AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 12, 2000
REGISTRATION NO. 333-
___________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________
FORM S-3
REGISTRATION STATEMENT
UNDER
SECURITIES EXCHANGE ACT OF 1933
__________
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 54-1708481
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation) Number)
1700 Old Meadow Road, Suite 300
McLean, VA 22102
(703) 902-2800
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
David Slotkin, Esq.
1700 Old Meadow Road, Suite 300
McLean, VA 22102
(703) 902-2800
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
With a copy to:
Edward P. Tolley III, Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
(212) 455-2000
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this registration statement.
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If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. /_/
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. /_/
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. /_/
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. /_/
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CALCULATION OF REGISTRATION FEE
Title of Proposed Proposed
Securities Maximum Maximum Amount of
To Be Amount To Be Aggregate Aggregate Registration
Registered Registered Price Per Unit Offering Price Fee
___________ ____________ ______________ ______________ ____________
5 3/4% $300,000,000 100% (1)(2) $300,000,000(1) $79,200
Convertible
Subordinated
Debentures
due 2007
Common 6,025,149 (4) (4) (4)
Stock, $.01 Shares (3)
par value
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(i) of the Securities Act of 1933.
(2) Exclusive of accrued interest and distributions, if any.
(3) Represents the number of shares of common stock that are initially
issuable upon conversion of the 5 3/4% Convertible Subordinated
Debentures due 2007 registered hereby. For purposes of estimating the
number of shares of common stock to be issued upon conversion of the
debentures, Primus calculated the number of shares issuable upon
conversion of the debentures based on a conversion price of $49.7913 per
share of common stock. In addition to the shares set forth in the table,
pursuant to Rule 416 under the Securities Act of 1933, as amended, the
number of shares registered includes an indeterminate number of shares
of common stock issuable upon conversion of the debentures, as this
amount may be adjusted as a result of stock splits, stock dividends and
antidilution provisions. The common stock registered hereby includes
preferred stock purchase rights, which are associated with and trade
with the common stock. The value, if any, attributable to the rights is
reflected in the market price of the common stock.
(4) No additional consideration will be received for the common stock and
therefore, no registration fee is required pursuant to Rule 457(i).
______________________
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
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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 COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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Subject to Completion, dated June 12, 2000
P R E L I M I N A R Y P R O S P E C T U S
PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
$300,000,000
5 3/4% Convertible Subordinated Debentures due 2007
6,025,149 shares of Common Stock Issuable Upon Conversion of the Debentures
______________________________
This prospectus relates to 5 3/4% convertible subordinated debentures
due February 15, 2007 of Primus Telecommunications Group, Incorporated, a
Delaware corporation, held by certain security holders who may offer for sale
the debentures and the shares of our common stock into which the debentures
are convertible at any time at market prices prevailing at the time of sale
or at privately negotiated prices. The selling security holders may sell the
debentures or the common stock directly to purchasers or through
underwriters, broker-dealers or agents who may receive compensation in the
form of discounts, concessions or commissions.
The holders of the debentures may convert the debentures into shares of
our common stock at any time at a conversion price of $49.7913 per share of
common stock, subject to adjustment under certain circumstances. See
"Description of the Debentures--Conversion Rights."
Prior to February 15, 2003, if the market price of our common stock
exceeds specified thresholds and we have an effective registration statement
covering resales of the debentures and the common stock issuable upon
conversion of the debentures, we may redeem some or all of the debentures at
the redemption prices set forth in the section entitled "Description of
Debentures--Optional Redemption by Primus."
Each holder of the debentures may require us to repurchase all of the
holder's debentures at 100% of their principal amount plus accrued and unpaid
interest in certain circumstances involving a change of control. See
"Description of Debentures--Repurchase at Option of Holders upon a Change of
Control." At our option, we may repurchase the debentures for cash or common
stock subject to the satisfaction of certain conditions.
The debentures are general, unsecured obligations that are subordinated
in right of payment to all of our existing and future senior indebtedness.
See "Description of Debentures--Subordination."
Our common stock trades on the Nasdaq National Market under the symbol
"PRTL." The last reported sale price on June 9, 2000 was $29 1/4 per share.
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The debentures are currently eligible for trading on the PORTAL Market
of the Nasdaq Stock Market.
Investing in our common stock or our debentures involves a high degree
of risk. Please carefully consider the "Risk Factors" beginning on page 9
of this prospectus.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary
is a criminal offense.
The date of this prospectus is June , 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES, AND IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
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In connection with this offering, no person is authorized to give any
information or to make any representations not contained in this prospectus.
If information is given or representations are made, you may not rely on
that information or representations as having been authorized by us. This
prospectus is neither an offer to sell nor a solicitation of an offer to buy
any securities other than those registered by this prospectus, nor is it an
offer to sell or a solicitation of an offer to buy securities where an offer
or solicitation would be unlawful. You may not imply from the delivery of
this prospectus, nor from any sale made under this prospectus, that our
affairs are unchanged since the date of this prospectus or that the
information contained in this prospectus is correct as of any time after the
date of this prospectus.
TABLE OF CONTENTS
Page
Where You Can Find More Information . . . . . . 2
Incorporation by Reference . . . . . . . . . . 4
Summary . . . . . . . . . . . . . . . . . . . . 5
Risk Factors . . . . . . . . . . . . . . . . . 9
Use of Proceeds . . . . . . . . . . . . . . . . 28
Price Range of Common Stock . . . . . . . . . . 28
Dividend Policy . . . . . . . . . . . . . . . . 29
Ratio of Earnings to Fixed Charges . . . . . . 29
Unaudited Pro Forma Financial Data . . . . . . 30
Description of the Debentures . . . . . . . . . 33
Description of Capital Stock . . . . . . . . . 59
Selling Security Holders . . . . . . . . . . . 64
Certain United States Federal Income Tax
Consequences . . . . . . . . . . . . . . . 70
Plan of Distribution . . . . . . . . . . . . . 77
Legal Matters . . . . . . . . . . . . . . . . . 79
Experts . . . . . . . . . . . . . . . . . . . . 80
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith file reports and other
information with the Securities and Exchange Commission, which reports
include our information set forth in full. Such reports and other information
filed by us can be inspected and copied at public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, NW, Judiciary
Plaza, Washington, D.C. 20549; Seven World Trade Center, 13th Floor, New
York, New York 10048; and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. For further information concerning the Commission's public
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reference rooms, the Commission can be reached at 1-800-SEC-0330. 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 and registration rights agreement relating to the debentures
without charge by writing to Primus Telecommunications Group, Incorporated,
1700 Old Meadow Road, McLean, VA 22102, Attention: David Slotkin, General
Counsel.
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INCORPORATION BY REFERENCE
The SEC allows us to "incorporate by reference" the information
contained in documents that we file with them, which means that we can
disclose important information to you by referring you to those documents.
The information incorporated by reference is considered to be part of this
prospectus. Information in this prospectus supersedes information
incorporated by reference that we filed with the SEC prior to the date of
this prospectus, while information that we file later with the SEC will
automatically update and supersede this information. We incorporate by
reference the documents listed below and any future filings we will make with
the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934:
- Our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2000;
- Our Annual Report on Form 10-K for the fiscal year ended
December 31, 1999, including all material incorporated by
reference therein; and
- Our Current Report on Form 8-K/A, dated June 30, 1999,
containing audited financial statements of Telegroup, Inc.
and certain subsidiaries.
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SUMMARY
The following summary is qualified in its entirety by the more
detailed information appearing elsewhere in this prospectus. Prospective
investors should consider carefully the information in this prospectus under
the heading "Risk Factors."
General
We are a facilities-based global total service provider offering
bundled international and domestic Internet, data and voice services to
business and residential retail customers and other carriers located in the
United States, Canada, Brazil, the United Kingdom, continental Europe,
Australia and Japan. We seek to capitalize on the increasing demand for
high-quality international communications services which is being driven by
the globalization of the world's economies, the worldwide trend toward
telecommunications deregulation and the growth of data and Internet traffic.
We primarily target customers with significant international long
distance usage, including small- and medium-sized enterprises (SMEs),
multinational corporations, ethnic residential customers and other
telecommunications carriers and resellers. We also intend to target
Internet-based businesses as we deploy our global ATM+IP network. As of March
31, 2000, we had approximately 2.1 million customers. We provide our
customers with a portfolio of competitively priced services, including:
. International and domestic long distance services and private
networks;
. Prepaid and calling cards, toll-free services and reorigination
services; and
. Local services in Australia, Canada, Puerto Rico and the United
States Virgin Islands.
Through our subsidiary iPRIMUS.com, we target SMEs and residential
customers for data and Internet services, including dial-up, dedicated and
high-speed Internet access, virtual private networks, Web hosting, data
center co-location, voice-over IP services, e-commerce services and other
data services.
By constructing and expanding our network, we have reduced costs,
improved service reliability and increased flexibility to introduce new
products and services. We believe that, as the volume of telecommunications
traffic carried on our network increases, we should continue to improve
profitability as we more fully utilize our network capacity and realize
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economies of scale. Currently, 29 countries are connected directly to our
network. We expect to continue to expand our network through additional
investment in undersea and domestic fiber optic cable systems, international
gateway and domestic switching facilities and international satellite earth
stations as customer demand justifies the capital investment.
Strategy
Our objective is to become a leading global provider of international
and domestic Internet, data, e-commerce and voice services. Key elements of
our strategy to achieve this objective include:
- Provide One-Stop Shopping for Internet, Data and
Voice Services: We offer in selected markets, and
intend to offer our customers in each of the markets
we serve, a portfolio of bundled Internet, data and
voice services. We typically enter international
markets in the early stages of deregulation by
initially offering international long distance voice
services and subsequently expanding our portfolio of
offerings to include Internet access and data
services. For example, through our recent
acquisitions in Canada, we now offer our business
and residential customers a comprehensive array of
voice services, including international and domestic
long distance, as well as Internet access and
enhanced services, including Internet roaming and
Web hosting. By bundling our traditional voice
services with data and Internet services, we
believe that we will attract and retain a strong
base of retail customers, which are traditionally
the highest margin communications customers.
- Expand the Reach and Data Capabilities of Our Global
Network: Through the geographic expansion of our
global network, we expect to be able to increase the
amount of our on-net traffic and thereby continue to
reduce transmission costs and operating costs as a
percentage of revenue, improve gross margins, reduce
reliance on other carriers, and improve service
reliability. In addition, we are leveraging our
existing network to provide a full range of
asynchronous transfer mode (ATM), frame relay and
Internet protocol-based data and voice
communications over a global broadband ATM+IP
network. Our commitment and ability to provide
reliable, carrier-grade voice, data and Internet
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communications over our global network on a standard
platform recently enabled us to qualify as a Cisco
powered network. We also expect to offer Web hosting
services at various locations in our core markets,
beginning in the second quarter of 2000 when we
intend to offer Web hosting services co-located at
some of our major switch sites. In addition, through
our satellite earth station in London, we currently
offer Internet and data transmission services in the
Indian Ocean/Southeast Asia region. Our target
satellite customers are PTTs, other communications
carriers, ISPs and multinational corporations in
developing countries. We plan to replicate this
strategy by offering Internet and data services in
Latin America and the Pacific Rim through the
addition of four satellite earth stations, two on
each of the east and west coasts of the United
States.
- Build Base of Retail Customers with Significant
International Communications Usage: We are focused
on building a retail customer base with significant
demand for international Internet, data and voice
services. These customers typically include small-
and medium-sized enterprises, multinational
corporations, Internet-based businesses and ethnic
residential customers. We are particularly targeting
SME customers worldwide by focusing on the need SMEs
have for secure Internet and data services and
e-commerce services and solutions. Our strategic
focus on retail customers reflects that we generally
realize a higher gross margin as a percentage of net
revenue from these customers compared to carrier
customers. By offering high quality services at
competitive prices through experienced sales and
service representatives and bundling a comprehensive
portfolio of communications services, we intend to
further broaden our retail base.
- Pursue Early Entry Into Selected Deregulating
Markets: We seek to be an early entrant into
selected deregulating communications markets
worldwide where we believe there is significant
demand for voice, data and Internet services as well
as substantial growth and profit potential. We
believe that early entry into deregulating markets
provides us with competitive advantages as we
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develop sales channels, establish a customer base,
hire personnel experienced in the local
communications industry and achieve name recognition
prior to a large number of competitors entering
these markets. We intend to concentrate our
immediate expansion plans in those markets that are
more economically stable and are experiencing more
rapid deregulation, such as continental Europe and
Canada. Subsequently, we plan to expand in
additional markets, including Japan, other parts of
the Asia-Pacific region and Latin America.
- Grow Through Selected Acquisitions, Joint Ventures
and Strategic Investments: As part of our business
strategy, we frequently evaluate potential
acquisitions, joint ventures and strategic
investments, some of which may be material, with
companies in the voice, data and Internet
businesses. We view acquisitions, joint ventures
and strategic investments as a means to enter
additional markets, add new products and market
segments (e.g., DSL and Web hosting), expand our
operations within existing markets, and generally
accelerate the growth of our customer and revenue
base. We target voice and data service providers,
ISPs and Web hosting companies with an established
customer base, complementary operations,
telecommunications licenses, experienced management
or network facilities in our target markets. In
particular, we anticipate that we will make
additional investments in or acquisitions of ISPs
and other Internet-related and data service
businesses worldwide.
