriers such as fixed or
mobile. Carriers are the providers of telecommunications infrastructure and
carriage service providers extend service to the end-users. In practice, most
carriers are expected also to be carriage service providers. There is now no
limit to the number of carriers who may be licensed, and it is expected that
additional licenses will be granted. As a result of the Telecom Act, any
company that meets the relevant financial and technical standards and complies
with the license application process can become a licensed carrier permitted
to own and operate transmission facilities in Australia. New carriers seeking
a license must provide an industry development plan approved by the Australian
Government. Carriers are licensed individually, are subject to charges that
are intended to cover the costs of regulating the telecommunications industry,
and are obliged to comply with license conditions (including obligations to
comply with the Telecom Act, with certain commitments made in their industry
development plan and with the telecommunications access regime and related
facilities access obligations). The Company has submitted its industry
development plan to the Australian Government. The plan includes relevant
particulars of the carrier's strategic commercial relationships, R&D
activities, export development plans, and arrangements aimed at encouraging
employment in industries involved in the manufacture, development or supply of
facilities. A summary of the plan must be made available to the public.
Carriers must also meet the universal service obligation, to assist in
providing all Australians, particularly in remote areas, with reasonable
access to standard telephone services. The costs required to be paid by the
Company in connection with this obligation have not yet been determined by the
Australian government, but they are not expected to be material.
Tariffs. The ACCC has access to various information on market conduct. The
ACCC's information gathering powers include: a requirement on Telstra to
continue to file tariffs with the ACCC about its basic carriage services,
unless the ACCC exempts it from this obligation; an ability to direct any
carrier or carriage service provider with a substantial degree of market power
to file tariff information; and an ability to set rules regarding the way
carriers or carriage service providers keep records so that, e.g., information
is kept in a form that will assist the ACCC in determining terms and
conditions of access under the telecommunications access regime.
Tariff filing will essentially be an information gathering tool to
supplement the ACCC's general information gathering powers, and to assist in
identifying anticompetitive conduct such as predatory pricing and preferential
pricing to a related person. If, on the basis of the information provided in a
tariff filing, the ACCC forms the view that a carrier is engaging in
anticompetitive conduct, it may use its powers to stop that conduct.
The ACCC may make tariff information publicly available if it is satisfied
there would be a public benefit (e.g., by enabling other industry players to
scrutinize the tariffs for anticompetitive purpose or effect, or to inform
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the public). The ACCC will balance concerns about commercial confidentiality
and the promotion of competition against dealing with anticompetitive conduct
and informing the public.
Fair Trading Practices. The ACCC will enforce legislation for the promotion
of competition and consumer protection, particularly rights of access
(including pricing for access) and interconnection. The ACCC will be able to
issue a competition notice to a carrier which has engaged in anticompetitive
conduct. Where a competition notice has been issued, the ACCC will be able to
seek pecuniary penalties, and other carriers will be able to seek damages, if
the carrier continues to engage in the specified conduct.
The Telecom Act package of legislation includes a telecommunications access
regime that provides a framework for regulating access rights for specific
carriage services and related services. The regime establishes mechanisms
within which the terms and conditions of access can be determined. The
Australian Government intends the access regime to reduce the power of Telstra
and Optus (as the former protected fixed line carriers) and other carriers who
may come to own or control important infrastructure or services necessary for
competition.
The regime establishes access rights through the declaration of services by
the ACCC. The ACCC may declare services to be the subject of regulated access,
either on the recommendation of the industry self-regulatory body or where,
following a public inquiry, the ACCC is satisfied that a declaration would be
in the long-term interests of end-users of telecommunications services. Once a
service is declared, carriers supplying that service are, unless otherwise
exempt, under an obligation to supply the declared service to other carriers
and service providers.
Access providers must comply with their access obligations on conditions
negotiated between the access provider and access seeker; as detailed in an
access undertaking; or as determined by the ACCC through arbitration.
It is expected that in many areas, the industry will negotiate, on a
multilateral basis, standard terms and conditions for access to declared
services. The access regime establishes a mechanism for the industry to
develop an access code containing model terms and conditions for access to
particular declared services. Once approved by the ACCC, those model terms and
conditions may be adopted in an undertaking by individual carriers who are
under an access obligation.
Carrier license conditions will include an obligation to provide other
carriers with access to certain facilities and network information. A carrier
must provide other carriers with access to its facilities for the purpose of
enabling the other carriers to provide competitive facilities and competitive
carriage services or to establish their own facilities; to certain information
relating to the operation of its telecommunications network; and to its
infrastructure, including transmission towers, the sites of transmission
towers and underground facilities that are designed to hold lines, if
technically feasible.
In July 1997, the Australian government mandated that Telstra provide access
to its facilities at specified rates to other service providers including the
Company. The Company is negotiating various access arrangements with Telstra
which will be substituted for the mandated arrangements.
Foreign Ownership Limitations. Foreign investment in Australia is regulated
by the Foreign Acquisitions and Takeovers Act 1975. Administration of the
Australian Government's policy on foreign investment is based on guidelines
published in 1992 providing for notification of proposals for the
establishment of new businesses involving total investment of at least A$10
million and proposals for the acquisition of existing business with total
assets valued at more than A$5 million. The Company notified the Australian
Government of its proposed acquisition of Axicorp in 1996 and was informed at
that time that there were no objections to the investment in terms of
Australia's foreign investment policy. There can be no assurance, however,
that additional foreign ownership restrictions will not be imposed on the
telecommunications industry or other foreign investors, including the Company,
in the future.
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Japan
The Company's services in Japan are or will be subject to regulation by the
Japanese Telecom Ministry under the Japanese Telecom Law. The Company has
obtained a license as a Special Type II business, which allows it to provide
telecommunications services over international circuits leased from another
carrier, or domestic service in Japan over leased circuits if the volume of
traffic exceeds a certain amount. The Company may also provide over leased
lines basic telecommunications services, value-added services and services to
closed user groups. The Company is preparing to apply for a license to operate
as a Type I business, which would allow the Company to provide
telecommunications services using their own facilities. The Company only must
notify the Japanese Telecom Ministry as a General Type II business if it
provides domestic service in Japan over leased circuits and does not exceed
the traffic threshhold applicable to Special Type II businesses. Although the
Japanese government until recently prohibited greater than 33% foreign
ownership of a Type I business, as well as the resale of international private
lines interconnected to the public switched network at both ends, the Japanese
Telecom Ministry recently has begun awarding authorizations to foreign-
affiliated carriers to provide telecommunications services using their own
facilities and to resell interconnected international private lines. The
Japanese Telecom Ministry also regulates the interconnection charges imposed
by Type I businesses, and must approve intercarrier agreements between Type I
carriers or between Type I and Special Type II carriers.
European Union
In Europe, the regulation of the telecommunications industry is governed at
a supra national level by the European Commission, consisting of members from
the following countries: Austria, Belgium, Denmark, Finland, France, Germany,
Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden
and the United Kingdom (the "EU"), which is responsible for creating pan-
European policies and, through legislation, developing a regulatory framework
to ensure an open, competitive telecommunications market.
In 1990, the European Commission issued the Services Directive requiring
each EU member state to abolish existing monopolies in telecommunications
services with the exception of real time two-way voice telephony to
the public, which was still reserved to the PTT. The intended effect of the
Services Directive was to permit the competitive provision of all services,
including value-added services and voice services to closed user groups
("CUG"), other than such reserved public voice telephony services. However, as
a consequence of local implementation of the Services Directive through the
adoption of national legislation, there are differing interpretations of the
definition of such reserved voice telephony services and permitted value-added
and CUG services. Other voice services accessed by customers through leased
lines were permissible in all EU member states. The European Commission has
generally taken a narrow view of the services classified as reserved voice
telephony, declaring that voice services may not be reserved to the PTTs if
(i) dedicated customer access is used to provide the service, (ii) the service
essentially consists of new value-added benefits on users (such as alternative
billing methods) or (iii) calling is limited by a service provider to a group
having legal, economic or professional ties.
In March 1996, the EU adopted the Full Competition Directive containing two
provisions which required EU member states to allow the creation of
alternative telecommunications infrastructures by July 1, 1996, and which
reaffirmed the obligations of EU member states to abolish the PTTs' monopolies
in voice telephony by 1998. To date, Denmark, Finland, the Netherlands,
Sweden, Germany, France, Austria and the U.K. have liberalized facilities-
based competition. Certain EU countries may delay the abolition of the voice
telephony monopoly based on derogations established in the Full Competition
Directive. These countries include Luxembourg (July 1, 1998), Spain (November
30, 1998), Ireland (December 31, 1998), Portugal (January 1, 2000) and Greece
(December 31, 2000).
Each EU member state in which the Company currently conducts or plans to
conduct its business has a different regulatory regime and such differences
have continued beyond January 1998. The requirements for the Company to obtain
necessary approvals vary considerably from country to country and are likely
to change as competition is permitted in new service sectors. Most EU member
states require companies to obtain a license in order to provide voice
telephony services or construct and operate telecommunications networks.
However, the
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EU generally does not permit its member states to require individual licenses
for other types of services. In addition, the Company has obtained and will
continue to seek to obtain interconnection agreements with other carriers
within the EU. While EU directives require that dominant carriers offer cost-
based and nondiscriminatory interconnection to competitors, individual EU
member states have implemented and may implement this requirement differently.
As a result, the Company may be delayed in obtaining or may not be able to
obtain interconnection in certain countries that would allow the Company to
compete effectively. Moreover, there can be no guarantee that long distance
providers such as the Company will be able to afford their customers "equal
access" to their networks, and the absence of such equal access could put such
long distance companies at a disadvantage with respect to existing PTTs.
United Kingdom
The Company's services are subject to the provisions of the United Kingdom
Telecommunications Act. The Secretary of State for Trade and Industry, acting
on the advice of the United Kingdom Department of Trade and Industry (the
"DTI"), is responsible for granting UK telecommunications licenses, while the
Director General of Telecommunications (the "Director General") and Oftel are
responsible for enforcing the terms of such licenses. Oftel attempts to
promote effective competition both in networks and in services to redress
anticompetitive behavior.
In 1991, the British government established a "multi-operator" policy to
replace the duopoly that had existed between British Telecom and Mercury.
Under the multi-operator policy, the DTI recommends the grant of a license to
operate a telecommunications network to any applicant that the DTI believes
has a reasonable business plan and where there are no other overriding
considerations not to grant such license. All public telecommunications
operators and international simple resellers operate under individual licenses
granted by the Secretary of State for Trade and Industry pursuant to the
United Kingdom Telecommunications Act. Any telecommunications system with
compatible equipment that is authorized to be run under an individual license
is permitted to interconnect to British Telecom's network. Under the terms of
British Telecom's license, it is required to allow any such licensed operator
to interconnect its system to British Telecom's system, unless it is not
reasonably practicable to do so (e.g., due to incompatible equipment).
The Company's subsidiary, Primus Telecommunications Limited, holds an ISVR
license that authorizes it to provide switched voice services over leased
private lines to all international points. In addition, the Company's
subsidiary, Primus Telecommunications Limited, has received a license from the
United Kingdom's Secretary for Trade and Industry to provide international
facilities-based voice services to all international points from the United
Kingdom. This license also allows the holder to acquire ownership interests in
or construct the United Kingdom half circuit of any IRU as well as backhaul
facilities. The international facilities-based license together with the
international simple resale license authorize the provision of every voice and
data service, except the provision of broadcasting and mobile services. While
the international facilities-based license authorizes the Company to acquire
ownership interests in the United Kingdom half-circuit of satellite space
segment in order to provide satellite-based services, it is also necessary to
apply for a Wireless Telegraphy Act 1949 License which authorizes the use of
the spectrum.
Tariffs. Telecommunications tariffs on operators in the United Kingdom
(excluding British Telecom) are generally not subject to prior review or
approval by regulatory authorities, although Oftel has historically imposed
price caps on British Telecom. British Telecom has advocated and will likely
continue to advocate for greater pricing flexibility, including flexibility
for pricing toll free and other services. Greater pricing flexibility could
allow British Telecom to charge the Company higher prices for certain services
or to charge end user customers prices that are lower than the Company is able
to charge.
Interconnection and Indirect Access. The Company must interconnect its U.K.
network to networks of other service providers in the United Kingdom and allow
its end user customers to obtain access to its services in order to compete
effectively in the United Kingdom. In the United Kingdom, licensed long
distance carriers such as the Company can obtain interconnection to British
Telecom at cost-based rates. However, while
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customers of British Telecom's long distance service can access that service
automatically (i.e., without dialing additional digits), customers of other
long distance carriers generally must dial additional digits to access their
chosen carrier's services.
Fair Trading Practices. Oftel is the principal regulator of the competitive
aspects of the United Kingdom telecommunications industry. Oftel's limited
authority in this area is derived from the powers given to Oftel under the
United Kingdom Telecommunications Act and from the terms of the licenses
granted under the United Kingdom Telecommunications Act. Any dispute between
Oftel and a telecommunications service provider may be referred on appeal to
the United Kingdom Monopolies and Mergers Commission, which may conduct a
detailed and lengthy review of the facts surrounding such dispute. At present,
Oftel has no authority to impose fines for a breach of the terms of a license
issued under the United Kingdom Telecommunications Act, and third parties have
no right to damages for a past breach. Oftel has expressed its view that the
current regulatory regime is both obscure and uncertain. Oftel has, however,
been successful in its efforts to introduce a general competition provision
into British Telecom's license and those of all other Telecommunications Act
licensees modeled on European law so as to better police any potential
anticompetitive conduct harmful to the Company. The Fair Trading condition is
already incorporated in all international facilities-based licenses and has
been incorporated in all international simple voice resale licenses beginning
in July 1997. There are no foreign ownership restrictions that apply to
telecommunications company licensing in the United Kingdom although the DTI
does have a discretion as to whether to award licenses on a case by case
basis. The Company is also subject to general European law, which, among other
things, prohibits certain Anticompetitive agreements and abuses of dominant
market positions through Articles 85 and 86 of the Treaty of Rome. The
European Commission is entrusted with the principal enforcement powers under
European Union competition law. It has the power to impose fines of up to 10%
of a group's annual revenue in respect of breaches of Articles 85 and 86. In
most cases notification of potentially infringing agreements to the Commission
under Article 85 with a request for an exemption protects against the risk of
fines from the date of notification.
Germany
The German Telecom Act liberalized all telecommunications activities, except
for the voice telephony monopoly which was abolished on January 1, 1998. The
German Telecom Act has been complemented by several ordinances. The most
significant ordinances concern network access, rate regulation, universal
service, frequencies and customer protection.
Under the German regulatory scheme, licenses are required for the operation
of infrastructure and the provision of voice telephony services. Licenses
required for the operation of infrastructure are divided into 3 license
classes: mobile telecommunications (license class 1); satellite (license class
2); and other telecommunications services for the general public (license
class 3). In addition to the infrastructure licenses, a separate license is
required for provision of voice telephony services to the general public on
the basis of self-operated telecommunications networks (license class 4). A
class 4 license does not include the right to operate transmission
infrastructure. All other telecommunications services (e.g. value-added, data,
etc.) are only subject to a notification requirement.
The Regulierungsbehorde fur Telekommunikation und Post ("RegTP") has granted
the Company a class 4 license which, according to RegTP's current reading of
the German Telecom Act, gives Primus the ability to originate and terminate
calls throughout Germany. However, the RegTP may reinterpret the German
Telecom Act with regard to license requirements for Germany-wide origination
and termination. If that occurs the Company may have to extend its licenses
and may incur additional license fees.
Companies that desire to connect with Deutsche Telekom's network must enter
into an interconnection agreement which specifies certain interconnection
tariffs. Changes in German regulatory policy may require network providers
requesting the lowest available interconnection tariffs from Deutsche Telekom
to either substantially invest in network technology (i.e. by installing more
points of interconnection) or pay higher prices. If a provider does not agree
with the tariff rates offered by Deutsche Telekom, the provider can take the
case to
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<PAGE>
the RegTP which determines the applicable rates. Since the Company is not a
dominant carrier, it is not subject to the same interconnection obligations
toward third parties.
Several complaints, the outcome of which may affect the Company's business,
are currently pending before the RegTP or German courts concerning
interconnection with Deutsche Telekom. Since Deutsche Telekom and some of its
major competitors in Germany have been unable to reach agreement on
interconnection rates, the RegTP established provisional interconnection
tariffs in September 1997 which Deutsche Telekom has since challenged in
court. These rates are now part of the standard offer of Deutsche Telekom and
valid for all interconnected and licensed carriers for as long as the matter
is pending before the German courts. Court review of these rates may result in
higher rates being imposed on network operators retroactively as the standard
interconnection agreement provides for retroactive effect of the court's final
decision. Other pending complaints concern the costs of billing services
provided by Deutsche Telekom to other carriers and rates for direct access to
the end-user lines of Deutsche Telekom. It is expected that a final resolution
to these matters will take several years.
The Company has entered into an interconnection agreement with Deutsche
Telekom at the regulated standard interconnection rates presently under court
review. The Company's interconnection agreement with Deutsche Telekom permits
the parties to renegotiate interconnection rates or other provisions of the
agreement in the event of a change in the German regulatory environment or
other circumstances which have a bearing on the economic basis of the
interconnection agreement, a party's license situation or those which are
considered by both parties to materially affect the interconnection agreement
in any other way. In addition, Deutsche Telekom has the right under the
agreement to apply to the RegTP for a ruling regarding (i) whether the
Company's German network structure, in particular the number and locations of
points of interconnection with Deutsche Telekom, entitles the Company to
interconnection as defined by Section 35 of the German Telekom Act and
(ii) whether the structure entitles the Company to the switching of calls
originating Germany-wide. If Deutsche Telekom requests such a ruling, the
interconnection agreement will have to be amended to reflect this ruling.
Deutsche Telekom has informed the Company by letter dated May 29, 1998 that it
will request such a ruling from the RegTP in accordance with the
interconnection agreement. The request is presently being reviewed by the
RegTp. An unfavorable decision by the RegTP overturning its current policy
could potentially adversely affect the Company's German business by requiring
additional investments into points of interconnection or switching facilities,
the payment of higher connection prices or a geographic restriction on the
switching of calls.
The Company is or may become subject to certain other requirements as a
licensed telecommunications provider in Germany. For example, licensed
providers are under an obligation to present their standard terms and
conditions to the RegTP. The RegTP may, based upon certain criteria, decide
not to accept these terms and conditions. The Company may also become subject
to universal service financing obligations. Currently, it is unlikely that the
universal service financing system will be implemented in Germany in the
foreseeable future. However, in the event that the system is implemented,
Primus could be subject to such universal service requirements and financing
schemes if the Company has a market share in Germany of at least 4%.
Latin America
Various countries in Latin America have taken initial steps towards
deregulation in their telecommunications markets. Each Latin American country
has a different national regulatory regime and each country is in a different
stage of liberalization. Historically, Latin American countries have reserved
the provision of voice services to the state-owned PTT. In the last few years,
several Latin American countries have completely or partially privatized their
national carriers, including Argentina, Chile, Mexico, Peru and Venezuela. In
addition, certain countries have partially or completely opened their local
and/or long distance markets, most notably Chile, which has competitive
operators in all sectors. Argentina has liberalized certain telecommunications
services, such as value-added, paging, data transmission, and Personal
Communications Services (PCS). Brazil currently is in the process of opening
its telecommunications market to competition. Brazil intends to privatize
Telecomunicacoes Brasileras S.A. ("Telebras"), which, through its 28 regional
subsidiaries, hold a monopoly over the provision of local telephone services,
as well as Empresa Brasiliera de Telecomunicacoes, S.A. the monopoly provider
of long distance and international telephone services. Moreover,
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Columbia has recently opened national and international long distance services
to competition, and has awarded two new concessions for the provision of these
services to two major local exchange carriers in Colombia--Empresas de
Telecomunicaciones de Bogota and Orbitel, S.A. In Colombia the provision of
value-added services and voice services to closed-user groups is open to
competition. Mexico initiated competition in the domestic and international
long distance services market on January 1, 1996, which are subject to a
concession requirement. In addition, the Mexican government has recently
opened basic telephony, and is currently auctioning radioelectric spectrum
frequencies for the provision of PCS and LMDS. Value-added services are also
fully open to competition in Mexico. Finally, in the Central American region,
Guatemala and El Salvador have recently opened their telecommunications market
to competition, abolishing all restrictions on foreign investment in this
sector. Other countries in Central America, such as Nicaragua and Honduras,
are in the process of privatizing their state-owned carriers, and have not
fully opened their markets to competition.
EMPLOYEES
The following table summarizes the number of full-time employees of the
Company (including those employees added as a result of the TresCom Merger) as
of June 15, 1998, by region and classification:
<TABLE>
<CAPTION>
NORTH ASIA-
AMERICA PACIFIC EUROPE TOTAL
------- ------- ------ -----
<S> <C> <C> <C> <C>
Management and Administrative................... 123 55 9 187
Sales and Marketing............................. 192 106 15 313
Customer Service and Support.................... 106 66 17 189
Technical....................................... 92 79 12 183
--- --- --- ---
Total......................................... 513 306 53 872
=== === === ===
</TABLE>
The Company has never experienced a work stoppage, and none of the Company's
employees, including the employees of TresCom, are represented by a labor
union or covered by a collective bargaining agreement. The Company considers
its employee relations to be excellent.
PROPERTIES
The Company currently leases its corporate headquarters which is located in
McLean, Virginia. Additionally, the Company also leases administrative,
technical and sales office space in Washington, D.C., the New York City
metropolitan area, Los Angeles and Tampa in the United States; Melbourne,
Sydney, Brisbane, Perth and Adelaide in Australia; London in the United
Kingdom; Vancouver, Toronto and Montreal in Canada; Tokyo in Japan; Mexico
City in Mexico; and Frankfurt in Germany. Total leased space approximates
130,000 square feet and the total annual lease costs are approximately $2.9
million. The operating leases expire at various times through 2006.
TresCom leases all of its facilities, including its administrative and sales
offices, and its switch locations. 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.
Certain communications equipment which includes network switches and
transmission lines are leased through operating and capital leases.
Management believes that the Company's present administrative and sales
office facilities are adequate for its anticipated operations and that similar
space can readily be obtained as needed. The Company believes the current
leased facilities to house existing communications equipment are adequate.
However, as the Company's Network of switches grows, the Company expects to
lease additional locations to house the new equipment.
LEGAL PROCEEDINGS
The Company is from time to time involved in litigation incidental to the
conduct of its business. The Company believes the outcome of pending legal
proceedings to which the Company is a party will not have a material adverse
effect on the Company's business, financial condition, results of operations,
or cash flows.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table and biographies set forth information concerning the
individuals who serve as directors and executive officers of the Primus:
<TABLE>
<CAPTION>
YEAR OF EXPIRATION
NAME AGE POSITION OF TERM AS DIRECTOR
- ---- --- -------- -------------------
<S> <C> <C> <C>
K. Paul Singh(1)............ 47 Chairman of the Board of Directors, 1999
President, and Chief Executive Officer
Neil L. Hazard.............. 46 Executive Vice President and Chief N/A
Financial Officer
John F. DePodesta........... 53 Executive Vice President, and Director 1999
Ravi Bhatia................. 49 Chief Operating Officer, Primus N/A
Australia
Yousef Javadi............... 42 Chief Operating Officer, Primus North N/A
America
John Melick................. 39 Vice President of International N/A
Business Development
Jay Rosenblatt.............. 33 Vice President, Global Carrier N/A
Services
Herman Fialkov(2)(3)........ 76 Director 2000
David E. Hershberg(2)....... 60 Director 2000
Douglas Karp................ 42 Director 2001
John G. Puente(1)(3)........ 67 Director 2001
</TABLE>
- --------
(1) Member of Nominating Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
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.
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.
John F. DePodesta co-founded Primus in 1994 with Mr. Singh, and serves as a
director and its Executive Vice President. In addition to his position with
Primus, Mr. DePodesta currently serves as the 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."
Ravi Bhatia joined Primus in October 1995 as the Managing Director of Primus
Telecommunications Pty., Ltd. (Australia). In March 1996 Mr. Bhatia 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.
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<PAGE>
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 at MCI, as Director of Global Services. From
1985-1991 he was at OTI as Vice President of Sales and Marketing. Prior to
OTI, Mr. Javadi worked at Hughes Network Systems.
John Melick joined Primus in 1994 as its Vice President of Sales and
Marketing, and since 1996, has served as Vice President of International
Business Development of the Company. Prior to joining Primus, Mr. Melick was a
Senior Manager 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.
Jay Rosenblatt has served as Primus' Vice President of Global Carrier
Services since January 1996 and previously was Director of Marketing and Sales
responsible for Primus' commercial programs from September 1994 to January
1996. Prior to joining Primus in 1994, Mr. Rosenblatt was with MCI as the
marketing manager responsible for private network services in the Americas and
Caribbean.
Herman Fialkov became a director of Primus in 1995. Mr. Fialkov is a
consultant to Newlight Management LLC and a General Partner of PolyVentures
Associates, L.P., a venture capital firm and has been associated with various
venture capital firms since 1968. Previously, he was an officer and director
of General Instrument Corporation which he joined in 1960 as a result of its
acquisition of General Transistor Corporation, a company Mr. Fialkov founded.
David E. Hershberg became a director of 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.
Douglas M. Karp became a director Primus in June 1998. Mr. Karp has been a
Managing Director of E.M. Warburg, Pincus & Co., LLC (or its predecessor, E.M.
Warburg, Pincus & Co., Inc.) since May 1991. Prior to joining E.M. Warburg,
Pincus & Co., LLC, Mr. Karp held several positions with Salomon Inc. including
Managing Director from January 1990 to May 1991, Director from January 1989 to
December 1989 and Vice President from October 1986 to December 1988. Mr. Karp
is a director of LCI International, Inc., TV Filme, Inc., Journal Register
Company and several privately held companies.
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.
Under the terms of a shareholders' agreement entered into in connection with
the TresCom Merger among Primus, Warburg, Pincus and Mr. Singh, Primus has
agreed to nominate one individual selected by Warburg, Pincus and reasonably
acceptable to the non-employee directors of Primus, to serve as a member of
the Primus board of directors. The foregoing nomination right remains
effective so long as Warburg, Pincus is the beneficial owner of 10% or more of
the outstanding Common Stock. In June 1998, Mr. Karp joined the Primus board
of directors pursuant to the foregoing arrangement.
CLASSIFIED BOARD OF DIRECTORS
Pursuant to the Company's By-Laws, the Board of Directors is divided into
three classes of directors each containing, as nearly as possible, an equal
number of directors. Directors within each class are elected to serve
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<PAGE>
three-year terms and approximately one-third of the directors sit for election
at each annual meeting of the Company's stockholders. A classified board of
directors may have the effect of deterring or delaying any attempt by any
group to obtain control of the Company by a proxy contest since such third
party would be required to have its nominees elected at two separate annual
meetings of the Board of Directors in order to elect a majority of the members
of the Board of Directors. Directors who are elected to fill a vacancy
(including vacancies created by an increase in the number of directors) must
be confirmed by the stockholders at the next annual meeting of stockholders
whether or not such director's term expires at such annual meeting.
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 pays directors an annual fee of $10,000 and will
reimburse their expenses for attending meetings, but 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 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.
COMMITTEES OF THE BOARD
The Company's Board of Directors has appointed an Audit Committee,
Nominating Committee and a Compensation Committee.
Audit Committee. The Audit Committee, which currently consists of Mr. Puente
and Mr. Fialkov, has the authority and responsibility: to hire one or more
independent public accountants to audit the Company's books, records and
financial statements and to review the Company's systems of accounting
(including its systems of internal control); to discuss with such independent
public accountants the results of such audit and review; to conduct periodic
independent reviews of the systems of accounting (including systems of
internal control); and to make reports periodically to the Board of Directors
with respect to its findings.
Nominating Committee. The Nominating Committee, which currently consists of
Messrs. Puente (Chairman) and Singh, is responsible for selecting those
persons to be nominated to the Company's Board of Directors.
Compensation Committee. The Compensation Committee, which currently consists
of Messrs. Fialkov (Chairman) and Hershberg, is responsible for fixing the
compensation of the Chief Executive Officer and the other executive officers,
deciding other compensation matters such as those relating to the operation of
the Company's Employee Stock Option Plan and Director Stock Option Plan,
including the award of options under the Employee Stock Option Plan, and
approving certain aspects of the Company's management bonus plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
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.
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<PAGE>
EXECUTIVE COMPENSATION
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").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------- -----------------------------
AWARDS PAYOUTS
--------------------- -------
OTHER SECURITIES ALL
ANNUAL RESTRICTED UNDERLYING 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--Chairman 1997 247,692 160,000 -- -- 100,000 -- --
of
the Board of Directors, 1996 185,000 100,000 -- -- 338,100 -- --
President and Chief 1995 185,000(1) -- -- -- -- -- --
Executive Officer
Neil L. Hazard--Executive 1997 159,231 100,000 -- -- 40,000 -- --
Vice President and Chief 1996 118,461 60,000 -- -- 304,290 -- --
Financial Officer 1995 -- -- -- -- -- -- --
Yousef B. Javadi--Chief 1997 121,154 60,000 -- -- 170,000 -- --
Operating Officer, 1996 -- -- -- -- -- -- --
Primus
North America 1995 -- -- -- -- -- -- --
John F. DePodesta-- 1997 100,000 -- -- -- 180,000 -- --
Executive
Vice President 1996 -- 10,000 -- -- -- -- --
1995 -- -- -- -- 101,430 -- --
Ravi Bhatia--Chief 1997 105,004 50,000 -- -- 30,000 -- --
Operating
Officer, Primus 1996 96,740 30,000 -- -- 33,810 -- --
Australia
1995 21,580 -- -- -- 67,620 -- --
</TABLE>
- --------
(1) Of this amount, payment of $77,200 was deferred and subsequently paid on
July 31, 1996.
STOCK OPTIONS GRANTED TO CERTAIN EXECUTIVE OFFICERS DURING LAST FISCAL YEAR
Under the Stock Option Plan, options to purchase Common Stock are available
for grant to selected employees of Primus. Options are also available for
grant to eligible directors under Primus's Director Stock Option Plan. The
following table sets forth certain information regarding options for the
purchase of Common Stock that were awarded to the Named Executive Officers
during 1997.
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OPTION GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATE OF STOCK
PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM
---------------------------------------------- -----------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL
UNDERLYING OPTIONS/
OPTIONS/ SARS
SARS GRANTED TO EXERCISE OF
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION 5% 10%
NAME (#) FISCAL YEAR ($/SH) DATE ($) ($)
- ---- ---------- ------------ ----------- ---------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
K. Paul Singh--Chairman 100,000 9% $14.00 12/22/02 386,820 854,700
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--Chief 14%
Operating 150,000 $ 8.25 3/21/02 341,921 755,494
Officer, Primus North
America 20,000 2% $14.00 12/22/02 77,364 170,940
John F. DePodesta-- 180,000 17% $14.00 12/22/02 696,276 1,538,460
Executive Vice
President
Ravi Bhatia--Chief 30,000 3% $14.00 12/22/02 116,046 256,410
Operating Officer,
Primus Australia
</TABLE>
There were no options exercised by Primus's Chief Executive Officer or the
Named Executive Officers during the year ended December 31, 1997.
STOCK PLANS
Employee Stock Option Plan. The Company established the Employee Stock
Option Plan for its employees and consultants on January 2, 1995. Recently,
the Board adopted and the stockholders approved an amendment to the Employee
Stock Option Plan that, among other things, increased the number of options
available for grant and expanded the category of plan participants. The
Employee Stock Option Plan provides for the grant to selected full and part-
time employees and consultants of the Company and its Subsidiaries who
contribute to the development and success of the Company and its Subsidiaries
of both "incentive stock options" within the meaning of Section 422 of the
Code ("ISOs") and options that are non-qualified for federal income tax
purposes ("NQSOs"); provided, however, that consultants are eligible for the
grant of NQSOs only. The total number of shares of Common Stock for which
options may be granted pursuant to the Employee Stock Option Plan is
3,690,500, of which 917,522 are available for future grants, subject to
certain adjustments reflecting changes in the Company's capitalization. No
individual may receive, over the term of the Employee Stock Option Plan,
Options for more than an aggregate of 25% of the shares authorized for grant
under the Employee Stock Option Plan. The Employee Stock Option Plan is
currently administered by the Compensation Committee of the Board which is
comprised of directors who are not also employees of the Company. The
Compensation Committee determines, among other things, which employees and
consultants will receive options under the Employee Stock Option Plan, the
time when options will be granted, the type of option (ISO or NQSO, or both)
to be granted, the number of shares subject to each option, the time or times
when the options will become exercisable and expire, and, subject to certain
conditions discussed below, the option price and duration of the option. Board
members administering the Employee Stock Option Plan may vote on any matters
affecting the administration of the Plan, except that no member may act upon
the granting of an option to himself or herself.
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The exercise price of the options granted under the Employee Stock Option
Plan is determined by the Board of Directors, but may not be less than the
fair market value per share of the Common Stock on the date the option is
granted. If, however, an ISO is granted to any person who, at the time of the
grant, owns capital stock possessing more than 10% of the total combined
voting power of all classes of the company's capital stock, then the exercise
price for such ISO may not be less than 110% of the fair market value per
share of the Common Stock on the date the option is granted. The Board of
Directors also determines the method of payment for the exercise of options
under the Employee Stock Option Plan, and may consist entirely of cash, check,
promissory notes or Common Stock having a fair market value on the date of
surrender equal to the aggregate exercise price. The Board of Directors, in
its sole discretion, may cooperate with an optionee to complete a cashless
exercise transaction.
Options are not assignable or transferrable other than by will or the laws
of descent and distribution. In general, if an employee's employment with, or
a consultant's engagement by, the Company is terminated for any reason, such
employee's or consultant's options exercisable on the date of termination are
exercisable for three months following the date of termination. If the Board
of Directors makes a determination that a terminated employee or consultant
engaged in disloyalty to the Company, disclosed proprietary information, is
convicted of a felony, or breached the terms of a written confidentiality
agreement or non-competition agreement, all unexercised options held by such
employee or consultant terminate upon the earlier of the date of such
determination or the date of termination. If the employment or service of an
employee or consultant terminates because of disability or death, such
employee's or consultant's options that are exercisable on the date of
disability or death will remain exercisable for 12 months following the date
of disability or death; provided, however, that if a disabled employee or
consultant commences employment or service with a competitor of the Company
during that 12-month period, all options held by the employee or consultant
terminate immediately.
Options issued pursuant to the Employee Stock Option Plan outstanding on the
date of a "change in control" of the Company become immediately exercisable on
such date. A change in control for purposes of the Employee Stock Option Plan
includes the acquisition by any person or entity of the beneficial ownership
of 50% or more of the voting power of the Company's stock, the approval by the
Company's stockholders of a merger, reorganization or consolidation of the
Company in which the Company's stockholders do not own 50% or more of the
voting power of the stock of the entity surviving such a transaction, the
approval of the Company's stockholders of an agreement of sale of all or
substantially all of the Company's assets, and the acceptance by the Company's
stockholders of a share exchange in which the Company's stockholders do not
own 50% or more of the voting power of the stock of the entity surviving such
exchange.
There are no federal income tax consequences to the Company on the grant or
exercise of an ISO. If an employee disposes of stock acquired through the
exercise of an ISO within one year after the date such stock is acquired or
within two years after the grant of the ISO (a "Disqualifying Disposition"),
the Company will be entitled to a deduction in an amount equal to the
difference between the fair market value of such stock on the date it is
acquired and the exercise price of the ISO. There are no tax consequences to
the Company if an ISO lapses before exercise or is forfeited. The grant of a
NQSO has no immediate tax consequences to the Company. Upon the exercise of a
NQSO by an employee or consultant, the Company is entitled to a deduction in
an amount equal to the difference between the fair market value of the share
acquired through exercise of the NQSO and the exercise price of the NQSO.
There are no tax consequences to the Company if a NQSO lapses before exercise
or is forfeited.
An employee who receives an ISO is not subject to federal income tax on the
grant or exercise of the ISO; however, the difference between the option price
and the fair market value of the Common Stock received on the exercise of the
ISO ("ISO Stock") is an adjustment for purposes of the alternative minimum
tax. Upon the exercise of an ISO, an employee will have a basis in the ISO
Stock received equal to the amount paid. An employee will be subject to
capital gain or loss upon the sale of ISO Stock, unless such sale constitutes
a Disqualifying Disposition, equal to the difference between the amount
received for the stock and the employee's basis in such. The gain or loss will
be long- or short-term, depending on the length of time the ISO Stock was
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held prior to disposition. There are no tax consequences to an employee if an
ISO lapses before exercise or is forfeited.
In the event of a Disqualifying Disposition, an employee will be required to
recognize (1) taxable ordinary income in an amount equal to the difference
between the fair market value of the ISO Stock on the date of exercise of the
ISO and the exercise price; and (2) capital gain or loss (long- or short-term,
as the case may be) in an amount equal to the difference between (a) the
amount realized by the employee upon the Disqualifying Disposition and (b) the
exercise price paid by the employee for the stock, increased by the amount of
ordinary income recognized by the employee, if any. If the disposition
generates an allowable loss (e.g., a sale to an unrelated party not within 30
days of purchase of Common Stock), then the amount required to be recognized
by the employee as ordinary income will be limited to the excess, if any, of
the amount realized on the sale over the basis of the stock.
The Employee Stock Option Plan allows an employee or consultant to pay an
exercise price in cash or shares of the Company's Common Stock. If the
employee pays with shares of the Company's Common Stock that are already
owned, the basis of the newly acquired ISO Stock will depend on the tax
character and number of shares of the previously owned stock used as payment.
If an employee pays with shares acquired upon other than the exercise of an
ISO ("non-ISO Stock"), the transaction will be tax-free to the extent that the
number of shares received does not exceed the number of shares of non-ISO
Stock paid. The basis of the number of shares of newly acquired ISO Stock
which does not exceed the number of shares of non-ISO Stock paid will be equal
to the basis of the shares paid. The employee's holding period with respect to
such shares will include the holding period of the shares of non-ISO Stock
paid. To the extent that the employee receives more new shares than shares
surrendered, the "excess" shares of ISO Stock will take a zero basis. If an
employee exercises an ISO by using stock that is previously acquired ISO
Stock, however, certain special rules apply. If the employee has not held the
previously acquired ISO Stock for at least two years from the date of grant of
the related ISO and one year from the date the employee acquired the
previously acquired ISO Stock, the use of such ISO Stock to pay the exercise
price will constitute a Disqualifying Disposition and subject the employee to
income tax with respect to the ISO Stock as described above. In such
circumstances, the basis of the newly acquired ISO Stock will be equal to the
fair market value of the previously acquired ISO Stock used as payment.
The grant of a NQSO has no immediate tax consequences to an employee or
consultant. The exercise of a NQSO requires an employee or consultant to
include in gross income the amount by which the fair market value of the
acquired shares exceeds the exercise price on the exercise date. The Company
is required to withhold income and employment taxes from an employee's wages
on account of this income. The employee's or consultant's basis in the
acquired shares will be their fair market value on the date of exercise. Upon
a subsequent sale of such shares, the employee or consultant will recognize
capital gain or loss equal to the difference between the sales price and the
basis in the stock. The capital gain or loss will be long- or short-term,
depending on whether the employee or consultant has held the shares for more
than one year. There are no tax consequences to an employee or consultant if a
NQSO lapses before exercise or is forfeited. If an employee or consultant uses
previously owned Common Stock as payment for the exercise price of a NQSO, to
the extent the employee or consultant surrenders the same number of shares
received, the exchange is tax-free and the new shares will have a basis equal
to that of the shares surrendered. The holding period for the new shares will
include the period the employee or consultant held the surrendered shares. To
the extent the employee or consultant receives more new shares than shares
surrendered, the excess shares are treated as having been acquired for no
consideration and the fair market value of such excess shares is includible in
the employee's or consultant's income as compensation. The basis of the excess
shares is their fair market value at the time of receipt. If the previously
owned shares consist of ISO Stock for which the holding requirements were not
met such that their use as payment of the exercise price constituted a
Disqualifying Disposition, the employee will have the income tax consequences
described above.
The Board of Directors has authority to suspend, terminate or discontinue
the Employee Stock Option Plan or revise or amend it in any manner with
respect to options granted after the date of revision. No such revision,
however, can change the aggregate number of shares subject to the Employee
Stock Option Plan, change the
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designation of employees eligible thereunder, or decrease the price at which
options may be granted. The Board may not grant any options under the Employee
Stock Option Plan after January 2, 2005.
TresCom International Stock Option Plan. In connection with the TresCom
Merger, the Company assumed a stock option plan previously sponsored by
TresCom. Pursuant to the terms of the TresCom Merger Agreement, each
outstanding option to acquire one share of TresCom common stock was converted
into an option to acquire 0.6147 shares of Company Common Stock. As assumed by
the Company, options to acquire 374,361 shares of Company Common Stock are
outstanding under this stock option plan (the "Primus- TresCom Option Plan").
The Primus-TresCom Option Plan provides for an equitable adjustment in the
number and price of shares of Common Stock with respect to outstanding Options
in the event the outstanding shares of Common Stock are increased or decreased
through stock dividends, recapitalizations, reorganizations or similar things.
The Primus-TresCom Option Plan is intended as an incentive and to encourage
stock ownership by the officers, key employes, consultants and directors of
TresCom prior to the TresCom Merger in order to increase their proprietary
interest in the success of the Company and to encourage them to continue to
provide services to the Company. No additional stock options will be granted
under the Primus-TresCom Option Plan.
The Primus-TresCom Option Plan is administered by the board of directors of
the Company or by a committee appointed by the board of directors and
consisting of not less than two members of the board of directors who are not
also employees of the Company or any of its subsidiaries (the "Committee").
The Primus-TresCom Option Plan does not limit the length of time a director
may serve as part of the Committee. Subject to the terms of the Primus-TresCom
Option Plan, the board of directors or the Committee will have the exclusive
authority to interpret, administer and make determinations under the Primus-
TresCom Option Plan.
All Options granted under the Primus-TresCom Option Plan are in the form of
ISOs. Payment for the shares of Common Stock purchased under an Option must be
made in full upon exercise of the Option, by certified or bank cashier's check
payable to the order of the Company or by any other means acceptable to the
Company, including, without limitation, tender of shares of Common Stock then
owned by the optionee.
Each grant of an Option under the Primus-TresCom Option has been evidenced
by an Option Agreement which sets forth the number of shares of Common Stock
subject to the Option and includes other terms and conditions applicable to
the Option. Options are not assignable or transferable except by will or by
the laws of descent and distribution, and, during the lifetime of the
optionee, the Option may be exercised only by the optionee.
All Options issued under the Primus-TresCom Option Plan are entirely vested
and exercisable in full.
The tax consequences to the Company and the recipient of the Option upon the
grant and exercise of either a NQSO or ISO, and the sale of Common Stock
acquired upon exercise thereof, are identical to those described for NQSOs and
ISOs under "--Employee Stock Option Plan" above.
Director Stock Option Plan. The Company also established a Director Stock
Option Plan on July 27, 1995, as amended. The purpose of the Director Stock
Option Plan is to encourage ownership in the Company by outside directors
(present or future incumbent directors who are not affiliated with or
employees of the Company or any subsidiary and who have not been nominated to
serve as directors pursuant to an agreement with the Company) whose services
are considered essential to the Company's continued progress. Options granted
under the Director Stock Option Plan are NQSOS. The Director Stock Option Plan
is administered by a committee of the Board of Directors consisting of those
directors who are not eligible to receive grants thereunder. The total number
of shares of Common Stock for which options may be granted pursuant to the
Director Stock Option
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Plan is 338,100. On the effective date of the Director Stock Option Plan or
the first date thereafter that any director becomes eligible to receive an
award under the Director Stock Option Plan, each eligible director will
automatically receive an option to purchase 15,000 shares of Common Stock,
exercisable for 5,000 shares immediately, and 5,000 on each of the next two
anniversary dates of the grant date. All options become immediately
exercisable, however, upon the retirement of a director in accordance with any
mandatory retirement policy of the Board, upon the death or permanent
disability of a director, or if the Company merges with another Company and is
not the surviving corporation, the Company enters into an agreement to sell or
otherwise dispose of all or substantially all of its assets, or any person or
group acquires more than 20% of the Company's outstanding voting stock.
The option price is the fair market value at the date on which an option is
granted. Payment for the exercise of options may consist of cash or Common
Stock. Options issued under the Director Stock Option Plan are not
transferable other than by will or the laws of descent and distribution.
Options expire upon the earlier of five years from the date they were granted
or three years following either the retirement or resignation of the director,
the failure of the director to be re-elected, or the permanent disability or
death of the director. No options may be granted under the Director Stock
Option Plan after December 31, 2005.
The grant of a NQSO has no immediate tax consequences to the Company. Upon
the exercise of a NQSO by a director, the Company is entitled to a deduction
in an amount equal to the difference between the fair market value of the
share acquired through exercise of the NQSO and the exercise price of the
NQSO. There are no tax consequences to the Company if a NQSO lapses before
exercise or is forfeited.
The tax consequences to a director upon the grant and exercise of a NQSO,
and the sale of Common Stock acquired upon exercise thereof, are identical to
those described for NQSOs under "--Employee Stock Option Plan" above, except
that the Company has no withholding obligations upon the exercise of a NQSO by
a director.
Employee Stock Purchase Plan. During 1997, the Board adopted and the
stockholders approved an Employee Stock Purchase Plan (the "ESP Plan"). The
ESP Plan provides employees with the right to purchase shares of Common Stock
through payroll deduction. A total of 2,000,000 shares of Common Stock are
available for purchase under the ESP Plan, subject to adjustment in the number
and price of shares of Common Stock available for purchase in the event the
outstanding shares of Common Stock are increased or decreased through stock
dividends, recapitalizations, reorganizations or similar changes. The Plan is
to be administered by the Board, which may delegate responsibility for such
administration to a committee of the Board (the "Committee"). Subject to the
terms of the ESP Plan, the Board or the Committee shall have authority to
interpret the ESP Plan, to prescribe, amend and rescind rules and regulations
relating to it, and to make all other determinations deemed necessary or
advisable in administering the ESP Plan.
An employee of a Participating Company is eligible to participate in the ESP
Plan if the employee, as of the last day of the month immediately preceding
the effective date of an election to purchase shares of Common Stock pursuant
to the ESP Plan: (1) has been employed on a full-time basis for at least six
consecutive months; or (2) has been employed on a part-time basis for at least
24 consecutive months. Presently, only employees of the Company residing in
the United States are eligible to participate in the ESP Plan. An employee is
considered to be a part-time employee if the employee is scheduled to work at
least 20 hours per week. Notwithstanding the foregoing, any employee who,
after purchasing Common Stock under the ESP Plan, would own five percent or
more of the total combined voting power or value of all classes of stock of
the Company or any parent corporation or subsidiary corporation thereof is not
eligible to participate. Ownership of stock is determined in accordance with
the provisions of Section 424(d) of the Internal Revenue Code. Further, an
employee is not eligible to participate if such participation would permit
such employee's rights to purchase stock under all employee stock purchase
plans of the Participating Companies which meet the requirements of section
423(b) of the Code to accrue at a rate which exceeds $25,000 in fair market
value (as determined pursuant to section 423(b)(8) of the Code) for each
calendar year in which such option is outstanding.
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Eligible employees may elect to participate in the ESP Plan during an
offering which starts on the first day of each month beginning on or after
adoption of the ESP Plan by the Board ("Offering Commencement Date") and ends
on the last day of each month ("Offering Termination Date"). Shares will be
deemed to have been purchased on the Offering Termination Date. The purchase
price per share offered under the ESP Plan will be 85 percent of the lesser
of: (1) the fair market value per share on the Offering Commencement Date, or
if such date is not a trading day, then on the next trading day thereafter; or
(2) the fair market value per share on the Offering Termination Date, or if
such date is not a trading day, then on the next trading day thereafter.
An eligible employee who wishes to participate in the ESP Plan shall file an
election form with the Board or Committee at least 15 days before the Offering
Commencement Date for the first offering for which such election form is
effective, on which he may elect to have payroll deductions made from his
compensation on each regular payday during the time he is a participant in the
ESP Plan. All payroll deductions shall be credited to the participant's
account under the ESP Plan. A participant who is on an approved leave of
absence may authorize continuing payroll deductions.
If the total number of shares of Common Stock for which purchase rights are
exercised on any Offering Termination Date exceeds the maximum number of
shares of Common Stock available, the Board or Committee shall make a pro rata
allocation of shares available for delivery and distribution in as nearly a
uniform manner as practicable, and as it shall determine to be fair and
equitable, and the unapplied account balances shall be returned to
participants as soon as practicable following the Offering Termination Date.
A participant may discontinue his participation in the ESP Plan at any time,
but no other change can be made during an offering, including, but not limited
to, changes in the amount of payroll deductions for such offering. A
participant may change the amount of payroll deductions for subsequent
offerings by giving written notice of such change to the Board or Committee on
or before the 15th day of the month immediately preceding the Offering
Commencement Date for the offering for which such change is effective.
A participant may elect to withdraw the balance credited to the
participant's account by providing a termination form to the Board or the
Committee at any time before the Offering Termination Date applicable to any
offering. A participant may withdraw all, but not less than all, of the
amounts credited to the participant's account. All amounts credited to such
participant's account shall be paid as soon as practicable following the
Committee's receipt of the participant's termination form, and no further
payroll deductions will be made with respect to the participant. A participant
who elects to withdraw from an offering shall be deemed to have elected not to
participate in each of the four succeeding offerings following the date on
which the participant gives a termination form to the Committee.
Upon termination of a participant's employment for any reason other than
death, including termination due to disability or continuation of a leave of
absence beyond 90 days, all amounts credited to such participant's account
shall be returned to the participant. In the event of a participant's (1)
termination of employment due to death or (2) death after termination of
employment but before the participant's account has been returned, all amounts
credited to such participant's account shall be returned to the participant's
successor-in-interest. A participant who is on an approved leave of absence
shall remain eligible to participate in the ESP Plan until the end of the
first offering ending after commencement of such approved leave of absence. A
participant who has been on an approved leave of absence for more than 90 days
shall not be eligible to participate in any offering that begins on or after
the commencement of such approved leave of absence so long as such leave of
absence continues.
All funds held or received by the Company under the ESP Plan may be used for
any corporate purpose until applied to the purchase of shares of Common Stock
or refunded to employees and shall not be segregated from the general assets
of the Company. Shares of Common Stock purchased under the ESP Plan will be
issued from the Company's treasury stock or from the Company's authorized but
unissued shares. The Participating Companies shall pay all fees and expenses
incurred (excluding individual Federal, state, local or other taxes) in
connection with the ESP Plan.
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An Employee's rights under the ESP Plan belong to the employee alone and may
not be transferred or assigned to any other person during the employee's
lifetime. After the shares of Common Stock have been issued under the ESP
Plan, such shares may be assigned or transferred the same as any other shares.
The Plan is not qualified under Section 401(a) of the Internal Revenue Code.
The Company generally will not be entitled to a deduction with respect to
stock purchased under the ESP Plan, unless the stock is disposed of less than
one year after the Common Stock is purchased by the employee, or less than two
years after each Offering Commencement Date.
Generally, no tax consequences arise at the time the participant purchases
shares of Common Stock. If a participant does not dispose of shares of Common
Stock purchased under the ESP Plan for at least one year after the date of
purchase and at least two years after the grant of the purchase right, he will
be deemed to have received compensation taxable as ordinary income for the
taxable year in which the disposition occurs in an amount equal to the lesser
of (a) the 15% discount originally allowed, or (b) the excess over the
purchase price of (i) the amount actually received for the shares if sold or
exchanged or (ii) the fair market value of the shares on the date of any other
termination of his ownership (such as by gift). The amount of such ordinary
income is then added to the participant's basis in his shares for purposes of
determining capital gain or loss.
If a participant disposes of shares of Common Stock purchased under the ESP
Plan less than one year after the date of purchase, or more than one year
after the date of purchase but within two years after the grant of the
purchase right, he will be deemed to have received compensation taxable as
ordinary income in the amount of the difference between the amount paid for
the shares and the value of the shares at the time of purchase. If the shares
are sold or exchanged, the amount of such ordinary income is added to the
participant's basis in his shares for purposes of determining capital gain or
loss. If a participant dies before disposing of the shares purchased under the
ESP Plan, he will be deemed to have realized compensation income taxable as
ordinary income in the taxable year closing with his death in an amount equal
to the lesser of clauses (a) and (b)(ii) as set forth in the immediately
preceding paragraph. He is deemed not to have realized any capital gain or
loss because of death.
The Board or the Committee shall have the right to amend, modify or
terminate the ESP Plan at any time without notice, provided that no employee's
then existing rights are adversely affected without his or her consent, and
provided further, that upon any amendment of the ESP Plan, stockholder
approval will be obtained if required by law.
EMPLOYMENT AGREEMENTS
K. Paul Singh. 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 Financial 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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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.
Wesley T. O'Brien. TresCom entered into an employment agreement with Mr.
Wesley T. O'Brien (the "O'Brien Agreement") which was amended and restated on
February 15, 1997 and was further amended on February 3, 1998. The O'Brien
Agreement was to terminate in June 1999 (the "Term"); however, it was
terminated by Mr. O'Brien for "Good Reason" (as such term is defined in the
O'Brien Agreement) as of June 22, 1998. Mr. O'Brien was required to devote his
full time efforts to TresCom as its President and Chief Executive Officer for
which he received an annual base salary of $231,000.
Pursuant to the terms of the O'Brien Agreement, Mr. O'Brien will receive any
unpaid salary and bonus, as well as an additional amount equal to the salary
remaining for the balance of the Term of the O'Brien Agreement. In addition,
Mr. O'Brien agreed to a customary confidentiality clause and to a non-
competition clause which prohibits Mr. O'Brien from competing with TresCom for
one year from the date of the termination of the O'Brien Agreement.
The consummation of the TresCom Merger constituted a Change in Control as
defined in the O'Brien Agreement, making Mr. O'Brien eligible for a one-time
special bonus of $1.5 million (the "O'Brien Special Bonus"). The first
installment of the O'Brien Special Bonus was paid contemporaneously with the
closing of the TresCom Merger, with the remainder paid upon Mr. O'Brien's
termination.
Other Agreements. TresCom has also entered into agreements with Mr. Dan
O'Connor and Ms. Denise Boerger, (the "O'Connor/Boerger Agreements"). The
O'Connor/Boerger Agreements each provide for a one-time special bonus of
$500,000 in the event of a Change in Control, which was triggered by the
recently completed TresCom Merger. The first installment of these bonuses was
paid contemporaneously with the closing of the TresCom Merger. The second and
third installments are due on the first and second anniversary, respectively,
of the change in control so long as Mr. O'Connor or Ms. Boerger, as the case
may be, remains employed by the Company.
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CERTAIN TRANSACTIONS
PRIVATE EQUITY SALE
In July 1996, Primus completed the sale of 965,999 shares of Common Stock to
the (i) Quantum Industrial Partners LDC, the principal operating subsidiary of
Quantum Industrial Holdings Ltd., an investment fund advised by Soros Fund
Management, a private investment firm owned by Mr. George Soros, (ii) Winston
Partners II LDC, the principal operating subsidiary of Winston Partners II
Offshore Ltd., an investment fund advised by Chatterjee Management Company, a
private entity owned by Dr. Purnendu Chatterjee, (iii) Winston Partners II
LLC, an investment fund advised by Chatterjee Management Company and (iv) S-C
Phoenix Holdings, L.L.C., an investment vehicle owned by affiliates of Mr.
Soros and Dr. Chatterjee (collectively, the "Soros/Chatterjee Group"), for an
aggregate purchase price of approximately $8.0 million. The Soros/Chatterjee
Group also purchased, for an additional $8.0 million, the right to receive,
upon exercise, an indeterminate number of shares of Common Stock with a fair
market value of $10.0 million as of the date of exercise, plus up to 627,899
additional shares of 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 the Company (the "Registration Rights
Agreement"). Under the Registration Rights Agreement, the Soros/Chatterjee
Group is entitled to demand registration of its shares after July 31, 1998, a
maximum of three times, the third demand being available only if the
Soros/Chatterjee Group has not registered 80% of its shares of Common Stock
after the first demand registration. The Company is not required to effect any
demand registration within 180 days after the effective date of a previous
demand registration and may postpone, on one occasion in any 365-day period,
the filing or effectiveness of a registration statement for a demand
registration for up to 120 days under certain circumstances, including pending
material transactions or the filing by the Company of a registration statement
relating to the sale of shares for its own account. The Soros/Chatterjee Group
is also entitled to unlimited piggyback registrations. All such registrations
would be at the Company's expense, exclusive of underwriting discounts and
commissions, and legal fees (up to $25,000 for each such offering) incurred by
the holders of the registrable securities. The Company and the
Soros/Chatterjee Group have entered into customary indemnification and
contribution provisions.
Additionally, members of the Soros/Chatterjee Group are entitled to tagalong
rights to participate with Mr. Singh and members of his family in sales of
capital stock on the same terms and conditions as Mr. Singh and members of his
family. The Soros/Chatterjee Group shares are also subject to drag along
rights in the event holders of a majority of the Common Stock decide to sell
80% or more of the outstanding capital stock of the Company. The
Securityholders Agreement provides that members of the Soros/Chatterjee Group
will not transfer shares of Common Stock to a company, or any affiliate, that
competes with the Company to a material extent in the provision of
telecommunications services in the United States, Australia, the United
Kingdom, France, Germany, Mexico, Canada, Italy or Hong Kong.
TELEGLOBE
The Company entered into an agreement on January 12, 1996 with Teleglobe,
pursuant to which Teleglobe purchased 410,808 shares of 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 the
Company. The loan was repaid in full with the proceeds from the offering of
the 1997 Senior Notes. Related to the Teleglobe investments, the Company and a
number of its subsidiaries have entered into trading agreements with Teleglobe
with respect to their respective service offerings. The parties have also
agreed to cooperate in an effort to maximize efficiencies with respect to
network facilities.
NSI PRIVATE PLACEMENTS
In 1995 and 1996, the Company engaged Northeast Securities, Inc. ("NSI") to
serve as the placement agent for two private placements of the Company's
Common Stock. Mr. Andrew B. Krieger, a former director of
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Primus, served as a broker-dealer in the private placements through an
affiliation with NSI. In connection with these offerings, the Company paid Mr.
Krieger cash commissions aggregating approximately $1,007,000. The Company
also retained Krieger Associates, of which Mr. Krieger is the President and
Chief Executive Officer, to perform certain financial and other consulting
services and paid a total of approximately $105,828 for the performance of
such services during 1995 and 1996. In addition, in connection with these
private placements, the Company issued a total of 193,718 shares of Common
Stock to Krieger Associates and Mr. Krieger, and at the direction of Mr.
Krieger issued a total of 74,003 shares of Common Stock to other individuals
associated with the transaction. The Company also issued, in connection with
these private placements, a total of 245,555 shares of Common Stock to NSI and
certain of its employees associated with the transactions.
LOAN FROM OFFICER
In connection with the initial organization of the Company, K. Paul Singh,
the Company's Chairman of the Board, President and Chief Executive Officer,
loaned the Company approximately $320,000, accruing interest at a variable
rate tied to the prime rate. On March 31, 1995, the Company and Mr. Singh
converted all then outstanding principal and interest due ($350,000) into
555,559 shares of Common Stock, at a price per share of $0.63, which shares
were issued on such date.
LEGAL SERVICES
From time to time, the Company has retained the law firm of Pepper Hamilton
LLP to perform legal services for the Company. John F. DePodesta, a director
and an Executive Vice President of the Company, is "of counsel" to such firm.
HOTKEY INVESTMENT
In March 1998, Primus purchased a controlling interest in Hotkey, a
Melbourne, Australia-based Internet service provider. The Company'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
approximately 4% of Hotkey.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information, as of June 15, 1998, with
respect to the beneficial ownership of shares of the Common Stock by each
person or group who is known to the Company to be the beneficial owner of more
than five percent of the outstanding Common Stock, by each director or nominee
for director, by each of the 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
NAME AND ADDRESS OF BENEFICIAL PERCENT
BENEFICIAL OWNER OWNERSHIP(1) OF CLASS(2)
- ------------------- ------------ -----------
<S> <C> <C>
K. Paul Singh (3)....... 4,616,579 16.4%
1700 Old Meadow Road
McLean, VA 22102
Warburg, Pincus
Investors, L.P. (4).... 3,875,689 13.9%
466 Lexington Avenue
New York, New York
10017
Quantum Industrial
Partners LDC (5)....... 1,406,283 5.5%
c/o Curacao Corporation
Company N.V.
Kaya Flamboyan 9
Willemstad, Curacao
Netherlands Antilles
Franklin Resources, Inc.
(6).................... 1,366,750 5.4%
777 Mariners Island
Boulevard
San Mateo, CA 94404
S-C Phoenix Holdings,
L.L.C. (7)............. 843,769 3.3%
c/o The Chatterjee
Group
888 Seventh Avenue
New York, NY 10106
Winston Partners II LLC
(8).................... 175,785 *
c/o Chatterjee Advisors
LLC
c/o The Chatterjee
Group
888 Seventh Avenue
New York, NY 10106
Winston Partners II LDC
(9).................... 383,103 1.5%
c/o Curacao Corporation
Company N.V.
Kaya Flamboyan 9
Willemstad, Curacao
Netherlands Antilles
John F. DePodesta (10).. 320,240 1.1%
Herman Fialkov.......... 30,000 *
David E. Hershberg
(11)................... 51,667 *
Douglas M. Karp (12).... 3,875,689 13.9%
John G. Puente.......... 166,760 *
Neil L. Hazard (13)..... 206,987 *
Yousef B. Javadi (14)... 52,289 *
Ravi Bhatia............. 70,120 *
All executive officers
and directors as a
group (15)............. 9,542,041 33.5%
</TABLE>
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<PAGE>
- --------
* Less than 1% of the outstanding Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting or investment
power with respect to the shares beneficially owned. Shares of Common
Stock subject to options or warrants currently exercisable or become
exercisable on or prior to 60 days from June 15, 1998 are deemed
outstanding for computing the percentage ownership of the person holding
such options or warrants, but are not deemed outstanding for computing
the percentage ownership of any other person.
(2) Based upon 27,867,536 shares of Common Stock outstanding as of the date
hereof.
(3) Includes 377,786 shares of Common Stock owned by Mr. Singh's wife and
children, 500,000 shares of Common Stock held by a private foundation of
which Mr. Singh is the president and a director, 396,828 shares of Common
Stock held of record by a series of revocable trusts of which Mr. Singh
is the trustee and pursuant to which Mr. Singh has sole voting power and
shared dispositive power, and 640 shares held in a 401(k) plan of which
Mr. Singh is a beneficiary. Also includes 225,400 shares of Common Stock
issuable upon the exercise of options granted to Mr. Singh.
(4) Calculated by multiplying 6,305,010, the number of shares of TresCom
common stock beneficially owned by Warburg, Pincus at the Effective Time
of the TresCom Merger, by 0.6147, the exchange ratio for conversion of
TresCom common stock into shares of Common Stock pursuant to the TresCom
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 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.
(5) 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 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.
(6) 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 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 Common Stock held by Franklin.
Franklin, the Adviser, and Messrs. Charles and Rupert Johnson disclaim
any economic interest or beneficial ownership in such shares.
(7) 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 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 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
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<PAGE>
Stock. Dr. Chatterjee, who is the sole general partner of Chatterjee Fund
Management ("CFM"), and CFM, which is the sole general partner of Winston
Partners, L.P., each may be deemed to have beneficial ownership in the
shares of Common Stock held by Phoenix Holdings.
(8) 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 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 Common Stock held
by Winston LLC.
(9) 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 Common Stock. According to the Schedule 13G,
Chatterjee Management has investment discretion over the shares of Common
Stock held by Winston LDC, and as such may be deemed to have beneficial
ownership over such shares. In addition, Chatterjee Advisors, as manager
of Winston LDC and by reason of its ability to terminate the contract
between Winston LDC and Chatterjee Management, may be deemed to be the
beneficial owner of the shares of Common Stock held by Winston LDC.
(10) Includes 101,430 shares of Common Stock issuable upon the exercise of
options granted to Mr. DePodesta.
(11) Includes 50,715 shares of 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.
(12) All shares shown as being beneficially owned by Mr. Karp are owned
directly by Warburg, Pincus and are included because of Mr. Karp's
affiliation with Warburg, Pincus. Mr. Karp disclaims "beneficial
ownership" of these shares within the meaning of Rule 13d-3 of the
Exchange Act. See Note 9 above.
(13) Includes 202,860 shares of Common Stock issuable upon the exercise of
options granted to Mr. Hazard.
(14) Includes 50,000 shares of Common Stock issuable upon the exercise of
options granted to Mr. Javadi.
(15) Consists of 11 persons and includes 775,788 shares of Common Stock
issuable upon the exercise of options granted to directors and executive
officers. Includes 3,875,689 shares deemed to be beneficially owned by
Mr. Karp which are owned directly by Warburg, Pincus and are included
because of Mr. Karp's affiliation with Warburg, Pincus. Mr. Karp
disclaims "beneficial ownership" of these shares within the meaning of
Rule 13d-3 of the Exchange Act. See Notes 9 and 12 above.
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<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
1997 SENIOR NOTES
General. The 1997 Senior Notes are senior obligations of the Company,
limited to $225 million in principal amount, and mature on August 1, 2004. The
1997 Senior Notes, which were issued pursuant to the 1997 Indenture, accrue
interest at a rate of 11 3/4% per annum. Interest is payable each February 1
and August 1, commencing on February 1, 1998.
Ranking. The Notes will rank senior in right of payment to any future
subordinated Indebtedness (as defined in the 1997 Indenture) of the Company,
and pari passu in right of payment with all senior indebtedness of the
Company. Because the Company is a holding company that conducts its business
through its subsidiaries, all existing and future indebtedness and other
liabilities and commitments of the Company's subsidiaries, including trade
payables, will be effectively senior to the 1997 Senior Notes.
Security. The Indenture required the Company to purchase and pledge to First
Union National Bank, as security for the benefit of the holders of the 1997
Senior Notes, securities consisting of U.S. government securities in an amount
sufficient to provide for the payment in full of the first six scheduled
interest payments due on the 1997 Senior Notes (the "Pledged Securities"). The
Company used approximately $71.8 million of the net proceeds of the 1997
Senior Notes to acquire the Pledged Securities. Assuming the first six
scheduled interest payments on the 1997 Senior Notes are made in a timely
manner, all remaining Pledged Securities will be released.
Optional Redemption. The 1997 Senior Notes are not redeemable prior to
August 1, 2001. Thereafter, the 1997 Senior Notes will be redeemable, in whole
or in part, at the option of the Company, at the redemption prices set forth
in the Indenture, plus accrued and unpaid interest to the applicable
redemption date. Specifically, if redeemed during, the 12-month period
commencing on August 1 of the years set forth below, the redemption price will
be that amount, expressed as a percentage of the principal amount of the 1997
Senior Notes, set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2001 105.875%
2002 102.938%
2003 (and thereafter) 100.000%
</TABLE>
In addition, prior to August 1, 2000, the Company may redeem up to 35% of
the originally issued principal amount of the 1997 Senior Notes at 111.750% of
the principal amount thereof, plus accrued and unpaid interest through the
redemption date, with the net cash proceeds of one or more Public Equity
Offerings (as defined in the 1997 Indenture); provided, however, that at least
65% of the originally issued principal amount of the 1997 Senior Notes remains
outstanding after the occurrence of such redemption.
Change of Control. Upon the occurrence of a Change of Control (as defined in
the 1997 Indenture), each holder of 1997 Senior Notes will have the right to
require the Company to repurchase all or any part of such holder's 1997 Senior
Notes at a purchase price in cash equal to 101% of the principal amount
thereof, plus accrued and unpaid interest to the date of purchase.
Covenants. The 1997 Indenture contains certain covenants that, among other
things, limit the ability of the Company and its Restricted Subsidiaries (as
defined in the 1997 Indenture) to incur additional indebtedness and issue
preferred stock, pay dividends or make other distributions, repurchase Capital
Stock (as defined in the 1997 Indenture) or subordinated indebtedness or make
certain other Restricted Payments as defined in the 1997 Indenture, create
certain liens, enter into certain transactions with affiliates, sell assets,
issue or sell Capital Stock of the Company's Restricted Subsidiaries or enter
into certain mergers and consolidations.
Events of Default. The 1997 Indenture contains customary events of default,
including (i) defaults in the payment of principal, premium or interest, (ii)
defaults in the compliance with covenants contained in the 1997 Indenture,
(iii) cross defaults on more than $5 million of other indebtedness, (iv)
failure to pay more than $5 million of judgments that have not been stayed by
appeal or otherwise and (v) the bankruptcy of Primus or certain of its
subsidiaries.
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<PAGE>
DESCRIPTION OF EXCHANGE NOTES
The form and terms of the Exchange Notes will be identical in all material
respects to the form and terms of the Initial Notes, except that (i) the
Exchange Notes have been registered under the Securities Act and, therefore,
will not bear legends restricting the transfer thereof, (ii) holders of the
Exchange Notes, except in limited circumstances, will not be entitled to
Liquidated Damages, and (iii) holders of the Exchange Notes will not be, and
upon consummation of the Exchange Offer, Holders of the Initial Notes will no
longer be, entitled to certain rights under the Registration Rights of the
Initial Notes will no longer be, entitled to certain rights under the
Registration Rights Agreement intended for the holders of unregistered
securities. The Exchange Offer shall be deemed consummated upon the occurrence
of the delivery by the Company to the Registrar under the Indenture of
Exchange Notes in the same aggregate principal amount as the aggregate
principal amount of Initial Notes that are validly tendered by holders thereof
pursuant to the Exchange Offer. See "The Exchange Offer--Termination of
Certain Rights" and "--Procedures for Tendering Initial Notes".
Set forth below is a summary of certain provisions of the Exchange Notes.
The Exchange Notes will be issued pursuant to an Indenture, to be dated as of
May 19, 1998 (the "Indenture"), between the Company, as issuer, and First
Union National Bank, as Trustee (the "Trustee"). Upon the issuance of the
Exchange Notes, if any, or the effectiveness of the Shelf Registration
Statement, the Indenture will be subject to and governed by the Trust
Indenture Act of 1939 as amended (the "Trust Indenture Act"). The following
summary of certain provisions of the Indenture does not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all
the provisions of the Indenture, including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act.
Whenever particular Sections or defined terms of the Indenture not otherwise
defined herein are referred to, such Sections or defined terms are
incorporated herein by reference. Copies of the proposed forms of the
Indenture are available upon request from the Company or the Trustee. The term
"Note" or "Notes" includes the Initial Notes and the Exchange Notes. The
definitions of certain terms used in the following summary are set forth below
under "--Certain Definitions."
GENERAL
The Notes will be senior obligations of the Company, limited to $150 million
aggregate principal amount, and will mature on May 15, 2008. The Notes will
bear interest at the rate of 9 7/8% per annum, payable semiannually on May 15
and November 15 of each year, commencing November 15, 1998 to the Person in
whose name the Note (or any predecessor Note) is registered at the close of
business on the preceding May 1 or November 1, as the case may be. Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes will be payable by
wire transfer of immediately available funds to the holder of the Global Note
and with respect to the holder of Certificated Notes at the office or agency
of the Company (which initially will be the corporate trust operations office
of the Trustee at NC 1153, 1125 West W.T. Harris Boulevard, Charlotte, North
Carolina 28262); provided that, at the option of the Company, payment of
interest may be made by check mailed to the address of the holders as such
address appears in the Note Register. (Section 202)
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 of principal amount at maturity and any integral
multiple thereof. See "Book-Entry; Delivery and Form." No service charge will
be made for any registration of transfer or exchange of Notes, but the Company
may require payment of a sum sufficient to cover any transfer tax or other
similar governmental charge payable in connection therewith. (Section 203)
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in part,
at any time or from time to time, on or after May 15, 2003 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice
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mailed by first class mail to each holders' last address as it appears in the
Note Register, at the following Redemption Prices (expressed in percentages of
principal amount thereof), plus accrued and unpaid interest thereon to the
Redemption Date (subject to the right of holders of record on the relevant
Regular Record Date to receive interest due on an Interest Payment Date that
is on or prior to the Redemption Date), if redeemed during the 12-month period
commencing on May 15, of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2003....................................... 104.938%
2004....................................... 103.208%
2005....................................... 101.604%
2006 (and thereafter)...................... 100.000%
</TABLE>
Notwithstanding the foregoing, prior to May 15, 2001, the Company may on any
one or more occasions redeem up to 25% of the originally issued principal
amount of Notes at a redemption price of 109.875% of the principal amount
thereof, plus accrued and unpaid interest thereon to the redemption date, with
the Net Cash Proceeds of one or more Public Equity Offerings; provided (i)
that at least 75% of the originally issued principal amount of Notes remains
outstanding immediately after the occurrence of such redemption and (ii) that
notice of such redemption is mailed within 60 days of the closing of each such
Public Equity Offering. (Sections 203 and 1103)
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee in compliance with the requirements of the
principal national securities exchange, if any, on which the Notes are listed
or, if the Notes are not listed on a national securities exchange, on a pro
rata basis, by lot or by such other method as the Trustee in its sole
discretion shall deem to be fair and appropriate; provided that no Note of
$1,000 in principal amount at maturity or less shall be redeemed in part. If
any Note is to be redeemed in part only, the notice of redemption relating to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon cancellation of
the original Note.
RANKING
The indebtedness evidenced by the Notes will rank senior in right of payment
to any existing and future obligations of the Company expressly subordinated
in right of payment to the Notes and will be pari passu in right of payment
with all other existing and future senior unsecured obligations of the Company
including trade payables. As of March 31, 1998, after giving pro forma effect
to the offering of the Initial Notes and the application of the net proceeds
thereof, the Company (on a consolidated basis) would have had outstanding
approximately $382.2 million of indebtedness ($387.6 million after giving
effect to the TresCom Merger). Because the Company is a holding company that
conducts its business through its subsidiaries, all existing and future
indebtedness and other liabilities and commitments of the Company's
subsidiaries, including trade payables, will be effectively senior to the
Notes. As of March 31, 1998, the Company's consolidated subsidiaries had
aggregate liabilities of approximately $101.0 million ($132.4 million after
giving effect to the TresCom Merger), which includes $9.5 million of
indebtedness ($14.9 million after giving effect to the TresCom Merger).
COVENANTS
Limitation on Indebtedness
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Notes); provided,
however, that the Company may Incur Indebtedness if immediately thereafter the
ratio of (i) the aggregate principal amount (or accreted value, as the case
may be) of Indebtedness of the Company and its Restricted Subsidiaries on a
consolidated basis outstanding as of the Transaction Date to (ii) the Pro
Forma Consolidated Cash Flow for the preceding two full fiscal quarters
multiplied by two, determined on a
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pro forma basis as if any such Indebtedness that had been Incurred and the
proceeds thereof had been applied at the beginning of such two fiscal
quarters, would be greater than zero and less than 6.0 to 1.
(b) Notwithstanding the foregoing, the Company and (except for Indebtedness
under subsections (v), (vii) and (xi) below) any Restricted Subsidiary may
Incur each and all of the following: (i) Indebtedness of the Company or any
Restricted Subsidiary under one or more Credit Facilities in an aggregate
principal amount at any one time outstanding not to exceed the greater of (a)
$50 million and (b) 65% of Eligible Accounts Receivable, subject to any
permanent reductions required by any other terms of the Indenture; (ii)
Indebtedness (including Guarantees) Incurred by the Company or a Restricted
Subsidiary after the Closing Date to finance the cost (including the cost of
design, development, construction, acquisition, installation or integration)
of equipment used in the telecommunications business or ownership rights with
respect to indefeasible rights of use or minimum investment units (or similar
ownership interests) in domestic or transnational fiber optic cable or other
transmission facilities, in each case purchased or leased by the Company
(including acquisitions by way of Capitalized Leases and acquisitions of the
Capital Stock of a Person that becomes a Restricted Subsidiary to the extent
of the Fair Market Value of such equipment, ownership rights or minimum
investment units so acquired); (iii) Indebtedness of any Restricted Subsidiary
to the Company or Indebtedness of the Company or any Restricted Subsidiary to
any other Restricted Subsidiary; provided that any subsequent issuance or
transfer of any Capital Stock which results in any such Restricted Subsidiary
ceasing to be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness not permitted by this clause (iii) (other than to the Company or
another Restricted Subsidiary) shall be deemed, in each case, to constitute
the incurrence of such Indebtedness, and provided further that Indebtedness of
the Company to a Restricted Subsidiary must be subordinated in right of
payment to the Notes; (iv) Indebtedness of the Company or a Restricted
Subsidiary issued in exchange for, or the net proceeds of which are used to
refinance or refund, then outstanding Indebtedness of the Company or a
Restricted Subsidiary, other than Indebtedness Incurred under clauses (i),
(iii), (vi), (viii), (ix) and (xii) of this paragraph, and any refinancings
thereof in an amount not to exceed the amount so refinanced or refunded (plus
premiums, accrued interest, and reasonable fees and expenses); provided that
such new Indebtedness shall only be permitted under this clause (iv) if (A) in
case the Notes are refinanced in part or the Indebtedness to be refinanced is
pari passu with the Notes, such new Indebtedness, by its terms or by the terms
of any agreement or instrument pursuant to which such new Indebtedness is
issued or remains outstanding, is expressly made pari passu with, or
subordinate in right of payment to, the remaining Notes, (B) in case the
Indebtedness to be refinanced is subordinated in right of payment to the
Notes, such new Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is issued or remains
outstanding, is expressly made subordinate in right of payment to the Notes at
least to the extent that the Indebtedness to be refinanced is subordinated to
the Notes and (C) such new Indebtedness, determined as of the date of
Incurrence of such new Indebtedness, does not mature prior to the Stated
Maturity of the Indebtedness to be refinanced or refunded, and the Average
Life of such new Indebtedness is at least equal to the remaining Average Life
of the Indebtedness to be refinanced or refunded; and provided further that in
no event may Indebtedness of the Company be refinanced by means of any
Indebtedness of any Restricted Subsidiary pursuant to this clause (iv);
(v) Indebtedness of the Company not to exceed, at any one time outstanding,
2.00 times (A) the Net Cash Proceeds received by the Company after the Closing
Date from the issuance and sale of its Common Stock (other than Redeemable
Stock) to a Person that is not a Subsidiary of the Company, to the extent such
Net Cash Proceeds have not been used pursuant to clause (C)(2) of the first
paragraph or clauses (iii), (iv) and (vii) of the second paragraph of the
"Limitation on Restricted Payments" covenant described below to make a
Restricted Payment and (B) the Fair Market Value (as determined in good faith
by the Board of Directors, whose determination shall be conclusive and
evidenced by a Board Resolution) of property (other than cash and cash
equivalents) used in a Permitted Business or common equity interests in a
Person (the property and assets of such Person consisting primarily of
telecommunications assets) that becomes a Restricted Subsidiary (such Fair
Market Value being that of the common equity interests received pursuant to
the transaction resulting in such Person becoming a Restricted Subsidiary),
and, in each case, received by the Company after the Closing Date from the
issuance or sale of its Common Stock (other than Redeemable Stock) to a Person
that is not a Subsidiary of the Company to the extent such sale of Common
Stock has not been used pursuant to clauses (iii), (iv) and (vii) of the
second paragraph of the "Limitation on Restricted Payments" covenant described
below to make a
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Restricted Payment; provided that such Indebtedness does not mature prior to
the Stated Maturity of the Notes and the Average Life of such Indebtedness is
longer than that of the Notes; (vi) Indebtedness of the Company or any
Restricted Subsidiary (A) in respect of performance, surety or appeal bonds or
letters of credit supporting trade payables, in each case provided in the
ordinary course of business, (B) under Currency Agreements and Interest Rate
Agreements; provided that such agreements (a) are designed solely to protect
the Company or any Restricted Subsidiary against fluctuation in foreign
currency exchange rates or interest rates and (b) do not increase the
Indebtedness of the obligor outstanding at any time other than as a result of
fluctuations in foreign currency exchange rates or interest rates or by reason
of fees, indemnities and compensation payable thereunder; and (C) arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from Guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted
Subsidiary of the Company (other than Guarantees of Indebtedness Incurred by
any Person acquiring all or any portion of such business, assets or Restricted
Subsidiary for the purpose of financing such acquisition), in a principal
amount not to exceed the gross proceeds actually received by the Company or
any Restricted Subsidiary in connection with such disposition; (vii)
Indebtedness of the Company, to the extent that the net proceeds thereof are
promptly (A) used to repurchase Notes tendered in a Change of Control Offer or
(B) deposited to defease all of the Notes as described below under "Defeasance
or Covenant Defeasance of Indenture"; (viii) Indebtedness of a Restricted
Subsidiary represented by a Guarantee of the Notes and any other Indebtedness
of the Company permitted by and made in accordance with the "Limitation on
Issuances of Guarantees of Indebtedness by Restricted Subsidiaries" covenant;
(ix) Indebtedness of the Company or any Restricted Subsidiary not otherwise
permitted hereunder in an aggregate principal amount, when aggregated with the
principal amount of all other Indebtedness then outstanding and incurred
pursuant to this clause (ix), does not exceed $200 million at any one time
outstanding; (x) Acquired Indebtedness; (xi) Strategic Subordinated
Indebtedness; and (xii) Indebtedness of the Company or any Restricted
Subsidiary arising from the honoring by a bank or other financial institution
of a check or similar instrument inadvertently (except in the case of daylight
overdrafts) drawn against insufficient funds in the ordinary course of
business, provided that such Indebtedness is extinguished within three
business days of Incurrence.