___________________
Our executive offices are located at 1700 Old Meadow Road, McLean,
Virginia 22102, and our telephone number is (703) 902-2800.
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RISK FACTORS
You should consider carefully the following risks, in addition to the
other information contained elsewhere in this prospectus, in evaluating
whether to purchase any of the debentures.
Our high level of debt may adversely affect our financial and operating
flexibility.
We have substantial indebtedness. As of March 31, 2000, our total
indebtedness was approximately $1,264.7 million.
The indentures governing our senior notes limit, but do not prohibit,
our incurrence of additional indebtedness and do not limit the amount of
indebtedness that can be incurred to finance the cost of telecommunications
equipment. The indenture governing the debentures does not limit the
incurrence of additional indebtedness. We expect that we will incur
additional indebtedness in the future and our level of indebtedness could
have important consequences to you, including the following:
- any additional indebtedness could make it more difficult for
us to make payments of interest on our outstanding debt,
including the debentures;
- we may limit our ability to obtain any necessary financing
in the future for working capital, capital expenditures or
other purposes;
- we must dedicate a substantial portion of our cash flow from
operations, if any, to the payment of principal and interest
on our indebtedness and this cash flow will not be available
for our use elsewhere in our business;
- our flexibility in planning for, or reacting to, changes in
our business could be limited;
- we may be at a competitive disadvantage because we are more
highly leveraged than some of our competitors; and
- we may be more vulnerable in the event of a downturn in our
business if we have a high level of indebtedness.
We must increase substantially our net cash flow in order to meet our
debt service obligations and cannot assure you that we will be able to meet
our debt service obligations, including our obligations under the debentures.
The holders of such indebtedness can accelerate the maturity of such
indebtedness if there is a default and that could cause defaults under our
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other indebtedness. Such defaults could result in a default on the
debentures, could delay or preclude payments of interest or principal on the
debentures and would have a material adverse impact on the trading prices of
our common stock.
We experienced historical, and will experience future, operating losses,
negative cash flow from operations and net losses.
As of March 31, 2000, we had an accumulated deficit of $267.6
million. We incurred net losses of $2.4 million in 1995, $8.8 million in
1996, $36.2 million in 1997, $63.6 million in 1998, $112.7 million in 1999
and $43.3 million for the three months ended March 31, 2000.
Our recent net revenue growth should not be considered to be
indicative of future net revenue growth, if any. We expect to continue to
incur operating losses and negative cash flow from operations as we expand
our operations and build-out and upgrade our telecommunications and
data/Internet network. We cannot assure you that our net revenue will grow or
be sustained in future periods or that we will be able to achieve or sustain
profitability or generate positive cash flow from operations in any future
period. If we cannot achieve and sustain operating profitability or positive
cash flow from operations, we may not be able to meet our debt service or
working capital requirements, including our obligations with respect to the
debentures. These developments would have a material adverse impact on the
trading prices of our common stock.
If we are unable to obtain additional financing, we may have to reduce the
size of our expansion.
We continually evaluate the expansion of our service offerings and
plan to make further investments in and enhancements to our
telecommunications network and in distribution channels. To fund these
additional cash requirements, we anticipate that we will have to raise
additional financing from public or private equity or debt sources.
Additionally, we may be required to seek additional capital sooner than
expected if:
- our plans or assumptions change or are inaccurate, including
with respect to the development of our telecommunications
network, the expansion of our service offerings, the scope
of our operations and our operating cash flow;
- we consummate additional investments or acquisitions;
- we experience unexpected costs or competitive pressures; or
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- our existing cash and any other borrowings prove to be
insufficient.
We have agreed in certain agreements governing our indebtedness other than
the debentures to restrictive covenants that will affect, and in many
respects will limit or prohibit significantly, our ability to incur
additional indebtedness and to create liens. If we do raise additional funds
through the incurrence of debt, we would likely become subject to additional
restrictive financial covenants. If we are unable to obtain additional
capital at all or on acceptable terms, we may be required to reduce the scope
of our expansion, including the expansion of iPRIMUS.com, which could
adversely affect our business prospects and our ability to compete and also
could adversely affect the trading prices of our common stock.
We cannot assure you that we 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 expansion or
otherwise.
We may not be able to pay interest and principal on the debentures if we do
not receive distributions from our subsidiaries.
We are a holding company and our principal assets are the stock of
our operating subsidiaries. Dividends, intercompany loans and other permitted
payments from our direct and indirect subsidiaries, and our own credit
arrangements, are our sources of funds to meet our cash needs, including the
payment of expenses and principal and interest on the debentures. Our
subsidiaries are legally distinct from us and have no obligations to pay
amounts due with respect to the debentures or to make funds available to us.
Our subsidiaries will not guarantee the debentures. Many of our subsidiaries
are organized in jurisdictions outside the United States. Their ability to
pay dividends, repay intercompany loans or make other distributions may be
restricted by, among other things, the availability of funds, the terms of
various credit arrangements entered into by them, as well as statutory and
other legal restrictions. Additionally, payments from our subsidiaries may
result in adverse tax consequences. If we do not receive dividends,
distributions and other payments from our subsidiaries, we would be
restricted in our ability to pay interest and principal on the debentures and
on our ability to utilize cash flow from one subsidiary to cover shortfalls
in working capital at another subsidiary.
Our holding company structure may limit your recourse to our assets.
Creditors of the holding company, including the holders of the
debentures, and the holding company itself generally will have subordinate
claims against the assets of a particular subsidiary as compared to the
creditors of such subsidiary. Accordingly, the debentures will be
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subordinated structurally to all existing and future indebtedness and other
liabilities and commitments of our subsidiaries, including trade payables. As
of March 31, 2000, our subsidiaries had outstanding aggregate liabilities of
approximately $486.5 million. Our right to receive assets of any subsidiary
upon the liquidation or reorganization of such subsidiary (and the consequent
rights of the holders of the debentures to participate in those assets) will
be subordinated structurally to the claims of such subsidiary's creditors.
However, if the holding company itself is recognized as a creditor, its
claims would be subordinate to any secured indebtedness of such subsidiary
and any indebtedness of such subsidiary that is senior to the holding
company's claims. We have no significant assets other than the stock of our
subsidiaries. If we were to enter into a bank credit facility or similar
arrangement, we expect that the stock of the subsidiaries would be pledged to
secure any such credit facility or arrangement.
The debentures are subordinated to any existing and future Senior Debt.
The debentures are contractually subordinated in right of payment to
our existing and future Senior Debt. As of March 31, 2000, we had
approximately $868.9 million of Senior Debt. The indenture does not limit
the creation of additional Senior Debt (or any other indebtedness). In
connection with the expansion of our communications network and our Internet
business, we expect that we may significantly increase our Senior Debt in the
near future. Any significant additional indebtedness incurred may materially
adversely impact our ability to service our debt, including the debentures.
Due to the subordination provisions, in the event of our insolvency, funds
which we would otherwise use to pay the holders of the debentures will be
used to pay the holders of Senior Debt to the extent necessary to pay the
Senior Debt in full. As a result of these payments, our general creditors may
recover less, ratably, than the holders of our Senior Debt and such general
creditors may recover more, ratably, than the holders of the debentures or
our other subordinated indebtedness. In addition, the holders of our Senior
Debt may, under certain circumstances, restrict or prohibit us from making
payments on the debentures.
Our ability to repurchase debentures with cash upon a change of control may
be limited.
In certain circumstances involving a change of control of Primus (as
defined in the indenture), the holders of the debentures may require us to
repurchase some or all of the holders's debentures. We cannot assure you that
we will have sufficient financial resources at such time or would be able to
arrange financing to pay the repurchase price of the debentures in cash. Our
ability to repurchase the debentures in cash in such event may be limited by
law, by the indenture, by the terms of other agreements relating to our
Senior Debt and by such indebtedness and agreements may be entered into,
replaced, supplemented or amended from time to time. We may be required to
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refinance our Senior Debt in order to make such payments. We may not have the
financial ability to repurchase the debentures in cash if payment for our
Senior Debt is accelerated.
We may enter new markets or businesses where we have limited or no operating
experience.
We have limited experience in operating our business. Our company was
founded in February 1994 and began generating operating revenues in March
1995. We intend to enter additional markets or businesses, including
establishing an Internet business, where we have limited or no operating
experience. Accordingly, we cannot assure you that our future operations will
generate operating or net income, and you must consider our prospects in
light of the risks, expenses, problems and delays inherent in establishing a
new business in a rapidly changing industry.
We cannot assure you that our Internet and data business will be successful.
We have recently begun targeting businesses and residential customers
for Internet and data services through our subsidiary iPRIMUS.com and other
recently acquired ISPs. We have been expanding, and we intend to continue to
expand, our offering of data and Internet services worldwide and we
anticipate offering a full-range of Internet protocol-based data and voice
communications over our global broadband ATM+IP network which we are
beginning to deploy over our existing network infrastructure. We have limited
experience in the Internet business and cannot assure you that we will
successfully establish or expand the business. Currently, we provide Internet
services to business and residential customers in the United States,
Australia, Canada, Brazil and Germany, and offer Internet transmission
services in the Indian Ocean/Southeast Asia regions through our satellite
earth station in London.
The market for Internet connectivity and related services is
extremely competitive. Our primary competitors include other ISPs that have a
significant national or international presence. Many of these carriers have
substantially greater resources, capital and operational experience than we
do. We also expect we will experience increased competition from traditional
telecommunications carriers that expand into the market for Internet
services. In addition, we will require substantial additional capital to make
investments in our Internet operations and we may not be able to obtain that
capital on favorable terms or at all. The amount of such capital expenditures
may exceed the amount of capital expenditures spent on the voice portion of
our business going forward.
Further, even if we are able to establish and expand our Internet
business, we will face numerous risks that may adversely affect the
operations of our Internet business. These risks include:
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- competition in the market for Internet services;
- our limited operating history as an ISP;
- our reliance on third parties to provide maintenance and
support services for our ATM+IP network;
- our reliance on third-party proprietary technology,
including Pilot's HDI security protocol, to provide certain
services to our customers;
- our ability to recruit and retain qualified technical,
engineering and other personnel in a highly competitive
market;
- our ability to adapt and react to rapid changes in
technology related to our Internet business;
- uncertainty relating to the continuation of the adoption of
the Internet as a medium of commerce and communications;
- vulnerability to unauthorized access, computer viruses and
other disruptive problems due to the accidental or
intentional actions of others;
- adverse regulatory developments;
- the potential liability for information disseminated over
our network; and
- our need to manage the growth of our Internet business,
including the need to enter into agreements with other
providers of infrastructure capacity and equipment and to
acquire other ISPs and Internet-related businesses on
acceptable terms.
Finally, we expect to incur operating losses and negative cash flow
from our Internet and data business as we expand, build out and upgrade this
part of our business. Any such losses and negative cash flow are expected to
partially offset the expected positive cash flow generated by our voice
business and effectively reduce the overall cash flow of Primus as a whole.
We must complete our network, operate it efficiently and generate additional
traffic.
Our long-term success is dependent upon our ability to design,
implement, operate, manage and maintain our communications network, and our
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ability to generate and move traffic onto the network. We have incurred
additional fixed operating costs due to our acquisition of telecommunications
equipment and other assets of TresCom, London Telecom, AT&T Canada, ACC
Telenterprises, Telegroup and due to other recent acquisitions. We will incur
additional fixed operating costs as we further expand our network. These
costs typically are in excess of the revenue attributable to the transmission
capacity funded by such costs until we generate additional traffic volume for
such capacity. We cannot guarantee that we will generate sufficient traffic
to utilize economically our capacity or that we can complete our network in a
timely manner or operate it efficiently. We also intend to expand our network
as more countries deregulate their telecommunications industries. We cannot
guarantee that we will be able to obtain the required licenses or purchase
the necessary equipment on favorable terms or, if we do, that we will be able
to develop successfully our network in those countries.
We must manage our development and rapid growth effectively.
Our continued growth and expansion places a significant strain on our
management, operational and financial resources, and increases demands on our
systems and controls. We continue to add switches and fiber optic cable and
to expand our operations. We have expanded our retail operations through our
recent acquisitions of TresCom, London Telecom, the consumer business of AT&T
Canada, the residential long distance business of ACC Telenterprises, 51% of
Matrix Internet, the retail business of Telegroup and assets of DigitalSelect
and we will continue to expand our retail operations when we complete our
acquisition of LCR Telecom. We have also acquired several ISPs and created
iPRIMUS.com, our subsidiary through which we intend to operate our Internet
and data businesses. To manage our growth effectively, we must continue to
implement and improve our operational and financial systems and controls,
purchase and utilize other transmission facilities, and expand, train and
manage our employee base. If we inaccurately forecast the movement of traffic
onto our network, we could have insufficient or excessive transmission
facilities and disproportionate fixed expenses. We cannot guarantee that we
will be able to develop further our 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 we proceed with our development,
we will place additional demands on our customer support, billing and
management information systems, on our support, sales and marketing and
administrative resources and on our network infrastructure. We cannot
guarantee that our operating and financial control systems and infrastructure
will be adequate to maintain and manage effectively our future growth.
We may not successfully integrate our recent acquisitions and we may not
successfully complete or integrate future acquisitions.
A key element of our business strategy is to acquire or make
strategic investments in complementary assets and businesses, and a major
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portion of our growth in recent years is as a result of such acquisitions.
Acquisitions, including our recent TresCom, London Telecom, AT&T Canada, ACC
Telenterprises, Telegroup, GlobalServe, TCP/IP, Matrix Internet, 1492
Technologies and DigitalSelect acquisitions and our acquisition of LCR
Telecom, and strategic investments involve financial and operational risks.
We may incur or assume indebtedness in order to effect an acquisition and
will need to service that indebtedness. An acquisition may not provide the
benefits originally anticipated while we continue to incur operating
expenses. There may be difficulty in integrating the service offerings,
distribution channels and networks gained through acquisitions and strategic
investments with our own. In a strategic investment where we acquire a
minority interest in a company, we may lack control over the operations and
strategy of the business, and we cannot guarantee that such lack of control
will not interfere with the integration of services and distribution channels
of the business with our own. Although we attempt to minimize the risk of
unexpected liabilities and contingencies associated with acquired businesses
through planning, investigation and negotiation, such unexpected liabilities
nevertheless may accompany such strategic investments and acquisitions. We
cannot guarantee that we successfully will:
- identify attractive acquisition and strategic investment
candidates;
- complete and finance additional acquisitions on favorable
terms; or
- integrate the acquired businesses or assets into our own.
We cannot guarantee that the integration of our business with any
acquired company's business, including the businesses of TresCom, London
Telecom, AT&T Canada and ACC Telenterprises, Telegroup, GlobalServe, TCP/IP,
Matrix Internet, 1492 Technologies, DigitalSelect or of LCR Telecom will be
accomplished smoothly or successfully, if at all. If we encounter significant
difficulties 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. We
cannot guarantee that we will be able to take full advantage of the combined
sales forces' efforts. Successful integration of operations and technologies
requires the dedication of management and other personnel which may distract
their attention from our day-to-day business, the development or acquisition
of new technologies, and the pursuit of other business acquisition
opportunities.
We experience intense domestic and international competition.
The long distance telecommunications industry is intensely
competitive and is significantly influenced by the marketing and pricing
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decisions of the larger industry participants. The industry has relatively
limited barriers to entry in the more deregulated countries 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. We believe that competition in all of our 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 the
non-United States markets continue to experience deregulatory influences.
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 increase in competition could
adversely affect net revenue per minute and gross margin as a percentage of
net revenue. We compete primarily on the basis of price, particularly with
respect to our sales to other carriers, and also on the basis of customer
service and our ability to provide a variety of telecommunications products
and services. Prices for long distance calls in several of the markets in
which we compete have declined in recent years and are likely to continue to
decrease. We cannot guarantee that we will be able to compete successfully in
the future.
Many of our competitors are significantly larger than we, and many of our
competitors have:
- substantially greater financial, technical and marketing
resources;
- larger networks;
- a broader portfolio of services;
- controlled transmission lines;
- stronger name recognition and customer loyalty; and
- long-standing relationships with our target customers.
In addition, many of our 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, including most recently, AT&T,
MCI/WorldCom and Sprint, have introduced pricing strategies that provide for
fixed, low rates for calls within the United States. If this strategy is
adopted widely, it could have an adverse effect on our 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. Our
competitors include, among others: AT&T Corp., MCI/WorldCom, Sprint Corp.,
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Frontier Communications Services, Inc., Pacific Gateway Exchange, Inc. and
Qwest Communications International, Inc. in the United States; Telstra, Optus
Communications Pty. Limited, AAPT, WorldxChange and GlobalOne in Australia;
British Telecommunications plc., Cable & Wireless Communications, AT&T,
MCI/WorldCom, GlobalOne, ACC Corporation, Colt Telecom, Energis, GTS/Esprit
Telecom Group, and RSL Communications in the United Kingdom; Deutsche
Telekom, O.tel.o Communications, Mannesmann ARCOR, Colt, MCI/WorldCom, and
RSL Communications in Germany; Stentor and Sprint Canada in Canada; Telmex,
the other PTTs in Latin America, AT&T, MCI/WorldCom 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, MCI/WorldCom and ATNet in Japan.
Recent and pending deregulation in various countries may encourage
new entrants to compete, including Internet service providers, cable
television companies and utilities. For example, the United States and 68
other countries have committed to open their telecommunications markets to
competition pursuant to an agreement under the World Trade Organization which
began on January 1, 1998. Further, in the United States once certain
conditions are met under the United States Telecommunications Act of 1996,
the regional bell operating companies will be allowed to enter the domestic
long distance market, AT&T, MCI/WorldCom and other long distance carriers
will be allowed to enter the local telephone services market, and any entity,
including cable television companies and utilities, will be allowed to enter
both the local service and long distance telecommunications markets. In
addition, we could experience additional competition in the Australian market
from newly licensed telecommunications carriers with the ongoing deregulation
of the Australian telecommunications market and the granting of additional
carrier licenses.
A deterioration in our relationships with facilities-based carriers could
have a material adverse effect on us.
We primarily connect our customers' telephone calls through
transmission lines that we lease under a variety of arrangements with other
facilities-based long distance carriers. Many of these carriers are, or may
become, our competitors. Our ability to maintain and expand our business is
dependent upon whether we continue to maintain favorable relationships with
the facilities-based carriers from which we lease transmission lines. If our
relationship with one or more of these carriers were to deteriorate or
terminate, it could have a material adverse effect upon our cost structure,
service quality, network diversity, results of operations and financial
condition. Moreover, we lease transmission lines from some vendors that
currently are subject to tariff controls and other price constraints which in
the future may be changed.
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Uncertainties and risks associated with international markets could adversely
impact our international operations.
A key element of our business strategy is to expand in international
markets. In many international markets, the existing incumbent carrier has
certain advantages, including:
- controlling access to the local networks;
- enjoying better brand recognition and brand and customer
loyalty; and
- having significant operational economies, including a larger
backbone network and more foreign carrier agreements with
other incumbent carriers and other service providers.
Moreover, the incumbent carrier may take many months to allow competitors to
interconnect to its switches. To achieve our objective of pursuing growth
opportunities in international markets, we may have to make significant
investments for an extended period before returns, if any, on such
investments are realized. In addition, we cannot guarantee that we will be
able to obtain the permits and operating licenses required by us to:
- operate our own transmission facilities or switches;
- obtain access to local transmission facilities; or
- market, sell and deliver competitive services in these
markets.
In addition, such permits and operating licenses, if we obtain them, may not
be obtained in the time frame that we currently contemplate.
There are additional risks inherent in doing business on an
international level that could materially and adversely impact our
international operations. These risks include:
- 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;
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- foreign exchange controls that 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.
A significant portion of our net revenue and expenses is denominated,
and is expected to continue to be denominated, in currencies other than
United States dollars. Changes in exchange rates may have a significant
effect on our results of operations. Historically, we have not engaged in
hedging transactions, and currently do not contemplate engaging in hedging
transactions to mitigate foreign exchange risk.
On January 1, 1999, 11 member countries of the European Union
established fixed conversion rates between their national currencies and the
euro. At that time, the euro began trading on currency exchanges and became
usable for non-cash transactions. However, traditional currencies will
continue to be used until at least January 1, 2002. Given the extent of our
current and expected services in continental Europe and the nature of those
services, we currently do not expect euro conversion to have a material
impact on operations or cash flows. However, uncertainties exist as to the
effects of euro conversion on certain European customers and on the economies
of the participating countries. Euro conversion also will result in a better
ability to compare prices in different countries which may negatively impact
pricing strategies in different participating countries. We plan to continue
to evaluate the impact of euro conversion on our computer and financial
systems, business processes, market risk and price competition.
Malfunctions in our existing information systems or delays in implementing
new ones could adversely affect us.
To bill our customers, we must record and process massive amounts of
data quickly and accurately. We believe that our management information
system will have to grow as our business expands and it will have to change
as new technological developments occur. We believe that the successful
implementation and integration of new information systems and backroom
support will be important to our ability to:
- develop and grow our business;
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- monitor and control costs;
- bill our customers accurately and in a timely fashion; and
- achieve operating efficiencies.
We cannot guarantee that we will avoid delays or cost-overruns, and we may
suffer adverse consequences in implementing these systems. Any such delay or
other malfunction of our management information systems could have a material
adverse effect on our business, financial condition and results of
operations.
Rapid changes in the telecommunications industry could adversely affect our
competitiveness and our financial results.
The international telecommunications industry is changing rapidly due
to:
- deregulation;
- privatization of incumbent carriers;
- technological improvements;
- expansion of telecommunications infrastructure; and
- the globalization of the world's economies.
In addition, deregulation in any particular market may cause such market to
shift unpredictably. We cannot guarantee that we will be able to compete
effectively or adjust our contemplated plan of development to meet changing
market conditions.
The telecommunications industry generally is experiencing a rapid
technological evolution. New products and service offerings are being
introduced. Satellite and undersea cable transmission capacity is
increasingly available for services similar to those we provide. Potential
developments that could affect us adversely if we do not anticipate them or
appropriately respond to them include:
- improvements in transmission equipment;
- development of switching technology allowing
voice/data/video multimedia transmission simultaneously; and
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- commercial availability of competitively-priced
Internet-based domestic and international switched
voice/data/video services.
Our profitability will depend on our ability to anticipate, assess and adapt
to rapid technological changes and our ability to offer, on a timely and
cost-effective basis, services that meet evolving industry standards. We
cannot guarantee that we 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.
Natural disasters could adversely affect our business.
Many of the geographic areas where we conduct our business may be
affected by natural disasters, including hurricanes and tropical storms.
Hurricanes, tropical storms and other natural disasters could have a material
adverse effect on our business by damaging our network facilities or
curtailing telephone traffic as a result of the effects of such events, such
as destruction of homes and businesses.
The loss of our key personnel could significantly impact us.
We depend upon the efforts of our management team and our key
technical, marketing and sales personnel, particularly those of K. Paul
Singh, our Chairman and Chief Executive Officer. If we lose the services of
one or more of these key individuals, particularly Mr. Singh, our business
and its future prospects could be materially and adversely affected. We have
entered into an employment agreement with Mr. Singh, which continues until
May 30, 2001, and from year to year thereafter unless terminated. We do not
maintain any key person life insurance on the lives of any officer, director
or key employee. Our future success will also depend on our ability to
attract and retain additional key management and technical and sales
personnel required in connection with the growth and development of our
business. The competition to hire qualified employees and personnel in the
telecommunications and Internet industries 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. We
cannot guarantee that we will be successful in attracting and retaining such
executives and personnel.
We are subject to potential adverse effects of regulation.
Regulation of the telecommunications industry is changing rapidly,
both domestically and internationally. Although we believe that deregulation
efforts will create opportunities for us, they also present risks, which
could have a material adverse effect on our business.
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As a multinational telecommunications company, we are subject to
varying degrees of regulation in each of the jurisdictions in which we
provide our services. Local laws and regulations, and the interpretation of
such laws and regulations, differ significantly among the jurisdictions in
which we operate. Future regulatory, judicial, legislative and government
policy changes may have a material adverse effect on us and domestic or
international regulators or third parties may raise material issues with
regard to our compliance or noncompliance with applicable regulations, and
therefore may have a material adverse impact on our competitive position,
growth and financial performance.
In the United States, regulatory considerations that affect or limit
our business include the following:
- The recent trend in the United States toward reduced
regulation has 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 us;
- Any failure to maintain proper federal and state tariffs or
certification, or any finding by the federal or state
agencies that we are not operating under permissible terms
and conditions, may result in an enforcement action or
investigation;
- Under new FCC rules, local exchange carriers will be
permitted to allow certain volume discounts in the pricing
of access charges, which may place many long distance
carriers, including us, at a significant cost disadvantage
to larger competitors. The FCC may amend its rules to
require us to contribute to universal service funds based on
foreign revenues as well as domestic revenues; currently,
the FCC only requires such contribution based on domestic
revenues; and
- To the extent that the FCC finds that the International
Settlements Policy still applies to us, the FCC could find
that, absent a waiver, certain terms of our foreign carrier
agreements do not meet the requirements of the International
Settlements Policy. The FCC could, among other things, issue
a cease and desist order or impose forfeitures if it finds
that these agreements conflict with the International
Settlements Policy.
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In Canada, regulatory considerations that affect or limit our
business include the following:
- The Canadian Radio-television and Telecommunications
Commission has recently adjusted its international services
contribution regime and is preparing to conduct a review of
its domestic services contribution regime in light of its
recent decision to move from a per circuit to a per minute
contribution charge arrangement. We cannot assure you that
the new regulatory framework for contribution charges for
Canadian domestic and international traffic, once
implemented in Canada, will allow us to compete effectively
in offering telecommunications services.