(c) Notwithstanding any other provision of this "Limitation on Indebtedness"
covenant, the maximum amount of Indebtedness that the Company or a Restricted
Subsidiary may Incur pursuant to this "Limitation on Indebtedness" covenant
shall not be deemed to be exceeded with respect to any outstanding
Indebtedness due solely to the result of fluctuations in the exchange rates of
currencies.
(d) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, Guarantees, Liens or obligations
with respect to letters of credit supporting Indebtedness otherwise included
in the determination of such particular amount shall not be included. For
purposes of determining compliance with this "Limitation on Indebtedness"
covenant, in the event that an item of Indebtedness meets the criteria of more
than one of the types of Indebtedness described in the above clauses, the
Company, in its sole discretion, shall classify and from time to time may
reclassify such item of Indebtedness and only be required to include the
amount and type of such Indebtedness in one of such clauses. (Section 1011)
Limitation on Restricted Payments
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) (A) declare or pay any dividend or make any
distribution in respect of the Company's Capital Stock to the holders thereof
(other than dividends or distributions payable solely in shares of Capital
Stock (other than Redeemable Stock) of the Company or in options, warrants or
other rights to acquire such shares of Capital Stock) or (B) declare or pay
any dividend or make any distribution in respect of the Capital Stock of any
Restricted Subsidiary to any Person other than dividends and distributions
payable to the Company or any Restricted Subsidiary or to all holders of
Capital Stock of such Restricted Subsidiary on a pro rata basis, (ii)
purchase, redeem, retire or otherwise acquire for value any shares of Capital
Stock of the Company (including options, warrants or other rights to acquire
such shares of Capital Stock) held by any Person or any shares of Capital
Stock of any
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Restricted Subsidiary (including options, warrants and other rights to acquire
such shares of Capital Stock) held by any Affiliate of the Company (other than
a Wholly Owned Restricted Subsidiary) or any holder (or any Affiliate thereof)
of 5% or more of the Company's Capital Stock, (iii) make any voluntary or
optional principal payment, or voluntary or optional redemption, repurchase,
defeasance, or other acquisition or retirement for value of Subordinated
Indebtedness, or (iv) make any Investment, other than a Permitted Investment,
in any Person (such payments or any other actions described in clauses (i)
through (iv) being collectively "Restricted Payments") if, at the time of, and
after giving effect to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be continuing;
(B) the Company could not Incur at least $1.00 of Indebtedness under the
first paragraph of the "Limitation on Indebtedness" covenant; or
(C) the aggregate amount expended for all Restricted Payments (the amount
so expended, if other than in cash, to be determined in good faith by the
Board of Directors, whose determination shall be conclusive and evidenced
by a Board Resolution) after the date of the Indenture shall exceed the sum
of (1) the remainder of (a) 100% of the aggregate amount of the
Consolidated Cash Flow (determined by excluding income resulting from
transfers of assets received by the Company or a Restricted Subsidiary from
an Unrestricted Subsidiary) accrued on a cumulative basis during the period
(taken as one accounting period) beginning on the first day of the last
fiscal quarter immediately preceding the Closing Date and ending on the
last day of the last fiscal quarter preceding the Transaction Date minus
(b) the product of 1.75 times cumulative Consolidated Fixed Charges accrued
on a cumulative basis during the period (taken as one accounting period)
beginning on the first day of the last fiscal quarter immediately preceding
the Closing Date and ending on the last day of the last fiscal quarter
preceding the Transaction Date plus (2) the aggregate Net Cash Proceeds
received by the Company after the Closing Date from the issuance and sale
of its Capital Stock (other than Redeemable Stock) to a Person who is not a
Subsidiary of the Company (except to the extent such Net Cash Proceeds are
used to incur new Indebtedness outstanding pursuant to clause (v) of the
paragraph (b) of the "Limitation on Indebtedness" covenant) plus (3) the
aggregate Net Cash Proceeds received after the date of the Indenture by the
Company from the issuance or sale of debt securities that have been
converted into or exchanged for Capital Stock of the Company (other than
Redeemable Stock) together with the aggregate cash received by the Company
at the time of such conversion or exchange plus (4) without duplication of
any amount included in the calculation of Consolidated Cash Flow, in the
case of repayment of, or return of capital in respect of, any Investment
constituting a Restricted Payment made after the Closing Date and reducing
the amount of Restricted Payments otherwise permitted under this clause
(C), an amount equal to the lesser of the return of capital with respect to
such Investment and the cost of such Investment, in either case less the
cost of the disposition of such Investment.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend within 60 days after the date of declaration thereof if, at
said date of declaration, such payment would comply with the foregoing
paragraph; (ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of payment
to the Notes including premium, if any, and accrued and unpaid interest, with
the proceeds of, or in exchange for, Indebtedness Incurred under clause (iv)
of paragraph (b) of the "Limitation on Indebtedness" covenant; (iii) the
repurchase, redemption or other acquisition of Capital Stock of the Company in
exchange for, or out of the proceeds of a substantially concurrent offering
of, shares of Capital Stock (other than Redeemable Stock) of the Company
(except to the extent such proceeds are used to incur new Indebtedness
pursuant to clause (v) of paragraph (b) of the "Limitation on Indebtedness"
covenant); (iv) the acquisition of Indebtedness of the Company which is
subordinated in right of payment to the Notes in exchange for, or out of the
proceeds of, a substantially concurrent offering of, shares of the Capital
Stock of the Company (other than Redeemable Stock) (except to the extent such
proceeds are used to incur new Indebtedness pursuant to clause (v) of
paragraph (b) of the "Limitation on Indebtedness" covenant); (v) payments or
distributions, to dissenting stockholders pursuant to applicable law, pursuant
to or in connection with a consolidation, merger or transfer of assets that
complies with the provisions of the Indenture applicable to mergers,
consolidations and transfers of all or substantially all of the property and
assets of the Company; (vi) cash payments in lieu of the issuance of
fractional shares issued in connection with the exercise of any Common Stock
warrants;
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(vii) Investments in Permitted Businesses acquired in exchange for Common
Stock (other than Redeemable Stock) of the Company or the Net Cash Proceeds
from the issuance and sale of such Common Stock (except to the extent such
proceeds are used to incur new Indebtedness pursuant to clause (v) of
paragraph (b) of the "Limitation on Indebtedness" covenant); provided that
such proceeds are so used within 270 days of the receipt thereof; (viii) the
purchase of any Subordinated Indebtedness at a purchase price not greater than
101% of the principal amount thereof, together with accrued interest, if any,
thereof in the event of a Change of Control in accordance with provisions
similar to the "Repurchase of Notes upon a Change of Control" covenant;
provided that prior to such purchase the Company has made the Change of
Control offer as provided in such covenant with respect to the Notes and has
purchased all Notes validly tendered for payment in connection with such
Change of Control Offer; and (ix) other Restricted Payments not to exceed $5.0
million; provided that, except in the case of clause (i), no Default or Event
of Default shall have occurred and be continuing or occur as a consequence of
the actions or payments set forth therein. (Section 1012)
Each Restricted Payment permitted pursuant to the immediately preceding
paragraph (other than a Restricted Payment referred to in clause (ii) thereof,
and an exchange of Capital Stock for Capital Stock, Indebtedness or an
Investment referred to in clause (iii), (iv) or (vii) thereof) and the Net
Cash Proceeds from any issuance of Capital Stock referred to in clauses (iii),
(iv) and (vii) shall be included in calculating whether the conditions of
clause (C) of the first paragraph of this "Limitation on Restricted Payments"
covenant have been met with respect to any subsequent Restricted Payments. In
the event the proceeds of an issuance of Capital Stock of the Company are used
for the redemption, repurchase or other acquisition of the Notes or
Indebtedness that is pari passu with the Notes, then the Net Cash Proceeds of
such issuance shall be included in clause (C) of the first paragraph of this
"Limitation on Restricted Payments" covenant only to the extent such proceeds
are not used for such redemption, repurchase or other acquisition of
Indebtedness.
Any Restricted Payments made other than in cash shall be valued at Fair
Market Value. The amount of any Investment "outstanding" at any time shall be
deemed to be equal to the amount of such Investment on the date made, less the
return of capital, repayment of loans, and release of Guarantees, in each case
of or to the Company and its Restricted Subsidiaries with respect to such
Investment (up to the amount of such Investment on the date made).
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
So long as any of the Notes are outstanding, the Company will not, and will
not permit any Restricted Subsidiary to, create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction of any
kind on the ability of any Restricted Subsidiary to (i) pay dividends or make
any other distributions permitted by applicable law on any Capital Stock of
such Restricted Subsidiary owned by the Company or any other Restricted
Subsidiary, (ii) pay any indebtedness owed to the Company or any other
Restricted Subsidiary, (iii) make loans or advances to the Company or any
other Restricted Subsidiary, or (iv) transfer any of its property or assets to
the Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Indenture or any other
agreements in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such agreements; provided that the encumbrances
and restrictions in any such extensions, refinancings, renewals or
replacements are no less favorable in any material respect to the holders than
those encumbrances or restrictions that are then in effect and that are being
extended, refinanced, renewed or replaced; (ii) contained in the terms of any
Indebtedness or any agreement pursuant to which such Indebtedness was issued
if the encumbrance or restriction applies only in the event of a payment
default or default with respect to a financial covenant contained in such
Indebtedness or agreement and such encumbrance or restriction is not
materially more disadvantageous to the holders of the Notes than is customary
in comparable financings (as determined by the Company) and the Company
determines that any such encumbrance or restriction will not materially affect
the Company's ability to make principal or interest payments on the Notes;
(iii) existing under or by reason of applicable law; (iv) existing with
respect to any Person or the property or assets of such Person acquired by the
Company or any Restricted Subsidiary, existing at the time of such acquisition
and not incurred
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in contemplation thereof, which encumbrances or restrictions are not
applicable to any Person or the property or assets of any Person other than
such Person or the property or assets of such Person so acquired; (v) in the
case of clause (iv) of the first paragraph of this "Limitation on Dividend and
Other Payment Restrictions Affecting Restricted Subsidiaries" covenant, (A)
that restrict in a customary manner the subletting, assignment or transfer of
any property or asset that is, or is subject to, a lease, purchase mortgage
obligation, license, conveyance or contract or similar property or asset, (B)
existing by virtue of any transfer of, agreement to transfer, option or right
with respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by the Indenture or (C) arising
or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of the Company or any Restricted Subsidiary in
any manner material to the Company or any Restricted Subsidiary; or (vi) with
respect to a Restricted Subsidiary and imposed pursuant to an agreement that
has been entered into for the sale or disposition of all or substantially all
of the Capital Stock of, or property and assets of, such Restricted
Subsidiary. Nothing contained in this "Limitation on Dividend and Other
Payment Restrictions Affecting Restricted Subsidiaries" covenant shall prevent
the Company or any Restricted Subsidiary from (1) creating, incurring,
assuming or suffering to exist any Liens otherwise permitted in the
"Limitation on Liens" covenant or (2) restricting the sale or other
disposition of property or assets of the Company or any of its Restricted
Subsidiaries that secure Indebtedness of the Company or any of its Restricted
Subsidiaries. (Section 1013)
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
The Company will not sell, transfer, convey or otherwise dispose of and will
not permit any Restricted Subsidiary, directly or indirectly, to issue,
transfer, convey, sell, lease or otherwise dispose of any shares of Capital
Stock (including options, warrants or other rights to purchase shares of such
Capital Stock) of such or any other Restricted Subsidiary to any Person except
(i) to the Company or a Restricted Subsidiary, (ii) issuances of director's
qualifying shares or sales to foreign nationals of shares of Capital Stock of
non-U.S. Restricted Subsidiaries to the extent required by law and (iii)
issuances and sales of Capital Stock of Restricted Subsidiaries if (A) the Net
Cash Proceeds from such issuance, transfer, conveyance, sale, lease or other
disposition are applied in accordance with the provisions of the "Limitation
on Asset Sales" covenant, (B) immediately after giving effect to such
issuance, transfer, conveyance, sale, lease or other disposition, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary, and
(C) any Investment in such Person remaining after giving effect to such
issuance, transfer, conveyance, sale, lease or other disposition would have
been permitted to be made under the "Limitation on Restricted Payments"
covenant if made on the date of such issuance, transfer, conveyance, sale,
lease or other disposition (valued as provided in the definition of
"Investment"). (Section 1014)
Limitation on Transactions with Shareholders and Affiliates
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction
(including, without limitation, the purchase, sale, lease or exchange of
property or assets, or the rendering of any service) with any holder (or any
Affiliate of such holder) of 5% or more of any class of Capital Stock of the
Company or with any Affiliate of the Company or any Restricted Subsidiary,
unless (i) such transaction or series of transactions is on terms no less
favorable to the Company or such Restricted Subsidiary than those that could
be obtained in a comparable arm's-length transaction with a Person that is not
such a holder or an Affiliate, (ii) if such transaction or series of
transactions involves aggregate consideration in excess of $5.0 million, then
such transaction or series of transactions is approved by a majority of the
Board of Directors of the Company, including the approval of a majority of the
independent, disinterested directors, and is evidenced by a resolution of the
Board of Directors of the Company, and (iii) if such transaction or series of
transactions involves aggregate consideration in excess of $25.0 million, then
the Company or such Restricted Subsidiary will deliver to the Trustee a
written opinion as to the fairness to the Company or such Restricted
Subsidiary of such transaction from a financial point of view from a
nationally recognized investment banking firm (or, if an investment banking
firm is generally not qualified to give such an opinion, by a nationally
recognized appraisal firm or accounting firm). Any such transaction or series
of transactions shall be conclusively
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deemed to be on terms no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained in an arm's-length transaction if
such transaction or transactions are approved by a majority of the Board of
Directors of the Company, including a majority of the independent,
disinterested directors, and are evidenced by a resolution of the Board of
Directors of the Company.
The foregoing limitation does not limit, and will not apply to (i) any
transaction between the Company and any of its Restricted Subsidiaries or
between Restricted Subsidiaries; (ii) the payment of reasonable and customary
regular fees to directors of the Company who are not employees of the Company;
(iii) any Restricted Payments not prohibited by the "Limitation on Restricted
Payments" covenant; (iv) transactions provided for in the Employment
Agreements as in effect on the Closing Date; and (v) loans and advances to
employees of the Company or any Restricted Subsidiary not exceeding at any one
time outstanding $2.0 million in the aggregate, in the ordinary course of
business and in accordance with past practice. (Section 1015)
Limitation on Liens
Under the terms of the Indenture, the Company will not, and will not permit
any Restricted Subsidiary to, create, incur, assume or suffer to exist any
Lien (other than Permitted Liens) on any of its assets or properties of any
character (including, without limitation, licenses and trademarks), or any
shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without
making effective provision for all of the Notes and all other amounts due
under the Indenture to be directly secured equally and ratably with (or prior
to) the obligation or liability secured by such Lien. (Section 1016)
Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to, make
any Asset Sale unless (i) the Company or the Restricted Subsidiary, as the
case may be, receives consideration at the time of such sale or other
disposition at least equal to the Fair Market Value of the assets sold or
disposed of as determined by the good-faith judgment of the Board of
Directors, which determination, in each case where such Fair Market Value is
greater than $5.0 million, will be evidenced by a Board Resolution and (ii) at
least 75% of the consideration received for such sale or other disposition
consists of cash or cash equivalents or the assumption of unsubordinated
Indebtedness.
The Company shall, or shall cause the relevant Restricted Subsidiary to,
within 360 days after the date of receipt of the Net Cash Proceeds from an
Asset Sale (i), (A) apply an amount equal to such Net Cash Proceeds to
permanently repay unsubordinated Indebtedness of the Company or Indebtedness
of any Restricted Subsidiary, in each case owing to a Person other than the
Company or any of its Restricted Subsidiaries or (B) invest an equal amount,
or the amount not so applied pursuant to clause (A) in long-term property or
assets of a nature or type or that are used in a business (or in a company
having property and assets of a nature or type, or engaged in a business)
similar or related to the nature or type of the property and assets of, or the
business of, the Company and its Restricted Subsidiaries existing on the date
of such investment (as determined in good faith by the Board of Directors,
whose determination shall be conclusive and evidenced by a Board Resolution)
and (ii) apply (no later than the end of the 360-day period referred to above)
such excess Net Cash Proceeds (to the extent not applied pursuant to clause
(i)) as provided in the following paragraphs of this "Limitation on Asset
Sales" covenant. The amount of such Net Cash Proceeds required to be applied
(or to be committed to be applied) during such 360-day period referred to
above in the preceding sentence and not applied as so required by the end of
such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as
defined below) totals at least $10.0 million, the Company must, not later than
the 30th Business Day thereafter, make an offer (an "Excess Proceeds Offer")
to purchase from the holders on a pro rata basis an aggregate principal amount
of Notes equal to the Proportionate Share of the Excess Proceeds on such date,
at a purchase price equal to 100% of the principal amount of the Notes, plus,
in each case, accrued and unpaid interest to the date of purchase (the "Excess
Proceeds Payment").
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The Company shall commence an Excess Proceeds Offer by mailing a notice to
the Trustee and each holder stating: (i) that the Excess Proceeds Offer is
being made pursuant to this "Limitation on Asset Sales" covenant and that all
Notes validly tendered will be accepted for payment on a pro rata basis; (ii)
the purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is
mailed) (the "Excess Proceeds Payment Date"); (iii) that any Note not tendered
will continue to accrue interest pursuant to its terms; (iv) that, unless the
Company defaults in the payment of the Excess Proceeds Payment, any Note
accepted for payment pursuant to the Excess Proceeds Offer shall cease to
accrue interest on and after the Excess Proceeds Payment Date; (v) that
holders electing to have a Note purchased pursuant to the Excess Proceeds
Offer will be required to surrender the Note, together with the form entitled
"Option of the holder to Elect Purchase" on the reverse side of the Note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day immediately preceding the Excess
Proceeds Payment Date; (vi) that holders will be entitled to withdraw their
election if the Paying Agent receives, not later than the close of business on
the third Business Day immediately preceding the Excess Proceeds Payment Date,
a telegram, facsimile transmission or letter setting forth the name of such
holder, the principal amount of Notes delivered for purchase and a statement
that such holder is withdrawing his election to have such Notes purchased; and
(vii) that holders whose Notes are being purchased only in part will be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered; provided that each Note purchased and each new Note issued shall
be in a principal amount of $1,000 or integral multiples thereof.
On the Excess Proceeds Payment Date, the Company shall (i) accept for
payment on a pro rata basis Notes or portions thereof tendered pursuant to the
Excess Proceeds Offer up to the Proportionate Share of such Excess Proceeds;
(ii) deposit with the Paying Agent money sufficient to pay the purchase price
of all Notes or portions thereof so accepted; and (iii) deliver, or cause to
be delivered, to the Trustee all Notes or portions thereof so accepted
together with an Officers' Certificate specifying the Notes or portions
thereof accepted for payment by the Company. The Paying Agent shall promptly
mail to the holders of Notes so accepted payment in an amount equal to the
purchase price, and the Trustee shall promptly authenticate and mail to such
holders a new Note equal in principal amount to any unpurchased portion of the
Note surrendered; provided that each Note purchased and each new Note issued
shall be in a principal amount of $1,000 or integral multiples thereof. The
Company will publicly announce the results of the Excess Proceeds Offer as
soon as practicable after the Excess Proceeds Payment Date. For purposes of
this "Limitation on Asset Sales" covenant, the Trustee shall act as the Paying
Agent.
The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that such Excess Proceeds are
received by the Company under this "Limitation on Asset Sales" covenant and
the Company is required to repurchase Notes as described above. (Section 1017)
Limitation on Issuances of Guarantees of Indebtedness by Restricted
Subsidiaries
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to guarantee, assume or in any other manner become liable with
respect to any Indebtedness of the Company, other than Indebtedness under
Credit Facilities incurred under clauses (i) and (ii) of the "Limitation on
Indebtedness" covenant, unless (i) such Restricted Subsidiary simultaneously
executes and delivers a supplemental indenture to the Indenture providing for
a Guarantee of the Notes on terms substantially similar to the guarantee of
such Indebtedness, except that if such Indebtedness is by its express terms
subordinated in right of payment to the Notes, any such assumption, Guarantee
or other liability of such Restricted Subsidiary with respect to such
Indebtedness shall be subordinated in right of payment to such Restricted
Subsidiary's assumption, Guarantee of other liability with respect to the
Notes substantially to the same extent as such Indebtedness is subordinated to
the Notes and (ii) such Restricted Subsidiary waives, and will not in any
manner whatsoever claim or take the benefit or advantage of, any rights or
reimbursement, indemnity or subrogation or any other rights against the
Company or any other Restricted Subsidiary as a result of any payment by such
Restricted Subsidiary under its Guarantee.
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Notwithstanding the foregoing, any Guarantee by a Restricted Subsidiary may
provide by its terms that it will be automatically and unconditionally
released and discharged upon (i) any sale, exchange or transfer, to any Person
not an Affiliate of the Company, of all of the Company's and each Restricted
Subsidiary's Capital Stock in, or all or substantially all of the assets of,
such Restricted Subsidiary (which sale, exchange or transfer is not prohibited
by the Indenture) or (ii) the release or discharge of the guarantee which
resulted in the creation of such Guarantee, except a discharge or release by
or as a result of payment under such guarantee. (Section 1018)
Business of the Company
The Company will not, and will not permit any Restricted Subsidiary to, be
principally engaged in any business or activity other than a Permitted
Business.
Limitation on Investments in Unrestricted Subsidiaries
The Company will not make, and will not permit any of its Restricted
Subsidiaries to make, any Investments in Unrestricted Subsidiaries if, at the
time thereof, the aggregate amount of such Investments would exceed the amount
of Restricted Payments then permitted to be made pursuant to the "Limitation
on Restricted Payments" covenant. Any Investments in Unrestricted Subsidiaries
permitted to be made pursuant to this covenant (i) will be treated as the
making of a Restricted Payment in calculating the amount of Restricted
Payments made by the Company or a Subsidiary and (ii) may be made in cash or
property (if made in property, the Fair Market Value thereof as determined by
the Board of Directors of the Company (whose determination shall be conclusive
and evidenced by a Board Resolution) shall be deemed to be the amount of such
Investment for the purpose of clause (i)). (Section 1020)
Provision of Financial Statements and Reports
The Company will file on a timely basis with the Commission, to the extent
such filings are accepted by the Commission and whether or not the Company has
a class of securities registered under the Exchange Act, the annual reports,
quarterly reports and other documents that the Company would be required to
file if it were subject to Section 13 or 15 of the Exchange Act. All such
annual reports and quarterly reports shall include the geographic segment
financial information currently disclosed by the Company in its public filings
with the Commission. The Company will also be required (a) to file with the
Trustee, and provide to each holder, without cost to such holder, copies of
such reports and documents within 15 days after the date on which the Company
files such reports and documents with the Commission or the date on which the
Company would be required to file such reports and documents if the Company
were so required, and (b) if filing such reports and documents with the
Commission is not accepted by the Commission or is prohibited under the
Exchange Act, to supply at the Company's cost copies of such reports and
documents to any prospective holder promptly upon request. (Section 1009)
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder shall have the right
to require the Company to repurchase all or any part of its Notes at a
purchase price in cash pursuant to the offer described below (the "Change of
Control Offer") equal to 101% of the principal amount thereof, plus accrued
and unpaid interest to the date of purchase (subject to the right of holders
of record to receive interest on the relevant interest payment date) (the
"Change of Control Payment").
Within 30 days of the Change of Control, the Company will mail a notice to
the Trustee and each holder stating: (i) that a Change of Control has
occurred, that the Change of Control Offer is being made pursuant to this
"Repurchase of Notes upon a Change of Control" covenant and that all Notes
validly tendered will be accepted for payment; (ii) the purchase price and the
date of purchase (which shall be a Business Day no earlier than 30 days nor
later than 60 days from the date such notice is mailed) (the "Change of
Control Payment Date"); (iii) that any Note not tendered will continue to
accrue interest pursuant to its terms; (iv) that, unless the
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Company defaults in the payment of the Change of Control Payment, any Note
accepted for payment pursuant to the Change of Control Offer shall cease to
accrue interest on and after the Change of Control Payment Date; (v) that
holders electing to have any Note or portion thereof purchased pursuant to the
Change of Control Offer will be required to surrender such Note, together with
the form entitled "Option of the holder to Elect Purchase" on the reverse side
of such Note completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the third Business Day immediately
preceding the Change of Control Payment Date; (vi) that holders will be
entitled to withdraw their election if the Paying Agent receives, not later
than the close of business on the third Business Day immediately preceding the
Change of Control Payment Date, a telegram, telex, facsimile transmission or
letter setting forth the name of such holder, the principal amount of Notes
delivered for purchase and a statement that such holder is withdrawing his
election to have such Notes purchased; and (vii) that holders whose Notes are
being purchased only in part will be issued new Notes equal in principal
amount to the unpurchased portion of the Notes surrendered; provided that each
Note purchased and each new Note issued shall be in a principal amount of
$1,000 or integral multiples thereof.
On the Change of Control Payment Date, the Company shall: (i) accept for
payment Notes or portions thereof tendered pursuant to the Change of Control
Offer; (ii) deposit with the Paying Agent money sufficient to pay the purchase
price of all Notes or portions thereof so accepted; and (iii) deliver, or
cause to be delivered, to the Trustee, all Notes or portions thereof so
accepted together with an Officers' Certificate specifying the Notes or
portions thereof accepted for payment by the Company. The Paying Agent shall
promptly mail, to the holders of Notes so accepted, payment in an amount equal
to the purchase price, and the Trustee shall promptly authenticate and mail to
such holders a new Note equal in principal amount of any unpurchased portion
of the Notes surrendered; provided that each Note purchased and each new Note
issued shall be in a principal amount of $1,000 or integral multiples thereof.
The Company will publicly announce the results of the Change of Control Offer
on or as soon as practicable after the Change of Control Payment Date. For
purposes of this "Repurchase of Notes upon a Change of Control" covenant, the
Trustee shall act as Paying Agent.
The Company will comply with Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in the event that a Change of Control occurs and
the Company is required to repurchase the Notes under this "Repurchase of
Notes Upon a Change of Control" covenant. (Section 1010)
If the Company is unable to repay all of its indebtedness that would
prohibit repurchase of the Notes or is unable to obtain the consents of the
holders of indebtedness, if any, of the Company outstanding at the time of a
Change of Control whose consent would be so required to permit the repurchase
of Notes, then the Company will have breached such covenant. This breach will
constitute an Event of Default under the Indenture if it continues for a
period of 30 consecutive days after written notice is given to the Company by
the Trustee or the holders of at least 25% in aggregate principal amount of
the Notes outstanding. In addition, the failure by the Company to repurchase
Notes at the conclusion of the Change of Control Offer will constitute an
Event of Default without any waiting period or notice requirements.
There can be no assurances that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well
as may be contained in other securities of the Company which might be
outstanding at the time). The above covenant requiring the Company to
repurchase the Notes will, unless the consents referred to above are obtained,
require the Company to repay all indebtedness then outstanding which by its
terms would prohibit such Note repurchase, either prior to or concurrently
with such note repurchase.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person or permit any
Person to merge with or into the Company and the Company will not permit any
of its Restricted Subsidiaries to enter into any such transaction
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or series of transactions if such transaction or series of transactions, in
the aggregate, would result in the sale, assignment, conveyance, transfer,
lease or other disposition of all or substantially all of the properties and
assets of the Company or the Company and its Restricted Subsidiaries, taken as
a whole, to any other Person or Persons, unless: (i) the Company will be the
continuing Person, or the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or that acquired or leased
such property and assets of the Company will be a corporation organized and
validly existing under the laws of the United States of America or any
jurisdiction thereof and shall expressly assume, by a supplemental indenture,
executed and delivered to the Trustee, all of the obligations of the Company
with respect to the Notes and under the Indenture; (ii) immediately after
giving effect to such transaction, no Default or Event of Default shall have
occurred and be continuing; (iii) immediately after giving effect to such
transaction on a pro forma basis the Company, or any Person becoming the
successor obligor of the Notes, as the case may be, could Incur at least $1.00
of Indebtedness under paragraph (a) of the "Limitation on Indebtedness"
covenant; and (iv) the Company delivers to the Trustee an Officers'
Certificate (attaching the arithmetic computations to demonstrate compliance
with clause (iii)) and Opinion of Counsel stating that such consolidation,
merger or transfer and such supplemental indenture complies with this
provision and that all conditions precedent provided for herein relating to
such transaction have been complied with; provided, however, that clause (iii)
above does not apply if, in the good faith determination of the Board of
Directors of the Company, whose determination shall be evidenced by a Board
Resolution, the principal purpose of such transaction is to change the state
of incorporation of the Company; and provided further that any such
transaction shall not have as one of its purposes the evasion of the foregoing
limitations. (Section 801)
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Indenture: (a) default in the payment of interest on the Notes when due and
payable and continuance of such default for a period of 30 days; (b) default
in the payment of principal of (or premium, if any, on) any Note when the same
becomes due and payable at maturity, upon acceleration, redemption or
otherwise; (c) default in the payment of principal or interest on Notes
required to be purchased pursuant to an Excess Proceeds Offer as described
under "Limitation on Asset Sales" or pursuant to a Change of Control Offer as
described under "Repurchase of Notes upon a Change of Control"; (d) failure to
perform or comply with the provisions described under "Consolidation, Merger
and Sale of Assets"; (e) default in the performance of or breach of any other
covenant or agreement of the Company in the Indenture or under the Notes
(other than a default specified in clause (a), (b), (c) or (d) above) and such
default or breach continues for a period of 30 consecutive days after written
notice by the Trustee or the holders of 25% or more in aggregate principal
amount of the Notes; (f) there occurs with respect to any issue or issues of
Indebtedness of the Company or any Restricted Subsidiary having an outstanding
principal amount of $10.0 million or more in the aggregate for all such issues
of all such Persons, whether such Indebtedness now exists or shall hereafter
be created, (I) an event of default that has caused the holder thereof to
declare such Indebtedness to be due and payable prior to its Stated Maturity
and such Indebtedness has not been discharged in full or such acceleration has
not been rescinded or annulled by the earlier of (x) the expiration of any
applicable grace period or (y) the thirtieth day after such default and/or
(II) the failure to make a principal payment at the final (but not any
interim) fixed maturity and such defaulted payment shall not have been made,
waived or extended by the earlier of (x) the expiration of any applicable
grace period or (y) the thirtieth day after such default; (g) any final
judgment or order (not covered by insurance) for the payment of money in
excess of $10.0 million in the aggregate for all such final judgments or
orders against all such Persons (treating any deductibles, self-insurance or
retention as not so covered) shall be rendered against the Company or any
Restricted Subsidiary and shall not be paid or discharged, and there shall be
any period of 30 consecutive days following entry of the final judgment or
order that causes the aggregate amount for all such final judgments or orders
outstanding and not paid or discharged against all such Persons to exceed
$10.0 million during which a stay of enforcement of such final judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; (h)
a court having jurisdiction in the premises enters a decree or order for (A)
relief in respect of the Company or any of its Significant Subsidiaries in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, (B) appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator or
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similar official of the Company or any of its Significant Subsidiaries or for
all or substantially all of the property and assets of the Company or any of
its Significant Subsidiaries or (C) the winding up or liquidation of the
affairs of the Company or any of its Significant Subsidiaries and, in each
case, such decree or order shall remain unstayed and in effect for a period of
30 consecutive days; or (i) the Company or any of its Significant Subsidiaries
(A) commences a voluntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, (B) consents to
the appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any of
its Significant Subsidiaries or for all or substantially all of the property
and assets of the Company or any of its Significant Subsidiaries or (C)
effects any general assignment for the benefit of creditors. (Section 501)
If an Event of Default (other than an Event of Default specified in clause
(h) or (i) above) occurs and is continuing under the Indenture, the Trustee or
the holders of at least 25% in aggregate principal amount of the Notes, then
outstanding, by written notice to the Company (and to the Trustee if such
notice is given by the holders), may, and the Trustee at the request of such
holders shall, declare the principal of, premium, if any, and accrued but
unpaid interest on the Notes to be immediately due and payable. Upon a
declaration of acceleration, such principal of, premium, if any, and accrued
interest shall be immediately due and payable. In the event of a declaration
of acceleration because an Event of Default set forth in clause (f) above has
occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (f) shall be remedied or cured by the
Company and/or the relevant Significant Subsidiaries or waived by the holders
of the relevant Indebtedness within 60 days after the declaration of
acceleration with respect thereto. If an Event of Default specified in clause
(h) or (i) above occurs, the principal of, premium, if any, and accrued
interest on the Notes then outstanding shall ipso facto become and be
immediately due and payable without any declaration or other act on the part
of the Trustee or any holder. The holders of at least a majority in principal
amount of the outstanding Notes by written notice to the Company and to the
Trustee, may waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if (i) all existing Events of Default, other
than the nonpayment of the principal of, premium, if any, and accrued and
unpaid interest on the Notes that have become due solely by such declaration
of acceleration, have been cured or waived and (ii) the rescission would not
conflict with any judgment or decree of a court of competent jurisdiction. For
information as to the waiver of defaults, see "--Modification and Waiver."
(Section 502)
The holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the
Trustee in personal liability, or that the Trustee determines in good faith
may be unduly prejudicial to the rights of holders of Notes not joining in the
giving of such direction and may take any other action it deems proper that is
not inconsistent with any such direction received from holders of Notes. No
holder may pursue any remedy with respect to the Indenture or the Notes
unless: (i) the holder gives the Trustee written notice of a continuing Event
of Default; (ii) the holders of at least 25% in aggregate principal amount of
outstanding Notes make a written request to the Trustee to pursue the remedy;
(iii) such holder or holders offer the Trustee indemnity satisfactory to the
Trustee against any costs, liability or expense; (iv) the Trustee does not
comply with the request within 60 days after receipt of the request and the
offer of indemnity; and (v) during such 60-day period, the holders of a
majority in aggregate principal amount of the outstanding Notes do not give
the Trustee a direction that is inconsistent with the request. However, such
limitations do not apply to the right of any holder of a Note to receive
payment of the principal of, premium, if any, or interest on, such Note or to
bring suit for the enforcement of any such payment, on or after the due date
expressed in the Notes, which right shall not be impaired or affected without
the consent of the holder. (Sections 507 and 508)
The Indenture will require certain officers of the Company to certify, on or
before a date not more than 120 days after the end of each fiscal year, that a
review has been conducted of the activities of the Company and the
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Company's performance under the Indenture and that the Company has fulfilled
all obligations thereunder or, if there has been a default in the fulfillment
of any such obligation, specifying each such default and the nature and status
thereof. The Company will also be obligated to notify the Trustee of any
default or defaults in the performance of any covenants or agreements under
the Indenture. (Section 1008)
DEFEASANCE OR COVENANT DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company upon the Notes discharged with respect to the
outstanding Notes ("defeasance"). Such defeasance means that the Company will
be deemed to have paid and discharged the entire Indebtedness represented by
the outstanding Notes and to have satisfied all its other obligations under
such Notes and the Indenture insofar as such Notes are concerned except for
(i) the rights of holders of outstanding Notes to receive payments (solely
from monies deposited in trust) in respect of the principal of, premium, if
any, and interest on such Notes when such payments are due, (ii) the Company's
obligations to issue temporary Notes, register the transfer or exchange of any
Notes, replace mutilated, destroyed, lost or stolen Notes, maintain an office
or agency for payments in respect of the Notes and segregate and hold such
payments in trust, (iii) the rights, powers, trusts, duties and immunities of
the Trustee and (iv) the defeasance provisions of the Indenture. In addition,
the Company may, at its option and at any time, elect to have the obligations
of the Company released with respect to certain covenants set forth in the
Indenture, and any omission to comply with such obligations will not
constitute a Default or an Event of Default with respect to the Notes
("covenant defeasance"). (Sections 1301, 1302, and 1303)
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit or cause to be deposited with the Trustee, as
trust funds in trust, specifically pledged as security for, and dedicated
solely to, the benefit of the holders of the Notes, cash in United States
dollars, U.S. Government Obligations (as defined in the Indenture), or a
combination thereof, in such amounts as will be sufficient, in the opinion of
a nationally recognized firm of independent public accountants, to pay and
discharge the principal of, premium if any, and interest on the outstanding
Notes on the Stated Maturity (or upon redemption, if applicable) of such
principal, premium, if any, or installment of interest; (ii) no Default or
Event of Default with respect to the Notes will have occurred and be
continuing on the date of such deposit or, insofar as an event of bankruptcy
under clause (x) of "Events of Default" above is concerned, at any time during
the period ending on the 123rd day after the date of such deposit; (iii) such
defeasance or covenant defeasance will not result in a breach or violation of,
or constitute a default under any material agreement or instrument (other than
the Indenture) to which the Company is a party or by which it is bound; (iv)
in the case of defeasance, the Company shall have delivered to the Trustee an
Opinion of Counsel stating that the Company has received from, or there has
been published by, the Internal Revenue Service a ruling, or since May 14,
1998, there has been a change in applicable federal income tax law, in either
case to the effect that, and based thereon such opinion shall confirm that,
the holders of the outstanding Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such defeasance had not
occurred; (v) in the case of covenant defeasance, the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the holders
of the Notes outstanding will not recognize income, gain or loss for federal
income tax purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such covenant defeasance had not
occurred; and (vi) the Company shall have delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the defeasance or the
covenant defeasance, as the case may be, have been complied with. (Section
1304)
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company and
the Trustee with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding Notes; provided, however, that
no such modification or amendment may, without the consent of each holder
affected thereby, (i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, (ii) reduce
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the principal amount of, or premium, if any, or interest on any Note or extend
the time for payment of interest on, or alter the redemption provisions of,
any Note, (iii) change the place or currency of payment of principal of, or
premium if any, or interest on any Note, (iv) impair the right of any holder
of the Notes to receive payment of, principal of and interest on such holder's
Notes on or after the due dates therefor or to institute suit for the
enforcement of any payment on or after the Stated Maturity (or, in the case of
a redemption, on or after the Redemption Date) of any Note, (v) reduce the
above-stated percentage of outstanding Notes the consent of whose holders is
necessary to modify or amend the Indenture, (vi) waive a default in the
payment of principal of, premium, if any, or accrued and unpaid interest on
the Notes or (vii) reduce the percentage or aggregate principal amount of
outstanding Notes the consent of whose holders is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of certain
defaults.
GOVERNING LAW AND SUBMISSION TO JURISDICTION
The Notes and the Indenture will be governed by the laws of the State of New
York. The Company will submit to the jurisdiction of the U.S. federal and New
York state courts located in the Borough of Manhattan, City and State of New
York for purposes of all legal actions and proceedings instituted in
connection with the Notes and the Indenture.
CURRENCY INDEMNITY
U.S. dollars are the sole currency of account and payment for all sums
payable by the Company under or in connection with the Notes, including
damages. Any amount received or recovered in a currency other than dollars
(whether as a result of, or of the enforcement of, a judgment or order of a
court of any jurisdiction, in the winding-up or dissolution of the Company or
otherwise) by any holder of a Note in respect of any sum expressed to be due
to it from the Company shall only constitute a discharge to the Company to the
extent of the dollar amount which the recipient is able to purchase with the
amount so received or recovered in that other currency on the date of that
receipt or recovery (or, if it is not practicable to make that purchase on
that date, on the first date on which it is practicable to do so). If that
dollar amount is less than the dollar amount expressed to be due to the
recipient under any Note, the Company shall indemnify the recipient against
any loss sustained by it as a result. In any event, the Company shall
indemnify the recipient against the cost of making any such purchase. For the
purposes of this paragraph, it will be sufficient for the holder of a Note to
certify in a satisfactory manner (indicating the sources of information used)
that it would have suffered a loss had an actual purchase of dollars been made
with the amount so received in that other currency on the date of receipt or
recovery (or, if a purchase of dollars on such date had not been practicable,
on the first date on which it would have been practicable, it being required
that the need for a change of date be certified in the manner mentioned
above). These indemnities constitute a separate and independent obligation
from the Company's other obligations, shall give rise to a separate and
independent cause of action, shall apply irrespective of any indulgence
granted by any holder of a Note and shall continue in full force and effect
despite any other judgment, order, claim or proof for a liquidated amount in
respect of any sum due under any Note.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Issuers, to obtain payment of claims in
certain cases or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if the Trustee acquires any conflicting
interest, it must eliminate such conflict within 90 days, apply to the
Commission for permission to continue or resign.
The holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights
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or powers under the Indenture at the request of any holder of Notes, unless
such holder shall have offered to the Trustee security and indemnity
satisfactory to it against any loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other
capitalized term used herein for which no definition is provided.
"Acquired Indebtedness" is defined to mean Indebtedness of a Person existing
at the time such Person becomes a Restricted Subsidiary or assumed in
connection with an Asset Acquisition by the Company or a Restricted Subsidiary
and not incurred in connection with, or in anticipation of, such Person
becoming a Restricted Subsidiary or such Asset Acquisition; provided that
Indebtedness of such Person which is redeemed, defeased, retired or otherwise
repaid at the time of or immediately upon the consummation of the transactions
by which such Person becomes a Restricted Subsidiary or such Asset Acquisition
shall not be Indebtedness.
"Affiliate" is defined to mean, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as applied to any Person, is defined to
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through
the ownership of voting securities, by contract or otherwise. For purposes of
the Indenture "Affiliate" shall be deemed to include Mr. K. Paul Singh.
"Asset Acquisition" is defined to mean (i) an investment by the Company or
any of its Restricted Subsidiaries in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or shall be merged
into or consolidated with the Company or any of its Restricted Subsidiaries or
(ii) an acquisition by the Company or any of its Restricted Subsidiaries of
the property and assets of any Person other than the Company or any of its
Restricted Subsidiaries that constitute substantially all of a division or
line of business of such Person.
"Asset Disposition" is defined to mean the sale or other disposition by the
Company or any of its Restricted Subsidiaries (other than to the Company or
another Restricted Subsidiary of the Company) of (i) all or substantially all
of the Capital Stock of any Restricted Subsidiary of the Company or (ii) all
or substantially all of the assets that constitute a division or line of
business of the Company or any of its Restricted Subsidiaries.
"Asset Sale" is defined to mean any sale, transfer or other disposition
(including by way of merger, consolidation or sale-leaseback transactions) in
one transaction or a series of related transactions by the Company or any of
its Restricted Subsidiaries to any Person other than the Company or any of its
Restricted Subsidiaries of (i) all or any of the Capital Stock of any
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted
Subsidiaries or (iii) any other property and assets of the Company or any of
its Restricted Subsidiaries outside the ordinary course of business of the
Company or such Restricted Subsidiary and, in each case, that is not governed
by the provisions of the Indenture applicable to mergers, consolidations and
sales of assets of the Company and which, in the case of any of clause (i),
(ii) or (iii) above, whether in one transaction or a series of related
transactions, (a) have a Fair Market Value in excess of $1.0 million or (b)
are for net proceeds in excess of $1.0 million; provided that (x) sales or
other dispositions of inventory, receivables and other current assets in the
ordinary course of business and (y) sales or other dispositions of assets for
consideration at least equal to the Fair Market Value (as determined in good
faith by the Board of Directors, whose determination shall be conclusive and
evidenced by a Board Resolution) of the assets sold or disposed of, to the
extent that the consideration received would constitute property or assets of
the kind described in clause (i)(B) of the second paragraph of the "Limitation
on Asset Sales" covenant, shall not be included within the meaning of "Asset
Sale."
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"Average Life" is defined to mean, at any date of determination with respect
to any debt security, the quotient obtained by dividing (i) the sum of the
products of (a) the number of years from such date of determination to the
dates of each successive scheduled principal payment of such debt security and
(b) the amount of such principal payment by (ii) the sum of all such principal
payments.
"Capital Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) in equity of such Person, whether now
outstanding or issued after the date of the Indenture, including, without
limitation, all Common Stock and Preferred Stock.
"Capitalized Lease" is defined to mean, as applied to any Person, any lease
of any property (whether real, personal or mixed) of which the discounted
present value of the rental obligations of such Person as lessee, in
conformity with GAAP, is required to be capitalized on the balance sheet of
such Person; and "Capitalized Lease Obligation" is defined to mean the
discounted present value of the rental obligations under such lease.
"Change of Control" is defined to mean such time as (i) a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange
Act) becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act) of more than 50% of the total voting power of the then
outstanding Voting Stock of the Company on a fully diluted basis; (ii)
individuals who at the beginning of any period of two consecutive calendar
years constituted the Board of Directors (together with any directors who are
members of the Board of Directors on the date hereof and any new directors
whose election by the Board of Directors or whose nomination for election by
the Company's stockholders was approved by a vote of at least two-thirds of
the members of the Board of Directors then still in office who either were
members of the Board of Directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for any
reason to constitute a majority of the members of such board of directors then
in office; (iii) the sale, lease, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and its
Subsidiaries taken as a whole to any such "person" or "group" (other than to
the Company or a Restricted Subsidiary); (iv) the merger or consolidation of
the Company with or into another corporation or the merger of another
corporation with or into the Company with the effect that immediately after
such transaction any such "person" or "group" of persons or entities shall
have become the beneficial owner of securities of the surviving corporation of
such merger or consolidation representing a majority of the total voting power
of the then outstanding Voting Stock of the surviving corporation; or (v) the
adoption of a plan relating to the liquidation or dissolution of the Company.
"Closing Date" is defined to mean the date on which the Notes are originally
issued under the Indenture.
"Common Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's common stock, whether now
outstanding or issued after the date of the Indenture, including, without
limitation, all series and classes of such common stock.
"Consolidated Cash Flow" is defined to mean, for any period, the sum of the
amounts for such period of (i) Consolidated Net Income, (ii) Consolidated
Interest Expense, (iii) income taxes, to the extent such amount was deducted
in calculating Consolidated Net Income (other than income taxes (either
positive or negative) attributable to extraordinary and non-recurring gains or
losses or sales of assets), (iv) depreciation expense, to the extent such
amount was deducted in calculating Consolidated Net Income, (v) amortization
expense, to the extent such amount was deducted in calculating Consolidated
Net Income, and (vi) all other non-cash items reducing Consolidated Net Income
(excluding any non-cash charge to the extent that it represents an accrual of
or reserve for cash charges in any future period), less all non-cash items
increasing Consolidated Net Income, all as determined on a consolidated basis
for the Company and its Restricted Subsidiaries in conformity with GAAP.
"Consolidated Fixed Charges" is defined to mean, for any period,
Consolidated Interest Expense plus dividends declared and payable on Preferred
Stock.
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"Consolidated Interest Expense" is defined to mean, for any period, the
aggregate amount of interest in respect of Indebtedness (including capitalized
interest, amortization of original issue discount on any Indebtedness and the
interest portion of any deferred payment obligation, calculated in accordance
with the effective interest method of accounting; all commissions, discounts
and other fees and charges owed with respect to letters of credit and bankers'
acceptance financing; the net costs associated with Interest Rate Agreements;
and interest on Indebtedness that is Guaranteed or secured by the Company or
any of its Restricted Subsidiaries) and all but the principal component of
rentals in respect of Capitalized Lease Obligations paid, accrued or scheduled
to be paid or to be accrued by the Company and its Restricted Subsidiaries
during such period.
"Consolidated Net Income" is defined to mean, for any period, the aggregate
consolidated net income (or loss) of the Company and its Restricted
Subsidiaries for such period determined in conformity with GAAP; provided that
the following items shall be excluded in computing Consolidated Net Income
(without duplication): (i) solely for the purposes of calculating the amount
of Restricted Payments that may be made pursuant to clause (C) of the first
paragraph of the "Limitation on Restricted Payments" covenant described above,
the net income (or loss) of any Person accrued prior to the date it becomes a
Restricted Subsidiary or is merged into or consolidated with the Company or
any of its Restricted Subsidiaries or all or substantially all of the property
and assets of such Person are acquired by the Company or any of its Restricted
Subsidiaries; (ii) any gains or losses (on an after-tax basis) attributable to
Asset Sales; (iii) except for purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described above, any amount paid
or accrued as dividends on Preferred Stock of the Company or Preferred Stock
of any Restricted Subsidiary owned by Persons other than the Company and any
of its Restricted Subsidiaries; (iv) all extraordinary gains and extraordinary
losses; and (v) the net income (or loss) of any Person (other than net income
(or loss) attributable to a Restricted Subsidiary) in which any Person (other
than the Company or any of its Restricted Subsidiaries) has a joint interest,
except to the extent of the amount of dividends or other distributions
actually paid to the Company or any of its Restricted Subsidiaries by such
other Person during such period.
"Credit Facilities" is defined to mean, with respect to the Company, one or
more debt facilities or commercial paper facilities with banks or other
institutional lenders providing for revolving credit loans, term loans,
receivables financing (including through the sale of receivables to such
lenders or to special purpose entities formed to borrow from such lenders
against such receivables) or letters of credit, in each case, as amended,
restated, modified, renewed, refunded, replaced or refinanced in whole or in
part form time to time.
"Currency Agreement" is defined to mean any foreign exchange contract,
currency swap agreement and any other arrangement and agreement designed to
provide protection against fluctuations in currency values.
"Default" is defined to mean any event that is, or after notice or passage
of time or both would be, an Event of Default.
"Eligible Accounts Receivable" is defined to mean the accounts receivables
(net of any reserves and allowances for doubtful accounts in accordance with
GAAP) of any Person that are not more than 60 days past their due date and
that were entered into in the ordinary course of business on normal payment
terms as shown on the most recent consolidated balance sheet of such Person
filed with the Commission, all in accordance with GAAP.
"Eligible Institution" is defined to mean a commercial banking institution
that has combined capital and surplus of not less than $500 million or its
equivalent in foreign currency, whose debt is rated "A-3" or higher or "A-" or
higher according to Moody's Investors Service, Inc. or Standard & Poor's
Ratings Group (or such similar equivalent rating by at least one "nationally
recognized statistical rating organization" (as defined in Rule 436 under the
Securities Act) respectively, at the time as of which any investment or
rollover therein is made.
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"Employment Agreements" is defined to mean the employment agreements between
the Company and Mr. K. Paul Singh, dated June 1994.
"Existing Indebtedness" is defined to mean Indebtedness outstanding on the
date of the Indenture.
"Fair Market Value" is defined to mean, with respect to any asset or
property, the sale value that would be obtained in an arm's length transaction
between an informed and willing seller under no compulsion to sell and an
informed and willing buyer.
"GAAP" is defined to mean generally accepted accounting principles in the
United States of America as in effect from time to time, including, without
limitation, those set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as approved
by a significant segment of the accounting profession.
"Government Securities" is defined to mean direct obligations of, or
obligations guaranteed by, the United States of America for the payment of
which obligations or guarantee the full faith and credit of the United States
is pledged.
"Guarantee" is defined to mean any obligation, contingent or otherwise, of
any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation of such other
Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions or otherwise) or
(ii) entered into for purposes of assuring in any other manner the obligee of
such Indebtedness or other obligation of the payment thereof or to protect
such obligee against loss in respect thereof (in whole or in part); provided
that the term "Guarantee" shall not include endorsements for collection or
deposit in the ordinary course of business. The term "Guarantee" used as a
verb has a corresponding meaning.
"Incur" is defined to mean, with respect to any Indebtedness, to incur,
create, issue, assume, Guarantee or otherwise become liable for or with
respect to, or become responsible for, the payment of, contingently or
otherwise, such Indebtedness, including an Incurrence of Indebtedness by
reason of the acquisition of more than 50% of the Capital Stock of any Person;
provided that neither the accrual of interest nor the accretion of original
issue discount shall be considered an Incurrence of Indebtedness.
"Indebtedness" is defined to mean, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services,
which purchase price is due more than six months after the date of placing
such property in service or taking delivery and title thereto or the
completion of such services, except Trade Payables, (v) all obligations of
such Person as lessee under Capitalized Leases, (vi) all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided that the amount of such
Indebtedness shall be the lesser of (A) the Fair Market Value of such asset at
such date of determination and (B) the amount of such Indebtedness, (vii) all
Indebtedness of other Persons Guaranteed by such Person to the extent such
Indebtedness is Guaranteed by such Person, (viii) the maximum fixed redemption
or repurchase price of Redeemable Stock of such Person at the time of
determination and (ix) to the extent not otherwise included in this
definition, obligations under Currency Agreements and Interest Rate
Agreements. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and, with respect to contingent obligations, the maximum liability upon
the occurrence of the contingency giving rise to the obligation, provided (i)
that the amount outstanding at any time
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of any Indebtedness issued with original issue discount is the face amount of
such Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with
GAAP and (ii) that Indebtedness shall not include any liability for federal,
state, local or other taxes.
"Interest Rate Agreement" is defined to mean interest rate swap agreements,
interest rate cap agreements, interest rate insurance, and other arrangements
and agreements designed to provide protection against fluctuations in interest
rates.
"Investment" in any Person is defined to mean any direct or indirect
advance, loan or other extension of credit (including, without limitation, by
way of Guarantee or similar arrangement; but excluding advances to customers
in the ordinary course of business that are, in conformity with GAAP, recorded
as accounts receivable on the balance sheet of the Company or its Restricted
Subsidiaries) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
bonds, notes, debentures or other similar instruments issued by, such Person.
For purposes of the definition of "Unrestricted Subsidiary," the "Limitation
on Restricted Payments" covenant and the "Limitation on Issuance and Sale of
Capital Stock of Restricted Subsidiaries" covenant described above, (i)
"Investment" shall include (a) the Fair Market Value of the assets (net of
liabilities) of any Restricted Subsidiary of the Company at the time that such
Restricted Subsidiary of the Company is designated an Unrestricted Subsidiary
and shall exclude the Fair Market Value of the assets (net of liabilities) of
any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary of the Company and (b) the Fair Market
Value, in the case of a sale of Capital Stock in accordance with the
"Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries" covenant such that a Person no longer constitutes a Restricted
Subsidiary, of the remaining assets (net of liabilities) of such Person after
such sale, and shall exclude the Fair Market Value of the assets (net of
liabilities) of any Unrestricted Subsidiary at the time that such Unrestricted
Subsidiary is designated a Restricted Subsidiary of the Company and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its Fair Market Value at the time of such transfer, in each case as determined
by the Board of Directors in good faith.
"Lien" is defined to mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement or lease in the nature
thereof, any sale with recourse against the seller or any Affiliate of the
seller, or any agreement to give any security interest).
"Marketable Securities" is defined to mean: (i) Government Securities which
have a remaining weighted average life to maturity of not more than one year
from the date of Investment therein; (ii) any time deposit account, money
market deposit and certificate of deposit maturing not more than 180 days
after the date of acquisition issued by, or time deposit of, an Eligible
Institution; (iii) commercial paper maturing not more than 90 days after the
date of acquisition issued by a corporation (other than an Affiliate of the
Company) with a rating, at the time as of which any investment therein is
made, of "P-1" or higher according to Moody's Investors Service, Inc., or "A-
1" or higher according to Standard & Poor's Rating Group (or such similar
equivalent rating by at least one "nationally recognized statistical rating
organization" (as defined in Rule 436 under the Securities Act)); (iv) any
banker's acceptance or money market deposit accounts issued or offered by an
Eligible Institution; (v) repurchase obligations with a term of not more than
7 days for Government Securities entered into with an Eligible Institution;
and (vi) any fund 95% of the assets of which consist of investments of the
types described in clauses (i) through (v) above.
"Net Cash Proceeds" is defined to mean, (a) with respect to any Asset Sale,
the proceeds of such Asset Sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any
Restricted Subsidiary of the Company) and proceeds from the conversion of
other property received when converted to cash or cash equivalents, net of (i)
brokerage commissions and other fees and expenses (including
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fees and expenses of counsel and investment bankers) related to such Asset
Sale, (ii) provisions for all taxes (whether or not such taxes will actually
be paid or are payable) as a result of such Asset Sale without regard to the
consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or
any other obligation outstanding at the time of such Asset Sale that either
(A) is secured by a Lien on the property or assets sold or (B) is required to
be paid as a result of such sale and (iv) appropriate amounts to be provided
by the Company or any Restricted Subsidiary of the Company as a reserve
against any liabilities associated with such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as determined in conformity
with GAAP and (b) with respect to any issuance or sale of Capital Stock, the
proceeds of such issuance or sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to the Company or any
Restricted Subsidiary of the Company) and proceeds from the conversion of
other property received when converted to cash or cash equivalents, net of
attorney's fees, accountants' fees, underwriters' or placement agents' fees,
discounts or commissions and brokerage, consultant and other fees incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Permitted Business" is defined to mean the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data
through owned or leased transmission facilities, (ii) constructing, creating,
developing or marketing communications related network equipment, software and
other devices for use in a telecommunications business or (iii) evaluating,
participating or pursuing any other activity or opportunity that is primarily
related to those identified in clause (i) or (ii) above; provided that the
determination of what constitutes a Permitted Business shall be made in good
faith by the Board of Directors of the Company, whose determination shall be
conclusive and evidenced by a Board Resolution.
"Permitted Investment" is defined to mean (i) an Investment in a Restricted
Subsidiary or a Person which will, upon the making of such Investment, become
a Restricted Subsidiary or be merged or consolidated with or into or transfer
or convey all or substantially all its assets to, the Company or a Restricted
Subsidiary; (ii) any Investment in Marketable Securities; (iii) payroll,
travel and similar advances to cover matters that are expected at the time of
such advances ultimately to be treated as expenses in accordance with GAAP;
(iv) loans or advances to employees made in the ordinary course of business in
accordance with past practice of the Company or its Restricted Subsidiaries
and that do not in the aggregate exceed $1.0 million at any time outstanding;
(v) stock, obligations or securities received in satisfaction of judgments;
(vi) Investments in any Person received as consideration for Asset Sales to
the extent permitted under the "Limitation on Asset Sales" covenant; and (vii)
Investments in any Person at any one time outstanding (measured on the date
each such Investment was made without giving effect to subsequent changes in
value) in an aggregate amount not to exceed 10.0% of the Company's total
consolidated assets.
"Permitted Liens" is defined to mean (i) Liens for taxes, assessments,
governmental charges or claims that are being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made; (ii) statutory Liens of
landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen or other similar Liens arising in the ordinary course of business
and with respect to amounts not yet delinquent or being contested in good
faith by appropriate legal proceedings promptly instituted and diligently
conducted and for which a reserve or other appropriate provision, if any, as
shall be required in conformity with GAAP shall have been made; (iii) Liens
incurred or deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other types of social
security; (iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory or regulatory obligations, bankers'
acceptances, surety and appeal bonds, government contracts, performance and
return-of- money bonds and other obligations of a similar nature incurred in
the ordinary course of business (exclusive of obligations for the payment of
borrowed money); (v) easements, rights-of-way, municipal and zoning ordinances
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and similar charges, encumbrances, title defects or other irregularities that
do not materially interfere with the ordinary course of business of the
Company or any of its Restricted Subsidiaries; (vi) Liens (including
extensions and renewals thereof) upon real or personal property purchased or
leased after the Closing Date; provided that (a) such Lien is created solely
for the purpose of securing indebtedness Incurred in compliance with the
"Limitation on Indebtedness" covenant (1) to finance the cost (including the
cost of design, development, construction, acquisition, installation or
integration) of the item of property or assets subject thereto and such Lien
is created prior to, at the time of or within six months after the later of
the acquisition, the completion of construction or the commencement of full
operation of such property or (2) to refinance any Indebtedness previously so
secured, (b) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of such cost and (c) any such Lien shall not extend to or
cover any property or assets other than such item of property or assets and
any improvements on such item; (vii) leases or subleases granted to others
that do not materially interfere with the ordinary course of business of the
Company and its Restricted Subsidiaries, taken as a whole; (viii) Liens
encumbering property or assets under construction arising from progress or
partial payments by a customer of the Company or its Restricted Subsidiaries
relating to such property or assets; (ix) any interest or title of a lessor in
the property subject to any Capitalized Lease or operating lease; (x) Liens
arising from filing Uniform Commercial Code financing statements regarding
leases; (xi) Liens on property of, or on shares of stock or Indebtedness of,
any corporation existing at the time such corporation becomes, or becomes a
part of, any Restricted Subsidiary; provided that such Liens do not extend to
or cover any property or assets of the Company or any Restricted Subsidiary
other than the property or assets acquired and were not created in
contemplation of such transaction; (xii) Liens in favor of the Company or any
Restricted Subsidiary; (xiii) Liens arising from the rendering of a final
judgment or order against the Company or any Restricted Subsidiary of the
Company that does not give rise to an Event of Default; (xiv) Liens securing
reimbursement obligations with respect to letters of credit that encumber
documents and other property relating to such letters of credit and the
products and proceeds thereof; (xv) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods; (xvi) Liens encumbering customary
initial deposits and margin deposits and other Liens that are either within
the general parameters customary in the industry or incurred in the ordinary
course of business, in each case, securing Indebtedness under Interest Rate
Agreements and Currency Agreements; (xvii) Liens arising out of conditional
sale, title retention, consignment or similar arrangements for the sale of
goods entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business in accordance with the past practices of the
Company and its Restricted Subsidiaries prior to the Closing Date; (xviii)
Liens existing on the Closing Date or securing the Notes or any Guarantee of
the Notes; (xix) Liens granted after the Closing Date on any assets or Capital
Stock of the Company or its Restricted Subsidiaries created in favor of the
holders; (xx) Liens securing Indebtedness which is incurred to refinance
secured Indebtedness which is permitted to be Incurred under clause (iv) of
paragraph (b) of the "Limitation on Indebtedness" covenant; provided that such
Liens do not extend to or cover any property or assets of the Company or any
Restricted Subsidiary other than the property or assets securing the
Indebtedness being refinanced; (xxi) Liens on the property or assets of a
Restricted Subsidiary securing Indebtedness of such Subsidiary which
Indebtedness is permitted under the Indenture; and (xxii) Liens securing
Indebtedness under Credit Facilities incurred in compliance with clauses (i)
and (ii) of paragraph (b) of the "Limitation on Indebtedness" covenant.
"Preferred Stock" is defined to mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however
designated, whether voting or non-voting) of such Person's preferred or
preference stock, whether now outstanding or issued after the date of the
Indenture, including, without limitation, all series and classes of such
preferred or preference stock.
"Pro Forma Consolidated Cash Flow" is defined to mean, for any period, the
Consolidated Cash Flow of the Company for such period calculated on a pro
forma basis to give effect to any Asset Disposition or Asset Acquisition not
in the ordinary course of business (including acquisitions of other Persons by
merger, consolidation or purchase of Capital Stock) during such period as if
such Asset Disposition or Asset Acquisition had taken place on the first day
of such period.
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"Proportionate Share" is defined to mean, as of any date of calculation, an
amount equal to (i) the outstanding principal amount of Notes as of such date,
divided by (ii) the sum of the outstanding principal amount of Notes as of
such date plus the outstanding principal amount as of such date of all other
Indebtedness (other than Subordinated Indebtedness) of the Issuer the terms of
which obligate the Issuer to make a purchase offer in connection with the
relevant Excess Proceeds or the Asset Sale giving rise thereto.
"Public Equity Offering" is defined to mean an underwritten primary public
offering of Common Stock of the Company pursuant to an effective registration
statement under the Securities Act.
"Purchase Money Obligations" is defined to mean, with respect to each
Person, obligations, other than those under Capitalized Leases, Incurred or
assumed in the ordinary course of business in connection with the purchase of
property to be used in the business of such Person.
"Redeemable Stock" is defined to mean any class or series of Capital Stock
of any Person that by its terms or otherwise is (i) required to be redeemed
prior to the Stated Maturity of the Notes, (ii) redeemable at the option of
the holder of such class or series of Capital Stock at any time prior to the
Stated Maturity of the Notes or (iii) convertible into or exchangeable for
Capital Stock referred to in clause (i) or (ii) above or Indebtedness having a
scheduled maturity prior to the Stated Maturity of the Notes; provided that
any Capital Stock that would not constitute Redeemable Stock but for
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an "asset sale"
or "change of control" occurring prior to the Stated Maturity of the Notes
shall not constitute Redeemable Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock are no more favorable to
the holders of such Capital Stock than the provisions contained in "Limitation
on Asset Sales" and "Repurchase of Notes upon a Change of Control" covenants
described above and such Capital Stock specifically provides that such Person
will not repurchase or redeem any such stock pursuant to such provision prior
to the Company's offer to repurchase such Notes as are required to be
repurchased pursuant to the "Limitation on Asset Sales" and "Repurchase of
Notes upon a Change of Control" covenants described above.
"Restricted Subsidiary" is defined to mean any Subsidiary of the Company
other than an Unrestricted Subsidiary.
"Significant Subsidiary" is defined to mean, at any date of determination,
any Subsidiary of the Company that, together with its Subsidiaries, (i) for
the most recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company or (ii) as of the end of such fiscal
year, was the owner of more than 10% of the consolidated assets of the
Company, all as set forth on the most recently available consolidated
financial statements of the Company for such fiscal year.
"Stated Maturity" is defined to mean, (i) with respect to any debt security,
the date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii)
with respect to any scheduled installment of principal of or interest on any
debt security, the date specified in such debt security as the fixed date on
which such installment is due and payable.
"Strategic Subordinated Indebtedness" is defined to mean Indebtedness of the
Company Incurred to finance the acquisition of a Person engaged in a business
that is related, ancillary or complementary to the business conducted by the
Company or any of its Restricted Subsidiaries, which Indebtedness by its
terms, or by the terms of any agreement or instrument pursuant to which such
Indebtedness is Incurred, (i) is expressly made subordinate in right of
payment to the Notes and (ii) provides that no payment of principal, premium
or interest on, or any other payment with respect to, such Indebtedness may be
made prior to the payment in full of all of the Company's obligations under
the Notes; provided that such Indebtedness may provide for and be repaid at
any time from the proceeds of a capital contribution, the sale of Common Stock
(other than Redeemable Stock) of the Company, or other Strategic Subordinated
Indebtedness Incurred, after the Incurrence of such Indebtedness.
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"Subsidiary" is defined to mean, with respect to any Person, any
corporation, association or other business entity of which more than 50% of
the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Subordinated Indebtedness" is defined to mean Indebtedness of the Company
subordinated in right of payment to the Notes.
"Trade Payables" is defined to mean any accounts payable or any other
indebtedness or monetary obligation to trade creditors created, assumed or
Guaranteed by the Company or any of its Restricted Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods and
services.
"Transaction Date" is defined to mean, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date
such Indebtedness is to be Incurred and, with respect to any Restricted
Payment, the date such Restricted Payment is to be made.
"Unrestricted Subsidiary" is defined to mean (i) any Subsidiary of the
Company that at the time of determination shall be designated an Unrestricted
Subsidiary by the Board of Directors in the manner provided below and (ii) any
Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate
any Restricted Subsidiary of the Company (including any newly acquired or
newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on
any property of, the Company or any Restricted Subsidiary; provided that (A)
either (I) the Subsidiary to be so designated has total assets of $1,000 or
less or (II) if such Subsidiary has assets greater than $1,000, that such
designation would be permitted under the "Limitation on Restricted Payments"
covenant described above, and (B) such Subsidiary is not liable, directly or
indirectly, with respect to any Indebtedness other than Unrestricted
Subsidiary Indebtedness. The Board of Directors may designate any Unrestricted
Subsidiary to be a Restricted Subsidiary of the Company; provided that
immediately after giving effect to such designation (x) the Company could
Incur $1.00 of additional Indebtedness under the first paragraph of the
"Limitation on Indebtedness" covenant described above and (y) no Default or
Event of Default shall have occurred and be continuing. Any such designation
by the Board of Directors shall be evidenced to the Trustee by promptly filing
with the Trustee a copy of the Board Resolution giving effect to such
designation and an Officer's Certificate certifying that such designation
complied with the foregoing provisions.
"Unrestricted Subsidiary Indebtedness" is defined to mean Indebtedness of
any Unrestricted Subsidiary (i) as to which neither the Company nor any
Restricted Subsidiary is directly or indirectly liable (by virtue of the
Company or any such Restricted Subsidiary being the primary obligor on,
guarantor of, or otherwise liable in any respect to, such Indebtedness), and
(ii) which, upon the occurrence of a default with respect thereto, does not
result in, or permit any holder of any Indebtedness of the Company or any
Restricted Subsidiary to declare, a default on such Indebtedness of the
Company or any Restricted Subsidiary or cause the payment thereof to be
accelerated or payable prior to its Stated Maturity.
"U.S. Subsidiary" is defined to mean any corporation or other entity
incorporated or organized under the laws of the United States or any state
thereof.
"Voting Stock" is defined to mean with respect to any Person, Capital Stock
of any class or kind ordinarily having the power to vote for the election of
directors, managers or other voting members of the governing body of such
Person.
"Wholly Owned," with respect to any Subsidiary, is defined to mean a
Subsidiary of the Company if all of the outstanding Capital Stock in such
Subsidiary (other than any director's qualifying shares or Investments by
foreign nationals mandated by applicable law) is owned by the Company or one
or more Wholly Owned Subsidiaries of the Company.
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BOOK ENTRY, DELIVERY AND FORM
The Initial Notes were offered and sold to "qualified institutional buyers"
in reliance on Rule 144A and, to certain non-U.S. Holders, Regulation S under
the Securities Act. The Initial Notes were issued in registered, global form
in minimum denominations of $1,000 and integral multiples of $1,000 in excess
thereof.
The Initial Notes are represented by one or more Notes in registered, global
form without interest coupons (the "Restricted Global Note"), and, except as
set forth below, the Exchange Notes will be represented by one or more Notes
in registered, global form without interest coupons (the "Unrestricted Global
Note," and together with the Restricted Global Note, the "Global Note"). The
Restricted Global Note was, and the Unrestricted Global Note will be,
deposited upon issuance with the Trustee as custodian for the Depository in
Richmond, Virginia and registered in the name of the Depositary or its
nominee, in each case for credit to an account of a direct or indirect
participant in the Depositary as described below.
Except as set forth below, the Global Note may be transferred, in whole and
not in part, only to another nominee of The Depositary or to a successor of
the Depositary or its nominee. Beneficial interests in the Global Note may not
be exchanged for Notes in certificated form except in the limited
circumstances described below. See "Exchange of Book-Entry Notes for
Certificated Notes."
The Trustee will act as Registrar.
DEPOSITARY PROCEDURES
The Depositary has advised the Company that the Depositary is a limited-
purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the
clearance and settlement of transactions in those securities between
Participants through electronic book-entry changes in accounts of
Participants. The Participants include securities brokers and dealers
(including the Initial Purchasers), banks, trust companies, clearing
corporations and certain other organizations. Access to the Depositary's
system is also available to other entities such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly (collectively, "Indirect
Participants"). Persons who are not Participants may beneficially own
securities held by or on behalf of the Depositary only through Participants or
Indirect Participants. The ownership interest and transfer of ownership
interest of each actual purchaser of each security held by or on behalf of the
Depositary are recorded on the records of the Participants and Indirect
Participants.
The Depositary has also advised the Company that pursuant to procedures
established by it, (i) upon deposit of the Global Note, the Depositary will
credit the accounts of Participants designated by the Initial Purchasers with
portions of the principal amount of the Global Note and (ii) ownership of such
interests in the Global Note will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to Participants) or by Participants and the Indirect
Participants (with respect to other owners of beneficial interest in the
Global Note).
Investors in the Global Note may hold their interests therein directly
through the Depositary, if they are participants in such system, or indirectly
through organizations that are Participants in such system. All interests in a
Global Note may be subject to the procedures and requirements of the
Depositary.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interest in a Global Note to such persons may be limited
to that extent. Because the Depositary can act only on behalf of Participants,
which in turn act on behalf of Indirect Participants and certain banks, the
ability of a person having a beneficial interest in a Global Note to pledge
such interest to persons or entities that do not participate in the Depositary
system, or otherwise take actions in respect of such interests may be affected
by the lack of physical certificate evidencing such interests. For certain
other restrictions on the transferability of the Notes, see "--Exchange of
Book-Entry Notes for Certificated Notes."
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EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTE WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal and premium and Liquidated Damages, if
any, and interest on a Global Note registered in the name of the Depositary or
its nominee will be payable by the paying agent to the Depositary or its
nominee in is capacity as the registered holder of a Global Note under the
Indenture. Under the terms of the Indenture, the Company and the Trustee will
treat the persons in whose names the Notes, including the Global Note, are
registered as the owners thereof for the purpose of receiving such payments
and for any and all other purposes whatsoever. Consequently, neither the
Company, the Trustee nor any agent of the Company or the Trustee has or will
have any responsibility or liability for (i) any aspect of the Depositary's
records or any participant's or Indirect Participant's records relating to or
payments made on account of beneficial ownership interests in the Global Note,
or for maintaining, supervising or reviewing any of the Depositary's records
or any participant's or Indirect Participant's records relating to the
beneficial ownership interests in the Global Note or (ii) any other matter
relating to the actions and practices of the Depositary or any of its
Participants or Indirect Participants.
The Depositary has advised the Company that its current practices, upon
receipt of any payment in respect of securities such as the Notes (including
principal and interest), is to credit the accounts of the relevant
Participants with the payment on the payment date, in amounts proportionate to
their respective holdings in principal amount of beneficial interests in the
relevant security such as the Global Note as shown on the records of the
Depositary. Payments by Participants and the Indirect Participants to the
beneficial owners of Notes will be governed by standing instructions and
customary practices and will not be the responsibility of the Depositary, the
Trustee or the Company. Neither the Company nor the Trustee will be liable for
any delay by the Depositary or its Participants in identifying the beneficial
owners of the Notes, and the Company and the Trustee may conclusively rely on
and will be protected in relying on instructions from the Depositary or its
nominee as the registered owner of the Notes for all purposes.
Interests in the Global Note will trade in the Depositary's Same-Day Funds
Settlement System and secondary market trading activity in such interests
will, therefore, settle in immediately available funds, subject in all cases
to the rules and procedures of the Depositary and its Participants. Transfers
between Participants in the Depositary will be effective in accordance with
the Depositary's procedures, and will be settled in same-day funds.
The Depositary has advised the Company that it will take any action
permitted to be taken by a Holder of Notes only at the direction of one or
more Participants to whose account the Depositary interests in the Global Note
are credited and only in respect of such portion of the aggregate principal
amount of the Notes as to which such Participant or Participants has or have
given direction. However, if there is an Event of Default under the Notes, the
Depositary reserves the right to exchange the Global Note for legended Notes
in certificated form, and to distribute such Notes to its Participants.
The information in this section concerning the Depositary and its book-entry
systems has been obtained from sources that the Company believes to be
reliable, but the Company takes no responsibility for the accuracy thereof.
Neither the Company nor the Trustee will have any responsibility for the
performance by the Depositary or its respective Participants or Indirect
Participants of its respective obligations under the rules and procedures
governing its operations.
Exchange of Book-Entry Notes for Certificated Notes.
A Global Note is exchangeable for definitive Notes in registered
certificated form if (i) the Depositary (A) notifies the Company that it is
unwilling or unable to continue as depository for the Global Note and the
Company thereupon fails to appoint a successor depository or (B) has ceased to
be a clearing agency registered under the Exchange Act, (ii) upon the
continuance of an Event of Default or (iii) the Company, at its option,
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notifies the Trustee in writing that it elects to cause issuance of the Notes
in certificated form. In addition, beneficial interests in a Global Note may
be exchanged for certificated Notes upon request but only upon at least 20
days' prior written notice given to the Trustee by or on behalf of the
Depositary in accordance with customary procedures. In all cases, certificated
Notes delivered in exchange for any Global Note or beneficial interest therein
will be registered in names, and issued in any approved denominations,
requested by or on behalf of the Depositary (in accordance with its customary
procedures) and will bear, the restrictive legend referred to in "Notice to
Investors," unless the Company determines otherwise in compliance with
applicable law.
Same Day Settlement and Payment.
The Indenture will require that payments in respect of the Notes represented
by the Global Note (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
funds to the accounts specified by the Global Note Holder. With respect to
certificated Notes, the Company will make all payments of principal, premium,
if any, interest and Liquidated Damages, if any, by wire transfer of
immediately available funds to the accounts specified by the Holders thereof
or, if no such account is specified, by mailing a check to each such Holder's
registered address. The Company expects that secondary trading in the
certificated Notes will also be settled in immediately available funds.
REGISTRATION RIGHTS
The holders of the Exchange Notes are not entitled to any registration
rights with respect to the Exchange Notes. The Company has entered into the
Registration Rights Agreement with the Initial Purchasers, pursuant to which
the Company agreed to file with the Commission, subject to the provisions
described below, the Exchange Offer Registration Statement on an appropriate
form permitting registration of the Exchange Notes to be offered in exchange
for the Transfer Restricted Securities and to permit resales of Exchange Notes
held by broker-dealers as contemplated by the Registration Rights Agreement.
The Registration Statement of which this Prospectus forms a part constitutes
the Exchange Offer Registration Statement.
The Registration Rights Agreement provides that if (i) the Company is not
permitted to file the Exchange Offer Registration Statement or to consummate
the Exchange offer because the Exchange Offer is not permitted by applicable
law or Commission policy, (ii) the Exchange Offer is not for any other reason
consummated by October 16, 1998 or (iii) the Exchange Offer has been completed
and in the written opinion of counsel for the Initial Purchasers a
Registration Statement must be filed and a prospectus must be delivered by the
Initial Purchasers in connection with any offering or sale of Transfer
Restricted Securities, the Company will use its reasonable best efforts to:
(A) file a Shelf Registration Statement within 60 days of the earliest to
occur of (i) through (iv) above and (B) cause the Shelf Registration Statement
to be declared effective by the Commission on or prior to the 120th day after
such obligation arises. The Company shall use its reasonable best efforts to
keep such Shelf Registration Statement continuously effective, supplemented
and amended to ensure that it is available for resales of Notes by the holders
of Transfer Restricted Securities entitled to this benefit and to ensure that
such Shelf Registration Statement conforms and continues to conform with the
requirements of the Registration Rights Agreement, the Securities Act and the
policies, rules and regulations of the Commission, as announced from time to
time, until the second anniversary of the Closing Date; provided, however,
that during such two-year period the holders may be prevented or restricted by
the Company from effecting sales pursuant to the Shelf Registration Statement
as more fully described in the Registration Rights Agreement. A Holder of
Notes that sells its Notes pursuant to the Shelf Registration Statement
generally will be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject
to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement that are applicable to such Holder (including
certain indemnification and contribution obligations).
For purposes of the foregoing, "Transfer Restricted Securities" means each
Note until the earliest to occur of (i) the date on which such Note has been
exchanged by a person other than a broker-dealer for Exchange Notes in the
Exchange Offer, (ii) following the exchange by a broker-dealer in the Exchange
Offer of such Note
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for one or more Exchange Notes, the date on which such Exchange Notes are sold
to a purchaser who receives from such broker-dealer on or prior to the date of
such sale a copy of the prospectus contained in the Exchange Offer
Registration Statement, (iii) the date on which such Note has been effectively
registered under the Securities Act and disposed of in accordance with the
Shelf Registration Statement or (iv) the date on which such Note is eligible
for distribution to the public pursuant to Rule 144 under the Securities Act.
If (i) the Company fails to file with the Commission any of the Registration
Statements required by the Registration Rights Agreement on or before the date
specified therein for such filing, (ii) any of such Registration Statements is
not declared effective by the Commission on or prior to the date specified for
such effectiveness in the Registration Rights Agreement (the "Effectiveness
Target Date"), (iii) the Exchange Offer has not been consummated within 30
days after the Effectiveness Target Date with respect to the Exchange Offer
Registration Statement or (iv) any Registration Statement required by the
Registration Rights Agreement is filed and declared effective but thereafter
ceases to be effective or fails to be usable for its intended purpose without
being succeeded within five business days by a post-effective amendment to
such Registration Statement that cures such failure and that is itself
immediately declared effective (each such event referred to in clauses (i)
through (iv) above, a "Registration Default"), additional cash interest
(Liquidated Damages") shall accrue to each Holder of the Notes commencing upon
the occurrence of such Registration Default in an amount equal to .50% per
annum of the principal amount of Notes held by such Holder. The amount of
Liquidated Damages will increase by an additional .50% per annum of the
principal amount of Notes with respect to each subsequent 90-day period (or
portion thereof) until all Registration Defaults have been cured, up to a
maximum rate of Liquidated Damages of 1.50% per annum of the principal amount
of Notes. All accrued Liquidated Damages will be paid to Holders by the
Company in the same manner as interest is paid pursuant to the Indenture.