In Australia, regulatory considerations that affect or limit our
business include the following:
- Carriers must meet the universal service obligation to
assist in providing all Australians, particularly those
living in remote areas, with reasonable access to standard
telephone services. The Australian Communications Authority
could make an assessment of a universal service levy that
would be material or the Australian government could
legislate universal service obligations that would be
material.
In Europe, regulatory considerations that affect or limit our
business include the following:
- A change in regulatory policy in Germany has taken place
which requires us to invest in additional points of presence
and transmission lines in order to continue to receive the
lowest available interconnection rates. Growth of operations
also requires adding additional interconnection lines.
However, the cumulative demand for additional points of
interconnection and interconnection lines by all alternative
carriers has created a severe order backlog with Deutsche
Telekom. Deutsche Telekom has not yet supplied our orders
and has delayed supply of some orders contrary to its
contractual obligations. Our capacity will be severely
restricted until these orders are fulfilled. RegTP, the
German telecommunications regulatory authority, has in the
past denied action on the late or even delayed supply of
interconnection points and lines by Deutsche Telekom and
recently RegTP has moderated discussions between Deutsche
Telekom and its competitors concerning this order backlog.
If these discussions do not lead to a substantial
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improvement in the supply of interconnection points and
RegTP fails to force Deutsche Telekom to supply
interconnection points, it may severely affect our business
and we may not be able to meet customer demand.
- In Germany, we are subject to numerous regulatory
requirements when we operate under our license, including
the requirement that we present our standard terms and
conditions to German regulators and possibly that we
contribute to universal service mechanisms; and
- Deutsche Telekom has exercised its option to terminate its
current interconnection agreements with us and all other
carriers as of the end of 1999 and has asked that
renegotiations be commenced. Deutsche Telekom has at the
same time presented us with a new draft interconnection
agreement containing terms less favorable to us than in the
current agreement, including, higher interconnection fees,
higher resale fees for certain interconnecting calls and
minimum traffic volume requirements. These terms may
adversely affect our business. In addition, though RegTP has
recently reduced interconnection tariffs, it has not
determined the interconnection tariffs starting in 2001 and
Primus' business may be adversely affected by that
determination. Because of these interconnection issues,
non-discrimination between large and smaller carriers like
ourselves will become a serious issue. Whether or not
non-discrimination can be ensured with respect to all terms
and conditions and in a timely fashion will severely impact
our business.
In Japan, there can be no guarantee that the Japanese regulatory
environment will allow us to provide services in Japan at competitive rates.
In other jurisdictions regulatory considerations that affect or limit
our business include the following:
- In countries that enact legislation intended to deregulate
the telecommunications sector or that have made commitments
to open their markets to competition in the World Trade
Organization 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 our entry into such
additional markets; and
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- In some countries, regulators may make subjective judgments
in awarding licenses and permits, and we may be excluded
from such markets without any legal recourse. If we are able
to gain entry into such a market, we cannot assure you that
we will be able to provide a full range of services in such
market. In addition, we may have to modify significantly our
operations to comply with changes in the regulatory
environment in such markets.
A group of our stockholders could exercise significant influence over our
affairs.
As of March 31, 2000, our executive officers and directors
beneficially owned 10,116,653 shares of our common stock, representing
approximately 24.5% of the outstanding common stock. The executive officers
and directors also have been granted options to purchase an additional
633,007 shares of our common stock which vest after March 31, 2000. Of these
amounts, Mr. K. Paul Singh, our Chairman and Chief Executive Officer,
beneficially owns approximately 4,826,472 shares of our common stock,
including options to purchase 438,099 shares of our common stock. Investors
affiliated with E.M. Warburg, Pincus & Co., LLC beneficially own 3,875,689
shares of our common stock. As a result, the executive officers, directors
and Warburg, Pincus exercise significant influence over such matters as the
election of our directors, amendments to our charter, other fundamental
corporate transactions such as mergers and asset sales, and otherwise the
direction of our business and affairs. Additionally, under the terms of a
shareholders' agreement among Warburg, Pincus, Mr. Singh and us, entered into
in connection with our merger with TresCom, we agreed to nominate one
individual selected by Warburg, Pincus and reasonably acceptable to our
non-employee directors, to serve as a member of our board of directors. This
nomination right remains effective so long as Warburg, Pincus is the
beneficial owner of 10% or more of our outstanding common stock. In June
1998, Douglas Karp joined our board of directors pursuant to the foregoing
arrangement.
Future sales of our common stock in the public market could lower our stock
price.
Future sales of our common stock in the public market could lower our
stock price and impair our ability to raise funds in new stock offerings. As
of March 31, 2000, we had approximately 40,022,149 shares of common stock
outstanding and 4,962,903 shares issuable upon exercise of outstanding
options and warrants and we will have approximately 6,025,149 shares reserved
for issuance upon conversion of the $300 million of the debentures (subject
to adjustment). Although a substantial portion of these shares are
"restricted shares" or are held by our affiliates and, accordingly, may not
be sold publicly except in compliance with Rule 144, a significant percentage
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of these shares, together with shares of our common stock issued in our
initial public offering, shares of our common stock previously sold pursuant
to Rule 144, shares of our common stock issued in the TresCom merger to
TresCom stockholders other than Warburg, Pincus and shares of our common
stock issued in the October 1999 offering, are freely tradeable. In addition,
we may issue a significant number of additional shares of common stock as
consideration for acquisitions or other investments. For example, we issued
approximately 2.2 million shares of our common stock in connection with our
acquisition of LCR Telecom. Sales of a substantial amount of common stock in
the public market, or the perception that these sales may occur, could
adversely affect the market price of our common stock prevailing from time to
time in the public market and could impair our ability to raise funds in
additional stock offerings.
There is only a limited trading market for our common stock and the market
price of our common stock may fluctuate significantly.
Since our initial public offering in 1996, there has been limited
trading in our common stock. There can be no assurance that an active trading
market for the common stock will be maintained. Historically, the market
prices for securities of emerging companies in the telecommunications
industry have been highly volatile. Various factors and events may cause the
market price of the common stock to fluctuate significantly. Such factors and
events include the liquidity of the market for the common stock, variations
in our quarterly operating results, regulatory or other changes (both
domestic and international) affecting the telecommunications industry
generally, our or our competitors' announcements of business developments,
our adding customers in connection with acquisitions, changes in the cost of
long distance service or other operating costs and changes in general market
conditions.
We cannot assure you that an active trading market will develop for the
debentures.
Prior to the offering of the debentures in February 2000, no public
market existed for the debentures. We cannot assure you that any liquid
market will develop for the debentures, that holders of the debentures will
be able to sell their debentures, or at what price holders would be able to
sell their debentures. The liquidity of the trading market in the debentures
and the market price quoted for the debentures may be affected adversely by
declines in the market for the 1997 senior notes, the 1998 senior notes, the
January 1999 senior notes, and the October 1999 senior notes, by changes in
the overall markets for convertible subordinated debentures and by changes in
our financial performance or prospects for companies in our industry
generally. We do not intend to apply for listing of the debentures on any
securities exchange.
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Anti-takeover provisions could impede or discourage a third-party
acquisition.
Primus is a Delaware corporation and the anti-takeover provisions of
Delaware law impose various impediments to the ability of a third party to
acquire control of our company, even if a change in control would be
beneficial to our existing stockholders. In addition, our board of directors
has the power, without shareholder approval, to designate the terms of one or
more series of preferred stock and issue shares of preferred stock, which
could be used defensively if a takeover is threatened. We also have adopted a
rights plan, commonly known as a "poison pill," that entitles our
stockholders to acquire additional shares of our company, or a potential
acquirer of our company, at a substantial discount from their market value in
the event of an attempted takeover. Our certificate of incorporation or
by-laws provide for a classified board of directors serving staggered
three-year terms, restrictions on who may call a special meeting of
stockholders and a prohibition on stockholder action by written consent. The
indentures governing our senior notes and the debentures require that we
offer to repurchase such notes or debentures upon a change in control of
Primus. Lastly, all options issued under our stock option plans automatically
vest upon a change in control. Our incorporation under Delaware Law, our
board's ability to create and issue a new series of preferred stock, the
acceleration of the vesting of options, the existence of our rights plan, the
requirement to repurchase senior notes and the debentures, and certain
provisions of our certificate of incorporation or by-laws could impede a
merger, takeover or other business combination involving our company or
discourage a potential acquirer from making a tender offer for our common
stock, which, under certain circumstances, could reduce the market value of
our common stock.
USE OF PROCEEDS
We will not receive any of the proceeds from the resale by selling
security holders of the debentures or the underlying common stock.
PRICE RANGE OF COMMON STOCK
Primus's common stock trades on the Nasdaq Stock Market under the
symbol "PRTL". The following table provides the high and low sales prices for
our common stock on the Nasdaq National Market reported for the fiscal
quarterly periods indicated below. These prices do not include retail
markups, markdowns or commissions.
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Fiscal 2000 High Low
Second Quarter (through June 9, 2000) . . . 49 7/8 19 1/2
First Quarter . . . . . . . . . . . . . . . 51 3/4 30 1/2
Fiscal 1999
Fourth Quarter . . . . . . . . . . . . . . $39 $17 7/16
Third Quarter . . . . . . . . . . . . . . $25 1/8 $15 3/4
Second Quarter . . . . . . . . . . . . . . $23 3/8 $8 7/8
First Quarter . . . . . . . . . . . . . . $18 1/4 $9 7/8
Fiscal 1998
Fourth Quarter . . . . . . . . . . . . . . $16 3/4 $5 1/4
Third Quarter . . . . . . . . . . . . . . $28 $5 3/8
Second Quarter . . . . . . . . . . . . . $30 7/8 $14 5/8
First Quarter . . . . . . . . . . . . . . $31 1/4 $14 3/4
On June 9, 2000, the last reported sale price of our common stock was
$29 1/4.
DIVIDEND POLICY
We have never declared or paid any dividends on our common stock and
we do not anticipate paying any cash dividends in the foreseeable future. We
currently intend to retain our future earnings to finance our operations and
expand our business. In addition, our ability to pay cash dividends is
restricted by the indentures relating to our senior notes and may be further
restricted by agreements entered into by us in the future with respect to
other indebtedness. Any future determination to pay cash dividends will be
at the discretion of the board of directors and will be dependent upon our
financial condition, operating results, capital requirements and such other
factors as the board of directors deems relevant.
RATIO OF EARNINGS TO FIXED CHARGES
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 we
believe to be representative of interest. For the years ended December 31,
1995, 1996, 1997, 1998, 1999 and the three months ended March 31, 2000,
earnings were insufficient to cover fixed charges by $2.4 million, $8.6
million, $36.4 million, $63.6 million, $113.0 million and $43.5 million,
respectively.
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UNAUDITED PRO FORMA FINANCIAL DATA
The following unaudited pro forma consolidated financial statements
are based on the historical presentation of our consolidated financial
statements and the combined financial statements of Telegroup and certain
subsidiaries.
The unaudited pro forma consolidated statement of operations for the
year ended December 31, 1999 gives effect to the Telegroup acquisition and
the related issuance of $45.5 million of senior notes in June 1999 as if each
had occurred on January 1, 1999.
The unaudited pro forma consolidated statement of operations should
be read in conjunction with the historical financial statements, including
notes thereto, of Primus and Telegroup incorporated by reference herein.
The unaudited pro forma consolidated statement of operations may not
be indicative of the results that actually would have occurred if the
transactions had occurred on the dates indicated or that may be obtained in
the future.
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PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(In thousands, except per share amounts)
Adjustments
--------------
Interest Pro Forma as
Primus(1) Telegroup(2) Telegroup Expense Adjusted
--------- -------- --------- -------- ------------
Net revenue $ 832,739 $101,618(3) $(5,676)(4) $ - $925,640
(3,041)(5)
Cost of
revenue 624,599 67,584 (5,421)(4) - 686,762
--------- -------- ------- ------- ---------
Gross margin 208,140 34,034 (3,296) - 238,878
Operating
expenses:
Selling,
general, and
administrative 199,581 34,822 (114)(4) 231,248
(3,041)(5)
Depreciation
and
amortization 54,957 5,709 (1,100)(7) - 61,801
2,235 (8)
--------- -------- ------- ------- ---------
Total
operating
expenses 254,538 40,531 (2,020) - 293,049
--------- -------- ------- ------- ---------
Gain/(loss)
from
operations (46,398) (6,497) (1,276) - (54,171)
Interest
expense (79,629) (6,500) 6,500(6) (2,558)(9) (82,187)
Interest
income 13,291 221 13,512
Other income
(expense) (32) (32)
--------- -------- ------- ------- ---------
Gain/(loss)
before income
taxes (112,736) (12,808) 5,224 (2,558) (122,878)
Income taxes (225) (225)
--------- -------- ------- ------- ---------
Net loss $(112,736) $(13,033) $ 5,224 $(2,558) $(123,103)
========= ======== ======= ======= =========
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Basic &
diluted net
loss per
share $ (3.72) $ (4.06)
========= ======== ======= ======= =========
Weighted
average
number of
shares 30,323 30,323
========= ======== ======= ======= =========
EBITDA $ 8,559 $ 7,630
(1) Represents the historical results of operations of Primus for the year
ended December 31, 1999.