Following the cure of all Registration Defaults relating to any particular
Transfer Restricted Securities, the accrual of Liquidated Damages with respect
to such Transfer Restricted Securities will cease.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus constitutes a part, will be made available
to prospective purchasers of the Notes upon request to the Company.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain material United States
federal income tax consequences of the purchase, ownership and disposition of
Notes by holders that acquire Notes at original issuance for cash at their
face value. This discussion is limited to holders who hold the Notes as
capital assets, within the meaning of Section 1221 of the Internal Revenue
Code of 1986, as amended (the "Code"). Furthermore, this discussion does not
address all aspects of United States federal income taxation that may be
applicable to investors in light of their particular circumstances, or to
investors subject to special treatment under United States federal income tax
law (including, without limitation, certain financial institutions, insurance
companies, tax-exempt entities, dealers in securities, persons who have
acquired Notes as part of a straddle, hedge, conversion transaction or other
integrated investment or persons whose functional currency is not the United
States dollar). This discussion is based on provisions of the Code, Treasury
regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect on the date hereof and all of which
are subject to change, possibly with retroactive effect.
EACH PROSPECTIVE INVESTOR SHOULD CONSULT ITS TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO SUCH INVESTOR OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF THE NOTES INCLUDING THE APPLICABILITY OF ANY FEDERAL ESTATE OR
GIFT TAX LAWS, ANY STATE, LOCAL OR FOREIGN TAX LAWS, ANY CHANGES IN APPLICABLE
TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION OR REGULATIONS.
As used herein, the term "U.S. Holder" means a holder of a Note that is, for
United States federal income tax purposes, (i) a citizen or resident of the
United States, (ii) a corporation or partnership created or organized under
the laws of the United States or of any political subdivision thereof, (iii)
an estate the income of which is subject to United States federal income
taxation regardless of its source or (iv) a trust, if a United States court is
able to exercise primary supervision over the administration of such trust and
one or more United States persons have the authority to control all
substantial decisions of such trust. The term "Non-U.S. Holder", means a
holder of a Note other than a U.S. Holder.
U.S. TAXATION OF U.S. HOLDERS
Payments of Interest. Stated interest payable on the Notes generally will be
included in the gross income of a U.S. Holder as ordinary interest income at
the time accrued or received, in accordance with such U.S. Holder's method of
accounting for United States federal income tax purposes.
Payments of Additional Interest/Redemption Premium. Because the Notes
provide for the payment of additional interest or redemption premium under
certain circumstances, the Notes may be subject to Treasury regulations
applicable to debt instruments that provide for one or more contingent
payments. Under such Treasury regulations, if the payment of such liquidated
damages is, as of the date the Notes are issued, either a "remote" or
"incidental" contingency, the payment would not be considered a contingent
payment and such amounts would be accounted for under the holder's normal
method of accounting for tax purposes. The Company intends, solely for these
purposes, to treat the possibility of the payment of such liquidated damages
as a remote or incidental contingency. Such determination is binding on a
holder unless such holder discloses to the Internal Revenue Service (the
"IRS") that it is taking a contrary position.
Disposition of the Notes. Upon the sale, exchange, redemption, retirement at
maturity or other disposition of a Note (collectively, a "Disposition"), a
U.S. Holder generally will recognize capital gain or loss equal to the
difference between the amount realized by such U.S. Holder (except to the
extent such amount is attributable to accrued interest, which will be treated
as ordinary interest income) and such U.S. Holder's adjusted tax basis in the
Note. A holder's adjusted tax basis in the Notes will generally be equal to
the amount such holder paid for the Note. Such capital gain or loss generally
will be long-term capital gain or loss if the holding period for the Note
exceeds one year at the time of the Disposition. Generally, the maximum tax
rate for individuals on long term capital gain is 28% for capital assets held
for more than one year but for 18 months or less, and 20% for capital assets
held for more than 18 months.
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The exchange of an Initial Note for an Exchange Note will not be a taxable
event for a Holder.
U.S. TAXATION OF NON-U.S. HOLDERS
Payments of Interest. In general, payments of interest received by a Non-
U.S. Holder will not be subject to United States withholding tax, provided
that the Non-U.S. Holder (i) does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of the Company
entitled to vote, (ii) is not a controlled foreign corporation that is related
to the Company actually or constructively through stock ownership, and (iii)
either (x) the beneficial owner of the Note provides the Company or its paying
agent with a properly executed certification on IRS form W-8 (or suitable
substitute form), signed under penalties of perjury, that the beneficial owner
is not a "U.S. person" for U.S. federal income tax purposes and that provides
the beneficial owner's name and address, or (y) a securities clearing
organization, bank or other financial institution that holds customer's
securities in the ordinary course of its business holds the Note and certifies
to the Company or its agent under penalties of perjury that the IRS form W-8
(or a suitable substitute form) has been received by it from the beneficial
owner of the Note or a qualifying intermediary and furnishes the payor a copy
thereof. Payments of interest not exempt from U.S. federal withholding tax as
described above will be subject to such withholding tax at the rate of 30%,
unless reduced or eliminated under an applicable income tax treaty, and the
required documentation to claim the treaty benefit is provided.
Treasury regulations that will be effective with respect to payments made
after December 31, 1999 (the "Withholding Regulations") provide alternative
methods for satisfying the certification requirements described in the
preceding paragraph. The Withholding Regulations also will require, in the
case of Notes held by a foreign partnership, that the certification described
above be provided by each partner.
Disposition of the Notes. A Non-U.S. Holder generally will not be subject to
U.S. federal income tax (and generally no tax will be withheld) with respect
to gain realized on the Disposition of a Note, unless (i) the gain is
effectively connected with a U.S. trade or business conducted by the Non-U.S.
Holder or (ii) the Non-U.S. Holder is an individual who is present in the
United States for 183 or more days during the taxable year of the Disposition
and certain other requirements are satisfied.
Effectively Connected Income. If interest and other payments received by a
Non-U.S. Holder with respect to the Notes (including proceeds from the
Disposition of the Notes) are effectively connected with the conduct by the
Non-U.S. Holder of a trade or business within the United States (or the Non-
U.S. Holder is otherwise subject to U.S. federal income taxation on a net
basis with respect to such holder's ownership of the notes), such Non-U.S.
Holder will generally be subject to the rules described above under "U.S.
Taxation of U.S. Holders" (subject to any modification provided under an
applicable income tax treaty). Such Non-U.S. Holder may also be subject to the
U.S. "branch profits tax" if such holder is a corporation.
BACKUP WITHHOLDING AND INFORMATION REPORTING
Certain non-corporate U.S. Holders may be subject to backup withholding at a
rate of 31% on payments of principal, premium and interest on, and the
proceeds of the Disposition of, the Notes. In general, backup withholding only
will be imposed on a U.S. Holder if he, she or it (i) fails to furnish a
taxpayer identification number ("TIN") which, for an individual, would be his
or her Social Security number, (ii) furnishes an incorrect TIN, (iii) is
notified by the IRS that he, she or it has failed to report payments of
interest or dividends or (iv) under certain circumstances, fails to certify,
under penalty of perjury, that he, she or it (a) has furnished a correct TIN
and (b) has not been notified by the IRS that he, she or it is subject to
backup withholding tax for failure to report interest or dividend payments.
Backup withholding generally will not apply to payments made to a Non-U.S.
Holder of a Note who provides the certification described under "U.S. Taxation
of Non-U.S. Holders--Payments of Interest" or otherwise establishes an
exemption from backup withholding, provided that the payor does not have
actual knowledge that the holder is a U.S. person.
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THE EXCHANGE OFFER
The exchange of Initial Notes for Exchange Notes pursuant to the Exchange
Offer will not constitute a significant modification of the terms of the
Initial Notes and, therefore, such exchange will not constitute an exchange
for United States federal income tax purposes. Accordingly, such exchange will
have no United States federal income tax consequences to U.S. holders of the
Initial Notes and the holding period of the Exchange Notes will include the
holding period of the Initial Notes and the basis of the Exchange Notes will
be the same as the basis of the Initial Notes immediately before the exchange.
ORIGINAL ISSUE DISCOUNT AND STATED INTEREST
The Initial Notes were issued and the Exchange Notes will be issued without
original issue discount. Stated interest on the Initial and Exchange Notes
will be taxable to a holder as ordinary interest income at the time it is
accrued or paid in accordance with such holder's method of accounting for tax
purposes.
BOND PREMIUM ON THE EXCHANGE NOTES
If a holder of an Exchange Note purchased the Initial Notes for an amount in
excess of the amount payable at the maturity date (or a call date, if
appropriate) of the Initial Notes, the holder may deduct such excess as
amortizable bond premium over the aggregate terms of the Initial Notes and the
Exchange Notes (taking into account earlier call dates, as appropriate), under
a yield-to-maturity formula. The deduction is available only if an election is
made by the purchaser or is in effect. This election is revocable only with
the consent of the IRS. The election applies to all obligations owned or
subsequently acquired by the holder. The holder's adjusted tax basis in the
Initial Notes and the Exchange Notes will be reduced to the extent of the
deduction of amortizable bond premium. Except as may otherwise be provided in
future regulations, under the Code the amortizable bond premium is treated as
an offset to interest income on the Initial Notes and the Exchange Notes
rather than as a separate deduction item.
MARKET DISCOUNT ON THE EXCHANGE NOTES
Tax consequences of a disposition of the Exchange Notes may be affected by
the market discount provisions of the Code. These rules generally provide that
if a holder acquired the Initial Notes (other than in an original issue) at a
market discount which equals or exceeds 1/4 of 1% of the stated redemption
price of the Initial Notes at maturity multiplied by the number of remaining
complete years to maturity and thereafter recognizes gain upon a disposition
(or makes a gift) of the Exchange Notes, the lesser of (i) such gain (or
appreciation, in the case of a gift) or (ii) the portion of the market
discount which accrued while the Initial or Exchange Notes were held by such
holder will be treated as ordinary income at the time of the disposition (or
gift). For these purposes, market discount means the excess (if any) of the
stated redemption price at maturity over the basis of such Initial or Exchange
Notes immediately after their acquisition by the holder. A holder of the
Exchange Notes may elect to include any market discount (whether accrued under
the Initial Notes or the Exchange Notes) in income currently rather than upon
disposition of the Exchange Notes. This election once made applies to all
market discount obligations acquired on or after the first taxable year to
which the election applies, and may not be revoked without the consent of the
IRS.
A holder of any Exchange Note who acquired the Initial Note at a market
discount generally will be required to defer the deduction of a portion of the
interest on any indebtedness incurred or maintained to purchase or carry such
Initial or Exchange Note until the market discount is recognized upon a
subsequent disposition of such Exchange Note. Such a deferral is not required,
however if the holder elects to include accrued market discount in income
currently.
REDEMPTION OR SALE OF THE EXCHANGE NOTES
Generally, any redemption or sale of the Exchange Notes by a holder should
result in taxable gain or loss equal to the difference between the amount of
cash and the fair market value of property received (except to the
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extent that such cash or property received is attributable to accrued, but
previously untaxed, interest) and the holder's tax basis in the Exchange
Notes. The tax basis of a holder of the Exchange Notes should generally be
equal to the price paid for the Initial Notes exchanged therefor, plus any
accrued market discount on the Exchange Notes (and the Initial Notes exchanged
therefor) included in the holder's income prior to sale or redemption of the
Exchange Notes, or reduced by any amortizable bond premium applied against the
holder's income prior to sale or redemption of the Exchange Notes. Such gain
or loss generally would be long-term capital gain or loss if the holding
period exceeded one year, except to the extent it constitutes accrued market
discount.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH HOLDER OF
THE INITIAL NOTES SHOULD CONSULT HIS OR HER TAX ADVISOR WITH RESPECT TO THE
TAX CONSEQUENCES TO HIM OR HER OF THE ACQUISITION, OWNERSHIP AND DISPOSITION
OF THE EXCHANGE NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS.
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PLAN OF DISTRIBUTION
Each broker-dealer that holds Initial Notes that were acquired for its own
account as a result of market making or other trading activities (other than
Initial Notes acquired directly from the Company), may exchange Initial Notes
for Exchange Notes in the Exchange Offer. However, any such broker-dealer may
be deemed to be an "underwriter" within the meaning of such term under the
Securities Act and must, therefore, acknowledge that it will deliver a
prospectus in connection with any resale of Exchange Notes received in the
Exchange Offer. This prospectus delivery requirement may be satisfied by the
delivery by such broker-dealer of this Prospectus, as it may be amended or
supplemented from time to time. The Company has agreed that, for a period of
180 days after the effective date of this Prospectus, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer who
receives Exchange Notes in the Exchange Offer for use in connection with any
such sale. The Company will not receive any proceeds from any sales of
Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers
for their own accounts pursuant to the Exchange Offer may be sold from time to
time in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the Exchange Notes or a
combination of such methods of resale, at market prices at the time of resale,
at prices related to such prevailing market prices or negotiated prices. Any
such resale of Exchange Notes by broker-dealers may be made directly to a
purchaser or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange
Notes that were received by it for its own account pursuant to the Exchange
Offer and any broker or dealer that participates in a distribution of such
Exchange Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of Exchange Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Company has agreed to
pay all expenses incident to the Exchange Offer other than commissions or
concessions of any brokers or dealers and will indemnify Holders (including
any broker-dealer) against certain liabilities, including liabilities under
the Securities Act.
By acceptance of the Exchange Offer, each broker-dealer that receives
Exchange Notes pursuant to the Exchange Offer hereby agrees to notify the
Company prior to using the Prospectus in connection with the sale or transfer
of Exchange Notes, and acknowledges and agrees that, upon receipt of notice
from the Company of the happening of any event which makes any statement in
the Prospectus untrue in any material respect or which requires the making of
any changes in the Prospectus in order to make the statements herein not
misleading (which notice the Company agrees to deliver promptly to such
broker-dealer), such broker-dealer will suspend use of the Prospectus until
the Company has amended or supplemented the Prospectus to correct such
misstatement or omission and has furnished copies of the amended or
supplemented prospectus to such broker-dealer.
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LEGAL MATTERS
The validity of the Exchange Notes offered hereby is 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 320,240 shares of Common Stock.
EXPERTS
The Consolidated Financial Statements of Primus as of December 31, 1996 and
1997, and for each of the three years in the period ended December 31, 1997
included in this Prospectus, have been audited by Deloitte & Touche LLP,
independent auditors, as set forth in their report appearing herein and
incorporated by reference from the Joint Proxy Statement, and have been so
included 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. at December 31, 1996 and
1995, and for the years then ended are included in this Prospectus and
incorporated by reference from the Joint Proxy Statement and have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere and incorporated by reference herein (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 consolidated
financial statements), and have been included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The Consolidated Financial Statements of TresCom at December 31, 1996 and
1997, and for each of the three years in the period ended December 31, 1997,
included in this Prospectus have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing elsewhere herein
and incorporated by reference from the Joint Proxy Statement, and have been
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
136
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED:
Consolidated Financial Statements:
Independent Auditors' Report.......................................... F-3
Consolidated Statement of Operations for the years ended December 31,
1997, 1996 and 1995.................................................. F-4
Consolidated Balance Sheet as of December 31, 1997 and 1996........... F-5
Consolidated Statement of Stockholders' Equity (Deficit) for the years
ended December 31, 1997, 1996 and 1995............................... F-6
Consolidated Statement of Cash Flows for the years ended December 31,
1997, 1996 and 1995.................................................. F-7
Notes to Consolidated Financial Statements............................ F-8
Unaudited Consolidated Financial Statements:
Unaudited Consolidated Statement of Operations for the three months
ended March 31, 1998 and 1997........................................ F-18
Unaudited Consolidated Balance Sheet as of March 31, 1998............. F-19
Unaudited Consolidated Statement of Cash Flows for the three months
ended March 31, 1998 and 1997........................................ F-20
Notes to Unaudited Consolidated Financial Statements.................. F-21
USFI, INC.
Report of Independent Auditors.......................................... F-23
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and 1995.......... F-24
Consolidated Statements of Operations for the years ended December 31,
1996 and 1995........................................................ F-25
Consolidated Statements of Stockholders' Deficit for the years ended
December 31, 1996 and 1995........................................... F-26
Consolidated Statements of Cash Flows for the years ended December 31,
1996 and 1995........................................................ F-27
Notes to Consolidated Financial Statements............................ F-28
Unaudited Consolidated Financial Statements:
Unaudited Consolidated Balance Sheet as of September 30, 1997......... F-32
Unaudited Consolidated Statements of Operations for the nine months
ended September 30, 1997 and 1996.................................... F-33
Unaudited Consolidated Statement of Stockholders' Deficit for the nine
months ended September 30, 1997...................................... F-34
Unaudited Consolidated Statements of Cash Flows for the nine months
ended September 30, 1997 and 1996.................................... F-35
Notes to Unaudited Consolidated Financial Statements.................. F-36
TELEPASSPORT L.L.C.
Unaudited Balance Sheet as of September 30, 1997........................ F-39
Unaudited Statement of Operations for the nine months ended September
30, 1997 .............................................................. F-40
Unaudited Statement of Cash Flows for the nine months ended September
30, 1997............................................................... F-41
</TABLE>
F-1
<PAGE>
<TABLE>
<S> <C>
TRESCOM INTERNATIONAL, INC.:
Consolidated Financial Statements and Schedules:
Financial Statements:
Report of Independent Auditors...................................... F-42
Consolidated Balance Sheets as of December 31, 1997 and 1996........ F-43
Consolidated Statements of Operations for the years ended December
31, 1997, 1996 and 1995............................................ F-44
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1997, 1996 and 1995................................... F-45
Consolidated Statements of Cash Flows for the years ended December
31, 1997, 1996 and 1995............................................ F-46
Notes to Consolidated Financial Statements.......................... F-47
Financial Statement Schedule:
Report of Independent Auditors...................................... S-1
Schedule II--Valuation and Qualifying Accounts...................... S-2
Unaudited Consolidated Financial Statements:
Unaudited Consolidated Balance Sheet as of March 31, 1998 ............ F-58
Unaudited Consolidated Statement of Operations for the three months
ended March 31, 1998 and 1997........................................ F-59
Unaudited Consolidated Statement of Stockholders' Equity (Deficit) for
the three months ended March 31, 1998 and 1997....................... F-60
Unaudited Consolidated Statement of Cash Flows for the three months
ended March 31, 1998 and 1997........................................ F-61
Notes to Unaudited Consolidated Financial Statements.................. F-61
</TABLE>
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Primus Telecommunications Group, Incorporated
We have audited the accompanying consolidated balance sheets of Primus
Telecommunications Group, Incorporated and subsidiaries (the "Company") as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Primus Telecommunications
Group, Incorporated and subsidiaries as of 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.
DELOITTE & TOUCHE LLP
Washington, D.C.
February 12, 1998, except for Note 15
as to which the date is March 8, 1998
F-3
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
NET REVENUE...................................... $280,197 $172,972 $1,167
COST OF REVENUE.................................. 252,731 158,845 1,384
-------- -------- -------
GROSS MARGIN (DEFICIT)........................... 27,466 14,127 (217)
-------- -------- -------
OPERATING EXPENSES:
Selling, general and administrative............ 50,622 20,114 2,024
Depreciation and amortization.................. 6,733 2,164 160
-------- -------- -------
Total operating expenses..................... 57,355 22,278 2,184
-------- -------- -------
LOSS FROM OPERATIONS............................. (29,889) (8,151) (2,401)
INTEREST EXPENSE................................. (12,914) (857) (59)
INTEREST INCOME ................................. 6,238 785 35
OTHER INCOME (EXPENSE)........................... 407 (345) --
-------- -------- -------
LOSS BEFORE INCOME TAXES......................... (36,158) (8,568) (2,425)
INCOME TAXES..................................... (81) (196) --
-------- -------- -------
NET LOSS......................................... $(36,239) $ (8,764) $(2,425)
======== ======== =======
BASIC AND DILUTED NET LOSS PER SHARE............. $ (1.99) $ (0.75) $ (0.48)
======== ======== =======
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING..................................... 18,250 11,660 5,019
======== ======== =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
ASSETS 1997 1996
------ ------------ ------------
(IN THOUSANDS,
EXCEPT SHARE AMOUNTS)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................... $115,232 $ 35,474
Restricted investments............................. 22,774 --
Short-term investments............................. -- 25,125
Accounts receivable (net of allowance of $5,044 and
$2,585)........................................... 58,172 35,217
Prepaid expenses and othe current assets........... 5,152 910
-------- --------
Total current assets............................. 201,330 96,726
RESTRICTED INVESTMENTS............................... 50,776 --
PROPERTY AND EQUIPMENT--Net.......................... 59,241 16,596
INTANGIBLES--Net..................................... 33,164 21,246
DEFERRED INCOME TAXES................................ 2,620 4,951
OTHER ASSETS......................................... 10,882 1,041
-------- --------
TOTAL ASSETS....................................... $358,013 $140,560
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable................................... $ 56,358 $ 32,675
Accrued expenses and other current liabilities..... 12,468 7,931
Accrued interest................................... 11,016 847
Deferred income taxes.............................. 4,434 5,419
Current portion of long-term obligations........... 1,059 10,572
-------- --------
Total current liabilities........................ 85,335 57,444
LONG TERM OBLIGATIONS................................ 230,152 6,676
-------- --------
Total liabilities................................ 315,487 64,120
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value--authorized
2,455,000 shares; none issued and outstanding .... -- --
Common stock, $.01 par value--authorized 40,000,000
shares; issued and outstanding, 19,662,233 and
17,778,731 shares................................. 197 178
Additional paid-in capital......................... 92,181 88,106
Accumulated deficit................................ (48,005) (11,766)
Cumulative foreign currency translation
adjustment........................................ (1,847) (78)
-------- --------
Total stockholders' equity....................... 42,526 76,440
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY......... $358,013 $140,560
======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED
STOCK COMMON STOCK ADDITIONAL CUMULATIVE STOCKHOLDERS'
------------- ------------- PAID-IN ACCUMULATED TRANSLATION EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT (DEFICIT)
------ ------ ------ ------ ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1994................... -- $ -- 4,040 $ 41 $ 465 $ (577) -- $ (71)
Common shares sold
through private
placement, net of
transaction costs..... -- -- 2,234 22 3,996 -- -- 4,018
Conversion of related
party debt to common
stock................. -- -- 556 6 344 -- -- 350
Common shares unused
for services
performed............. -- -- 234 2 691 -- -- 693
Foreign currency
translation
adjustment............ -- -- -- -- -- -- (3) (3)
Net loss............... -- -- -- -- -- (2,425) -- (2,425)
---- ----- ------ ---- ------- -------- ------- --------
BALANCE, DECEMBER 31,
1995................... -- -- 7,064 71 5,496 (3,002) (3) 2,562
Common shares sold
through private
placement, net of
transaction costs..... -- -- 3,148 31 21,837 -- -- 21,868
Common shares issued
for services
performed............. -- -- 279 3 987 -- -- 990
Preferred shares issued
for Axicorp
acquisition........... 455 5 -- -- 5,455 -- -- 5,460
Common shares sold, net
of transaction costs.. -- -- 5,750 58 54,341 -- -- 54,399
Conversion of preferred
shares to common
shares................ (455) (5) 1,538 15 (10) -- -- --
Foreign currency
translation
adjustment............ -- -- -- -- -- -- (75) (75)
Net loss............... -- -- -- -- -- (8,764) -- (8,764)
---- ----- ------ ---- ------- -------- ------- --------
BALANCE, DECEMBER 31,
1996................... -- -- 17,779 178 88,106 (11,766) (78) 76,440
Common shares issued
upon exercise of
warrants.............. -- -- 1,843 19 1,453 -- -- 1,472
Common shares issued
for 401(k) employer
matching
contribution.......... -- -- 5 0 45 -- -- 45
Common shares issued
upon exercise of
employee stock
options............... -- -- 35 0 42 -- -- 42
Senior notes offering--
warrants.............. -- -- -- -- 2,535 -- -- 2,535
Foreign currency
translation
adjustment............ -- -- -- -- -- -- (1,769) (1,769)
Net loss............... -- -- -- -- -- (36,239) -- (36,239)
---- ----- ------ ---- ------- -------- ------- --------
BALANCE, DECEMBER 31,
1997................... -- $ -- 19,662 $197 $92,181 $(48,005) $(1,847) $ 42,526
==== ===== ====== ==== ======= ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-----------------------------
1997 1996 1995
--------- -------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................... $ (36,239) $ (8,764) $(2,425)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................. 6,733 2,164 160
Sales allowance............................... 6,185 1,960 132
Foreign currency transaction (gain) loss ..... (407) 345 --
Stock issuance--401(k) plan employer match.... 45 -- --
Changes in assets and liabilities, net of
effects of acquisitions:
(Increase) decrease in accounts receivable... (34,240) (19,405) (797)
(Increase) decrease in prepaid expenses and
other current assets........................ (4,080) (227) (62)
(Increase) decrease in other assets.......... 1,147 (1,621) (533)
Increase (decrease) in accounts payable...... 30,247 11,729 1,195
Increase (decrease) in accrued expense and
other current liabilities................... 5,000 6,032 322
Increase (decrease) in accrued interest
payable..................................... 10,852 847 0
--------- -------- -------
Net cash used in operating activities..... (14,757) (6,940) (2,008)
--------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............. (39,465) (12,745) (396)
(Purchase) sale of short-term investments...... 25,125 (25,125) --
Purchase of restricted investments............. (73,550) -- --
Cash used in business acquisitions, net of cash
acquired...................................... (16,349) (1,701) --
--------- -------- -------
Net cash used in investing activities..... (104,239) (39,571) (396)
--------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease............ (529) (112) (64)
Principal payments on long-term obligations.... (16,352) (396) --
Sale of common stock, net of transaction
costs......................................... 1,514 77,576 4,543
Proceeds from long-term obligations............ 225,000 2,407 --
Deferred financing costs....................... (9,500) -- --
--------- -------- -------
Net cash provided by financing
activities............................... 200,133 79,475 4,479
--------- -------- -------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS............................... (1,379) 214 --
--------- -------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS....... 79,758 33,178 2,075
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.. 35,474 2,296 221
--------- -------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD........ $ 115,232 $ 35,474 $ 2,296
========= ======== =======
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest......................... $ 2,745 $ 149 $ 36
Non-cash investing and financing activities
Common stock issued for services.............. -- $ 990 $ 693
Conversion of related party debt to common
stock........................................ -- -- $ 350
Increase in capital lease liability for
acquisition of equipment..................... $ 8,228 $ 388 $ 578
Increase in notes payable for acquisition of
equipment.................................... -- $ 2,826 --
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Primus Telecommunications Group, Incorporated (the "Company") is a global
telecommunications company that focuses on the provision of international and
domestic long distance telecommunications services. Incorporated in Delaware
in February 1994, the Company's customers include small-and medium-sized
businesses, residential consumers and other telecommunication carriers,
primarily located in North America, Asia-Pacific, and Europe. The Company
operates as a holding company and has wholly-owned operating subsidiaries in
the United States, Canada, Mexico, Australia, Japan, Germany and the United
Kingdom. The Company intends to enter the Caribbean, and the Central and South
American markets with its pending acquisition of TresCom International, Inc.
("TresCom"). See Note 15 below.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated.
Revenue Recognition--Revenues from long distance telecommunications services
are recognized when the services are provided and are presented net of
estimated uncollectible amounts.
Cost of Revenue--Cost of revenue includes network costs which consist of
access, transport, and termination costs. Such costs are recognized when
incurred in connection with the provision of telecommunications services.
Foreign Currency Translation--The assets and liabilities of the Company's
foreign subsidiaries are translated at the exchange rates in effect on the
reporting date, and income and expenses are translated at the average exchange
rate during the period. The net effect of such translation gains and losses
are accumulated as a separate component of stockholders' equity. Foreign
currency transaction gains and losses are the primary components of Other
Income (Expense) in the consolidated statement of operations.
Cash and Cash Equivalents--The Company considers cash on hand, deposits in
banks, certificates of deposit, and overnight repurchase agreements with
original maturities of three months or less to be cash and cash equivalents.
Restricted Investments--Restricted investments consist of United States
Federal Government-backed obligations which are reflected at amortized cost.
These securities are classified as held-to-maturity and are restricted to
satisfy certain interest obligations on the Company's senior notes.
Short Term Investments--Highly liquid investments in United States Federal
Government-backed obligations with original maturities in excess of three
months are classified as available-for-sale and reported at fair value. Cost
approximates fair value for all components of short-term investments;
unrealized gains and losses are reflected in stockholders' equity and are not
material.
Property and Equipment--Property and equipment, which consists of furniture
and computer equipment, leasehold improvements, software, fiber optic cable
and telecommunications equipment, is stated at cost less accumulated
depreciation and amortization. Expenditures for maintenance and repairs that
do not materially extend the useful lives of the assets are charged to
expense. Depreciation and amortization expense is computed using the straight-
line method over the estimated useful lives of the assets which range from
three to twenty-five years, or for leasehold improvements and leased
equipment, over the terms of the leases, whichever is shorter.
Intangible Assets--At December 31, 1997 and 1996 intangible assets, net of
accumulated amortization, consist of goodwill of $27,848,000 and $17,434,000,
respectively, and customer lists of $5,316,000 and $3,812,000, respectively.
Goodwill is being amortized over 30 years on a straight-line basis and
customer lists
F-8
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
over the estimated run-off of the customer bases not to exceed five years.
Accumulated amortization at December 31, 1997 and 1996, was $1,152,000 and
$498,000 related to goodwill and $1,939,000 and $762,000 related to customer
lists, respectively. The Company periodically evaluates the realizability of
intangible assets. In making such evaluations, the Company compares certain
financial indicators such as expected undiscounted future revenues and cash
flows to the carrying amount of the intangibles. The Company believes that no
impairments of intangible assets exist as of December 31, 1997.
Deferred Financing Costs--Deferred financing costs incurred in connection
with the 1997 Senior Notes and Warrants Offering are reflected within other
assets on the balance sheet and are being amortized over the life of the
senior notes using the straight-line method, which does not differ materially
from the effective interest method.
Stock-Based Compensation--In 1996, the Company adopted Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), Accounting for Stock-
Based Compensation. Upon adoption of SFAS 123, the Company continues to
measure compensation expense for its stock-based employee compensation plans
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees, and has provided in
Note 10 pro forma disclosures of the effect on net loss and basic and diluted
net loss per share as if the fair value-based method prescribed by SFAS 123
had been applied in measuring compensation expense.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of net revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk--Financial instruments that potentially subject
the Company to concentration of credit risk principally consist of trade
accounts receivable. The Company performs ongoing credit evaluations of its
customers but generally does not require collateral to support customer
receivables.
Income Taxes--The Company recognizes income tax expense for financial
reporting purposes following the asset and liability approach for computing
deferred income taxes. Under this method, the deferred tax assets and
liabilities are determined based on the difference between financial reporting
and tax bases of assets and liabilities based on enacted tax rates. Deferred
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
Net Loss Per Share--During 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share and has computed basic
and diluted net loss per share based on the weighted average number of shares
of common stock and potential common stock outstanding during the period,
after giving effect to stock splits (Note 9). Potential common stock, for
purposes of determining diluted net loss per share, would include, where
applicable, the effects of dilutive stock options, warrants, and convertible
securities, and the effect of such potential common stock would be computed
using the treasury stock method or the if-converted method. None of the
Company's outstanding options and warrants are considered to be dilutive.
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 the Company's initial public offering
(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 SFAS 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.
F-9
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
New Accounting Pronouncements--In 1998, the Company will be required to
adopt the provisions of Statement of Financial Accounting Standards (SFAS) No.
130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. The Company will report
comprehensive income in a separate statement which will show the effects of
the foreign currency translation adjustment as a component of comprehensive
income. The Company believes its segment disclosures under SFAS No. 131 will
be consistent with those currently presented.
Reclassifications--Certain prior year amounts have been reclassified to
conform with certain current year presentation.
3. ACQUISITIONS
On October 20, 1997, the Company completed the acquisition of the equity and
ownership interests in Telepassport L.L.C. ("Telepassport") for a purchase
price of $6.0 million. Additionally, on October 20, 1997, the Company
purchased substantially all of the assets of USFI, Inc. ("USFI") for $ 5.5
million. Telepassport and USFI were under common control and engaged in the
business of providing international and domestic telecommunication services,
including long distance and reorigination services in Europe, Asia, and South
Africa. The purchase price was allocated on a preliminary basis to the net
assets acquired based upon the estimated fair value of such net assets, which
resulted in an allocation of $7.75 million to goodwill.
On April 8, 1997, the Company acquired the assets of Cam-Net Communications
Network, Inc. and its subsidiaries, a Canadian based provider of domestic and
international long distance service. The purchase price was approximately $5.0
million in cash.
On March 1, 1996, the Company completed the acquisition of the outstanding
capital stock of Axicorp Pty., Ltd. ("Axicorp"), the fourth largest
telecommunications carrier in Australia. The purchase price consisted of cash,
Company stock, and seller financing. The Company paid $5.7 million cash,
including transaction costs, and issued 455,000 shares of its Series A
Convertible Preferred Stock, which were subsequently converted to 1,538,355
common shares. The Company also issued two notes aggregating $8.1 million to
the sellers, both of which were repaid in full during 1997.
The Company has accounted for all of the referenced acquisitions using the
purchase method. Accordingly, the results of operations of the acquired
companies are included in the consolidated results of operations of the
Company, as of the date of their respective acquisition.
Pro forma operating results for the years ended December 31, 1997 and 1996,
as if the acquisitions of Telepassport, USFI and Axicorp had occurred as of
January 1, 1996, are as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Net revenue.......................................... $300,672 $227,311
Net loss............................................. $(44,905) $(17,555)
Basic and diluted net loss per share................. $ (2.46) $ (1.26)
</TABLE>
The pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the operating results that would
have occurred had the acquisitions been consummated as of the above dates, nor
are they necessarily indicative of future operations.
F-10
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------- -------
<S> <C> <C>
Network equipment....................................... $48,246 $ 4,109
Furniture and equipment................................. 9,334 1,272
Leasehold improvements.................................. 1,845 508
Construction in progress................................ 5,147 12,008
------- -------
64,572 17,897
Less: Accumulated depreciation and amortization......... (5,331) (1,301)
------- -------
$59,241 $16,596
======= =======
</TABLE>
Equipment under capital leases totaled $9,194,000 and $966,000 with
accumulated depreciation of $835,000 and $207,000 at December 31, 1997 and
1996, respectively.
5. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
Obligations under capital leases......................... $ 8,487 $ 788
Senior Notes............................................. 222,616 --
Note payable--equipment financing........................ -- 2,826
Note payable--stockholder................................ -- 2,000
Notes payable relating to Axicorp acquisition............ -- 8,455
Settlement obligation.................................... 108 3,179
-------- --------
Subtotal............................................. 231,211 17,248
Less: Current portion of long-term obligations........... (1,059) (10,572)
-------- --------
$230,152 $ 6,676
======== ========
</TABLE>
On August 4, 1997 the Company completed the sale of $225 million 11 3/4%
senior notes and warrants to purchase 392,654 shares of the Company's common
stock. The senior notes are due August 1, 2004 with early redemption at the
option of the Company at any time after August 1, 2001. Dividends are
currently restricted by the senior notes indenture. Interest payments are due
semi-annually on February 1st and August 1st. A portion of the proceeds from
this offering have been pledged to secure the first six semi-annual interest
payments on the senior notes and are reflected on the balance sheet as
restricted investments. A portion of the proceeds of this offering, $2.535
million, was allocated to the warrants, and the resulting debt discount is
being amortized over the life of the debt on the straight-line method which
does not differ materially from the effective interest method.
Notes payable-equipment financing represents vendor financing of network
switching equipment for use in the Company's Australian network. This
obligation was paid in full in connection with the Company's senior notes and
warrants offering.
In relation to an investment agreement, in February 1996 the Company issued
a $2.0 million note payable to Teleglobe. This obligation was paid in full in
connection with the Company's senior notes and warrants offering.
F-11
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In association with the acquisition of Axicorp on March 1, 1996, the Company
issued two notes to the sellers for a total of $8.5 million. These obligations
were paid in full in connection with the Company's senior notes and warrants
offering.
In addition, in conjunction with the Axicorp acquisition, the Company
accrued approximately $3.5 million to settle a pre-acquisition contingency
between Axicorp and one of its competitors. Payments of $400,000 and
$1,583,000 were made in December 1996 and January 1997, respectively. The
remaining balance is due in 12 equal monthly payments which began in February
1997.
6. INCOME TAXES
The income tax expense recorded results from current foreign taxes on
earnings at the Company's Australian and United Kingdom subsidiaries.
The differences between the tax provision (benefit) calculated at the
statutory federal income tax rate and the actual tax provision (benefit) for
each period is shown in the table below (in thousands) :
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------
1997 1996 1995
-------- ------- -----
<S> <C> <C> <C>
Tax benefit at federal statutory rate............. $(12,294) $(2,913) $(825)
State income tax, net of federal benefit.......... (2,100) (491) (91)
Foreign taxes..................................... 81 196 --
Unrecognized benefit of net operating losses...... 14,394 3,387 911
Other............................................. -- 17 5
-------- ------- -----
Income taxes...................................... $ 81 $ 196 $ --
======== ======= =====
</TABLE>
The significant components of the Company's deferred tax assets and
liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------- -------
<S> <C> <C>
Deferred tax asset (non-current):
Cash to accrual basis adjustments (U.S.)................. $ 590 $ 168
Accrued expenses......................................... 936 1,456
Net operating loss carryforwards......................... 17,856 6,055
Valuation allowance...................................... (16,762) (2,728)
------- -------
$ 2,620 $ 4,951
======= =======
Deferred tax liability (current):
Accrued income........................................... $ 3,523 $ 4,934
Other.................................................... 385 139
Depreciation............................................. 526 346
------- -------
$ 4,434 $ 5,419
======= =======
</TABLE>
At December 31, 1997, the Company had United States Federal net operating
loss carryforwards of approximately $24 million that may be applied against
future United States. taxable income until they expire between the years 2009
and 2012. The Company also has Australian Federal net operating loss
carryforwards of approximately $26 million at December 31, 1997.
F-12
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Due to a deemed "ownership change" of the Company as a result of the
Company's initial public offering and private placements, pursuant to Section
382 of the Internal Revenue Code, the utilization of the net operating loss
carryforwards of approximately $4.0 million that expire in the year 2009 will
be limited to approximately $1.3 million per year during the carryforward
period.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash and cash
equivalents, restricted and short-term investments, accounts receivable and
accounts payable approximate fair value. The estimated fair value of the
Company's senior notes (carrying value of $222.6 million) at December 31, 1997
was $241.9 million based upon market quotation.
8. COMMITMENTS AND CONTINGENCIES
Future minimum lease payments under capital lease obligations and operating
leases as of December 31, 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
------------------------ ------- ---------
<S> <C> <C>
1998...................................................... $ 1,942 $2,907
1999...................................................... 1,686 2,218
2000...................................................... 2,211 929
2001...................................................... 2,378 779
2002...................................................... 3,096 336
Thereafter................................................ -- 560
------- ------
Total minimum lease payments.............................. 11,313 $7,729
======
Less: Amount representing interest........................ (2,826)
-------
$ 8,487
=======
</TABLE>
Rent expense under operating leases was $2,574,000, $1,050,000 and $215,000
for the years ended December 31, 1997, 1996 and 1995, respectively.
9. STOCKHOLDERS' EQUITY
On October 1, 1997, the Company issued 1,842,941 shares of its common stock
pursuant to the exercise of certain warrants, which had been issued in
connection with the Company's July 1996 private equity sale of $16 million. In
connection with such exercise, the Company received approximately $1.5
million.
On August 4, 1997 the Company completed a senior notes and warrants
offering. Warrants valued at $2,535,000 to purchase 392,654 shares of the
Company's common stock at a price of $9.075 per share were issued.
In November 1996, the Company completed an initial public offering of
5,750,000 shares of its common stock. The net proceeds to the Company (net of
underwriter discounts and offering expenses) were $54.4 million.
In connection with the Company's initial public offering, the Board approved
a split of all shares of common stock at a ratio of 3.381 to one as of
November 7, 1996 and amended the Company's Amended and Restated Certificate of
Incorporation (the "Certificate") to increase the authorized Common Stock to
40,000,000 shares.
F-13
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In February 1996, the Company's Certificate was amended to authorize
2,455,000 shares of preferred stock (nonvoting) with a par value of $0.01 per
share. On March 1, 1996, 455,000 shares of Series A Convertible Preferred
Stock were issued in connection with the purchase of Axicorp. The outstanding
preferred stock was converted to common stock prior to the date of the
Company's initial public offering.
In January 1996, the Company raised approximately $4.7 million, net of
transaction costs, in a private placement. This placement included the sale of
1,771,194 shares of common stock to numerous investors. The Company also
issued 278,899 shares of common stock for services rendered in conjunction
with this offering.
Also in January 1996, the Company entered into an agreement with Teleglobe
USA, Inc., under which it sold 410,808 shares of common stock for
approximately $1.4 million and borrowed $2.0 million (see Note 5).
In December 1995, $359,000 was committed to the Company in exchange for
121,209 shares of the Company's common stock in conjunction with a private
placement. The shares were sold in December 1995 and the physical certificates
were issued in January 1996.
Effective March 13, 1995, the Company's Certificate was amended to increase
the number of authorized shares of the Company's common stock from 1,000,000
shares to 5,000,000 shares and to split each share of common stock outstanding
on March 13, 1995, into 2.1126709 shares of common stock.
All share amounts have been restated to give effect to the November 7, 1996
and the March 13, 1995 stock splits.
10. STOCK-BASED COMPENSATION
The Company has established an Employee Stock Option Plan (the "Employee
Plan"). The total number of shares of common stock authorized for issuance
under the Employee Plan is 3,690,500. Under the Employee Plan, awards may be
granted to key employees of the Company and its subsidiaries in the form of
Incentive Stock Options or Nonqualified Stock Options. The Employee Plan
allows the granting of options at an exercise price of no less than 100% of
the stock's fair value at the date of grant. The options vest over a period of
up to three years, and no option will be exercisable more than ten years from
the date it is granted.
The Company has established a Director Stock Option Plan (the "Director
Plan") for nonemployee directors. Under the Director Plan, an option is
granted to each nonemployee director to purchase 50,715 shares of common
stock, which vests over a two-year period. The option price per share is the
fair market value of a share of common stock on the date the option is
granted. No option will be exercisable more than ten years from the date of
grant. An aggregate of 338,100 shares of common stock were reserved for
issuance under the Director Plan.
A summary of stock option activity during the years ended December 31, is as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- ----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- -------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding--Be-
ginning of year........ 1,583,661 $ 3.14 722,013 $2.64 -- $ --
Granted................. 1,062,500 $12.59 913,546 $3.35 722,013 $2.64
Exercised............... (35,724) $ 1.19 -- $ -- -- $ --
Forfeitures............. (63,002) $ 6.03 (51,898) $3.55 -- $ --
--------- --------- -------
Outstanding--end of
year................... 2,547,435 $ 6.96 1,583,661 $3.14 722,013 $2.64
========= ====== ========= ===== ======= =====
Eligible for exercise--
End of year............ 894,944 $ 3.00 511,149 $2.81 219,765 $2.96
========= ====== ========= ===== ======= =====
</TABLE>
F-14
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ -----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
TOTAL REMAINING EXERCISE TOTAL EXERCISE
OUTSTANDING LIFE IN YEARS PRICE EXERCISABLE PRICE
----------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C>
72,128 2.0 $ 0.67 38,318 $0.67
924,873 3.0 $ 2.96 684,200 $2.96
507,184 3.3 $ 3.55 168,426 $3.55
226,750 4.3 $ 8.25 4,000 $8.25
83,500 4.8 $12.25 --
733,000 5.0 $14.00 --
--------- -------
2,547,435 894,944
========= =======
</TABLE>
The weighted average fair value at date of grant for options granted during
1997, 1996 and 1995 was $5.45, $1.38 and $1.04 per option, respectively. The
fair value of the option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Expected dividend yield.............................. 0% 0% 0%
Expected stock price volatility...................... 80% 49% 49%
Risk-free interest rate.............................. 5.7% 6.0% 5.8%
Expected option term................................. 4 years 4 years 4 years
</TABLE>
If compensation cost for the Company's grants for stock-based compensation
had been recorded consistent with the fair value-based method of accounting
per SFAS 123, the Company's pro forma net loss, and pro forma basic and
diluted net loss per share for the years ending December 31, would be as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Net loss (amounts in thousands)
As reported................................... $(36,239) $(8,764) $(2,425)
Pro forma..................................... $(37,111) $(9,242) $(2,702)
Basic and diluted net loss per share
As reported................................... $ (1.99) $ (0.75) $ (0.48)
Pro forma..................................... $ (2.03) $ (0.79) $ (0.54)
</TABLE>
11. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) employee benefit plan (the "401(k) Plan") that
covers substantially all United States based employees. The 401(k) Plan
provides that employees may contribute amounts not to exceed statutory
limitations. During 1997, the shareholders adopted an employer matching
contribution of 50% of the first 6% of employee annual salary contributions.
The employer match is made in common stock of the Company and is subject to 3-
year cliff vesting. The Company contributed Primus common stock valued at
approximately $45,000 during 1997.
During 1997, the Company's shareholders approved the adoption of an Employee
Stock Purchase Plan ("ESPP"). The ESPP allows employees to contribute up to
15% of their compensation to be used toward purchasing the Company's common
stock at 85% of the fair market value. The Plan commenced on January 1, 1998.
An aggregate of 2,000,000 shares of common stock were reserved for issuance
under the ESPP.
F-15
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. RELATED PARTIES
During 1995, a former director received commissions of 110,944 shares of
common stock and $542,000 in connection with the Company's first private
placement. Consulting fees earned by the former director under the 1995
private placement totaled $169,000. During 1996, the same former director
received commissions of 82,774 shares of common stock and $425,000 which
related to a second private placement. Consulting fees earned in connection
with this second private placement totaled $157,000. Total consulting fees due
the former director are $134,000 and $220,000 at December 31, 1997 and 1996,
respectively. The stock and cash commissions and consulting fees relate to
services provided in conjunction with the private placements and, as such,
have been netted against the proceeds of the respective placements.
13. VALUATION AND QUALIFYING ACCOUNTS
Activity in the Company's allowance accounts for the years ended December
31, 1997, 1996 and 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
DOUBTFUL ACCOUNTS
- --------------------------------------------------------------------------------
BALANCE AT CHARGED TO BALANCE AT
PERIOD BEGINNING OF PERIOD OPERATIONS DEDUCTIONS OTHER(1) END OF PERIOD
- ------ ------------------- ------------------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
1995 $ -- $ 132 $ -- $ -- $ 132
1996 $ 132 $ 1,960 $ (377) $870 $ 2,585
1997 $2,585 $ 6,185 $(4,309) $583 $ 5,044
<CAPTION>
DEFERRED TAX ASSET VALUATION
- --------------------------------------------------------------------------------
BALANCE AT CHARGED TO BALANCE AT
PERIOD BEGINNING OF PERIOD COSTS AND EXPENSES DEDUCTIONS OTHER(1) END OF PERIOD
- ------ ------------------- ------------------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
1995 $ -- $ 1,087 $ -- $ -- $ 1,087
1996 $1,087 $ 1,641 $ -- $ -- $ 2,728
1997 $2,728 $14,034 $ -- $ -- $16,672
</TABLE>
- --------
(1) Other additions represent the allowances for doubtful accounts, which were
recorded in connection with business acquisitions.
F-16
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. GEOGRAPHIC DATA
The Company has subsidiaries in various foreign countries that provide
domestic and international long-distance telecommunications services. Summary
information with respect to the Company's geographic operations is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
NET REVENUE
North America................................... $ 74,359 $ 16,573 $ 1,167
Asia-Pacific.................................... 183,126 151,253 --
Europe.......................................... 22,712 5,146 --
-------- -------- -------
Total......................................... $280,197 $172,972 $ 1,167
======== ======== =======
OPERATING INCOME (LOSS)
North America................................... $(17,036) $ (6,364) $(2,276)
Asia-Pacific.................................... (9,463) 525 --
Europe.......................................... (3,390) (2,312) (125)
-------- -------- -------
Total......................................... $(29,889) $ (8,151) $(2,401)
======== ======== =======
<CAPTION>
DECEMBER 31,
---------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
ASSETS
North America................................... $251,729 $ 72,526 $ 4,996
Asia-Pacific.................................... 83,476 62,823 --
Europe.......................................... 22,808 5,211 46
-------- -------- -------
Total......................................... $358,013 $140,560 $ 5,042
======== ======== =======
</TABLE>
15. SUBSEQUENT EVENTS
On March 8, 1998 the Company purchased a controlling interest in Hotkey
Internet Services Pty., Ltd. ("Hotkey"), a Melbourne, Australia based internet
service provider. The Company's 60% ownership of Hotkey was purchased for
approximately $1.3 million. Prior to the Company's investment in Hotkey,
Primus' chairman, K. Paul Singh, owned approximately 14% of Hotkey. As a
result of the transaction Mr. Singh owns 4% of Hotkey.
On February 4, 1998 the Company entered into an Agreement and Plan of Merger
("the Agreement") with TresCom International, Inc. ("TresCom"), a facilities-
based international telecommunications provider specializing in traffic to the
Caribbean and Central and South America. The Agreement calls for the Company
to acquire all of the approximately 12.1 million outstanding TresCom shares at
a value of $10 per share, subject to certain potential adjustments, through an
exchange of the Company's shares of common stock. The transaction is subject
to, among other things the approval of both Primus and TresCom stockholders
and certain regulatory authorities.
F-17
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
NET REVENUE............................................... $ 80,051 $ 59,036
COST OF REVENUE........................................... 68,722 55,034
--------- --------
GROSS MARGIN.............................................. 11,329 4,002
--------- --------
OPERATING EXPENSES
Selling, general and administrative..................... 15,377 8,829
Depreciation and amortization........................... 3,478 797
--------- --------
Total operating expenses.............................. 18,855 9,626
--------- --------
LOSS FROM OPERATIONS...................................... (7,526) (5,624)
INTEREST EXPENSE.......................................... (7,175) (151)
INTEREST INCOME........................................... 2,384 785
OTHER INCOME.............................................. -- 119
--------- --------
LOSS BEFORE INCOME TAXES.................................. (12,317) (4,871)
INCOME TAXES.............................................. -- (36)
--------- --------
NET LOSS.................................................. $ (12,317) $ (4,907)
========= ========
BASIC AND DILUTED NET LOSS PER COMMON SHARE............... $ (0.62) $ (0.28)
========= ========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING...... 19,717 17,779
========= ========
</TABLE>
See notes to consolidated financial statements.
F-18
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
ASSETS ----------- ------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................... $ 97,381 $115,232
Restricted investments.............................. 23,795 22,774
Accounts receivable (net of allowance of $5,762 and
$5,044)............................................ 69,124 58,172
Prepaid expenses and other current assets........... 7,048 5,152
-------- --------
Total current assets.............................. 197,348 201,330
RESTRICTED INVESTMENTS................................ 37,683 50,776
PROPERTY AND EQUIPMENT--Net........................... 70,023 59,241
INTANGIBLES--Net...................................... 36,436 33,164
DEFERRED INCOME TAXES................................. 2,667 2,620
OTHER ASSETS.......................................... 11,406 10,882
-------- --------
TOTAL ASSETS...................................... $355,563 $358,013
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................... $ 69,116 $ 56,358
Accrued expenses and other current liabilities...... 14,391 13,898
Accrued interest.................................... 4,406 11,016
Deferred income taxes............................... 3,057 3,004
Current portion of long-term obligations............ 1,652 1,059
-------- --------
Total current liabilities......................... 92,622 85,335
LONG TERM OBLIGATIONS................................. 230,586 230,152
OTHER LIABILITIES..................................... 527 --
-------- --------
Total liabilities................................. 323,735 315,487
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value--authorized
2,455,000 shares; none issued and outstanding...... -- --
Common stock, $.01 par value--authorized 40,000,000
shares; issued and outstanding, 19,822,945 and
19,662,233 shares.................................. 198 197
Additional paid-in capital.......................... 92,696 92,181
Accumulated deficit................................. (60,322) (48,005)
Accumulated other comprehensive loss................ (744) (1,847)
-------- --------
Total stockholders' equity........................ 31,828 42,526
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......... $355,563 $358,013
======== ========
</TABLE>
See notes to consolidated financial statements.
F-19
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $ (12,317) $ (4,907)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation, amortization and accretion............... 3,567 797
Sales allowance........................................ 1,724 716
Stock issuance--401(k) plan employer match............. 20 --
Foreign currency transaction gain...................... -- (119)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable............ (11,020) (7,522)
(Increase) decrease in prepaid expenses and other
current assets....................................... (1,576) (661)
(Increase) decrease in other assets................... (325) (247)
Increase (decrease) in accounts payable............... 9,876 11,876
Increase (decrease) in accrued expense and other
current liabilities.................................. (413) 2,212
Increase (decrease) in accrued interest payable....... (6,609) (326)
--------- ---------
Net cash provided by (used in) operating
activities........................................ (17,073) 1,819
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment...................... (11,369) (8,774)
(Purchase) sale of short-term investments............... -- 19,766
(Purchase) sale of restricted investments............... 12,072 --
Cash used in business acquisitions, net of cash
acquired............................................... (1,627) --
--------- ---------
Net cash provided by (used in) investing
activities........................................ (924) 10,992
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease..................... (316) (55)
Principal payments on long-term obligations............. (114) (4,356)
Sale of common stock, net of transaction costs.......... 496 --
--------- ---------
Net cash provided by (used in) financing activi-
ties.............................................. 66 (4,411)
--------- ---------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................. 80 (262)
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS.................. (17,851) 8,138
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD........... 115,232 35,474
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD................. $ 97,381 $ 43,612
========= =========
</TABLE>
See notes to consolidated financial statements.
F-20
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial reporting and Securities and Exchange Commission ("SEC")
regulations. Certain information and footnote disclosures normally included in
the financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. In the opinion of management, the financial statements
reflect all adjustments (of normal and recurring nature) which are necessary
to present fairly the financial position, results of operations and cash flows
for the interim periods. The results for the three months ended March 31, 1998
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1998.
The financial statements should be read in conjunction with the Company's
audited consolidated financial statements included in the Company's most
recently filed Form 10-K.
(2) MERGER, ACQUISITION AND INVESTMENT
In February 1998 the Company entered into an Agreement and Plan of Merger
("the Agreement") with TresCom International, Inc. ("TresCom"), a facilities-
based long distance telecommunications carrier focused on international long
distance traffic originating in the United States and terminating in the
Caribbean and Central and South America. The Agreement was subsequently
amended in April 1998. The amended Agreement calls for the Company to acquire
all of the approximately 12.3 million TresCom common shares outstanding at a
value of $12 per share, through the exchange of the Company's shares of common
stock. The transaction is subject to, among other things, the approval of both
Primus and TresCom stockholders and certain regulatory authorities. The
transaction is expected to be completed by the end of the second quarter of
1998.
Effective March 1, 1998 the Company purchased a controlling interest in
Hotkey Internet Services Pty., Ltd. ("Hotkey"), a Melbourne, Australia based
internet service provider. The Company's 60% ownership of Hotkey was purchased
through an investment in Hotkey of approximately $1.3 million.
Effective March 1, 1998 the Company acquired all of the outstanding stock of
Eclipse Telecommunications Pty., Ltd. ("Eclipse"), a data communications
provider based in Sydney, Australia. The Company paid approximately $1.8
million in cash and 27,500 shares of the Company's Common Stock for Eclipse.
(3) SUBSEQUENT EVENTS
On April 27, 1998 the Company announced a proposed offering of senior notes
("1998 Senior Notes Offering") to be privately placed in reliance on an
exemption from the registration requirements of the Securities Act of 1934, as
amended. The Company expects to close such offering of $150 million principal
amount of its 9 7/8% Senior notes due 2008 on May 19, 1998, generating net
proceeds of approximately $145 million.
(4) LONG TERM OBLIGATIONS
Long-term obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
1998 DECEMBER 31,
(UNAUDITED) 1997
----------- ------------
<S> <C> <C>
Obligations under capital leases....................... $ 9,343 $ 8,487
Senior Notes........................................... 222,706 222,616
Notes payable.......................................... 189 --
Settlement obligation.................................. -- 108
-------- --------
Subtotal............................................. 232,238 231,211
Less: Current portion of long term obligations......... (1,652) (1,059)
-------- --------
$230,586 $230,152
======== ========
</TABLE>
F-21
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On August 4, 1997 the Company completed the sale of $225 million 11 3/4%
senior notes and warrants to purchase 392,654 shares of the Company's common
stock ("1997 Senior Notes and Warrants Offering"). The senior notes are due
August 1, 2004 with early redemption at the option of the Company at any time
after August 1, 2001. Dividends are currently restricted by the senior notes
indenture. Interest payments are due semi-annually on February 1st and August
1st. A portion of the proceeds from this offering have been pledged to secure
the first six semi-annual interest payments on the senior notes and are
reflected on the balance sheet as restricted investments. A portion of the
proceeds of this offering, $2.535 million, was allocated to the warrants, and
the resulting debt discount is being amortized over the life of the debt on
the straight-line method which does not materially differ from the effective
interest method.
(5) NEW ACCOUNTING PRONOUNCEMENTS
In January 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS
No. 130). Under SFAS No. 130, the Company's foreign currency translation
adjustments are considered to be components of other comprehensive income
(loss), and the stockholders' equity section of the accompanying balance sheet
has been reclassified accordingly. During the quarters ended March 31, 1998
and 1997, the Company's foreign currency translation adjustment totaled $ 1.1
million and $ (0.1) million, respectively. For the year ending December 31,
1998, the Company will report its net income (loss) and its foreign currency
translation income or loss within a separate statement of comprehensive income
(loss).
(6) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
F-22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
USFI, Inc.
We have audited the accompanying consolidated balance sheets of USFI, Inc.
and subsidiary as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' deficit and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of USFI, Inc.
and subsidiary at December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that USFI,
Inc. will continue as a going concern. As more fully described in Note 2, the
Company has incurred recurring operating losses and has a working capital
deficiency and a deficit in stockholders' equity. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2.
The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
/s/ Ernst & Young LLP
September 30, 1997
F-23
<PAGE>
USFI, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1995
-------- -------
(IN THOUSANDS,
EXCEPT SHARE
INFORMATION)
<S> <C> <C>
ASSETS
------
Current assets:
Cash...................................................... $ 884 $ 420
Accounts receivable:
Customers, less allowance of $790 in 1996 and $683 in
1995................................................... 4,620 3,852
Affiliates.............................................. 1,703 304
Prepaid expenses and other current assets................. 112 75
-------- -------
Total current assets........................................ 7,319 4,651
Property and equipment, net (Note 4)........................ 2,702 1,974
Deferred costs, net of accumulated amortization of $22 in
1996 and $4 in 1995........................................ 88 77
Goodwill, net of accumulated amortization of $5 in 1995..... 122
Deposits.................................................... 161 123
-------- -------
Total assets................................................ $ 10,270 $ 6,947
======== =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Accounts payable.......................................... $ 10,885 $ 4,624
Accrued liabilities and other current liabilities......... 1,828 1,844
Reseller deposits and deferred revenue.................... 310 263
Capital lease obligations................................. 3
Due to affiliates (Note 7)................................ 1,412 1,523
-------- -------
Total current liabilities................................... 14,435 8,257
Commitments and contingencies (Note 5)
Stockholders' deficit:
Common stock, no par value, authorized 5,000 shares in
1996 and 2,500 shares in 1995; issued and outstanding 536
shares in 1996 and 100 shares in 1995....................
Additional paid-in capital................................ 9,126 5,126
Accumulated deficit....................................... (13,275) (6,434)
Foreign currency translation adjustment................... (16) (2)
-------- -------
Total stockholders' deficit................................. (4,165) (1,310)
-------- -------
Total liabilities and stockholders' deficit................. $ 10,270 $ 6,947
======== =======
</TABLE>
See accompanying notes.
F-24
<PAGE>
USFI, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
----------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Telecommunications revenue................................... $36,550 $27,643
Costs and expenses:
Costs of telecommunications services (Note 6).............. 30,205 19,901
Selling, general and administrative........................ 12,524 7,917
Depreciation and amortization (Note 3)..................... 679 379
------- -------
Total costs and expenses..................................... 43,408 28,197
------- -------
Loss from operations......................................... (6,858) (554)
Other income................................................. 17 19
------- -------
Loss before minority interest................................ (6,841) (535)
Minority interest............................................ 19
------- -------
Net loss..................................................... $(6,841) $ (516)
======= =======
</TABLE>
See accompanying notes.
F-25
<PAGE>
USFI, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY
PAID-IN ACCUMULATED TRANSLATION
CAPITAL DEFICIT ADJUSTMENT TOTAL
---------- ----------- ----------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at January 1, 1995.......... $4,325 $ (5,918) $(1,593)
Capital contributions............. 801 801
Net loss for 1995................. (516) (516)
Foreign currency translation...... $ (2) (2)
------ -------- ---- -------
Balance at December 31, 1995........ 5,126 (6,434) (2) (1,310)
Capital contributions............. 4,000 4,000
Net loss for 1996................. (6,841) (6,841)
Foreign currency translation...... (14) (14)
------ -------- ---- -------
Balance at December 31, 1996........ $9,126 $(13,275) $(16) $(4,165)
====== ======== ==== =======
</TABLE>
See accompanying notes.
F-26
<PAGE>
USFI, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
----------------
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(6,841) $ (516)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 679 379
Write-off of goodwill..................................... 113
Provisions for losses on receivables...................... 352 184
Minority interest......................................... (19)
Changes in operating assets and liabilities:
Increase in accounts receivable from customers and
affiliates............................................. (2,519) (2,788)
(Increase) decrease in other current assets............. (37) 28
Increase in deposits.................................... (38) (76)
Increase in accounts payable and accrued expenses....... 6,245 2,471
Increase (decrease) in reseller deposits and deferred
revenue................................................ 47 (6)
Increase in due to affiliates........................... 1,147 201
------- -------
Net cash used in operating activities....................... (852) (142)
INVESTING ACTIVITIES
Purchase of interest in Mastercall (net of cash acquired)... (70)
Purchase of equipment....................................... (1,380) (1,654)
Increase in deferred costs.................................. (29) (67)
------- -------
Net cash used in investing activities....................... (1,409) (1,791)
FINANCING ACTIVITIES
Capital contributions....................................... 2,742 801
Advances from affiliates.................................... 1,258
Repayment of capital lease obligation....................... (3) (22)
------- -------
Net cash provided by financing activities................... 2,739 2,037
Effect of exchange rate changes on cash..................... (14) (2)
------- -------
Increase in cash............................................ 464 102
Cash at beginning of year................................... 420 318
------- -------
Cash at end of year......................................... $ 884 $ 420
======= =======
</TABLE>
See accompanying notes.
F-27
<PAGE>
USFI, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ORGANIZATION AND NATURE OF BUSINESS
USFI, Inc. (the "Company") which was incorporated in New York on February
12, 1993, provides least cost routing for international long distance
telecommunication services, which primarily originate and terminate outside of
the United States. Substantially, all billings for service are denominated in
U.S. currency.
Customers are principally located in Western Europe, Japan and South Africa.
No individual customer represents a significant percentage of revenues,
however, the Company utilizes outside agents to sell its services in certain
geographic areas, with agents in Germany and South Africa representing
customers with revenues aggregating 18% and 15%, and 13% and 10%,
respectively, of total 1996 and 1995 revenues. The Company performs a credit
evaluation of all new customers and requires certain customers to provide
collateral in the form of a cash deposit or letter of credit. At December 31,
1996 and 1995, the Company had letters of credit issued on its behalf from
customers in the amount of approximately $327,000 and $525,000, respectively.
On May 15, 1995 the Company acquired a 51% interest in Mastercall, Ltd.
("Mastercall"), a joint venture that resells the Company's international
telecommunications services in the United Kingdom, for a purchase price of
approximately $148,000. The acquisition was accounted for using the purchase
method of accounting and the results of operations have been included in the
financial statements of the Company from the date of acquisition.
2. BASIS OF PRESENTATION
The accompanying financial statements have been prepared on the basis that
the Company will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company has incurred losses since inception and has a working
capital deficiency and a deficit in stockholders' equity as of December 31,
1996. All of these matters raise substantial doubt about the Company's ability
to continue as a going concern. The Company plans on selling its assets and
ceasing its operations (see Note 10) and, on September 11, 1997, the Company
entered into a letter of intent to sell all of its assets, except for cash and
accounts and notes receivable. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts or classifications of liabilities that
may result from the outcome of this uncertainty.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. SIGNIFICANT ACCOUNT POLICIES
Depreciation
Furniture and equipment are recorded at cost and are depreciated over the
estimated useful lives of three to five years, utilizing the straight-line
method. Assets acquired pursuant to capital lease arrangements and leasehold
improvements are amortized on a straight-line basis over the shorter of their
estimated useful lives or the terms of the leases. Depreciation expense for
the years ended December 31, 1996 and 1995 was $652,000 and $371,000,
respectively.
F-28
<PAGE>
USFI, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred Costs and Goodwill
Deferred costs include costs to obtain trademarks and certain organizational
costs. Goodwill includes approximately $127,000 relating to the 1995
acquisition of Mastercall (see Note 1). Such deferred costs are amortized on
the straight-line basis generally as follows:
<TABLE>
<CAPTION>
PERIOD OF
ASSET AMORTIZATION
----- ------------
<S> <C>
Trademarks...................................................... 5 years
Organization costs.............................................. 5 years
Goodwill........................................................ 15 years
</TABLE>
The carrying amount of goodwill is reviewed if facts and circumstances
suggest that it may be impaired. Due to recurring losses of Mastercall, the
Company evaluated the ongoing value of goodwill, as determined based on the
estimated undiscounted cash flows of the entity over the remaining
amortization period and determined that goodwill with a carrying value of
$113,000 is impaired. As a result, the Company has recorded a charge in 1996
to write-off the full amount of goodwill associated with Mastercall, which is
included in selling, general and administrative expenses.
Revenue Recognition
The Company recognizes revenue from services and the related costs at the
time the services are rendered.
Income Tax
Income taxes are accounted for under the liability method in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and Mastercall. All significant intercompany accounts and transactions have
been eliminated.
Basis of Presentation
Certain amounts in the 1995 financial statements have been reclassified to
conform with the 1996 presentation.
4. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following at December 31, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Furniture and equipment..................................... $ 1,131 $ 892
Switching equipment......................................... 2,888 1,717
Leasehold improvements...................................... 60 89
------- -------
4,079 2,698
Less accumulated depreciation and amortization.............. 1,377 724
------- -------
$ 2,702 $ 1,974
======= =======
</TABLE>
F-29
<PAGE>
USFI, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office and switch site space under noncancellable
operating leases. The future minimum annual rental commitments under leases
having terms in excess of one year are as follows:
<TABLE>
<S> <C>
1997................................................................ $346,000
1998................................................................ 399,000
1999................................................................ 399,000
2000................................................................ 213,000
2001................................................................ 116,000
</TABLE>
Rent expense for the years ended December 31, 1996 and 1995 was $284,000 and
$256,000, respectively.
Litigation
During 1994, the Company was involved in a contract dispute which was
presented to an arbitrator and, in August 1995, an award in the amount of
$333,450 representing damages and administrative fees and costs was determined
to be payable by the Company. The award amount was recorded as an expense in
1994 and was paid in 1996.
The Company is involved in litigation in the normal course of business. In
the opinion of management, such litigation will not have a material effect on
the Company's cash flows, financial condition or results of operations.
Incentive Plans
The Company maintains incentive plans which entitle certain key employees to
participate in certain distributions, if any, by the Company of cash or
property to two of the Company's principal stockholders. Participation
commences when the amount of distributions paid exceeds certain stipulated
amounts. No such distributions have been made or are expected.
6. MAJOR SUPPLIERS
During 1996 and 1995, MCI, World Com, Inc. (formerly IDB) and Cable and
Wireless International, Inc. provided the Company with a majority of its
international telecommunications network services. Charges for such services
are included in cost of telecommunications services in the accompanying
statement of operations.
7. RELATED PARTIES
In March 1995, the Company entered into an agreement with TelePassport Japan
Co., Ltd. ("TelePassport Japan"), an affiliated joint venture formed in 1995,
to provide international telecommunication services and to lease switching
equipment to TelePassport Japan. Telecommunication revenue for 1996 and 1995
includes $3,400,000 and $371,000, respectively, for services provided to
TelePassport Japan. The equipment under lease has a net book value of $140,000
and $186,000 at December 31, 1996 and 1995, respectively, and is included in
property and equipment. The joint venture was terminated in 1997 and the
equipment was transferred to an affiliate.
Included in due to affiliates at December 31, 1995 is a $1,258,000 note due
to US Cable Corporation ("US Cable"), an affiliate of certain stockholders.
During 1996, US Cable transferred the note to such stockholders who
contributed the outstanding balance to capital.
F-30
<PAGE>
USFI, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Included in due to affiliates at December 31, 1996 and 1995 are amounts due
to TelePassport Japan for carrier charges paid by TelePassport Japan on behalf
of the Company and amounts due to US Cable for expenses paid on behalf of the
Company.
8. EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution plan that qualifies as a
deferred salary arrangement under Section 401(a) of the Internal Revenue Code.
All full-time employees meeting minimum service requirements are eligible to
participate and may contribute up to 18% of their pre-tax earnings subject to
certain Internal Revenue Code restrictions. The Company matches 50% of each
employee's contribution up to an annual maximum of $500 per employee. Total
Company contributions for 1996 and 1995 of $16,000 and $14,000, respectively,
are included in selling, general and administrative expenses.
9. INCOME TAXES
The Company has elected to be taxed as an "S" Corporation for federal income
tax purposes. For New York City income tax purposes, the Company is taxed as a
"C" corporation and at December 31, 1996 the Company has available New York
City net operating loss carryforwards of $8,488,000, which principally expire
in the year 2011. At December 31, 1996, the Company had deferred city income
tax assets of $1,132,000, which are primarily attributable to temporary
differences which are not currently deductible for income tax purposes,
including net operating loss carryforwards, accrued liabilities and certain
other reserves. The Company has recorded a full valuation allowance against
its deferred tax assets at December 31, 1996.
10. SUBSEQUENT EVENTS
On March 10, 1997, the Company acquired the remaining 49% interest in
Mastercall for a purchase price of approximately $15,000.
During 1997, the Company and certain affiliates planned an initial public
offering of common stock. The initial public offering was postponed in April
1997 and subsequently abandoned, and accordingly, the initial public offering
was not completed. Costs incurred as of December 31, 1996 related to the
initial public offering of $284,000 are included in 1996 selling, general and
administrative expenses.
On September 11, 1997, the Company entered into a letter of intent to sell
all of its assets, except for cash and accounts and notes receivable to Primus
Telecommunications Group, Incorporated. Subsequent to the sale, the Company
intends to cease operations.
F-31
<PAGE>
USFI, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents............................................ $ 1,024
Restricted cash and cash equivalents................................. --
Short term investments............................................... --
Accounts receivable.................................................. 7,141
Prepaid expenses and other current assets............................ 690
-------
Total current assets............................................... 8,855
Property and equipment--net 3,940
Intangibles--net....................................................... 82
Deferred income taxes.................................................. --
Other assets........................................................... 188
-------
Total assets....................................................... $13,065
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable..................................................... $11,862
Accrued expenses and other current liabilities....................... 5,770
Deferred income taxes ............................................... --
Accrued Interest .................................................... --
Current portion of long-term obligations ............................ --
-------
Total current liabilities.......................................... 17,632
-------
Long-term obligations.................................................. --
-------
Total liabilities.................................................. 17,632
-------
Commitments and contingencies
Stockholders' equity (deficit)......................................... (4,567)
-------
Total liabilities and stockholders' equity......................... $13,065
=======
</TABLE>
See accompanying notes.
F-32
<PAGE>
USFI, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------
1997 1996
-------- --------
<S> <C> <C>
Net revenue................................................ $ 25,231 $ 27,764
Cost of revenue............................................ 19,508 22,475
-------- --------
Gross margin............................................... 5,723 5,289
Operating expenses:
Selling, general and administrative...................... 10,434 8,677
Depreciation and amortization............................ 629 502
-------- --------
Total operating expenses............................... 11,063 9,179
-------- --------
Loss from operations....................................... (5,340) (3,890)
Interest expense........................................... -- --
Interest income............................................ -- --
Other income (expense)..................................... 23 (12)
-------- --------
Loss before income taxes................................... (5,317) (3,902)
Income taxes............................................... -- --
-------- --------
Net loss............................................... $ (5,317) $ (3,902)
======== ========
</TABLE>
See accompanying notes.
F-33
<PAGE>
USFI, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY
PAID-IN ACCUMULATED TRANSLATION
CAPITAL DEFICIT ADJUSTMENT TOTAL
---------- ----------- ----------- -------
<S> <C> <C> <C> <C>
Balance at December 31, 1996....... $ 9,126 $(13,275) $(16) $(4,165)
Capital contributions............ 4,918 -- -- 4,918
Net loss for the nine months
ended September 30, 1997........ -- (5,317) -- (5,317)
Foreign currency translation..... -- -- (3) (3)
------- -------- ---- -------
Balance at September 30, 1997...... $14,044 $(18,592) $(19) $(4,567)
======= ======== ==== =======
</TABLE>
See accompanying notes.
F-34
<PAGE>
USFI, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------
1997 1996
-------- --------
<S> <C> <C>
Operating Activities
Net loss................................................. $ (5,317) $ (3,902)
Adjustments to reconcile net loss to net cash used in op-
erating activities:
Depreciation and amortization.......................... 626 502
Provisions for losses on receivables................... 96 320
Changes in operating assets and liabilities:
Increase in accounts receivable from customers and
affiliates.......................................... (914) (2,601)
Increase in other current assets..................... (578) (276)
Increase in deposits................................. (27) (15)
Increase in accounts payable and accrued expenses.... 589 3,872
(Decrease) increase in reseller deposits and deferred
revenue............................................. (173) 62
(Decrease) increase in due to affiliates............. (1,412) 723
-------- --------
Net cash used in operating activities...................... (7,110) (1,315)
Investing Activities
Purchase of equipment.................................... (1,863) (2,052)
Decrease in deferred costs............................... 5 81
-------- --------
Net cash used in investing activities...................... (1,858) (1,971)
Financing Activities
Capital contributions.................................... 4,918 3,025
Advances from affiliates................................. 4,193 --
Repayment of capital lease obligation.................... -- (3)
-------- --------
Net cash provided by financing activities.................. 9,111 3,022
Effect of exchange rate changes on cash.................... (3) 3
-------- --------
Increase (decrease) in cash................................ 140 (261)
Cash at beginning of period................................ 884 420
-------- --------
Cash at end of period...................................... $ 1,024 $ 159
======== ========
</TABLE>
See accompanying notes.
F-35
<PAGE>
USFI, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF SEPTEMBER 30, 1997 AND FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 1997 AND 1996)
1. ORGANIZATION AND NATURE OF BUSINESS
USFI, Inc. (the "Company") which was incorporated in New York on February
12, 1993, provides least cost routing for international long distance
telecommunication services, which primarily originate and terminate outside of
the United States. Substantially, all billings for service are denominated in
U.S. currency.
On September 11, 1997, the Company entered into a letter of intent to sell
most of its assets, except for cash and accounts and notes receivable to
Primus Telecommunications Group, Inc. ("Primus"). (See Note 7.)
2. BASIS OF PRESENTATION
The accompanying financial statements have been prepared on the basis that
the Company will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company has incurred losses since inception and has a working
capital deficiency and a deficit in stockholders' equity as of September 30,
1997. On October 20, 1997, the Company sold most of its assets (see Note 7) to
Primus and began to terminate its business. All of these matters raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts or classifications of liabilities that may result from the outcome
of this uncertainty.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. SIGNIFICANT ACCOUNTING POLICIES
Depreciation
Furniture and equipment are recorded at cost and are depreciated over the
estimated useful lives of three to five years, utilizing the straight-line
method. Assets acquired pursuant to capital lease arrangements and leasehold
improvements are amortized on a straight-line basis over the shorter of their
estimated useful lives or the terms of the leases. Depreciation expense for
the nine months ended September 30, 1997 and 1996 was $626,000 and $496,000,
respectively.
Deferred Costs
Deferred costs include costs to obtain trademarks and certain organizational
costs. Such deferred costs are amortized on the straight-line basis generally
as follows:
<TABLE>
<CAPTION>
PERIOD OF
ASSET AMORTIZATION
----- ------------
<S> <C>
Trademarks...................... 5 years
Organization costs.............. 5 years
</TABLE>
Revenue Recognition
The Company recognizes revenue from services and the related costs at the
time the services are rendered.
F-36
<PAGE>
USFI, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income Tax
Income taxes are accounted for under the liability method in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company
and Mastercall. All significant intercompany accounts and transactions have
been eliminated.
Interim Financial Statements
The accompanying unaudited consolidated interim financial statements as of
September 30, 1997 and for each of the nine month periods ended September 30,
1997 and 1996 include all adjustments which, in the opinion of management, are
necessary for a fair presentation of the Company's consolidated financial
position and results of operations and cash flows for the periods presented.
All such adjustments are of a normal recurring nature. The results of the
Company's operations for the nine months ended September 30, 1997 and 1996 are
not necessarily indicative of the results of operations for a full fiscal
year.
4. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is involved in litigation in the normal course of business. In
the opinion of management, such liabilities will not have a material effect on
the Company's cash flow, financial condition or results of operations.
5. MAJOR SUPPLIERS
During the nine month period ended September 30, 1997, MCI, Cable and
Wireless International, Inc. and Pacific Gateway Exchange provided the Company
with a majority of its international telecommunications network services.
During the nine month period ended September 30, 1996, MCI, World Com, Inc.
(formerly IDB) and Cable and Wireless International, Inc. provided the Company
with a majority of its international telecommunications network services.
Charges for such services are included in cost of telecommunications
services in the accompanying statements of operations.
6. RELATED PARTIES
In March 1995, the Company entered into an agreement with TelePassport Japan
Co., Ltd. ("TelePassport Japan"), an affiliated joint venture formed in 1995,
to provide international telecommunication services. Telecommunication revenue
for the nine month period ended September 30, 1997 and 1996 include $200,000
and $1,941,000, respectively, for services provided to TelePassport Japan. The
joint venture was terminated in 1997.
The Company continued to provide international telecommunication services in
Japan to TelePassport Network KK ("Network KK"), an affiliated company.
Telecommunication revenue for the nine month period ended September 30, 1997
includes $574,000 for service provided to Network KK.
F-37
<PAGE>
USFI, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Loans from affiliates at September 30, 1997 represents a note due to US
Cable Corporation, an affiliate of certain stockholders which is secured by
the assets of the Company and accrues interest at prime plus one percent.
7. SUBSEQUENT EVENTS
On October 20, 1997, the Company sold most of its assets to Primus for $5.5
million. Cash, accounts receivable and notes receivable were excluded from the
assets sold. Subsequent to closing, the Company plans to terminate its
business.
Subsequent to September 30, 1997, the Company entered into agreements with
certain vendors to settle existing liabilities with such vendors at reduced
amounts.
F-38
<PAGE>
TELEPASSPORT L.L.C.
UNAUDITED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents............................................. $ 163
Restricted cash and cash equivalents.................................. --
Short term investments................................................ --
Accounts receivable................................................... 627
Prepaid expenses and other current assets............................. 255
------
Total current assets................................................ 1,044
Property and equipment--net............................................. 663
Intangibles--net........................................................ 157
Deferred income taxes................................................... --
Other assets............................................................ 214
------
Total assets........................................................ $2,078
======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable...................................................... $ 375
Accrued expenses and other current liabilities........................ 332
Deferred income taxes................................................. --
Accrued Interest...................................................... --
Current portion of long-term obligations.............................. --
------
Total current liabilities........................................... 707
Long-term obligations................................................... 841
------
Total liabilities................................................... 1,548
------
Commitments and contingencies
Stockholders' equity (deficit) ......................................... 530
------
Total liabilities and stockholders' equity.......................... $2,078
======
</TABLE>
F-39
<PAGE>
TELEPASSPORT L.L.C.
UNAUDITED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
Net revenue............................................................ $2,900
Cost of revenue........................................................ 2,523
------
Gross margin........................................................... 377
Operating expenses:
Selling, general, and administrative................................. 1,296
Depreciation and amortization........................................ 69
------
Total operating expenses........................................... 1,365
------
Loss from operations................................................... (988)
Interest expense....................................................... (17)
Interest income........................................................ --
Other income (expense)................................................. 151
------
Loss before income taxes............................................... (854)
Income taxes........................................................... --
------
Net loss........................................................... $ (854)
======
</TABLE>
F-40
<PAGE>
TELEPASSPORT L.L.C.