(2) Reflects the historical results of operations of Telegroup for the five
months ending May 31, 1999.
Telegroup Adjustments:
(3) Does not give effect to the attrition in Telegroup's retail customer
base, which began to occur prior to our acquisition of Telegroup and
which we expect to continue into the near future.
(4) To eliminate wholesale net revenue, cost of revenue, and selling,
general and administrative expenses, as this component of the Telegroup
business had been substantially eliminated prior to the purchase by
Primus.
(5) To reflect the reclassification of bad debt expenses from selling,
general and administrative expenses to a reduction of net revenue to
conform to Primus's accounting policies.
(6) To eliminate interest expense on non-purchased obligations.
(7) To reverse amortization expense associated with Telegroup's previously
acquired customer list, the excess of purchase price over the fair value
of net assets acquired, depreciation and amortization of non-purchased
fixed and cable assets, and amortization expenses related to debt
financing costs.
(8) To record amortization expense associated with acquired customer list
and the excess of purchase price over the fair value of net assets
acquired.
Offering Adjustments:
(9) To reflect the interest expense on the $45.5 million of senior notes
issued in July 1999 in connection with the Telegroup acquisition.
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DESCRIPTION OF THE DEBENTURES
The debentures were issued under an indenture, dated as of February
24, 2000, between us and First Union National Bank, as trustee. The terms of
the debentures include those provided in the indenture and those provided in
the registration rights agreement, dated February 24, 2000 between us and the
initial purchasers.
The following description is only a summary of the material
provisions of the debentures, the indenture and the registration rights
agreement. We urge you to read these documents in their entirety because
they, and not this description, define your rights as holders of these
debentures.
When we refer to Primus in this section, we refer only to Primus
Telecommunications Group, Incorporated, a Delaware corporation, and not its
subsidiaries.
Brief Description of the Debentures
The debentures are:
- limited to $300,000,000 aggregate principal amount;
- general unsecured obligations, junior in right of payment to
all of our existing and future Senior Debt, and, as
indebtedness of Primus, will be effectively subordinated to
all indebtedness and liabilities of our subsidiaries;
- convertible into our common stock at a conversion price of
$49.7913 per share, subject to adjustment as described under
"Conversion Rights";
- redeemable at our option upon the terms and at the
redemption prices set forth under "Optional Redemption";
- subject to repurchase by us at your option if a change of
control occurs; and
- due on February 15, 2007, unless earlier converted, redeemed
by us at our option or repurchased by us at your option.
The indenture does not contain any financial covenants and does not
restrict us from paying dividends, incurring Senior Debt or any other
indebtedness or issuing or repurchasing our other securities. The indenture
also does not protect you in the event of a highly leveraged transaction or a
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change in control of Primus except to the extent described under "-Repurchase
at Option of Holders upon a Change of Control" below.
You may present definitive debentures for conversion, registration of
transfer and exchange, without service charge, at our office or agency in New
York City, which shall initially be the office or agency of the trustee in
New York City. For information regarding conversion, registration of transfer
and exchange of global debentures, see "-Form, Denomination and
Registration."
Interest
The debentures bear interest from February 24, 2000 at the rate of
5.75% per year, subject to adjustment upon the occurrence of a Reset
Transaction. See "-Interest Rate Adjustments" below. We will pay interest
semiannually on February 15 and August 15 of each year to the holders of
record at the close of business on the preceding February 1 and August 1,
respectively, beginning August 15, 2000. There are two exceptions to the
preceding sentence:
- In general, we will not pay interest accrued and unpaid on any
debenture that is converted into our common stock. See "-Conversion
Rights." If a holder of debentures converts after a record date for
an interest payment but prior to the corresponding interest payment
date, it will receive on the interest payment date interest accrued
and paid on such debentures, notwithstanding the conversion of such
debentures prior to such interest payment date, because such holder
will have been the holder of record on the corresponding record date.
However, at the time such holder surrenders such debentures for
conversion, it must pay us an amount equal to the interest that has
accrued and will be paid on the interest payment date. The preceding
sentence does not apply, however, to a holder that converts, after a
record date for an interest payment but prior to the corresponding
interest payment date, debentures that are called by us for
redemption. Accordingly, if we redeem debentures on a date after a
record date for an interest payment but prior to the corresponding
interest payment date, and prior to the redemption date the holder of
such debentures chooses to convert such debentures, the holder will
not be required to pay us, at the time it surrenders such debentures
for conversion, the amount of interest on such debentures it will
receive on the interest payment date.
- We will pay interest to a person other than the holder of record on
the record date if we redeem the debentures on a date that is after
the record date and prior to the corresponding interest payment date.
In this instance, we will pay interest accrued and unpaid on the
debentures being redeemed to but not including the redemption date to
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the same person to whom we will pay the principal of such debentures.
Except as provided below, we will pay interest on:
- the global debentures to DTC in immediately available funds;
- the definitive debentures having an aggregate principal
amount of $5,000,000 or less by check mailed to the holders
of these debentures; and
- the definitive debentures having an aggregate principal
amount of more than $5,000,000 by wire transfer in
immediately available funds at the election of the holders
of these debentures.
At maturity, we will pay interest on the definitive debentures at our
office or agency in New York City, which initially will be the office or
agency of the trustee in New York City.
We will pay principal and premium, if any, on:
- the global debentures to DTC in immediately available funds;
and
- the definitive debentures at our office or agency in New
York City, which initially will be the office or agency of
the trustee in New York City.
Interest generally will be computed on the basis of a 360-day year comprised
of twelve 30-day months.
Interest Rate Adjustments
If a Reset Transaction occurs, the interest rate will be adjusted to
equal the Adjusted Interest Rate from the effective date of such Reset
Transaction to, but not including, the effective date of any succeeding Reset
Transaction.
A "Reset Transaction" means:
- a merger, consolidation or statutory share exchange to which
the entity that is the issuer of the common stock into which
the debentures are then convertible is a party;
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- a sale of all or substantially all the assets of that
entity;
- a recapitalization of that common stock; or
- a distribution described in clause (4) of the sixth
paragraph under "-Conversion Rights" below,
after the effective date of which transaction or distribution the debentures
would be convertible into:
- shares of an entity the common stock of which had a dividend
yield for the four fiscal quarters of such entity
immediately preceding the public announcement of the
transaction or distribution that was more than 2.5% higher
than the dividend yield on our common stock (or other common
stock then issuable upon conversion of the debentures) for
the four fiscal quarters preceding the public announcement
of the transaction or distribution; or
- shares of an entity that announces a dividend policy prior
to the effective date of the transaction or distribution
which policy, if implemented, would result in a dividend
yield on that entity's common stock for the next four fiscal
quarters that would result in such a 2.5% increase.
The "Adjusted Interest Rate" with respect to any Reset Transaction
will be the rate per year that is the arithmetic average of the rates quoted
by two dealers engaged in the trading of convertible securities selected by
us or our successor as the rate at which interest should accrue so that the
fair market value, expressed in dollars, of a debenture immediately after the
later of:
- the public announcement of the Reset Transaction; or
- the public announcement of a change in dividend policy in
connection with the Reset Transaction,
will equal the average Trading Price of a debenture for the 20 trading days
preceding the date of public announcement of the Reset Transaction. However,
the Adjusted Interest Rate will not be less than 5.75% per year.
For purposes of the definition of Reset Transaction, the dividend
yield on any security for any period means the dividends paid or proposed to
be paid pursuant to an announced dividend policy on the security for that
period divided by, if with respect to dividends paid on that security, the
average Closing Price (as defined in the indenture) of the security during
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that period and, if with respect to dividends proposed to be paid on the
security, the Closing Price of such security on the effective date of the
related Reset Transaction.
The "Trading Price" of a security on any date of determination means:
- the closing sale price (or, if no closing sale price is
reported, the last reported sale price) of a security
(regular way) on the New York Stock Exchange on that date;
- if that security is not listed on the NYSE on that date, the
closing sale price as reported in the composite transactions
for the principal U.S. securities exchange on which that
security is listed;
- if that security is not so listed on a U.S. national or
regional securities exchange, the closing sale price as
reported by the Nasdaq National Market;
- if that security is not so reported, the last price quoted
by Interactive Data Corporation for that security or, if
Interactive Data Corporation is not quoting such price, a
similar quotation service selected by us;
- if that security is not so quoted, the average of the
mid-point of the last bid and ask prices for that security
from at least two dealers recognized as market-makers for
that security; or
- if that security is not so quoted, the average of that last
bid and ask prices for that security from a dealer engaged
in the trading of convertible securities.
Conversion Rights
You may convert any outstanding debentures (or portions of
outstanding debentures) into our common stock, initially at the conversion
price of $49.7913 per share (equal to a conversion rate of 20.0839 shares per
$1,000 principal amount of debentures). The conversion price is, however,
subject to adjustment as described below. We will not issue fractional shares
of common stock upon conversion of debentures. Instead, we will pay a cash
adjustment based upon the closing sale price of our common stock on the
trading day immediately preceding the conversion date. You may convert
debentures only in denominations of $1,000 and whole multiples of $1,000.
You may exercise conversion rights at any time prior to the close of
business on the final maturity date of the debentures. However, if you are a
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holder of debentures that have been called for redemption, you must exercise
your conversion rights prior to the close of business on the second business
day preceding the redemption date, unless we default in payment of the
redemption price. In addition, if you have exercised your right to require us
to repurchase your debentures because a change of control has occurred, you
may convert your debentures into our common stock only if you withdraw your
notice and convert your debentures prior to the close of business on the
business day immediately preceding the change of control repurchase date.
Except as provided below, if you convert your debentures into our
common stock on any day other than an interest payment date, you will not
receive any interest that has accrued on these debentures. By delivering to
the holder the number of shares issuable upon conversion, determined by
dividing the principal amount of the debentures being converted by the
conversion price, together with a cash payment, if any, in lieu of fractional
shares, we will satisfy our obligation with respect to the debentures. That
is, accrued but unpaid interest will be deemed to be paid in full rather than
canceled, extinguished or forfeited. If you convert after a record date for
an interest payment but prior to the corresponding interest payment date, you
will receive on the interest payment date interest accrued and paid on such
debentures, notwithstanding the conversion of such debentures prior to such
interest payment date, because you will have been the holder of record on the
corresponding record date. However, at the time you surrender such debentures
for conversion, you must pay us an amount equal to the interest that has
accrued and will be paid on the debentures being converted on the interest
payment date. However, the preceding sentence does not apply to debentures
that are converted after being called by us for redemption. Accordingly, if
we call your debentures for redemption on a date that is after a record date
for an interest payment but prior to the corresponding interest payment date,
and prior to the redemption date you choose to convert your debentures, you
will not be required to pay us at the time you surrender such debentures for
conversion the amount of interest on such debentures you will receive on the
date that has been fixed for redemption. Furthermore, if we call your
debentures for redemption on a date that is prior to a record date for an
interest payment date, and prior to the redemption date you choose to convert
your debentures, you will receive on the date that has been fixed for
redemption the amount of interest you would have received if you had not
converted your debentures.
You will not be required to pay any taxes or duties relating to the
issuance or delivery of our common stock if you exercise your conversion
rights, but you will be required to pay any tax or duty which may be payable
relating to any transfer involved in the issuance or delivery of the common
stock in a name other than yours. (If you convert any debenture within two
years after its original issuance, the common stock issuable upon conversion
will not be issued or delivered in a name other than yours unless the
applicable restrictions on transfer have been satisfied. See "Notice to
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Investors.") Certificates representing shares of common stock will be issued
or delivered only after all applicable taxes and duties, if any, payable by
you have been paid.
To convert a definitive debenture, you must:
- complete the conversion notice on the back of the debenture
(or a facsimile thereof),
- deliver the completed conversion notice and the debentures
to be converted to the specified office of the conversion
agent;
- pay all funds required, if any, relating to interest on the
debentures to be converted to which you are not entitled, as
described in the second preceding paragraph; and
- pay all taxes or duties, if any, as described in the
preceding paragraph.
The conversion date will be the date on which all of the foregoing
requirements have been satisfied. The debentures will be deemed to have been
converted immediately prior to the close of business on the conversion date.
A certificate for the number of shares of common stock into which the
debentures are converted (and cash in lieu of any fractional shares) will be
delivered as soon as practicable on or after the conversion date.