UNAUDITED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS)
<TABLE>
<S> <C>
Operating Activities
Net loss............................................................ $ (854)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization..................................... 69
Changes in operating assets and liabilities....................... (545)
-------
Net cash used in operating activities................................. (1,330)
Investing Activities
Purchase of equipment............................................... (732)
-------
Net cash used in investing activities................................. (732)
Financing Activities
Capital contributions............................................... 1,384
Advances from affiliates............................................ 841
-------
Net cash provided by financing activities............................. 2,225
Effect of exchange rate changes on cash............................... --
-------
Increase (decrease) in cash........................................... 163
Cash at beginning of period........................................... --
-------
Cash at end of period................................................. $ 163
=======
</TABLE>
F-41
<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-42
<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-43
<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-44
<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-45
<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-46
<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-47
<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 where TresCom deems appropriate,
prepayment and/or cash deposits or letters of credit are required for the
provision of services.
F-48
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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-49
<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-50
<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>
F-51
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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:
<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-52
<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-53
<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-54
<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-55
<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-56
<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 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-57
<PAGE>
TRESCOM INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
DATA)
<S> <C> <C>
ASSETS
------
Current assets:
Cash................................................ $ 102 $ 1,481
Accounts and notes receivable, net of allowance for
doubtful accounts of $7,918 and $8,149,
respectively....................................... 26,956 31,743
Other current assets................................ 2,492 2,406
-------- --------
Total current assets.............................. 29,550 35,630
Property and equipment, at cost:
Transmission and communications equipment........... 30,517 29,720
Furniture, fixtures and other....................... 10,272 9,620
-------- --------
40,789 39,340
Less accumulated depreciation and amortization...... (10,894) (9,668)
-------- --------
29,895 29,672
Other assets:
Customer bases, net of accumulated amortization of
$2,650 and $2,385, respectively.................... 3,010 3,274
Excess of cost over net assets of businesses
acquired, net of accumulated amortization of $3,830
and $3,508, respectively .......................... 38,596 38,826
Other............................................... 940 1,027
-------- --------
Total assets...................................... $101,991 $108,429
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable.................................... $ 907 $ 1,237
Accrued network costs............................... 18,667 19,497
Other accrued expenses.............................. 4,733 6,365
Long-term obligations due within one year........... 1,299 1,098
Deferred revenue and other current liabilities...... 1,762 1,689
-------- --------
Total current liabilities......................... 27,368 29,886
Long-term obligations................................. 19,842 19,593
Shareholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; no shares issued and outstanding ...... -- --
Common stock, $.0419 par value; 50,000,000 shares
authorized; 12,161,844 shares issued and
outstanding; 12,104,960 shares issued and
outstanding ....................................... 508 505
Deferred compensation............................... (391) (551)
Additional paid-in capital.......................... 108,497 108,354
Accumulated deficit................................. (53,833) (49,358)
-------- --------
Total shareholders' equity........................ 54,781 58,950
-------- --------
Total liabilities and shareholders' equity............ $101,991 $108,429
======== ========
</TABLE>
See accompanying notes.
F-58
<PAGE>
TRESCOM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues.............................................. $ 38,137 $ 36,143
Cost of services...................................... 30,971 27,812
---------- ----------
Gross profit.......................................... 7,166 8,331
Selling, general and administrative................... 9,262 8,108
Depreciation and amortization......................... 1,944 1,501
---------- ----------
Operating loss...................................... (4,040) (1,278)
Interest expense (income), net...................... 415 (2)
Other expense, net.................................. 20 --
---------- ----------
Net loss.............................................. $ (4,475) $ (1,276)
========== ==========
Basic and diluted net loss per share of common stock.. $ (0.37) $ (0.11)
========== ==========
Weighted average number of shares of common stock
outstanding.......................................... 12,146 11,816
========== ==========
</TABLE>
See accompanying notes.
F-59
<PAGE>
TRESCOM INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
----------------------------
ADDITIONAL TOTAL
PAID-IN DEFERRED ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT EQUITY
---------- ------ ---------- ------------ ----------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1997................... 12,104,960 $505 $108,354 $(551) $(49,358) $58,950
Exercise of stock
options.............. 56,884 3 143 -- -- 146
Non-cash compensation
expense.............. -- -- -- 160 -- 160
Net loss.............. -- -- -- -- (4,475) (4,475)
---------- ---- -------- ----- -------- -------
Balance at March 31,
1998................... 12,161,844 $508 $108,497 $(391) $(53,833) $54,781
========== ==== ======== ===== ======== =======
</TABLE>
See accompanying notes.
F-60
<PAGE>
TRESCOM INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................. $ (4,475) $ (1,276)
Adjustments to reconcile net loss to net cash used in op-
erating activities:
Depreciation and amortization.......................... 1,944 1,501
Non-cash compensation.................................. 160 162
Changes in operating assets and liabilities, net of ef-
fects of acquisitions:
Accounts and notes receivable........................ 4,787 (1,770)
Other current assets................................. (117) (355)
Accounts payable..................................... (330) (1,195)
Accrued network costs................................ (830) 2,263
Other accrued expenses............................... (1,632) (1,142)
Deferred revenue and other current liabilities....... (20) (1,611)
--------- ---------
Net cash used in operating activities.................... (513) (3,423)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment...................... (840) (1,080)
Expenditures for line installations...................... (13) (72)
--------- ---------
Net cash used in investing activities.................... (853) (1,152)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt....................................... -- 2,500
Proceeds from revolving credit agreement, net............ 162 --
Repayment of debt........................................ (4) (4)
Proceeds from stock option exercise...................... 146 7
Principal payments on capital lease obligations.......... (317) (176)
--------- ---------
Net cash (used in) provided by financing activities...... (13) 2,327
--------- ---------
Net change in cash....................................... (1,379) (2,248)
Cash at beginning of period.............................. 1,481 6,020
--------- ---------
Cash at end of period.................................... $ 102 $ 3,772
========= =========
Interest paid............................................ $ 466 $ 163
========= =========
Capital lease obligations incurred....................... $ 609 $ --
========= =========
</TABLE>
See accompanying notes.
F-61
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. GENERAL
Organization and Basts of Presentation
TresCom International, Inc. (together with its subsidiaries collectively
referred to as the "Company") is a facilities-based long-distance
telecommunications carrier focused on international long-distance traffic. The
Company 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.
These financial statements have been prepared in accordance with generally
accepted accounting principles for interim financial reporting and Securities
and Exchange Commission regulations. Certain information and footnote
disclosures normally included to financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such regulations. In the opinion of management, the information
contained herein reflects all adjustments necessary to make the financial
position, results of operations and cash flows for the interim periods a fair
representation. All such adjustments are of a normal recurring nature. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period.
Actual results could differ from those estimates. These financial statements
should be read in conjunction with the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997. The results of operations for the
interim periods shown are not necessarily indicative of results of operations
to be expected for the entire fiscal year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reference should be made to the Notes to Consolidated Financial Statements
in the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997, specifically Note 2, for a summary of the Company's significant
accounting policies.
Reclassification
Certain prior year amounts have been reclassified to conform with current
year presentation.
New Accounting Pronouncement
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings Per Share" ("SFAS 128"). SFAS 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 with SFAS 128.
F-62
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
3. LONG-TERM OBLIGATIONS
A summary of long-term obligations is as follows;
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
Revolving Credit Agreement, interest payable monthly
at rates based upon the lender's commercial lending
rate plus 0.5% (9.0% at March 31, 1998), maturing in
July 2002........................................... $15,808 $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...................................... 396 401
Capital leases bearing interest at rates ranging from
9% to 11% and payable in monthly installments
totaling $167....................................... 4,937 4,645
------- -------
21,141 20,691
Less amounts due within one year..................... 1,299 1,098
------- -------
$19,842 $19,593
======= =======
The Company has a $25,000 revolving credit and security agreement (the
"Revolving Credit Agreement") with a commercial bank secured by the Company's
accounts receivable. As of March 31, 1998, availability under the Revolving
Credit Agreement was approximately $19,400 of which approximately $16,494
(including approximately $686 of letters of credit) had been utilized. As of
March 31, 1998, the Company was in compliance with all covenants contained in
the Revolving Credit Agreement. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Assets totaling $609 were acquired via a capital lease during the first
quarter of 1998.
4. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1997
--------- ------------
<S> <C> <C>
Numerator:
Numerator for basic and diluted earnings per
share--net loss applicable to common stock........ $(4,475) $(1,276)
======= =======
Denominator:
Denominator for basic and diluted earnings per
share--weighted average shares.................... 12,146 11,816
======= =======
Basic and diluted net loss per share of common
stock............................................... $ (0.37) $ (0.11)
======= =======
</TABLE>
F-63
<PAGE>
TRESCOM INTERNATIONAL, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
5. PROPOSED MERGER
In February 1998, the Company entered into a definitive Agreement and Plan
of Merger, which was subsequently amended by Amendments No. 1 and 2, dated as
of April 8, 1998 and as of April 16, 1998, respectively, with Primus
Telecommunications Group, Incorporated ("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 the Company, that the Company will be the
surviving corporation and that Primus will acquire 100% of the issued and
outstanding shares of the Company's 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' and the Company's shareholders and
certain regulatory authorities.
F-64
<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
<PAGE>
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
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMA-
TION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITA-
TION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE NOTES OFFERED HEREBY NOR
DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY
OF THE NOTES TO ANY PERSON IN ANY JURISDICTION IN WHICH IT WOULD BE UNLAWFUL TO
MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER, SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information.................................................... iii
Incorporation of Certain Documents by Reference.......................... iii
Summary.................................................................. 1
Risk Factors............................................................. 14
The Exchange Offer....................................................... 27
Recent Developments...................................................... 35
Capitalization........................................................... 36
Selected Financial Data.................................................. 37
Unaudited Pro Forma Financial Data....................................... 41
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 45
Business................................................................. 59
Management............................................................... 85
Certain Transactions..................................................... 97
Principal Stockholders................................................... 99
Description of Certain Indebtedness...................................... 102
Description of Exchange Notes............................................ 103
Certain Federal Income Tax Considerations................................ 131
Plan of Distribution..................................................... 135
Legal Matters............................................................ 136
Experts.................................................................. 136
Index to Financial Statements............................................ F-1
Financial Statement Schedule of TresCom.................................. S-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OFFER TO EXCHANGE ALL OUTSTANDING
9 7/8% SENIOR NOTES DUE 2008
($150,000,000 PRINCIPAL AMOUNT)
FOR 9 7/8% SENIOR NOTES DUE 2008
[LOGO OF PRIMUS TELECOMMUNICATIONS GROUP, INC.]
-----------------
PROSPECTUS
July , 1998
-----------------
All tendered Initial Notes, executed Letters of Transmittal and other related
documents should be directed to the Exchange Agent. Questions and requests for
assistance and requests for additional copies of the Prospectus, the Letter of
Transmittal and other related documents should be addressed to the Exchange
Agent as follows:
BY MAIL, HAND OR OVERNIGHT DELIVERY:
First Union Customer Information Center
Reorganization Department, 3C3-NC 1153
1525 West W.T. Harris Boulevard
Charlotte, N.C. 28262
FACSIMILE TRANSMISSION:
(704) 590-7628
TO CONFIRM RECEIPT:
(704) 590-7408
(Originals of all documents submitted by facsimile should be sent promptly by
hand, overnight courier or registered or certified mail)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<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 of the TresCom Merger (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; Incorporated by reference to Exhibit 2.1
of the Registration Statement on Form S-4, No. 333-51797 (the "Proxy
Registration Statement"). 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-8, No. 333-56557 (the "S-8 Registration Statement").
3.2 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 "1997
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.
4.4 Indenture, dated May 19, 1998, between Primus Telecommunications
Group, Incorporated and First Union Nation Bank.+
4.5 Specimen 9 7/8% Senior Note due 2008 (contained in Exhibit 4.4 as
Exhibit A).+
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.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
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.
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 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.
10.17 Primus Employee Stock Purchase Plan; Incorporated by reference to
Exhibit 10.15 of the 1997 Senior Note Registration Statement.
10.18 Primus 401(k) Plan; Incorporated by reference to Exhibit 4.4 of the
Primus Registration Statement on Form S-8 (No. 333-35005).
10.19 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.
10.20 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.
10.21 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.
10.22 Purchase Agreement, dated May 14, 1998, among Primus
Telecommunications Group, Incorporated, Primus Telecommunications,
Incorporated, Primus Telecommunications Pty. Ltd. and Lehman Brothers,
Inc.+
10.23 Registration Rights Agreement, dated May 19, 1998, among Primus
Telecommunications Group, Incorporated, Primus Telecommunications,
Incorporated, Primus Telecommunications Pty. Ltd. and Lehman Brothers,
Inc.+
10.24 Primus Telecommunications Group, Incorporated-TresCom International
Stock Option Plan Incorporated by reference to the S-8 Registration.
Incorporated by reference to Exhibit 4.1 of the S-8 Registration
Statement.
10.25 Amended and Restated Employment Agreement between the Company and
Wesley T. O'Brien. Incorporated by reference to Exhibit 10.3 to the
TresCom 1996 Form 10-K.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
10.26 First Amendment to Amended and Restated Employment Agreement between
the Company and Wesley T. O'Brien. Incorporated by reference to
Exhibit 10.2 to the TresCom 1997 Form 10-K).
10.27 Employment Agreement between the Company and Rudolph McGlashan.
Incorporated by reference to Exhibit 10.4 to the TresCom Registration
Statement on Form S-1, No. 33-99738, filed on November 22, 1995 (the
"TresCom Form S-1").
10.28 Amendment to Employment Agreement between the Company and Rudolph
McGlashan. Incorporated by reference to Exhibit 10.5 to the TresCom
Form S-1.
10.29 Warrant Agreement between the Company and Warburg, Pincus Investors,
L.P. Incorporated by reference to Exhibit 10.6 to the TresCom Form S-
1.
10.30 Form of Indemnification Agreement between the Company and its
directors and executive officers Incorporated by reference to Exhibit
10.23 to the TresCom Form S-1.
10.31 Revolving Credit and Security Agreement, among TresCom International,
Inc., TresCom U.S.A., Inc., Intex Telecommunications, Inc., The St.
Thomas and San Juan Telephone Company, Inc., STSJ Overseas Telephone
Company, Inc., PNC Bank, National Association (as lender and as agent)
and the other lenders a party thereto (the "Loan Agreement").
Incorporated by reference to Exhibit 10.22 to the TresCom Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 1997.
10.32 Revolving Credit Note, dated July 31, 1997, payable to PNC Bank,
National Association and the other lenders a party to the Loan
Agreement. Incorporated by reference to Exhibit 10.23 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1997.
21.1 Subsidiaries of the Registrant.+
23.1 Consent of Deloitte & Touche LLP (included on page II-6 of this
Registration Statement).
23.2 Consent of Ernst & Young LLP (included on page II-7 of this
Registration Statement).
23.3 Consent of Ernst & Young LLP (included on page II-8 of this
Registration Statement).
23.4 Consent of Pepper Hamilton LLP (included in Exhibit 5.1).*
24.1 Power of Attorney (included on page II-9 of this Registration
Statement).
25 Form T-1.*
99.1 Form of Letter of Transmittal.+
99.2 Form of Notice of Guaranteed Delivery.+
</TABLE>
- --------
* To be Filed by Amendment.
+ Filed herewith
(B) FINANCIAL STATEMENT SCHEDULES.
All schedules have been omitted because they are not applicable, not
required, or the required information is included in the Financial Statements
or the notes thereto.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
The undersigned registrant hereby undertakes: (1) to file, during any period
in which offers or sales are being made, a post-effective amendment to this
registration statement: (i) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any
facts or events arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent no
more than 20 percent change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective registration
statement; and (iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement; (2)
that, for the purpose of determining any liability under the Securities Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; and (3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-5
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use 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,
included herein and incorporated by reference from the Company's Joint Proxy
Statement/Prospectus dated May 4, 1998, and to the reference to us under the
headings "Selected Financial Data" and "Experts" in the Prospectus, which is
part of this Registration Statement.
Deloitte & Touche LLP
Washington, DC
June 30, 1998
II-6
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated September 30, 1997 with respect to the
consolidated financial statements of USFI, Inc. included in this Registration
Statement on Form S-4 and related Prospectus of Primus Telecommunications
Group, Inc. for the Exchange Offer of its 9 7/8% Senior Notes due 2008 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 and incorporated by reference in the Joint Proxy
Statement/Prospectus dated May 4, 1998 of Primus Telecommunications Group,
Inc.
Ernst & Young LLP
Hackensack, New Jersey
July 2, 1998
II-7
<PAGE>
EXHIBIT 23.3
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
consolidated 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 Exchange Offer
of its 9 7/8% Senior Notes due 2008 and incorporated by reference in the Joint
Proxy Statement/Prospectus dated May 4, 1998 of Primus Telecommunications
Group, Incorporated.
Ernst & Young LLP
Atlanta, Georgia
July 1, 1998
II-8
<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 July 2, 1998.
Primus Telecommunications Group,
Incorporated
/s/ K. Paul Singh
By: _________________________________
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 July 2, 1998
- ------------------------------------- and Chief Executive
K. PAUL SINGH Officer (principal
executive officer
and Director
/s/ Neil L. Hazard Executive Vice July 2, 1998
- ------------------------------------- President and Chief
NEIL L. HAZARD Financial Officer
(principal
financial officer
and principal
accounting officer)
/s/ John F, DePodesta Executive Vice July 2, 1998
- ------------------------------------- President and
JOHN F. DEPODESTA Director
II-9
<PAGE>
SIGNATURE TITLE DATE
/s/ Herman Fialkov Director July 2, 1998
- -------------------------------------
HERMAN FIALKOV
/s/ David E. Hershberg Director July 2, 1998
- -------------------------------------
DAVID E. HERSHBERG
/s/ John Puente Director July 2, 1998
- -------------------------------------
JOHN PUENTE
/s/ Douglas M. Karp Director July 2, 1998
- -------------------------------------
DOUGLAS M. KARP
II-10
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
2.1 Agreement and Plan of Merger by and among Primus, TresCom and TAC,
dated as of February 3, 1998; Incorporated by reference to Exhibit 2.1
of the Registration Statement on Form S-4, No. 333-51797 (the "Proxy
Registration Statement"). 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.)
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-8, No. 333-56557 (the "S-8 Registration Statement").
3.2 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.
4.4 Indenture, dated May 19, 1998, between Primus Telecommunications
Group, Incorporated and First Union Nation Bank.+
4.5 Specimen 9 7/8% Senior Note due 2008 (contained in Exhibit 4.4 as
Exhibit A).+
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.
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
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.
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 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.
10.17 Primus Employee Stock Purchase Plan; Incorporated by reference to
Exhibit 10.15 of the 1997 Senior Note Registration Statement.
10.18 Primus 401(k) Plan; Incorporated by reference to Exhibit 4.4 of the
Primus Registration Statement on Form S-8 (No. 333-35005).
10.19 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.
10.20 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.
10.21 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.
2
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
10.22 Purchase Agreement, dated May 14, 1998, among Primus
Telecommunications Group, Incorporated, Primus Telecommunications,
Incorporated, Primus Telecommunications Pty. Ltd. and Lehman Brothers,
Inc.+
10.23 Registration Rights Agreement, dated May 19, 1998, among Primus
Telecommunications Group, Incorporated, Primus Telecommunications,
Incorporated, Primus Telecommunications Pty. Ltd. and Lehman Brothers,
Inc.+
10.24 Primus Telecommunications Group, Incorporated-TresCom International
Stock Option Plan Incorporated by reference to the S-8 Registration.
Incorporated by reference to Exhibit 4.1 of the S-8 Registration
Statement.
10.25 Amended and Restated Employment Agreement between the Company and
Wesley T. O'Brien. Incorporated by reference to Exhibit 10.3 to the
TresCom 1996 Form 10-K.
10.26 First Amendment to Amended and Restated Employment Agreement between
the Company and Wesley T. O'Brien. Incorporated by reference to
Exhibit 10.2 to the TresCom 1997 Form 10-K).
10.27 Employment Agreement between the Company and Rudolph McGlashan.
Incorporated by reference to Exhibit 10.4 to the TresCom Registration
Statement on Form S-1, No. 33-99738, filed on November 22, 1995 (the
"TresCom Form S-1").
10.28 Amendment to Employment Agreement between the Company and Rudolph
McGlashan. Incorporated by reference to Exhibit 10.5 to the TresCom
Form S-1.
10.29 Warrant Agreement between the Company and Warburg, Pincus Investors,
L.P. Incorporated by reference to Exhibit 10.6 to the TresCom Form S-
1.
10.30 Form of Indemnification Agreement between the Company and its
directors and executive officers Incorporated by reference to Exhibit
10.23 to the TresCom Form S-1.
10.31 Revolving Credit and Security Agreement, among TresCom International,
Inc., TresCom U.S.A., Inc., Intex Telecommunications, Inc., The St.
Thomas and San Juan Telephone Company, Inc., STSJ Overseas Telephone
Company, Inc., PNC Bank, National Association (as lender and as agent)
and the other lenders a party thereto (the "Loan Agreement").
Incorporated by reference to Exhibit 10.22 to the TresCom Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 1997.
10.32 Revolving Credit Note, dated July 31, 1997, payable to PNC Bank,
National Association and the other lenders a party to the Loan
Agreement. Incorporated by reference to Exhibit 10.23 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1997.
21.1 Subsidiaries of the Registrant.+
23.1 Consent of Deloitte & Touche LLP (included on page II-6 of this
Registration Statement).
23.2 Consent of Ernst & Young LLP (included on page II-7 of this
Registration Statement).
23.3 Consent of Ernst & Young LLP (included on page II-8 of this
Registration Statement).
23.4 Consent of Pepper Hamilton LLP (included in Exhibit 5.1).*
24.1 Power of Attorney (included on page II-9 of this Registration
Statement).
25 Form T-1.*
99.1 Form of Letter of Transmittal.+
99.2 Form of Notice of Guaranteed Delivery.+
- --------
* To be Filed by Amendment.
+ Filed herewith
3
<PAGE>
EXHIBIT 4.4
===============================================================================
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED,
Issuer
to
FIRST UNION NATIONAL BANK,
Trustee
____________________
INDENTURE
Dated as of May 19, 1998
_____________________
$150,000,000
9 7/8 % Senior Notes Due 2008
9 7/8 Series B Senior Notes Due 2008
===============================================================================
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND INDENTURE, DATED AS OF MAY 19, 1998
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
<S> <C>
(S) 310(a)(1) .................................................................... 607
(a)(2) .................................................................... 607
(b) .................................................................... 608
(S) 312(c) .................................................................... 701
(S) 314(a) .................................................................... 703
(a)(4) .................................................................... 1008(a)
(c)(1) .................................................................... 102
(c)(2) .................................................................... 102
(e) .................................................................... 102
(S) 315(b) .................................................................... 601
(S) 316(a)(last
sentence) .................................................................... 101 ("Outstanding")
(a)(1)(A) .................................................................... 502, 512
(a)(1)(B) .................................................................... 513
(b) .................................................................... 508
(c) .................................................................... 104(d)
(S) 317(a)(1) .................................................................... 503
(a)(2) .................................................................... 504
(b) .................................................................... 1003
(S) 318(a) .................................................................... 111
</TABLE>
____________________
Note: This reconciliation and tie shall not, for any purpose, be deemed to
be part of the Indenture.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
----
<S> <C>
PARTIES ................................................................................ 1
RECITALS OF THE COMPANY................................................................. 1
ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.......................................................... 2
Acquired Indebtedness......................................................... 2
Act........................................................................... 2
Affiliate..................................................................... 2
Agent Member.................................................................. 3
Asset Acquisition............................................................. 3
Asset Disposition............................................................. 3
Asset Sale.................................................................... 3
Average Life.................................................................. 3
Board of Directors............................................................ 4
Board Resolution.............................................................. 4
Business Day.................................................................. 4
Capital Stock................................................................. 4
Capitalized Lease............................................................. 4
Capitalized Lease Obligation.................................................. 4
Change of Control............................................................. 4
Closing Date.................................................................. 5
Commission.................................................................... 5
Common Stock.................................................................. 5
Company....................................................................... 5
Company Request" or "Company Order............................................ 5
Consolidated Cash Flow........................................................ 5
Consolidated Fixed Charges.................................................... 5
Consolidated Interest Expense................................................. 6
Consolidated Net Income....................................................... 6
Corporate Trust Office........................................................ 6
Corporation................................................................... 6
</TABLE>
____________________
Note: This table of contents shall not, for any purpose, be deemed to be
part of the Indenture.
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Covenant defeasance........................................................... 6
Credit Facilities............................................................. 6
Currency Agreement............................................................ 7
Default....................................................................... 7
Defaulted Interest............................................................ 7
Depositary.................................................................... 7
Eligible Accounts Receivable.................................................. 7
Eligible Institution.......................................................... 7
Employment Agreement.......................................................... 7
Event of Default.............................................................. 7
Excess Proceeds Offer......................................................... 7
Exchange Notes................................................................ 8
Existing Indebtedness......................................................... 8
Fair Market Value............................................................. 8
Federal Bankruptcy Code....................................................... 8
GAAP.......................................................................... 8
Global Notes.................................................................. 8
Government Securities......................................................... 8
Guarantee..................................................................... 8
Holder........................................................................ 9
Incur......................................................................... 9
Indebtedness.................................................................. 9
Indenture..................................................................... 10
Initial Notes................................................................. 10
Initial Purchasers............................................................ 10
Interest Payment Date......................................................... 10
Interest Rate Agreement....................................................... 10
Investment.................................................................... 10
Lien.......................................................................... 10
Liquidated Damages............................................................ 11
Marketable Securities......................................................... 11
Maturity...................................................................... 11
Net Cash Proceeds............................................................. 11
Note Register and Note Registrar.............................................. 12
Notes......................................................................... 12
Officer's Certificate......................................................... 12
Offshore Global Notes......................................................... 12
Offshore Physical Notes....................................................... 12
Offshore Notes Exchange Date.................................................. 12
Opinion of Counsel............................................................ 12
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Outstanding................................................................... 12
Paying Agent.................................................................. 13
Payment Account............................................................... 13
Permitted Business............................................................ 13
Permitted Investment.......................................................... 13
Permitted Liens............................................................... 14
Person........................................................................ 15
Physical Notes................................................................ 15
Predecessor Note.............................................................. 15
Preferred Stock............................................................... 15
Private Placement Legend...................................................... 16
Pro Forma Consolidated Cash Flow.............................................. 16
Proportionate Share........................................................... 16
Public Equity Offering........................................................ 16
Purchase Money Obligations.................................................... 16
QIB........................................................................... 16
Qualified Capital Stock....................................................... 16
Redeemable Stock.............................................................. 16
Redemption Date............................................................... 17
Redemption Price.............................................................. 17
Registration Rights Agreement................................................. 17
Regular Record Date........................................................... 17
Regulation S.................................................................. 17
Responsible Officer........................................................... 17
Restricted Payments........................................................... 17
Restricted Subsidiary......................................................... 17
Rule 144A..................................................................... 17
Securities Act................................................................ 18
Shelf Registration Statement.................................................. 18
Significant Subsidiary........................................................ 18
Special Record Date........................................................... 18
Stated Maturity............................................................... 18
Strategic Subordinated Indebtedness........................................... 18
Subordinated Indebtedness..................................................... 18
Subsidiary.................................................................... 18
Trade Payables................................................................ 18
Transaction Date.............................................................. 19
Trust Indenture Act or TIA.................................................... 19
Trustee....................................................................... 19
Unrestricted Subsidiary....................................................... 19
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
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----
<S> <C>
Unrestricted Subsidiary Indebtedness.......................................... 19
U.S. Global Note.............................................................. 20
U.S. Government Obligations................................................... 20
U.S. Physical Notes........................................................... 20
U.S. Subsidiary............................................................... 20
Vice President................................................................ 20
Voting Stock.................................................................. 20
Wholly Owned.................................................................. 20
SECTION 102. Incorporation by Reference of Trust Indenture Act.................... 20
SECTION 103. Compliance Certificates and Opinions................................. 21
SECTION 104. Form of Documents Delivered to Trustee............................... 21
SECTION 105. Acts of Holders...................................................... 22
SECTION 106. Notices, Etc., to Trustee, Company................................... 23
SECTION 107. Notice to Holders; Waiver............................................ 23
SECTION 108. Effect of Headings and Table of Contents............................. 24
SECTION 109. Successors and Assigns............................................... 24
SECTION 110. Separability Clause.................................................. 24
SECTION 111. Benefits of Indenture................................................ 24
SECTION 112. Governing Law........................................................ 24
SECTION 113. Legal Holidays....................................................... 25
SECTION 114. Currency Indemnity................................................... 25
ARTICLE TWO - NOTE FORMS
SECTION 201. Forms Generally...................................................... 26
SECTION 202. Restrictive Legends.................................................. 27
ARTICLE THREE - THE NOTES
SECTION 301. Title and Terms...................................................... 29
SECTION 302. Denominations........................................................ 30
SECTION 303. Execution, Authentication, Delivery and Dating....................... 30
SECTION 304. Temporary Notes...................................................... 32
SECTION 305. Registration, Registration of Transfer and Exchange.................. 32
SECTION 306. Book-Entry Provisions for Global Notes............................... 33
SECTION 307. Transfer Provisions.................................................. 34
SECTION 308. Mutilated, Destroyed, Lost and Stolen Notes.......................... 43
SECTION 309. Payment of Interest; Interest Rights Preserved....................... 43
SECTION 310. Persons Deemed Owners................................................ 45
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
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----
<S> <C>
SECTION 311. Cancellation......................................................... 45
SECTION 312. Computation of Interest.............................................. 45
SECTION 313. CUSIP Numbers........................................................ 45
ARTICLE FOUR - SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.............................. 46
SECTION 402. Application of Trust Money........................................... 47
ARTICLE FIVE - REMEDIES
SECTION 501. Events of Default.................................................... 47
SECTION 502. Acceleration of Maturity; Rescission and Annulment................... 49
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee...... 50
SECTION 504. Trustee May File Proofs of Claim..................................... 51
SECTION 505. Trustee May Enforce Claims Without Possession of Notes............... 52
SECTION 506. Application of Money Collected....................................... 52
SECTION 507. Limitation on Suits.................................................. 53
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest................................................. 53
SECTION 509. Restoration of Rights and Remedies................................... 54
SECTION 510. Rights and Remedies Cumulative....................................... 54
SECTION 511. Delay or Omission Not Waiver......................................... 54
SECTION 512. Control by Holders................................................... 54
SECTION 513. Waiver of Past Defaults.............................................. 55
SECTION 514. Waiver of Stay or Extension Laws..................................... 55
ARTICLE SIX - THE TRUSTEE
SECTION 601. Notice of Defaults................................................... 55
SECTION 602. Certain Rights of Trustee............................................ 56
SECTION 603. Trustee Not Responsible for Recitals or Issuance of Notes............ 57
SECTION 604. May Hold Notes....................................................... 57
SECTION 605. Money Held in Trust.................................................. 58
SECTION 606. Compensation and Reimbursement....................................... 58
SECTION 607. Corporate Trustee Required; Eligibility.............................. 59
SECTION 608. Resignation and Removal; Appointment of Successor.................... 59
SECTION 609. Acceptance of Appointment by Successor............................... 60
SECTION 610. Merger, Conversion, Consolidation or Succession to Business.......... 61
</TABLE>
-v-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE SEVEN - HOLDERS LISTS AND REPORTS BY
TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders........................ 61
SECTION 702. Reports by Trustee.................................................. 61
SECTION 703. Reports by Company.................................................. 62
ARTICLE EIGHT - CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms................ 62
SECTION 802. Successor Substituted............................................... 63
SECTION 803. Notes to Be Secured in Certain Events............................... 64
ARTICLE NINE - SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.................. 64
SECTION 902. Supplemental Indentures with Consent of Holders..................... 65
SECTION 903. Execution of Supplemental Indentures................................ 66
SECTION 904. Effect of Supplemental Indentures................................... 66
SECTION 905. Conformity with Trust Indenture Act................................. 66
SECTION 906. Reference in Notes to Supplemental Indentures....................... 66
SECTION 907. Notice of Supplemental Indentures................................... 66
ARTICLE TEN - COVENANTS
SECTION 1001. Payment of Principal, Premium, if Any, and Interest................. 67
SECTION 1002. Maintenance of Office or Agency..................................... 67
SECTION 1003. Money for Note Payments to Be Held in Trust......................... 67
SECTION 1004. Corporate Existence................................................. 69
SECTION 1005. Payment of Taxes and Other Claims................................... 69
SECTION 1006. Maintenance of Properties........................................... 69
SECTION 1007. Insurance........................................................... 69
SECTION 1008. Statement by Officers As to Default................................. 70
SECTION 1009. Provision of Financial Statements................................... 70
SECTION 1010. Repurchase of Notes upon a Change of Control........................ 71
SECTION 1011. Limitation on Indebtedness.......................................... 72
SECTION 1012. Limitation on Restricted Payments................................... 76
SECTION 1013. Limitation on Dividend and Other
Payment Restrictions Affecting Restricted Subsidiaries.............. 78
</TABLE>
-vi-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1014. Limitation on the Issuance and Sale of Capital
Stock of Restricted Subsidiaries.................................... 80
SECTION 1015. Limitation on Transactions with Shareholders and Affiliates......... 80
SECTION 1016. Limitation on Liens................................................. 81
SECTION 1017. Limitation on Asset Sales........................................... 81
SECTION 1018. Limitation on Issuances of Guarantees of
Indebtedness by Restricted Subsidiaries............................. 83
SECTION 1019. Business of the Company............................................. 84
SECTION 1020. Limitation on Investments in Unrestricted Subsidiaries.............. 84
SECTION 1021. Waiver of Certain Covenants......................................... 84
ARTICLE ELEVEN - REDEMPTION OF NOTES
SECTION 1101. Right of Redemption................................................. 85
SECTION 1102. Applicability of Article............................................ 85
SECTION 1103. Election to Redeem; Notice to Trustee............................... 85
SECTION 1104. Selection by Trustee of Notes to Be Redeemed........................ 85
SECTION 1105. Notice of Redemption................................................ 86
SECTION 1106. Deposit of Redemption Price......................................... 87
SECTION 1107. Notes Payable on Redemption Date.................................... 87
SECTION 1108. Notes Redeemed in Part.............................................. 87
ARTICLE TWELVE - [This Article Has Been Intentionally Omitted]
ARTICLE THIRTEEN - DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or Covenant Defeasance........ 88
SECTION 1302. Defeasance and Discharge............................................ 88
SECTION 1303. Covenant Defeasance................................................. 88
SECTION 1304. Conditions to Defeasance or Covenant Defeasance..................... 89
SECTION 1305. Deposited Money and U.S. Government Obligations to
Be Held in Trust; Other Miscellaneous Provisions.................... 91
SECTION 1306. Reinstatement....................................................... 91
TESTIMONIUM............................................................................. __
SIGNATURES AND SEALS.................................................................... 92
EXHIBIT A - Form of Note................................................................ A-1
</TABLE>
-vii-
<PAGE>
INDENTURE, dated as of May 19, 1998 between PRIMUS TELECOMMUNICATIONS
GROUP, INCORPORATED, a corporation duly organized and existing under the laws of
the State of Delaware (herein called the "Company"), having its principal office
at 1700 Old Meadow Road, McLean, Virginia 22102, and FIRST UNION NATIONAL BANK,
a national banking association, duly organized and existing under the laws of
the United States, as Trustee (the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of 9 7/8%
Senior Notes Due 2008 (the "Initial Notes") and 9 7/8% Series B Senior Notes Due
2008 (the "Exchange Notes" and, together with the Initial Notes, the "Notes"),
of substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.
Upon the issuance of the Exchange Notes, if any, or the effectiveness
of the Shelf Registration Statement (as defined herein), this Indenture will be
subject to the provisions of the Trust Indenture Act of 1939, as amended, that
are required to be part of this Indenture and shall, to the extent applicable,
be governed by such provisions.
All things necessary have been done to make the Notes, when executed
by the Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company and to make this Indenture a valid
agreement of the Company, in accordance with their and its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes, as follows:
-1-
<PAGE>
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and "self-
liquidating paper", as used in TIA Section 311, shall have the meanings
assigned to them in the rules of the Commission adopted under the Trust
Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and
(d) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Acquired Indebtedness" means Indebtedness of a Person existing at
the time such Person becomes a Restricted Subsidiary or assumed in connection
with an Asset Acquisition by the Company or a Restricted Subsidiary and not
incurred in connection with, or in anticipation of, such Person becoming a
Restricted Subsidiary or such Asset Acquisition; provided that Indebtedness of
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such Person which is redeemed, defeased, retired or otherwise repaid at the time
of or immediately upon the consummation of the transactions by which such Person
becomes a Restricted Subsidiary or such Asset Acquisition shall not be
Indebtedness.
"Act", when used with respect to any Holder, has the meaning
specified in Section 105.
"Affiliate" means, as applied to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies
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of such Person, whether through the ownership of voting securities, by contract
or otherwise. For purposes of the Indenture "Affiliate" shall be deemed to
include Mr. K. Paul Singh.
"Agent Member" has the meaning specified in Section 306.
"Asset Acquisition" means (i) an investment by the Company or any of
its Restricted Subsidiaries in any other Person pursuant to which such Person
shall become a Restricted Subsidiary of the Company or shall be merged into or
consolidated with the Company or any of its Restricted Subsidiaries or (ii) an
acquisition by the Company or any of its Restricted Subsidiaries of the property
and assets of any Person other than the Company or any of its Restricted
Subsidiaries that constitute substantially all of a division or line of business
of such Person.
"Asset Disposition" means the sale or other disposition by the
Company or any of its Restricted Subsidiaries (other than to the Company or
another Restricted Subsidiary of the Company) of (i) all or substantially all of
the Capital Stock of any Restricted Subsidiary of the Company or (ii) all or
substantially all of the assets that constitute a division or line of business
of the Company or any of its Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including
by way of merger, consolidation or sale-leaseback transactions) in one
transaction or a series of related transactions by the Company or any of its
Restricted Subsidiaries to any Person other than the Company or any of its
Restricted Subsidiaries of (i) all or any of the Capital Stock of any
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets of the Company or any of its Restricted
Subsidiaries outside the ordinary course of business of the Company or such
Restricted Subsidiary and, in each case, that is not governed by the provisions
of this Indenture applicable to mergers, consolidations and sales of assets of
the Company and which, in the case of any of clause (i), (ii) or (iii) above,
whether in one transaction or a series of related transactions, (a) have a Fair
Market Value in excess of $1.0 million or (b) are for net proceeds in excess of
$1.0 million; provided that (x) sales or other dispositions of inventory,
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receivables and other current assets in the ordinary course of business and (y)
sales or other dispositions of assets for consideration at least equal to the
Fair Market Value (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board Resolution) of the
assets sold or disposed of, to the extent that the consideration received would
constitute property or assets of the kind described in clause (i)(B) of the
second paragraph of Section 1017, shall not be included within the meaning of
"Asset Sale."
"Average Life" means, at any date of determination with respect to
any debt security, the quotient obtained by dividing (i) the sum of the products
of (a) the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
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"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
or Richmond, Virginia are authorized or obligated by law or executive order to
close.
"Capital Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) in equity of such Person, whether now outstanding
or issued after the date of this Indenture, including, without limitation, all
Common Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person; and "
Capitalized Lease Obligation" means the discounted present value of the rental
obligations under such lease.
"Change of Control" means such time as (i) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes
the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act) of more than 50% of the total voting power of the then outstanding Voting
Stock of the Company on a fully diluted basis; (ii) individuals who at the
beginning of any period of two consecutive calendar years constituted the Board
of Directors (together with any directors who are members of the Board of
Directors on the date hereof and any new directors whose election by the Board
of Directors or whose nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the members of the Board of
Directors then still in office who either were members of the Board of Directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
members of such board of directors then in office; (iii) the sale, lease,
transfer, conveyance or other disposition (other than by way of merger or
consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any such "person" or "group" (other than to the Company or a Restricted
Subsidiary); (iv) the merger or consolidation of the Company with or into
another corporation or the merger of another corporation with or into the
Company with the effect that immediately after such transaction any such
"person" or "group" of persons or entities shall have become the beneficial
owner of securities of the surviving corporation of such merger or consolidation
representing a majority of the total voting power of the then outstanding Voting
Stock of the surviving corporation; or (v) the adoption of a plan relating to
the liquidation or dissolution of the Company.
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"Change of Control Offer" has the meaning specified in Section 1010.
"Change of Control Payment" has the meaning specified in Section 1010.
"Change of Control Payment Date" has the meaning specified in Section
1010.
"Closing Date" means the date on which the Notes are originally
issued under this Indenture.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, or,
if at any time after the execution of this Indenture such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties at such time.
"Common Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) of such Person's common stock, whether now outstanding or
issued after the date of this Indenture, including, without limitation, all
series and classes of such common stock.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, its President, any Vice
President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Consolidated Cash Flow" means, for any period, the sum of the
amounts for such period of (i) Consolidated Net Income, (ii) Consolidated
Interest Expense, (iii) income taxes, to the extent such amount was deducted in
calculating Consolidated Net Income (other than income taxes (either positive or
negative) attributable to extraordinary and non-recurring gains or losses or
sales of assets), (iv) depreciation expense, to the extent such amount was
deducted in calculating Consolidated Net Income, (v) amortization expense, to
the extent such amount was deducted in calculating Consolidated Net Income, and
(vi) all other non-cash items reducing Consolidated Net Income (excluding any
non-cash charge to the extent that it represents an accrual of or reserve for
cash charges in any future period), less all non-cash items increasing
Consolidated Net Income, all as determined on a consolidated basis for the
Company and its Restricted Subsidiaries in conformity with GAAP.
"Consolidated Fixed Charges" means, for any period, Consolidated
Interest Expense plus dividends declared and payable on Preferred Stock.
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"Consolidated Interest Expense" means, for any period, the aggregate
amount of interest in respect of Indebtedness (including capitalized interest,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and interest
on Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by the Company and its Restricted Subsidiaries during such
period.
"Consolidated Net Income" means, for any period, the aggregate
consolidated net income (or loss) of the Company and its Restricted Subsidiaries
for such period determined in conformity with GAAP; provided that the following
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items shall be excluded in computing Consolidated Net Income (without
duplication): (i) solely for the purposes of calculating the amount of
Restricted Payments that may be made pursuant to clause (C) of the first
paragraph of Section 1012, the net income (or loss) of any Person accrued prior
to the date it becomes a Restricted Subsidiary or is merged into or consolidated
with the Company or any of its Restricted Subsidiaries or all or substantially
all of the property and assets of such Person are acquired by the Company or any
of its Restricted Subsidiaries; (ii) any gains or losses (on an after-tax basis)
attributable to Asset Sales; (iii) except for purposes of calculating the amount
of Restricted Payments that may be made pursuant to clause (C) of the first
paragraph of Section 1012, any amount paid or accrued as dividends on Preferred
Stock of the Company or Preferred Stock of any Restricted Subsidiary owned by
Persons other than the Company and any of its Restricted Subsidiaries; (iv) all
extraordinary gains and extraordinary losses; and (v) the net income (or loss)
of any Person (other than net income (or loss) attributable to a Restricted
Subsidiary) in which any Person (other than the Company or any of its Restricted
Subsidiaries) has a joint interest, except to the extent of the amount of
dividends or other distributions actually paid to the Company or any of its
Restricted Subsidiaries by such other Person during such period.
"Corporate Trust Office" means the principal corporate trust office
of the Trustee, at which at any particular time its corporate trust business
shall be administered, which office at the date of execution of this Indenture
is located at 800 East Main Street, Richmond, Virginia 23219, Attention:
Corporate Trust, except that with respect to presentation of Notes for payment
or for registration of transfer or exchange, such term shall mean the office or
agency of the Trustee at which, at any particular time, its corporate agency
business shall be conducted.
"Corporation" includes corporations, associations, companies and
business trusts.
"Covenant defeasance" has the meaning specified in Section 1303.
"Credit Facilities" means, with respect to the Company, one or more
debt facilities or commercial paper facilities with banks or other institutional
lenders providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders
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or to special purpose entities formed to borrow from such lenders against such
receivables) or letters of credit, in each case, as amended, restated, modified,
renewed, refunded, replaced or refinanced in whole or in part from time to time.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement and any other arrangement and agreement designed to provide
protection against fluctuations in currency values.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 309.
"defeasance" has the meaning specified in Section 1302.
"Depositary" means The Depository Trust Company, its nominees and
their respective successors.
"Eligible Accounts Receivable" means the accounts receivables (net of
any reserves and allowances for doubtful accounts in accordance with GAAP) of
any Person that are not more than 60 days past their due date and that were
entered into in the ordinary course of business on normal payment terms as shown
on the most recent consolidated balance sheet of such Person filed with the
Commission, all in accordance with GAAP.
"Eligible Institution" means a commercial banking institution that
has combined capital and surplus of not less than $500 million or its equivalent
in foreign currency, whose debt is rated "A-3" or higher or "A-" or higher
according to Moody's Investors Service, Inc. or Standard & Poor's Ratings Group
(or such similar equivalent rating by at least one "nationally recognized
statistical rating organization" (as defined in Rule 436 under the Securities
Act) respectively, at the time as of which any investment or rollover therein is
made.
"Employment Agreement" means the employment agreement between the
Company and Mr. K. Paul Singh, dated June 1994.
"Event of Default" has the meaning specified in Section 501.
"Excess Proceeds" has the meaning specified in Section 1017.
"Excess Proceeds Offer" has the meaning specified in Section 1017.
"Excess Proceeds Payment" has the meaning specified in Section 1017.
"Excess Proceeds Payment Date" has the meaning specified in Section
1017.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" has the meaning stated in the first recital of this
Indenture and refers to any Exchange Notes containing terms substantially
identical to the Initial Notes (except that such Exchange Notes shall be
registered under the Securities Act and will not contain (i) transfer
restrictions or (ii) certain provisions relating to the increase in the interest
rate of such Exchange Notes) that are issued and exchanged for the Initial Notes
pursuant to the Registration Rights Agreement and this Indenture.
"Exchange Offer" means the offer by the Company to the Holders of the
Initial Notes to exchange all of the Initial Notes for Exchange Notes, as
provided in the Registration Rights Agreement.
"Exchange Offer Registration Statement" means the Exchange Offer
Registration Statement as defined in the Registration Rights Agreement.
"Existing Indebtedness" means Indebtedness outstanding on the date of
the Indenture.
"Fair Market Value" means, with respect to any asset or property, the
sale value that would be obtained in an arm's length transaction between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer.
"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11 of the
United States Code, as amended from time to time.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession.
"Global Notes" has the meaning set forth in Section 201.
"Government Securities" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which obligations
or guarantee the full faith and credit of the United States is pledged.
"Guarantee" means any obligation, contingent or otherwise, of any
Person directly or indirectly guaranteeing any Indebtedness or other obligation
of any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (i) to
purchase or pay (or advance or supply funds for the purchase or payment of)
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such Indebtedness or other obligation of such other Person (whether arising by
virtue of partnership arrangements, or by agreements to keep-well, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Indebtedness or other obligation of the
payment thereof or to protect such obligee against loss in respect thereof (in
whole or in part); provided that the term "Guarantee" shall not include
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endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Holder" means a Person in whose name a Note is registered in the
Note Register.
"Incur" means, with respect to any Indebtedness, to incur, create,
issue, assume, Guarantee or otherwise become liable for or with respect to, or
become responsible for, the payment of, contingently or otherwise, such
Indebtedness, including an Incurrence of Indebtedness by reason of the
acquisition of more than 50% of the Capital Stock of any Person; provided that
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neither the accrual of interest nor the accretion of original issue discount
shall be considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), (iv) all obligations of such
Person to pay the deferred and unpaid purchase price of property or services,
which purchase price is due more than six months after the date of placing such
property in service or taking delivery and title thereto or the completion of
such services, except Trade Payables, (v) all obligations of such Person as
lessee under Capitalized Leases, (vi) all Indebtedness of other Persons secured
by a Lien on any asset of such Person, whether or not such Indebtedness is
assumed by such Person; provided that the amount of such Indebtedness shall be
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the lesser of (A) the Fair Market Value of such asset at such date of
determination and (B) the amount of such Indebtedness, (vii) all Indebtedness of
other Persons Guaranteed by such Person to the extent such Indebtedness is
Guaranteed by such Person, (viii) the maximum fixed redemption or repurchase
price of Redeemable Stock of such Person at the time of determination and (ix)
to the extent not otherwise included in this definition, obligations under
Currency Agreements and Interest Rate Agreements. The amount of Indebtedness of
any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above and, with respect to contingent
obligations, the maximum liability upon the occurrence of the contingency giving
rise to the obligation, provided (i) that the amount outstanding at any time of
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any Indebtedness issued with original issue discount is the face amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with GAAP
and (ii) that Indebtedness shall not include any liability for federal, state,
local or other taxes.
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"Indenture" means this instrument as originally executed and as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Initial Notes" has the meaning stated in the first recital of this
Indenture.
"Initial Purchasers" means Lehman Brothers Inc., BT Alex. Brown
Incorporated and Donaldson, Lufkin and Jenrette Securities Corporation.
"Interest Payment Date" means the Stated Maturity of an installment
of interest on the Notes.
"Interest Rate Agreement" means interest rate swap agreements,
interest rate cap agreements, interest rate insurance, and other arrangements
and agreements designed to provide protection against fluctuations in interest
rates.
"Investment" in any Person means any direct or indirect advance, loan
or other extension of credit (including, without limitation, by way of Guarantee
or similar arrangement; but excluding advances to customers in the ordinary
course of business that are, in conformity with GAAP, recorded as accounts
receivable on the balance sheet of the Company or its Restricted Subsidiaries)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition of Capital Stock, bonds, notes,
debentures or other similar instruments issued by, such Person. For purposes of
the definition of "Unrestricted Subsidiary" and Sections 1012 and 1014, (i)
"Investment" shall include (a) the Fair Market Value of the assets (net of
liabilities) of any Restricted Subsidiary of the Company at the time that such
Restricted Subsidiary of the Company is designated an Unrestricted Subsidiary
and shall exclude the Fair Market Value of the assets (net of liabilities) of
any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary of the Company and (b) the Fair Market Value,
in the case of a sale of Capital Stock in accordance with Section 1014 such that
a Person no longer constitutes a Restricted Subsidiary, of the remaining assets
(net of liabilities) of such Person after such sale, and shall exclude the Fair
Market Value of the assets (net of liabilities) of any Unrestricted Subsidiary
at the time that such Unrestricted Subsidiary is designated a Restricted
Subsidiary of the Company and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its Fair Market Value at the time of
such transfer, in each case as determined by the Board of Directors in good
faith.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof, any sale with
recourse against the seller or any Affiliate of the seller, or any agreement to
give any security interest).
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"Liquidated Damages" means all liquidated damages then owing pursuant
to Section 5 of the Registration Rights Agreement.
"Marketable Securities" means: (i) Government Securities which have
a remaining weighted average life to maturity of not more than one year from the
date of Investment therein; (ii) any time deposit account, money market deposit
and certificate of deposit maturing not more than 180 days after the date of
acquisition issued by, or time deposit of, an Eligible Institution; (iii)
commercial paper maturing not more than 90 days after the date of acquisition
issued by a corporation (other than an Affiliate of the Company) with a rating,
at the time as of which any investment therein is made, of "P-1" or higher
according to Moody's Investors Service, Inc., or "A-1" or higher according to
Standard & Poor's Rating Group (or such similar equivalent rating by at least
one "nationally recognized statistical rating organization" (as defined in Rule
436 under the Securities Act)); (iv) any banker's acceptance or money market
deposit accounts issued or offered by an Eligible Institution; (v) repurchase
obligations with a term of not more than seven days for Government Securities
entered into with an Eligible Institution; and (vi) any fund 95% of the assets
of which consist of investments of the types described in clauses (i) through
(v) above.
"Maturity", when used with respect to any Notes, means the date on
which the principal of such Notes or an installment of principal becomes due and
payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, notice of redemption or otherwise.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents (except to the extent such obligations are financed
or sold with recourse to the Company or any Restricted Subsidiary of the
Company) and proceeds from the conversion of other property received when
converted to cash or cash equivalents, net of (i) brokerage commissions and
other fees and expenses (including fees and expenses of counsel and investment
bankers) related to such Asset Sale, (ii) provisions for all taxes (whether or
not such taxes will actually be paid or are payable) as a result of such Asset
Sale without regard to the consolidated results of operations of the Company and
its Restricted Subsidiaries, taken as a whole, (iii) payments made to repay
Indebtedness or any other obligation outstanding at the time of such Asset Sale
that either (A) is secured by a Lien on the property or assets sold or (B) is
required to be paid as a result of such sale and (iv) appropriate amounts to be
provided by the Company or any Restricted Subsidiary of the Company as a reserve
against any liabilities associated with such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as determined in conformity
with GAAP and (b) with respect to any issuance or sale of Capital Stock, the
proceeds of such issuance or sale in the form of cash or cash equivalents,
including payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents (except to the extent such
obligations are financed or sold with recourse to
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the Company or any Restricted Subsidiary of the Company) and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of attorney's fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"Non-Registration Opinion and Supporting Evidence" has the meaning
specified in Section 307.
"Note Register" and "Note Registrar" have the respective meanings
specified in Section 305.
"Notes" has the meaning stated in the first recital of this Indenture
and more particularly means any Notes authenticated and delivered under this
Indenture. For all purposes of this Indenture, the term "Notes" shall include
any Exchange Notes to be issued and exchanged for any Initial Notes pursuant to
the Registration Rights Agreement and this Indenture and, for purposes of this
Indenture, all Initial Notes and Exchange Notes shall vote together as one
series of Notes under this Indenture.
"Officer's Certificate" means a certificate signed by the Chairman,
the President, a Vice President, the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary of the Company, and delivered to the
Trustee.
"Offshore Global Notes" has the meaning set forth in Section 201.
"Offshore Physical Notes" has the meaning set forth in Section 201.
"Offshore Notes Exchange Date" has the meaning set forth in Section
202.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, including an employee of the Company, and who shall be
acceptable to the Trustee.
"Outstanding", when used with respect to Notes, means, as of the date
of determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(i) Notes theretofore cancelled by the Trustee or delivered to the
Trustee for cancellation;
(ii) Notes, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or set aside
and segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Notes; provided that,
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if such Notes are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor satisfactory to the
Trustee has been made;
(iii) Notes, except to the extent provided in Sections 1302 and 1303,
with respect to which the Company has effected defeasance and/or covenant
defeasance as provided in Article Thirteen; and
(iv) Notes which have been paid pursuant to Section 308 or in
exchange for or in lieu of which other Notes have been authenticated and
delivered pursuant to the Indenture, other than any such Notes in respect
of which there shall have been presented to the Trustee proof satisfactory
to it that such Notes are held by a bona fide purchaser in whose hands the
Notes are valid obligations of the Company whose determination shall be
conclusive and evidenced by a Board Resolution.
provided, however, that in determining whether the Holders of the requisite
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principal amount of Outstanding Notes have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the Company
or such other obligor shall be disregarded and deemed not to be Outstanding,
except that, in determining whether the Trustee shall be protected in making
such calculation or in relying upon any such request, demand, authorization,
direction, notice, consent or waiver, only Notes which the Trustee actually
knows to be so owned shall be so disregarded. Notes so owned which have been
pledged in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act with respect to
such Notes and that the pledgee is not the Company or any other obligor upon the
Notes or any Affiliate of the Company or such other obligor.
"Paying Agent" means any Person (including the Company acting as
Paying Agent) authorized by the Company to pay the principal of (and premium, if
any) or interest on any Notes on behalf of the Company.
"Payment Account" has the meaning set forth in Section 402.
"Permitted Business" means the business of (i) transmitting, or
providing services relating to the transmission of, voice, video or data through
owned or leased transmission facilities, (ii) constructing, creating, developing
or marketing communications related network equipment, software and other
devices for use in a telecommunications business or (iii) evaluating,
participating or pursuing any other activity or opportunity that is primarily
related to those identified in clause (i) or (ii) above; provided that the
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determination of what constitutes a Permitted Business shall be made in good
faith by the Board of Directors of the Company whose determination shall be
conclusive and evidenced by a Board Resolution.
"Permitted Investment" means (i) an Investment in a Restricted
Subsidiary or a Person which will, upon the making of such Investment, become a
Restricted Subsidiary or be
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merged or consolidated with or into or transfer or convey all or substantially
all its assets to, the Company or a Restricted Subsidiary; (ii) any Investment
in Marketable Securities; (iii) payroll, travel and similar advances to cover
matters that are expected at the time of such advances ultimately to be treated
as expenses in accordance with GAAP; (iv) loans or advances to employees made in
the ordinary course of business in accordance with past practice of the Company
or its Restricted Subsidiaries and that do not in the aggregate exceed $1.0
million at any time outstanding; (v) stock, obligations or securities received
in satisfaction of judgments; (vi) Investments in any Person received as
consideration for Asset Sales to the extent permitted under Section 1017; and
(vii) Investments in any Person at any one time outstanding (measured on the
date each such Investment was made without giving effect to subsequent changes
in value) in an aggregate amount not to exceed 10.0% of the Company's total
consolidated assets.
"Permitted Liens" means (i) Liens for taxes, assessments,
governmental charges or claims that are being contested in good faith by
appropriate legal proceedings promptly instituted and diligently conducted and
for which a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made; (ii) statutory Liens of landlords
and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or
other similar Liens arising in the ordinary course of business and with respect
to amounts not yet delinquent or being contested in good faith by appropriate
legal proceedings promptly instituted and diligently conducted and for which a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made; (iii) Liens incurred or deposits made
in the ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security; (iv) Liens incurred
or deposits made to secure the performance of tenders, bids, leases, statutory
or regulatory obligations, bankers' acceptances, surety and appeal bonds,
government contracts, performance and return-of-money bonds and other
obligations of a similar nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money); (v) easements,
rights-of-way, municipal and zoning ordinances and similar charges,
encumbrances, title defects or other irregularities that do not materially
interfere with the ordinary course of business of the Company or any of its
Restricted Subsidiaries; (vi) Liens (including extensions and renewals thereof)
upon real or personal property purchased or leased after the Closing Date;
provided that (a) such Lien is created solely for the purpose of securing
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Indebtedness Incurred in compliance with Section 1011 (1) to finance the cost
(including the cost of design, development, construction, acquisition,
installation or integration) of the item of property or assets subject thereto
and such Lien is created prior to, at the time of or within six months after the
later of the acquisition, the completion of construction or the commencement of
full operation of such property or (2) to refinance any Indebtedness previously
so secured, (b) the principal amount of the Indebtedness secured by such Lien
does not exceed 100% of such cost and (c) any such Lien shall not extend to or
cover any property or assets other than such item of property or assets and any
improvements on such item; (vii) leases or subleases granted to others that do
not materially interfere with the ordinary course of business of the Company and
its Restricted Subsidiaries, taken as a whole; (viii) Liens encumbering property
or assets under construction arising from progress or partial payments by a
customer of the Company or its Restricted Subsidiaries relating to such property
or assets; (ix) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease;
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(x) Liens arising from filing Uniform Commercial Code financing statements
regarding leases; (xi) Liens on property of, or on shares of stock or
Indebtedness of, any corporation existing at the time such corporation becomes,
or becomes a part of, any Restricted Subsidiary; provided that such Liens do not
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extend to or cover any property or assets of the Company or any Restricted
Subsidiary other than the property or assets acquired and were not created in
contemplation of such transaction; (xii) Liens in favor of the Company or any
Restricted Subsidiary; (xiii) Liens arising from the rendering of a final
judgment or order against the Company or any Restricted Subsidiary of the
Company that does not give rise to an Event of Default; (xiv) Liens securing
reimbursement obligations with respect to letters of credit that encumber
documents and other property relating to such letters of credit and the products
and proceeds thereof; (xv) Liens in favor of customs and revenue authorities
arising as a matter of law to secure payment of customs duties in connection
with the importation of goods; (xvi) Liens encumbering customary initial
deposits and margin deposits and other Liens that are either within the general
parameters customary in the industry or incurred in the ordinary course of
business, in each case, securing Indebtedness under Interest Rate Agreements and
Currency Agreements; (xvii) Liens arising out of conditional sale, title
retention, consignment or similar arrangements for the sale of goods entered
into by the Company or any of its Restricted Subsidiaries in the ordinary course
of business in accordance with the past practices of the Company and its
Restricted Subsidiaries prior to the Closing Date; (xviii) Liens existing on the
Closing Date or securing the Notes or any Guarantee of the Notes; (xix) Liens
granted after the Closing Date on any assets or Capital Stock of the Company or
its Restricted Subsidiaries created in favor of the Holders; (xx) Liens securing
Indebtedness which is incurred to refinance secured Indebtedness which is
permitted to be Incurred under clause (iv) of paragraph (b) of Section 1011;
provided that such Liens do not extend to or cover any property or assets of the
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Company or any Restricted Subsidiary other than the property or assets securing
the Indebtedness being refinanced; (xxi) Liens on the property or assets of a
Restricted Subsidiary securing Indebtedness of such Subsidiary which
Indebtedness is permitted under this Indenture; and (xxii) Liens securing
Indebtedness under Credit Facilities incurred in compliance with clauses (i) and
(ii) of paragraph (b) of Section 1011.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Physical Notes" has the meaning set forth in Section 201.
"Predecessor Note" of any particular Note means every previous Note
evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 308 in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen Note shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Note.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such
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Person's preferred or preference stock, whether now outstanding or issued after
the date of the Indenture, including, without limitation, all series and classes
of such preferred or preference stock.
"Private Placement Legend" has the meaning specified in Section 202.
"Pro Forma Consolidated Cash Flow" means, for any period, the
Consolidated Cash Flow of the Company for such period calculated on a pro forma
basis to give effect to any Asset Disposition or Asset Acquisition not in the
ordinary course of business (including acquisitions of other Persons by merger,
consolidation or purchase of Capital Stock) during such period as if such Asset
Disposition or Asset Acquisition had taken place on the first day of such
period.
"Proportionate Share" means, as of any date of calculation, an amount
equal to (i) the outstanding principal amount of Notes as of such date, divided
by (ii) the sum of the outstanding principal amount of Notes as of such date
plus the outstanding principal amount as of such date of all other Indebtedness
(other than Subordinated Indebtedness) of the Issuer the terms of which obligate
the Issuer to make a purchase offer in connection with the relevant Excess
Proceeds or the Asset Sale giving rise thereto.
"Public Equity Offering" means an underwritten primary public
offering of Common Stock of the Company pursuant to an effective registration
statement under the Securities Act.
"Purchase Money Obligations" means, with respect to each Person,
obligations, other than those under Capitalized Leases, Incurred or assumed in
the ordinary course of business in connection with the purchase of property to
be used in the business of such Person.
"Qualified Institutional Buyers" or " QIB" means a "qualified
institutional buyer" as defined in Rule 144A.
"Qualified Capital Stock" of any Person means any and all Capital
Stock of such Person other than Redeemable Stock.
"Redeemable Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
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Stock that would not constitute Redeemable Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes will not constitute
Redeemable Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in Sections 1017 and 1010 and such
Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such
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provision prior to the Company's repurchase of such Notes as are required to be
repurchased pursuant to Section 1017 and Section 1010.
"Redemption Date", when used with respect to any Note to be redeemed,
in whole or in part, means the date fixed for such redemption by or pursuant to
this Indenture.
"Redemption Price", when used with respect to any Note to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registration Rights Agreement" means the Registration Rights
Agreement between the Company, Primus Telecommunications Incorporated, Primus
Telecommunications (Australia) Pty. Ltd. and the Initial Purchasers dated as of
May 19, 1998, concerning the registration and exchange of the Notes.
"Registration Statement" means the Registration Statement as defined
in the Registration Rights Agreement.
"Regular Record Date" for the interest payable on any Interest
Payment Date means the May 1 or November 1 (whether or not a Business Day), as
the case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act and any
successor provision.
"Resale Restriction Termination Date" has the meaning specified in
Section 202.
"Responsible Officer", when used with respect to the Trustee, means
the chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above-designated
officers and having direct responsibility for the administration of this
Indenture or the Pledge Agreement, and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of his knowledge of and familiarity with the particular subject.
"Restricted Payments" has the meaning specified in Section 1012.
"Restricted Subsidiary" means any Subsidiary of the Company other
than an Unrestricted Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act and any
successor provision.
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"Securities Act" means the Securities Act of 1933, as amended.
"Shelf Registration Statement" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.
"Significant Subsidiary" means, at any date of determination, any
Subsidiary of the Company that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company or (ii) as of the end of such fiscal year,
was the owner of more than 10% of the consolidated assets of the Company, all as
set forth on the most recently available consolidated financial statements of
the Company for such fiscal year.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 309.
"Stated Maturity" means, (i) with respect to any debt security, the
date specified in such debt security as the fixed date on which the final
installment of principal of such debt security is due and payable and (ii) with
respect to any scheduled installment of principal of or interest on any debt
security, the date specified in such debt security as the fixed date on which
such installment is due and payable.
"Strategic Subordinated Indebtedness" means Indebtedness of the
Company Incurred to finance the acquisition of a Person engaged in a business
that is related, ancillary or complementary to the business conducted by the
Company or any of its Restricted Subsidiaries, which Indebtedness by its terms,
or by the terms of any agreement or instrument pursuant to which such
Indebtedness is Incurred, (i) is expressly made subordinate in right of payment
to the Notes and (ii) provides that no payment of principal, premium or interest
on, or any other payment with respect to, such Indebtedness may be made prior to
the payment in full of all of the Company's obligations under the Notes;
provided that such Indebtedness may provide for and be repaid at any time from
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the proceeds of a capital contribution, the sale of Common Stock (other than
Redeemable Stock) of the Company, or other Strategic Subordinated Indebtedness
Incurred, after the Incurrence of such Indebtedness.
"Subordinated Indebtedness" means Indebtedness of the Company
subordinated in right of payment to the Notes.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the outstanding
Voting Stock is owned, directly or indirectly, by such Person and one or more
other Subsidiaries of such Person.
"Trade Payables" means any accounts payable or any other indebtedness
or monetary obligation to trade creditors created, assumed or Guaranteed by the
Company or any of its Restricted
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Subsidiaries arising in the ordinary course of business in connection with the
acquisition of goods and services.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
as in force at the date as of which this Indenture was executed, except as
provided in Section 905.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Uniform Commercial Code" means the Uniform Commercial Code as in
effect in New York State.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company
that at the time of determination shall be designated an Unrestricted Subsidiary
by the Board of Directors in the manner provided below and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors may designate any
Restricted Subsidiary of the Company (including any newly acquired or newly
formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such
Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property
of, the Company or any Restricted Subsidiary; provided that (A) either (I) the
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Subsidiary to be so designated has total assets of $1,000 or less or (II) if
such Subsidiary has assets greater than $1,000, that such designation would be
permitted under Section 1012, and (B) such Subsidiary is not liable, directly or
indirectly, with respect to any Indebtedness other than Unrestricted Subsidiary
Indebtedness. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary of the Company; provided that immediately after
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giving effect to such designation (x) the Company could Incur $1.00 of
additional Indebtedness under the first paragraph of Section 1011 and (y) no
Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an Officer's Certificate certifying that such designation
complied with the foregoing provisions.
"Unrestricted Subsidiary Indebtedness" means Indebtedness of any
Unrestricted Subsidiary (i) as to which neither the Company nor any Restricted
Subsidiary is directly or indirectly liable (by virtue of the Company or any
such Restricted Subsidiary being the primary obligor on, guarantor of, or
otherwise liable in any respect to, such Indebtedness), and (ii) which, upon the
occurrence of a default with respect thereto, does not result in, or permit any
holder of any Indebtedness of the Company or any Restricted Subsidiary to
declare, a default on such Indebtedness of the Company or any Restricted
Subsidiary or cause the payment thereof to be accelerated or payable prior to
its Stated Maturity.
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"U.S. Global Note" has the meaning set forth in Section 201.
"U.S. Government Obligations" has the meaning specified in Section
1304.
"U.S. Physical Notes" has the meaning set forth in Section 201.
"U.S. Subsidiary" means any corporation or other entity incorporated
or organized under the laws of the United States or any state thereof.
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"Voting Stock" means with respect to any Person, Capital Stock of any
class or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned", with respect to any Subsidiary, means a Subsidiary of
the Company if all of the outstanding Capital Stock in such Subsidiary (other
than any director's qualifying shares or Investments by foreign nationals
mandated by applicable law) is owned by the Company or one or more Wholly Owned
Subsidiaries of the Company.
SECTION 102. Incorporation by Reference of Trust Indenture Act.
-------------------------------------------------
Whenever this Indenture refers to a provision of the Trust Indenture
Act, the provision is incorporated by reference in and made a part of this
Indenture. The following Trust Indenture Act terms used in this Indenture have
the following meanings:
"indenture notes" means the Notes;
"indenture note holder" means a Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the indenture notes means the Company or any other
obligor on the Notes.
All other Trust Indenture Act terms used in this Indenture that are
defined by the Trust Indenture Act, defined by reference in the Trust Indenture
Act to another statute or defined by a rule of the Commission and not otherwise
defined herein shall have the meanings assigned to them therein.
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SECTION 103. Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officer's Certificate stating that all conditions precedent, if
any, provided for in this Indenture (including any covenant compliance with
which constitutes a condition precedent) relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008(a)) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 104. Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual
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matters, upon a certificate or opinion of, or representations by, an officer or
officers of the Company stating that the information with respect to such
factual matters is in the possession of the Company, unless such counsel knows,
or in the exercise of reasonable care should know, that the certificate or
opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 105. Acts of Holders.
---------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.
(c) The principal amount and serial numbers of Notes held by any
Person, and the date of holding the same, shall be proved by the Note Register.
(d) If the Company shall solicit from the Holders of Notes any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a record date
is fixed, such request, demand, authorization, direction, notice, consent,
waiver or other Act may be given
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before or after such record date, but only the Holders of record at the close of
business on such record date shall be deemed to be Holders for the purposes of
determining whether Holders of the requisite proportion of Outstanding Notes
have authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other Act, and for that purpose the
Outstanding Notes shall be computed as of such record date; provided that no
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such authorization, agreement or consent by the Holders on such record date
shall be deemed effective unless it shall become effective pursuant to the
provisions of this Indenture not later than eleven months after the record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Note shall bind every future Holder of
the same Note and the Holder of every Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such Note.
SECTION 106. Notices, Etc., to Trustee, Company.
----------------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: Corporate
Trust, 800 East Main Street, 2nd Floor, Richmond, Virginia 23219, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this Indenture, or at any other address previously
furnished in writing to the Trustee by the Company.
SECTION 107. Notice to Holders; Waiver.
-------------------------
Where this Indenture provides for notice of any event to Holders by
the Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Note Register, not later than the latest date, and not earlier
than the earliest date, prescribed for the giving of such notice. In any case
where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Any notice
mailed to a Holder in the manner herein prescribed shall be conclusively deemed
to have been received by such Holder, whether or not such Holder actually
receives such notice. Where this
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Indenture provides for notice in any manner, such notice may be waived in
writing by the Person entitled to receive such notice, either before or after
the event, and such waiver shall be the equivalent of such notice. Waivers of
notice by Holders shall be filed with the Trustee, but such filing shall not be
a condition precedent to the validity of any action taken in reliance upon such
waiver.
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
SECTION 108. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
-------------------
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Notes, express or implied, shall
give to any Person, other than the parties hereto, any Paying Agent, any Notes
Registrar and their successors hereunder, and the Holders, any benefit or any
legal or equitable right, remedy or claim under this Indenture.
SECTION 112. Governing Law.
-------------
This Indenture and the Notes shall be governed by and construed in
accordance with the law of the State of New York. Upon the issuance of Exchange
Notes, if any, or the effectiveness of the Shelf Registration Statement, this
Indenture will be subject to the provisions of the Trust Indenture Act that are
required to be part of this Indenture and shall, to the extent applicable, be
governed by such provisions. Each of the parties hereto submits to the
jurisdiction of the U.S. federal and any New York state court located in the
Borough of Manhattan, City and State of New York with respect to any actions
brought against it as defendant in any suit, action or proceeding
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arising out of or relative to this Indenture or the Notes and waives any rights
to which it may be entitled on account of place of residence or domicile.
SECTION 113. Legal Holidays.
--------------
In any case where any Interest Payment Date, Redemption Date, sinking
fund payment date or Stated Maturity or Maturity of any Note shall not be a
Business Day, then (notwithstanding any other provision of this Indenture or of
the Notes) payment of principal (or premium, if any) or interest need not be
made on such date, but may be made on the next succeeding Business Day with the
same force and effect as if made on the Interest Payment Date, Redemption Date
or sinking fund payment date, or at the Stated Maturity or Maturity; provided
--------
that no interest shall accrue for the period from and after such Interest
Payment Date, Redemption Date, sinking fund payment date, Stated Maturity or
Maturity, as the case may be.
SECTION 114. Currency Indemnity.
------------------
U.S. dollars are the sole currency of account and payment for all sums
payable by the Company under or in connection with the Notes, including damages.
Any amount received or recovered in a currency other than dollars (whether as a
result of, or of the enforcement of, a judgment or order of a court of any
jurisdiction, in the winding-up or dissolution of the Company or otherwise) by
any Holder of a Note in respect of any sum expressed to be due to it from the
Company shall only constitute a discharge to the Company to the extent of the
dollar amount which the recipient is able to purchase with the amount so
received or recovered in that other currency on the date of that receipt or
recovery (or, if it is not practicable to make that purchase on that date, on
the first date on which it is practicable to do so). If that dollar amount is
less than the dollar amount expressed to be due to the recipient under any Note,
the Company shall indemnify the recipient against any loss sustained by it as a
result. In any event, the Company shall indemnify the recipient against the
cost of making any such purchase. For the purposes of this Section 114, it will
be sufficient for the Holder of a Note to certify in a satisfactory manner
(indicating the sources of information used) that it would have suffered a loss
had an actual purchase of dollars been made with the amount so received in that
other currency on the date of receipt or recovery (or, if a purchase of dollars
on such date had not been practicable, on the first date on which it would have
been practicable, it being required that the need for a change of date be
certified in the manner mentioned above). These indemnities constitute a
separate and independent obligation from the Company's other obligations, shall
give rise to a separate and independent cause of action, shall apply
irrespective of any indulgence granted by any Holder of a Note and shall
continue in full force and effect despite any other judgment, order, claim or
proof for a liquidated amount in respect of any sum due under any Note.
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ARTICLE TWO
NOTE FORMS
SECTION 201. Forms Generally.
---------------
The Notes and the Trustee's certificate of authentication shall be in
substantially the form annexed hereto as Exhibit A. The Notes may have such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture and may have such letters, numbers or
other marks of identification and such notations, legends or endorsements as may
be required by law, or to comply with the rules of any securities exchange or
agreements to which the Company is subject or as may, consistently herewith, be
determined by the officers executing such Notes, as evidenced by their execution
of the Notes. Any portion of the text of any Note may be set forth on the
reverse thereof, with an appropriate reference thereto on the face of the Note.
The Company shall approve the form of the Notes and any notation, legend or
endorsement on the Notes.
The terms and provisions contained in the form of the Notes annexed
hereto as Exhibit A shall constitute, and are hereby expressly made, a part of
this Indenture. To the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
Initial Notes offered and sold in reliance on Rule 144A shall be
issued initially in the form of one or more permanent global Notes in registered
form, substantially in the form set forth in Exhibit A and contain each of the
legends set forth in Section 202 (the "U.S. Global Note"), registered in the
name of the Depositary or the nominee of the Depositary, deposited with the
Trustee, as custodian for the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the U.S. Global Note may from time to time be increased or decreased
by adjustments made on the records of the Trustee, as custodian for the
Depositary or its nominee, as hereinafter provided.
Initial Notes offered and sold in offshore transactions in reliance on
Regulation S shall be issued initially in the form of a single permanent global
Note in registered form, substantially in the form set forth in Exhibit A (the
"Offshore Global Note"), registered in the name of the Depositary or the nominee
of the Depositary, deposited with the Trustee, as custodian for the Depositary
or its nominee, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the Offshore Global Note
may from time to time be increased or decreased by adjustments made in the
records of the Trustee, as custodian for the Depositary or its nominee, as
herein provided. Initial Notes issued pursuant to Section 305 in exchange for or
upon transfer of beneficial interests in the U.S. Global Note or the Offshore
Global Note shall be in the form of U.S. Physical Notes or in the form of
permanent certificated Notes substantially in the form set forth in Exhibit A
(the "Offshore Physical Notes"), respectively as hereinafter provided.
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Initial Notes offered and sold other than as described in the
preceding two paragraphs shall be issued in the form of permanent certificated
Notes in registered form substantially in the form set forth in Exhibit A and
contain the Private Placement Legend as set forth in Section 202(a)(i) (the
"U.S. Physical Notes").
The Offshore Physical Notes and U.S. Physical Notes are sometimes
collectively herein referred to as the "Physical Notes". The U.S. Global Note
and the Offshore Global Notes are sometimes collectively referred to as the
"Global Notes."
The definitive Notes shall be printed, lithographed or engraved on
steel-engraved borders or may be produced in any other manner, all as determined
by the officers of the Company executing such Notes, as evidenced by their
execution of such Notes.
Exchange Notes shall be substantially in the form set forth in Exhibit
A.
SECTION 202. Restrictive Legends.
-------------------
(a) Unless and until (x) an Initial Note is sold pursuant to an
effective Shelf Registration Statement or (y) an Initial Note is exchanged for
an Exchange Note in an Exchange Offer pursuant to an effective Exchange Offer
Registration Statement, in each case pursuant to the Registration Rights
Agreement, (A) each such U.S. Global Note and each U.S. Physical Note shall bear
the following legends (the "Private Placement Legend") on the face thereof and
(B) the Offshore Physical Notes and the Offshore Global Note shall bear the
Private Placement Legend on the face thereof until at least 41 days after the
date hereof (the "Offshore Notes Exchange Date") and receipt by the Trustee of a
certificate substantially in the form of Exhibit B hereto:
(i) THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
STATE OR OTHER SECURITIES LAWS. NEITHER THIS NOTE NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED
OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS THE TRANSACTION
IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE
HEREOF (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT ("RULE
144A")) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE
IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 903 OR 904 OF
REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL
NOT PRIOR TO (X) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER
PERIOD OF TIME AS PERMITTED
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BY RULE 144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR
PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE
HEREOF (OR OF ANY PREDECESSOR OF THIS NOTE) OR THE LAST DAY ON
WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER
OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE) AND (Y) SUCH LATER
DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW (THE "RESALE
RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER
THIS NOTE EXCEPT (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER
THE SECURITIES ACT, (C) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A INSIDE THE UNITED STATES, TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL
BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT
OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS
THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT, PURSUANT TO RULE 904 OF
REGULATION S OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3)
AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND;
PROVIDED THAT THE COMPANY, THE TRUSTEE, AND THE REGISTRAR SHALL
HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (I)
PURSUANT TO CLAUSE (D) OR (E) TO REQUIRE THE DELIVERY OF AN
OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF THE FOREGOING
CASES, TO REQUIRE THAT A CERTIFICATION OF TRANSFER IN THE FORM
APPEARING ON THE OTHER SIDE OF THIS NOTE IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL BE
REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
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(ii) THE NOTE REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE
PROVISIONS OF A REGISTRATION RIGHTS AGREEMENT BY AND BETWEEN THE
COMPANY AND THE HOLDERS NAMED THEREIN. THE COMPANY WILL FURNISH A
COPY OF SUCH AGREEMENT TO THE RECORD HOLDER OF THIS CERTIFICATE
WITHOUT CHARGE UPON WRITTEN REQUEST TO THE COMPANY AT ITS
PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.
(b) Each Global Note, whether or not an Initial Note, shall also bear
the following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION
OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
IS MADE TO CEDE & CO OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS
AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF
PORTIONS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS MADE
IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTIONS 306 AND
307 OF THE INDENTURE.
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms.
---------------
The aggregate principal amount of Notes which may be authenticated and
delivered under this Indenture is limited to $150,000,000, except for Notes
authenticated and delivered upon
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registration of transfer of, or in exchange for, or in lieu of, other Notes
pursuant to Section 303, 304, 305, 308, 906, 1010, 1017 or 1108.
The Initial Notes shall be known as the "9 7/8% Senior Notes Due 2008"
and the Exchange Notes shall be known as the "9 7/8% Series B Senior Notes Due
2008," in each case, of the Company. The Stated Maturity of the Notes shall be
May 15, 2008, and the Notes shall bear interest at the rate of 97/8% per annum
from May 19, 1998, or from the most recent Interest Payment Date to which
interest has been paid or duly provided for, payable on November 15, 1998 and
semi-annually thereafter on May 15 and November 15 in each year and at said
Stated Maturity, until the principal thereof is paid or duly provided for.
The principal of (and premium and Liquidated Damages, if any) and
interest on the Notes shall be payable at the office or agency of the Company
maintained for such purpose in The City of New York, or at such other office or
agency of the Company as may be maintained for such purpose; provided, however,
-------- -------
that, at the option of the Company, interest may be paid by check mailed to
addresses of the Persons entitled thereto as such addresses shall appear on the
Note Register.