We will adjust the initial conversion price for certain events, including:
(1) issuances of our common stock as a dividend or distribution on our
common stock;
(2) certain subdivisions and combinations of our common stock;
(3) issuances to all holders of our common stock of certain rights or
warrants to purchase our common stock (or securities convertible into
our common stock) at less than (or having a conversion price per
share less than) the current market price of our common stock;
(4) distributions to all holders of our common stock of shares of our
capital stock (other than our common stock), evidences of our
indebtedness or assets (including securities, but excluding:
(A) the rights and warrants referred to in clause (3),
(B) any dividends and distributions in connection with a
reclassification, change, consolidation, merger,
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combination, sale or conveyance resulting in a change in the
conversion consideration pursuant to the second succeeding
paragraph, or
(C) any dividends or distributions paid exclusively in cash);
(5) distributions consisting exclusively of cash (excluding any cash that
is distributed upon a reclassification, change, merger, combination,
sale, or conveyance resulting in a change in the conversion
consideration pursuant to the second succeeding paragraph) to all
holders of our common stock to the extent that such distributions,
combined together with:
(A) all other such all-cash distributions made within the
preceding 12 months for which no adjustment has been made,
plus
(B) any cash and the fair market value of other consideration
paid for any tender offers by us or any of our subsidiaries
for our common stock concluded within the preceding 12
months for which no adjustment has been made,
exceeds 10% of our market capitalization on the record date for such
distribution; market capitalization is the product of the then current market
price of our common stock times the number of shares of our common stock then
outstanding; and
(6) purchases of our common stock pursuant to a tender offer made by us
or any of our subsidiaries to the extent that the same involves an
aggregate consideration that, together with
(A) any cash and the fair market value of any other
consideration paid in any other tender offer by us or any of
our subsidiaries for our common stock concluded within the
12 months preceding such tender offer for which no
adjustment has been made plus
(B) the aggregate amount of any all-cash distributions referred
to in clause (5) above to all holders of our common stock
within 12 months preceding the expiration of tender offer
for which no adjustments have been made, exceeds 10% of our
market capitalization on the expiration of such tender
offer.
We will not make an adjustment in the conversion price unless such
adjustment would require a change of at least 1% in the conversion price then
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in effect at such time. We will carry forward and take into account in any
subsequent adjustment any adjustment that would otherwise be required to be
made. Except as stated above, we will not adjust the conversion price for the
issuance of our common stock or any securities convertible into or
exchangeable for our common stock or carrying the right to purchase any of
the foregoing.
If we:
- reclassify or change our common stock (other than a change
in par value or changes resulting from a subdivision or
combination); or
- consolidate or combine with or merge into any person or sell
or convey to another person all or substantially all of our
property and assets,
and the holders of our common stock receive stock, other securities or other
property or assets (including cash or any combination thereof) with respect
to or in exchange for their common stock, the holders of the debentures may
convert the debentures into the consideration they would have received if
they had converted their debentures immediately prior to such
reclassification, change, consolidation, combination, merger, sale or
conveyance.
If a taxable distribution to holders of our common stock or other
transaction occurs which results in any adjustment of the conversion price,
you may, in certain circumstances, be deemed to have received a distribution
subject to U.S. income tax as a dividend. In certain other circumstances, the
absence of an adjustment may result in a taxable dividend to the holders of
our common stock. See "Certain United States Federal Income Tax
Consequences."
We may from time to time, to the extent permitted by law, reduce the
conversion price of the debentures by any amount for any period of at least
20 days. In that case, we will give at least 15 days' notice of such
decrease. We may make such reductions in the conversion price, in addition to
those set forth above, as our board of directors deems advisable to avoid or
diminish any income tax to holders of our common stock resulting from any
dividend or distribution of stock (or rights to acquire stock) or from any
event treated as such for income tax purposes.
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Optional Redemption by Primus
Provisional Redemption
At any time prior to February 15, 2003, we may redeem some or all of
the debentures on at least 20 but not more than 60 days' notice at a
provisional redemption price equal to 102.88% of the principal amount of
debentures if:
(1) the shelf registration statement covering resales of debentures and
the common stock issuable upon conversion of the debentures is
effective and available for use and is expected to remain effective
and available for use for the 30 days following the provisional
redemption date; and
(2) the Current Market Value of our common stock equals or exceeds the
following triggering percentages of the conversion price then in
effect for at least 20 trading days in any consecutive 30-day trading
period ending on the trading day prior to the date the notice of the
provisional redemption is mailed. The "Current Market Value" means
the average of the high and low sale prices of our common stock, as
reported on the Nasdaq National Market or any national securities
exchange on which our common stock is then listed, on such trading
day.
Trigger
During the Twelve Months Commencing Percentage
February 15, 2000 170%
February 15, 2001 160%
February 15, 2002 150%
Upon any provisional redemption, we will make an additional payment
(the "interest make-whole payment") with respect to the debentures we call
for provisional redemption. The interest make-whole payment will equal the
sum of:
(1) the present value of the aggregate amount of the interest that would
otherwise have accrued from the provisional redemption date through
February 15, 2003 (the "interest make-whole period"); and
(2) liquidated damages, if any, to the provisional redemption date.
We will calculate the present value by using the bond equivalent yield on
U.S. Treasury notes or bills having a term nearest in length to that of the
interest make-whole period, as of the date the notice of the provisional
redemption is mailed. We will pay the interest make-whole payment on all
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debentures we call for provisional redemption, including those debentures
which are converted into our common stock after the date the notice of the
provisional redemption is mailed and prior to the provisional redemption
date.
In addition, we will pay interest on the debentures being redeemed, including
those debentures which are converted into our common stock after the date the
notice of the provisional redemption is mailed and prior to the provisional
redemption date. This interest will include interest accrued and unpaid to,
but excluding, the provisional redemption date. If the provisional redemption
date is an interest payment date, we will pay the interest to the holder of
record on the corresponding record date, which may or may not be the same
person to whom we will pay the provisional redemption price.
Non-provisional Redemption
At any time on or after February 15, 2003, we may redeem some or all
of the debentures on at least 20 but not more than 60 days' notice, at the
following redemption prices (expressed in percentages of the principal
amount).
Redemption
During the Twelve Months Commencing Price
February 15, 2003 102.88%
February 15, 2004 101.92%
February 15, 2005 100.96%
February 15, 2006 100.00%
In addition, we will pay interest on the debentures being redeemed, including
those debentures which are converted into our common stock after the date the
notice of the redemption is mailed and prior to the redemption date. This
interest will include interest accrued and unpaid to, but excluding, the
redemption date. If the redemption date is an interest payment date, we will
pay the interest to the holder of record on the corresponding record date,
which may or may not be the same person to whom we will pay the redemption
price.
Partial Redemption
If we do not redeem all of the debentures, the trustee will select the
debentures to be redeemed in principal amounts of $1,000 or whole multiples
of $1,000 by lot or on a pro rata basis. If any debentures are to be redeemed
in part only, we will issue a new debenture or debentures in principal amount
equal to the unredeemed principal portion thereof. If a portion of your
debentures is selected for partial redemption and you convert a portion of
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your debentures, the converted portion will be deemed to be taken from the
portion selected for redemption.
Conditional Redemption
Our existing Senior Debt may prohibit or limit our ability to optionally
redeem the debentures. We will be permitted under the indenture to condition
our provisional or non-provisional redemption of the debentures upon the
occurrence of other events on or prior to the redemption date, including the
receipt of proceeds from concurrent equity or other financings.
Repurchase at Option of Holders upon a Change of Control
If a change of control occurs, you will have the right to require us to
repurchase all of your debentures not previously called for redemption, or
any portion of those debentures that is equal to $1,000 or a whole multiple
of $1,000. The repurchase date will be a business day no earlier than 30 days
nor later than 60 days after the date we give notice of a change of control
and will be specified in that notice. The repurchase price is equal to 100%
of the principal amount of the debentures to be repurchased. We will also pay
interest accrued and unpaid to, but excluding, the repurchase date.
Notwithstanding the foregoing, you will not have a right to require us to
repurchase the debentures unless prior to that repurchase we have made any
applicable change of control offers required by our Senior Debt and have
purchased all Senior Debt validly tendered for payment in connection with
such change of control offers.
Instead of paying the repurchase price in cash, we may pay the repurchase
price in common stock. The number of shares of common stock a holder will
receive will equal the repurchase price divided by 95% of the average of the
closing sale prices of our common stock for the five trading days immediately
preceding and including the third trading day prior to the repurchase date.
However, we may not pay in common stock unless we satisfy certain conditions
prior to the repurchase date as provided in the indenture.
Within 30 days after the occurrence of a change of control, we are required
to give you notice of the occurrence of the change of control and of your
resulting repurchase right. To exercise the repurchase right, you must
deliver, prior to the close of business on the third business day immediately
preceding the repurchase date, written notice to the trustee of your exercise
of your repurchase right, together with the debentures with respect to which
your right is being exercised. Your notice will be irrevocable, except with
respect to conversion rights. You may withdraw this otherwise irrevocable
notice by delivering to the paying agent a notice of withdrawal prior to the
close of business on the third business day immediately preceding the
repurchase date. You also must convert these debentures prior to the close of
business on the business day immediately preceding the repurchase date. We
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will not pay interest accrued and unpaid on any of the debentures you
convert.
A "change of control" will be deemed to have occurred at such time after the
original issuance of the debentures when any of the following has occurred:
- a 'person' or 'group' (within the meaning of Sections 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, as
amended) becomes the ultimate 'beneficial owner' (as defined
in Rule 13d-3 under the Securities Exchange Act) of more
than 50% of the total voting power of the then outstanding
voting stock of Primus on a fully diluted basis;
- 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 Primus' 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 the board of directors then in office;
- 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 Primus and its subsidiaries taken as a
whole to any such 'person' or 'group' (other than to Primus
or a subsidiary of Primus);
- the merger or consolidation of Primus with or into another
corporation or the merger of another corporation with or
into Primus 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
- the adoption of a plan relating to the liquidation or
dissolution of Primus.
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However, a change of control will be deemed not to have occurred if
the closing sale price per share of our common stock for any five trading
days within:
- the period of 10 consecutive trading days ending immediately
after the later of the change of control or the public
announcement of the change of control, in the case of a
change of control under the first clause above, or
- the period of 10 consecutive trading days ending immediately
before the change of control, in the case of a change of
control under the second, third, fourth and fifth clauses
above,
equals or exceeds 110% of the conversion price of the debentures in effect on
each such trading day.
Rule 13e-4 under the Exchange Act, requires the dissemination of
certain information to security holders if an issuer tender offer occurs and
may apply if the repurchase option becomes available to holders of the
debentures. We will comply with this rule to the extent applicable at that
time.
We may, to the extent permitted by applicable law and our Senior Debt
indentures, at any time purchase the debentures in the open market or by
tender at any price or by private agreement. Any debenture so purchased by us
may, to the extent permitted by applicable law, be reissued or resold or may
be surrendered to the trustee for cancellation. Any debentures surrendered to
the trustee may not be reissued or resold and will be canceled promptly.
The foregoing provisions would not necessarily protect holders of the
debentures if highly leveraged or other transactions involving us occur that
may adversely affect holders.
Our ability to repurchase debentures upon the occurrence of a change
in control is subject to important limitations. The occurrence of a change of
control could cause an event of default under, or be prohibited or limited
by, the terms of Senior Debt that we may incur in the future. As a result,
any repurchase of the debentures would, absent a waiver, be prohibited under
the subordination provisions of the indenture until the Senior Debt is paid
in full. Further, we cannot assure you that we would have the financial
resources, or would be able to arrange financing, to pay the repurchase price
for all the debentures that might be delivered by holders of debentures
seeking to exercise the repurchase right. Any failure by us to repurchase the
debentures when required following a change of control would result in an
event of default under the indenture, whether or not such repurchase is
permitted by the subordination provisions of the indenture. Any such default
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may, in turn, cause a default under Senior Debt that we may incur in the
future. See "-Subordination" below.
Subordination
The debentures are subordinated in right of payment to the prior
payment in full of all our existing and future Senior Debt. The indenture
provides that in the event of any distribution of our assets upon our
dissolution, winding up, liquidation or reorganization, the holders of our
Senior Debt will first be paid in respect of all Senior Debt in full in cash
or other payment satisfactory to the holders of Senior Debt before we make
any payments of principal of, or premium, if any, and interest (including
liquidated damages, if any) on the debentures, except that we may make
payments on the debentures in Permitted Junior Securities. In addition, if
the debentures are accelerated because of an event of default, the holders of
any Senior Debt would be entitled to payment in full in cash or other payment
satisfactory to the holders of Senior Debt of all obligations in respect of
Senior Debt before the holders of the debentures are entitled to receive any
payment or distribution, except that we may make payments on the debentures
in Permitted Junior Securities. Under the indenture, we must promptly notify
holders of Senior Debt if payment of the debentures is accelerated because of
an event of default.
The indenture further provides if any default by us has occurred and
is continuing in the payment of principal of or premium, if any, or interest
on, or other payment obligations in respect of, any Senior Debt, no payment
may be made with respect to principal of, premium, if any, or interest on the
debentures (including any liquidated damages), other than payments on the
debentures in Permitted Junior Securities, until all such payments due in
respect of that Senior Debt have been paid in full in cash or other payment
satisfactory to the holders of that Senior Debt. During the continuance of
any event of default with respect to any Designated Senior Debt (other than a
default in payment of the principal of or premium, if any, or interest on, or
other payment obligations in respect of any Designated Senior Debt),
permitting the holders thereof to accelerate the maturity thereof, no payment
may be made by us, directly or indirectly, with respect to principal of or
premium, if any, or interest on the debentures (including any liquidated
damages, if any), other than payments on the debentures in Permitted Junior
Securities, for 179 days following written notice to us, from any holder,
representative or trustee under any agreement pursuant to which that
Designated Senior Debt may have been issued, that such an event of default
has occurred and is continuing, unless such event of default has been cured
or waived or that Designated Senior Debt has been paid in full in cash or
other payment satisfactory to the holders of that Designated Senior Debt.