The Notes shall be redeemable as provided in Article Eleven.
SECTION 302. Denominations.
-------------
The Notes shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Notes shall be executed on behalf of the Company by its Chairman,
its President or a Vice President, and attested by its Secretary, an Assistant
Secretary or any Vice President. The signature of any of these officers on the
Notes may be manual or facsimile signatures of the present or any future such
authorized officer and may be imprinted or otherwise reproduced on the Notes.
Notes bearing the manual or facsimile signatures of individuals who
were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Notes executed by the Company to the
Trustee for authentication, together with a Company Order for the authentication
and delivery of such Notes, and the Trustee in accordance with such Company
Order shall authenticate and deliver such Notes.
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At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Initial Notes executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Initial Notes directing the Trustee to
authenticate the Notes and certifying that all conditions precedent to the
issuance of Notes contained herein have been fully complied with, and the
Trustee in accordance with such Company Order shall authenticate and deliver
such Initial Notes. On Company Order, the Trustee shall authenticate for
original issue Exchange Notes in an aggregate principal amount not to exceed
$150,000,000; provided that such Exchange Notes shall be issuable only upon the
valid surrender for cancellation of Initial Notes of a like aggregate principal
amount in accordance with an Exchange Offer pursuant to the Registration Rights
Agreement and a Company Order for the authentication of such securities
certifying that all conditions precedent to the issuance have been complied with
(including the effectiveness of a registration statement related thereto). In
each case, the Trustee shall be entitled to receive an Officer's Certificate and
an Opinion of Counsel of the Company that it may reasonably request in
connection with such authentication of Notes. Such order shall specify the
amount of Notes to be authenticated and the date on which the original issue of
Initial Notes or Exchange Notes is to be authenticated.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for in Exhibit
A, duly executed by the Trustee by manual signature of an authorized officer,
and such certificate upon any Note shall be conclusive evidence, and the only
evidence, that such Note has been duly authenticated and delivered hereunder and
is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be consolidated
or merged with or into any other Person or shall convey, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any Person, and the successor Person resulting from such consolidation, or
surviving such merger, or into which the Company shall have been merged, or the
Person which shall have received a conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article Eight, any of the Notes authenticated or
delivered prior to such consolidation, merger, conveyance, transfer, lease or
other disposition may, from time to time, at the request of the successor
Person, be exchanged for other Notes executed in the name of the successor
Person with such changes in phraseology and form as may be appropriate, but
otherwise in substance of like tenor as the Notes surrendered for such exchange
and of like principal amount; and the Trustee, upon Company Request of the
successor Person, shall authenticate and deliver Notes as specified in such
request for the purpose of such exchange. If Notes shall at any time be
authenticated and delivered in any new name of a successor Person pursuant to
this Section in exchange or substitution for or upon registration of transfer of
any Notes, such successor Person, at the option of the Holders but without
expense to them, shall provide for the exchange of all Notes at the time
Outstanding for Notes authenticated and delivered in such new name.
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SECTION 304. Temporary Notes.
---------------
Pending the preparation of definitive Notes, the Company may execute,
and upon Company Order the Trustee shall authenticate and deliver, temporary
Notes which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Notes in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Notes may determine, as conclusively evidenced by their execution
of such Notes.
If temporary Notes are issued, the Company will cause definitive Notes
to be prepared without unreasonable delay. After the preparation of definitive
Notes, the temporary Notes shall be exchangeable for definitive Notes upon
surrender of the temporary Notes at the office or agency of the Company
designated for such purpose pursuant to Section 1002, without charge to the
Holder. Upon surrender for cancellation of any one or more temporary Notes, the
Company shall execute and upon Company Order the Trustee shall authenticate and
deliver in exchange therefor a like principal amount of definitive Notes of
authorized denominations. Until so exchanged, the temporary Notes shall in all
respects be entitled to the same benefits under this Indenture as definitive
Notes.
SECTION 305. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Note Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Notes and of transfers of Notes. The Note Register shall be in written form
or any other form capable of being converted into written form within a
reasonable time. At all reasonable times, the Note Register shall be open to
inspection by the Trustee. The Trustee is hereby initially appointed as security
registrar (the "Note Registrar") for the purpose of registering Notes and
transfers of Notes as herein provided.
Upon surrender for registration of transfer of any Note at the office
or agency of the Company designated pursuant to Section 1002, the Company shall
execute, and upon Company Order the Trustee shall authenticate and deliver, in
the name of the designated transferee or transferees, one or more new Notes of
any authorized denomination or denominations of a like aggregate principal
amount.
At the option of the Holder, Notes may be exchanged for other Notes of
any authorized denomination and of a like aggregate principal amount, upon
surrender of the Notes to be exchanged at such office or agency. Whenever any
Notes are so surrendered for exchange, the Company shall execute, and upon
Company Order the Trustee shall authenticate and deliver, the Notes which the
Holder making the exchange is entitled to receive; provided that no exchange of
--------
Initial Notes for Exchange Notes shall occur until an Exchange Offer
Registration Statement shall have been declared effective by the Commission, the
Trustee shall have received an Officer's
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Certificate confirming that the Exchange Offer Registration Statement has been
declared effective by the Commission and that the Initial Notes to be exchanged
for the Exchange Notes shall be canceled by the Trustee.
All Notes issued upon any registration of transfer or exchange of
Notes shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of transfer or
for exchange shall be duly endorsed and be accompanied by a written instrument
of transfer, in form satisfactory to the Company and the Note Registrar, duly
executed by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer or exchange of Notes, other than
exchanges pursuant to Section 304, 906, 1010, 1017 or 1108 not involving any
transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Note during a period beginning at the opening of business 15
days before the selection of Notes to be redeemed under Section 1104 and ending
at the close of business on the day of such mailing of the relevant notice of
redemption, or (ii) to register the transfer of or exchange any Note so selected
for redemption in whole or in part, except the unredeemed portion of any Note
being redeemed in part.
SECTION 306. Book-Entry Provisions for Global Notes.
--------------------------------------
(a) Each Global Note initially shall (i) be registered in the name of
the Depositary for such Global Note or the nominee of such Depositary, (ii) be
delivered to the Trustee as custodian for such Depositary and (iii) bear legends
as set forth in Section 202.
Members of, or participants in, the Depositary ("Agent Members") shall
have no rights under this Indenture with respect to any Global Note held on
their behalf by the Depositary, or the Trustee as its custodian, or under the
Global Note, and the Depositary may be treated by the Company, the Trustee and
any agent of the Company or the Trustee as the absolute owner of such Global
Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein
shall prevent the Company, the Trustee or any agent of the Company or the
Trustee, from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or shall impair, as between the
Depositary and its Agent Members, the operation of customary practices governing
the exercise of the rights of a holder of any Note.
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(b) Transfers of a Global Note shall be limited to transfers of such
Global Note in whole, but not in part, to the Depositary, its successors or
their respective nominees, except (i) as otherwise set forth in Section 307 and
(ii) U.S. Physical Notes or Offshore Physical Notes shall be transferred to all
beneficial owners in exchange for their beneficial interests in the U.S. Global
Note or the Offshore Global Note, respectively, in the event that the Depositary
notifies the Company that it is unwilling or unable to continue as Depositary
for the applicable Global Note or the Depositary ceases to be a "Clearing
Agency" registered under the Exchange Act and a successor depositary is not
appointed by the Company within 90 days. Interests of beneficial owners in a
Global Note may be transferred in accordance with the rules and procedures of
the Depositary and the provisions of Section 307. In connection with the
transfer of an entire Global Note to beneficial owners pursuant to clause (ii)
of this paragraph (b), the applicable Global Note shall be deemed to be
surrendered to the Trustee for cancellation, and the Company shall execute, and
the Trustee shall authenticate and deliver, to each beneficial owner identified
by the Depositary in exchange for its beneficial interest in the applicable
Global Note, an equal aggregate principal amount at maturity of U.S. Physical
Notes (in the case of the U.S. Global Note) or Offshore Physical Notes (in the
case of the Offshore Global Note), as the case may be, of authorized
denominations.
(c) Any beneficial interest in one of the Global Notes that is
transferred to a Person who takes delivery in the form of an interest in the
other Global Note will, upon transfer, cease to be an interest in such Global
Note and become an interest in the other Global Note and, accordingly, will
thereafter be subject to all transfer restrictions, if any, and other procedures
applicable to beneficial interests in such other Global Note for as long as it
remains such an interest.
(d) Any U.S. Physical Note delivered in exchange for an interest in
the U.S. Global Note pursuant to paragraph (b) of this Section shall, unless
such change is made on or after the Resale Restriction Termination Date and
except as otherwise provided in Section 307, bear the Private Placement Legend.
(e) The registered holder of a Global Note may grant proxies and
otherwise authorize any person, including Agent Members and persons that may
hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
SECTION 307. Transfer Provisions.
-------------------
Unless and until (i) an Initial Note is sold pursuant to an effective
Registration Statement, or (ii) an Initial Note is exchanged for an Exchange
Note in the Exchange Offer pursuant to an effective Registration Statement, in
each case, pursuant to the Registration Rights Agreement, the following
provisions shall apply:
(a) General. The provisions of this Section 307 shall apply to all
-------
transfers involving any Physical Note and any beneficial interest in any
Global Note.
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(b) Certain Definitions. As used in this Section 307 only, "delivery"
-------------------
of a certificate by a transferee or transferor means the delivery to the
Note Registrar by such transferee or transferor of the applicable
certificate duly completed; "holding" includes both possession of a
Physical Note and ownership of a beneficial interest in a Global Note, as
the context requires; "transferring" a Global Note means transferring that
portion of the principal amount of the transferor's beneficial interest
therein that the transferor has notified the Note Registrar that it has
agreed to transfer; and "transferring" a Physical Note means transferring
that portion of the principal amount thereof that the transferor has
notified the Note Registrar that it has agreed to transfer.
As used in this Indenture, "Accredited Investor Certificate" means a
certificate substantially in the form set forth in Exhibit C; "Regulation S
Certificate" means a certificate substantially in the form set forth in
Exhibit D; "Rule 144A Certificate" means a certificate substantially in the
form set forth in Exhibit E; and "Non-Registration Opinion and Supporting
Evidence" means a written opinion of counsel reasonably acceptable to the
Company to the effect that, and such other certification or information as
the Company may reasonably require to confirm that, the proposed transfer
is being made pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act.
(c) [Intentionally Omitted]
(d) Deemed Delivery of a Rule 144A Certificate in Certain
-----------------------------------------------------
Circumstances. A Rule 144A Certificate, if not actually delivered, will be
-------------
deemed delivered if (A) (i) the transferor advises the Company and the
Trustee in writing that the relevant offer and sale were made in accordance
with the provisions of Rule 144A (or, in the case of a transfer of a
Physical Note, the transferor checks the box provided on the Physical Note
to that effect) and (ii) the transferee advises the Company and the Trustee
in writing that (x) it and, if applicable, each account for which it is
acting in connection with the relevant transfer, is a qualified
institutional buyer within the meaning of Rule 144A, (y) it is aware that
the transfer of Notes to it is being made in reliance on the exemption from
the provisions of Section 5 of the Securities Act provided by Rule 144A,
and (z) if at any time the Company is not subject to Section 13 or 15(d) of
the Exchange Act, prior to the proposed date of transfer the transferee has
been given the opportunity to obtain from the Company the information
referred to in Rule 144A(d)(4), and has either declined such opportunity or
has received such information (or, in the case of a transfer of a Physical
Note, the transferee signs the certification provided on the Physical Note
to that effect); or (B) the transferor holds the U.S. Global Note and is
transferring to a transferee that will take delivery in the form of the
U.S. Global Note.
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(e) Procedures and Requirements.
---------------------------
1. If the proposed transfer occurs prior to the Offshore Note
Exchange Date, and the proposed transferor holds:
(A) a U.S. Physical Note which is surrendered to the Note
Registrar, and the proposed transferee or transferor, as
applicable:
(i) delivers an Accredited Investor Certificate and,
if required by the Company, a Non-Registration Opinion and
Supporting Evidence, or delivers (or is deemed to have
delivered pursuant to clause (d) above) a Rule 144A
Certificate and the proposed transferee requests delivery in
the form of a U.S. Physical Note, then the Note Registrar
shall (x) register such transfer in the name of such
transferee and record the date thereof in its books and
records, (y) cancel such surrendered U.S. Physical Note and
(z) deliver a new U.S. Physical Note to such transferee duly
registered in the name of such transferee in principal
amount equal to the principal amount being transferred of
such surrendered U.S. Physical Note;
(ii) delivers (or is deemed to have delivered
pursuant to clause (d) above) a Rule 144A Certificate and
the proposed transferee is or is acting through an Agent
Member and requests that the proposed transferee receive a
beneficial interest in the U.S. Global Note, then the Note
Registrar shall (x) cancel such surrendered U.S. Physical
Note, (y) record an increase in the principal amount of the
U.S. Global Note equal to the principal amount being
transferred of such surrendered U.S. Physical Note and (z)
notify the Depositary in accordance with the procedures of
the Depositary that it approves of such transfer; or
(iii) delivers a Regulation S Certificate and the
proposed transferee is or is acting through an Agent Member
and requests that the proposed transferee receive a
beneficial interest in the Offshore Global Note, then the
Note Registrar shall (x) cancel such surrendered U.S.
Physical Note, (y) record an increase in the principal
amount of the Offshore Global Note equal to the principal
amount being transferred of such surrendered U.S. Physical
Note and (z) notify the Depositary in accordance with the
procedures of the Depositary that it approves of such
transfer.
In any of the cases described in this Section 307(e)(1)(A), the
Note Registrar shall deliver to the transferor a new U.S. Physical
Note in principal amount equal to
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<PAGE>
the principal amount not being transferred of such surrendered U.S.
Physical Note, as applicable.
(B) the U.S. Global Note, and the proposed transferee or
transferor, as applicable:
(i) delivers an Accredited Investor Certificate and,
if required by the Company, a Non-Registration Opinion and
Supporting Evidence, or delivers (or is deemed to have
delivered pursuant to clause (d) above) a Rule 144A
Certificate and the proposed transferee requests delivery in
the form of a U.S. Physical Note, then the Note Registrar
shall (w) register such transfer in the name of such
transferee and record the date thereof in its books and
records, (x) record a decrease in the principal amount of
the U.S. Global Note in an amount equal to the beneficial
interest therein being transferred, (y) deliver a new U.S.
Physical Note to such transferee duly registered in the name
of such transferee in principal amount equal to the amount
of such decrease and (z) notify the Depositary in accordance
with the procedures of the Depositary that it approves of
such transfer;
(ii) delivers (or is deemed to have delivered
pursuant to clause (d) above) a Rule 144A Certificate and
the proposed transferee is or is acting through an Agent
Member and requests that the proposed transferee receive a
beneficial interest in the U.S. Global Note, then the
transfer shall be effected in accordance with the procedures
of the Depositary therefor; or
(iii) delivers a Regulation S Certificate and the
proposed transferee is or is acting through an Agent Member
and requests that the proposed transferee receive a
beneficial interest in the Offshore Global Note, then the
Note Registrar shall (w) register such transfer in the name
of such transferee and record the date thereof in its books
and records, (x) record a decrease in the principal amount
of the U.S. Global Note in an amount equal to the beneficial
interest therein being transferred, (y) record an increase
in the principal amount of the Offshore Global Note equal to
the amount of such decrease and (z) notify the Depositary in
accordance with the procedures of the Depositary that it
approves of such transfer.
(C) the Offshore Global Note, and the proposed transferee
or transferor, as applicable:
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(i) delivers an Accredited Investor Certificate and,
if required by the Trust, a Non-Registration Opinion and
Supporting Evidence delivers (or is deemed to have delivered
pursuant to clause (d) above) a Rule 144A Certificate and
the proposed transferee requests delivery in the form of a
U.S. Physical Note, then the Note Registrar shall (w)
register such transfer in the name of such transferee and
record the date thereof in its books and records, (x) record
a decrease in the principal amount of the Offshore Global
Note in an amount equal to the beneficial interest therein
being transferred, (y) deliver a new U.S. Physical Note to
such transferee duly registered in the name of such
transferee in principal amount equal to the amount of such
decrease and (z) notify the Depositary in accordance with
the procedures of the Depositary that it approves of such
transfer.
(ii) delivers (or is deemed to have delivered
pursuant to clause (d) above) a Rule 144A Certificate and
the proposed transferee is or is acting through an Agent
Member and requests that the proposed transferee receive a
beneficial interest in the U.S. Global Note, then the Note
Registrar shall (x) record a decrease in the principal
amount of the Offshore Global Note in an amount equal to the
beneficial interest therein being transferred, (y) record an
increase in the principal amount of the U.S. Global Note
equal to the amount of such decrease and (z) notify the
Depositary in accordance with the procedures of the
Depositary that it approves of such transfer; or
(iii) delivers a Regulation S Certificate and the
proposed transferee is or is acting through an Agent member
and requests that the proposed transferee receive a
beneficial interest in the Offshore Global Note, then the
transfer shall be effected in accordance with the procedures
of the Depositary therefor; provided, however, that until
-------- -------
the Offshore Note Exchange Date occurs, beneficial interests
in the Offshore Global Note may be held only in or through
accounts maintained at the Depositary by Euroclear or Cedel
(or by Agent Members acting for the account thereof), and no
person shall be entitled to effect any transfer or exchange
that would result in any such interest being held otherwise
than in or through such an account.
2. If the proposed transfer occurs on or after the Offshore
Note Exchange Date and the proposed transferor holds:
(A) a U.S. Physical Note which is surrendered to the Note
Registrar, and the proposed transferee or transferor, as
applicable:
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(i) delivers and Accredited Investor Certificate
and, if required by the Company, a Non-Registration Opinion
and Supporting Evidence, or delivers (or is deemed to have
delivered pursuant to clause (d) above) a Rule 144A
Certificate and the proposed transferee requests delivery in
the form of a U.S. Physical Note, then the procedures set
forth in Section 307(e)(1)(A)(i) shall apply.
(ii) delivers (or is deemed to have delivered
pursuant to clause (d) above) a Rule 144A Certificate and
the proposed transferee is or is acting through an Agent
Member and requests that the proposed transferee receive a
beneficial interest in the Offshore Global Note, then the
procedures set forth in Section 307(e)(1)(A)(ii) shall
apply; or
(iii) delivers a Regulation S Certificate, then the
Note Registrar shall cancel such surrendered U.S. Physical
Note and at the direction of the transferee, either:
(x) register such transfer in the name of such
transferee, record the date thereof in its books and
records and deliver a new Offshore Physical Note to
such transferee in principal amount equal to the
principal amount being transferred of such surrendered
U.S. Physical Note, or
(y) if the proposed transferee is or is acting
through an Agent Member, record an increase in the
principal amount of the Offshore Global Note equal to
the principal amount being transferred of such
surrendered U.S. Physical Note and notify the
Depositary in accordance with the procedures of the
Depositary that it approves of such transfer.
In any of the cases described in this Section
307(e)(2)(A)(i), (ii) or (iii)(x), the Note Registrar shall
deliver to the transferor a new U.S. Physical Note in principal
amount equal to the principal amount not being transferred of
such surrendered U.S. Physical Note, as applicable.
(B) the U.S. Global Note, and the proposed transferee or
transferor, as applicable:
(i) delivers an Accredited Investor Certificate and,
if required by the Company, a Non-Registration Opinion and
Supporting Evidence, or delivers (or is deemed to have
delivered
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<PAGE>
pursuant to clause (d) above) a Rule 144A Certificate and
the proposed transferee requests delivery in the form of a
U.S. Physical Note, then the procedures set forth in Section
307(e)(1)(B)(i) shall apply; or
(ii) delivers (or is deemed to have delivered
pursuant to clause (d) above) a Rule 144A Certificate and
the proposed transferee is or is acting through an Agent
Member and requests that the proposed transferee receive a
beneficial interest in the U.S. Global Note, then the
procedures set forth in Section 307(e)(1)(B)(ii) shall
apply; or
(iii) delivers a Regulation S Certificate, then the
Note Registrar shall (x) record a decrease in the principal
amount of the U.S. Global Note in an amount equal to the
beneficial interest therein being transferred, (y) notify
the Depositary in accordance with the procedures of the
Depositary that it approves of such transfer and (z) at the
direction of the transferee, either:
(x) register such transfer in the name of such
transferee, record the date thereof in its books and
records and deliver a new Offshore Physical Note to
such transferee in principal amount equal to the amount
of such decrease, or
(y) if the proposed transferee is or is acting
through an Agent Member, record an increase in the
principal amount of the Offshore Global Note equal to
the amount of such decrease.
(C) an Offshore Physical Note which is surrendered to the
Note Registrar, and the proposed transferee or transferor or, as
applicable:
(i) delivers (or is deemed to have delivered
pursuant to clause (d) above) a Rule 144A Certificate and
the proposed transferee is or is acting through an Agent
Member and requests delivery in the form of the U.S. Global
Note, then the Note Registrar shall (x) cancel such
surrendered Offshore Physical Note, (y) record an increase
in the principal amount of the U.S. Global Note equal to the
principal amount being transferred of such surrendered
Offshore Physical Note and (z) notify the Depositary in
accordance with the procedures of the Depositary that it
approves of such transfer;
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<PAGE>
(ii) where the proposed transferee is or is acting
through an Agent Member, requests that the proposed
transferee receive a beneficial interest in the Offshore
Global Note, then the Note Registrar shall (x) cancel such
surrendered Offshore Physical Note, (y) record an increase
in the principal amount of the Offshore Global Note equal to
the principal amount being transferred of such surrendered
Offshore Physical Note and (z) notify the Depositary in
accordance with the procedures of the Depositary that it
approves of such transfer; or
(iii) does not make a request covered by Section
307(e)(2)(C)(i) or Section 307(e)(2)(C)(ii), then the Note
Registrar shall (x) register such transfer in the name of
such transferee and record the date thereof in its books and
records, (y) cancel such surrendered Offshore Physical Note
and (z) deliver a new Offshore Physical Note to such
transferee duly registered in the name of such transferee in
principal amount equal to the principal amount being
transferred of such surrendered Offshore Physical Note.
In any of the cases described in this Section
307(e)(2)(C), the Note Registrar shall deliver to the
transferor a new U.S. Physical Note in principal amount
equal to the principal amount not being transferred of such
surrendered U.S. Physical Note, as applicable.
(D) the Offshore Global Note, and the proposed transferee
or transferor, as applicable:
(i) delivers (or is deemed to have delivered
pursuant to clause (d) above) a Rule 144A Certificate and
the proposed transferee is or is acting through an Agent
Member and requests delivery in the form of the U.S. Global
Note, then the Note Registrar shall (x) record a decrease in
the principal amount of the Offshore Global Note in an
amount equal to the beneficial interest therein being
transferred, (y) record an increase in the principal amount
of the U.S. Global Note equal to the amount of such decrease
and (z) notify the Depositary in accordance with the
procedures of the Depositary that it approves of such
transfer;
(ii) where the proposed transferee is or is acting
through an Agent Member, requests that the proposed
transferee receive a beneficial interest in the Offshore
Global Note, then the transfer shall be effected in
accordance with the procedures of the Depositary therefor;
or
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<PAGE>
(iii) does not make a request covered by Section
307(e)(2)(D)(i) or Section 307(e)(2)(D)(ii), then the Note
Registrar shall (w) register such transfer in the name of
such transferee and record the date thereof in its books and
records, (x) record a decrease in the principal amount of
the Offshore Global Note in an amount equal to the
beneficial interest therein being transferred, (y) deliver a
new Offshore Physical Note to such transferee duly
registered in the name of such transferee in principal
amount equal to the amount of such decrease and (z) notify
the Depositary in accordance with the procedures of the
Depositary that it approves of such transfer.
(f) Execution, Authentication and Delivery of Physical Notes. In any
--------------------------------------------------------
case in which the Note Registrar is required to deliver a Physical Note to
a transferee or transferor, the Company shall execute, and the Trustee
shall authenticate and make available for delivery, such Physical Note.
(g) Certain Additional Terms Applicable to Physical Notes. Any
-----------------------------------------------------
transferee entitled to receive a Physical Note may request that the
principal amount thereof be evidenced by one or more Physical Notes in any
authorized denomination or denominations the Note Registrar shall comply
with such request if all other transfer restrictions are satisfied.
(h) Transfers Not Covered by Section 307(e). The Note Registrar shall
---------------------------------------
effect and record, upon receipt of a written request from the Company so to
do, a transfer not otherwise permitted by Section 307(e), such recording to
be done in accordance with the otherwise applicable provisions of Section
307(e), upon the furnishing by the proposed transferor or transferee of a
Non-Registration Opinion and Supporting Evidence.
(i) General. By its acceptance of any Note bearing the Private
-------
Placement Legend, each Holder of such Note acknowledges the restrictions on
transfer of such Note set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Note only as
provided in the Indenture. The Note Registrar shall not register a transfer
of any Note unless such transfer complies with the restrictions with
respect thereto set forth in this Indenture. The Note Registrar shall not
be required to determine (but may rely upon a determination made by the
Company) the sufficiency or accuracy of any such certifications, legal
opinions, other information or document.
(j) Private Placement Legend. Upon the transfer, exchange or
------------------------
replacement of Notes not bearing the Private Placement Legend, the Note
Registrar shall deliver Notes that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Notes bearing the
Private Placement Legend, the Note Registrar shall deliver only Notes that
bear the Private Placement Legend unless (i) the circumstances exist
contemplated by the fourth paragraph of Section 201 (with respect to an
Offshore Physical Note) or the requested
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<PAGE>
transfer is at least two years after the original issue date of the Initial
Note (with respect to any Physical Note), (ii) there is delivered to the
Note Registrar an Opinion of Counsel reasonably satisfactory to the Company
and the Trustee to the effect that neither such legend nor the related
restrictions on transfer are required in order to maintain compliance with
the provisions of the Act or (iii) such Notes are exchanged for Exchange
Notes pursuant to an Exchange Offer.
SECTION 308. Mutilated, Destroyed, Lost and Stolen Notes.
-------------------------------------------
If (i) any mutilated Note is surrendered to the Trustee, or (ii) the
Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Note, and there is delivered to the Company
and the Trustee such security or indemnity as may be required by them to save
each of them harmless, then, in the absence of written notice to the Company or
the Trustee that such Note has been acquired by a bona fide purchaser, the
Company shall execute and upon Company Order the Trustee shall authenticate and
deliver, in exchange for any such mutilated Note or in lieu of any such
destroyed, lost or stolen Note, a new Note of like tenor and principal amount,
bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has become
or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Note, pay such Note.
Upon the issuance of any new Note under this Section 308, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and shall require
the payment of a sum sufficient to pay any other expenses (including the fees
and expenses of the Trustee) connected therewith.
Every new Note issued pursuant to this Section 308 in lieu of any
mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all benefits of this Indenture equally and proportionately
with any and all other Notes duly issued hereunder.
The provisions of this Section 308 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 309. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Note which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name such Note (or one or more Predecessor Notes) is registered at the close of
business on the Regular Record Date for such interest at the office or agency of
the Company maintained for such purpose pursuant to Section 1002;
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provided, however, that each installment of interest may at the Company's option
- -------- -------
be paid by (i) mailing a check for such interest, payable to or upon the written
order of the Person entitled thereto pursuant to Section 310, to the address of
such Person as it appears in the Note Register or (ii) transferring the interest
payment to an account located in the United States maintained by the payee.
Any interest on any Note which is payable, but is not punctually paid
or duly provided for, on any Interest Payment Date shall forthwith cease to be
payable to the Holder on the Regular Record Date by virtue of having been such
Holder, and such defaulted interest and (to the extent lawful) interest on such
defaulted interest at the rate borne by the Notes (such defaulted interest and
interest thereon herein collectively called "Defaulted Interest") may be paid by
the Company, at its election in each case, as provided in clause (1) or (2)
below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Notes (or their respective Predecessor
Notes) are registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Note and the date
of the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount proposed
to be paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Company, with the written consent of the
Trustee, shall fix a Special Record Date for the payment of such Defaulted
Interest which shall be not more than 15 days and not less than 10 days
prior to the date of the proposed payment and not less than 10 days after
the receipt by the Trustee of the notice of the proposed payment. The
Trustee, in the name and at the expense of the Company, shall cause notice
of the proposed payment of such Defaulted Interest and the Special Record
Date therefor to be given in the manner provided for in Section 106, not
less than 10 days prior to such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor
having been so given, such Defaulted Interest shall be paid to the Persons
in whose names the Notes (or their respective Predecessor Notes) are
registered at the close of business on such Special Record Date and shall
no longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice
as may be required by such exchange, if, after notice given by the Company
to the Trustee of the proposed payment pursuant to this clause, such manner
of payment shall be deemed practicable by the Trustee.
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Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, which were carried by such other Note.
SECTION 310. Persons Deemed Owners.
---------------------
Prior to the due presentment of a Note for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Note is registered as the owner of such Note for
the purpose of receiving payment of principal of (and premium, if any) and
(subject to Sections 305 and 309) interest on such Note and for all other
purposes whatsoever, whether or not such Note be overdue, and none of the
Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 311. Cancellation.
------------
All Notes surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to, and promptly cancelled by, the Trustee. The Company may at any
time deliver to the Trustee for cancellation any Notes previously authenticated
and delivered hereunder which the Company may have acquired in any manner
whatsoever, and may deliver to the Trustee (or to any other Person for delivery
to the Trustee) for cancellation any Notes previously authenticated hereunder
which the Company has not issued and sold, and all Notes so delivered shall be
promptly cancelled by the Trustee. If the Company shall so acquire any of the
Notes, however, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Notes unless and until the
same are surrendered to the Trustee for cancellation. No Notes shall be
authenticated in lieu of or in exchange for any Notes cancelled as provided in
this Section, except as expressly permitted by this Indenture. All cancelled
Notes held by the Trustee shall be disposed of by the Trustee in accordance with
its customary procedures and certification of their disposal delivered to the
Company unless by Company Order the Company shall direct that cancelled Notes be
returned to it after being appropriately designated as cancelled.
SECTION 312. Computation of Interest.
-----------------------
Interest on the Notes shall be computed on the basis of a 360-day year
of twelve 30-day months.
SECTION 313. CUSIP Numbers.
-------------
The Company in issuing the Notes may use "CUSIP" numbers (if then
generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices
of redemption or other notices to Holders as a convenience to Holders; provided
--------
that any such notice may state that no representation in made as to the
correctness of such numbers either as printed on the Notes or as contained in
the notice of redemption and that reliance may be placed only on the other
identification numbers and
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other identifying information printed on the Notes, and any such redemption
shall not be affected by any defect in or omission of such numbers. The Company
will promptly notify the Trustee of any change in the CUSIP numbers.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall upon Company Request cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
Notes expressly provided for herein or pursuant hereto) and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture when
(1) either
(a) all Notes theretofore authenticated and delivered (other
than (i) Notes which have been destroyed, lost or stolen and which
have been replaced or paid as provided in Section 308 and (ii) Notes
for whose payment money has theretofore been deposited in trust with
the Trustee or any Paying Agent or segregated and held in trust by the
Company and thereafter repaid to the Company or discharged from such
trust, as provided in Section 1003) have been delivered to the Trustee
for cancellation; or
(b) all such Notes not theretofore delivered to the Trustee for
cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
within one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Company,
and the Company, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust for such purpose an amount sufficient to pay and
discharge the entire indebtedness on such Notes not theretofore
delivered to the Trustee for cancellation, for principal (and premium,
if any) and interest and Liquidated Damages, if any, to the date of
such deposit (in the case of Notes which have become due and payable)
or to the Stated Maturity or
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<PAGE>
Redemption Date, as the case may be, together with irrevocable
instructions from the Company directing the Trustee to apply such
funds to the payment thereof at Stated Maturity or redemption, as the
case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officer's Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 606 and, if money shall
have been deposited with the Trustee pursuant to subclause (b) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
--------------------------
On or prior to the effective date of this Indenture, the Trustee shall
establish a segregated, non-interest bearing corporate trust account (the
"Payment Account") maintained by the Trustee for the benefit of the Holders in
which all amounts paid to the Trustee for the benefit of the Holders in respect
of the Notes will be held (except for amount designated to be deposited into the
Pledge Account) and from which the Trustee (if the Trustee is the Paying Agent)
shall make payments to the Holders in accordance with this Indenture and the
Notes. Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 and otherwise pursuant
to this Indenture shall be held in trust and applied by it, in accordance with
the provisions of the Notes and this Indenture, to the payment, either directly
or through any Paying Agent (including the Company acting as its own Paying
Agent) as the Trustee may determine, to the Persons entitled thereto, of the
principal (and premium, if any) and interest for whose payment such money has
been deposited with the Trustee.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
-----------------
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
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<PAGE>
(1) default in the payment of interest on any Note when due and
payable and continuance of such default for a period of 30 days as to any
Interest Payment Date thereafter; or
(2) default in the payment of principal of (or premium, if any, on)
any Note at its Stated Maturity, upon acceleration, redemption or
otherwise; or
(3) default in the payment of principal or interest on any Note
required to be purchased pursuant to an Excess Proceeds Offer as set forth
in Section 1017 or pursuant to a Change of Control Offer as set forth in
Section 1010; or
(4) failure to perform or comply with the provisions in Section 801;
or
(5) default in the performance or breach of any covenant or agreement
of the Company in this Indenture or under the Notes (other than a default
in the performance, or breach, of a covenant or agreement which is
specifically dealt with elsewhere in this Section), and continuance of such
default or breach for a period of 30 consecutive days after there has been
given, by registered or certified mail, to the Company by the Trustee or to
the Company and the Trustee by the Holders of at least 25% in principal
amount of the Outstanding Notes a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a
"Notice of Default" hereunder; or
(6) there occurs with respect to any issue or issues of Indebtedness
of the Company or any Restricted Subsidiary having an outstanding principal
amount of $10.0 million or more in the aggregate for all such issues of all
such Persons, whether such Indebtedness now exists or shall hereafter be
created, (I) an event of default that has caused the holder thereof to
declare such Indebtedness to be due and payable prior to its Stated
Maturity and such Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled by the earlier of (x) the
expiration of any applicable grace period or (y) the thirtieth day after
such default and/or (II) the failure to make a principal payment at the
final (but not any interim) fixed maturity and such defaulted payment shall
not have been made, waived or extended by the earlier of (x) the expiration
of any applicable grace period or (y) the thirtieth day after such default;
or
(7) any final judgment or order (not covered by insurance) for the
payment of money in excess of $10.0 million in the aggregate for all such
final judgments or orders (treating any deductibles, self-insurance or
retention as not so covered) shall be rendered against the Company or any
Restricted Subsidiary and shall not be paid or discharged, and there shall
be any period of 30 consecutive days following entry of the final judgment
or order that causes the aggregate amount for all such final judgments or
orders outstanding and not paid or discharged against all such Persons to
exceed $10.0 million during which a stay of enforcement of such final
judgment or order, by reason of a pending appeal or otherwise, shall not be
in effect; or
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(8) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Company or any of its Significant
Subsidiaries in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, (B) appointment
of a receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Company or any of its Significant Subsidiaries or
for all or substantially all of the property and assets of the Company or
any of its Significant Subsidiaries or (C) the winding up or liquidation of
the affairs of the Company or any of its Significant Subsidiaries and, in
each case, such decree or order shall remain unstayed and in effect for a
period of 30 consecutive days; or
(9) the Company or any of its Significant Subsidiaries (A) commences
a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to the entry of an
order for relief in an involuntary case under any such law, (B) consents to
the appointment of or taking possession by a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the
Company or any of its Significant Subsidiaries or for all or substantially
all of the property and assets of the Company or any of its Significant
Subsidiaries or (C) effects any general assignment for the benefit of
creditors.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default (other than an Event of Default specified in
Section 501(8) or 501(9)) occurs and is continuing, then and in every such case
the Trustee or the Holders of not less than 25% in principal amount of the Notes
Outstanding may, and the Trustee at the request of such Holders shall, declare
the principal of, premium, if any, and accrued but unpaid interest on all the
Notes to be due and payable immediately, by a notice in writing to the Company
(and to the Trustee if given by Holders), and upon any such declaration of
acceleration, such principal of, premium, if any, and accrued interest shall
become immediately due and payable. If an Event of Default specified in Section
501(8) or 501(9) occurs and is continuing, then the principal amount of all the
Notes shall ipso facto become and be immediately due and payable without any
---- -----
declaration or other act on the part of the Trustee or any Holder.
At any time after a declaration of acceleration has been made, the
Holders of a majority in principal amount of the Notes Outstanding, by written
notice to the Company and the Trustee, may waive all past defaults and rescind
and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay,
(A) all overdue interest and Liquidated Damages on all
Outstanding Notes,
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(B) all unpaid principal of (and premium, if any, on) any
Outstanding Notes which has become due otherwise than by such
declaration of acceleration, and interest on such unpaid principal at
the rate borne by the Notes,
(C) to the extent that payment of such interest is lawful,
interest on overdue interest at the rate borne by the Notes, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, fees, expenses, disbursements and advances of
the Trustee, its agents and counsel and any amounts due the Trustee
under Section 606;
(2) all Events of Default, other than the non-payment of amounts of
principal of (or premium, if any, on) and accrued and unpaid interest and
Liquidated Damages, if any, on the Notes which have become due solely by
such declaration of acceleration, have been cured or waived as provided in
Section 513; and
(3) the recission, in the Opinion of Counsel, would not conflict with
any judgment or decrees of a court of competent jurisdiction.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Notwithstanding the preceding paragraph, in the event of a declaration
of acceleration in respect of the Notes because of an Event of Default specified
in Section 501(6) shall have occurred and be continuing, such declaration of
acceleration shall be automatically annulled if the Indebtedness that is the
subject of such Event of Default has been discharged or the holders thereof have
rescinded their declaration of acceleration in respect of such Indebtedness, and
written notice of such discharge or rescission, as the case may be, shall have
been given to the Trustee by the Company and countersigned by the holders of
such Indebtedness or a trustee, fiduciary or agent for such holders, within 60
days after such declaration of acceleration in respect of the Notes, and no
other Event of Default has occurred during such 60-day period which has not been
cured or waived during such period.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee.
- -------
The Company covenants that if
(a) default is made in the payment of any installment of interest and
Liquidated Damages, if any, on any Note when such interest becomes due and
payable and such default continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or premium,
if any, on) any Note at the Maturity thereof,
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the Company will pay to the Trustee for the benefit of the Holders of such
Notes, the whole amount then due and payable on such Notes for principal (and
premium and Liquidated Damages, if any) and interest, and interest on any
overdue principal (and premium, if any) and, to the extent that payment of such
interest shall be legally enforceable, upon any overdue installment of interest
and Liquidated Damages, if any, at the rate borne by the Notes, and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, fees expenses,
disbursements and advances of the Trustee, its agents and counsel and any
amounts due the Trustee under Section 606.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Notes and collect the moneys
adjudged or decreed to be payable in the manner provided by law out of the
property of the Company or any other obligor upon the Notes, wherever situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the Notes
or the property of the Company or of such other obligor or their creditors, the
Trustee (irrespective of whether the principal of the Notes shall then be due
and payable as therein expressed or by declaration or otherwise and irrespective
of whether the Trustee shall have made any demand on the Company for the payment
of overdue principal, premium, if any, interest or Liquidated Damages, if any)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium and Liquidated Damages, if any) and interest owing and unpaid in
respect of the Notes and to file such other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, fees, expenses,
disbursements and advances of the Trustee, its agents and counsel and any
amounts due the Trustee under Section 606) and of the Holders allowed in
such judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
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and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Notes or
the rights of any Holder thereof, or to authorize the Trustee to vote in respect
of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Notes.
------------------------------------------------------
All rights of action and claims under this Indenture or the Notes may
be prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own name and as
trustee of an express trust, and any recovery of judgment shall, after provision
for the payment of the reasonable compensation, fees, expenses, disbursements
and advances of the Trustee, its agents and counsel, be for the ratable benefit
of the Holders of the Notes in respect of which such judgment has been
recovered.
SECTION 506. Application of Money Collected.
------------------------------
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any, or Liquidated Damages, if any) or interest, upon presentation of the
Notes and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
606;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium and Liquidated Damages, if any) and interest on
the Notes in respect of which or for the benefit of which such money has
been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Notes for principal (and
premium and Liquidated Damages, if any) and interest, respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
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SECTION 507. Limitation on Suits.
-------------------
Except to enforce the right to receive payment of principal or,
premium, if any, or interest or Liquidated Damages, if any, when due, no Holder
of any Notes shall have any right to institute any proceeding, judicial or
otherwise, with respect to this Indenture, or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) such Holders of at least 25% in aggregate principal amount of
outstanding Notes make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer the Trustee indemnity satisfactory
to the Trustee against any costs, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period, the Holders of a majority in aggregate
principal amount of the Outstanding Notes do not give the Trustee a
direction that is inconsistent with the request;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal,
----------------------------------------------------
Premium and Interest.
- --------------------
Notwithstanding any other provision in this Indenture, the Holder of
any Note shall have the right, which is absolute and unconditional, to receive
payment, as provided herein (including, if applicable, Article Thirteen) and in
such Note of the principal of (and premium and Liquidated Damages, if any) and
(subject to Section 309) interest on such Note on the respective Stated
Maturities expressed in such Note (or, in the case of redemption, on the
Redemption Date) and to institute suit for the enforcement of any such payment,
and such rights shall not be impaired without the consent of such Holder.
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SECTION 509. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Notes in the last paragraph of
Section 308, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Note to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. Control by Holders.
------------------
The Holders of not less than a majority in principal amount of the
Outstanding Notes shall have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any trust or power conferred on the Trustee, provided that
--------
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
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(3) the Trustee need not take any action which might involve it in
personal liability or which, in the good faith determination of the
Trustee, may be unjustly prejudicial to the Holders not consenting.
SECTION 513. Waiver of Past Defaults.
-----------------------
The Holders of not less than a majority in principal amount of the
Outstanding Notes may on behalf of the Holders of all the Notes waive any past
default hereunder and its consequences, except a default
(1) in respect of the payment of the principal of (or premium or
Liquidated Damages, if any) or interest on any Note, or
(2) in respect of a covenant or provision hereof which under Article
Nine cannot be modified or amended without the consent of the Holder of
each Outstanding Note affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
SECTION 514. Waiver of Stay or Extension Laws.
--------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults.
------------------
Within 90 days after the occurrence of any Default hereunder, the
Trustee shall transmit in the manner and to the extent provided in TIA Section
313(c), notice of such Default hereunder actually known to the corporate trust
officer having responsibility for the administration of this Indenture on behalf
of the Trustee, unless such Default shall have been cured or waived;
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provided, however, that, except in the case of a Default in the payment of the
- -------- -------
principal of (or premium, if any) or interest on any Note, the Trustee shall be
protected in withholding such notice if and so long as the board of directors,
the executive committee or a trust committee of directors and/or Responsible
Officers of the Trustee in good faith determines that the withholding of such
notice is in the interest of the Holders; and provided further that in the case
-------- -------
of any Default of the character specified in Section 501(6), no such notice to
Holders shall be given until at least 30 days after the corporate trust officer
having responsibility for the administration of this Indenture on behalf of
Trustee has actual knowledge of the occurrence thereof.
In case an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by this
Indenture, and use the same degree of care and skill in their exercise, as a
prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.
SECTION 602. Certain Rights of Trustee.
-------------------------
Subject to the provisions of TIA Sections 315(a) through 315(d):
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officer's Certificate;
(4) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which might be incurred by it in compliance
with such request or direction;
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(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder;
(8) the Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Indenture; and
(9) the Trustee shall have no duty to inquire as to the performance of
the Company's covenants herein.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
SECTION 603. Trustee Not Responsible for Recitals or Issuance of
---------------------------------------------------
Notes.
- -----
The recitals contained herein and in the Notes, except for the
Trustees certificates of authentication, shall be taken as the statements of the
Company, and the Trustee assumes no responsibility for their correctness. The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Notes, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Notes and
perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility on Form T-1 supplied to the Company are true and
accurate, subject to the qualifications set forth therein. The Trustee shall
not be accountable for the use or application by the Company of Notes or the
proceeds thereof.
SECTION 604. May Hold Notes.
--------------
The Trustee, any Paying Agent, any Note Registrar or any other agent
of the Company or of the Trustee, in its individual or any other capacity, may
become the owner or pledgee of Notes and, subject to TIA Sections 310(b) and
311, may otherwise deal with the Company with the same rights it would have if
it were not Trustee, Paying Agent, Note Registrar or such other agent.
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SECTION 605. Money Held in Trust.
-------------------
Money held by the Trustee in trust hereunder shall be segregated from
other funds. The Trustee shall be under no liability for interest on any money
received by it hereunder.
SECTION 606. Compensation and Reimbursement.
------------------------------
The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents, accountants, experts and counsel), except
any such expense, disbursement or advance as may be attributable to its
gross negligence or bad faith; and
(3) to indemnify the Trustee and each of its officers, directors,
employees, attorneys-in-fact and agents for, and to hold it harmless
against, any claim, demand, loss, liability or expense (including but not
limited to reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel) incurred without gross negligence or bad
faith on its part, arising out of or in connection with the offering and
sale of the Notes, or the acceptance or administration of this trust,
including the costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its
powers or duties hereunder and enforcing this indemnification provision.
The obligations of the Company under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. As security for the performance of such
obligations of the Company, the Trustee shall have a claim prior to the Notes
upon all property and funds held or collected by the Trustee as such, except
funds held in trust for the payment of principal of (and premium, if any) or
interest on particular Notes.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 501(8) or (9), the expenses
(including the reasonable charges and expenses of its counsel) of and the
compensation for such services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency or
other similar law.
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The provisions of this Section shall survive the resignation or
removal of the Trustee or the termination of this Indenture.
SECTION 607. Corporate Trustee Required; Eligibility.
---------------------------------------
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined
capital and surplus of at least $50,000,000. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of Federal, State, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 607, it shall resign immediately in the manner and
with the effect hereinafter specified in this Article.
SECTION 608. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 609.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If the instrument of acceptance by a successor Trustee
required by Section 609 shall not have been delivered to the Trustee within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of
not less than a majority in principal amount of the Outstanding Notes, delivered
in writing to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Note for at least six months,
or
(2) the Trustee shall cease to be eligible under Section 607 and shall
fail to resign after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Note for at least six months,
or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public
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officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Notes delivered to
the Company and the retiring Trustee, the successor Trustee so appointed shall,
forthwith upon its acceptance of such appointment, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to the Holders of
Notes in the manner provided for in Section 106. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 609. Acceptance of Appointment by Successor.
--------------------------------------
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee,
the Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
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SECTION 610. Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business.
- --------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes. In case at
that time any of the Notes shall not have been authenticated, any successor
Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor Trustee. In all such cases such
certificates shall have the full force and effect which this Indenture provides
for the certificate of authentication of the Trustee shall have; provided,
--------
however, that the right to adopt the certificate of authentication of any
- -------
predecessor Trustee or to authenticate Notes in the name of any predecessor
Trustee shall apply only to its successor or successors by merger, conversion or
consolidation.
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders.
--------------------------------------------
Every Holder of Notes, by receiving and holding the same, agrees with
the Company and the Trustee that none of the Company or the Trustee or any agent
of either of them shall be held accountable by reason of the disclosure of any
such information as to the names and addresses of the Holders in accordance with
TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under TIA Section 312(b).
SECTION 702. Reports by Trustee.
------------------
Within 60 days after May 15 of each year commencing with the first May
15 after the first issuance of Notes, the Trustee shall transmit to the Holders,
in the manner and to the extent provided in TIA Section 313(c), a brief report
dated as of such May 15 if required by TIA Section 313(a).
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SECTION 703. Reports by Company.
------------------
The Company shall:
(1) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company may be required to file
with the Commission pursuant to Section 13 or Section 15(d) of the Exchange
Act; or, if the Company is not required to file information, documents or
reports pursuant to either of said Sections, then it shall file with the
Trustee and the Commission, in accordance with rules and regulations
prescribed from time to time by the Commission, such of the supplementary
and periodic information, documents and reports which may be required
pursuant to Section 13 of the Exchange Act in respect of a security listed
and registered on a national securities exchange as may be prescribed
from time to time in such rules and regulations;
(2) file with the Trustee and the Commission, in accordance with rules
and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by
the Company with the conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations; and
(3) transmit by mail to all Holders, in the manner and to the extent
provided in TIA Section 313(c), within 30 days after the filing thereof
with the Trustee, such summaries of any information, documents and reports
required to be filed by the Company pursuant to paragraphs (1) and (2) of
this Section as may be required by rules and regulations prescribed from
time to time by the Commission.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
----------------------------------------------------
The Company shall not consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person or permit any
Person to merge with or into the Company and the Company will not permit any of
its Restricted Subsidiaries to enter into any such transaction or series of
transactions if such transaction or series of transactions, in the aggregate,
would result in the sale, assignment, conveyance, transfer, lease or other
disposition of all or substantially all of the properties and assets of the
Company or the
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Company and its Restricted Subsidiaries, taken as a whole, to any other Person
or Persons, unless:
(1) either (A), the Company shall be the continuing Person, or (B) the
Person (if other than the Company) formed by such consolidation or into
which the Company is merged or the Person which acquires by conveyance or
transfer, or which leases, the properties and assets of the Company
substantially as an entirety (i) shall be a corporation, partnership or
trust organized and validly existing under the laws of the United States of
America or any jurisdiction thereof and (ii) shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the Company's obligation for the due and
punctual payment of the principal of (and premium and Liquidated Damages,
if any) and interest on all Notes and the performance and observance of
every covenant of the Indenture on the part of the Company to be performed
or observed;
(2) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the Company or a Restricted
Subsidary in connection with or as a result of such transaction as having
been incurred at the time of such transaction), no Default or Event of
Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction on a pro forma
basis the Company, or any Person becoming the successor obligor of the
Notes, as the case may be, could Incur at least $1.00 of Indebtedness under
paragraph (a) of Section 1011; and
(4) the Company or such Person shall have delivered to the Trustee an
Officer's Certificate (attaching the arithmetic computations to demonstrate
compliance with clause (3) above) and an Opinion of Counsel, each stating
that such consolidation, merger, conveyance, transfer or lease and, if a
supplemental indenture is required in connection with such transaction, and
such supplemental indenture complies with this Article and that all
conditions precedent provided for herein relating to such transaction have
been complied with; provided, however, that clause (3) above does not apply
-------- -------
if, in the good faith determination of the Board of Directors of the
Company, whose determination shall be conclusive and evidenced by a Board
Resolution, the principal purpose of such transaction is to change the
state of incorporation of the Company; and provided further that any such
-------- -------
transaction shall not have as one of its purposes the evasion of the
foregoing limitations.
SECTION 802. Successor Substituted.
---------------------
Upon any consolidation of the Company with or merger of the Company
with or into any other corporation or any conveyance, transfer or lease of the
properties and assets of the Company substantially as an entirety to any Person
in accordance with Section 801, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor
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Person had been named as the Company herein, and in the event of any such
conveyance or transfer, the Company (which term shall for this purpose mean the
Person named as the "Company" in the first paragraph of this Indenture or any
successor Person which shall theretofore become such in the manner described in
Section 801), except in the case of a lease, shall be discharged of all
obligations and covenants under this Indenture and the Notes and may be
dissolved and liquidated.
SECTION 803. Notes to Be Secured in Certain Events.
-------------------------------------
If, upon any such consolidation of the Company with or merger of the
Company into any other corporation, or upon any conveyance, lease or transfer of
the property of the Company substantially as an entirety to any other Person,
any property or assets of the Company would thereupon become subject to any
Lien, then unless such Lien could be created pursuant to Section 1016 without
equally and ratably securing the Notes, the Company, prior to or simultaneously
with such consolidation, merger, conveyance, lease or transfer, will as to such
property or assets, secure the Notes Outstanding (together with, if the Company
shall so determine any other Indebtedness of the Company now existing or
hereinafter created which is not subordinate in right of payment to the Notes)
equally and ratably with (or prior to) the Indebtedness which upon such
consolidation, merger, conveyance, lease or transfer is to become secured as to
such property or assets by such Lien, or will cause such Notes to be so secured.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company
contained herein and in the Notes; or
(2) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company; or
(3) to add any additional Events of Default; or
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of Section
609; or
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(5) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture; provided that such action shall not adversely affect
--------
the interests of the Holders in any material respect; or
(6) to secure the Notes pursuant to the requirements of Section 803 or
Section 1016 or otherwise.
SECTION 902. Supplemental Indentures with Consent of Holders.
-----------------------------------------------
With the consent of the Holders of not less than a majority in
aggregate principal amount of the Outstanding Notes, by Act of said Holders
delivered to the Company and the Trustee, the Company, when authorized by a
Board Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
- -------- -------
consent of the Holder of each Outstanding Note affected thereby:
(1) change the Stated Maturity of the principal of or any installment
of interest on any Note, or reduce the principal amount thereof (or premium
or Liquidated Damages, if any) or the rate of interest thereon or change
the coin or currency in which any Note or any premium or the interest
thereon is payable or extend the time for the payment of interest on any
Note, or impair the right of any Holder of the Notes to receive payment of,
principal of and interest on Holder's Notes on or after the due dates
therefor or to institute suit for the enforcement of any payment on or
after the Stated Maturity (or, in the case of redemption, on or after the
Redemption Date) of any Note, or
(2) reduce the percentage in principal amount of the Outstanding
Notes, the consent of whose Holders is required for any such supplemental
indenture, or the consent of whose Holders is required for any waiver of
compliance with certain provisions of this Indenture or certain defaults
hereunder and their consequences provided for in this Indenture, or
(3) waive a default in the payment of principal of (or premium, if
any) or accrued and unpaid interest or Liquidated Damages, if any, on the
Notes, or
(4) modify any provision of any Guarantees in a manner adverse to the
Holders, or
(5) modify any of the provisions of this Section or Sections 513 and
Section 1021, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Note affected
thereby.
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It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustees own rights, duties or
immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Notes theretofore or thereafter authenticated and delivered hereunder shall
be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to the Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Notes to Supplemental Indentures.
---------------------------------------------
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Notes so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and upon Company Order authenticated and delivered by the Trustee in
exchange for Outstanding Notes.
SECTION 907. Notice of Supplemental Indentures.
---------------------------------
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Company
shall give notice thereof to the Holders of each Outstanding Note affected, in
the manner provided for in Section 106, setting forth in general terms the
substance of such supplemental indenture.
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ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if Any, and Interest.
---------------------------------------------------
The Company covenants and agrees for the benefit of the Holders that
it will duly and punctually pay the principal of (and premium, if any) and
interest on the Notes in accordance with the terms of the Notes and this
Indenture.
SECTION 1002. Maintenance of Office or Agency.
-------------------------------
The Company will maintain in The City of New York, an office or agency
where Notes may be presented or surrendered for payment, where Notes may be
surrendered for registration of transfer or exchange and where notices and
demands to or upon the Company in respect of the Notes and this Indenture may be
served. The Corporate Trust Office of the Trustee shall be such office or
agency of the Company, unless the Company shall designate and maintain some
other office or agency for one or more of such purposes. The Company will give
prompt written notice to the Trustee of any change in the location of any such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee as its agent to receive all such presentations, surrenders,
notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Notes may
be presented or surrendered for any or all such purposes and may from time to
time rescind any such designation; provided, however, that no such designation
-------- -------
or rescission shall in any manner relieve the Company of its obligation to
maintain an office or agency in The City of New York for such purposes. The
Company will give prompt written notice to the Trustee of any such designation
or rescission and any change in the location of any such other office or agency.
SECTION 1003. Money for Note Payments to Be Held in Trust.
-------------------------------------------
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of (or premium or Liquidated
Damages, if any) or interest on any of the Notes, segregate and hold in trust
for the benefit of the Persons entitled thereto a sum sufficient to pay the
principal of (or premium or Liquidated Damages, if any) or interest so becoming
due until such sums shall be paid to such Persons or otherwise disposed of as
herein provided and will promptly notify the Trustee in writing of its action or
failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Notes, it will, on or before each due date of the principal of (or premium or
Liquidated Damages, if any) or interest
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on any Notes, deposit with a Paying Agent a sum sufficient to pay the principal
(and premium and Liquidated Damages, if any) or interest so becoming due, such
sum to be held in trust for the benefit of the Persons entitled to such
principal, premium, Liquidated Damages or interest, and (unless such Paying
Agent is the Trustee) the Company will promptly notify the Trustee in writing of
such action or any failure so to act.
The Company will cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of (and
premium and Liquidated Damages, if any) or interest on Notes in trust for
the benefit of the Persons entitled thereto until such sums shall be paid
to such Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Notes) in the making of any payment of principal
(and premium and Liquidated Damages, if any) or interest on the Notes; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same terms as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (or premium or
Liquidated Damages, if any) or interest on any Note and remaining unclaimed for
two years after such principal, premium, Liquidated Damages or interest has
become due and payable shall be paid to the Company on Company Request, or (if
then held by the Company) shall be discharged from such trust; and the Holder of
such Note shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
-------- -------
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in the Borough of Manhattan, The City of New York, notice that such
money remains unclaimed and that, after a date
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specified therein, which shall not be less than 30 days from the date of such
publication, any unclaimed balance of such money then remaining will be repaid
to the Company.
SECTION 1004. Corporate Existence.
-------------------
Subject to Article Eight, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company and each
Subsidiary; provided, however, that the Company shall not be required to
-------- -------
preserve any such right or franchise if the Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries as a whole and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1005. Payment of Taxes and Other Claims.
---------------------------------
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labor, materials and supplies, which, if unpaid, might by
law become a lien upon the property of the Company or any Subsidiary; provided,
--------
however, that the Company shall not be required to pay or discharge or cause to
- -------
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
SECTION 1006. Maintenance of Properties.
-------------------------
The Company will cause all properties owned by the Company or any
Subsidiary or used or held for use in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and will cause to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of the Company may be necessary so that the
business carried on in connection therewith may be properly and advantageously
conducted at all times; provided, however, that nothing in this Section shall
-------- -------
prevent the Company from discontinuing the maintenance of any of such properties
if such discontinuance is, in the judgment of the Company, desirable in the
conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Holders.
SECTION 1007. Insurance.
---------
The Company will at all times keep all of its and its Subsidiaries
properties which are of an insurable nature insured with insurers, believed by
the Company to be responsible, against loss or damage to the extent that
property of similar character is usually so insured by corporations similarly
situated and owning like properties.
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SECTION 1008. Statement by Officers As to Default.
-----------------------------------
(a) The Company will deliver to the Trustee, within 90 days after the
end of each fiscal year, a brief certificate from the principal executive
officer, principal financial officer or principal accounting officer as to his
or her knowledge of the Company's compliance with all conditions and covenants
under this Indenture. For purposes of this Section 1008(a), such compliance
shall be determined without regard to any period of grace or requirement of
notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or any Subsidiary gives any notice or takes any
other action with respect to a claimed default (other than with respect to
Indebtedness in the principal amount of less than $1,000,000) shall deliver to
the Trustee by registered or certified mail or by telegram, telex or facsimile
transmission an officers certificate specifying such event, notice or other
action within five Business Days of its occurrence.
(c) When any Registration Default (as defined in the Registration
Rights Agreement) occurs, the Company shall promptly deliver to the Trustee by
registered or certified mail or by telegram, telex or facsimile transmission an
Officer's Certificate specifying the nature of such Registration Default. In
addition, the Company shall deliver to the Trustee on each Interest Payment Date
during the continuance of a Registration Default and on the Interest Payment
Date following the cure of a Registration Default, an Officer's Certificate
specifying the amount of Liquidated Damages which have accrued and which are
then owing under the Registration Rights Agreement.
SECTION 1009. Provision of Financial Statements.
---------------------------------
(a) The Company will file on a timely basis with the Commission, to
the extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, the annual
reports, quarterly reports and other documents that the Company would be
required to file if it were subject to Section 13 or 15 of the Exchange Act.
All such annual reports shall include the geographic segment financial
information contemplated by Item 101(d) of Regulation S-K under the Securities
Act/SFAS 14, and all such quarterly reports shall provide the same type of
interim financial information that, as of the date of this Indenture, currently
is the Company's practice to provide.
(b) The Company will also be required (i) to file with the Trustee,
and provide to each Holder, without cost to such Holder, copies of such reports
and documents within 15 days after the date on which the Company files such
reports and documents with the Commission or the date on which the Company would
be required to file such reports and documents if the Company were so required,
and (ii) if filing such reports and documents with the Commission is not
accepted by the Commission or is prohibited under the Exchange Act, to supply at
the Company's cost copies of such reports and documents to any prospective
Holder promptly upon request.
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SECTION 1010. Repurchase of Notes upon a Change of Control.
--------------------------------------------
(a) Upon the occurrence of a Change of Control, each Holder shall
have the right to require the Company to repurchase all or any part of its Notes
at a purchase price in cash pursuant to the offer described below (the "Change
of Control Offer") equal to 101% of the principal amount thereof, plus accrued
and unpaid interest to the date of purchase (subject to the right of holders of
record to receive interest on the relevant interest payment date) (the "Change
of Control Payment") in accordance with the procedures set forth in paragraphs
(c) and (d) of this Section.
(b) [Reserved]
(c) Within 30 days following any Change of Control, the Company
shall give to each Holder of the Notes and the Trustee in the manner provided in
Section 106 a notice stating:
(i) that a Change of Control has occurred, that the Change of
Control Offer is being made pursuant to this Section 1010 and that all
Notes validly tendered will be accepted for payment;
(ii) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date
such notice is mailed) (the "Change of Control Payment Date");
(iii) that any Note not tendered will continue to accrue interest
pursuant to its terms;
(iv) that, unless the Company defaults in the payment of the Change
of Control Payment, any Note accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest on and after the Change of
Control Payment Date;
(v) that Holders electing to have any Note or portion thereof
purchased pursuant to the Change of Control Offer will be required to
surrender such Note, together with the form entitled "Option of the Holder
to Elect Purchase" on the reverse side of such Note completed, to the
Paying Agent at the address specified in the notice prior to the close of
business on the third Business Day immediately preceding the Change of
Control Payment Date;
(vi) that Holders be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of
such Holder, the principal amount of Notes delivered for purchase and a
statement that such Holder is withdrawing his election to have such Notes
purchased; and
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(vii) that Holders whose Notes are being purchased only in part will
be issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered; provided that each Note purchased and each new Note
--------
issued shall be in a principal amount of $1,000 or integral multiples
thereof.
(d) [Reserved].
(e) On the Change of Control Payment Date, the Company shall:
(i) accept for payment Notes or portions thereof tendered pursuant
to the Change of Control Offer;
(ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Notes or portions thereof so accepted; and
(iii) deliver, or cause to be delivered, to the Trustee, all Notes or
portions thereof so accepted together with an Officer's Certificate
specifying the Notes or portions thereof accepted for payment by the
Company. The Paying Agent shall promptly mail, to the Holders of Notes so
accepted, payment in an amount equal to the purchase price, and the Trustee
shall promptly authenticate and mail to such Holders a new Note equal in
principal amount of any unpurchased portion of the Notes surrendered;
provided that each Note purchased and each new Note issued shall be in a
--------
principal amount of $1,000 or integral multiples thereof. The Company will
publicly announce the results of the Change of Control Offer on or as soon
as practicable after the Change of Control Payment Date. For purposes of
this Section 1010, the Trustee shall act as Paying Agent.
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in the event that a Change of Control occurs and the
Company is required to repurchase the Notes under this Section 1010.
SECTION 1011. Limitation on Indebtedness.
--------------------------
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Notes); provided,
--------
however, that the Company may Incur Indebtedness if immediately thereafter the
- ------
ratio of (i) the aggregate principal amount (or accreted value, as the case may
be) of Indebtedness of the Company and its Restricted Subsidiaries on a
consolidated basis outstanding as of the Transaction Date to (ii) the Pro Forma
Consolidated Cash Flow for the preceding two full fiscal quarters multiplied by
two, determined on a pro forma basis as if any such Indebtedness that had been
Incurred and the proceeds thereof had been applied at the beginning of such two
fiscal quarters, would be greater than zero and less than 6.0 to 1.
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(b) Notwithstanding the foregoing, the Company and (except for
Indebtedness under subsections (v), (vii) and (xi) below) any Restricted
Subsidiary may Incur each and all of the following:
(i) Indebtedness of the Company or any Restricted Subsidiary under
one or more Credit Facilities in an aggregate principal amount at any one
time outstanding not to exceed the greater of (a) $50 million and (b) 65%
of Eligible Accounts Receivable, subject to any permanent reductions
required by any other terms of the Indenture;
(ii) Indebtedness (including Guarantees) Incurred by the Company or a
Restricted Subsidiary after the Closing Date to finance the cost (including
the cost of design, development, construction, acquisition, installation or
integration) of equipment used in the telecommunications business or
ownership rights with respect to indefeasible rights of use or minimum
investment units (or similar ownership interests) in domestic or
transnational fiber optic cable or other transmission facilities, in each
case purchased or leased by the Company (including acquisitions by way of
Capitalized Leases and acquisitions of the Capital Stock of a Person that
becomes a Restricted Subsidiary to the extent of the Fair Market Value of
such equipment, ownership rights or minimum investment units so acquired);
(iii) Indebtedness of any Restricted Subsidiary to the Company or
Indebtedness of the Company or any Restricted Subsidiary to any other
Restricted Subsidiary; provided that any subsequent issuance or transfer of
--------
any Capital Stock which results in any such Restricted Subsidiary ceasing
to be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness not permitted by this clause (iii) (other than to the Company
or another Restricted Subsidiary) shall be deemed, in each case, to
constitute the incurrence of such Indebtedness, and provided further that
-------- -------
Indebtedness of the Company to a Restricted Subsidiary must be subordinated
in right of payment to the Notes;
(iv) Indebtedness of the Company or a Restricted Subsidiary issued in
exchange for, or the net proceeds of which are used to refinance or refund,
then outstanding Indebtedness of the Company or a Restricted Subsidiary,
other than Indebtedness Incurred under clauses (i), (iii), (vi), (viii),
(ix) and (xii) of this paragraph, and any refinancings thereof in an amount
not to exceed the amount so refinanced or refunded (plus premiums, accrued
interest, and reasonable fees and expenses); provided that such new
--------
Indebtedness shall only be permitted under this clause (iv) if (A) in case
the Notes are refinanced in part or the Indebtedness to be refinanced is
pari passu with the Notes, such new Indebtedness, by its terms or by the
---- -----
terms of any agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly made pari passu
---- -----
with, or subordinate in right of payment to, the remaining Notes, (B) in
case the Indebtedness to be refinanced is subordinated in right of payment
to the Notes, such new Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such new Indebtedness is issued
or remains outstanding, is expressly made subordinate in right of
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payment to the Notes at least to the extent that the Indebtedness to be
refinanced is subordinated to the Notes and (C) such new Indebtedness,
determined as of the date of Incurrence of such new Indebtedness, does not
mature prior to the Stated Maturity of the Indebtedness to be refinanced or
refunded, and the Average Life of such new Indebtedness is at least equal
to the remaining Average Life of the Indebtedness to be refinanced or
refunded; and provided further that in no event may Indebtedness of the
-------- -------
Company be refinanced by means of any Indebtedness of any Restricted
Subsidiary pursuant to this clause (iv);
(v) Indebtedness of the Company not to exceed, at any one time
outstanding, 2.00 times (A) the Net Cash Proceeds received by the Company
after the Closing Date from the issuance and sale of its Common Stock
(other than Redeemable Stock) to a Person that is not a Subsidiary of the
Company, to the extent such Net Cash Proceeds have not been used pursuant
to clause (C)(2) of the first paragraph or clauses (iii), (iv) and (vii) of
the second paragraph of Section 1012 to make a Restricted Payment and (B)
the Fair Market Value (as determined in good faith by the Board of
Directors, whose determination shall be conclusive and evidenced by a Board
Resolution) of property (other than cash and cash equivalents) used in a
Permitted Business or common equity interests in a Person (the property and
assets of such Person consisting primarily of telecommunications assets)
that becomes a Restricted Subsidiary (such Fair Market Value being that of
the common equity interests received pursuant to the transaction resulting
in such Person becoming a Restricted Subsidiary), and, in each case,
received by the Company after the Closing Date from the issuance or sale of
its Common Stock (other than Redeemable Stock) to a Person that is not a
Subsidiary of the Company to the extent such sale of Common Stock has not
been used pursuant to clauses (iii), (iv) and (vii) of the second paragraph
of Section 1012; provided that such Indebtedness does not mature prior to
--------
the Stated Maturity of the Notes and the Average Life of such Indebtedness
is longer than that of the Notes;
(vi) Indebtedness of the Company or any Restricted Subsidiary (A) in
respect of performance, surety or appeal bonds or letters of credit
supporting trade payables, in each case provided in the ordinary course of
business; (B) under Currency Agreements and Interest Rate Agreements;
provided that such agreements (a) are designed solely to protect the
--------
Company or any Restricted Subsidiary against fluctuation in foreign
currency exchange rates or interest rates and (b) do not increase the
Indebtedness of the obligor outstanding at any time other than as a result
of fluctuations in foreign currency exchange rates or interest rates or by
reason of fees, indemnities and compensation payable thereunder; and (C)
arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from Guarantees or letters of
credit, surety bonds or performance bonds securing any obligations of the
Company or any of its Restricted Subsidiaries pursuant to such agreements,
in any case Incurred in connection with the disposition of any business,
assets or Restricted Subsidiary of the Company (other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of financing such
acquisition), in a principal amount not to exceed
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the gross proceeds actually received by the Company or any Restricted
Subsidiary in connection with such disposition;
(vii) Indebtedness of the Company, to the extent that the net
proceeds thereof are promptly (A) used to repurchase Notes tendered in a
Change of Control Offer or (B) deposited to defease all of the Notes as set
forth in Article Thirteen;
(viii) Indebtedness of a Restricted Subsidiary represented by a
Guarantee of the Notes and any other Indebtedness of the Company permitted
by and made in accordance with Section 1018;
(ix) Indebtedness of the Company or any Restricted Subsidiary not
otherwise permitted hereunder in an aggregate principal amount, when
aggregated with the principal amount of all other Indebtedness then
outstanding and incurred pursuant to this clause (ix), does not exceed $200
million at any one time outstanding;
(x) Acquired Indebtedness;
(xi) Strategic Subordinated Indebtedness; and
(xii) Indebtedness of the Company or any Restricted Subsidiary
arising from the honoring by a bank or other financial institution of a
check or similar instrument inadvertently (except in the case of daylight
overdrafts) drawn against insufficient funds in the ordinary course of
business, provided that such Indebtedness is extinguished within three
--------
business days of Incurrence.
(c) Notwithstanding any other provision of this Section 1011, the
maximum amount of this Indebtedness that the Company or a Restricted Subsidiary
may Incur pursuant to this Section 1011 shall not be deemed to be exceeded with
respect to any outstanding Indebtedness due solely to the result of fluctuations
in the exchange rates of currencies.
(d) For purposes of determining any particular amount of
Indebtedness under this Section 1011, Guarantees, Liens or obligations with
respect to letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included. For purposes of
determining compliance with this Section 1011, in the event that an item of
Indebtedness meets the criteria of more than one of the types of Indebtedness
described in the above clauses, the Company, in its sole discretion, shall
classify and from time to time may reclassify such item of Indebtedness and only
be required to include the amount and type of such Indebtedness in one of such
clauses.
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SECTION 1012. Limitation on Restricted Payments.
----------------------------------
The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, (i) (A) declare or pay any dividend or make any
distribution in respect of the Company's Capital Stock to the holders thereof
(other than dividends or distributions payable solely in shares of Capital Stock
(other than Redeemable Stock) of the Company or in options, warrants or other
rights to acquire such shares of Capital Stock) or (B) declare or pay any
dividend or make any distribution in respect of the Capital Stock of any
Restricted Subsidiary to any Person other than dividends and distributions
payable to the Company or any Restricted Subsidiary or to all holders of Capital
Stock of such Restricted Subsidiary on a pro rata basis, (ii) purchase, redeem,
retire or otherwise acquire for value any shares of Capital Stock of the Company
(including options, warrants or other rights to acquire such shares of Capital
Stock) held by any Person or any shares of Capital Stock of any Restricted
Subsidiary (including options, warrants and other rights to acquire such shares
of Capital Stock) held by any Affiliate of the Company (other than a Wholly
Owned Restricted Subsidiary) or any holder (or any Affiliate thereof) of 5% or
more of the Company's Capital Stock, (iii) make any voluntary or optional
principal payment, or voluntary or optional redemption, repurchase, defeasance,
or other acquisition or retirement for value of Subordinated Indebtedness, or
(iv) make any Investment, other than a Permitted Investment, in any Person (such
payments or any other actions described in clauses (i) through (iv) being
collectively "Restricted Payments") if, at the time of, and after giving effect
to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be
continuing;
(B) the Company could not Incur at least $1.00 of Indebtedness under
paragraph (a) of Section 1011; or
(C) the aggregate amount expended for all Restricted Payments (the
amount so expended, if other than in cash, to be determined in good faith
by the Board of Directors, whose determination shall be conclusive and
evidenced by a Board Resolution) after the date of the Indenture shall
exceed the sum of (1) the remainder of (a) 100% of the aggregate amount of
the Consolidated Cash Flow (determined by excluding income resulting from
transfers of assets received by the Company or a Restricted Subsidiary from
an Unrestricted Subsidiary) accrued on a cumulative basis during the period
(taken as one accounting period) beginning on the first day of the last
fiscal quarter immediately preceding the Closing Date and ending on the
last day of the last fiscal quarter preceding the Transaction Date minus
(b) the product of 1.75 times cumulative Consolidated Fixed Charges accrued
on a cumulative basis during the period (taken as one accounting period)
beginning on the first day of the last fiscal quarter immediately preceding
the Closing Date and ending on the last day of the last fiscal quarter
preceding the Transaction Date plus (2) the aggregate Net Cash Proceeds
----
received by the Company after the Closing Date from the issuance and sale
of its Capital Stock (other than Redeemable Stock) to a Person who is not a
Subsidiary of the Company (except to the extent such Net Cash Proceeds are
used to incur new Indebtedness outstanding pursuant to clause (v) of
paragraph (b) of Section 1011) plus (3) the aggregate Net Cash
----
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Proceeds received after the date of the Indenture by the Company from the
issuance or sale of debt securities that have been converted into or
exchanged for Capital Stock of the Company (other than Redeemable Stock)
together with the aggregate cash received by the Company at the time of
such conversion or exchange plus (4) without duplication of any amount
----
included in the calculation of Consolidated Cash Flow, in the case of
repayment of, or return of capital in respect of, any Investment
constituting a Restricted Payment made after the Closing Date and reducing
the amount of Restricted Payments otherwise permitted under this clause
(C), an amount equal to the lesser of the return of capital with respect to
such Investment and the cost of such Investment, in either case less the
cost of the disposition of such Investment.
The foregoing provision shall not be violated by reason of:
(i) the payment of any dividend within 60 days after the date of
declaration thereof if, at said date of declaration, such payment would
comply with the foregoing paragraph;
(ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the Notes including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness Incurred
under clause (iv) of paragraph (b) of Section 1011;
(iii) the repurchase, redemption or other acquisition of Capital
Stock of the Company in exchange for, or out of the proceeds of a
substantially concurrent offering of, shares of Capital Stock (other than
Redeemable Stock) of the Company (except to the extent such proceeds are
used to incur new Indebtedness pursuant to clause (v) of paragraph (b) of
Section 1011);
(iv) the acquisition of Indebtedness of the Company which is
subordinated in right of payment to the Notes in exchange for, or out of
the proceeds of, a substantially concurrent offering of, shares of the
Capital Stock of the Company (other than Redeemable Stock) (except to the
extent such proceeds are used to incur new Indebtedness pursuant to clause
(v) of paragraph (b) of Section 1011);
(v) payments or distributions, to dissenting stockholders pursuant
to applicable law, pursuant to or in connection with a consolidation,
merger or transfer of assets that complies with the provisions of this
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of the Company;
(vi) cash payments in lieu of the issuance of fractional shares
issued in connection with the exercise of any Common Stock warrants;
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(vii) Investments in Permitted Businesses acquired in exchange for
Common Stock (other than Redeemable Stock) of the Company or the Net Cash
Proceeds from the issuance and sale of such Common Stock (except to the
extent such proceeds are used to incur new Indebtedness pursuant to clause
(v) of paragraph (b) of Section 1011); provided that such proceeds are so
--------
used within 270 days of the receipt thereof;
(viii) the purchase of any Subordinated Indebtedness at a purchase
price not greater than 101% of the principal amount thereof, together with
accrued interest, if any, thereof in the event of a Change of Control in
accordance with provisions similar to Section 1011; provided that prior to
--------
such purchase the Company has made the Change of Control offer as provided
in such covenant with respect to the Notes and has purchased all Notes
validly tendered for payment in connection with such Change of Control
Offer; and
(ix) other Restricted Payments not to exceed $5.0 million; provided
--------
that, except in the case of clause (i), no Default or Event of Default
shall have occurred and be continuing or occur as a consequence of the
actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the immediately
preceding paragraph (other than a Restricted Payment referred to in clause (ii)
thereof, and an exchange of Capital Stock for Capital Stock, Indebtedness or an
Investment referred to in clause (iii), (iv) or (vii) thereof ) and the Net Cash
Proceeds from any issuance of Capital Stock referred to in clauses (iii), (iv)
and (vii) shall be included in calculating whether the conditions of clause (C)
of the first paragraph of Section 1012 have been met with respect to any
subsequent Restricted Payments. In the event the proceeds of an issuance of
Capital Stock of the Company are used for the redemption, repurchase or other
acquisition of the Notes or Indebtedness that is pari passu with the Notes, then
---- -----
the Net Cash Proceeds of such issuance shall be included in clause (C) of the
first paragraph of this Section 1012 only to the extent such proceeds are not
used for such redemption, repurchase or other acquisition of Indebtedness.
SECTION 1013. Limitation on Dividend and Other Payment Restrictions
-----------------------------------------------------
Affecting Restricted Subsidiaries.
- ---------------------------------
So long as any of the Notes are Outstanding, the Company will not, and
will not permit any Restricted Subsidiary to, create or otherwise cause or
suffer to exist or become effective any consensual encumbrance or restriction of
any kind on the ability of any Restricted Subsidiary to (i) pay dividends or
make any other distributions permitted by applicable law on any Capital Stock of
such Restricted Subsidiary owned by the Company or any other Restricted
Subsidiary, (ii) pay any Indebtedness owed to the Company or any other
Restricted Subsidiary, (iii) make loans or advances to the Company or any other
Restricted Subsidiary, or (iv) transfer any of its property or assets to the
Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions:
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(i) existing on the Closing Date in the Indenture or any other
agreements in effect on the Closing Date, and any extensions, refinancings,
renewals or replacements of such agreements; provided that the encumbrances
--------
and restrictions in any such extensions, refinancings, renewals or
replacements are no less favorable in any material respect to the Holders
than those encumbrances or restrictions that are then in effect and that
are being extended, refinanced, renewed or replaced;
(ii) contained in the terms of any Indebtedness or any agreement
pursuant to which such Indebtedness was issued if the encumbrance or
restriction applies only in the event of a payment default or default with
respect to a financial covenant contained in such Indebtedness or agreement
and such encumbrance or restriction is not materially more disadvantageous
to the Holders of the Notes than is customary in comparable financings (as
determined by the Company) and the Company determines that any such
encumbrance or restriction will not materially affect the Company's ability
to make principal or interest payments on the Notes;
(iii) existing under or by reason of applicable law;
(iv) existing with respect to any Person or the property or assets of
such Person acquired by the Company or any Restricted Subsidiary, existing
at the time of such acquisition and not incurred in contemplation thereof,
which encumbrances or restrictions are not applicable to any Person or the
property or assets of any Person other than such Person or the property or
assets of such Person so acquired;
(v) in the case of clause (iv) of the first paragraph of this
Section 1013, (A) that restrict in a customary manner the subletting,
assignment or transfer of any property or asset that is, or is subject to,
a lease, purchase mortgage obligation, license, conveyance or contract or
similar property or asset, (B) existing by virtue of any transfer of,
agreement to transfer, option or right with respect to, or Lien on, any
property or assets of the Company or any Restricted Subsidiary not
otherwise prohibited by the Indenture or (C) arising or agreed to in the
ordinary course of business, not relating to any Indebtedness, and that do
not, individually or in the aggregate, detract from the value of property
or assets of the Company or any Restricted Subsidiary in any manner
material to the Company or any Restricted Subsidiary; or
(vi) with respect to a Restricted Subsidiary and imposed pursuant to
an agreement that has been entered into for the sale or disposition of all
or substantially all of the Capital Stock of, or property and assets of,
such Restricted Subsidiary. Nothing contained in this Section 1013 shall
prevent the Company or any Restricted Subsidiary from (1) creating,
incurring, assuming or suffering to exist any Liens otherwise permitted in
Section 1016 or (2) restricting the sale or other disposition of property
or assets of the Company or any of its Restricted Subsidiaries that secure
Indebtedness of the Company or any of its Restricted Subsidiaries.