However, if the maturity of that Designated Senior Debt is accelerated, no
payment may be made on the debentures, other than payments in Permitted
Junior Securities, until that Designated Senior Debt has been paid in full in
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cash or other payment satisfactory to the holders of that Designated Senior
Debt or such acceleration has been cured or waived.
"Permitted Junior Securities" means securities that are subordinated
to Senior Debt, and any securities issued in exchange for Senior Debt, at
least to the same extent as the debentures offered hereby.
By reason of such subordination provisions, in the event of
insolvency, funds which we would otherwise use to pay the holders of
debentures will be used to pay the holders of Senior Debt to the extent
necessary to pay Senior Debt in full in cash or other payment satisfactory to
the holders of Senior Debt. As a result of these payments, our general
creditors may recover less, ratably, than holders of Senior Debt and such
general creditors may recover more, ratably, than holders of debentures.
"Senior Debt" means the principal of, and the premium, if any,
interest (including all interest accruing subsequent to the commencement of
any bankruptcy or similar proceeding, whether or not a claim for
post-petition interest is allowable as a claim in any such proceeding) and
all fees, costs, expenses and other amounts accrued or due on or in
connection with, our Indebtedness, whether outstanding on the date of the
indenture or subsequently created, incurred, assumed, guaranteed or in effect
guaranteed by us (including all deferrals, renewals, extensions or refundings
of, or amendments, modifications or supplements to, the foregoing), unless in
the case of any particular Indebtedness, the instrument creating or
evidencing such Indebtedness or the assumption or guarantee thereof expressly
provides that Indebtedness shall not be senior in right of payment to the
debentures or expressly provides that such Indebtedness is equal with or
junior to the debentures. However, the term "Senior Debt" does not include
our Indebtedness to any of our subsidiaries of which we own, directly or
indirectly, a majority of the voting stock.
"Indebtedness" means, with respect to any person:
(1) all indebtedness of such person for borrowed money;
(2) all obligations of such person evidenced by bonds, debentures, notes
or other similar instruments;
(3) all obligations of such person in respect of letters of credit or
other similar instruments (including reimbursement obligations with
respect thereto);
(4) all obligations of such person as lessee under capitalized leases;
(5) all Indebtedness of other persons secured by a lien on any asset of
such person, whether or not such Indebtedness is assumed by such
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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;
(6) all Indebtedness of other persons guaranteed by such person to the
extent such Indebtedness is guaranteed by such person; and
(7) to the extent not otherwise included in this definition, obligations
under currency agreements and interest rate agreements.
"Designated Senior Debt" means our Senior Debt which, at the date of
determination, has an aggregate amount outstanding of, or under which, at the
date of determination, the holders thereof are committed to lend up to, at
least $15 million and is specifically designated in the instrument evidencing
or governing that Senior Debt as "Designated Senior Debt" for purposes of the
indenture. However, the instrument may place limitations and conditions on
the right of that Senior Debt to exercise the rights of Designated Senior
Debt. At March 31, 2000, we had approximately $868.9 million of Senior Debt
and no Designated Senior Debt. The indenture does not restrict the creation
of Senior Debt or any other indebtedness in the future. For information
concerning our potential incurrence of additional indebtedness, see
"Management's Discussion of and Analysis of Financial Condition and Results
of Operations-Liquidity and Capital Resources."
The debentures are our obligations exclusively and will be, in
effect, subordinated to all Indebtedness (including trade payables) of our
subsidiaries. The indenture does not limit the amount of Indebtedness or
other liabilities our subsidiaries may incur. Our ability to make required
interest, principal, repurchase, cash conversion or redemption payments on
the debentures may be impaired as a result of the obligations of our
subsidiaries. Our subsidiaries are separate and distinct legal entities and
have no obligation, contingent or otherwise, to pay any amounts due pursuant
to the debentures or to make any funds available therefor, whether by
dividends, loans or other payments. Any right we have to receive assets of
any of our subsidiaries upon the latter's liquidation or reorganization (and
the consequent right of the holders of the debentures to participate in those
assets) will be effectively subordinated to the claims of that subsidiary's
creditors, except to the extent that we are ourselves recognized as a
creditor of that subsidiary, in which case our claims would still be
subordinate to any security interests in the assets of that subsidiary and
any indebtedness of that subsidiary senior to that held by us. As of March
31, 2000, our consolidated subsidiaries had outstanding aggregate liabilities
of approximately $486.5 million.
We are obligated to pay reasonable compensation to the trustee and to
indemnify the trustee against any losses, liabilities or expenses incurred by
it in connection with its duties relating to the debentures. The trustee's
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claims for such payments will be senior to those of holders of the debentures
in respect of all funds collected or held by the trustee.
Events of Default
Each of the following constitutes an event of default under the indenture:
(1) default in the payment of interest (including liquidated damages, if
any) on the debentures when due and payable and continuance of such
default for a period of 30 days;
(2) default in the payment of principal of (or premium, if any, on) any
debenture at its stated maturity upon acceleration, redemption or
otherwise;
(3) default in the payment of principal or interest (including liquidated
damages, if any), on debentures required to be purchased by Primus as
described under "Repurchase at Option of Holders upon a Change of
Control";
(4) default in the performance of or breach of any other of our covenants
or agreements in the indenture or under the debentures (other than a
default specified in clause (1), (2) or (3) 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 debentures;
(5) there occurs with respect to any issue or issues of Indebtedness of
Primus or certain subsidiaries of Primus having an outstanding
principal amount of $10.0 million or more in the aggregate for all
such issues, 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
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(x) the expiration of any applicable grace period or
(y) the thirtieth day after such default;
(6) 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 Primus or certain subsidiaries of Primus 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;
(7) a court having jurisdiction in the premises enters a decree or order
for
(A) relief in respect of Primus or any significant subsidiary of
Primus 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 Primus or any
significant subsidiary of Primus or for all or substantially
all of Primus' property and assets or those of our
significant subsidiaries or
(C) the winding up or liquidation of the affairs of Primus or
any significant subsidiary of Primus,
and, in each case, such decree or order shall remain unstayed and in effect
for a period of 30 consecutive days; or
(8) Primus or any significant subsidiary of Primus
(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 Primus or any
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significant subsidiary of Primus or for all or substantially
all of the property and assets of Primus or any significant
subsidiary of Primus, or
(C) effects any general assignment for the benefit of creditors.
The indenture will provide that the trustee shall, within 90 days of the
occurrence of a default, give to the registered holders of the debentures
notice of all uncured defaults known to it, but the trustee shall be
protected in withholding such notice if it, in good faith, determines that
the withholding of such notice is in the best interest of such registered
holders, except in the case of a default in the payment of the principal of,
or premium, if any, or interest on, any of the debentures when due or in the
payment of any redemption or repurchase obligation.
If an event of default specified in clauses (7) or (8) above occurs and is
continuing, then automatically the principal of all the debentures and the
interest thereon shall become immediately due and payable. If an event of
default shall occur and be continuing, other than with respect to clauses (7)
or (8) above (the default not having been cured or waived as provided under
"-Meetings, Modifications and Waiver" below), the trustee or the holders of
at least 25% in aggregate principal amount of the debentures then outstanding
may declare the debentures due and payable at their principal amount together
with accrued interest, and thereupon the trustee may, at its discretion,
proceed to protect and enforce the rights of the holders of debentures by
appropriate judicial proceedings. Such declaration may be rescinded or
annulled either with the written consent of the holders of a majority in
aggregate principal amount of the debentures then outstanding or a majority
in aggregate principal amount of the debentures represented at a meeting at
which a quorum (as specified under "-Meetings, Modifications and Waiver"
below) is present, in each case upon the conditions provided in the
indenture. In the event of a declaration of acceleration because an Event of
Default set forth in clause (5) above has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and 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 recission, as the case may be, shall have been given to the
trustee by us 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 debentures, and no other Event
of Default has occurred during such 60-day period which has not been cured or
waived during such period.
The indenture contains a provision entitling the trustee, subject to the duty
of the trustee during default to act with the required standard of care, to
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be indemnified by the holders of debentures before proceeding to exercise any
right or power under the indenture at the request of such holders. The
indenture provides that the holders of a majority in aggregate principal
amount of the debentures then outstanding through their written consent, or
the holders of a majority in aggregate principal amount of the debentures
then outstanding represented at a meeting at which a quorum is present by a
written resolution, 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 upon the trustee.
We will be required to furnish annually to the trustee a statement as to the
fulfillment of our obligations under the indenture.
Consolidation, Merger or Assumption
We may, without the consent of the holders of debentures, consolidate
with, merge into or transfer all or substantially all of our assets to any
other corporation organized under the laws of the United States or any of its
political subdivisions provided that:
- the surviving corporation assumes all our obligations under
the indenture and the debentures;
- at the time of such transaction, no event of default, and no
event which, after notice or lapse of time, would become an
event of default, shall have happened and be continuing; and
- certain other conditions are met.
Meetings, Modifications and Waiver
The indenture contains provisions for convening meetings of the
holders of debentures to consider matters affecting their interests.
The indenture (including the terms and conditions of the debentures)
may be modified or amended by us and the trustee, without the consent of the
holder of any debenture, for the purposes of, among other things:
- adding to our covenants for the benefit of the holders of
debentures;
- surrendering any right or power conferred upon us;
- providing for conversion rights of holders of debentures if
any reclassification or change of our common stock or any
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consolidation, merger or sale of all or substantially all of
our assets occurs;
- providing for the assumption of our obligations to the
holders of debentures in the case of a merger,
consolidation, conveyance, transfer or lease;
- reducing the conversion price, provided that the reduction
will not adversely affect the interests of the holders of
debentures in any material respect;
- complying with the requirements of the SEC in order to
effect or maintain the qualification of the indenture under
the Trust Indenture Act of 1939, as amended;
- making any changes or modifications necessary in connection
with the registration of the debentures under the Securities
Act as contemplated in the registration rights agreement;
provided that such change or modification does not, in the
good faith opinion of our board of directors and the
trustee, adversely affect the interests of the holders of
debentures in any material respect;
- curing any ambiguity or correcting or supplementing any
defective provision contained in the indenture; provided
that such modification or amendment does not, in the good
faith opinion of our board of directors and the trustee,
adversely affect the interests of the holders of debentures
in any material respect; or
- adding or modifying any other provisions with respect to
matters or questions arising under the indenture which will
not adversely affect the interests of the holders of
debentures in any material respect.
Modifications and amendments to the indenture or to the terms and
conditions of the debentures may also be made, and past default by us may be
waived, either:
- with the written consent of the holders of at least a majority in
aggregate principal amount of the debentures at the time outstanding
or
- by the adoption of a resolution at a meeting of holders by at least a
majority in aggregate principal amount of the debentures represented
at such meeting.
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However, no such modification, amendment or waiver may, without the
written consent or the affirmative vote of the holder of each debenture so
affected:
- change the maturity of the principal of or any installment of
interest on any debenture (including any payment of liquidated
damages);
- reduce the principal amount of, or any premium or interest on
(including any payment of liquidated damages), any debenture;
- change the currency of payment of such debenture or interest thereon;
- impair the right to institute suit for the enforcement of any payment
on or with respect to any debenture;
- modify our obligations to maintain an office or agency in New York
City;
- except as otherwise permitted or contemplated by provisions
concerning corporate reorganizations, adversely affect the repurchase
option of holders upon a change of control or the conversion rights
of holders of the debentures;
- modify the subordination provisions of the indenture in a manner
adverse to the holders of debentures;
- modify the redemption payment provisions of the indenture in a manner
adverse to the holders of debentures;
- reduce the percentage in aggregate principal amount of debentures
outstanding necessary to modify or amend the indenture or to waive
any past default; or
- reduce the percentage in aggregate principal amount of debentures
outstanding required for the adoption of a resolution or the quorum
required at any meeting of holders of debentures at which a
resolution is adopted.
The quorum at any meeting called to adopt a resolution will be
persons holding or representing a majority in aggregate principal amount of
the debentures at the time outstanding and, at any reconvened meeting
adjourned for lack of a quorum, 25% of the aggregate principal amount.
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Satisfaction and Discharge
We may satisfy and discharge our obligations under the indenture
while debentures remain outstanding, subject to certain conditions, if:
- all outstanding debentures will become due and payable at their
scheduled maturity within one year; or
- all outstanding debentures are scheduled for redemption within one
year,
and, in either case, we have deposited with the trustee an amount sufficient
to pay and discharge all outstanding debentures on the date of their
scheduled maturity or the scheduled date of redemption.
Governing Law
The indenture and the debentures will be governed by, and construed
in accordance with, the law of the State of New York.