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SECTION 1014. Limitation on the Issuance and Sale of Capital Stock
----------------------------------------------------
of Restricted Subsidiaries.
- --------------------------
The Company will not sell, transfer, convey or otherwise dispose of
and will not permit any Restricted Subsidiary, directly or indirectly, to issue,
transfer, convey, sell, lease or otherwise dispose of any shares of Capital
Stock (including options, warrants or other rights to purchase shares of such
Capital Stock) of such or any other Restricted Subsidiary to any Person except
(i) to the Company or a Restricted Subsidiary, (ii) issuances of director's
qualifying shares or sales to foreign nationals of shares of Capital Stock of
non-U.S. Restricted Subsidiaries to the extent required by law and (iii)
issuances and sales of Capital Stock of Restricted Subsidiaries if (A) the Net
Cash Proceeds from such issuance, transfer, conveyance, sale, lease or other
disposition are applied in accordance with the provisions of Section 1017, (B)
immediately after giving effect to such issuance, transfer, conveyance, sale,
lease or other disposition, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary, and (C) any Investment in such Person
remaining after giving effect to such issuance, transfer, conveyance, sale,
lease or other disposition would have been permitted to be made under Section
1012 if made on the date of such issuance, transfer, conveyance, sale, lease or
other disposition (valued as provided in the definition of "Investment").
SECTION 1015. Limitation on Transactions with Shareholders and
------------------------------------------------
Affiliates.
- ----------
The Company will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, enter into, renew or extend any transaction
(including, without limitation, the purchase, sale, lease or exchange of
property or assets, or the rendering of any service) with any holder (or any
Affiliate of such holder) of 5% or more of any class of Capital Stock of the
Company or with any Affiliate of the Company or any Restricted Subsidiary,
unless:
(i) such transaction or series of transactions is on terms no less
favorable to the Company or such Restricted Subsidiary than those that
could be obtained in a comparable arm's-length transaction with a Person
that is not such a holder or an Affiliate,
(ii) if such transaction or series of transactions involves aggregate
consideration in excess of $5.0 million, then such transaction or series of
transactions is approved by a majority of the Board of Directors of the
Company, including the approval of a majority of the independent,
disinterested directors, and is evidenced by a resolution of the Board of
Directors of the Company, and
(iii) if such transaction or series of transactions involves
aggregate consideration in excess of $25.0 million, then the Company or
such Restricted Subsidiary will deliver to the Trustee a written opinion as
to the fairness to the Company or such Restricted Subsidiary of such
transaction from a financial point of view from a nationally recognized
investment banking firm (or, if an investment banking firm is generally not
qualified to give such an opinion, by a nationally recognized appraisal
firm or accounting firm). Any such transaction or series of transactions
shall be conclusively deemed to be on terms no less favorable to the
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Company or such Restricted Subsidiary than those that could be obtained in
an arm's-length transaction if such transaction or transactions are
approved by a majority of the Board of Directors of the Company, including
a majority of the independent disinterested directors, and are evidenced by
a resolution of the Board of Directors of the Company.
The foregoing limitation does not limit, and will not apply to (i) any
transaction between the Company and any of its Restricted Subsidiaries or
between Restricted Subsidiaries; (ii) the payment of reasonable and customary
regular fees to directors of the Company who are not employees of the Company;
(iii) any Restricted Payments not prohibited by Section 1012; (iv) transactions
provided for in the Employment Agreement as in effect on the Closing Date; and
(v) loans and advances to employees of the Company or any Restricted Subsidiary
not exceeding at any one time outstanding $2.0 million in the aggregate, in the
ordinary course of business and in accordance with past practice.
SECTION 1016. Limitation on Liens.
-------------------
Under the terms of the Indenture, the Company will not, and will not
permit any Restricted Subsidiary to, create, incur, assume or suffer to exist
any Lien (other than Permitted Liens) on any of its assets or properties of any
character (including, without limitation, licenses and trademarks), or any
shares of Capital Stock or Indebtedness of any Restricted Subsidiary, without
making effective provision for all of the Notes and all other amounts due under
the Indenture to be directly secured equally and ratably with (or prior to) the
obligation or liability secured by such Lien.
SECTION 1017. Limitation on Asset Sales.
-------------------------
The Company will not, and will, not permit any Restricted Subsidiary
to, make any Asset Sale unless (i) the Company or the Restricted Subsidiary, as
the case may be, receives consideration at the time of such sale or other
disposition at least equal to the Fair Market Value of the assets sold or
disposed of as determined by the good-faith judgment of the Board of Directors,
which determination, in each case where such fair market value is greater than
$5.0 million, shall be evidenced by a Board Resolution and (ii) at least 75% of
the consideration received for such sale or other disposition consists of cash
or cash equivalents or the assumption of unsubordinated Indebtedness.
The Company shall, or shall cause the relevant Restricted Subsidiary
to, within 360 days after the date of receipt of the Net Cash Proceeds from an
Asset Sale, (i) (A) apply an amount equal to such Net Cash Proceeds to
permanently repay unsubordinated Indebtedness of the Company or Indebtedness of
any Restricted Subsidiary, in each case owing to a Person other than the Company
or any of its Restricted Subsidiaries or (B) invest an equal amount, or the
amount not so applied pursuant to clause (A) in long-term property or assets of
a nature or type or that are used in a business (or in a company having property
and assets of a nature or type, or engaged in a business) similar or related to
the nature or type of the property and assets of, or the business of, the
Company and its Restricted Subsidiaries existing on the date of such investment
(as determined in good faith
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by the Board of Directors, whose determination shall be conclusive and evidenced
by a Board Resolution) and (ii) apply (no later than the end of the 360-day
period referred to above) such excess Net Cash Proceeds (to the extent not
applied pursuant to clause (i)) as provided in the following paragraphs of this
Section 1017. The amount of such Net Cash Proceeds required to be applied (or
to be committed to be applied) during such 360-day period in the manner as set
forth in clause (i) of the preceding sentence and not applied as so required by
the end of such period shall constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Excess Proceeds Offer (as defined
below) totals at least $10.0 million, the Company must, not later than the 30th
Business Day thereafter, make an offer (an "Excess Proceeds Offer") to purchase
from the Holders on a pro rata basis an aggregate principal amount of Notes
equal to the Proportionate Share of the Excess Proceeds on such date, at a
purchase price equal to 100% of the principal amount of the Notes, plus, in each
case, accrued and unpaid interest to the date of purchase (the "Excess Proceeds
Payment").
The Company shall commence an Excess Proceeds Offer by mailing a
notice to the Trustee and each Holder stating:
(i) that the Excess Proceeds Offer is being made pursuant to this
Section 1017 and that all Notes validly tendered will be accepted for
payment on a pro rata basis;
(ii) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date
such notice is mailed) (the "Excess Proceeds Payment Date");
(iii) that any Note not tendered will continue to accrue interest
pursuant to its terms;
(iv) that, unless the Company defaults in the payment of the Excess
Proceeds Payment, any Note accepted for payment pursuant to the Excess
Proceeds Offer shall cease to accrue interest on and after the Excess
Proceeds Payment Date;
(v) that Holders electing to have a Note purchased pursuant to the
Excess Proceeds Offer will be required to surrender the Note, together with
the form entitled "Option of the Holder to Elect Purchase" on the reverse
side of the Note completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the Business Day immediately
preceding the Excess Proceeds Payment Date;
(vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Excess Proceeds Payment Date, a
telegram, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Notes delivered for purchase
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and a statement that such Holder is withdrawing his election to have such
Notes purchased; and
(vii) that Holders whose Notes are being purchased only in part will
be issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered; provided that each Note purchased and each new Note
--------
issued shall be in a principal amount of $1,000 or integral multiples
thereof.
On the Excess Proceeds Payment Date, the Company shall
(i) accept for payment on a pro rata basis Notes or portions
thereof tendered pursuant to the Excess Proceeds Offer up to the
Proportionate Share of such Excess Proceeds;
(ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Notes or portions thereof so accepted; and
(iii) deliver, or cause to be delivered, to the Trustee all Notes or
portions thereof so accepted together with an Officer's Certificate
specifying the Notes or portions thereof accepted for payment by the
Company. The Paying Agent shall promptly mail to the Holders of Notes so
accepted payment in an amount equal to the purchase price, and the Trustee
shall upon Company Order, promptly authenticate and mail to such Holders a
new Note equal in principal amount to any unpurchased portion of the Note
surrendered; provided that each Note purchased and each new Note issued
--------
shall be in a principal amount of $1,000 or integral multiples thereof.
The Company will publicly announce the results of the Excess Proceeds Offer
as soon as practicable after the Excess Proceeds Payment Date. For
purposes of this Section 1017, the Trustee shall act as the Paying Agent.
The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that such Excess Proceeds are received
by the Company under this Section 1017 and the Company is required to repurchase
Notes as described above.
SECTION 1018. Limitation on Issuances of Guarantees of Indebtedness
-----------------------------------------------------
by Restricted Subsidiaries.
- --------------------------
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to guarantee, assume or in any other manner become liable with
respect to any Indebtedness of the Company, other than Indebtedness under Credit
Facilities incurred under clauses (i) and (ii) of Section 1011, unless (i) such
Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture to the Indenture providing for a Guarantee of the Notes on terms
substantially similar to the guarantee of such Indebtedness, except that if such
Indebtedness is by its express terms subordinated in right of payment to the
Notes, any such assumption, Guarantee or
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other liability of such Restricted Subsidiary with respect to such Indebtedness
shall be subordinated in right of payment to such Restricted Subsidiary's
assumption, Guarantee of other liability with respect to the Notes substantially
to the same extent as such Indebtedness is subordinated to the Notes and (ii)
such Restricted Subsidiary waives, and will not in any manner whatsoever claim
or take the benefit or advantage of, any rights or reimbursement, indemnity or
subrogation or any other rights against the Company or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Guarantee.
Notwithstanding the foregoing, any Guarantee by a Restricted
Subsidiary may provide by its terms that it will be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all of the
assets of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or (ii) the release or discharge of the guarantee
which resulted in the creation of such Guarantee, except a discharge or release
by or as a result of payment under such guarantee.
SECTION 1019. Business of the Company.
------------------------
The Company will not, and will not permit any Restricted Subsidiary
to, be principally engaged in any business or activity other than a Permitted
Business.
SECTION 1020. Limitation on Investments in Unrestricted
-----------------------------------------
Subsidiaries.
- -------------
The Company will not make, and will not permit any of its Restricted
Subsidiaries to make, any Investments in Unrestricted Subsidiaries if, at the
time thereof, the aggregate amount of such Investments would exceed the amount
of Restricted Payments then permitted to be made pursuant to Section 1012. Any
Investments in Unrestricted Subsidiaries permitted to be made pursuant to this
covenant (i) will be treated as the making of a Restricted Payment in
calculating the amount of Restricted Payments made by the Company or a
Subsidiary and (ii) may be made in cash or property (if made in property, the
Fair Market Value thereof as determined by the Board of Directors of the Company
(whose determination shall be conclusive and evidenced by a Board Resolution)
shall be deemed to be the amount of such Investment for the purpose of clause
(i)).
SECTION 1021. Waiver of Certain Covenants.
---------------------------
The Company may omit in any particular instance to comply with any
term, provision or condition set forth in Section 803 or Sections 1007 through
1020, inclusive, if before or after the time for such compliance the Holders of
at least a majority in principal amount of the Outstanding Notes, by Act of such
Holders, waive such compliance in such instance with such term, provision or
condition, but no such waiver shall extend to or affect such term, provision or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and the duties of the Trustee
in respect of any such term, provision or condition shall remain in full force
and effect.
-84-
<PAGE>
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Right of Redemption.
-------------------
(a) The Notes may be redeemed, at the election of the Company, as a
whole or from time to time in part, at any time after May 15, 2003, subject to
the conditions and at the Redemption Prices specified in the form of Note,
together with accrued interest to the Redemption Date.
(b) Notwithstanding the foregoing, prior to May 15, 2001, the Company
may redeem up to 25% of the originally issued aggregate principal amount of the
Notes on one or more occasions with the Net Cash Proceeds of one or more Public
Equity Offerings at a redemption price equal to 109.875% of the aggregate
principal amount thereof, plus accrued interest, if any, and Liquidated Damages,
if any, thereon to the Redemption Date (subject to the right of Holders of
record on the relevant Regular Record Date to receive interest due on an
Interest Payment Date); provided that, immediately after giving effect to such
--------
redemption, at least 75% of the originally issued aggregate principal amount of
the Notes remains Outstanding; and provided further that notice of such
-------- -------
redemptions shall be given within 60 days of the date of closing of any such
Public Equity Offering.
SECTION 1102. Applicability of Article.
------------------------
Redemption of Notes at the election of the Company or otherwise, as
permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
-------------------------------------
The election of the Company to redeem any Notes pursuant to Section
1101 shall be evidenced by a Board Resolution. In case of any redemption at the
election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Notes to be redeemed and shall deliver to the Trustee
such documentation and records as shall enable the Trustee to select the Notes
to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of Notes to Be Redeemed.
--------------------------------------------
If less than all the Notes are to be redeemed, the particular Notes to
be redeemed shall be selected not more than 60 days prior to the Redemption Date
by the Trustee, from the Outstanding Notes not previously called for redemption,
in compliance with the requirements of the principal
-85-
<PAGE>
national securities exchange, if any, on which the Notes are listed or, if the
Notes are not listed on a national securities exchange, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate and which
may provide for the selection for redemption of portions of the principal of
Notes; provided, however, that no such partial redemption shall reduce the
-------- -------
portion of the principal amount of a Note not redeemed to less than $1,000.
The Trustee shall promptly notify the Company in writing of the Notes
selected for redemption and, in the case of any Notes selected for partial
redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Notes shall relate, in the
case of any Note redeemed or to be redeemed only in part, to the portion of the
principal amount of such Note which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
--------------------
Notice of redemption shall be given in the manner provided for in
Section 106 not less than 30 nor more than 60 days prior to the Redemption Date,
to each Holder of Notes to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to the
Redemption Date payable as provided in Section 1107, if any,
(3) if less than all Outstanding Notes are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amounts) of the particular Notes to be redeemed,
(4) in case any Note is to be redeemed in part only, the notice which
relates to such Note shall state that on and after the Redemption Date,
upon surrender of such Note, the Holder will receive, without charge, a new
Note or Notes of authorized denominations for the principal amount thereof
remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and accrued
interest and Liquidated Damages, if any, to the Redemption Date payable as
provided in Section 1107) will become due and payable upon each such Note,
or the portion thereof, to be redeemed, and that interest thereon will
cease to accrue on and after said date,
(6) the place or places where such Notes are to be surrendered for
payment of the Redemption Price and accrued interest and Liquidated
Damages, if any.
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<PAGE>
Notice of redemption of Notes to be redeemed at the election of the
Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
---------------------------
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and Liquidated Damages, if any,
and accrued interest on, all the Notes which are to be redeemed on that date.
SECTION 1107. Notes Payable on Redemption Date.
--------------------------------
Notice of redemption having been given as aforesaid, the Notes so to
be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with Liquidated Damages and accrued
interest, if any, to the Redemption Date), and from and after such date (unless
the Company shall default in the payment of the Redemption Price and accrued
interest) such Notes shall cease to bear interest. Upon surrender of any such
Note for redemption in accordance with said notice, such Note shall be paid by
the Company at the Redemption Price, together with Liquidated Damages and
accrued interest, if any, to the Redemption Date; provided, however, that
-------- -------
installments of interest whose Stated Maturity is on or prior to the Redemption
Date shall be payable to the Holders of such Notes, or one or more Predecessor
Notes, registered as such at the close of business on the relevant Record Dates
according to their terms and the provisions of Section 309.
If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the principal (and premium, if any) shall, until paid,
bear interest from the Redemption Date at the rate borne by the Notes.
SECTION 1108. Notes Redeemed in Part.
----------------------
Any Note which is to be redeemed only in part (pursuant to the
provisions of this Article) shall be surrendered at the office or agency of the
Company maintained for such purpose pursuant to Section 1002 (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or such Holder's attorney duly authorized in writing),
and the Company shall execute, and the Trustee shall upon Company Order
authenticate and deliver to the Holder of such Note without service charge, a
new Note or Notes, of any authorized denomination as requested by such Holder,
in aggregate principal amount equal to and in exchange for the unredeemed
portion of the principal of the Note so surrendered.
-87-
<PAGE>
ARTICLE TWELVE
[This Article Has Been Intentionally Omitted]
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or Covenant
-------------------------------------------------
Defeasance.
- ----------
The Company may, at its option by Board Resolution, at any time, with
respect to the Notes, elect to have either Section 1302 or Section 1303 be
applied to all Outstanding Notes upon compliance with the conditions set forth
below in this Article Thirteen.
SECTION 1302. Defeasance and Discharge.
------------------------
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1302, the Company shall be deemed to have been
discharged from its obligations with respect to all Outstanding Notes on the
date the conditions set forth in Section 1304 are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Company shall
be deemed to have paid and discharged the entire indebtedness represented by the
Outstanding Notes, which shall thereafter be deemed to be "Outstanding" only for
the purposes of Section 1305 and the other Sections of this Indenture referred
to in (A) and (B) below, and to have satisfied all its other obligations under
such Notes and this Indenture insofar as such Notes are concerned (and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (A) the rights of Holders of
Outstanding Notes to receive, solely from the trust fund described in Section
1304 and as more fully set forth in such Section, payments in respect of the
principal of (and premium, if any, on) and interest and Liquidated Damages, if
any, on such Notes when such payments are due, (B) the Company's obligations
with respect to such Notes under Sections 304, 305, 308, 1002 and 1003, (C) the
rights, powers, trusts, duties and immunities of the Trustee hereunder and (D)
this Article Thirteen. Subject to compliance with this Article Thirteen, the
Company may exercise its option under this Section 1302 notwithstanding the
prior exercise of its option under Section 1303 with respect to the Notes.
SECTION 1303. Covenant Defeasance.
-------------------
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1303, the Company shall be released from its
obligations under any covenant contained in Section 801(3) and Section 803 and
in Sections 1007 through 1021 with respect to the Outstanding
-88-
<PAGE>
Notes on and after the date the conditions set forth below are satisfied
(hereinafter, "covenant defeasance"), and the Notes shall thereafter be deemed
not to be "Outstanding" for the purposes of any direction, waiver, consent or
declaration or Act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "Outstanding"
for all other purposes hereunder. For this purpose, such covenant defeasance
means that, with respect to the Outstanding Notes, the Company may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any other
document and such omission to comply shall not constitute a Default or an Event
of Default under Section 501(5), but, except as specified above, the remainder
of this Indenture and such Notes shall be unaffected thereby.
SECTION 1304. Conditions to Defeasance or Covenant Defeasance.
-----------------------------------------------
The following shall be the conditions to application of either Section
1302 or Section 1303 to the Outstanding Notes:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 607 who shall agree to comply with the provisions of this
Article Thirteen applicable to it) as trust funds in trust for the purpose
of making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Notes, (A) cash in
United States dollars, or (B) U.S. Government Obligations which through the
scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before the
due date of any payment, money in an amount, or (C) a combination thereof,
sufficient, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered
to the Trustee, to pay and discharge, and which shall be applied by the
Trustee (or other qualifying trustee) to pay and discharge, (i) the
principal of (and premium, if any), interest and Liquidated Damages, if
any, on the Outstanding Notes on the Stated Maturity (or Redemption Date,
if applicable) of such principal (and premium, if any) or installment of
interest and Liquidated Damages, if any, and (ii) any mandatory sinking
fund payments or analogous payments applicable to the Outstanding Notes on
the day on which such payments are due and payable in accordance with the
terms of this Indenture and of such Notes; provided that the Trustee shall
--------
have been irrevocably instructed to apply such money or the proceeds of
such U.S. Government Obligations to said payments with respect to the
Notes. Before such a deposit, the Company may give to the Trustee, in
accordance with Section 1103 hereof, a notice of its election to redeem all
of the Outstanding Notes at a future date in accordance with Article Eleven
hereof, which notice shall be irrevocable. Such irrevocable redemption
notice, if given, shall be given effect in applying the foregoing. For
this purpose, "U.S. Government Obligations" means securities that are (x)
direct obligations of the United States of America for the timely payment
of which its full faith and credit is pledged or (y) obligations of a
Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America
-89-
<PAGE>
the timely payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either
case, are not callable or redeemable at the option of the issuer thereof,
and shall also include a depository receipt issued by a bank (as defined in
Section 3(a)(2) of the Securities Act of 1933, as amended), as custodian
with respect to any such U.S. Government Obligation or a specific payment
of principal of or interest on any such U.S. Government Obligation held by
such custodian for the account of the holder of such depository receipt,
provided that (except as required by law) such custodian is not authorized
--------
to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of
the U.S. Government Obligation or the specific payment of principal of or
interest on the U.S. Government Obligation evidenced by such depository
receipt.
(2) No Default or Event of Default with respect to the Notes shall
have occurred and be continuing on the date of such deposit or, insofar as
paragraphs (8) and (9) of Section 501 hereof are concerned, at any time
during the period ending on the 123rd day after the date of such deposit
(it being understood that this condition shall not be deemed satisfied
until the expiration of such period).
(3) [Reserved]
(4) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than this Indenture) to which the Company is
a party or by which it is bound.
(5) In the case of an election under Section 1302, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (x) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (y) since May 14, 1998, there has been a
change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion shall confirm that, the Holders
of the Outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such defeasance had not
occurred.
(6) In the case of an election under Section 1303, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Outstanding Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such covenant defeasance and
will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such covenant
defeasance had not occurred.
(7) The Company shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to
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<PAGE>
either the defeasance under Section 1302 or the covenant defeasance under
Section 1303 (as the case may be) have been complied with.
SECTION 1305. Deposited Money and U.S. Government Obligations to Be
-----------------------------------------------------
Held in Trust; Other Miscellaneous Provisions.
- ---------------------------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1305, the "Trustee") pursuant to Section 1304 in respect of the
Outstanding Notes shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Notes and this Indenture, to the payment,
either directly or through any Paying Agent (including the Company acting as its
own Paying Agent) as the Trustee may determine, to the Holders of such Notes of
all sums due and to become due thereon in respect of principal (and premium and
Liquidated Damages, if any) and interest, but such money need not be segregated
from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Governmental Obligations
deposited pursuant to Section 1304 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Notes.
Anything in this Article Thirteen to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1304 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance, as applicable, in accordance with this Article.
SECTION 1306. Reinstatement.
-------------
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1305 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 1302 or 1303, as the case may be, until such time as the Trustee or
Paying Agent is permitted to apply all such money in accordance with Section
1305; provided, however, that if the Company makes any payment of principal of
-------- -------
(or premium or Liquidated Damages, if any) or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.
-91-
<PAGE>
This Indenture may be signed in any number of counterparts each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed as of the day and year first above written.
PRIMUS TELECOMMUNICATIONS
GROUP, INCORPORATED
By: /s/ K. Paul Singh
------------------------------------
Name: K. Paul Singh
Title: President & Chief Executive
Officer
Attest:
By: /s/ John F. DePodesta
----------------------
Name: John F. DePodesta
Title: Executive Vice President
FIRST UNION NATIONAL BANK
By /s/ Dante M. Monakil
------------------------------------
Name: Dante M. Monakil
Title: Vice President
Attest:
By: /s/ William F. Michie, III
--------------------------
Name: William F. Michie, III
Title: Corporate Trust Officer
-92-
<PAGE>
[FORM OF FACE OF NOTE]
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
9 7/8% [Series B] Senior Note Due 2008
[CUSIP] [CINS] ____________
No. _______ $ ___________
Primus Telecommunications Group, Incorporated, a Delaware corporation
(herein called the "Company," which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to _________ or registered assigns, the principal sum of ___________ United
States dollars on May 15, 2008, at the office or agency of the Company referred
to below, and to pay interest thereon on November 15, 1998 and semi-annually
thereafter, on May 15 and November 15 in each year, from May 19, 1998 or from
the most recent Interest Payment Date to which interest has been paid or duly
provided for, at the rate of 97/8% per annum, until the principal hereof is paid
or duly provided for, and (to the extent lawful) to pay on demand interest on
any overdue interest at the rate borne by the Notes from the date on which such
overdue interest becomes payable to the date payment of such interest has been
made or duly provided for. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in such Indenture,
be paid to the Person in whose name this Note (or one or more Predecessor Notes)
is registered at the close of business on the Regular Record Date for such
interest, which shall be the May 1 or November 1 (whether or not a Business
Day), as the case may be, next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for shall forthwith cease to be
payable to the Holder on such Regular Record Date, and such defaulted interest,
and (to the extent lawful) interest on such defaulted interest at the rate borne
by the Notes, may be paid to the Person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest to be fixed by the Trustee,
notice whereof shall be given to Holders of Notes not less than 10 days prior to
such Special Record Date, or may be paid at any time in any other lawful manner
not inconsistent with the requirements of any securities exchange on which the
Notes may be listed, and upon such notice as may be required by such exchange,
all as more fully provided in said Indenture.
[The Holder of this Note is entitled to the benefits of the
Registration Rights Agreement, dated as of May 19, 1998 (the "Registration
Rights Agreement"), between the Company, Primus Telecommunications Incorporated,
Primus Telecommunications (Australia) Pty. Ltd. and the Initial Purchasers named
therein. In the event that either (i) the Company fails to file with the
Commission any of the Registration Statements required by the Registration
Rights Agreement on or before the date specified therein for such filing, (ii)
any of such Registration Statements is not declared effective by the Commission
on or prior to the date specified for such effectiveness in the Registration
Rights Agreement (the "Effectiveness Target Date"), (iii) the Exchange Offer has
not
_____________________
* Include only for Exchange Notes.
A_1
<PAGE>
been consummated within 30 days after the Effectiveness Target Date with respect
to the Exchange Offer Registration Statement or (iv) any Registration Statement
required by the Registration Rights Agreement is filed and declared effective
but thereafter ceases to be effective or fails to be usable for its intended
purpose without being succeeded within five Business Days by a post-effective
amendment to such Registration Statement that cures such failure and that is
declared effective within such five Business Day period (each such event
referred to in clauses (i) through (iv) above, a "Registration Default"),
additional cash interest ("Liquidated Damages") shall accrue to each Holder of
the Notes commencing upon the occurrence of such Registration Default in an
amount equal to .50% per annum of the principal amount of Notes held by such
Holder. The amount of Liquidated Damages will increase by an additional .50%
per annum of the principal amount of Notes with respect to each subsequent 90-
day period (or portion thereof) until all Registration Defaults have been cured,
up to a maximum rate of Liquidated Damages of 1.50% per annum of the principal
amount of Notes. All accrued Liquidated Damages will be paid to Holders by the
Company in the same manner as interest is paid pursuant to the Indenture.
Following the cure of all Registration Defaults relating to any particular
Transfer Restricted Securities (as defined in the Registration Rights
Agreement), the accrual of Liquidated Damages with respect to such Transfer
Restricted Notes will cease.]**
Payment of the principal of (and premium and Liquidated Damages, if
any) and interest on this Note will be made at the office or agency of the
Company maintained for that purpose in The City of New York, or at such other
office or agency of the Company as may be maintained for such purpose, in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts; provided, however, that
-------- -------
payment of interest may be made at the option of the Company (i) by check mailed
to the address of the Person entitled thereto as such address shall appear on
the Note Register or (ii) by transfer to an account maintained by the payee
located in the United States.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
_________________________
** To be included in Initial Notes.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: PRIMUS TELECOMMUNICATIONS
GROUP, INCORPORATED
By___________________________________
Attest:
____________________________
Authorized Signature
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
Dated:
This is one of the Notes referred to in the within-mentioned Indenture.
FIRST UNION NATIONAL BANK,
as Trustee
By____________________________________
Authorized Officer
A-3
<PAGE>
[FORM OF REVERSE SIDE OF NOTE]
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
9 7/8% Senior Notes Due 2008
This Note is one of a duly authorized issue of notes of the Company
designated as its 9 7/8% Senior Notes Due 2008 (herein called the "Notes"),
limited (except as otherwise provided in the Indenture referred to below) in
aggregate principal amount to $150,000,000, which may be issued under an
indenture (herein called the "Indenture") dated as of May 19, 1998 between the
Company and First Union National Bank, trustee (herein called the "Trustee",
which term includes any successor trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights, limitations of rights, duties, obligations
and immunities thereunder of the Company, the Trustee and the Holders of the
Notes, and of the terms upon which the Notes are, and are to be, authenticated
and delivered.
The Notes are subject to redemption upon not less than 30 nor more
than 60 days prior notice, in whole or in part, at any time or from time to time
on or after May 15, 2003 and prior to Maturity, at the election of the Company,
at Redemption Prices (expressed in percentages of principal amount thereof),
plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the
Redemption Date (subject to the right of Holders of record on the relevant
Record Date to receive interest due on an Interest Payment Date that is on or
prior to the Redemption Date), if redeemed during the 12-month period beginning
May 15, of the years indicated:
Redemption
2003 104.938%
2004 103.208%
2005 101.604%
2006 (and thereafter) 100.000%
Notwithstanding the foregoing, prior to May 15, 2001, the Company may
on any one or more occasions redeem up to 25% of the originally issued principal
amount of Notes at a redemption price of 109.875% of the principal amount
thereof, plus accrued and unpaid interest thereon to the redemption date, with
the Net Cash Proceeds of one or more Public Equity Offerings; provided (i) that
--------
at least 75% of the originally issued principal amount of Notes remains
outstanding immediately after the occurrence of such redemption and (ii) that
notice of such redemption is mailed within 60 days of the closing of each such
Public Equity Offering.
Upon the occurrence of a Change of Control, the Holder of this Note
may require the Company, subject to certain limitations provided in the
Indenture, to repurchase all or any party of this Note at a purchase price in
cash in an amount equal to 101% of the principal amount thereof plus accrued and
unpaid interest and Liquidated Damages, if any.
A-4
<PAGE>
Under certain circumstances, in the event the Net Cash Proceeds
received by the Company from an Asset Sale, which proceeds are not used to (i)
(A) apply an amount equal to such Net Cash Proceeds to permanently repay
unsubordinated Indebtedness of the Company or Indebtedness of any Restricted
Subsidiary, in each case owing to a Person other than the Company or any of its
Restricted Subsidiaries or (B) invest an equal amount, or the amount not so
applied pursuant to clause (A), in long-term property or assets of a nature or
type or that are used in a business (or in a company having property and assets
of a nature or type, or engaged in a business) similar or related to the nature
or type of the property and assets of, or the business of, the Company and its
Restricted Subsidiaries existing on the date of such investment (as determined
in good faith by the Board of Directors, whose determination shall be conclusive
and evidenced by a Board Resolution) and (ii) apply (no later than the end of
the 360-day period immediately following the date of receipt of the Net Cash
Proceeds from an Asset Sale) such excess Net Cash Proceeds (to the extent not
applied pursuant to clause (i)) in accordance with the Indenture, and which
proceeds equal or exceed a specified amount, the Company shall be required to
make an offer to all Holders to purchase the maximum principal amount of Notes,
in an integral multiple of $1,000, that may be purchased out of such amount at a
purchase price in cash equal to 100% of the principal amount thereof, plus
accrued, unpaid interest and Liquidated Damages, if any, to the date of
purchase, in accordance with the Indenture. Holders of Notes that are subject
to any offer to purchase shall receive an Excess Proceeds Offer from the Company
prior to any related Excess Proceeds Payment Date.
In the case of any redemption or repurchase of Notes, interest
installments and Liquidated Damages, if any, whose Stated Maturity is on or
prior to the Redemption Date or Excess Proceeds Payment Date will be payable to
the Holders of such Notes, or one or more Predecessor Notes, of record at the
close of business on the relevant Record Date referred to on the face hereof.
Notes (or portions thereof) for whose redemption and payment provision is made
in accordance with the Indenture shall cease to bear interest from and after the
Redemption Date or Excess Proceeds Payment Date, as the case may be.
In the event of redemption of this Note in part only, a new Note or
Notes for the unredeemed portion hereof shall be issued in the name of the
Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal of
all the Notes may be declared due and payable in the manner and with the effect
provided in the Indenture.
The Indenture contains provisions for defeasance at any time of (a)
the entire indebtedness of the Company on this Note and (b) certain restrictive
covenants and the related Defaults and Events of Default, upon compliance by the
Company with certain conditions set forth therein, which provisions apply to
this Note.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders under the Indenture at any time by the
Company and the Trustee with the consent of the
A-5
<PAGE>
Holders of a majority in aggregate principal amount of the Notes at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Notes at the time
Outstanding, on behalf of the Holders of all the Notes, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by or on
behalf of the Holder of this Note shall be conclusive and binding upon such
Holder and upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange herewith or in lieu hereof
whether or not notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any) and
interest and Liquidated Damages, if any, on this Note at the times, place, and
rate, and in the coin or currency, herein prescribed.
If less than all the Notes are to be redeemed, the particular Notes to
be redeemed shall be selected not more than 60 days prior to the Redemption Date
in compliance with the requirements of the principal national securities
exchange, if any, on which the Notes are listed or, if the Notes are not listed
on a national securities exchange, on a pro rata basis, by lot or by such other
method as the Trustee in its sole discretion shall deem fair and appropriate and
which may provide for the selection for redemption of portions of the principal
of Notes.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable on the Note Register
of the Company, upon surrender of this Note for registration of transfer at the
office or agency of the Company maintained for such purpose The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Note Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Notes, of authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or transferees.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Notes are
exchangeable for a like aggregate principal amount of Notes of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to the time of due presentment of this Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Note is registered on the Note Register
as the owner hereof for all purposes, whether or not this Note be overdue, and
neither the Company, the Trustee nor any agent shall be affected by notice to
the contrary.
A-6
<PAGE>
THIS NOTE SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK.
Interest on this Note shall be computed on the basis of a 360-day year
of twelve 30-day months.
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
A-7
<PAGE>
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- ----------------------------------
_______________________________________________________________________________
(Please print or typewrite name and address including zip code of assignee)
_______________________________________________________________________________
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
________________________________its attorney to transfer such Note on the books
of the Company with full power of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED ON
ALL NOTES OTHER THAN EXCHANGE NOTES
AND OFFSHORE PHYSICAL NOTES]
In connection with any transfer of this Note occurring prior to the
date which is the earlier of the (i) date of an effective Registration Statement
or (ii) two years after the later of the original issuance of this Note or the
last date on which this Note was held by a Affiliate of the Company, the
undersigned confirms that without utilizing any general solicitation or general
advertising:
[Check One]
---------
[] (a) this Note is being transferred in compliance with the exemption from
registration under the Securities Act of 1933, as amended, provided by
Rule 144A thereunder,
or
--
[] (b) this Note is being transferred other than in accordance with (a) above
and documents are being furnished which comply with the conditions of
transfer set forth in this Note and the Indenture.
If neither of the foregoing boxes is checked, the Trustee or other Registrar
shall not be obligated to register this Note in the name of any Person other
than the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 305 of the Indenture shall have
been satisfied.
A-8
<PAGE>
Date:______________
______________________________________________
NOTICE: The signature to this assignment must
correspond with the name as written
upon the face of the within-mentioned
instrument in every particular, without
alteration or any change whatsoever.
Signature Guarantee***:___________________________________________
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Note for its own account or an account with respect to which it exercises sole
investment discretion and that it or such account is a "qualified institutional
buyer" within the meaning of Rule 144A under the Securities Act of 1933, as
amended, and that each is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that each is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:_______________ _______________________________________
NOTICE: To be executed by an
executive officer
______________________________
*** Guarantor must be a member of the Securities Transfer Agents Medallion
Program ("STAMP"), the New York Stock Exchange Medallion Signature Program
("MSP") or the Stock Exchange Medallion Program ("SEMP").
A-9
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 1010 or 1017 of the Indenture, check the Box: [_]
If you wish to have a portion of this Note purchased by the Trust
pursuant to Section 1010 or 1017 of the Indenture, state the amount (in original
principal amount) below:
$___________.
Date:__________________
Your Signature:__________________________________
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee***:______________________________________________________
______________________
*** Guarantor must be a member of the Securities Transfer Agents Medallion
Program
("STAMP"), the New York Stock Exchange Medallion Signature Program
("MSP") or the Stock Exchange Medallion Program ("SEMP").
A-10
<PAGE>
EXHIBIT 10.22
$150,000,000
PRIMUS TELECOMMUNICATIONS
GROUP, INCORPORATED
9 7/8% SENIOR NOTES DUE 2008
PURCHASE AGREEMENT
Lehman Brothers Inc. May 14, 1998
As Representative of the Initial
Purchasers named in Schedule I,
Three World Financial Center
New York, New York 10285
Ladies and Gentlemen:
Primus Telecommunications Group, Incorporated, a Delaware corporation
(the "Company") , proposes to sell to you (the "Representative") and the other
------- --------------
purchasers named in Schedule I hereto (collectively, the "Initial Purchasers")
------------------
$150,000,000 aggregate principal amount of the Company's 9 7/8% Senior Notes due
2008 (the "Notes"). The Notes will be issued pursuant to an Indenture to be
-----
dated as of May 19, 1998 (the "Indenture"), between the Company and First Union
---------
National Bank, as trustee (the "Trustee"). This is to confirm the agreement
-------
concerning the purchase of the Notes from the Company by the Initial Purchasers.
Capitalized terms used but not defined in this Agreement shall have the meaning
given to such terms in the Indenture.
The Company has entered into an Agreement and Plan of Merger dated as
of February 3, 1998 (the "TresCom Merger Agreement") to acquire all of the
outstanding shares of TresCom International Inc. ("TresCom") in exchange for
shares of common stock, par value $.01 per share of the Company (the "TresCom
Merger"). The TresCom Merger is subject to the satisfaction or waiver of certain
conditions and, accordingly, there can be no assurance that the TresCom Merger
will be completed on the terms and conditions set forth in the TresCom Merger
Agreement, or at all. As used herein, the term "subsidiary" of any company means
any other entity at least 51% of the ownership interests of which are owned,
directly or indirectly, by such Company.
<PAGE>
2
The Notes will be offered without being registered under the
Securities Act of 1933, a s amended (the "Securities Act"), in reliance on
--------------
exemptions therefrom.
The Initial Purchasers and their direct and indirect transferees will
be entitled to the benefits of a Registration Rights Agreement, to be dated the
Closing Da te (as defined herein) (the "Registration Rights Agreement") among
-----------------------------
the Company and the Initial Purchasers, to be substantially in the form attached
hereto as Exhibit G.
In connection with the sale of the Notes, the Company has prepared a
preliminary offering memorandum (the "Preliminary Memorandum") and will prepare
----------------------
a final offering memorandum (the "Memorandum") setting forth or including a
----------
description of the terms of the Notes, the terms of the offering, a description
of the Company and any material developments relating to the Company occurring
after the date of the most recent financial statements included therein.
1. Representations, Warranties and Agreements of the Company. The
Company represents and warrants to, and agrees with the Initial Purchasers that,
as of the date hereof:
(a) The Memorandum at the date hereof, does not, and at the Closing
Date, will not, contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this Section
l(a) do not apply to statements or omissions in the Memorandum based upon
information furnished to the Company in writing by or on behalf of the
Initial Purchasers expressly for use therein.
(b) Assuming the accuracy of the representations and warranties of
the Initial Purchasers contained in Sections 3 and 6 of this Agreement, it
is not required by applicable law or regulation in connection with the
offer, sale and delivery of the Notes to you in the manner contemplated by
this Agreement and the Memorandum to register the Notes under the
Securities Act or to qualify the Indenture under the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act").
-------------------
(c) (i) The Company, and each of the subsidiaries of the Company
has been duly organized and is validly existing and in good standing under
the laws of their respective jurisdictions of organization, is duly
qualified to do business and is in good standing in each jurisdiction in
which their respective ownership or lease of property or the conduct of
their respective businesses requires such qualification, except where the
failure to be so qualified would not reasonably be expected to have a
material adverse effect on the business or property of the Company and the
subsidiaries of the Company
<PAGE>
3
taken as a whole, and each has all power and authority necessary to own or
hold its respective properties and to conduct the business in which it is
engaged; and none of the subsidiaries of the Company (other than Primus
Telecommunications, Inc. and Primus Telecommunications (Australia) Pty. Ltd.
(collectively, the "Significant Subsidiaries")) is a "significant subsidiary,"
------------------------
as such term is defined in Rule 405 of the Rules and Regulations (as defined
below) and (ii) TresCom, and each of the subsidiaries of TresCom, has been
duly organized and is validly existing and in good standing under the laws of
their respective jurisdiction of organization, is duly qualified to do
business and is in good standing in each jurisdiction in which their
respective ownership or lease of property or the conduct of their respective
businesses requires such qualification, except where the failure to be so
qualified would not reasonably be expected to result in a material adverse
effect on the business or property of the combined entity consisting of both
(i) the Company and its subsidiaries and (ii) TresCom and its subsidiaries,
taken as a whole, and each has all power and authority necessary to own or
hold its respective properties and to conduct the business in which it is
engaged.
(d) The Company has an authorized capitalization as set forth in the
Memorandum, and all of the issued shares of capital stock of the Company have
been duly and validly authorized and issued, are fully paid and non-
assessable; all of the issued shares of capital stock of each subsidiary of
the Company (the "Equity Interests") have been duly and validly authorized and
----------------
issued and are fully paid and non-assessable and the Equity Interests (except
for directors' qualifying shares) are owned directly or indirectly by the
Company, free and clear of all liens, encumbrances, equities or claims (except
for those described in the Memorandum).
(e) The Indenture has been duly authorized and, when duly executed by
the proper officers of the Company (assuming due execution and delivery by the
Trustee) and delivered by the Company, will constitute a valid and legally
binding agreement of the Company enforceable against the Company in accordance
with its terms, except (i) where the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws now or hereafter in effect relating to rights of creditors
and other obligees generally, (ii) where the remedy of specific performance
and other forms of equitable relief may be subject to certain equitable
defenses and principles and to the discretion of the court before which the
proceedings may be brought and (iii) for the waiver of rights and defenses
contained in Sections 111 and 514 of the Indenture.
(f) This Agreement has been duly authorized, executed and delivered
by the Company.
(g) The Registration Rights Agreement has been duly authorized by the
Company, and when duly executed by the proper officers of the Company
(assuming due
<PAGE>
4
execution and delivery by the Initial Purchasers) and delivered by the
Company, will constitute a valid and legally binding agreement of the
Company enforceable against the Company in accordance with its terms,
except (i) where the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or other
similar laws now or hereafter in effect relating to rights of creditors and
other obligees generally, (ii) where the remedy of specific performance and
other forms of equitable relief may be subject to certain equitable
defenses and principles and to the discretion of the court before which the
proceedings may be brought and (iii) where rights to indemnity and
contribution thereunder may be limited by applicable law and public policy.
(h) The Notes have been duly authorized and, when executed by the
Company, authenticated by the Trustee and delivered to and paid for by the
Initial Purchasers in accordance with the terms of this Agreement, will be
(x) valid and binding obligations of the Company enforceable in accordance
with their terms, except (i) where the enforceability thereof may be
limited by bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium or other similar laws now or hereafter in effect relating to
rights of creditors and other obligees generally, (ii) where the remedy of
specific performance and other forms of equitable relief may be subject to
certain equitable defenses and principles and to the discretion of the
court before which the proceedings may be brought, and (iii) for the waiver
of rights and defenses contained in Sections 111 and 514 of the Indenture
and (y) entitled to the benefits of the Indenture and the Registration
Rights Agreement.
(i) The execution, delivery and performance by the Company of this
Agreement, the Registration Rights Agreement, the Indenture and the Notes,
and the consummation by the Company of the transactions contemplated in
this Agreement (the "Transactions"), (i) will not conflict with or result
------------
in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company or any of
the subsidiaries of the Company is a party or by which the Company or any
of the subsidiaries of the Company is bound or to which any of the
properties or assets of the Company or any of the subsidiaries of the
Company is subject, (ii) will not result in any violation of the provisions
of the charter or by-laws of the Company or any of the subsidiaries of the
Company, (iii) will not result in any violation of any statute or order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Company, any of the subsidiaries of the Company or
any of their properties or assets and (iv) except for such consents,
approvals, authorizations, registrations or qualifications as may be
required under applicable state securities laws in connection with the
purchase and distribution of the Notes by the Initial Purchasers, will not
require any consent, approval, authorization or order of, or filing or
registration with, any court or governmental agency or body; provided,
however, that the Company shall not be in
<PAGE>
5
breach of this representation where, with respect to clauses (i), (iii) and
(iv) of this paragraph, such conflicts, breaches, violations, defaults or
failures to obtain any consent, approval, authorization or order to make
such filing or registration would not have a material adverse effect on the
consolidated financial position, stockholders' equity, results of
operations, or the business of the Company and the subsidiaries of the
Company taken as a whole (a "Material Adverse Effect").
-----------------------
(j) The execution, delivery and performance by TresCom of the Merger
Agreement, (i) will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which TresCom or any of the subsidiaries of TresCom is a
party or by which TresCom or any of the subsidiaries of TresCom is bound or
to which any of the properties or assets of TresCom or any of the
subsidiaries of TresCom is subject, (ii) will not result in any violation
of the provisions of the charter or by-laws of TresCom or any of the
"significant subsidiaries" (as defined in Rule 405 of the Rules and
Regulations) of TresCom and (iii) will not result in any violation of any
statute or order, rule or regulation of any court or governmental agency or
body having jurisdiction over TresCom, any of the subsidiaries of TresCom
or any of their properties or assets; provided, however, that the Company
shall not be in breach of this representation where, with respect to
clauses (i) and (iii) of this paragraph, such conflicts, breaches,
violations, defaults or failures to obtain any consent, approval,
authorization or order to make such filing or registration would not have a
material adverse effect on the consolidated financial position,
stockholders' equity, results of operations, or the business of the
combined entity consisting of the Company and its subsidiaries and TresCom
and its subsidiaries, taken as a whole (a "Combined Material Adverse
-------------------------
Effect").
------
(k) Neither the Company nor any of its subsidiaries has sustained,
since the date of the latest quarterly financial statements included in the
Memorandum, any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Memorandum; and, since
such date, there has not been any change in the capital stock or long-term
debt of the Company or any of the subsidiaries of the Company, or any
Material Adverse Effect, or any development involving a prospective
Material Adverse Effect, otherwise than as set forth or contemplated in the
Memorandum.
(l) The financial statements (including the related notes and
supporting schedules) included in the Memorandum present fairly the
financial condition and results of operations of the entities purported to
be shown thereby, at the dates and for the periods indicated, and have been
prepared in conformity with generally accepted accounting principles
applied on a consistent basis throughout the periods involved
<PAGE>
6
(except that the unaudited financial statements may exclude supporting
schedules and are subject to normal year-end adjustments).
(m) Deloitte & Touche LLP, who have certified certain financial
statements of the Company, whose report is included in the Memorandum and
who have delivered the initial letter referred to in Section 8(m) hereof,
are independent public accountants as required by the Securities Act and
the rules and regulations promulgated thereunder (the "Rules and
---------
Regulations") during the periods covered by the financial statements on
-----------
which they reported contained in the Memorandum.
(n) Ernst & Young LLP, who have certified certain financial
statements of USFI, Inc., whose report is included in the Memorandum and
who have delivered the initial letter referred to in Section 8(m) hereof,
are independent public accountants as required by the Securities Act and
the Rules and Regulations during the periods covered by the financial
statements on which they reported contained in the Memorandum.
(o) Ernst & Young LLP, who have certified certain financial
statements of TresCom whose report is included in the Memorandum and who
have delivered the initial letter referred to in Section 8(m) hereof, are
independent public accountants as required by the Securities Act and the
Rules and Regulations during the periods covered by the financial
statements on which they reported contained in the Memorandum.
(p) Each of the Company and TresCom and each of the subsidiaries of
the Company and TresCom owns or possesses adequate rights to use all
material patents, patent applications, trademarks, service marks, trade
names, trademark registrations, service mark registrations, copyrights,
license applications and licenses ("Intellectual Property") which are
---------------------
necessary for the conduct of their respective businesses and has no reason
to believe that the conduct of their respective businesses will conflict
with, and have not received any notice of any claim of conflict with, any
Intellectual Property or related rights of others, except where (i) the
failure to own or possess adequate rights to use such Intellectual Property
or (ii) such conflicts, if any, would not have a Material Adverse Effect,
in the case of failures or conflicts connected with the Company or its
subsidiaries, or a Combined Material Adverse Effect, in the case of
failures or conflicts connected with TresCom or its subsidiaries.
(q) Each of the Company and TresCom and each of the subsidiaries of
the Company and TresCom has good and marketable title in fee simple to all
real property and good and marketable title to all personal property owned
by it, in each case free and clear of all liens, encumbrances and defects,
except such liens, encumbrances or defects as are described in, or in
information incorporated by reference in, the Memorandum or such as do not
materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by the
Company or
<PAGE>
7
TresCom and each of the subsidiaries of the Company or TresCom, as
applicable. All real property and buildings held under lease by the Company
or TresCom and each of the subsidiaries of the Company or TresCom are held
by the Company or TresCom, respectively, under valid, subsisting and
enforceable leases, with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company or TresCom and each of the subsidiaries of the
Company or TresCom.
(r) There are no legal or governmental proceedings pending to which
the Company or TresCom or any of the subsidiaries of the Company or TresCom
is a party or of which any property or asset of the Company or TresCom or
any of the subsidiaries of the Company or TresCom is the subject which, if
determined adversely to the Company or TresCom or any of the subsidiaries
of the Company or TresCom, could reasonably be expected to have a Material
Adverse Effect, in the case of proceedings involving the company or any of
its subsidiaries, or a Combined Material Adverse Effect, in the case of
proceedings involving TresCom or any of its subsidiaries; and to the best
of the Company's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others that are
required to be disclosed in the Memorandum which are not so disclosed.
(s) No relationship, direct or indirect, exists between or among the
Company, on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company, on the other hand, which would be
required to be disclosed in a Registration Statement filed with the
Commission under the Securities Act of 1933, as amended, which is not
disclosed in the Memorandum.
(t) Since the date as of which information is given in the Memorandum
through the date hereof, and except as may otherwise be disclosed in, or in
information incorporated by reference in, the Memorandum, the Company has
not (i) issued or granted any securities, other than in connection with any
employment contract, benefit plan or other similar arrangement with or for
the benefit of any one or more employees, officers, directors or
consultants, or in connection with a dividend reinvestment or stock
purchase plan, (ii) incurred any liability or obligation, direct or
contingent, other than liabilities and obligations which were incurred in
the ordinary course of business, (iii) entered into any transaction not in
the ordinary course of business or (iv) declared or paid any dividend on
capital stock.
(u) Neither the Company, or TresCom, nor any of the subsidiaries of
the Company or TresCom, (i) is in violation of its charter or by-laws, (ii)
is in default in any material respect, and no event has occurred which,
with notice or lapse of time or both, would constitute such a default, in
the due performance or observance of any time period, covenant or condition
contained in any material indenture, mortgage, deed of trust, loan
<PAGE>
8
agreement or other agreement or instrument to which it is a party or by
which it is bound or to which any of its properties or assets is subject,
including, without limitation, operating agreements, except where it would
not reasonably be expected to have a Material Adverse Effect, in the case
of violations or defaults involving the Company and its subsidiaries, or a
Combined Material Adverse Effect, in the case of violations or defaults
involving TresCom and its subsidiaries, or (iii) is in violation in any
material respect of any law, ordinance, governmental rule, regulation or
court decree to which it or its properties or assets may be subject or has
failed to obtain any material license, permit, certificate, franchise or
other governmental authorization or permit necessary to the ownership of
its properties or assets or to the conduct of its business, except where it
would not reasonably be expected to have a Material Adverse Effect, in the
case as violations or failures by the Company or any of its subsidiaries,
or a Combined Material Adverse Effect, in the case of violations or
failures by TresCom or any of its subsidiaries.
(v) Neither the Company, or TresCom, or any of the subsidiaries of
the Company or TresCom, nor, to the best knowledge of the Company, any
director, officer, agent, employee or other person associated with or
acting on behalf of the Company or TresCom or any of the subsidiaries of
the Company or TresCom, has (i) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expense relating to
political activity; (ii) made any direct or indirect unlawful payment to
any foreign or domestic government official or employee from corporate
funds; (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977; or (iv) made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
(w) None of the Company or any subsidiary of the Company is an
"investment company" within the meaning of such term under the Investment
Company Act of 1940, as amen ded, and the rules and regulations of the
Securities and Exchange Commission (the "Commission") thereunder (the
----------
"Investment Company Act").
----------------------
(x) None of the Company or any of the affiliates of the Company
(each, as defined in Rule 501(b) of Regulation D under the Securities Act,
an "Affiliate") has directly, or through any agent (other than the Initial
---------
Purchasers in connection with this Agreement), (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in respect of, any security
(as defined in the Securities Act) which is or will be integrated with the
sale of the Notes in a manner that would require the registration under the
Securities Act of the Notes or (ii) engaged or will engage in any form of
general solicitation or general advertising in connection with the
offering, including, without limitation, making offers or sales of the
Notes in the United States of the Notes (as those terms are used in
Regulation D under the Securities Act), or in any manner involving a public
offering within the meaning of Section 4(2) of the Securities Act.
<PAGE>
9
(y) None of the Company, the Affiliates or any person acting on its
or their behalf (other than the Initial Purchasers in connection with this
Agreement) has engaged or will engage in any directed selling efforts (as
that term is defined in Regulation S under the Securities Act ("Regulation
----------
S")) with respect to the Notes and each of the Company and its Affiliates
-
and any person acting on its or their behalf (other than the Initial
Purchasers in connection with this Agreement) has complied and will comply
with the offering restrictions requirement of Regulation S.
(z) The Company has complied and will comply with all of the
provisions of Florida H.B. 1771, codified as Section 517.075 of the Florida
Statutes, and all regulations promulgated thereunder relating to issuers
doing business in Cuba.
(aa) To the best of the knowledge of the Company, the representations,
warranties and agreements set forth in Section 3(g) of the TresCom Merger
Agreement are true and correct as of the date hereof.
2. Purchase of the Notes by the Initial Purchasers (a) On the
basis of the representations and warranties herein contained, and subject to the
terms and conditions hereinafter set forth, the Company agrees to sell to the
Initial Purchasers and the Initial Purchasers agree, severally and not jointly,
to purchase from the Company, the respective principal amount of the Notes set
forth in Schedule I hereto opposite their names at a purchase price of 100% of
the principal amount of such Notes.
(b) The Company shall not be obligated to deliver any of the Notes,
except upon payment for all of the Notes to be purchased as hereinafter
provided.
3. Sale and Resale of the Notes by the Initial Purchasers and
Representations and Warranties of the Initial Purchasers. (a) You have advised
the Company that you propose to offer the Notes for resale upon the terms and
conditions set forth in this Agreement and in the Memorandum. You hereby
represent and warrant to, and agree with, the Company that you (i) are
purchasing the Notes pursuant to a private sale exempt from registration under
the Securities Act without the intent to distribute the Notes in violation of
the Securities Act, (ii) will not solicit offers for, or offer or sell, the
Notes by means of any form of general solicitation or general advertising or in
any manner involving a public offering within the meaning of Section 4(2) of the
Securities Act and (iii) will solicit offers for the Notes only from, and will
offer, sell or deliver the Notes, as part of their initial offering, only to (A)
in the case of offers inside the United States, persons whom you reasonably
believe to be qualified institutional buyers ("Qualified Institutional Buyers")
------------------------------
as defined in Rule 144A under the Securities Act, as such rule may be amended
from time to time ("Rule 144A") or, if any such person is buying for one or more
---------
institutional accounts for which such person is acting as fiduciary or agent,
only when such person has represented to you that each such account is a
Qualified Institutional Buyer, to whom notice has been given that such sale or
delivery is being made in reliance on
<PAGE>
10
Rule 144A, in each case, in transactions under Rule 144A, and (B) in the case of
offers outside the United States, to persons other than U.S. persons (as defined
in Regulation S) in accordance with Rule 903 of Regulation S.
(b) In connection with the transactions described in subsection
(a)(iii)(B) of this Section 3, you have offered and sold the Notes, and will
offer and sell the Notes, (i) as part of your distribution at any time and (ii)
otherwise until 40 days after the later of the commencement of the offering and
the Closing Date (the "Restricted Period"), only in accordance with Rule 903 of
-----------------
Regulation S. Accordingly, the Initial Purchasers represent and agree that,
with respect to the transactions described in subsection (a)(iii)(B) of this
Section 3, neither they, nor any of their Affiliates, nor any person acting on
their behalf has engaged or will engage in any directed selling efforts with
respect to the Notes, and that they have complied and will comply with the
offering restrictions of Regulation S. They agree that, at or prior to the
confirmation of sale of the Notes pursuant to subsection (a)(iii)(B) of this
Section 3, they shall have sent to each distributor, dealer or person receiving
a selling concession, fee or other remuneration that purchases Notes from the
Initial Purchasers during the Restricted Period, a confirmation or notice to
substantially the following effect:
The Notes covered hereby have not been registered under the U.S. Securities
Act of 1933 (the "Securities Act") and may not be offered or sold within
--------------
the United States or to, or for the account or benefit of U.S. Persons (i)
as part of their distribution at any time or (ii) otherwise until 40 days
after the later of the commencement of the offering and the time of
delivery of the Notes, except in either case in accordance with Regulation
S or Rule 144A under the Securities Act. The terms used above have the
meaning given to them by Regulation S.
(c) (i) You have not offered or sold and will not offer or sell any
Notes to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers or Securities Regulations 1996 (the "Regulations"); (ii) you have
-----------
complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by you in relation to the Notes
in, from or otherwise involving the United Kingdom; and (iii) you have only
issued or passed on and will only issue or pass on in the United Kingdom any
document received by you in connection with the issuance of the Notes to a
person who is of a kind described in Section 11(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom
such document may otherwise lawfully be issued or passed on.
4. Delivery of and Payment for the Notes. (a) Payment of the
purchase price for, and delivery of, the Notes shall be made at the offices of
Shearman & Sterling, New York, New York or at such other place as shall be
agreed upon by the Company and you, at 9:30 a.m.
<PAGE>
11
(New York time), on May 19, 1998 or at such other time or date as you and the
Company shall determine (such date and time of payment and delivery being herein
called the "Closing Date").
------------
(b) On the Closing Date, payment for the Notes shall be made in
immediately available funds by wire transfer to such account as the Company
shall specify prior to the Closing Date or by such means as the parties hereto
shall agree prior to the Closing Date against delivery to you of the
certificates evidencing the Notes. Upon delivery, the Notes shall be registered
in such names and in such denominations as you shall request in writing not less
than two full business days prior to the Closing Date. The certificates
evidencing the Notes shall be delivered to you on the Closing Date for the
respective accounts of the Initial Purchasers, with any transfer taxes payable
in connection with the transfer of the Notes to the Initial Purchasers duly
paid, against payment of the purchase price therefor. For the purpose of
expediting the checking and packaging of certificates evidencing the Notes, the
Company agrees to make such certificates available for inspection not later than
2:00 P.M. on the business day prior to the Closing Date.
5. Further Agreements of the Company. The Company further agrees:
(a) To furnish to you, without charge, during the period referred to
in paragraph (c) below, as many copies of the Memorandum and any
supplements and amendments thereto as you may reasonably request.
(b) Prior to making any amendment or supplement to the Memorandum,
the Company shall furnish a draft copy thereof to the Initial Purchasers
and counsel to the Initial Purchasers and will not effect any such
amendment or supplement to which the Initial Purchasers shall reasonably
object by notice to the Company after a reasonable period of review, which
shall not in any case be longer than [two] business days after receipt of
such draft copy.
(c) If, at any time prior to completion of the distribution of the
Notes by you to purchasers, any event shall occur or condition exist as a
result of which it is necessary, in the opinion of counsel for you or
counsel for the Company, to amend or supplement the Memorandum in order
that the Memorandum will not include an untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein not misleading in light of the circumstances existing at the time
it is delivered to a purchaser, or if it is necessary to amend or
supplement the Memorandum to comply with applicable law, to promptly
prepare such amendment or supplement as may be necessary to correct such
untrue statement or omission or so that the Memorandum, as so amended or
supplemented, will comply with applicable law and to furnish you such
number of copies as you may reasonably request.
<PAGE>
12
(d) So long as the Notes are outstanding and are "restricted
securities" within the meaning of Rule 144(a)(3) under the Securities Act
during any period in which it is not subject to and in compliance with
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), to furnish to holders of the Notes and prospective
------------
purchasers of Notes designated by such holders, upon request of such
holders or such prospective purchasers, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
(e) For a period of five years following the date of the Memorandum
to furnish to the Initial Purchasers copies of all public reports and all
reports and financial statements furnished by the Company to the principal
national securities exchange upon which the Notes may be listed pursuant to
requirements of or agreements with such exchange or to the Commission
pursuant to the Exchange Act or any rule or regulation of the Commission
thereunder.
(f) Promptly from time to time to take such action as the Initial
Purchasers may reasonably request to qualify the Notes for offering and
sale under the securities laws of such jurisdictions as the Initial
Purchasers may request and to comply with such laws so as to permit the
continuance of sales and dealings therein in such jurisdictions for as long
as may be necessary to complete the distribution of the Notes; provided,
however, that in no event shall the Company be obligated to qualify to do
business in any jurisdiction where it is not now so qualified or to take
any action which would subject it to service of process in suits, other
than those suits arising out of the offering or sale of the Notes, in any
jurisdiction where it is not now so subject. In each jurisdiction in which
the Notes have been so qualified, the Company will file such statements and
reports as may be required by the laws of such jurisdiction to continue
such qualification in effect for a period of not less than one year from
the effective date of the Registration Statement. The Company will also
supply the Initial Purchasers with such information as is necessary for the
determination of the legality of the Notes for investment under the laws of
such jurisdictions as the Initial Purchasers may reasonably request.
(g) Not to offer, sell, contract to sell or otherwise dispose of any
additional securities of the Company substantially similar to the Notes
(but not including the Exchange Notes (as defined in the Registration
Rights Agreement)) or any securities convertible into or exchangeable for
or that represent the right to receive any such similar securities, other
than either the Notes to be sold hereunder or securities issued upon
conversion, exchange or exercise of securities outstanding on the date of
this Agreement, without the consent of Lehman Brothers (which consent will
not be unreasonably withheld) during the period beginning from the date of
this Agreement and continuing for 180 days following the Closing Date.
<PAGE>
13
(h) To use its best efforts to permit the Notes to be designated
Private Offerings, Resales and Trading through Automated Linkages Market
("PORTAL") securities in accordance with the rules and regulations adopted
------
by the National Association of Securities Dealers, Inc. relating to trading
in the PORTAL Market and to permit the Notes to be eligible for clearance
and settlement through The Depository Trust Company ("DTC").
---
(i) Except following the effectiveness of the Registration Statement
(as defined in the Registration Rights Agreement), not to, and will cause
its respective Affiliates not to, solicit any offer to buy or offer to sell
the Notes by means of any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Securities
Act) or in any manner involving a public offering within the meaning of
Section 4(2) of the Securities Act.
(j) Not to, and will cause its respective Affiliates not to, sell,
offer for sale or solicit offers to buy or otherwise negotiate in respect
of any security (as defined in the Securities Act) in a transaction that
could be integrated with the sale of the Notes in a manner that would
require the registration under the Securities Act of the Notes.
(k) To use reasonable best efforts to ensure that none of the Company
or any subsidiary of the Company shall become an "investment company"
within the meaning of such term under the Investment Company Act.
(l) None of the Company, the Affiliates of the Company or any person
acting on its or their behalf (other than the Initial Purchasers in
connection with this Agreement) will engage in any directed selling efforts
(as that term is defined in Regulation S) with respect to the Notes, and
each of the Company and the Affiliates of the Company and each person
acting on its or their behalf (other than the Initial Purchasers in
connection with this Agreement) will comply with the offering restrictions
of Regulation S.
6. Offering of Notes; Restrictions on Transfer. (a) Each Initial
Purchaser, severally and not jointly, represents and warrants that such Initial
Purchaser is a Qualified Institutional Buyer. Each Initial Purchaser, severally
and not jointly, agrees with the Company that (i) it will not solicit offers
for, or offer to sell, such Notes by any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Securities Act)
or in any manner involving a public offering within the meaning of Section 4(2)
of the Securities Act and (ii) it will solicit offers for such Notes only from,
and will offer such Notes only to, persons that it reasonably believes to be (A)
in the case of offers inside the United States, Qualified Institutional Buyers,
and (B) in the case of offers outside the United States, persons other than U.S.
persons ("foreign purchasers," which term shall include dealers or other
------------------
professional fiduciaries in the United States acting on a discretionary basis
for foreign beneficial owners (other than an estate or trust)) that, in each
case, in purchasing such Notes are deemed to have
<PAGE>
14
represented and agreed as provided in the Memorandum in the section entitled
"Notice to Investors."
(b) Each Initial Purchaser, severally and not jointly,
represents, warrants and agrees with respect to offers and sales outside the
United States that:
(i) it understands that no action has been or will be taken in
any jurisdiction by the Company that would permit a public offering of
the Notes, or possession or distribution of either the Preliminary
Memorandum or the Memorandum or any other offering or publicity
material relating to the Notes, in any country or jurisdiction where
action for that purpose is required;
(ii) such Initial Purchaser will comply with all applicable laws
and regulations in each jurisdiction in which it acquires, offers,
sells or delivers Notes or has in its possession or distributes either
the Preliminary Memorandum or the Memorandum or any such other
material, in all cases at its own expense;
(iii) the Notes have not been and will not be registered under
the Securities Act and may not be offered or sold within the United
States or to, or for the account or benefit of, U.S. persons except in
accordance with Regulation S under the Securities Act or pursuant to
an exemption from the registration requirements of the Securities Act;
(iv) such Initial Purchaser has offered the Notes and will offer
and sell the Notes (A) as part of their distribution at any time and
(B) otherwise until 40 days after the later of the commencement of the
offering of the Notes and the Closing Date, only in accordance with
Rule 903 of Regulation S or another exemption from the registration
requirements of the Securities Act. Accordingly, neither such Initial
Purchaser, its Affiliates nor any persons acting on its or their
behalf has engaged or will engage in any directed selling efforts
(within the meaning of Regulation S) with respect to the Notes, and
any such Initial Purchaser, its Affiliates and any such persons has
complied and will comply with the requirements of Regulation S;
(v) such Initial Purchaser has (A) not offered or sold and will
not offer or sell any Notes to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Regulations; (B) complied and
will comply with all applicable provisions of the Financial Services
Act 1986 with respect to anything done by it in relation to the Notes
in, from or otherwise involving the United Kingdom; and (C) only
issued or passed on and will only issue or pass on in the United
Kingdom any document received by it in connection with the issuance of
the Notes to a person who is of a kind described in
<PAGE>
15
Section 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise lawfully be issued or passed on; and
(vi) such Initial Purchaser has not and will solicit offers for,
or offer or sell, the Notes by means of any form of general
solicitation or general advertising (as those terms are defined in
Regulation D) including, without limitation, by any form of electronic
media.
Terms used in this Section 6 have the meanings given to them by Regulation S.
7. Expenses. The Company agrees to pay all expenses incident
to the performance of its obligations under this Agreement, including: (i) the
costs incident to the authorization, issuance, sale and delivery of the Notes
and any taxes payable in that connection; (ii) the costs incident to the
preparation of the Memorandum and any amendments or supplements thereto; (iii)
the fees and disbursements of the Company's counsel and accountants and the
Trustee and its counsel; (iv) the qualification of such Notes under securities
or Blue Sky laws, including filing fees and the reasonable fees and
disbursements of counsel for the Initial Purchasers in connection therewith and
in connection with the preparation of any Blue Sky or legal investment
memoranda; (v) the printing and delivery to the Initial Purchasers in quantities
as herein above stated of copies of the Memorandum and any amendments or
supplements thereto; (vi) the fees and expenses, if any, incurred in connection
with the admission of such Notes for trading in PORTAL or any other appropriate
market system; and (vii) all other costs and expenses incident to the
performance of the obligations of the Company hereunder for which provision is
not otherwise made in this Section 7; provided, however, that, except as
provided in this Section 7 and Section 12, the Initial Purchasers shall pay
their own costs and expenses, including without limitation the costs and
expenses of their counsel, and any costs incident to the performance of their
obligations hereunder for which provision is not otherwise made, and any
transfer taxes on the Notes which they may sell.
8. Conditions to the Initial Purchasers' Obligations. The
obligations of the Initial Purchasers hereunder are subject to the accuracy,
when made and on the Closing Date, of the representations and warranties of the
Company contained herein, to the performance by the Company of its respective
obligations hereunder, and to each of the following additional terms and
conditions:
(a) The Initial Purchasers shall not have discovered and
disclosed to the Company on or prior to the Closing Date that the
Memorandum or any amendment or supplement thereto contains any untrue
statement of a fact which, in the opinion of Shearman & Sterling,
counsel for the Initial Purchasers, is material or omits to state any
fact which, in the opinion of such counsel, is material and is
required to be stated therein
<PAGE>
16
or is necessary to make the statements therein in light of the
circumstances in which they were made not misleading.
(b) All corporate proceedings and other legal matters incident
to the authorization, form and validity of this Agreement, the
Registration Rights Agreement, the Indenture, the Notes, the
Memorandum and all other legal matters relating to this Agreement and
the transactions contemplated hereby shall be satisfactory in all
respects to counsel for the Initial Purchasers, and the Company shall
have furnished to such counsel all documents and information that they
may reasonably request to enable them to pass upon such matters.
(c) Pepper Hamilton LLP shall have furnished to the Initial
Purchasers its written opinion, as counsel to the Company, addressed
to the Initial Purchasers and dated the Closing Date, in form and
substance reasonably satisfactory to the Initial Purchasers, to the
effect set forth in Exhibit A hereto and to such further effect as
counsel to the Initial Purchasers may reasonably request.
(d) Swidler & Berlin, Chartered shall have furnished to the
Initial Purchasers its written opinion, as special U.S.
telecommunications counsel to the Company, addressed to the Initial
Purchasers and dated the Closing Date, to the effect set forth in
Exhibit B hereto and to such further effect as counsel to the Initial
Purchasers may reasonably request.
(e) Rakisons Solicitors shall have furnished to the Initial
Purchasers its written opinion, as British regulatory counsel to the
Company, addressed to the Initial Purchasers and dated the Closing
Date, to the effect set forth in Exhibit C hereto and to such further
effect as counsel to the Initial Purchasers may reasonably request.
(f) Rawling & Company Solicitors shall have furnished to the
Initial Purchasers its written opinion, as Australian regulatory
counsel to the Company, addressed to the Initial Purchasers and dated
the Closing Date, to the effect set forth in Exhibit D hereto and to
such further effect as counsel to the Initial Purchasers may
reasonably request.
(g) Bruckhaus Westrick Heller Lober shall have furnished to the
Initial Purchasers its written opinion, as German regulatory counsel
to the Company, addressed to the Initial Purchasers and dated the
Closing Date, to the effect set forth in Exhibit H hereto and to such
further effect as counsel to the Initial Purchasers may reasonably
request.
(h) Nagashima & Ohno shall have furnished to the Initial
Purchasers its written opinion, as Japanese regulatory counsel to the
Company, addressed to the Initial
<PAGE>
17
Purchasers and dated the Closing Date, to the effect set forth in
Exhibit J hereto and to such further effect as counsel to the Initial
Purchasers may reasonably request.
(i) The General Counsel of TresCom shall have furnished to the
Initial Purchasers its written opinion, as counsel to TresCom,
addressed to the Initial Purchasers and dated the Closing Date, in
form and substance reasonably satisfactory to the Initial Purchasers,
to the effect set forth in Exhibit I hereto and to such further effect
as counsel to the Initial Purchasers may reasonably request.
(j) Osler, Hoskin & Harcourt shall have furnished to the
Representatives its written opinion, as special Canadian
telecommunications regulatory counsel for the Company, addressed to
the Initial Purchasers and dated such Delivery Date, in the form
attached hereto as Exhibit E.
(k) Goodman, Phillips & Vineberg shall have furnished to the
Representatives its written opinion, as special Canadian counsel for
the Company, addressed to the Initial Purchasers and dated such
Delivery Date, in the form attached hereto as Exhibit F.
(l) You shall have received on the date hereof and the Closing
Date a letter, dated the date hereof and the Closing Date, as the case
may be, in form and substance reasonably satisfactory to you, from
Deloitte & Touche LLP, independent public accountants to the Company,
containing statements and information of the type ordinarily included
in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information, including the
financial information contained or incorporated by reference in the
Memorandum as identified by you.
(m) You shall have received on the date hereof and the Closing
Date two letters, dated the date hereof and the Closing Date, as the
case may be, in form and substance reasonably satisfactory to you,
from Ernst & Young LLP, independent public accountants to TresCom and
USFI, Inc., containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information, including the financial information contained or
incorporated by reference in the Memorandum as identified by you.
(n) The Company shall have furnished to the Initial Purchasers
a certificate, dated the Closing Date, of the President or a Vice
President and the Treasurer or Chief Financial Officer of the Company
stating that:
(i) The representations, warranties and agreements of
the Company in Section 1 are true and correct as of the Closing
Date and the Company has complied with all its agreements
contained herein;
<PAGE>
18
(ii) (A) None of the Company or any of the subsidiaries
of the Company has sustained, since the date of the latest
quarterly financial statements included in the Memorandum, any
material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental
action, order or decree, otherwise than as set forth or
contemplated in the Memorandum or (B) since such date there has
not been any change in the capital stock or long-term debt of the
Company or any of the subsidiaries of the Company or any Material
Adverse Effect, or any development involving a prospective
Material Adverse Effect, otherwise than as set forth or
contemplated in the Memorandum; and
(iii) They have carefully examined the Memorandum and, in
their opinion (A) the Memorandum, as of its date, did not include
any untrue statement of a material fact and did not omit to state
any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading, and (B) since the date of the Memorandum, no event
has occurred which was required under the Securities Act to have
been set forth in a supplement or amendment to the Memorandum.
(o) (i) None of the Company or any of the subsidiaries of the
Company shall have sustained, since the date of the latest audited
financial statements included in the Memorandum, any loss or interference
with its business from fire, explosion, flood or other calamity, whether or
not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Memorandum or (ii) since such date there shall not have
been any change in the capital stock or long-term debt of the Company or
any of the subsidiaries of the Company or any change, or any development
involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and the subsidiaries of the Company taken as a
whole, otherwise than as set forth or contemplated in the Memorandum, the
effect of which, in any such case described in clause (i) or (ii), is, in
the judgment of the Initial Purchasers, so material and adverse as to make
it impracticable or inadvisable to proceed with the offering or the
delivery of the Notes on the terms and in the manner contemplated in the
Memorandum.
(p) The Initial Purchasers shall have received on the Closing
Date the Registration Rights Agreement executed by the Company.
(q) The Initial Purchasers shall have received from Shearman &
Sterling, counsel to the Initial Purchasers, such opinion or opinions,
dated the Closing Date, with respect to such matters as the Initial
Purchasers may reasonably require, and the Company
<PAGE>
19
shall have furnished to such counsel such documents and information as they
may reasonably request for the purpose of enabling them to pass upon such
matters.
All opinions, letters, evidence and certificates mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Initial Purchasers.
9. Indemnification and Contribution. (a) The Company and
Primus Telecommunications, Inc., a Delaware corporation, and Primus
Telecommunications (Australia) Pty. Ltd., a company organized under the laws of
Australia (collectively, the "Principal Subsidiaries"), jointly and severally,
shall indemnify and hold harmless each Initial Purchaser, its officers and
directors and each person, if any, who controls any Initial Purchaser within the
meaning of Section 15 of the Securities Act, from and against any loss, claim,
damage or liability, joint or several, or any action in respect thereof
(including, but not limited to, any loss, claim, damage, liability or action
relating to purchases and sales of Notes), to which such Initial Purchaser,
officer, director or controlling person may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained in (A) the Preliminary Memorandum, the
Memorandum or in any amendment or supplement thereto or (B) any blue sky
application or other document prepared or executed by the Company (or based upon
any written information furnished by the Company) specifically for the purpose
of qualifying any or all of the Notes under the securities laws of any state or
other jurisdiction (any such application, document or information being
hereinafter called a "Blue Sky Application"), (ii) the omission or alleged
--------------------
omission to state in the Preliminary Memorandum, the Memorandum or in any
amendment or supplement thereto, or in any Blue Sky Application any material
fact required to be stated therein or necessary to make the statements therein
in light of the circumstances in which they were made not misleading or (iii)
any act or failure to act, or any alleged act or failure to act, by any Initial
Purchaser in connection with, or relating in any manner to, the Notes or the
offering contemplated hereby, and which is included as part of or referred to in
any loss, claim, damage, liability or action arising out of or based upon
matters covered by clause (i) or (ii) above (provided that the Company and the
Principal Subsidiaries shall not be liable in the case of any matter covered by
this clause (iii) to the extent that it is determined in a final judgment by a
court of competent jurisdiction that such loss, claim, damage, liability or
action resulted directly from any such act or failure to act undertaken or
omitted to be taken by such Initial Purchaser through its gross negligence or
wilful misconduct), and shall reimburse each Initial Purchaser and each such
officer, director or controlling person promptly upon demand for any legal or
other expenses reasonably incurred by that Initial Purchaser, officer, director
or controlling person in connection with investigating or defending or preparing
to defend against any such loss, claim, damage, liability or action as such
expenses are incurred upon written submission to the Company of documentation
evidencing such incurrence; provided, however, that the Company and the
Principal Subsidiaries shall not be liable in any such case to the extent that
any such loss, claim, damage, liability or action arises out of, or is based
upon, any untrue statement or alleged untrue
<PAGE>
20
statement or omission or alleged omission made in the Preliminary Memorandum,
the Memorandum or in any such amendment or supplement, or in any Blue Sky
Application in reliance upon and in conformity with the written information
concerning such Initial Purchaser furnished to the Company by or on behalf of
any Initial Purchaser specifically for inclusion therein; provided further that
as to the Preliminary Memorandum, this indemnity agreement shall not inure to
the benefit of any Initial Purchaser or any officer, director or controlling
person of that Initial Purchaser on account of any loss, claim, damage,
liability or action arising from the sale of Notes to any person by such Initial
Purchaser if (i) such Initial Purchaser failed to send or give a copy of the
Memorandum, as the same may be amended or supplemented, to that person within
the time required by the Securities Act and (ii) the untrue statement or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact in the Preliminary Memorandum was corrected in the Memorandum or a
supplement or amendment thereto, as the case may be, unless in each case, such
failure resulted from noncompliance by the Company with Section 5(c). The
foregoing indemnity agreement is in addition to any liability which the Company
may otherwise have to any Initial Purchaser or to any officer, director or
controlling person of that Initial Purchaser.
(b) Each Initial Purchaser, severally and not jointly, shall
indemnify and hold harmless the Company, its directors and officers, and each
person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act, from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof, to which the Company or any such
director, officer or controlling person may become subject, under the Securities
Act or otherwise, insofar as such loss, claim, damage, liability or action
arises out of, or is based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained in (A) the Preliminary Memorandum, the
Memorandum or in any amendment or supplement thereto or (B) any Blue Sky
Application or (ii) the omission or alleged omission to state in the Preliminary
Memorandum, the Memorandum or in any amendment or supplement thereto, or in any
Blue Sky Application any material fact required to be stated therein or
necessary to make the statements therein in light of the circumstances in which
they were made not misleading, but in the case of clauses (i) and (ii) only to
the extent that the untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with the written
information concerning such Initial Purchaser furnished to the Company or the
Trustee by or on behalf of that Initial Purchaser specifically for inclusion
therein, and shall reimburse the Company and any such director, officer or
controlling person for any legal or other expenses reasonably incurred by the
Company or any such director, officer or controlling person in connection with
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action as such expenses are incurred. The foregoing
indemnity agreement is in addition to any liability which any Initial Purchaser
may otherwise have to the Company or any such director, officer or controlling
person.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of any claim or the commencement of any action, the
indemnified party shall, if a claim in
<PAGE>
21
respect thereof is to be made against the indemnifying party under this Section
9, notify the indemnifying party in writing of the claim or the commencement of
that action; provided, however, that the failure to notify the indemnifying
party shall not relieve it from any liability which it may have under this
Section 9 except to the extent the indemnifying party has been materially
prejudiced by such failure and provided further that the failure to notify the
indemnifying party shall not affect any liability which it may have to an
indemnified party otherwise than under this Section 9. If any such claim or
action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 9 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
the indemnified party shall have the right to employ separate counsel to
represent jointly the indemnified party and its respective directors, officers
and controlling persons who may be subject to liability arising out of any claim
in respect of which indemnity may be sought by the indemnified party against the
indemnifying party under this Section 9 if such indemnified party shall have
been advised in writing that the representation of such indemnified party and
those directors, officers, and controlling persons by the same counsel would be
inappropriate under applicable standards of professional conduct due to actual
or potential differing interests between them, and in that event the fees and
expenses of such separate counsel shall be paid by the indemnifying party. It is
understood that the indemnifying party shall not be liable for the fees and
expenses of more than one separate firm (in addition to local counsel in each
jurisdiction) for all indemnified parties in connection with any proceeding or
related proceedings. Each indemnified party, as a condition of the indemnity
agreements contained in Sections 9(a) and 9(b), shall use its best efforts to
cooperate with the indemnifying party in the defense of any such action or
claim. No indemnifying party shall (i) without the prior written consent of the
indemnified parties (which consent shall not be unreasonably withheld), settle
or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding, or (ii) be liable for any settlement of any such action
effected without its written consent (which consent shall not be unreasonably
withheld), but if settled with its written consent or if there be a final
judgment in favor of the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss of liability by reason of such settlement or judgment in accordance with
this Section 9.
<PAGE>
22
(d) If the indemnification provided for in this Section 9 shall
for any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 9(a) or 9(b) in respect of any loss, claim, damage or
liability, or any action in respect thereof, referred to therein, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Principal Subsidiaries, on the one hand, and the
Initial Purchasers, on the other hand, from the offering of the Notes or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Principal Subsidiaries, on the one hand, and the Initial Purchasers, on the
other hand, with respect to the statements or omissions which resulted in such
loss, claim, damage or liability, or action in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Principal Subsidiaries, on the one hand, and the Initial
Purchasers, on the other hand, with respect to such offering shall be deemed to
be in the same proportion as the total net proceeds from the offering of the
Notes purchased under this Agreement (before deducting expenses) received by the
Company, on the one hand, and the total underwriting commissions and discounts
received by the Initial Purchasers with respect to the Notes purchased under
this Agreement, on the other hand, bear to the total gross proceeds from the
offering of the Notes under this Agreement, in each case as set forth in the
table on the cover page of the Memorandum. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company and the Principal
Subsidiaries, on the one hand, or the Initial Purchasers, on the other hand, the
intent of the parties and their relative knowledge, access to information and
opportunity to correct or prevent such statement or omission. Each of the
Company and the Principal Subsidiaries and the Initial Purchasers agrees that it
would not be just and equitable if contribution pursuant to this Section 9(d)
were to be determined by pro rata allocation (even if either the Initial
Purchasers or the Company and the Principal Subsidiaries, as the case may be,
were treated as one entity for such purpose) or by any other method of
allocation which does not take into account the equitable considerations
referred to herein. The amount paid or payable by an indemnified party as a
result of the loss, claim, damage or liability, or action in respect thereof,
referred to above in this Section 9(d) shall be deemed to include, subject to
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 9(d), no Initial
Purchaser shall be required to indemnify or contribute any amount in excess of
the amount by which the proceeds received by the Initial Purchasers from an
offering of the Notes exceeds the amount of any damages which such Initial
Purchaser has otherwise paid or become liable to pay by reason of any untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The
<PAGE>
23
remedies provided for in this Section 9 are not exclusive and shall not limit
any rights or remedies which may otherwise be available to any indemnified party
at law or in equity. The Initial Purchasers' obligations to contribute as
provided in this Section 9(d) are several in proportion to their respective
underwriting obligations and not joint.
(e) Each of the Initial Purchasers confirms and the Company
acknowledges that (1) the last paragraph on the cover page, (2) the
stabilization legend on page (ii), and (3) the fifth paragraph, the sixth
paragraph, the sixth sentence of the ninth paragraph and the first sentence of
the tenth paragraph under the caption "Plan of Distribution" constitute the only
information concerning the Initial Purchasers furnished in writing to the
Company by or on behalf of the Initial Purchasers specifically for inclusion in
the Memorandum.
10. Default by Any Initial Purchaser. If, on the Closing Date,
any Initial Purchaser or Initial Purchasers shall fail or refuse to purchase
Notes which it or they have agreed to purchase hereunder on such date and the
aggregate principal amount of Notes with respect to which such default occurs is
more than one-tenth of the aggregate principal amount of Notes to be purchased
on such date and arrangements satisfactory to the Initial Purchasers and the
Company for the purchase of such Notes are not made within 36 hours after such
default, this Agreement shall terminate without liability on the part of any
non-defaulting Initial Purchaser or of the Company. In any such case, either
you, on the one hand, or the Company, on the other hand, shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Memorandum or in any other documents
or arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Initial Purchaser from liability in respect of any
default of such Initial Purchaser under this Agreement.
11. Termination. The obligations of the Initial Purchasers
hereunder may be terminated by them by notice given to and received by the
Company prior to delivery of and payment for the Notes if, prior to that time,
(i) trading in securities generally on the New York Stock Exchange or the
American Stock Exchange or in the over-the-counter market shall have been
suspended or minimum prices shall have been established on any such exchange or
such market by the Commission, by such exchange or by any other regulatory body
or governmental authority having jurisdiction, (ii) a banking moratorium shall
have been declared by federal or New York State authorities, (iii) the United
States shall have become engaged in hostilities, there shall have been an
escalation in hostilities involving the United States or there shall have been a
declaration of a national emergency or war by the United States or (iv) there
shall have occurred such a material adverse change in general economic,
political or financial conditions (or the effect of international conditions on
the financial markets in the United States shall be such) as to make it, in the
judgment of the Initial Purchasers, impracticable or inadvisable to proceed with
the offering or delivery of the Notes on the terms and in the manner
contemplated in the Memorandum.
<PAGE>
24
12. Reimbursement of Initial Purchaser's Expenses. If the sale
of Notes provided for herein is not consummated because any condition to the
obligations of the Initial Purchasers set forth in Section 8 hereof is not
satisfied, because of any refusal, inability or failure on the part of the
Company to perform any agreement herein or comply with any provision hereof
other than by reason of a default by the Initial Purchasers, the Company shall
reimburse the Initial Purchasers for the reasonable fees and expenses of its
counsel and for such other out-of-pocket expenses as shall have been incurred by
them in connection with this Agreement and the proposed purchase of the Notes,
and upon demand the Company shall pay the full amount thereof to the Initial
Purchasers. If this Agreement is terminated pursuant to Section 10 by reason of
the default of any of the Initial Purchasers, the Company shall not be obligated
to reimburse any Initial Purchaser on account of those expenses.
13. Notices, Etc. All statements, requests, notices and
agreements hereunder shall be in writing, and:
(a) if to the Initial Purchasers, shall be delivered or sent by
mail or facsimile transmission to:
Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Attention: Syndicate Department
(Fax: 212-528-6395); and
(b) if to the Company or to the Principal Subsidiaries, shall
be delivered or sent by mail or facsimile transmission to the address of
the Company set forth in the Memorandum, Attention: Chairman and Chief
Executive Officer (Fax: (703) 902-2814).
Any such statements, requests, notices or agreements shall take effect at the
time of receipt thereof.
14. Persons Entitled to Benefit of Agreement. This Agreement
shall inure to the benefit of and be binding upon the Initial Purchasers, the
Company, and their respective successors. This Agreement and the terms and
provisions hereof are for the sole benefit of only those persons, except that
(x) the representations, warranties, indemnities and agreements of the Company
contained in this Agreement shall also be deemed to be for the benefit of the
officers and directors of the Initial Purchasers and the person or persons, if
any, who control the Initial Purchasers within the meaning of Section 15 of the
Securities Act and (y) the representations, warranties, indemnities and
agreements of the Initial Purchasers contained in this Agreement shall be deemed
to be for the benefit of directors and officers of the Company and any person
controlling the Company within the meaning of Section 15 of the Securities Act.
Nothing in this Agreement is intended or shall be construed to give any person,
other than the persons referred to
<PAGE>
25
in this Section 14, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
15. Survival. The respective indemnities, representations,
warranties and agreements of the Company, on the one hand, and the Initial
Purchasers, on the other hand, contained in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement, shall survive the
delivery of and payment for the Notes and shall remain in full force and effect,
regardless of any investigation made by or on behalf of any of them or any
person controlling any of them.
16. Definition of the Term "Business Day." For purposes of this
Agreement, "business day" means any day on which the New York Stock Exchange,
------------
Inc. is open for trading.
17. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
18. Consent to Jurisdiction. Each party irrevocably agrees that
any legal suit, action or proceeding arising out of or based upon this Agreement
or the transactions contemplated hereby ("Related Proceedings") may be
instituted in the federal courts of the United States of America located in the
City of New York or the courts of the State of New York in each case located in
the Borough of Manhattan in the City of New York (collectively, the "Specified
Courts"), and irrevocably submits to the exclusive jurisdiction (except for
proceedings instituted in regard to the enforcement of a judgment of any such
court (a "Related Judgment"), as to which such jurisdiction is non-exclusive) of
such courts in any such suit, action or proceeding. The parties further agree
that service of any process, summons, notice or document by mail to such party's
address set forth above shall be effective service of process for any lawsuit,
action or other proceeding brought in any such court. The parties hereby
irrevocably and unconditionally waive any objection to the laying of venue of
any lawsuit, action or other proceeding in the Specified Courts, and hereby
further irrevocably and unconditionally waive and agree not to plead or claim in
any such court that any such lawsuit, action or other proceeding brought in any
such court has been brought in an inconvenient forum. Primus Telecommunications
(Australia) Pty. Ltd. hereby irrevocably appoints CT Corporation System, which
currently maintains a New York City office at 1633 Broadway, New York, New York
10019, United States of America, as its agent to receive service of process or
other legal summons for purposes of any such action or proceeding that may be
instituted in any state or federal court in the City and State of New York.
19. Waiver of Immunity. With respect to any Related Proceeding,
each party irrevocably waives, to the fullest extent permitted by applicable
law, all immunity (whether on the basis of sovereignty or otherwise) from
jurisdiction, service of process, attachment (both before and after judgment)
and execution to which it might otherwise be entitled in the Specified
<PAGE>
26
Courts, and with respect to any Related Judgment, each party waives any such
immunity in the Specified Courts or any other court of competent jurisdiction,
and will not raise or claim or cause to be pleaded any such immunity at or in
respect of any such Related Proceeding or Related Judgment, including, without
limitation, any immunity pursuant to the United States Foreign Sovereign
Immunities Act of 1976, as amended.
20. Counterparts and Facsimile Signatures. This Agreement may
be executed in one or more counterparts and, if executed in more than one
counterpart, the executed counterparts shall each be deemed to be an original
but all such counterparts shall together constitute one and the same instrument.
This Agreement may be executed by facsimile signature which for all purposes
shall be deemed to be an original signature.
21. Headings. The headings herein are inserted for convenience
of reference only and are not intended to be part of, or to affect the meaning
or interpretation of, this Agreement.
<PAGE>
If the foregoing correctly sets forth the agreement between the
Company, the Principal Subsidiaries and the Initial Purchasers, please indicate
your acceptance in the space provided for that purpose below.
Very truly yours,
PRIMUS TELECOMMUNICATIONS GROUP,
INCORPORATED
By: /s/ K. Paul Singh
--------------------------------
Name: K. Paul Singh
Title: President & Chief Executive
Officer
PRIMUS TELECOMMUNICATIONS,
INCORPORATED
Accepted, May 14, 1998
Lehman Brothers Inc.
By: /s/ K. Paul Singh
----------------------------------
Name: K. Paul Singh
Title: President & Chief Executive
Officer
Acting severally on behalf
of itself and
the other initial purchasers
named in schedule i hereto. Primus Telecommunications (AUSTRALIA)
Pty. Ltd.
By: /s/ K. Paul Singh
----------------------------------
Name: K. Paul Singh
Title: President & Chief Executive
Officer
By: Lehman Brothers Inc.
By: /s/ Laurence M. Band
-------------------------------
AUTHORIZED REPRESENTATIVE
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Principal Amount
of Notes
Initial Purchaser To Be Purchased
----------------- ---------------
- --------------------------------------------------------------------------------
<S> <C>
Lehman Brothers Inc.................................. $ 90,000,000
- --------------------------------------------------------------------------------
BT Alex. Brown....................................... 30,000,000
- --------------------------------------------------------------------------------
Donaldson Lufkin & Jenrette Securities Corporation... 30,000,000
- --------------------------------------------------------------------------------
____________
- --------------------------------------------------------------------------------
Total................................................ $150,000,000
============
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
[LETTERHEAD OF PEPPER HAMILTON LLP]
May ___, 1998
Lehman Brothers Inc.
as Representative of the Initial Purchasers
named in Schedule 1 to the Purchase Agreement
referred to below
Three World Financial Center
New York, New York 10285
Re: Primus Telecommunications Group, Incorporated
---------------------------------------------
Ladies and Gentlemen:
Based upon the foregoing assumptions, and subject to the
qualifications set forth below, we are of the opinion that:
(i) The Company and each of its U.S. subsidiaries have been duly
incorporated and are validly existing as corporations in good standing under the
laws of their respective jurisdictions of incorporation, are duly qualified to
do business and are in good standing as foreign corporations in each
jurisdiction in which their respective ownership or lease of property or the
conduct of their respective businesses requires such qualification (except where
the failure to so qualify, singly or in the aggregate, would not have a material
adverse effect on the consolidated financial position, stockholders' equity,
results of operations or business of the Company and its subsidiaries taken as a
whole), and have all power and authority necessary to own or hold their
respective properties and conduct the businesses in which they are engaged.
(ii) The Company has an authorized capitalization as set forth in
the Memorandum, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and non-
assessable; and all of the issued shares of capital stock of each U.S.
subsidiary of the Company have been duly and validly authorized and issued and
are fully paid, non-assessable and (except for directors' qualifying shares and
except as set forth in the Memorandum) are owned of record and, to the best of
our knowledge, beneficially directly or indirectly by the Company, free and
clear of all liens, encumbrances, equities or claims.
(iii) To the best of our knowledge, there are no legal or
governmental proceedings pending to which the Company or any of the subsidiaries
of the Company is a party or of which any property or assets of the Company or
any of the subsidiaries of the Company is the subject
<PAGE>
A-2
which, if determined adversely to the Company or any of its subsidiaries, might
have a material adverse effect on the consolidated financial position,
stockholders' equity, results of operations or business of the Company and the
subsidiaries of the Company or on the ability of the Company to perform its
obligations under the Purchase Agreement, the Indenture, the Registration Rights
Agreement or the Notes; and, to the best of our knowledge, no such proceedings
are threatened by governmental authorities or others.
(iv) To the best of our knowledge, there are no contracts or other
documents which would be required to be described in the Memorandum by the
Securities Act or by the Rules and Regulations, if the Memorandum were a
Registration Statement on Form S-1, which have not been described in the
Memorandum.
(v) To the best of our knowledge, there are no statutes or
regulations that would be required to be described in the Memorandum, if the
Memorandum, were a Registration Statement on Form S-1, that are not described as
required.
(vi) The Purchase Agreement and the TresCom Merger Agreement have
been duly authorized, executed and delivered by the Company and PTI.
(vii) The execution and delivery of the Notes have been duly
authorized by all necessary corporate action of the Company, and the Notes, when
executed and authenticated in accordance with the provisions of the Indenture
and paid for in accordance with the Purchase Agreement, will (x) constitute
valid, binding and enforceable obligations of the Company, enforceable in
accordance with their terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer,
moratorium, liquidation or similar laws affecting the rights and remedies of
creditors and other obligees generally and except as may be subject to general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law) and (y) be entitled to the benefits of the
Indenture.
(viii) The Registration Rights Agreement has been duly authorized,
executed and delivered by the Company and PTI and constitutes a valid and
binding agreement of the Company and PTI, enforceable against the Company and
PTI in accordance with its terms, except as such enforceability may be limited
by bankruptcy, insolvency, fraudulent conveyance or transfer, reorganization,
liquidation, moratorium or other similar laws affecting the rights and remedies
of creditors and other obligees generally and except as may be subject to
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law), and except as rights to indemnity and
contribution thereunder may be limited by applicable law and public policy.
(ix) The Indenture has been duly authorized, executed and delivered
by the Company and, assuming due authorization, execution and delivery thereof
by the Trustee,
<PAGE>
A-3
constitutes a valid and legally binding agreement of the Company enforceable in
accordance with its terms, except as the enforceability thereof may be limited
by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or
transfer, moratorium, liquidation or other similar laws affecting the rights and
remedies of creditors and other obligees generally or by general principles of
equity (regardless of whether enforcement is sought in a proceeding in equity or
at law).
(x) The issue and sale of the Notes being delivered on the Closing
Date by the Company, the compliance by the Company with all of the provisions of
the Purchase Agreement, the Registration Rights Agreement and the Indenture and
the consummation of the transactions contemplated hereby and thereby, will not
result in a material breach or violation of any of the terms or provisions of,
or constitute a default under, (i) any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such counsel to which the
Company or any of the subsidiaries of the Company is a party or by which the
Company or any of the subsidiaries of the Company is bound or to which any of
the property or assets of the Company or any of the subsidiaries of the Company
is subject (the "Material Agreements"), which breach or default, as the case may
be, is reasonably likely to have a Material Adverse Effect, (ii) nor will such
actions result in any violation of the provisions of (A) the charter or by-laws
of the Company or any of the subsidiaries of the Company or (B) to the best of
our knowledge, any statute or any order, rule or regulation known to us of any
court or governmental agency or body of the United States or the State of New
York, or established pursuant to the Delaware General Corporation Law, having
jurisdiction over the Company or any of the subsidiaries of the Company or any
of their respective properties or assets. Except for such consents, approvals,
authorizations, registrations or qualifications as may be required under the
Exchange Act and applicable state securities laws in connection with the
purchase and distribution of the Notes by the Initial Purchasers, no consent,
approval, authorization or order of, or filing or registration with, any such
court or governmental agency or body is required for the execution, delivery and
performance of the Indenture by the Company and the consummation by the Company
of the transactions contemplated hereby.
(xi) The statements contained in the Memorandum under the captions
"Certain Transactions," "Management - Employment Agreements," "Management -
Stock Plans" and "Certain Federal Income Tax Considerations," insofar as they
describe statutes, regulations, legal or governmental proceedings, contracts or
other documents referred to therein are accurate and fairly summarize, in each
case in all material respects, the information called for with respect to such
documents and matters and, insofar as such statements constitute matters of law
or legal conclusions, have been reviewed by us and fairly present the
information disclosed therein in all material respects.
(xii) The statements contained in the Memorandum under the caption
"Description of Notes," insofar as they purport to describe certain of the terms
of the documents referred to therein, fairly summarize such terms of such
documents in all material respects.
<PAGE>
A-4
(xiii) Based upon the representations, warranties, and agreements of
the Company in Sections 1(v), 1(w), 5(h), 5(i), 5(j) and 5(l) of the Purchase
Agreement and of the Initial Purchasers in Sections 3 and 6 of the Purchase
Agreement, it is not necessary in connection with the offer, sale and delivery
of the Notes to the Initial Purchasers under the Purchase Agreement, or in
connection with the initial resale of such Notes by the Initial Purchasers in
accordance with Section 6 of the Purchase Agreement, to register the Notes under
the Securities Act of 1933, it being understood that no opinion is expressed as
to any subsequent resale of any security.
<PAGE>
EXHIBIT B
[LETTERHEAD OF SWIDLER & BERLIN, CHARTERED]
May__, 1998
Lehman Brothers Inc.
as Representative of the Initial Purchasers
named in Schedule 1 to the Purchase Agreement
referred to below
Three World Financial Center
New York, New York 10285
Ladies and Gentlemen:
Based upon and limited to such examination and subject to the
assumptions and qualifications set forth in this letter, it is our opinion as of
the date hereof that:
(i) (A) The execution and delivery of the Purchase Agreement by the
Company and the issue and sale of the Notes contemplated thereby do not violate
(1) the Communications Act, (2) any rules or regulations of the FCC applicable
to the Company and/or to PTI, (3) any State Telecommunications Laws applicable
to the Company and/or to PTI, and (4) to the best of our knowledge, any decree
from any court, and (B) no authorization of or filing with the FCC or any State
Regulatory Agency is necessary for the execution and delivery of the Purchase
Agreement by the Company and the issue and sale of the Notes contemplated
thereby in accordance with the terms thereof;
(ii) PTI is a nondominant carrier authorized by the FCC to provide
domestic interstate interexchange telecommunications services pursuant to 47
C.F.R. (S) 63.07(a) (1996) without any further order, license, permit or other
authorization by the FCC. PTI has been granted Section 214 authority by the FCC
to provide international message telecommunications services and private line
services through the resale of international switched voice and private line
services and/or by using its own facilities and has on file with the FCC tariffs
applicable to its domestic interstate and international services;
(iii) PTI is certified, registered or otherwise authorized, or is not
required to obtain authority to resell intrastate interexchange
telecommunications services in all U.S. states except Hawaii and Alaska. PTI
has a tariff on file in each of the states in which a tariff is required to be
filed;
(iv) (A) PTI (1) to the best of our knowledge has made all reports
and filings, and paid all fees, required by the FCC and the State Regulatory
Agencies except for those reports and filings the failure to file of which, and
those fees the failure to pay of which, would not have a
<PAGE>
B-2
material adverse effect on the financial condition, the earnings, business or
operations of PTI; and (2) based on our understanding of PTI's operations from
the Certificate, has all certificates, orders, permits, licenses,
authorizations, consents and approvals of and from (the "Authorizations"), and
has made all filings and registrations with, the FCC and the State Regulatory
Agencies necessary to own, lease, license and use its properties and assets and
to conduct its business in the manner described in the Memorandum except for
those Authorizations the failure to obtain of which, and those filings and
registrations the failure to file of which, would not have a material adverse
effect on the financial condition, or the earnings, business or operations of
PTI; and (B) to the best of our knowledge, PTI has not received any notice of
proceedings relating to the revocation or modification of any such certificates,
orders, permits, licenses, authorizations, consents or approvals, or the
qualification or rejection of any such filing or registration, the effect of
which, singly or in the aggregate, would have a material adverse effect on the
financial condition, the earnings, business or operations of the Company and its
subsidiaries taken as a whole;
(v) Based on our understanding of PTI's operations from the
Certificate, neither the Company nor PTI is in violation of, or in default under
the Communications Act or State Telecommunications Laws, the effect of which,
singly or in the aggregate, would have a material adverse effect on the
financial condition, the earnings, business or operations of the Company and its
subsidiaries taken as a whole;
(vi) To the best of our knowledge (A) as of the date hereof, no
decree or order of the FCC or any State Regulatory Agency is outstanding against
the Company or any of its subsidiaries and (B) except as set forth in the
Certificate, no litigation, proceeding, inquiry or investigation has been
commenced or threatened and no notice of violation or order to show cause has
been issued, against the Company or any of its subsidiaries before or by the FCC
or any State Regulatory Agency; and
(vii) The statements in the Memorandum under the captions "Risk
Factors -Potential Adverse Effects of Regulation - United States" and "Business
- - Government Regulation - United States," insofar as such statements constitute
a summary of the legal matters, documents or proceedings of the FCC and State
Regulatory Agencies with respect to telecommunications regulation referred to
therein, are accurate in all material respects and fairly summarize all such
matters referred to therein.
The opinions expressed in this letter are subject in all respects to
the following qualifications: (1) this opinion speaks only to the transactions
that are being consummated on the date hereof and does not address any
transaction that may take place after the Closing Date; (2) any action that
would transfer de facto or de jure legal control of PTI is subject to the
-- ----- -- ----
requirement for prior approval from the FCC and/or State Regulatory Agencies;
(3) no opinion is rendered as to matters not specifically referred to herein or
to events which have not yet occurred and under no circumstances are you to
infer from anything stated or not stated herein any opinion
<PAGE>
B-3
with respect to such matters; and (4) all opinions expressed in this letter are
limited solely to the effect of the Communications Act and State
Telecommunications Laws on the telecommunications business of the Company and
PTI and we express no opinion as to the effect of any other federal or state
statute or equitable doctrine or common law or of the regulations of any other
agency or administrative body.
Other than as expressly stated in paragraphs one (i) through seven
(vii), no opinion is rendered as to the compliance of PTI in the past or in the
future with any or all conditions or other requirements of the FCC and the State
Regulatory Agencies contained in the orders, if any, authorizing the operations
of the Company or PTI or otherwise imposed by statute, rule, regulation or
policy, and we assume no obligation to ensure that the Company or PTI comply
with such conditions or requirements. We are admitted to the District of
Columbia Bar and, with respect to any matters concerning the law of the States,
we draw your attention to the fact that the members of the firm involved in the
preparation of this opinion letter, although generally familiar with the
telecommunications laws of the States, are not admitted to the Bars of the
States and are not experts in the laws of those jurisdictions.
<PAGE>
EXHIBIT C
[LETTERHEAD OF RAKISONS SOLICITORS]
May ___, 1998
Lehman Brothers Inc.
as Representative of the Initial Purchasers
named in Schedule 1 to the Purchase Agreement
referred to below
Three World Financial Center
New York, New York 10285
RE: PRIMUS TELECOMMUNICATIONS, INC. ("PRIMUS") - OPINION LETTER
- ----------------------------------------------------------------
(a) PTL has been duly incorporated and is validly existing as a private
limited company under the laws of England and Wales and has the
corporate power and authority under such laws to own its property.
(b) PTL has all necessary approvals, being:
(i) a license issued by or on behalf of the Secretary of State for
Trade and Industry (the "SECRETARY OF STATE") dated [ ] 1998
issued under Section 7 of the Telecommunications 1984 Act ("1984
ACT") relating to the provision of international simple voice
resale services (the "ISVR LICENSE"); and
(ii) a license issued by or on behalf of the Secretary of State dated
[ ] 1998 issued under Section 7 of the 1984 Act relating to the
provision of international facilities-based services (the "IFL
LICENSE"),
to conduct its business in the United Kingdom in the manner described
in the Final Memorandum and no other licenses, designations, and/or
specifications are required from any other governmental entity in the
United Kingdom for PTL to conduct its business in the United Kingdom
in the manner described in the Final Memorandum;
(c) to the best of our knowledge and belief, each of the ISVR License and
IFL License are in full force and effect and there is no pending or
existing notice of proceedings relating to revocation or modification
of either the ISVR License or the IFL License which would have a
material adverse effect on PTL;
<PAGE>
C-2
(d) to the best of our knowledge and belief, PTL is not in violation of or
in default of any provision of the 1984 Act or any regulation or order
made under that Act;
(e) to the best of our knowledge and belief PTL has not been issued with
any notification by the Commission of the European Communities
informing it that it is in breach of any applicable provision of
European law as established under the Treaty of Rome as it relates to
the provision of telecommunications services; and
(f) insofar as the statements in the Final Memorandum relate to the United
Kingdom, namely those under the captions "Risk Factors - Potential
Adverse Effects of Regulation"; "Business - Network" and "Business -
Government Regulation," and insofar as they constitute summaries of
matters, documents or proceedings which are the subject of the laws of
England and Wales, they are accurate in all material respects and
fairly summarize such matters, documents or proceedings.
<PAGE>
EXHIBIT D
[LETTERHEAD OF RAWLING & COMPANY]
May__, 1998
Lehman Brothers Inc.
as Representative of the Initial Purchasers
named in Schedule 1 to the Purchase Agreement
referred to below
Three World Financial Center
New York, New York 10285
Ladies and Gentlemen:
Based upon our investigations and (in relation to paragraphs 3 and 5)
our opinion of the laws of Australia, we are able to say:
1. PRIMUS TELECOMMUNICATIONS (AUSTRALIA) PTY., LTD.
ACN 061 754 943
1.1 Primus Aust is a wholly-owned subsidiary of Primus Telecommunications
International, Inc. ("Primus International").
1.2 We are instructed that Primus Aust conducts the business of providing
local, domestic and international long distance, mobile, voice, data,
facsimile, enhanced facsimile, calling card, debit card and prepaid card,
and ISDN carriage telecommunications services to business and residential
customers through direct sales force, dealerships, agents, resellers,
associations, affinity groups, direct marketing and others and providing
voicemail equipment to carriers, in Australia and that Primus Aust only
does business in Australia.
2. PRIMUS TELECOMMUNICATIONS PTY. LTD. ACN 071 191 396
2.1 Primus Tel is a wholly-owned subsidiary of Primus.
2.2 We are instructed that Primus Tel conducts the business of providing
domestic and international long distance, voice, data, facsimile, enhanced
facsimile, calling card, debit card and prepaid card carriage
telecommunications services to businesses and residential customers through
direct sales force, dealerships, agents, resellers, associations, affinity
groups, direct marketing and others and providing voicemail equipment to
carriers, in Australia and that Primus Tel only does business in Australia.
<PAGE>
D-2
3. ECLIPSE TELECOMMUNICATIONS, PTY. LTD ACN 069 554 383
3.1 Eclipse is wholly-owned subsidiary of Primus International.
3.2 We are instructed that Eclipse conducts the business of providing domestic
and international data telecommunications services to business customers,
in Australia and that Eclipse only does business in Australia.
4. HOTKEY INTERNET SERVICES PTY. LTD. ACN 075 759 821
4.1 Hotkey is a subsidiary of Primus International, owning 1,725,000 ordinary
shares (or 60%) out of a total of 2,875,000 issued ordinary shares.
4.2 We are instructed that Hotkey conducts the business of providing internet
services to business and residential customers in Australia and that Hotkey
only does business in Australia.
5. INCORPORATION, STANDING AND POWER & AUTHORITY
5.1 Each of Primus Aust, Primus Tel, Eclipse and Hotkey:
(a) has been duly incorporated; and
(b) is validly existing as a corporation in good standing under the laws
of, in the case of Primus Aust and Hotkey, Victoria and, in the case
of Primus Tel and Eclipse, New South Wales; and
(c) has all necessary power and authority to own or hold its properties
and conduct the business in which it is engaged in Australia.
5.2 The Purchase Agreement has been duly authorized, executed and delivered by
Primus Aust.
6. AUTHORIZATIONS TO CONDUCT BUSINESS AND COMPLIANCE WITH LAWS
Each of Primus Aust, Primus Tel, Eclipse and Hotkey:
(a) has all necessary certificates, orders, permits, licenses,
authorizations, consents and approvals of and from and has made all
declarations and filings with, all Australian governmental
authorities, all self-regulatory organizations and all courts and
tribunals to own, lease, license and use its properties and assets
and to conduct its business in the manner described in the Offering
Memorandum;
(b) has not received any notice of proceedings relating to revocation or
modification of any such certificates, orders, permits, licenses,
authorizations, consents or approvals;
(c) is not in violation of, or in default under, any federal, state or
local law, regulation, rule, decree, order or judgment applicable to
it, the effect of which, singly or in the aggregate, would have a
material adverse effect on the prospects, condition, financial or
otherwise, or on the earnings, business or operations of
<PAGE>
D-3
Primus and its subsidiaries, taken as a whole, except as described
in the Offering Memorandum.
7. REGULATORY ENVIRONMENT
The statements in the Offering Memorandum under the captions:
* "Risk Factors - Potential Adverse Effects of Regulation" and
* "Business - Government Regulation"
in each case insofar as such statements constitute summaries of the
Australian legal matters, documents or proceedings referred to therein, are
accurate in all material respects and fairly summarize all matters referred
to therein.
8. RESTRICTIONS ON REPATRIATION OF FUNDS
There are no restrictions (legal, contractual or otherwise) on the ability
of Primus Aust, Primus Tel, Eclipse and Hotkey to declare and pay any
dividends or on the ability of Primus Aust, Primus Tel and Eclipse to make
any payment or transfer of property or assets to its stockholders other
than those described in the Offering Memorandum and such restrictions as
would not have a material adverse effect on the prospects, condition,
financial or otherwise, or on the earnings, business or operations of
Primus and its subsidiaries, taken as a whole; and such descriptions, if
any, fairly summarize such restrictions.
9. LITIGATION
Each of Primus Aust, Primus Tel, Eclipse and Hotkey is not aware of any
actual or pending legal proceeding in which it is a party or which is
threatened against it that would be likely, if successful, to have a
material adverse effect on Primus' business, financial condition or results
of operations.
<PAGE>
EXHIBIT E
[LETTERHEAD OF OSLER, HOSKIN & HARCOURT]
May __, 1998
Lehman Brothers Inc.
as Representative of the Initial Purchasers
named in Schedule 1 to the Purchase Agreement
referred to below
Three World Financial Center
New York, New York 10285
Ladies and Gentlemen:
On the basis of the foregoing, and subject to the qualifications
hereinafter expressed, we are of the opinion that:
(i) The statements in the Offering Memorandum under the captions "Risk
Factors -- Potential Adverse Effects of Regulation -- Canada," and
"Business -- Government Regulation -- Canada", in each case insofar as such
statements describe or summarize matters of law or constitute legal
conclusions, fairly describe or summarize all matters referred to therein.
<PAGE>
EXHIBIT F
[LETTERHEAD OF GOODMAN, PHILLIPS & VINEBERG]
May__, 1998
Lehman Brothers Inc.
as Representative of the Initial Purchasers
named in Schedule 1 to the Purchase Agreement
referred to below
Three World Financial Center
New York, New York 10285
Ladies and Gentlemen:
We have acted as special Canadian counsel to Primus Telecommunications
Group, Incorporated, a Delaware corporation ("Primus"), in connection with the
execution and delivery by Primus of the Purchase Agreement dated May __, 1998
(the "Purchase Agreement") by and among Primus and you, as representative (the
"Representative") of the other Initial Purchaser listed on Schedule I attached
thereto (the "Initial Purchasers"), relating to $___,000,000 aggregate principal
amount of the Company's __% Senior Notes due 20__ (the "Notes"). This opinion
is delivered to you pursuant to Section 8(f) of the Purchase Agreement.
Capitalized terms used herein but not otherwise defined have the meanings
ascribed to them in the Purchase Agreement.
In connection with this opinion, we have examined the Purchase
Agreement and originals, or copies reproduced or certified to our satisfaction,
of such corporate records of Primus and 336 2426 Canada Inc., doing business as
Primus Telecommunications Canada ("Primus Canada") as we have deemed necessary
to form the basis for the opinions hereinafter expressed. We have also made
such examination of laws, of certificates of public officials, and of Primus and
Primus Canada, as we have deemed necessary to enable us to render this opinion.
As to matters of fact relevant to the opinions herein expressed, we have assumed
the accuracy and completeness of, and have relied solely upon, the
representations and warranties of Primus contained in the Purchase Agreement and
in such certificates of officers of Primus and Primus Canada, and of
certificates of public officials.
We have assumed (i) the due execution and delivery, pursuant to due
authorization, of the Purchase Agreement by the parties thereto other than
Primus, (ii) the genuineness of the signatures of, and the authority of, persons
signing the Purchase Agreement on behalf of all parties other than Primus, (iii)
the genuineness of all signatures and the authenticity and completeness of all
records, certificates, instruments and documents submitted to us as originals,
and (iv) the conformity to authentic originals of all records, certificates,
instruments and documents submitted to us as certified, conformed, photostatic
or facsimile copies thereof.
<PAGE>
This opinion is limited solely to matters governed by the laws of
Canada.
Based upon the foregoing assumptions, and subject to the
qualifications set forth below, we are of the opinion that:
Primus Canada has been duly incorporated and is validly existing as a
corporation in good standing under the laws of [ ___________ ], is duly
qualified to do business and is in good standing in each jurisdiction in
which its ownership or lease of property or the conduct of its respective
businesses require such qualification (except where the failure to so
qualify, singly or in the aggregate, would not have a material adverse
effect on the financial position, stockholders' equity, results of
operations or business of Cam-Net), and has all power and authority
necessary to own or hold its respective properties and conduct the
businesses in which they are engaged.
Very truly yours,
Goodman, Phillips & Vineberg
<PAGE>
EXHIBIT G
REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT H
[LETTERHEAD OF BRUCKHAUS WESTRICK HELLER LOBER]
We are of the opinion that:
(1) the descriptions in the Preliminary Offering Memorandum given under the
captions "Risk Factors - Potential Adverse Effects of the Regulation -Germany"
and "Business - Government Regulation - Germany" of the German
Telecommunications Act of July 25, 1996 and the respective rules and regulations
promulgated thereunder (collectively, the "German Telecommunications Law") are
accurate in all material respects and fairly summarize all matters described
therein; we advise you, however, that the German Regulator's interpretation of
the German Telecom Act as well as its complementing ordinances may be subject to
material changes which can presently not be predicted in content or scope. More
specifically, the German Regulator has already indicated repeatedly that it may
want to start differentiating between facilities-based telecom operators and
switch-based resellers with regard to the applicable interconnection rates
(possibly reserving the provisionally approved interconnection rates of
September 1997 to facilities-based operators) and with regard to the catchment
areas for origination services (possibly restricting these to local area codes
around the points of interconnection). This regulatory change may become
effective only for the future but may also apply ex nunc or even retroactively
and may potentially require Primus to invest more heavily into network structure
and/or pay higher interconnection prices. Also, several issues have been brought
before the competent courts or may be pending due to ongoing regulatory
proceedings launched by third parties. This applies, in particular, to the
German Regulator's regulation of interconnection rates of September 1997 for the
years 1998-99 which is under court review and which may result in higher prices
being found to be applicable by the courts. According to the current
interconnection agreement with Deutsche Telekom these would apply retroactively
to all telecommunication services provided to Primus Germany by Deutsche Telekom
AG since the inception of services thereunder; its is, however, unclear whether
this retroactive effect stipulated in the interconnection agreement would
sustain court scrutiny.
(2) Primus Germany is the holder of a license of license class 4 issued by the
German Regulator dated February 17, 1998 under Section 8 in connection with
Section 6 para. 2 no. 2 of the German Telecommunications Act of 1996, relating
to the provision of voice telephony services on the basis of self-operated
telecommunications networks in Germany;
(3) (A) German Telecommunications law does not regulate the issuing of debt
instruments by telecommunications operators active within the German
jurisdiction or their parent companies; (B) no authorization of or filing with
the German Regulator is necessary for the execution and delivery of the Purchase
Agreement by the Company and the consummation of the transactions (including,
without limitation, issuance of the Notes and execution of the Indenture and the
<PAGE>
H-2
Registration Rights--Agreement) contemplated thereby in accordance with the
terms thereof; we advise you, however, that, should the Purchase Agreement or
other agreements connected therewith allow for conversion of the senior notes
into shares of the Company and should such conversion lead to a change of
control, then such change of control would have to be filed with the German
Regulator and, as the case may be, with the Federal Cartel Office.
(4) (A) To our knowledge and with the exceptions reported hereafter, Primus
Germany has all certificates, orders, permits, licenses, authorizations,
consents and approvals necessary to own, lease, license and use its properties
and assets and to conduct its business in the manner described in the
Preliminary Offering Memorandum; and (B) to our knowledge Primus Germany has not
received any notice of proceedings relating to the revocation or modification of
any such certificates, orders, permits, licenses, authorizations, consents or
approvals, or the qualification or rejection of any such filing or registration,
the effect of which, singly or in the aggregate, would have a material adverse
effect on the prospects, condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries, taken as a whole; we
advise you, however, that (i) the German Regulator may change requirements for a
license class 4 and Primus Germany may, therefore, in the future be required to
extend its current license and may have to pay additional license fees; (ii)
Primus Germany's use of the business name "Primus" itself as well as its use of
the name in its business dealings with third parties or for describing its
services products is challenged in a pending name and trademark dispute raised
by Metro Vermogensverwaltung GmbH & Co. KG and its wholly-owned subsidiary
Primus Digital TV GmbH on March 26, 1998, based on the identical name element
"Primus" (in the case of Primus Digital TV GmbH) as well as on two separate
trademarks "Primus" registered for neighboring business sectors (in the case of
Metro Vermogensverwaltung GmbH & Co. KG) and for business fields including
telecommunication services (in the case of Primus Digital TV GmbH). As a
consequence of this trademark dispute Primus may be forced to relinquish the
element "Primus" as part of its German company name and in its business dealings
with third parties.
(5) to our knowledge, (A) Primus Germany is conducting its business in
accordance with the license of license class 4 issued by the German Regulator on
February 17, 1998; and (B) Primus Germany is not in violation of or in default
under the German Telecommunications Law, the effect of which, singly or in the
aggregate, would have a material adverse effect on the prospects, condition,
financial or otherwise, or on the earnings, business or operations of the
Company and its subsidiaries, taken as a whole; and
(6) to our knowledge, (A) no decree or order of the German Regulator has been
issued against Primus Germany; (B) no litigation, proceeding, inquiry or
investigation has been commenced or threatened, and no notice of violation or
order to show cause has been issued, against Primus Germany before or by
_____________________ we advise you, however, that Deutsche Telekom AG has
reserved itself in the interconnection agreement with Primus Germany the
unilateral right to apply to the German Regulator with regard to the questions
(i) whether Primus Germany's network structure, in particular the number and
locations of points of
<PAGE>
H-3
interconnection with Deutsche Telekom AG, entitles Primus Germany to
interconnection as defined by Section 35 German Telecom Act and (ii) whether it
entitles Primus Germany to the switching of calls originating Germany-wide; the
result of such regulatory proceeding if launched until May 31, 1998 wold be a
contractually founded claim by Deutsche Telekom AG to amend the interconnection
agreement in accordance with the German Regulator's ruling and, thus could
potentially require additional investments into points of
interconnection/switching facilities and/or the payment of higher
interconnection prices and/or a geographical restriction of Primus Germany's
switching of originating calls.
General Qualifications
(a) While we have been representing and advising Primus Germany regarding
individual projects (e.g. incorporation of Primus Germany and
interconnection agreement with Deutsche Telekom AG), we are not
involved in Primus Germany's day-to-day business operations and are,
therefore, not fully informed of the current state of Primus Germany's
business activities. This applies in particular to the effects of the
Telepassport/USFI Acquisition (transfer of German customer base to
Primus Germany), to Primus Germany's re-origination (call back) service
activities and carrier wholesale service activities.
(b) This opinion is confined to German law in force at the date hereof and
as currently applied by German courts and the German Regulator; and we
do not express or imply an opinion as to matters other than under
German law. We assume no obligation to advise you of facts,
circumstances, events or legal developments which hereafter may be
brought to our attention and which may alter, affect of modify the
opinion expressed herein;
<PAGE>
EXHIBIT I
[LETTERHEAD OF NAGASHAMA & OHNO]
1. the descriptions in the Offering Memorandum of the matters in connection
with the Telecommunications Law, and the respective rules and regulations
promulgated thereunder (collectively, the "Japanese Communications Law")
under the caption "Risk Factors-Potential Adverse Effects of Regulation-
Japan" are accurate in all material respects and fairly summarize all
matters described therein;
2. Primus Telecommunications obtained Registration as of December 11, 1997,
relating to the provision of international telecommunications services in
Japan, and the Registration has not been modified, except for the
modification as of ________ __, 199__ as to the corporate name and the
representative director to reflect the current corporate name and the
representative director of Primus Telecommunications, or revoked, as of the
date hereof;
3. (A) the execution and delivery of the Purchase Agreement by the Company,
and the consummation of the transactions (including, without limitation,
issuance of the Notes and execution of the Indenture and the Registration
Rights Agreement) contemplated thereby do not violate (1) the Japanese
Communications Law, (2) any rules or regulations of the MPT applicable to
the Japanese Subsidiaries or (3), to our knowledge, any telecommunications
related decree from any Japanese court, and (B) no authorization of or
filing with the MPT is necessary for the execution and delivery of the
Purchase Agreement by the Company and the consummation of the transactions
(including, without limitation, issuance of the Notes and execution of the
Indenture and the Registration Rights Agreement) contemplated thereby in
accordance with the terms thereof;
4. (A) Primus Telecommunications has all certificates, orders, permits,
licenses, authorizations, consents and approvals of and from the MPT
necessary to conduct its business in the manner described in the Offering
Memorandum; and (B) neither of the Japanese Subsidiaries has received any
notice of proceedings relating to the cancellation, revocation or
modification of the Registration, the effect of which, singly or in the
aggregate, would have a material adverse effect on the prospects,
condition, financial or otherwise, or in the earnings, business or
operations of the Japanese Subsidiaries, taken as a whole;
5. (A) Primus Telecommunications is currently conducting its business in
accordance with the Registration and (B) to our knowledge, the current
activities of the Japanese Subsidiaries are not in violation of or in
default under the Japanese Communications Law, the effect of which, singly
or in the aggregate, would have a material adverse effect on the prospects,
condition, financial or otherwise, or in the earnings, business or
operations of the Japanese Subsidiaries, taken as a whole; and
6. (A) no decree or order of the MPT has been issued against any of the
Japanese Subsidiaries; (B) no litigation, proceeding, inquiry or
investigation has been commenced or threatened, and no notice of violation
or order to show cause has been issued, against any of the Japanese
Subsidiaries before or by a Japanese court or the MPT and (C) to our
knowledge, there are no rulemakings or other administrative proceedings
pending before the MPT, (i) which are generally applicable to
telecommunications services and (ii) which, if decided adversely to the
interest of any of the Japanese Subsidiaries, would have a material adverse
effect on the Japanese Subsidiaries, taken as a whole.
<PAGE>
I-2
on the prospects, condition, financial or otherwise, or in the earnings,
business or operations of the Japanese Subsidiaries, taken as a whole; and
6. (A) no decree or order of the MPT has been issued against any of the
Japanese Subsidiaries; (B) no litigation, proceeding, inquiry or
investigation has been commenced or threatened, and no notice of violation
or order to show cause has been issued, against any of the Japanese
Subsidiaries before or by a Japanese court or the MPT and (C) to our
knowledge, there are no rulemakings or other administrative proceedings
pending before the MPT, (i) which are generally applicable to
telecommunications services and (ii) which, if decided adversely to the
interest of any of the Japanese Subsidiaries, would have a material adverse
effect on the Japanese Subsidiaries, taken as a whole.
<PAGE>
EXHIBIT 10.23
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of May 19, 1998
PRIMUS TELECOMMUNICATIONS GROUP, INC.,
PRIMUS TELECOMMUNICATIONS INCORPORATED,
PRIMUS TELECOMMUNICATIONS (AUSTRALIA) PTY. LTD.
and
LEHMAN BROTHERS INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions.......................................................................................... 1
2. Securities Subject to This Agreement................................................................. 3
3. Registered Exchange Offer............................................................................ 3
4. Shelf Registration................................................................................... 5
5. Liquidated Damages................................................................................... 7
6. Registration Procedures.............................................................................. 8
7. Participation of Broker-Dealers in Exchange Offer.................................................... 17
8. Registration Expenses................................................................................ 18
9. Indemnification and Contribution..................................................................... 19
10. Rule 144A............................................................................................ 23
11. Participation in Underwritten Registrations.......................................................... 24
12. Selection of Underwriters............................................................................ 24
13. Miscellaneous........................................................................................ 24
14. Additional Representations of Primus Telecommunications, Incorporated
and Primus Telecommunications Pty. Ltd............................................................... 28
</TABLE>
-i-
<PAGE>
This Registration Rights Agreement (this "Agreement") is made and
entered into as of May 19, 1998 between Primus Telecommunications Group, Inc., a
Delaware corporation (the "Company"), Primus Telecommunications Incorporated, a
Delaware corporation, Primus Telecommunications (Australia) Pty. Ltd., an
Australian corporation, and Lehman Brothers Inc., for itself and as
Representative of the other Initial Purchasers named in Schedule I to the
Purchase Agreement (defined below), (collectively with the Representative, the
"Initial Purchasers").
This Agreement is entered into in connection with the Purchase
Agreement, dated as of May 14, 1998, among the Company and the Initial
Purchasers (the "Purchase Agreement"), which provides for the sale by the
Company to the Initial Purchasers of $150,000,000 aggregate principal amount of
the Company's 9 7/8% Senior Notes due 2008 (the "Notes"), which Notes shall be
senior obligations of the Company and will rank pari passu in right of payment
with all other existing and future unsecured and unsubordinated obligations of
the Company, including trade payables, and will be effectively senior in right
of payment to all existing and future obligations of the Company expressly
subordinated in right of payment to the Notes. Capitalized terms used but not
specifically defined herein have the respective meanings ascribed thereto in the
Purchase Agreement. As an inducement to the Initial Purchasers to enter into
the Purchase Agreement and in satisfaction of a condition to the Initial
Purchasers' obligations thereunder, the Company agrees with the Initial
Purchasers, and its direct and indirect transferees, for the benefit of the
holders of the Notes (including the Initial Purchasers) (collectively, the
"Holders"), as follows:
1. Definitions. As used in this Agreement, the following capitalized
terms shall have the following meanings:
Broker-Dealer: Any broker or dealer registered under the Exchange
-------------
Act.
Closing Date: The date on which the Notes were sold to the Initial
------------
Purchasers.
Commission: The Securities and Exchange Commission.
----------
Damages Payment Date: With respect to the Notes, each Interest
--------------------
Payment Date (as defined in the Indenture) until the earlier of (i) the
date on which Liquidated Damages no longer are payable or (ii) maturity of
the Notes.
Effectiveness Target Date: As defined in Section 5 hereof.
-------------------------
Exchange Act: The Securities Exchange Act of 1934, as amended.
------------
Exchange Notes: The Notes to be issued pursuant to the Indenture in
--------------
the Exchange Offer.
Exchange Offer: The registration by the Company under the Securities
--------------
Act of the Exchange Notes pursuant to a Registration Statement pursuant to
which the Company
<PAGE>
offers the Holders of all outstanding Transfer Restricted Securities the
opportunity to exchange all such outstanding Transfer Restricted Securities
held by such Holders for Exchange Notes in an aggregate principal amount
equal to the aggregate principal amount of the Transfer Restricted
Securities tendered in such exchange offer by such Holders.
Exchange Offer Registration Statement: The Registration Statement
-------------------------------------
relating to the Exchange Offer, including the Prospectus which forms a part
thereof.
Exempt Resales: The transactions in which the Initial Purchasers
--------------
propose to sell the Notes to certain "qualified institutional buyers," as
such term is defined in Rule 144A under the Securities Act, and to certain
non-U.S. persons in offshore transactions meeting the requirements of Rule
903 of Regulation S under the Securities Act.
Holders: As defined in the second paragraph of this Agreement.
-------
Indenture: The Indenture, dated as of the date hereof, between the
---------
Company and First Union National Bank, as trustee (the "Trustee"), pursuant
to which the Notes are to be issued, as such Indenture is amended or
supplemented from time to time in accordance with the terms thereof.
Liquidated Damages: As defined in Section 5(a) hereof.
------------------
NASD: National Association of Securities Dealers, Inc.
----
Person: An individual, partnership, corporation, limited liability
------
company, trust or unincorporated organization, or a government or agency or
political subdivision thereof.
Prospectus: The prospectus included in a Registration Statement,
----------
including any preliminary prospectus, and any such prospectus as amended or
supplemented by any prospectus supplement and by all other amendments and
supplements thereto, including post-effective amendments, and all exhibits
thereto and all material incorporated by reference into such Prospectus.
Registration Default: As defined in Section 5 hereof.
--------------------
Registration Statement: Any registration statement of the Company
----------------------
relating to (a) an offering of Exchange Notes pursuant to an Exchange Offer
or (b) the registration for resale of Transfer Restricted Securities
pursuant to the Shelf Registration Statement, which is filed pursuant to
the provisions of this Agreement, in either case, including the Prospectus
included therein, all amendments and supplements thereto (including post-
effective amendments) and all exhibits and material incorporated by
reference therein.
-2-
<PAGE>
Related Transaction Documents: The Purchase Agreement and the
-----------------------------
Indenture, together with all exhibits and schedules thereto.
Securities Act: The Securities Act of 1933, as amended.
--------------
Shelf Filing Deadline: As defined in Section 4 hereof.
---------------------
Shelf Registration Statement: As defined in Section 4 hereof.
----------------------------
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-
---
77bbbb), as amended.
Transfer Restricted Securities: Each Note, until the earliest to
------------------------------
occur of (a) the date on which such Note has been exchanged by a person
other than a Broker-Dealer for Exchange Notes in the Exchange Offer, (b)
following the exchange by a Broker-Dealer in the Exchange Offer of such
Note for one or more Exchange Notes, the date on which such Exchange Notes
are sold to a purchaser who receives from such Broker-Dealer on or prior to
the date of such sale a copy of the prospectus contained in the Exchange
Offer Registration Statement, (c) the date on which such Note has been
effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement or (d) the date on which
such Note is eligible to be distributed to the public pursuant to Rule 144
(k) (or any similar provision then in force) under the Securities Act.
Underwritten Registration or Underwritten Offering: A registration in
------------------------- ---------------------
which securities of the Company are sold to an underwriter for reoffering
to the public; provided, however, that the Company shall be obligated to
undertake no more than two such Underwritten Registrations or Underwritten
Offerings in the aggregate.
2. Securities Subject to This Agreement.
(a) Transfer Restricted Securities. The securities entitled to the
------------------------------
benefits of this Agreement are the Transfer Restricted Securities.
(b) Holders of Transfer Restricted Securities. A Person is deemed to
-----------------------------------------
be a holder of Transfer Restricted Securities whenever such Person owns Transfer
Restricted Securities.
3. Registered Exchange Offer.
(a) Exchange Offer Registration Statement. Unless the Exchange Offer
-------------------------------------
shall not be permissible under applicable law or Commission policy (after the
procedures set forth in Section 6(a) below have been complied with) or one of
the events set forth in Section 4(a)(ii) has occurred, the Company shall (i)
cause to be filed with the Commission promptly after the
-3-
<PAGE>
Closing Date, but in no event later than 60 days after the Closing Date, a
Registration Statement under the Securities Act relating to the Exchange Notes
and the Exchange Offer, (ii) use its reasonable best efforts to cause such
Registration Statement to become effective no later than 120 days after the
Closing Date, (iii) in connection with the foregoing, (A) file all pre-effective
amendments to such Registration Statement as may be necessary in order to cause
such Registration Statement to become effective, (B) if applicable, file a post-
effective amendment to such Registration Statement pursuant to Rule 430A under
the Securities Act and (C) cause all necessary filings in connection with the
registration and qualification of the Exchange Notes to be made under the "blue
sky" laws of such jurisdictions as are necessary to permit consummation of the
Exchange Offer, (iv) use its reasonable best efforts to cause the Exchange Offer
to be consummated on the earliest practicable date after the Exchange Offer
Registration Statement has become effective, but in no event later than 30 days
thereafter and (v) deliver the Exchange Notes in the same aggregate principal
amount as the aggregate principal amount of Transfer Restricted Securities that
were validly tendered by Holders thereof pursuant to the Exchange Offer. The
Exchange Offer shall be on the appropriate form permitting registration of the
Exchange Notes to be offered in exchange for the Transfer Restricted Securities
and to permit resales of Exchange Notes held by Broker-Dealers as contemplated
by Section 3(c) below. The time periods referred to in clauses (i), (ii) and
(iv) of this Section 3(a) shall not include any period during which the Company
is pursuing a Commission ruling pursuant to Section 6(a)(i) below.
(b) Consummation of the Exchange Offer. The Company shall use its
----------------------------------
reasonable best efforts to cause the Exchange Offer Registration Statement to be
effective continuously and shall keep the Exchange Offer open for a period of
not less than the minimum period required under applicable federal and state
securities laws to consummate the Exchange Offer; provided, however, that in no
event shall such period be less than 20 business days. The Company shall cause
the Exchange Offer to comply in all material respects with all applicable
federal and state securities laws. No securities other than the Exchange Notes
shall be included in the Exchange Offer Registration Statement. The Exchange
Offer shall not be subject to any conditions, other than that the Exchange Offer
does not violate applicable law or any applicable interpretation of the
Commission. The Company shall inform the Initial Purchasers of the names and
addresses of the Holders to whom the Exchange Offer is made, and the Initial
Purchasers shall have the right, subject to applicable law and at its own
expense, to contact such Holders and otherwise facilitate the tender of Transfer
Restricted Securities in the Exchange Offer.
(c) "Plan of Distribution" Section of the Prospectus. The Company
------------------------------------------------
shall indicate in a "Plan of Distribution" section contained in the Prospectus
contained in the Exchange Offer Registration Statement that any Broker-Dealer
who holds Notes that are Transfer Restricted Securities and that were acquired
for its own account as a result of market-making activities or other trading
activities (other than Transfer Restricted Securities acquired directly from the
Company), may exchange such Notes pursuant to the Exchange Offer; provided,
however, such Broker-Dealer may be deemed to be an "underwriter" within the
meaning of the Securities Act and must, therefore, deliver a prospectus meeting
the requirements of the
-4-
<PAGE>
Securities Act in connection with any resales of the Exchange Notes received by
such Broker-Dealer in the Exchange Offer, which prospectus delivery requirement
may be satisfied by the delivery by such Broker-Dealer of the Prospectus
contained in the Exchange Offer Registration Statement. Such "Plan of
Distribution" section shall also contain all other information with respect to
such resales by Broker-Dealers that the Commission may require in order to
permit such resales pursuant thereto, but such "Plan of Distribution" shall not
name any such Broker-Dealer or disclose the amount of Exchange Notes held by any
such Broker-Dealer except to the extent required by the Commission.
The Company shall use its reasonable best efforts to keep the Exchange
Offer Registration Statement continuously effective, supplemented and amended as
required by the provisions of Section 6(c) below to the extent necessary (i) to
ensure that it is available for resales of Exchange Notes acquired by Broker-
Dealers for their own accounts as a result of market-making activities or other
trading activities, and (ii) to ensure that it conforms with the requirements of
this Agreement, the Securities Act and the policies, rules and regulations of
the Commission as announced from time to time in each case, for a period of 180
days from the date on which the Exchange Offer Registration Statement is
declared effective.
The Company shall provide sufficient copies of the latest version of
such Prospectus to Broker-Dealers promptly upon their reasonable request at any
time during such 180-day period in order to facilitate such resales.
4. Shelf Registration.
(a) Shelf Registration. If (i) the Company is not permitted to file
------------------
the Exchange Offer Registration Statement or to consummate the Exchange Offer
because the Exchange Offer is not permitted by applicable law or Commission
policy (after the procedures set forth in Section 6(a) below have been complied
with), (ii) any Holder of Transfer Restricted Securities that is a "qualified
institutional buyer" (as defined in Rule 144A under the Securities Act) shall
notify the Company at least 20 business days prior to the consummation of the
Exchange Offer (A) that such Holder is prohibited by applicable law or
Commission policy from participating in the Exchange Offer, or (B) that such
Holder may not resell the Exchange Notes acquired by it in the Exchange Offer to
the public without delivering a prospectus and that the Prospectus contained in
the Exchange Offer Registration Statement is not appropriate or available for
such resales by such Holder, or (C) that such Holder is a Broker-Dealer and
holds Notes acquired directly from the Company or one of its affiliates, (iii)
the Exchange Offer is not for any other reason consummated by October 16, 1998
or (iv) the Exchange Offer has been completed and in the opinion of counsel for
the Initial Purchasers a Registration Statement must be filed and a Prospectus
must be delivered by the Initial Purchasers in connection with any offering or
sale of Transfer Restricted Securities, then the Company shall in lieu of or, in
the event of (ii) and (iv) above, in addition to effecting the registration of
the Exchange Notes pursuant to the Exchange Offer Registration Statement, use
its reasonable best efforts to:
-5-
<PAGE>
(x) cause to be filed a shelf registration statement pursuant to Rule
415 under the Securities Act which may be an amendment to the Exchange
Offer Registration Statement (in either event, the "Shelf Registration
Statement"), within 60 days of the earliest to occur of (1) the date on
which the Company determines that it is not required to file the Exchange
Offer Registration Statement, (2) the date on which the Company receives
notice from a Holder of Transfer Restricted Securities as contemplated by
clause (ii) above, (3) October 16, 1998 or (4) the receipt by the Company
of the opinion of counsel contemplated by clause (iv) above (the 60th day
following the earliest to occur of (1) through (4) being hereinafter
referred to as the "Shelf Filing Deadline"), which Shelf Registration
Statement shall provide for resales of all Transfer Restricted Securities
for which the Holders of such Transfer Restricted Securities shall have
provided the information required pursuant to Section 4(b) hereof; and
(y) cause such Shelf Registration Statement to be declared effective
by the Commission on or before the 120th day after the Shelf Filing
Deadline.
The Company shall use its reasonable best efforts to keep such Shelf
Registration Statement continuously effective, supplemented and amended as
required by the provisions of Sections 6(b) and (c) hereof to the extent
necessary (i) to ensure that it is available for resales of Notes by the Holders
of Transfer Restricted Securities entitled to the benefit of this Section 4(a),
and (ii) to ensure that such Shelf Registration Statement conforms and continues
to conform with the requirements of this Agreement, the Securities Act and the
policies, rules and regulations of the Commission, as announced from time to
time, in each case, for a period ending on the second anniversary of the Closing
Date.
(b) Provision by Holders of Certain Information in Connection with
--------------------------------------------------------------
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
- --------------------------------
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company in writing, within 10 business days after receipt of a request
therefor, such information as the Company may reasonably request for use in
connection with any Shelf Registration Statement or Prospectus or preliminary
prospectus included therein. No Holder of Transfer Restricted Securities shall
be entitled to Liquidated Damages pursuant to Section 5 hereof unless and until
such Holder shall have provided all such reasonably requested information within
the time period prescribed in this Section 4(b). Each Holder as to which any
Shelf Registration Statement is being effected agrees to notify the Company
promptly if any of the information previously furnished is misleading or
inaccurate in any material respect and to furnish promptly to the Company all
information required to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading or inaccurate.
-6-
<PAGE>
(c) Declaring Effective the Exchange Offer Registration Statement. An
-------------------------------------------------------------
Exchange Offer Registration Statement pursuant to Section 3(a) hereof or a Shelf
Registration Statement pursuant to Section 4(a) hereof will not be deemed to
have become effective unless it has been declared effective by the Commission;
provided, however, that if, after it has been declared effective, the offering
of Transfer Restricted Securities pursuant to a Shelf Registration Statement is
interfered with by any stop order, injunction or other order or requirement of
the Commission or any other governmental agency or court, such Registration
Statement will be deemed not to have become effective during the period of such
interference until the offering of Transfer Restricted Securities pursuant to
such Registration Statement may legally resume.
(d) Failure of the Company to Comply with its Obligations. Without
-----------------------------------------------------
limiting the remedies available to the Initial Purchasers and the Holders, the
Company acknowledges that any failure by the Company to comply with its
obligations under Section 3(a) and Section 4(a) hereof may result in material
irreparable injury to the Initial Purchasers or the Holders for which there is
no adequate remedy at law, that it will not be possible to measure damages for
such injuries precisely and that, in the event of any such failure, the Initial
Purchasers or any Holder may obtain such relief as may be required to
specifically enforce the Company's obligations under Section 3(a) and Section
4(a) hereof.
5. Liquidated Damages.
(a) Accrual and Amount of Liquidated Damages. If (i) any of the
----------------------------------------
Registration Statements required by this Agreement is not filed with the
Commission on or prior to the date specified for such filing in this Agreement,
(ii) any of such Registration Statements has not been declared effective by the
Commission on or prior to the date specified for such effectiveness as set forth
in Section 3(a)(ii) and 4(a)(y) of this Agreement (the "Effectiveness Target
Date"), (iii) the Exchange Offer has not been consummated within 30 days after
the Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (iv) any Registration Statement required by this Agreement is filed
and declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded within five business
days by a post-effective amendment to such Registration Statement that cures
such failure and that is itself declared effective within such five business day
period (each such event referred to in clauses (i) through (iv), a "Registration
Default"), additional cash interest ("Liquidated Damages") shall accrue to each
Holder of the Notes commencing upon the occurrence of such Registration Default
in an amount equal to .50% per annum of the principal amount of Notes held by
such Holder. The amount of Liquidated Damages will increase by an additional
.50% per annum of the principal amount of Notes with respect to each subsequent
90-day period (or portion thereof) until all Registration Defaults have been
cured, up to a maximum rate of Liquidated Damages of 1.50% per annum of the
principal amount of Notes. All accrued Liquidated Damages shall be paid to
Holders by the Company in the same manner as interest is paid pursuant to the
Indenture. Immediately upon the cure of all Registration Defaults relating to
any particular Transfer Restricted Securities, the accrual of Liquidated Damages
with respect to such Transfer Restricted Securities will cease.
-7-
<PAGE>
All obligations of the Company set forth in the preceding paragraph
that have accrued and are outstanding with respect to any Transfer Restricted
Security at the time such security ceases to be a Transfer Restricted Security
shall survive until such time as all such obligations with respect to such
Transfer Restricted Security shall have been satisfied in full.
(b) Notification of the Trustee. The Company shall notify the Trustee
---------------------------
promptly after each and every date on which an event occurs in respect of which
Liquidated Damages are required to be paid (an "Event Date"). Liquidated
Damages shall be paid by depositing Liquidated Damages with the Trustee, in
trust, for the benefit of the Holders of the Notes, on or before the applicable
Interest Payment Date (whether or not any payment other than Liquidated Damages
is payable on such Notes), in immediately available funds in sums sufficient to
pay the Liquidated Damages then due to such Holders. Each obligation to pay
Liquidated Damages shall be deemed to accrue from the applicable date of the
occurrence of the Registration Default.
6. Registration Procedures.
(a) Exchange Offer Registration Statement. In connection with the
-------------------------------------
Exchange Offer, the Company shall comply with all of the provisions of Section
6(c) below and shall use its reasonable best efforts to effect such exchange to
permit the sale of Transfer Restricted Securities being sold in accordance with
the intended method or methods of distribution thereof. In addition, the Company
(with respect to (i) and (iii) of this Section 6(a)) and each Holder of Transfer
Restricted Securities (with respect to (ii) of this Section 6(a)) shall comply
with the following provisions:
(i) If in the reasonable opinion of counsel to the Company there is a
question as to whether the Exchange Offer is permitted by applicable law,
the Company hereby agrees to seek a no-action letter or other favorable
decision from the Commission allowing the Company to consummate an Exchange
Offer for such Notes. The Company hereby agrees to pursue the issuance of
such a decision to the Commission staff level but shall not be required to
take commercially unreasonable action to effect a change of Commission
policy. The Company hereby agrees, however, to (A) participate in
telephonic conferences with the staff of the Commission, (B) deliver to the
Commission staff an analysis prepared by counsel to the Company setting
forth the legal bases, if any, upon which such counsel has concluded that
such an Exchange Offer should be permitted and (C) use reasonable best
efforts pursue a resolution (which need not be favorable) by the Commission
staff of such submission.
(ii) As a condition to its participation in the Exchange Offer
pursuant to the terms of this Agreement, each Holder of Transfer Restricted
Securities shall (x) furnish, upon the request of the Company, prior to the
consummation thereof, a written representation to the Company (which may be
contained in the letter of transmittal contemplated by the Exchange Offer
Registration Statement) to the effect that (A) it is
-8-
<PAGE>
not an affiliate of the Company, (B) it is not engaged in, and does not
intend to engage in, and has no arrangement or understanding with any
person to participate in, a distribution of the Exchange Notes to be issued
in the Exchange Offer and (C) it is acquiring the Exchange Notes in its
ordinary course of business and (y) otherwise cooperate in the Company's
preparations for the Exchange Offer. Each Holder hereby acknowledges and
agrees that any Broker-Dealer and any such Holder using the Exchange Offer
to participate in a distribution of the securities to be acquired in the
Exchange Offer (1) could not under Commission policy as in effect on the
date of this Agreement rely on the position of the Commission enunciated in
Morgan Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital
---------------------------- -------------
Holdings Corporation (available May 13, 1988), as interpreted in the
--------------------
Commission's letter to Shearman & Sterling dated July 2, 1993, and similar
no-action letters (including Brown & Wood LLP (available February 7, 1997),
----------------
and any no-action letter obtained pursuant to clause (i) above), and (2)
must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction and
that such a secondary resale transaction should be covered by an effective
registration statement containing the selling security holder information
required by Item 507 or 508, as applicable, of Regulation S-K if the
resales are of Exchange Notes obtained by such Holder in exchange for Notes
acquired by such Holder directly from the Company.
(iii) Prior to the effectiveness of the Exchange Offer Registration
Statement, to the extent required by the Commission, the Company shall
provide a supplemental letter to the Commission (A) stating that the
Company is registering the Exchange Offer in reliance on the position of
the Commission enunciated in Exxon Capital Holdings Corporation (available
----------------------------------
May 13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991), Brown
---------------------------- -----
& Wood LLP (available February 7, 1997) and, if applicable, any no-action
----------
letter obtained pursuant to clause (i) above and (B) including a
representation that the Company has not entered into any arrangement or
understanding with any Person to distribute the Exchange Notes to be
received in the Exchange Offer and that to the best of the Company's
information and belief, each Holder (other than an Initial Purchaser)
participating in the Exchange Offer is acquiring the Exchange Notes in its
ordinary course of business and has no arrangement or understanding with
any Person to participate in the distribution of the Exchange Notes
received in the Exchange Offer.
(b) Shelf Registration Statement. In connection with the Shelf
----------------------------
Registration Statement, the Company shall comply with all the provisions of
Section 6(c) below and shall use its reasonable best efforts to effect such
registration to permit the sale of the Transfer Restricted Securities being sold
in accordance with the intended method or methods of distribution thereof, and
pursuant thereto the Company shall as expeditiously as possible prepare and file
with the Commission a Registration Statement relating to the registration on any
appropriate form under the Securities Act, which form shall be available for the
sale of the Transfer Restricted Securities in accordance with the intended
method or methods of distribution thereof.
-9-
<PAGE>
(c) General Provisions. In connection with any Registration
------------------
Statement and any Prospectus required by this Agreement to permit the sale or
resale of Transfer Restricted Securities (including, without limitation, any
Registration Statement and the related Prospectus required to permit resales of
Notes by Broker-Dealers), the Company shall:
(i) use its reasonable best efforts to (x) keep such Registration
Statement continuously effective and (y) provide all requisite financial
statements for the period specified in Section 3 or 4 of this Agreement, as
applicable; upon the occurrence of any event that would cause any such
Registration Statement or the Prospectus contained therein (A) to contain a
material misstatement or omission or (B) not to be effective and usable for
resale of Transfer Restricted Securities during the period required by this
Agreement, the Company shall file promptly an appropriate amendment to such
Registration Statement, in the case of clause (A), correcting any such
misstatement or omission, and, in the case of either clause (A) or (B), use
its reasonable best efforts to cause such amendment to be declared
effective and such Registration Statement and the related Prospectus to
become usable for their intended purpose(s) as soon as practicable
thereafter;
(ii) prepare and file with the Commission such amendments and post-
effective amendments to the Registration Statement as may be necessary to
keep the Registration Statement effective for the applicable period set
forth in Section 3 or 4 hereof, as applicable, or such shorter period as
will terminate when all Transfer Restricted Securities covered by such
Registration Statement have been sold; cause the Prospectus to be
supplemented by any required Prospectus supplement and as so supplemented
to be filed pursuant to Rule 424 under the Securities Act and to comply
fully with the applicable provisions of Rules 424 and 430A under the
Securities Act in a timely manner; and comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such Registration Statement during the applicable period in accordance with
the intended method or methods of distribution by the sellers thereof set
forth in such Registration Statement or supplement to the Prospectus;
(iii) in the case of a Shelf Registration Statement, advise the
underwriter(s), if any, and selling Holders promptly and, if requested by
any underwriter(s) or selling Holders to confirm such advice in writing,
(A) when the Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to any Registration Statement
or any post-effective amendment thereto, when the same has become
effective, (B) of any request by the Commission or any state securities
authority for amendments to the Registration Statement or amendments or
supplements to the Prospectus or for additional information relating
thereto, (C) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement under the Securities Act or
of the suspension by any state securities commission of the qualification
of the Transfer Restricted Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for any of the preceding
purposes, (D) if, between the
-10-
<PAGE>
effective date of a Registration Statement and the closing of any sale of
Transfer Restricted Securities covered thereby, the representations and
warranties of the Company contained in any underwriting agreement,
securities sales agreement or other similar agreement, if any, relating to
the offering cease to be true and correct in all material respects or if
the Company receives any notification with respect to the suspension of the
qualification of the Transfer Restricted Securities for sale in any
jurisdiction or the initiation of any proceeding for such purpose, (E) of
the existence of any fact or the happening of any event that makes any
statement of a material fact made in the Registration Statement, the
Prospectus, any amendment or supplement thereto, or any document
incorporated by reference therein untrue, or that requires the making of
any additions to or changes in the Registration Statement or the Prospectus
in order to make the statements therein not misleading and (F) of any
determination by the Company that a post-effective amendment to a
Registration Statement would be appropriate. If at any time the Commission
shall issue any stop order suspending the effectiveness of the Registration
Statement, or any state securities commission or other regulatory authority
shall issue an order suspending the qualification or exemption from
qualification of the Transfer Restricted Securities under state securities
or Blue Sky laws, the Company shall use its reasonable best efforts to
obtain the withdrawal or lifting of such order at the earliest possible
time and shall provide prompt notice to each of the selling or exchanging
Holders of the withdrawal of any such order;
(iv) in the case of a Shelf Registration Statement, furnish to each of
the selling or exchanging Holders and each of the underwriter(s), if any,
before filing with the Commission, copies of any Registration Statement or
any Prospectus included therein or any amendments or supplements to any
such Registration Statement or Prospectus (including all documents
incorporated by reference after the initial filing of such Registration
Statement), which documents will be subject to the review of such Holders
and underwriter(s), if any, for a period of two business days, and the
Company will not file any such Registration Statement or Prospectus or any
amendment or supplement to any such Registration Statement or Prospectus
(including all such documents incorporated by reference) to which selling
Holders of a majority in aggregate principal amount of Transfer Restricted
Securities covered by such Registration Statement or the underwriter(s), if
any, shall reasonably object within two business days after the receipt
thereof. A selling Holder or underwriter, if any, shall be deemed to have
reasonably objected to such filing if such Registration Statement,
amendment, Prospectus or supplement, as applicable, as proposed to be
filed, contains a material misstatement or omission;
(v) in the case of a Shelf Registration Statement, promptly prior to
the filing of any document that is to be incorporated by reference into a
Registration Statement or Prospectus, provide copies of such document to
the selling Holders and to the underwriter(s), if any, make the Company's
representatives available for discussion of such document and other
customary due diligence matters, and include such information
-11-
<PAGE>
in such document prior to the filing thereof as such selling Holders or
underwriter(s), if any, reasonably may request;
(vi) in the case of a Shelf Registration Statement, subject to
execution of a confidentiality agreement reasonably acceptable to the
Company, make available at reasonable times for inspection by a
representative of the selling Holders, any underwriter participating in any
disposition pursuant to such Registration Statement, and any attorney or
accountant retained by such selling Holders or any of the underwriter(s),
all financial and other records, pertinent corporate documents and
properties of the Company and cause the Company's officers, directors,
managers and employees to supply all information reasonably requested by
any such Holder, underwriter, attorney or accountant in connection with
such Registration Statement subsequent to the filing thereof and prior to
its effectiveness;
(vii) in the case of a Shelf Registration Statement, if requested by
any selling Holders or the underwriter(s), if any, promptly incorporate in
any Registration Statement or Prospectus, pursuant to a supplement or post-
effective amendment if necessary, such information as such selling Holders
and underwriter(s), if any, may reasonably request to have included
therein, including, without limitation, information relating to the "Plan
of Distribution" of the Transfer Restricted Securities, information with
respect to the principal amount of Transfer Restricted Securities being
sold to such underwriter(s), the purchase price being paid therefor and any
other terms of the offering of the Transfer Restricted Securities to be
sold in such offering; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as practicable after the
Company is notified of the matters to be incorporated in such Prospectus
supplement or post-effective amendment;
(viii) in the case of a Shelf Registration Statement, furnish to each
selling Holder and each of the underwriter(s), if any, without charge, at
least one conformed copy of the Registration Statement, as first filed with
the Commission, and of each amendment thereto, including all documents
incorporated by reference therein and all exhibits (including exhibits
incorporated therein by reference);
(ix) in the case of a Shelf Registration Statement, deliver to each
selling Holder and each of the underwriter(s), if any, without charge, as
many conformed copies of the Prospectus (including each preliminary
prospectus) and any amendment or supplement thereto as such Persons
reasonably may request; the Company hereby consents to the use of the
Prospectus and any amendment or supplement thereto by each of the selling
Holders and each of the underwriter(s), if any, in connection with the
offering and the sale of the Transfer Restricted Securities covered by the
Prospectus or any amendment or supplement thereto;
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<PAGE>
(x) in the case of a Shelf Registration Statement, enter into such
agreements (including an underwriting agreement), and make such
representations and warranties, and take all such other actions in
connection therewith in order to expedite or facilitate the disposition of
the Transfer Restricted Securities pursuant to any Registration Statement
contemplated by this Agreement, all to such extent as may be reasonably
requested by any Holder of Transfer Restricted Securities or underwriter in
connection with any sale or resale pursuant to any Registration Statement
contemplated by this Agreement; and in connection with an Underwritten
Registration, the Company shall:
(A) upon request, furnish to each selling Holder and each
underwriter, if any, in such substance and scope as they may request
and as are customarily made by issuers to underwriters in primary
underwritten offerings, upon the date of the effectiveness of the
Shelf Registration Statement:
(1) a certificate, dated the date of the effectiveness of
the Shelf Registration Statement, signed by (y) the Chairman of
the Board, its President or a Vice President and (z) the Chief
Financial Officer of the Company, confirming, as of the date
thereof, such customary matters as such parties may reasonably
request;
(2) an opinion, dated the date of the effectiveness of the
Shelf Registration Statement, of counsel for the Company,
covering such customary matters as such parties may reasonably
request, and in any event including a statement to the effect
that such counsel has participated in conferences with officers
and other representatives of the Company, representatives of the
independent public accountants for the Company, the Initial
Purchasers' representatives and the Initial Purchasers' counsel
in connection with the preparation of such Registration Statement
and the related Prospectus and have considered the matters
required to be stated therein and the statements contained
therein, although such counsel has not independently verified the
accuracy, completeness or fairness of such statements; and that
such counsel advises that, on the basis of the foregoing (relying
as to materiality to a large extent upon facts provided to such
counsel by officers and other representatives of the Company and
without independent investigation or verification), no facts came
to such counsel's attention that caused such counsel to believe
that the applicable Registration Statement, at the time such
Registration Statement or any post-effective amendment thereto
became effective, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading, or that the Prospectus included in such Registration
Statement as of its date, contained an untrue statement of a
material fact or omitted to state a material fact necessary in
order to make the statements therein, in
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<PAGE>
light of the circumstances under which they were made, not
misleading. Without limiting the foregoing, such counsel may
state further that such counsel assumes no responsibility for,
and has not independently verified, the accuracy, completeness or
fairness of the financial statements, notes and schedules and
other statistical and financial data included in any Registration
Statement contemplated by this Agreement or the related
Prospectus; and
(3) a customary comfort letter, dated the date of the
effectiveness of the Shelf Registration Statement from the
Company's independent accountants and from the independent
accountants of other Persons whose financial statements are
included in the Shelf Registration Statement, in the customary
form and covering matters of the type customarily covered in
comfort letters by underwriters in connection with primary
underwritten offerings.
(B) set forth in full or incorporate by reference in the
underwriting agreement, if any, the indemnification provisions and
procedures of Section 9 hereof with respect to all parties to be
indemnified pursuant to said Section; and
(C) deliver such other documents and certificates as may be
reasonably requested by such parties to evidence compliance with
clause (A) above and with any customary conditions contained in the
underwriting agreement or other agreement entered into by the Company
pursuant to this clause (x), if any.
If at any time the representations and warranties of the Company
contemplated in clause (A)(1) above cease to be true and correct, the
Company shall so advise the Initial Purchasers and the underwriter(s), if
any, and each selling Holder promptly and, if requested by such Persons,
shall confirm such advice in writing delivered to such Persons;
(xi) in the case of a Shelf Registration Statement, prior to any
public offering of Transfer Restricted Securities, cooperate with the
selling Holders, the underwriter(s), if any, and their respective counsel
in connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders or underwriter(s), if any, may
reasonably request and do any and all other acts or things as may be
reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the Shelf
Registration Statement; provided, however, that the Company shall not be
required to register or qualify as a foreign corporation or as a dealer in
securities in any jurisdiction where it is not now so qualified or to take
any action that would subject it to the service of process in suits or to
taxation, other than as to matters and transactions relating to the
Registration Statement in any jurisdiction where it is not now so subject;
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<PAGE>
(xii) in the case of an Exchange Offer Registration Statement, shall
issue, upon the request of any Holder of Notes covered by the Exchange
Offer Registration Statement, Exchange Notes in the same amount as the
Notes surrendered to the Company by such Holder in exchange therefor or
being sold by such Holder; such Exchange Notes to be registered in the name
of such Holder or in the name of the purchaser(s) of such Exchange Notes,
as the case may be; in return, the Notes held by such Holder shall be
surrendered to the Company for cancellation;
(xiii) in the case of a Shelf Registration Statement, cooperate with
the selling Holders and the underwriter(s), if any, to facilitate the
timely preparation and delivery of certificates representing Transfer
Restricted Securities to be sold and not bearing any restrictive legends;
and enable such Transfer Restricted Securities to be in such denominations
(consistent with the provisions of the Indenture) and registered in such
names as the selling Holders or the underwriter(s), if any, may reasonably
request at least two business days prior to any sale of Transfer Restricted
Securities made by such underwriter(s);
(xiv) use its reasonable best efforts to cause the Transfer
Restricted Securities covered by the Registration Statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the seller or sellers thereof or
the underwriter(s), if any, to consummate the disposition of such Transfer
Restricted Securities, subject to the proviso contained in clause (xi)
above;
(xv) if any fact or event contemplated by clause (c)(iii)(E) above
shall exist or have occurred, prepare and file with the Commission a
supplement or post-effective amendment to the Registration Statement or
related Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of Transfer Restricted Securities, such Prospectus will not
contain an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(xvi) provide CUSIP numbers for all Transfer Restricted Securities
not later than the effective date of the Registration Statement and provide
certificates for the Transfer Restricted Securities;
(xvii) cooperate and assist in any filings required to be made with
the NASD and in the performance of any due diligence investigation by any
underwriter (including any "qualified independent underwriter") that is
required to be retained in accordance with the rules and regulations of the
NASD, and use its reasonable best efforts to cause such Registration
Statement to become effective and approved by such governmental agencies or
authorities as may be necessary to enable the Holders selling Transfer
Restricted Securities to consummate the disposition of such Transfer
Restricted Securities; provided,
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<PAGE>
however, that the Company shall not be required to register or qualify as a
foreign corporation or as a dealer in securities in any jurisdiction where
it is not now so qualified or to take any action that would subject it to
the service of process in suits or to taxation, other than as to matters
and transactions relating to the Registration Statement in any jurisdiction
where it is not now so subject;
(xviii) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make generally
available to the Holders, as soon as practicable, a consolidated earnings
statement meeting the requirements of Rule 158 (which need not be audited)
for the twelve-month period (A) commencing at the end of any fiscal quarter
in which Transfer Restricted Securities are sold to underwriters in a firm
or reasonable best efforts Underwritten Offering or (B) if not sold to
underwriters in such an offering, beginning with the first month of the
Company's first fiscal quarter commencing after the effective date of the
Registration Statement;
(xix) cause the Indenture to be qualified under the TIA not later
than the effective date of the first Registration Statement required by
this Agreement, and, in connection therewith, cooperate with the Trustee
and the Holders of Notes to effect such changes to the Indenture as may be
required for such Indenture to be so qualified in accordance with the terms
of the TIA; and execute and use its reasonable best efforts to cause the
Trustee to execute all documents that may be required to effect such
changes and all other forms and documents required to be filed with the
Commission to enable such Indenture to be so qualified in a timely manner;
and
(xx) provide promptly to each Holder upon reasonable request each
document filed with the Commission pursuant to the requirements of Section
13 and Section 15 of the Exchange Act.
Each Holder agrees by acquisition of a Transfer Restricted Security
that, upon receipt of any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iii)(E) hereof, such Holder will forthwith
discontinue disposition of Transfer Restricted Securities pursuant to the
applicable Registration Statement until such Holder's receipt of the copies of
the supplemented or amended Prospectus contemplated by Section 6(c)(xv) hereof,
or until such Holder is advised in writing (the "Advice") by the Company that
the use of the Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated by reference in the
Prospectus. If so directed by the Company, each Holder will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such Transfer
Restricted Securities that was current at the time of receipt of such notice.
In the event that the Company shall give any such notice, the time period
regarding the effectiveness of such Registration Statement set forth in Section
3 or 4 hereof, as applicable, shall be extended by the number of days during the
period from and including the date of the giving of such notice pursuant to
Section 6(c)(iii)(E) hereof to and including the date when each selling Holder
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<PAGE>
covered by such Registration Statement shall have received the copies of the
supplemented or amended Prospectus contemplated by Section 6(c)(xv) hereof or
shall have received the Advice.
7. Participation of Broker-Dealers in Exchange Offer.
(a) Participating Broker-Dealer May Be Deemed an "Underwriter". The
----------------------------------------------------------
Commission has taken the position that any Broker-Dealer that receives Exchange
Notes for its own account in the Exchange Offer in exchange for Notes that were
acquired by such Broker-Dealer as a result of market-making or other trading
activities (a "Participating Broker-Dealer") may be deemed to be an
"underwriter" within the meaning of the Securities Act and must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes.
The Company understands that it is the Commission's position that if
the Prospectus contained in the Exchange Offer Registration Statement includes a
"Plan of Distribution" containing a statement to the above effect and the means
by which Participating Broker-Dealers may resell the Exchange Notes, without
naming the Participating Broker-Dealers or specifying the amount of Exchange
Notes owned by them, such Prospectus may be delivered by Participating Broker-
Dealers to satisfy their prospectus delivery obligation under the Securities Act
in connection with resales of Exchange Notes for their own accounts, so long as
the Prospectus otherwise meets the requirements of the Securities Act.
(b) Provisions Regarding Shelf Registration Statement to Apply to
-------------------------------------------------------------
Exchange Offer Registration. In light of the above, notwithstanding the other
- ---------------------------
provisions of this Agreement, the Company agrees that the provisions of this
Agreement as they relate to a Shelf Registration Statement shall also apply to
an Exchange Offer Registration to the extent, and with such reasonable
modifications thereto, as may be reasonably requested by the Initial Purchasers
or by one or more Participating Broker-Dealers, in each case as provided in
clause (ii) below, in order to expedite or facilitate the disposition of any
Exchange Notes by Participating Broker-Dealers consistent with the positions of
the Commission recited in Section 7(a) above; provided, however, that:
(i) the Company shall not be required to amend or supplement the
Prospectus contained in the Exchange Offer Registration Statement, as would
otherwise be contemplated by Section 6(c)(xv), for a period exceeding 180
days after the last date of acceptance for exchange (as such period may be
extended pursuant to the last paragraph of Section 6 of this Agreement) and
Participating Broker-Dealers shall not be authorized by the Company to
deliver and shall not deliver such Prospectus after such period in
connection with the resales contemplated by this Section 7; and
(ii) the application of the Shelf Registration Statement procedures
set forth in Section 4 of this Agreement to an Exchange Offer Registration,
to the extent not required by the positions of the Commission or the
Securities Act and the rules and regulations
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<PAGE>
thereunder, will be in conformity with the reasonable request to the
Company by the Initial Purchasers or with the reasonable request in writing
to the Company by one or more broker-dealers who certify to the Initial
Purchasers and the Company in writing that they anticipate that they will
be Participating Broker-Dealers;
provided further that, in connection with such application of the Shelf
Registration Statement procedures set forth in Section 4 to an Exchange Offer
Registration, the Company shall be obligated (x) to deal only with one entity
representing the Participating Broker-Dealers, which shall be the Representative
unless it elects not to act as such representative, (y) to pay the fees and
expenses of only one counsel representing the Participating Broker-Dealers,
which shall be counsel selected by the Representative and reasonably acceptable
to the Company (unless such counsel elects not to so act), and (z) to cause to
be delivered only one, if any, "cold comfort" letter with respect to the
Prospectus in the form existing on the last date of acceptance for exchange and
with respect to each subsequent amendment or supplement, if any, effected during
the period specified in clause (i) above.
(c) Liability of the Initial Purchasers. The Initial Purchasers
-----------------------------------
shall have no liability to the Company or any Holder with respect to any request
that they may make pursuant to Section 7(b) above.
8. Registration Expenses.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement will be borne by the Company, regardless of
whether a Registration Statement becomes effective, including without
limitation: (i) all registration and filing fees and expenses (including filings
made by any Initial Purchaser or Holder with the NASD (and, if applicable, the
reasonable fees and expenses of any "qualified independent underwriter") and its
counsel that may be required by the rules and regulations of the NASD); (ii) all
fees and expenses of compliance with federal securities and state Blue Sky or
securities laws; (iii) all expenses of printing (including printing certificates
for the Exchange Notes to be issued in the Exchange Offer and printing of
Prospectuses), and associated messenger and delivery services and
telecommunications usage; (iv) all fees and disbursements of counsel for the
Company and, subject to Section 8(b) below, the Holders of Transfer Restricted
Securities; (v) all application and filing fees in connection with listing Notes
on a national securities exchange or automated quotation system; and (vi) all
fees and disbursements of independent certified public accountants of the
Company and other Persons whose financial statements are included in a
Registration Statement (including the expenses of any special audit and comfort
letters required by or incident to such performance).
The Company will, in any event, bear its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expenses of any annual audit and the
fees and expenses of any Person, including special experts, retained by the
Company.
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<PAGE>
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company will reimburse the
Initial Purchasers and the Holders of Transfer Restricted Securities being
tendered in the Exchange Offer and/or resold pursuant to the "Plan of
Distribution" contained in the Exchange Offer Registration Statement or
registered pursuant to the Shelf Registration Statement, as applicable, for the
reasonable fees and disbursements of not more than one counsel, who shall be
counsel selected by the Representative and reasonably acceptable to the Company
(unless such counsel elects not to so act). The Company shall not be required
to pay any underwriting discount, commission or similar fee related to the sale
of any securities.
9. Indemnification and Contribution.
(a) The Company to Indemnify Holders. In connection with a Shelf
--------------------------------
Registration Statement or in connection with any delivery of a Prospectus
contained in an Exchange Offer Registration Statement by any Participating
Broker-Dealer or Initial Purchaser, as applicable, who seeks to sell Exchange
Notes, the Company and Primus Telecommunications, Inc. a Delaware corporation,
and Primus Telecommunications (Australia) Pty. Ltd., a company organized under
the laws of Australia (together, the "Principal Subsidiaries"), jointly and
severally, shall indemnify and hold harmless each Holder of Transfer Restricted
Securities included within any such Shelf Registration Statement and each
Participating Broker-Dealer or Initial Purchaser selling Exchange Notes (each, a
"Participant"), such Participant's officers and directors and each person, if
any, who controls any Participant within the meaning of Section 15 of the
Securities Act from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof (including, but not limited to, any
loss, claim, damage, liability or action relating to purchases and sales of
Notes), to which such Participant, officer, director or controlling person may
become subject, under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of, or is based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained in (A)
any preliminary Prospectus, Registration Statement or Prospectus or in any
amendment or supplement thereto or (B) any blue sky application or other
document prepared or executed by the Company (or based upon any written
information furnished by the Company) specifically for the purpose of qualifying
any or all of the Exchange Notes under the securities laws of any state or other
jurisdiction (any such application, document or information being hereinafter
called a "Blue Sky Application"), (ii) the omission or alleged omission to state
in any (x) preliminary Prospectus or Prospectus or in any amendment or
supplement thereto, any material fact required to be stated therein or necessary
to make the statements therein not misleading, in light of the circumstances in
which they were made, and (y) Registration Statement or in any amendment or
supplement thereto, or in any Blue Sky Application any material fact required to
be stated therein or necessary to make the statements therein not misleading or
(iii) any act or failure to act, or any alleged act or failure to act, by any
Participant in connection with, or relating in any manner to, the Notes or the
offering contemplated hereby, and which is included as part of or referred to in
any loss, claim, damage, liability or action arising out of or based upon
matters covered in (i) or (ii) above (provided that
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<PAGE>
the Company and the Principal Subsidiaries shall not be liable in the case of
any matter covered by this clause (iii) to the extent that it is determined in a
final judgment by a court of competent jurisdiction that such loss, claim,
damage, liability or action resulted directly from any such act or failure to
act undertaken or omitted to be taken by such Participant through its gross
negligence or wilful misconduct), and shall reimburse each Participant and each
such officer, director or controlling person promptly upon demand for any legal
or other expenses reasonably incurred by that Participant, officer, director or
controlling person in connection with investigating or defending or preparing
to defend against any such loss, claim, damage, liability or action as such
expenses are incurred; provided, however, that the Company and the Principal
Subsidiaries shall not be liable in any such case to the extent that any such
loss, claim, damage, liability or action arises out of, or is based upon, any
untrue statement or alleged untrue statement or omission or alleged omission
made in any preliminary Prospectus, Prospectus or Registration Statement, in any
amendment or supplement thereto, or in any Blue Sky Application in reliance upon
and in conformity with written information concerning such Participant furnished
to the Company by or on behalf of any Participant specifically for inclusion
therein; provided further that as to any preliminary Prospectus, this indemnity
agreement shall not inure to the benefit of any Participant or any officer,
director or controlling person of that Participant on account of any loss,
claim, damage, liability or action arising from the sale of the Exchange Notes
or any Notes sold pursuant to a Shelf Registration Statement to any person by
such Participant if (i) that Participant failed to send or give a copy of the
Prospectus, as the same may be amended or supplemented, to that person within
the time required by the Securities Act and (ii) the untrue statement or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact in such preliminary Prospectus was corrected in the Prospectus or
a supplement or amendment thereto, as the case may be, unless in each case, such
failure resulted from noncompliance by the Company with Section 6(c). The
foregoing indemnity agreement is in addition to any liability which the Company
and the Principal Subsidiaries may otherwise have to any Participant or to any
officer, director or controlling person of that Participant. In connection with
any Underwritten Offering permitted by Section 6(c) hereof, the Company and the
Principal Subsidiaries will also indemnify the underwriters, if any, selling
brokers, dealers and similar securities industry professionals participating in
the distribution, their officers and directors and each Person who controls such
Persons (within the meaning of the Securities Act and the Exchange Act) to the
same extent as provided above with respect to the indemnification of the
Holders, if requested in connection with any Registration Statement.
(b) Participants to Indemnify the Company and its Directors,
--------------------------------------------------------
Officers and Controlling Persons. Each Participant, severally and not jointly,
- ---------------------------------
shall indemnify and hold harmless the Company, its directors and officers, and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act, from and against any loss, claim, damage or liability,
joint or several, or any action in respect thereof, to which the Company or any
such director, officer or controlling person may become subject, under the
Securities Act or otherwise, insofar as such loss, claim, damage, liability or
action arises out of, or is based upon, (i) any untrue statement or alleged
untrue statement of a material fact contained in (A) any preliminary Prospectus,
Registration Statement or Prospectus or in any amendment or
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<PAGE>
supplement thereto or (B) any Blue Sky Application or (ii) the omission or
alleged omission to state in any (x) preliminary Prospectus or Prospectus or in
any amendment or supplement thereto, any material fact required to be stated
therein or necessary to make the statements therein in light of the
circumstances in which they were made not misleading, and (y) Registration
Statement or in any amendment or supplement thereto, or in any Blue Sky
Application any material fact required to be stated therein or necessary to make
the statements therein not misleading but in the case of clauses (i) and (ii)
only to the extent that the untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
the written information concerning such Participant furnished to the Company or
the Trustee by or on behalf of that Participant specifically for inclusion
therein, and shall reimburse the Company and any such director, officer or
controlling person for any legal or other expenses reasonably incurred by the
Company and the Principal Subsidiaries or any such director, officer or
controlling person in connection with investigating or defending or preparing to
defend against any such loss, claim, damage, liability or action as such
expenses are incurred. The foregoing indemnity agreement is in addition to any
liability which any Participant may otherwise have to the Company or any such
director, officer or controlling person.
(c) Notification of Indemnifying Party; Counsel; Settlement.
-------------------------------------------------------
Promptly after receipt by an indemnified party under this Section 9 of notice
of any claim or the commencement of any action, the indemnified party shall, if
a claim in respect thereof is to be made against the indemnifying party under
this Section 9, notify the indemnifying party in writing of the claim or the
commencement of that action; provided, however, that the failure to notify the
indemnifying party shall not relieve it from any liability which it may have
under this Section 9 except to the extent the indemnifying party has been
materially prejudiced by such failure and provided further that the failure to
notify the indemnifying party shall not affect any liability which it may have
to an indemnified party otherwise than under this Section 9. If any such claim
or action shall be brought against an indemnified party, and it shall notify the
indemnifying party thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 9 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
the indemnified party shall have the right to employ counsel to represent
jointly the indemnified party and its respective directors, officers and
controlling persons who may be subject to liability arising out of any claim in
respect of which indemnity may be sought by the indemnified party against the
indemnifying party under this Section 9 if such indemnified party shall have
been advised in writing that the representation of such indemnified party and
those directors, officers and controlling persons by the same counsel would be
inappropriate under applicable standards of professional conduct due to actual
or potential differing interests between them, and in that event the fees and
expenses of such separate counsel shall be paid by the indemnifying party. It is
understood that the indemnifying party shall not be liable for the fees and
expenses of more than one separate firm
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<PAGE>
(in addition to local counsel in each jurisdiction) for all indemnified parties
in connection with any proceeding or related proceedings. Each indemnified
party, as a condition of the indemnity agreements contained in Sections 9(a) and
9(b), shall use its reasonable best efforts to cooperate with the indemnifying
party in the defense of any such action or claim. No indemnifying party shall
(i) without the prior written consent of the indemnified parties (which consent
shall not be unreasonably withheld), settle or compromise or consent to the
entry of any judgment with respect to any pending or threatened claim, action,
suit or proceeding in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all liability
arising out of such claim, action, suit or proceeding, or (ii) be liable for any
settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with its written
consent or if there be a final judgment of the plaintiff in any such action, the
indemnifying party agrees to indemnify and hold harmless any indemnified party
from and against any loss or liability by reason of such settlement or judgment
in accordance with this Section 9.
(d) Indemnification Unavailable. If the indemnification provided
---------------------------
for in this Section 9 shall for any reason be unavailable to or insufficient to
hold harmless an indemnified party under Section 9(a) or 9(b) in respect of any
loss, claim, damage or liability, or any action in respect thereof, referred to
therein, then each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability, or action in respect
thereof, (i) in such proportion as shall be appropriate to reflect the relative
benefits received by the Company and the Principal Subsidiaries, on the one
hand, and the Participants, on the other hand, from the offering of the Exchange
Notes or (ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company and the Principal Subsidiaries, on the one hand, and the
Participants, on the other hand, with respect to the statements or omissions
which resulted in such loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Principal Subsidiaries, on the one
hand, and the Participants, on the other hand, with respect to such offering
shall be deemed to be in the same proportion as the total net proceeds from the
offering of the Exchange Notes purchased under this Agreement (before deducting
expenses) received by the Company and the Principal Subsidiaries, on the one
hand, and the total underwriting commissions and discounts received by the
Participants with respect to the Notes purchased under the Purchase Agreement,
on the other hand, bear to the total gross proceeds from the offering of the
Exchange Notes under this Agreement, in each case as set forth in the table on
the cover page of the Memorandum. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact
relates to information supplied by the Company and the Principal Subsidiaries,
on the one hand, or the Participants, on the other hand, the intent of the
parties and their relative knowledge, access to information and opportunity to
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<PAGE>
correct or prevent such statement or omission. Each of the Company and the
Principal Subsidiaries and the Participants agrees that it would not be just and
equitable if contributions pursuant to this Section 9(d) were to be determined
by pro rata allocation (even if either the Participants or the Company and the
Principal Subsidiaries, as the case may be, were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to herein. The amount paid or payable by
an indemnified party as a result of the loss, claim, damage or liability, or
action in respect thereof, referred to above in this Section 9(d) shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 9(d), no Participant shall be required to indemnify
or contribute any amount in excess of the amount by which proceeds received by
the Participants from an offering of the Exchange Notes exceeds the amount of
any damages which such Participant has otherwise paid or become liable to pay by
reason of any untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
remedies provided for in this Section 9 are not exclusive and shall not limit
any rights or remedies which may otherwise be available to any indemnified party
at law or in equity. The Participants' obligations to contribute as provided in
this Section 9(d) are several in proportion to their respective underwriting
obligations and not joint.
(e) The indemnity and contribution provisions contained in this
Section 9 shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of any Initial Purchaser, any Holder or any person controlling any Initial
Purchaser or any Holder, or by or on behalf of the Company, its officers or
directors or any person controlling the Company, (iii) acceptance of any of the
Exchange Notes and (iv) any sale of Transfer Restricted Securities pursuant to a
Shelf Registration Statement.
10. Rule 144A.
The Company hereby agrees with each Holder, for so long as any
Transfer Restricted Securities remain outstanding, to make available to any
Holder or beneficial owner of Transfer Restricted Securities in connection with
any sale thereof and any prospective purchaser of such Transfer Restricted
Securities from such Holder or beneficial owner, the information required by
Rule 144A(d)(4) under the Securities Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A.
-23-
<PAGE>
11. Participation in Underwritten Registrations.
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holder's Transfer Restricted
Securities on the basis provided in any underwriting arrangements approved by
the Persons entitled hereunder to approve such arrangements and (b) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements, lockup letters and other documents reasonably required under the
terms of such underwriting arrangements.
12. Selection of Underwriters.
The Holders of Transfer Restricted Securities covered by the Shelf
Registration Statement who desire to do so may sell such Transfer Restricted
Securities in an Underwritten Offering. In any such Underwritten Offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate principal amount of the Transfer Restricted Securities included in
such offering; provided that such investment bankers and managers must be
reasonably satisfactory to the Company.
13. Miscellaneous.
(a) Remedies. The Company agrees that monetary damages (including
--------
Liquidated Damages) would not be adequate compensation for any loss incurred by
reason of a breach by it of the provisions of this Agreement and hereby agrees
to waive the defense in any action for specific performance that a remedy at law
would be adequate.
(b) No Inconsistent Agreements. The Company will not on or after
--------------------------
the date of this Agreement enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. The rights granted
to the Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's securities
under the provisions of any agreement in effect on the date hereof.
(c) Adjustments Affecting the Notes. The Company will not take
-------------------------------
any action, or permit any change to occur, with respect to Notes that would
materially and adversely affect the ability of the Holders to Consummate any
Exchange Offer unless such action or change is required by applicable law.
(d) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to or departures from the provisions
hereof may not be given unless the Company has obtained the written consent of
Holders of at least a majority of the outstanding principal amount of Transfer
Restricted Securities; provided, however, that no amendment, modification,
-24-
<PAGE>
supplement, waiver or consent to or departure from the provisions of Section 8
hereof shall be effective as against any Holder of Transfer Restricted
Securities unless consented to in writing by such Holder. Notwithstanding the
foregoing, a waiver or consent to departure from the provisions hereof that
relates exclusively to the rights of Holders whose securities are being tendered
pursuant to the Exchange Offer and that does not affect directly or indirectly
the rights of other Holders whose securities are not being tendered pursuant to
such Exchange Offer may be given by the Holders of a majority of the outstanding
principal amount of Transfer Restricted Securities being tendered or registered.
(e) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing by hand delivery, first-class mail
(registered or certified, return receipt requested), telecopier, or air courier
guaranteeing overnight delivery:
(i) if to a Holder, at the address of such Holder maintained by the
Registrar under the Indenture; and
(ii) if to the Company or any of the
Principal Subsidiaries:
1700 Old Meadow Road
Vienna, VA 22102
Attention: Robert Stankey, Esq.
Facsimile: (703) 902-2877
With a copy to:
Pepper Hamilton LLP
3000 Two Logan Square
Eighteenth and Arch Streets
Philadelphia, PA 19103-2799
Attention: James Epstein, Esq.
Facsimile: (215) 981-4750
(iii) if to the Initial Purchasers:
Lehman Brothers Inc.
Three World Financial Center
New York, New York 10285
Attention: Syndicate Department
Facsimile: (212) 528-6395; and
-25-
<PAGE>
BT Alex. Brown Incorporated
130 Liberty Street
New York, New York 10006
Attention: Syndicate Department
Facsimile: (212) 669-5492; and
Donaldson, Lufkin & Jenrette
Securities Corporation
227 Park Avenue
New York, New York 10172
Attention: Syndicate Department
Facsimile: (212) 892-7272
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged, if telecopied; and on the next business day, if timely
delivered to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the
----------------------
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation, and without the need for an
express assignment, subsequent Holders of Transfer Restricted Securities;
provided, however, that nothing herein shall be deemed to permit any assignment,
transfer or other disposition of Transfer Restricted Securities in violation of
the terms of the Purchase Agreement; provided further that this Agreement shall
not inure to the benefit of or be binding upon a successor, transferee or assign
of a Holder unless and to the extent such successor, transferee or assign
acquired Transfer Restricted Securities from such Holder. If any transferee of
any Holder shall acquire Transfer Restricted Securities, in any manner, whether
by operation of law or otherwise, such Transfer Restricted Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Transfer Restricted Securities such Person shall be conclusively deemed to
have agreed to be bound by and to perform all of the terms and provisions of
this Agreement and such Person shall be entitled to receive the benefits hereof.
The Initial Purchasers (in their capacity as Initial Purchasers) shall have no
liability or obligation to the Company with respect to any failure by a Holder
to comply with, or breach by any Holder of, any of the obligations of such
Holder under this Agreement.
(g) Purchases and Sales of Notes. The Company shall not, and
----------------------------
shall use its reasonable best efforts to cause its affiliates (as defined in
Rule 405 under the Securities Act) not to, purchase and then resell or otherwise
transfer any Notes.
-26-
<PAGE>
(h) Third Party Beneficiary. The Holders shall be third party
-----------------------
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Initial Purchasers, on the other hand, and such Initial Purchasers
shall have the right to enforce such agreements directly to the extent they deem
such enforcement necessary or advisable to protect their rights or the rights of
Holders hereunder.
(i) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(j) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(k) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(l) Consent to Jurisdiction. Each party irrevocably agrees that any
-----------------------
legal suit, action or proceeding arising out of or based upon this Agreement or
the transactions contemplated hereby ("Related Proceedings") may be instituted
in the federal courts of the United States of America located in the City of New
York or the courts of the State of New York in each case located in the Borough
of Manhattan in the City of New York (collectively, the "Specified Courts"), and
irrevocably submits to the exclusive jurisdiction (except for proceedings
instituted in regard to the enforcement of a judgment of any such court (a
"Related Judgment"), as to which such jurisdiction is non-exclusive) of such
courts in any such suit, action or proceeding. The parties further agree that
service of any process, summons, notice or document by mail to such party's
address set forth above shall be effective service of process for any lawsuit,
action or other proceeding brought in any such court. The parties hereby
irrevocably and unconditionally waive any objection to the laying of venue of
any lawsuit, action or other proceeding in the Specified Courts, and hereby
further irrevocably and unconditionally waive and agree not to plead or claim in
any such court that any such lawsuit, action or other proceeding brought in any
such court has been brought in an inconvenient forum. Primus Telecommunications
(Australia) Pty. Ltd. hereby irrevocably appoints CT Corporation System, which
currently maintains a New York City office at 1633 Broadway, New York, New York
10019, United States of America, as its agent to receive service of process or
other legal summons for purposes of any such action or proceeding that may be
instituted in any state or federal court in the City and State of New York.
(m) Waiver of Immunity. With respect to any Related Proceeding,
------------------
each party irrevocably waives, to the fullest extent permitted by applicable
law, all immunity (whether on the basis of sovereignty or otherwise) from
jurisdiction, service of process, attachment (both before and after judgment)
and execution to which it might otherwise be entitled in the Specified
-27-
<PAGE>
Courts, and with respect to any Related Judgment, each party waives any such
immunity in the Specified Courts or any other court of competent jurisdiction,
and will not raise or claim or cause to be pleaded any such immunity at or in
respect of any such Related Proceeding or Related Judgment, including, without
limitation, any immunity pursuant to the United States Foreign Sovereign
Immunities Act of 1976, as amended.
(n) Severability. In the event that any one or more of the
------------
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(o) Entire Agreement. This Agreement, together with each of the
----------------
Related Transaction Documents, is intended by the parties as a final expression
of their agreement and intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein with respect to
the registration rights granted by the Company with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
(p) Required Consents. Whenever the consent or approval of Holders
-----------------
of a specified percentage of Transfer Restricted Securities is required
hereunder, Transfer Restricted Securities held by the Company or its affiliates
(as such term is defined in Rule 405 under the Securities Act) shall not be
counted in determining whether such consent or approval was given by the Holders
of such required percentage.
14. Additional Representations of Primus Telecommunications,
Incorporated and Primus Telecommunications Pty. Ltd.
The Registration Rights Agreement has been duly authorized by Primus
Telecommunications, Incorporated and Primus Telecommunications Pty. Ltd. (the
"Principal Subsidiaries"), and when duly executed by the proper officers of the
Principal Subsidiaries (assuming due execution and delivery by the Initial
Purchasers) and delivered by the Company, will constitute a valid and legally
binding agreement of the Company enforceable against the Company in accordance
with its terms, except (i) where the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws now or hereafter in effect relating to rights of creditors
and other obligees generally, (ii) where the remedy of specific performance and
other forms of equitable relief may be subject to certain equitable defenses and
principles and to the discretion of the court before which the proceedings may
be brought and (iii) where rights to indemnity and contribution thereunder may
be limited by applicable law and public policy.
-28-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
PRIMUS TELECOMMUNICATIONS
GROUP, INC.
By: /s/ K. Paul Singh
--------------------------------
Name: K. Paul Singh
Title: President & Chief
Executive Officer
PRIMUS TELECOMMUNICATIONS
INCORPORATED
By: /s/ K. Paul Singh
--------------------------------
Name: K. Paul Singh
Primus Telecommunications (Australia)
Pty. Ltd.
Accepted, May 19, 1998 By: /s/ K. Paul Singh
--------------------------------
Name: K. Paul Singh
Title: President & Chief
Executive Officer
LEHMAN BROTHERS INC.
By: /s/ Laurence M. Band
-----------------------------
Name: Laurence M. Band
Title: Managing Director
Acting severally on behalf of itself
and the other Initial Purchasers named
in Schedule I to the Purchase Agreement.
By: Lehman Brothers Inc.
By: /s/ Laurence M. Band
--------------------------
Name: Laurence M. Band
Title: Managing Director
-29-
<PAGE>
Exhibit 21.1
Subsidiaries of the Registrant
------------------------------
Jurisdiction of
Subsidiary Incorporation
- ---------- ---------------
Primus Telecommunications, Inc. Delaware
Primus Telecommunications International, Inc. Delaware
Primus Telecommunications, Ltd. United Kingdom
Primus Telecommunications de Mexico, S.A. de C.V. Mexico
Primus Telecommunications Pty., Ltd. Australia
Primus Telecommunications (Australia) Pty., Ltd. Australia
(formerly known as Axicorp Pty., Ltd.)
3362426 Primus Canada Inc. Canada
d/b/a Primus Canada
Primus Telecommunications Netherlands B.V. Netherlands
Primus Telecommunications SA France
Primus Telecommunications Deutschland GmbH Germany
PremierSource International L.L.C. Delaware
Primus Telecommunications K.K. Japan
Primus Japan K.K. Japan
Eclipse Telecommunications Pty., Ltd. Australia
Hotkey Telecommunications Pty., Ltd. Australia
Telepassport Network K.K. Japan
<PAGE>
Rate Reduction Center, Inc. Florida
Least Cost Routing, Inc. Florida
Rockwell Communications Corporation Florida
Intex Telecommunications, Inc. South Carolina
TresCom International, Inc. Florida
TresCom Network Services, Inc. Florida
TresCom U.S.A., Inc. (formerly known as Florida
Teracom U.S.A., Inc.)
Global Telephone Holding, Inc. U.S. Virgin
Islands
InterIsland Telephone Corp. U.S. Virgin
Islands
The St. Thomas and San Juan Telephone Company, Inc. U.S. Virgin
d/b/a Trescom International Caribbean Division Islands
STSJ Overseas Telephone Company, Inc. Puerto Rico
d/b/a TresCom Puerto Rico Division
OTC Network Assets, Inc. Puerto Rico
Puerto Rico Telecom Corporation (formerly known as New York
Caribbean Telecommunications, Inc.)
STSJ Network Assets, Inc. U.S. Virgin
Islands
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
PRIMUS TELECOMMUNICATIONS GROUP, INC.
OFFER TO EXCHANGE
ALL OF ITS
9 7/8% SENIOR NOTES DUE 2008
FOR A NEW SERIES OF ITS
9 7/8% SENIOR NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
PURSUANT TO THE PROSPECTUS DATED , 1998
----------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS
WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1998,
UNLESS EXTENDED.
----------------
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
FIRST UNION NATIONAL BANK
By Mail, Hand or Overnight Delivery: By Facsimile:
First Union Customer Information Center (704) 590-7628
Reorganization Department, 36C-NC 1153
1525 West W.T. Harris Boulevard To confirm by Telephone
Charlotte, NC 28262 or for Information call:
(704) 590-7408
<PAGE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS CONTAINED HEREIN
SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned acknowledges receipt of the Prospectus, dated , 1998
("Exchange Offer"), of Primus Telecommunications Group, Inc., a Delaware
corporation (the "Company"), relating to the offer of the Company, upon the
terms and subject to the conditions set forth in the Exchange Offer and in
this Letter of Transmittal and the instructions hereto (which together with
the Exchange Offer and the instructions hereto constitute the "Offer"), to
exchange a new series of its 9 7/8% Senior Notes due 2008 (the "Exchange
Notes") which have been registered under the Securities Act of 1933 (the
"Securities Act") for any and all of its outstanding 9 7/8% Senior Notes due
2008 ("Initial Notes"), at the rate of $1,000 principal amount of the Exchange
Notes for each $1,000 principal amount of the Initial Notes. Capitalized terms
used but not defined herein have the meanings given to them in the Exchange
Offer.
The undersigned has completed the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Offer.
This Letter of Transmittal is to be used whether the Initial Notes are to be
physically delivered herewith, or whether guaranteed delivery procedures or
book-entry delivery procedures are being used, pursuant to the procedures set
forth under "The Exchange Offer" in the Exchange Offer. If delivery of Initial
Notes is to be made by book-entry transfer to the account maintained by the
Exchange Agent at The Depository Trust Company ("DTC"), this Letter of
Transmittal need not be manually executed, provided, however, that tenders of
Initial Notes must be effected in accordance with the procedures mandated by
DTC and the procedures set forth in the Exchange Offer under the caption "The
Exchange Offer--Procedures for Tendering Initial Notes--Book-Entry Delivery."
If a person or entity in whose name Initial Notes are registered on the books
of the Registrar (a "Registered Holder") desires to tender Initial Notes and
such Initial Notes are not immediately available or time will not permit all
documents required by the Offer to reach the Exchange Agent (or such
Registered Holder is unable to complete the procedure for book-entry transfer
on a timely basis) prior to 5:00 P.M. New York City time on , 1998 (the
"Expiration Date"), a tender may be effected in accordance with the guaranteed
delivery procedures set forth in the Exchange Offer under the caption "The
Exchange Offer--Procedures for Tendering Initial Notes--Guaranteed Delivery
Procedures." See Instruction 1.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY
DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
2
<PAGE>
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Offer, the undersigned
hereby tenders to the Company the principal amount of the Initial Notes
indicated below. Subject to, and effective upon, the acceptance for exchange
of the Initial Notes tendered hereby, the undersigned hereby irrevocably
sells, assigns and transfers to or upon the order of the Company all right,
title and interest in and to such Initial Notes and hereby irrevocably
constitutes and appoints the Exchange Agent the true and lawful agent and
attorney-in-fact of the undersigned (with full knowledge that said exchange
agent also acts as the agent of the Company) with respect to such Initial
Notes, with full power of substitution (such power of attorney being deemed to
be an irrevocable power coupled with an interest), to take such further action
as may be required in connection with the delivery, tender and exchange of the
Initial Notes.
The undersigned acknowledges that this Offer is being made in reliance on an
interpretation by the staff of the Securities and Exchange Commission (the
"SEC") that the Exchange Notes issued pursuant to the Exchange Offer in
exchange for the Initial Notes may be offered for resale, resold and otherwise
transferred by holders thereof (other than (i) a broker-dealer who purchased
Initial Notes directly from the Company for resale pursuant to Rule 144A under
the Securities Act, or (ii) a person that is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities Act
provided that such Exchange Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangement with any person to
participate in the distribution of such Exchange Notes. See Morgan Stanley &
Co. Inc., SEC No-Action Letter (available June 5, 1991); The Exchange Offer
under the caption "The Exchange Offer--Resales of the Exchange Notes."
The undersigned acknowledges that the Exchange Notes have not been
registered or qualified under any state securities laws. This Offer is being
made to: (i) U.S. persons pursuant to exemptions from such laws for sales to
institutional investors, and (ii) non-U.S. persons (within the meaning of
Regulation S under the Securities Act), as state securities laws do not apply
to sales to persons who are not residents of any state. The undersigned hereby
represents and warrants that the undersigned is either (i) a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act,
(ii) an institutional "accredited investor" within the meaning of subparagraph
(a)(1), (2), (3) or (7) of Rule 501 under the Securities Act or (iii) a non-
U.S. person (within the meaning of Regulation S under the Securities Act).
THE UNDERSIGNED UNDERSTANDS AND AGREES THAT THE COMPANY RESERVES THE RIGHT
NOT TO ACCEPT TENDERED INITIAL NOTES FROM ANY TENDERING HOLDER IF THE COMPANY
DETERMINES, IN ITS SOLE AND ABSOLUTE DISCRETION, THAT SUCH ACCEPTANCE COULD
RESULT IN A VIOLATION OF APPLICABLE SECURITIES LAWS.
The undersigned, if the undersigned is a beneficial holder, represents, or,
if the undersigned is a broker, dealer, commercial bank, trust company or
other nominee, represents that it has received representations from the
beneficial owners of the Initial Notes stating, (as defined in the Exchange
Offer) that (i) the Exchange Notes to be acquired in connection with the
Exchange Offer by the Holder and each Beneficial Owner of the Initial Notes
are being acquired by the Holder (as defined in the Exchange Offer) and each
Beneficial Owner in the ordinary course of business of the Holder and each
Beneficial Owner, (ii) the Holder and each Beneficial Owner are not
participating, do not intend to participate, and have no arrangement or
understanding with any person to participate, in the distribution (within the
meaning of the Securities Act) of the Exchange Notes, (iii) the Holder and
each Beneficial Owner acknowledge and agree that any person participating in
the Exchange Offer for the purpose of distributing the Exchange Notes must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of the
Exchange Notes acquired by such person and cannot rely on the position of the
staff of the Commission set forth in no-action letters that are discussed in
the Exchange Offer under the caption "The Exchange Offer--Resales of the
Exchange Notes," (iv) that if the Holder is a broker-dealer holding Initial
Notes acquired for its own account as a result of market-making activities or
other trading activities, it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of Exchange
Notes received in respect of such
3
<PAGE>
Initial Notes pursuant to the Exchange Offer; provided that the delivery of a
Prospectus in connection with the exchange of Initial Notes by such Holder
will not be deemed an admission that such Holder is an underwriter (within the
meaning of the Securities Act), (v) the Holder and each Beneficial Owner
understand that a secondary resale transaction described in clause (iii) above
should be covered by an effective registration statement containing the
selling security holder information required by item 507 of Regulations S-K of
the Securities Act and (vi) neither the Holder nor any Beneficial Owner is an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company.
In addition, if the undersigned is not a broker-dealer, the undersigned
represents that it is not engaged in, and does not intend to engage in, a
distribution of Exchange Notes. If the undersigned is a broker-dealer holding
Initial Notes acquired for its own account as a result of market-making
activities or other trading activities, it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of
Exchange Notes received in respect of such Initial Notes pursuant to the
Exchange Offer; provided, however, that by so acknowledging and by delivering
a prospectus, the undersigned will not be deemed to admit that it is an
underwriter (within the meaning of the Securities Act).
The Company has agreed, subject to the provisions of the Registration Rights
Agreement, the Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer (as defined below) in
connection with resales of Exchange Notes received in exchange for Initial
Notes, where such Initial Notes were acquired by such broker-dealer for its
own account as a result of market-making activities or other trading
activities, for a period ending 180 days after the Expiration Date [(subject
to extension under certain limited circumstances described in the Prospectus)]
or, if earlier, when all such Exchange Notes have been disposed of by such
participating broker-dealer. In that regard, each broker-dealer who acquired
Initial Notes for its own account as a result of market-making or other
trading activities (a "Participating Broker-Dealer"), by tendering such
Initial Notes and executing this Letter of Transmittal, agrees that, upon
receipt of notice from the Company of the occurrence of any event or the
discovery of any fact which makes any statement contained or incorporated by
reference in the Prospectus untrue in any material respect or which causes the
Prospectus to omit to state a material fact necessary in order to make the
statements contained or incorporated by reference therein, in light of the
circumstances under which they were made, not misleading or of the occurrence
of certain other events specified in the Registration Rights Agreement, such
Participating Broker-Dealer will suspend the sale of Exchange Notes pursuant
to the Prospectus until the Company have amended or supplemented the
Prospectus to correct such misstatement or omission and the Company has
furnished copies of the amended or supplemented Prospectus to the
Participating Broker-Dealer or the Company has given notice that the sale of
the Exchange Notes may be resumed, as the case may be. If the Company gives
such notice to suspend the sale of the Exchange Notes, they shall extend the
180-day period referred to above during which Participating Broker-Dealers are
entitled to use the Prospectus in connection with the resale of Exchange Notes
by the number of days during the period from and including the date of the
giving of such notice to and including the date when Participating Broker-
Dealers shall have received copies of the supplemented or amended Prospectus
necessary to permit resales of the Exchange Notes or to and including the date
on which the Company has given notice that the sale of Exchange Notes may be
resumed, as the case may be.
The undersigned understands and acknowledges that the Company reserves the
right in its sole discretion to purchase or make offers for any Initial Notes
that remain outstanding subsequent to the Expiration Date or as set forth in
the Exchange Offer under the caption "The Exchange Offer--Conditions of the
Exchange Offer," to terminate the Exchange Offer and, to the extent permitted
by applicable law, purchase Initial Notes in the open market, in privately
negotiated transactions or otherwise. The term of any such purchases or offers
could differ from the terms of the Exchange Offer.
The undersigned hereby represents and warrants that the undersigned accepts
the terms and conditions of the Offer, has full power and authority to tender,
exchange, assign and transfer the Initial Notes tendered hereby, and that when
the same are accepted for exchange by the Company, the Company will acquire
good and unencumbered title thereto, free and clear of all liens, restrictions
charges and encumbrances and not subject to
4
<PAGE>
any adverse claim or right. The undersigned will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company
to be reasonably necessary or desirable to complete the sale, assignment and
transfer the Initial Notes tendered hereby.
The undersigned agrees that all authority conferred or agreed to be
conferred by this Letter of Transmittal and every obligation of the
undersigned hereunder shall be binding upon the successors, assigns, heirs,
executors, administrations, trustees in bankruptcy and legal representatives
of the undersigned and shall not be affected by, and shall survive, the death
or incapacity of the undersigned.
The undersigned understands that tenders of the Initial Notes pursuant to
any one of the procedures described under "The Exchange Offer--Procedures for
Tendering Initial Notes" in the Exchange Offer and in the instructions hereto
will constitute a binding agreement between the undersigned and the Company in
accordance with the terms and subject to the conditions of the Offer.
The undersigned understands that by tendering Initial Notes pursuant to one
of the procedures describe in the Exchange Offer and the instructions thereto,
the tendering holder will be deemed to have waived the right to receive any
payment in respect of interest on the Initial Notes accrued up to the date of
issuance of the Exchange Notes.
The undersigned recognizes that, under certain circumstances set forth in
the Exchange Offer, the Company may not be required to accept for exchange any
of the Initial Notes tendered. Initial Notes not accepted for exchange or
withdrawn will be returned to the undersigned as the address set forth below
unless otherwise indicated under "Special Delivery Instructions" below.
Unless otherwise indicated herein in the box entitled "Special Exchange
Instructions" below, the undersigned hereby directs that the Exchange Notes be
issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Initial Notes, that such Exchange Notes be credited to the account
indicated above maintained at DTC. If applicable, substitute certificates
representing the Initial Notes not exchanged or not accepted for exchange will
be issued to the undersigned or, in the case of a book-entry transfer of
Initial Notes, will be credited to the account indicated above maintained at
DTC. Similarly, unless otherwise indicated under "Special Delivery
Instructions," the undersigned hereby directs that the Exchange Notes be
delivered to the undersigned at the address shown below the undersigned's
signature. The undersigned recognizes that the Company has no obligation
pursuant to the "Special Exchange Instructions" to transfer any Initial Notes
from the name of the Registered Holder thereof if the Company does not accept
for exchange any of the principal amount of such Initial Notes so tendered.
5
<PAGE>
THE UNDERSIGNED BY COMPLETING THE BOX "DESCRIPTION OF INITIAL NOTES" BELOW
AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE INITIAL NOTES AND
MADE CERTAIN REPRESENTATIONS DESCRIBED HEREIN AND IN THE EXCHANGE OFFER.
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS)
(SEE INSTRUCTIONS 1 AND 3 AND THE FOLLOWING PARAGRAPH)
(IMPORTANT: ALSO COMPLETE SUBSTITUTE FORM W-9 ON PAGE 10)
_______________________________________________________________________________
_______________________________________________________________________________
SIGNATURE(S) OF OWNER(S)
Dated: , 1998
If the holder(s) is/are tendering any Initial Notes, this Letter of
Transmittal must be signed by the Registered Holder(s) as the name(s)
appear(s) on the Initial Notes or on a security position listing or by
person(s) authorized to become Registered Holder(s) by endorsements and
documents transmitted herewith. If signature is by a trustee, executor,
administrator, guardian, officer or other person acting in a fiduciary or
representative capacity, please set forth full title. See Instruction 3.
Name(s) _______________________________________________________________________
_______________________________________________________________________________
(PLEASE TYPE OR PRINT)
Capacity: _____________________________________________________________________
Address: ______________________________________________________________________
_______________________________________________________________________________
(INCLUDING ZIP CODE)
Area Code and Telephone Number ________________________________________________
_______________________________________________________________________________
TAX IDENTIFICATION OR SOCIAL SECURITY NO(S)
(COMPLETE SUBSTITUTE FORM W-9 ON PAGE 10)
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution:
Authorized Signature: _________________________________________________________
Printed Name: _________________________________________________________________
Title: ________________________________________________________________________
Firm: _________________________________________________________________________
Address: ______________________________________________________________________
Area Code and Telephone Number ________________________________________________
Dated: , 1998
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE INITIAL NOTES
OR A NOTICE OF GUARANTEED DELIVERY AND ALL OTHER REQUIRED DOCUMENTS) MUST BE
RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
6
<PAGE>
List below the Initial Notes to which this Letter of Transmittal relates. If
the space provided below is inadequate, the certificate numbers and principal
amounts should be listed on a separate signed schedule affixed thereto. See
Instruction 7. The minimum permitted tender is $1,000 principal amount of
Initial Notes; all other tenders must be in integral multiples of $1,000.
DESCRIPTION OF INITIAL NOTES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME(S) AND
ADDRESS(ES)
OF
HOLDER(S)
(PLEASE
FILL IN, IF CERTIFICATE AGGREGATE PRINCIPAL PRINCIPAL AMOUNT
BLANK) NUMBER(S)* AMOUNT REPRESENTED TENDERED**
<S> <C> <C> <C>
- -------------------------------------------------------------------
------------------------------
------------------------------
------------------------------
------------------------------
TOTAL
</TABLE>
- -------------------------------------------------------------------------------
* Need not be completed if Initial Notes are being tendered by book-entry
holders.
** Unless otherwise indicated in the column labeled "Principal Amount
Tendered" and subject to the terms and conditions of the Offer, the
undersigned will be deemed to have tendered the entire aggregate
principal amount represented by the Initial Notes indicated in the
column labeled "Aggregate Principal Amount Represented." See
Instruction 8.
7
<PAGE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[_] CHECK HERE IF TENDERED INITIAL NOTES ARE ENCLOSED HEREWITH.
[_] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED INITIAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING (SEE INSTRUCTIONS 1 AND 3):
Name(s) of Registered Holder(s): ___________________________________________
Window Ticket Number (if any): _____________________________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Name of Eligible Institution that Guaranteed Delivery: _____________________
If Guaranteed Delivery is to be made by Book-Entry Transfer: _______________
Name of Tendering Institution: _________________________________________
Account Number: ________________________________________________________
Transaction Code Number: _______________________________________________
[_] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE INITIAL NOTES FOR
ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES (A
"PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
_____________________________________________________________________
[_] CHECK HERE IF TENDERED INITIAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _____________________________________________
Account Number: ____________________________________________________________
Transaction Code Number: ___________________________________________________
[_] CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED INITIAL
NOTES ARE TO BE RETURNED BY CREDITING THE BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER SET FORTH ABOVE.
If delivery of Initial Notes is to be made by book-entry transfer to the
account maintained by the Exchange Agent at DTC, then tenders of Initial Notes
must be effected in accordance with the procedures mandated by DTC and the
procedures set forth in the Exchange Offer under the caption "The Exchange
Offer--Procedures for Tendering Initial Notes--Book-Entry Delivery."
8
<PAGE>
SPECIAL EXCHANGE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5) (SEE INSTRUCTIONS 4 AND 5)
To be completed ONLY if Initial To be completed ONLY if Initial
Notes in a principal amount not Notes in a principal amount not
exchanged and/or Exchange Notes exchanged and/or Exchange Notes
are to be registered in the name are to be sent to someone other
of or issued to someone other than the person or persons whose
than the person or persons whose signature(s) appear(s) on this
signature(s) appear(s) on this Letter of Transmittal above or
Letter of Transmittal above. to such person or persons at an
address other than that shown in
Issue and mail: (check appropri- the box entitled "Description of
ate box(es)): Initial Notes" on this Letter of
Transmittal above.
[_] Exchange Notes to:
Mail and deliver: (check appro-
[_] Initial Notes not tendered priate box(es)):
to:
[_] Exchange Notes to:
Name(s): ________________________
(PLEASE TYPE OR PRINT) [_] Initial Notes not tendered
to:
_________________________________ Name(s): ________________________
(PLEASE TYPE OR PRINT) (PLEASE TYPE OR PRINT)
Address: ________________________ _________________________________
_________________________________ (PLEASE TYPE OR PRINT)
(ZIP CODE) Address: ________________________
_________________________________ _________________________________
(TAX IDENTIFICATION OR SOCIAL
SECURITY NO(S))
(ZIP CODE)
(COMPLETE SUBSTITUTE FORM W-9 ON _________________________________
PAGE [ ]) TAX IDENTIFICATION OR SOCIAL
SECURITY NO(S)
9
<PAGE>
SUBSTITUTE FORM W-9
TO BE COMPLETED BY ALL EXCHANGING HOLDERS
(SEE INSTRUCTION 5)
PAYOR'S NAME: FIRST UNION NATIONAL BANK
PART 1--PLEASE PROVIDE YOUR
TIN IN THE BOX AT RIGHT AND
CERTIFY BY SIGNING AND DATING
BELOW.
------------------
SUBSTITUTE Social security
FORM W-9 number(s)
DEPARTMENT OF OR
THE TREASURY
INTERNAL ------------------
REVENUE SERVICE Employer
identification
numbers
PART 2--CERTIFICATES--Under penalties of perjury, I
certify that:
(1) The number shown on this form is my correct
taxpayer identification number (or I am waiting
for a number to be issued for me), and
(2) I am not subject to backup withholding because:
(a) I am exempt from backup withholding, or (b)
PAYER'S REQUEST FOR TAXPAYER I have not been notified by the internal
IDENTIFICATION NUMBER ("TIN") Revenue Service (IRS) that I am subject to
backup withholding as a result of a failure to
report all interest or dividends, or (c) the
IRS has notified me that I am no longer subject
to backup withholding.
------------------------------------------------------
CERTIFICATION INSTRUCTIONS--You must cross out
item (2) above if you have been notified by the
IRS that you are currently subject to backup
withholding because of underreporting interest
or dividends on your tax return.
------------------------------------------------------
PART 3
SIGNATURE: ______________ DATE: ______ Awaiting
TIN [_]
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31 PERCENT OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF THE SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (1) I have mailed or
delivered an application to receive a taxpayer identification number to
the appropriate Internal Revenue Service Center or Social Security
Administration Office of (2) I intend to mail or deliver an application in
the near future. I understand that if I do not provide a taxpayer
identification number by the time of payment, 31% of all payments of the
Purchase Price made to me thereafter will be withheld until I provide a
number.
Signature ___________________________ Date ____________________
10
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND INITIAL NOTES: GUARANTEED
DELIVERY PROCEDURES. To be effectively tendered pursuant to the Offer, the
Initial Notes, together with a properly completed Letter of Transmittal (or
manually signed facsimile hereof) duly executed by the Registered Holder
thereof, and any other documents required by this Letter of Transmittal must
be received by the Exchange Agent at one of its addresses set forth on the
front page of this Letter of Transmittal and tendered Initial Notes must be
received by the Exchange Agent at one of such addresses on or prior to the
Expiration Date; provided, however, that book-entry transfers of Initial Notes
may be effected in accordance with the procedures set forth in the Exchange
Offer under the caption "The Exchange Offer--Procedures For Tendering Initial
Notes--Book-Entry Delivery." If the Beneficial Owner of any Initial Notes is
not the Registered Holder, then such person may validly tender such person's
Initial Notes only by obtaining and submitting to the Exchange Agent a
properly completed Letter of Transmittal from the Registered Holder. LETTERS
OF TRANSMITTAL OF INITIAL NOTES SHOULD BE DELIVERED ONLY BY HAND OR BY
COURIER, OR TRANSMITTED BY MAIL, AND ONLY TO THE EXCHANGE AGENT AND NOT TO THE
COMPANY OR TO ANY OTHER PERSON.
THE METHOD OF DELIVERY OF INITIAL NOTES AND ALL OTHER REQUIRED DOCUMENTS TO
THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER, AND IF SUCH
DELIVERY IS BY MAIL, IT IS SUGGESTED THAT THE HOLDER USE PROPERLY INSURED,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED. IF INITIAL NOTES ARE SENT BY
MAIL, IT IS SUGGESTED THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT PRIOR TO 5:00 P.M.,
NEW YORK CITY TIME, ON THE EXPIRATION DATE.
If a holder desires to tender Initial Notes and such holder's Initial Notes
are not immediately available or time will not permit such holder to complete
the procedures for book-entry transfer on a timely basis or time will not
permit such holder's Letter of Transmittal and other required documents to
reach the Exchange Agent on or before the Expiration Date, such holder's
tender may be effected if:
(a) such tender is made by or through an Eligible Institution (as defined
below);
(b) on or prior to the Expiration Date, the Exchange Agent has received a
telegram, facsimile transmission or letter form such Eligible Institution
setting forth the name and address of the holder of such Initial Notes, the
certificate number(s) of such Initial Notes (except in the case of book-
entry tenders) and the principal amount of Initial Notes tendered and
stating that the tender is being made thereby and guaranteeing that, within
three business days after the Expiration Date, a duly executed Letter of
Transmittal, or facsimile thereof, together with the Initial Notes, and any
other documents required by this Letter of Transmittal and Instructions,
will be deposited by such Eligible Institution with the Exchange Agent; and
(c) this Letter of Transmittal, or a manually signed facsimile hereof,
and Initial Notes, in proper form for transfer (or a Book-Entry
confirmation with respect to such Initial Notes), and all other required
documents are received by the Exchange Agent within three business days
after the Expiration Date.
2. WITHDRAWAL OF TENDERS. Tendered Initial Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date.
To be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must (i) be timely received by the Exchange Agent at one of its
addresses set forth on the first page of this Letter of Transmittal before the
Exchange Agent receives notice of acceptance from the Company, (ii) specify
the name of the person who tendered the Initial Notes, (iii) contain the
description of the Initial Notes to be withdrawn, the certificate number(s) of
such Initial Notes (except in the case of book-entry tenders) and the
aggregate principal amount represented by such Initial Notes or a Book-Entry
Confirmation with respect to such Initial Notes, and (iv) be
11
<PAGE>
signed by the holder of such Initial Notes in the same manner as the original
signature appears on this Letter of Transmittal (including any required
signature guarantees) or be accompanied by evidence satisfactory to the
Company that the person withdrawing the tender has succeeded to the beneficial
ownership of the Initial Notes. The signature(s) on the notice of withdrawal
must be guaranteed by an Eligible Institution unless such Initial Notes have
been tendered (i) by a Registered Holder (which term for purposes of this
document shall include any participant tendering by book-entry transfer) of
Initial Notes who has not completed either the box entitled "Special Exchange
Instructions" or the box entitled "Special Delivery Instructions" on this
Letter of Transmittal or (ii) for the account of an Eligible Institution. If
the Initial Notes have been tendered pursuant to the procedure for book-entry
tender set forth in the Exchange Offer under the caption "Procedure for
Tendering Initial Notes," a notice of withdrawal is effective immediately upon
receipt by the Exchange Agent of a written, telegraphic or facsimile
transmission notice of withdrawal even if physical release is not yet
effected. In addition, such notice must specify, in the case of Initial Notes
tendered by delivery of such Initial Notes, the name of the Registered Holder
(if different from that of the tendering holder) to be credited with the
withdrawn Initial Notes. Withdrawals may not be rescinded, and any Initial
Notes withdrawn will thereafter be deemed not validly tendered for purposes of
the Offer. However, properly withdrawn Initial Notes may be retendered by
following one of the procedures described under "The Exchange Offer--
Procedures for Tendering Initial Notes" in the Exchange Offer at any time on
or prior to the applicable Expiration Date.
3. SIGNATURES ON THIS LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the
Registered Holder of the Initial Notes tendered hereby, the signature must
correspond exactly with the name as written on the face of the Initial Notes
without any change whatsoever.
If any Initial Notes tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any Initial Notes tendered hereby are registered in different names, it
will be necessary to complete, sign and submit as many separate copies of this
Letter of Transmittal as there are different registrations of Initial Notes.
When this Letter of Transmittal is signed by the Registered Holder or
Holders specified herein and tendered hereby, no endorsements of such Initial
Notes or separate bond powers are required. If, however, Exchange Notes are to
be issued, or any untendered principal amount of Initial Notes are to be
reissued to a person other than the Registered Holder, then endorsements of
any Initial Notes transmitted hereby or separate bond powers are required.
If this Letter of Transmittal is signed by a person other than the
Registered Holder or Holders, such Initial Notes must be endorsed or
accompanied by appropriate bond powers, in either case signed exactly as the
name or names of the Registered Holder or Holders appear(s) on the Initial
Notes.
If this Letter of Transmittal or a Notice of Guaranteed Delivery or any
Initial Notes or bond powers are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, such persons should
so indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
Except as describe in this paragraph, signatures on this Letter of
Transmittal or a notice of withdrawal, as the case may be, must be guaranteed
by an Eligible Institution which is a firm which is a member of a registered
national securities exchange or the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or otherwise be an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act (each
an "Eligible Institution"). Signatures on this Letter of Transmittal or a
notice of withdrawal, as the case may be, need not be guaranteed if the
Initial Notes tendered pursuant hereto are tendered (i) by a Registered Holder
of Initial Notes who has not completed either the box entitled "Special
Exchange Instructions" or the box entitled "Special Delivery Instructions" on
this Letter of Transmittal or (ii) for the account of an Eligible Institution.
12
<PAGE>
Endorsement on Initial Notes or signatures on bond forms required by this
Instruction 3 must be guaranteed by an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate in the applicable box the name and address to which Exchange Notes
and/or substitute Initial Notes for the principal amounts not exchanged are to
be issued or sent, if different from the name and address of the person
signing this Letter of Transmittal. In the case of issuance in a different
name, the employer identification or social security number of the person
named must also be indicated. If no such instructions are given, such Initial
Notes not exchanged will be returned to the name and address of the person
signing this Letter of Transmittal.
5. TAXPAYER IDENTIFICATION NUMBER AND BACKUP WITHHOLDING. Federal income tax
law of the United States requires that a holder of Initial Notes whose Initial
Notes are accepted for exchange provide the Company with such holder's correct
taxpayer identification number, which, in the case of a holder who is an
individual, is the holder's social security number, or otherwise establish an
exemption from backup withholding. If the Company is not provided with the
holder's correct taxpayer identification number, the exchanging holder of
Initial Notes may be subject to a penalty imposed by the Internal Revenue
Service. In addition, interest on the Exchange Notes acquired pursuant to the
Offer may be subject to backup withholding in an amount equal to 31 percent of
any interest payment. If withholding occurs and results in an overpayment of
taxes, a refund may be obtained from the Internal Revenue Service by filing a
return.
To prevent backup withholding, each exchanging holder of Initial Notes
subject to backup withholding must provide his correct taxpayer identification
number by completing the Substitute Form W-9 provided in this Letter of
Transmittal, certifying that the taxpayer identification number provided is
correct (or that the exchanging holder of Initial Notes is awaiting a taxpayer
identification number) and that either (a) the exchanging holder has not been
notified by the Internal Revenue Service that he is subject to backup
withholding as a result of failure to report all interest or dividends or (b)
the Internal Revenue Service has notified the exchanging holder that he is no
longer subject to backup withholding.
Certain exchanging holders of Initial Notes (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding requirements. A foreign individual and other exempt holders (e.g.,
corporations) should certify, in accordance with the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9, to
such exempt status on the Substitute Form W-9 provided in this Letter of
Transmittal. Nonresident aliens should submit Form W-8, available from the
Exchange Agent upon request.
6. TRANSFER TAXES. Holders tendering pursuant to the Offer will not be
obligated to pay brokerage commissions or fees or to pay transfer taxes with
respect to their exchange under the Offer unless the box entitled "Special
Issuance Instructions" in this Letter of Transmittal has been completed, or
unless the securities to be received upon exchange are to be issued to any
person other than the holder of the Initial Notes tendered for exchange. The
Company will pay all other charges or expenses in connection with the Offer.
If holders tender Initial Notes for exchange and the Offer is not consummated,
such Initial Notes will be returned to the holders at the Company expense.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Initial Notes specified in this
Letter of Transmittal.
7. INADEQUATE SPACE. If the space provided herein is inadequate, the
aggregate principal amount of the Initial Notes being tendered and the
security numbers (if available) should be listed on a separate schedule
attached hereto and separately signed by all parties required to sign this
Letter of Transmittal.
8. PARTIAL TENDERS. Tenders of Initial Notes will be accepted only in
integral multiples of $1,000. If tenders are to be made with respect to less
than the entire principal amount of any Initial Notes, fill in the principal
amount of Initial Notes which are tendered in column (iv) of the "Description
of Initial Notes." In the
13
<PAGE>
case of partial tenders, the Initial Notes in fully registered form for the
remainder of the principal amount of the Initial Notes will be sent to the
persons(s) signing this Letter of Transmittal, unless otherwise indicated in
the appropriate place on this Letter of Transmittal, as promptly as
practicable after the expiration or termination of the Offer.
Unless otherwise indicated in column (iv) in the box labeled "Description of
Initial Notes," and subject to the terms and conditions of the Offer, tenders
made pursuant to this Letter of Transmittal will be deemed to have been made
with respect to the entire aggregate principal amount represented by the
Initial Notes indicated in column (iii) of such box.
9. MUTILATED, LOST, STOLEN OR DESTROYED INITIAL NOTES. Any holder whose
Initial Notes have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent at the address indicated above for further instructions.
10. VALIDITY AND ACCEPTANCE OF TENDERS. All questions as to the validity,
form, eligibility (including time of receipt), acceptance and withdrawal of
Initial Notes tendered for exchange will be determined by the Company in its
sole discretion, which determination shall be final and binding. The Company
reserves the absolute right to reject any and all Initial Notes not properly
tendered and to reject any Initial Notes the Company's acceptance of which
might, in the judgment of the Company or its counsel, be unlawful. The Company
also reserves the absolute right to waive any defects or irregularities or
conditions of the Exchange Offer as to particular Initial Notes either before
or after the Expiration Date (including the right to waive the ineligibility
of any holder who seeks to tender Initial Notes in the Exchange Offer). The
interpretation of the terms and conditions of the Exchange Offer (including
the Letter of Transmittal and the instructions thereto) by the Company shall
be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Initial Notes for exchange must
be cured within such period of time as the Company shall determine. The
Company will use reasonable efforts to give notification of defects or
irregularities with respect to tenders of Initial Notes for exchange but shall
not incur any liability for failure to give such notification. Tenders of the
Initial Notes will not be deemed to have been made until such irregularities
have been cured or waived.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. First Union National Bank
is the Exchange Agent. All tendered Initial Notes, executed Letters of
Transmittal and other related documents should be directed to the Exchange
Agent at the addresses or facsimile number set forth on the first page of this
Letter of Transmittal. Questions and requests for assistance and requests for
additional copies of the Prospectus, the Letter of Transmittal and other
related documents should be addressed to the Exchange Agent as follows:
First Union Customer Information Center
Reorganization Department, 3C3-NC 1153
1525 West W.T. Harris Boulevard
Charlotte, NC 28262
Facsimile Transmission:
(704) 590-7628
To Confirm Receipt:
(704) 590-7408
14
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INC.
OFFER TO EXCHANGE
ALL OF ITS
9 7/8% SENIOR NOTES DUE 2008
FOR A NEW SERIES OF ITS
9 7/8% SENIOR NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
PURSUANT TO THE PROSPECTUS DATED , 1998
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON 1998
UNLESS EXTENDED.
- -------------------------------------------------------------------------------
To Our Clients:
Enclosed for your consideration is a Prospectus dated , 1998
("Prospectus") and the related Letter of Transmittal (which, together with any
amendments or supplements thereto, collectively constitute the "Exchange
Offer") relating to an offer by Primus Telecommunications Group, Inc., a
Delaware corporation ("Company"), to exchange all its outstanding 9 7/8%
Senior Notes due 2008 ("Initial Notes") for a new series of its 9 7/8% Senior
Notes due 2008 upon the terms and subject to the conditions set forth in the
Exchange Offer.
WE ARE THE HOLDER OF RECORD OF INITIAL NOTES HELD BY US FOR YOUR ACCOUNT. A
TENDER FOR EXCHANGE OF SUCH INITIAL NOTES CAN BE MADE ONLY BY US AS THE HOLDER
OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS
FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER
FOR EXCHANGE INITIAL NOTES HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish to have us tender for
exchange on your behalf any or all of such Initial Notes held by us for your
account, pursuant to the terms and subject to the conditions set forth in the
Exchange Offer.
Your attention is directed to the following:
1. The Exchange Offer and withdrawal rights will expire at 5:00 P.M., New
York City time, on , 1998, unless the Exchange Offer is extended. Your
instructions to us should be forwarded to us in ample time to permit us to
submit a tender on your behalf.
2. The Exchange Offer is made for all Initial Notes outstanding,
constituting $140,000,000 aggregate principal amount as of the date of the
Prospectus.
3. The minimum permitted tender is $1,000 principal amount of Initial
Notes, and all tenders must be in integral multiples of $1,000.
4. The Offer is conditioned upon the satisfaction of certain conditions
set forth in the Prospectus under the caption "The Exchange Offer--
Conditions of the Exchange Offer." The Exchange Offer is not conditioned
upon any minimum principal amount of Initial Notes being tendered for
exchange.
5. Tendering Holders (as defined in the Prospectus) will not be obligated
to pay brokerage fees or commissions or, except as set forth in Instruction
6 of the Letter of Transmittal, transfer taxes applicable to the exchange
of Initial Notes pursuant to the Exchange Offer.
<PAGE>
6. In all cases, exchange of Initial Notes tendered and accepted for
exchange pursuant to the Exchange Offer will be made only after timely
receipt by First Union National Bank ("Exchange Agent") of (i) certificates
representing such Initial Notes or timely confirmation of a book-entry
transfer of such Initial Notes into the Exchange Agent's account at The
Depository Trust Company ("Book-Entry Transfer Facility") pursuant to the
procedures set forth in the Prospectus under the caption "The Exchange
Offer--Procedures for Tendering Initial Notes," (ii) the Letter of
Transmittal (or a facsimile thereof), properly completed and duly executed,
with any required signature guarantees, or an Agent's Message (as defined
in the Prospectus) in connection with a book-entry transfer, and (iii) any
other documents required by the Letter of Transmittal. Accordingly, payment
may be made to tendering Holders at different times if delivery of the
Initial Notes and other required documents occurs at different times.
The Exchange Offer is being made solely by the Prospectus and the related
Letter of Transmittal and is being made to all Holders of Initial Notes. The
Company is not aware of any state where the making of the Exchange Offer is
prohibited by administrative or judicial action pursuant to any valid state
statute. If the Company becomes aware of any valid state statute prohibiting
the making of the Exchange Offer or the acceptance of Initial Notes tendered
for exchange pursuant thereto, the Company will make a good faith effort to
comply with any such state statute or seek to have such statute declared
inapplicable to the Exchange Offer. If, after such good faith effort, the
Company cannot comply with such state statute the Exchange Offer will not be
made to, nor will tenders be accepted from or on behalf of, the holders of
Initial Notes in such state. In any jurisdiction where the securities, blue
sky or other laws require the Exchange Offer to be made by a licensed broker
or dealer, the Exchange Offer shall be deemed to be made on behalf of the
Company by one or more registered brokers or dealers that are licensed under
the laws of such jurisdiction.
If you wish to have us tender any or all of the Initial Notes held by us for
your account, please instruct us by completing, executing and returning to us
the instruction form contained in this letter. If you authorize a tender for
exchange of your Initial Notes, the entire aggregate principal amount of such
Initial Notes will be tendered for exchange unless otherwise specified in such
instruction form. YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO
PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE
EXCHANGE OFFER.
2
<PAGE>
INSTRUCTIONS TO REGISTERED HOLDER AND/OR BOOK-ENTRY
TRANSFER PARTICIPANT FROM OWNER WITH RESPECT TO THE
PRIMUS TELECOMMUNICATIONS GROUP, INC.
OFFER TO EXCHANGE
ALL OF ITS
9 7/8% SENIOR NOTES DUE 2008
FOR A NEW SERIES OF ITS
9 7/8% SENIOR NOTES DUE 2008
TO REGISTERED HOLDER AND/OR PARTICIPANT OF THE BOOK-ENTRY TRANSFER FACILITY:
The undersigned acknowledge(s) receipt of your letter enclosing the
Prospectus dated , 1998, and the related Letter of Transmittal (which,
together with any amendments or supplements thereto, collectively constitute
the "Exchange Offer") pursuant to an offer by Primus Telecommunications Group,
Inc., a Delaware corporation, to exchange all of its outstanding 9 7/8% Senior
Notes due 2008 ("Initial Notes") for a new series of its 9 7/8% Senior Notes
due 2008 ("Exchange Notes"). Capitalized terms used but not defined herein
have the meanings ascribed to them in the Prospectus.
This will instruct you to tender the principal amount of Initial Notes
indicated below (or, if no number is indicated below, the entire aggregate
principal amount) which are held by you for the account of the undersigned,
upon the terms and subject to the conditions set forth in the Exchange Offer.
The aggregate face amount of the Initial Notes held by you for the account
of the undersigned is (fill in amount):
$ of the 9 7/8% Senior Notes Due 2008.
With respect to the Exchange Offer, the undersigned hereby instructs you
(check appropriate box):
[_] To TENDER the following Initial Notes held by you for the account of the
undersigned (insert principal amount of Initial Notes to be tendered (if
any)*:
$ of the 9 7/8% Senior Notes Due 2008.
[_] NOT to TENDER any Initial Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Initial Notes held by you for
the account of the undersigned, it is understood that you are authorized (a)
to make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representation and warranties contained in
the Letter of Transmittal that are to be made with respect to the undersigned
as a beneficial owner, including but not limited to the representations, that
(i) the Exchange Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the undersigned, (ii) neither
the undersigned nor any such other person has an arrangement or understanding
with any person to participate in the distribution of such Exchange Notes,
(iii) if the undersigned is not a broker-dealer, or is a broker-dealer but
will not receive Exchange Notes for its own account in exchange for Initial
Notes, neither the undersigned nor any such other person is engaged in or
intends to participate in the distribution of such Exchange Notes and (iv)
neither the undersigned nor any such other person is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act of 1933, as
amended (the "Securities Act") or, if the undersigned is an "affiliate," that
the undersigned will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. If the
undersigned is a broker-dealer (whether or not it is also an "affiliate") that
will receive Exchange Notes for its own account in exchange for Initial Notes,
it represents that such Initial Notes were acquired as a result of
- --------
* Unless otherwise indicated, it will be assumed that the entire principal
amount of the Initial Notes held by us for your account are to be tendered for
exchange. The minimum permitted tender is $1,000 principal amount of Initial
Notes; all other tenders must be in integral multiples of $1,000.
<PAGE>
marketing-making activities or other trading activities, and it acknowledges
that it will deliver a prospectus meeting the requirements of the Securities
Act in connection with any resale of such Exchange Notes. By acknowledging that
it will deliver and by delivering a prospectus meeting the requirements of the
Securities Act in connection with any resale of such Exchange Notes, the
undersigned is not deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
SIGN HERE
Name of Beneficial Owner(s): ___________________________________________________
Signature(s): __________________________________________________________________
Name(s) (please print): ________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
Telephone Number: ______________________________________________________________
Taxpayer identification or Social Security Number: _____________________________
________________________________________________________________________________
Date: __________________________________________________________________________
2
<PAGE>
PRIMUS TELECOMMUNICATIONS GROUP, INC.
OFFER TO EXCHANGE
ALL OF ITS OUTSTANDING
9 7/8% SENIOR NOTES DUE 2008
FOR A NEW SERIES OF ITS
9 7/8% SENIOR NOTES DUE 2008
- -------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS
WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1998,
UNLESS THE EXCHANGE OFFER IS EXTENDED.
- -------------------------------------------------------------------------------
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
Primus Telecommunications Group, Inc., a Delaware corporation ("Company"),
is offering to exchange all of its outstanding 9 7/8% Senior Notes due 2008
("Initial Notes") for a new series of its 9 7/8% Senior Notes due 2008 upon
the terms and subject to the conditions set forth in the Prospectus dated
, 1998 ("Prospectus") and in the related Letter of Transmittal (which,
together with any amendment or supplements thereto, collectively constitute
the "Exchange Offer") enclosed herewith.
The Exchange Offer is conditioned upon satisfaction of certain conditions
set forth in the Prospectus under the caption "The Exchange Offer--Conditions
of the Exchange Offer." The Exchange Offer is not conditioned upon any minimum
principal amount of Initial Notes being tendered for exchange.
Enclosed herewith for your information and forwarding to your clients for
whose accounts you hold Initial Notes registered in your name or in the name
of your nominee are copies of the following documents:
1. The Prospectus dated , 1998.
2. The blue Letter of Transmittal to tender Initial Notes for exchange
(for your use and for the information of your clients). Facsimile copies of
the Letter of Transmittal may be used to tender Initial Notes for exchange.
3. The gray Notice of Guaranteed Delivery (to be used to tender Initial
Notes for exchange if certificates for Initial Notes are not immediately
available or if such certificates for Initial Notes and all other required
documents cannot be delivered to First Union National Bank ("Exchange
Agent") on or prior to the Expiration Date or if the procedures for book-
entry transfer cannot be completed on a timely basis).
4. A yellow printed form of letter which may be sent to your clients for
whose accounts you hold Initial Notes registered in your name or in the
name of your nominee, with space provided for obtaining such clients'
instructions with regard to the Exchange Offer.
5. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
6. A return envelope addressed to the Exchange Agent.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTRACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE EXCHANGE OFFER AND WITHDRAWAL
RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998, UNLESS
THE EXCHANGE OFFER IS EXTENDED.
<PAGE>
In order for Initial Notes to be validly tendered pursuant to the Exchange
Offer, (i) a duly executed and properly completed Letter of Transmittal (or a
facsimile thereof) together with any required signature guarantees, or an
Agent's Message (as defined in the Prospectus) in connection with a book-entry
delivery of Initial Notes, and any other documents required by the Letter of
Transmittal, must be received by the Depositary on or prior to the Expiration
Date, and (ii) either certificates representing tendered Initial Notes must be
received by the Exchange Agent or such Initial Notes must be tendered by book-
entry transfer into the Exchange Agent account maintained at the Book-Entry
Transfer Facility (as described in the Prospectus), and Book-Entry
Confirmation must be received by the Exchange Agent, all in accordance with
the instructions set forth in the Letter of Transmittal and the Prospectus
If Holder (as defined in the Prospectus) desires to tender Initial Notes for
exchange pursuant to the Exchange Offer and such Holder's Initial Note
certificates are not immediately available or such Holder cannot deliver the
Initial Note certificates and all other required documents to the Exchange
Agent on or prior to the Expiration Date, or such Holder cannot complete the
procedure for delivery by book-entry transfer on a timely basis, such Initial
Notes may nevertheless be tendered for exchange by following the guaranteed
delivery procedures specified in the Prospectus under the caption "The
Exchange Offer--Procedures for Tendering Initial Notes--Guaranteed Delivery
Procedures."
The Company will not pay any fees or commissions to any broker or dealer or
any other person for soliciting tenders of Initial Notes pursuant to the
Exchange Offer. The Company will, however, upon request, reimburse you for
customary mailing and handling expenses incurred by you in forwarding any of
the enclosed materials to your clients. The Company will pay or cause to be
paid any transfer taxes applicable to the exchange of Initial Notes pursuant
to the Exchange Offer, except as otherwise provided in Instruction 6 of the
Letter of Transmittal.
Any inquires you may have with respect to the Exchange Offer should be
addressed to the Exchange Agent, at its address and telephone numbers set
forth on the back cover of the Prospectus. Additional copies of the enclosed
material may be obtained from the Exchange Agent.
Very truly yours,
Primus Telecommunications Group,
Inc.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON THE AGENT OF THE COMPANY OR THE EXCHANGE AGENT, OR ANY
AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY
STATEMENT OR USE ANY DOCUMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE
EXCHANGE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS THEREIN.
2
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
PRIMUS TELECOMMUNICATIONS GROUP, INC.
OFFER TO EXCHANGE
ALL OF ITS
9 7/8% SENIOR NOTES DUE 2008
FOR A NEW SERIES OF ITS
9 7/8% SENIOR NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
PURSUANT TO THE PROSPECTUS DATED , 1998
As set forth in Prospectus described below, this Notice of Guaranteed
Delivery or one substantially equivalent hereto must be used to tender for
exchange 9 7/8% Senior Notes due 2008 ("Initial Notes"), of Primus
Telecommunications Group, Inc., a Delaware corporation ("Company"), pursuant
to the Exchange Offer (as defined below) if certificates for Initial Notes are
not immediately available or the certificates for Initial Notes and all other
required documents cannot be delivered to the Exchange Agent on or prior to
the Expiration Date (as defined in the Prospectus), or if the procedures for
delivery by book-entry transfer cannot be completed on a timely basis. This
instrument may be delivered by hand or transmitted by facsimile transmission
or mail to the Exchange Agent.
The Exchange Agent for the Exchange Offer is:
FIRST UNION NATIONAL BANK
By Mail, Hand or Overnight Delivery: By Facsimile Transmission:
First Union Customer Information Center (704) 590-7628
Reorganization Department, 36C-NC 1153 Confirm by Telephone:
1525 West W.T. Harris Boulevard (704) 590-7408
Charlotte, NC 28262
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an Eligible Institution under the Instructions to the Letter of
Transmittal, such signature guarantee must appear in the applicable space
provided in the signature box in the Letter of Transmittal.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON , 1998, UNLESS THE EXCHANGE OFFER IS EXTENDED.
<PAGE>
LADIES AND GENTLEMEN:
The undersigned hereby tenders to the Company, upon the terms and subject to
the conditions set forth in the Prospectus dated , 1998 ("Prospectus")
and in the related Letter of Transmittal (which, together with any amendments
or supplements thereto, collectively constitute the "Exchange Offer"), receipt
of each of which is hereby acknowledged, the principal amount of Initial Notes
indicated below pursuant to the guaranteed delivery procedures set forth in
the Prospectus under the caption "The Exchange Offer--Procedures for Tendering
Initial Notes--Guaranteed Delivery Procedures."
Signature(s) __________________________________________________________________
Name(s) of Eligible Holders ___________________________________________________
PLEASE TYPE OR PRINT
Principal Amount of Initial Notes Tendered for Exchange $ _____________________
Initial Note Certificate No(s). (If available) ________________________________
Dated , 199
Address(es) ___________________________________________________________________
ZIP CODE
Area Code and Tel. No.(s) _____________________________________________________
(Check box if shares will be tendered by book-entry transfer)
[_] The Depository Trust Company
DTC Account Number __________________________________________________________
2
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, an Eligible Institution (as defined in the Prospectus),
having an office or correspondent in the United States, hereby (a) represents
that the above named person(s) "own(s)" the Initial Notes tendered hereby
within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act
of 1934, as amended ("Rule 14e-4"), (b) represents that such tender of Initial
Notes complies with Rule 14e-4, and (c) guarantees to either deliver to the
Exchange Agent the certificates representing all the Initial Notes tendered
hereby, in proper form for transfer, or to deliver such Initial Notes pursuant
to the procedure for book-entry transfer into the Exchange Agent's account at
The Depository Trust Company, in either case together with the Letter of
Transmittal (or a facsimile thereof), properly completed and duly executed,
with any required signature guarantees or an Agent's Message (as defined in
the Prospectus) in the case of a book-entry transfer, and any other required
documents, all within three New York Stock Exchange trading days after the
date hereof.
_____________________________________ _____________________________________
NAME OF FIRM AUTHORIZED SIGNATURE
_____________________________________ _____________________________________
ADDRESS PLEASE TYPE OR PRINT
_____________________________________ _____________________________________
ZIP CODE DATE
NOTE: DO NOT SEND CERTIFICATES FOR INITIAL NOTES WITH THIS NOTICE.
CERTIFICATES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
3