Information Concerning the Trustee
First Union National Bank, as trustee under the indenture, has been
appointed by us as paying agent, conversion agent, registrar and custodian
with regard to the debentures. StockTrans Inc. is the transfer agent and
registrar for our common stock. The trustee or its affiliates may from time
to time in the future provide banking and other services to us in the
ordinary course of their business.
Form, Denomination and Registration
The debentures were issued in fully registered form, without coupons,
in denominations of $1,000 principal amount and whole multiples of $1,000.
The debentures are evidenced by a global debenture deposited with the
trustee as custodian for The Depository Trust Company, New York, New York, or
DTC, and registered in the name of Cede & Co. as DTC's nominee. Record
ownership of the global debenture may be transferred, in whole or in part,
only to another nominee of DTC or to a successor of DTC or its nominee,
except as set forth below.
A holder may hold its interests in the global debenture directly
through DTC if such holder is a participant in DTC, or indirectly through
organizations which are direct DTC participants. Transfers between direct DTC
participants will be effected in the ordinary way in accordance with DTC's
rules and will be settled in same-day funds. Holders may also beneficially
own interests in the global debenture held by DTC through certain banks,
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brokers, dealers, trust companies and other parties that clear through or
maintain a custodial relationship with a direct DTC participant, either
directly or indirectly.
So long as Cede & Co., as nominee of DTC, is the registered owner of
the global debenture, Cede & Co. for all purposes will be considered the sole
holder of the global debenture. Except as provided below, owners of
beneficial interests in the global debenture will not be entitled to have
certificates registered in their names, will not receive or be entitled to
receive physical delivery of certificates in definitive form, and will not be
considered holders thereof. The laws of some states require that certain
persons take physical delivery of securities in definitive form.
Consequently, the ability to transfer a beneficial interest in the global
debenture to such persons may be limited.
We will wire, through the facilities of the trustee, principal,
premium, if any, and interest payments on the global debenture to Cede & Co.,
the nominee for DTC, as the registered owner of the global debenture. Primus,
the trustee and any paying agent will have no responsibility or liability for
paying amounts due on the global debenture to owners of beneficial interests
in the global debenture.
It is DTC's current practice, upon receipt of any payment of
principal of and premium, if any, and interest on the global debenture, to
credit participants' accounts on the payment date in amounts proportionate to
their respective beneficial interests in the debentures represented by the
global debenture, as shown on the records of DTC, unless DTC believes that it
will not receive payment on the payment date. Payments by DTC participants to
owners of beneficial interests in debentures represented by the global
debenture held through DTC participants will be the responsibility of DTC
participants, as is now the case with securities held for the accounts of
customers registered in "street name."
If you would like to convert your debentures into common stock
pursuant to the terms of the debentures, you should contact your broker or
other direct or indirect DTC participant to obtain information on procedures,
including proper forms and cut-off times, for submitting those requests.
Because DTC can only act on behalf of DTC participants, who in turn
act on behalf of indirect DTC participants and other banks, your ability to
pledge your interest in the debentures represented by global debenture to
persons or entities that do not participate in the DTC system, or otherwise
take actions in respect of such interest, may be affected by the lack of a
physical certificate.
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Neither Primus nor the trustee (nor any registrar, paying agent or
conversion agent under the indenture) will have any responsibility for the
performance by DTC or direct or indirect DTC participants of their
obligations under the rules and procedures governing their operations. DTC
has advised us that it will take any action permitted to be taken by a holder
of debentures, including, without limitation, the presentation of debentures
for conversion as described below, only at the direction of one or more
direct DTC participants to whose account with DTC interests in the global
debenture are credited and only for the principal amount of the debentures
for which directions have been given.
DTC has advised us as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Securities Exchange Act of 1934, as amended. DTC was
created to hold securities for DTC participants and to facilitate the
clearance and settlement of securities transactions between DTC participants
through electronic book-entry changes to the accounts of its participants,
thereby eliminating the need for physical movement of certificates.
Participants include securities brokers and dealers, banks, trust companies
and clearing corporations and may include certain other organizations such as
the initial purchasers of the debentures. Certain DTC participants or their
representatives, together with other entities, own DTC. Indirect access to
the DTC system is available to others such as banks, brokers, dealers and
trust companies that clear through, or maintain a custodial relationship
with, a participant, either directly or indirectly.
Although DTC has agreed to the foregoing procedures in order to
facilitate transfers of interests in the global debenture among DTC
participants, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. If DTC
is at any time unwilling or unable to continue as depositary and a successor
depositary is not appointed by us within 90 days, we will cause debentures to
be issued in definitive form in exchange for the global debenture. None of
Primus, the trustee or any of their respective agents will have any
responsibility for the performance by DTC, direct or indirect DTC
participants of their obligations under the rules and procedures governing
their operations, including maintaining, supervising or reviewing the records
relating to, or payments made on account of, beneficial ownership interests
in global debentures.
DTC's management is aware that some computer applications, systems
and the like for processing data that are dependent upon calendar dates,
including dates before, on or after January 1, 2000, may encounter "Year 2000
problems." DTC has informed DTC participants and other members of the
financial community that it has developed and is implementing a program so
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that its systems, as the same relates to the timely payment of distributions,
including principal and interest payments, to securityholders, book-entry
deliveries and settlement of trades within DTC, continue to function
appropriately. This program includes a technical assessment and a remediation
plan, each of which is complete. Additionally, DTC's plan includes a testing
phase, which is expected to be completed within appropriate time frames.
However, DTC's ability to perform properly its services is also
dependent upon other parties, including, but not limited to, issuers and
their agents, as well as third-party vendors from whom DTC licenses software
and hardware, and third-party vendors on whom DTC relies for information or
the provision of services, including telecommunications and electrical
utility service providers, among others. DTC has informed DTC participants
and other members of the financial community that it is contacting and will
continue to contact third-party vendors from whom DTC acquires services to
(1) impress upon them the importance of such services being Year 2000
compliant and (2) determine the extent of their efforts for Year 2000
remediation (and, as appropriate, testing) of their services. In addition,
DTC is in the process of developing such contingency plans as it deems
appropriate.
According to DTC, the foregoing information with respect to DTC has
been provided to its participants and other members of the financial
community for informational purposes only and is not intended to serve as a
representation, warranty or contract modification of any kind.
DESCRIPTION OF CAPITAL STOCK
General
The current certificate of incorporation of Primus authorizes
80,000,000 shares of common stock, par value $.01 per share. As of March 31,
2000, the outstanding capital stock of Primus consisted of 40,022,149 shares
of common stock held by approximately 356 stockholders of record. The
following summaries of certain provisions of the common stock do not purport
to be complete and are subject to, and qualified in their entirety by, the
provisions of the certificate of incorporation and bylaws of Primus, which
are available from Primus, and by applicable law. Primus is a Delaware
corporation and is subject to the Delaware General Corporation Law, or DGCL.
Common Stock
Holders of common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders of Primus, and the holders of
common stock vote together as a single class on all matters to be voted upon
by the stockholders. The holders of common stock are entitled to receive
ratably such dividends when, as and if declared from time to time by the
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Board of Directors out of the assets of Primus available for the payment of
dividends to the extent permitted by law, subject to preferences that may be
applicable to any outstanding preferred stock and any other provisions of
Primus' certificate of incorporation. Primus does not, however, anticipate
paying any cash dividends in the foreseeable future.
Holders of common stock have no preemptive or other rights to
subscribe for additional shares. No shares of common stock are subject to
redemption or a sinking fund. Holders of common stock also do not have
cumulative voting rights, which means the holder or holders of more than half
of the shares voting for the election of directors can elect all the
directors then being elected. In the event of any liquidation, dissolution or
winding up of Primus, whether voluntary or involuntary, after payment of the
debts and other liabilities of Primus, and subject to the rights of holders
of shares of preferred stock, holders of common stock are entitled to share
pro rata in any distribution of remaining assets to the stockholders. All of
the outstanding shares of common stock are, and the shares issued upon
conversion of the debentures will be, fully paid and nonassessable.
Preferred Stock
The Board of Directors is authorized, without further vote or action
by the holders of common stock, to issue an aggregate of 2,455,000 shares of
preferred stock, parachute value $.01 per share, in one or more series and to
designate the voting powers (but no greater than one vote per share),
preferences, designations, limitations and relative participating, optional,
redemption, conversion, or other special rights, qualifications, limitations
or restrictions of each series, and the number of shares in each series, to
the full extent permitted by law. The Board of Directors may also designate
dividend rights and preferences in liquidation.
No shares of preferred stock are currently outstanding and Primus has
no plans to issue a new series of preferred stock. It is not possible to
state the effect of the authorization and issuance of any series of preferred
stock upon the rights of the holders of common stock until the Board of
Directors determines the specific terms, rights and preferences of such a
series of preferred stock. However, such effects might include, among other
things, restricting dividends on the common stock, diluting the voting power
of the common stock or impairing the liquidation rights of such shares
without further action by holders of common stock. In addition, under certain
circumstances, the issuance of preferred stock may render more difficult or
tend to discourage a merger, tender offer or proxy contest, the assumption of
control by a holder of a large block of Primus' securities or the removal of
incumbent management, which could thereby depress the market price of Primus'
common stock.
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Common Stock Warrants
As of March 31, 2000, we had outstanding 333,588 warrants for the
purchase of shares of common stock. Each warrant entitles the holder to
purchase 1.74513 shares of our common stock at any time prior to August 1,
2004. The exercise price is $9.075 per share. As of March 31, 2000, 59,066
warrants were exercised.
The exercise price of the warrants is subject to adjustment upon the
occurrence of certain events, including, among other things, the payment of a
stock dividend, a merger or consolidation and the issuance for consideration
of rights, options or warrants (other than rights to purchase common stock
issued to stockholders generally) to acquire our common stock. A holder of
any of the warrants described above will not be entitled to any rights as a
stockholder of Primus, including, without limitation, the right to vote with
respect to the shares of our common stock, until such holder has exercised
the warrants.
Registration Rights
Chatterjee Group. Pursuant to a registration rights agreement dated
July 31, 1996, the Chatterjee Group is entitled to demand registration of its
shares of common stock after July 31, 1998, up to three times, the third
demand being available only if the first two did not result in the Chatterjee
Group having registered 80% of its shares of common stock. We are 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 our filing a
registration statement relating to the sale of shares for our own account.
The Chatterjee group is also entitled to unlimited piggyback registrations.
All such registrations would be at our expense, exclusive of underwriting
discounts and commissions, and legal fees (up to $25,000 for each such
offering) incurred by the holders of registrable securities. We and the
Chatterjee Group have entered into customary indemnification and contribution
provisions. The Chatterjee Group now consists of S-C Phoenix Holdings,
L.L.C., Winston Partners II, LDC and Winston Partners II, LLC. These
registration rights have been waived with respect to this offering.
Warburg, Pincus Investors, LLP. Under a stockholder agreement dated
February 3, 1998, Warburg, Pincus Investors, LLP is entitled to one demand
registration of its shares of common stock after our registration obligations
to the Soros/Chatterjee Group have terminated, or have been amended or
waived. We are not required to effect any demand registration within 180 days
after the effective date of a registration statement filed by us if Warburg,
Pincus was given the opportunity to piggyback up to one million shares of its
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Primus common stock in that registration statement. Warburg, Pincus is also
entitled to unlimited piggyback registrations. For any demand or piggyback
registrations, we will pay all registration expenses and Warburg, Pincus will
pay all selling expenses. We and Warburg, Pincus have entered into customary
indemnification and contribution provisions. These registration rights have
been waived with respect to this offering.
LCR Telecom. In connection with our acquisition of LCR Telecom,
holders of shares of Primus common stock to be issued in the acquisition have
the right, subject to the above-referenced registration rights, in certain
circumstances and until the time that such securities may be sold or are sold
pursuant to Rule 144 of the Securities Act, to include their Primus shares in
a registration made by Primus under the Securities Act (but not including a
shelf registration) relating to an offering for Primus' own account or for
the account of others of any class of Primus' equity securities.
Stockholders' Rights Plan
We have adopted a stockholders' rights plan in which we granted
preferred stock purchase rights as a dividend to our stockholders of record
at the close of business on December 31, 1998. In implementing this plan, our
Board has declared a distribution of one right for each outstanding share of
our common stock. Each right entitles the holder to purchase from us 1/1000
of a share of Series B Junior participating Preferred Stock at a purchase
price of $90 per 1/1000 of a share of Series B Preferred Stock, subject to
adjustment. Each 1/1000 of a share of Series B Preferred Stock is intended to
be approximately the economic equivalent of one share of common stock. The
rights will expire on December 23, 2008, unless we redeem them.
The rights are not exercisable and not traded separately from the
common stock. The rights will become exercisable if a person or group in the
future becomes the beneficial owner of 20% or more of our then outstanding
common stock or announces an offer to acquire 20% or more of our then
outstanding common stock.
If:
(i) we are the surviving corporation in a merger with an
acquiring person and shares of our common stock remain
outstanding;
(ii) a person becomes the beneficial owner of 20% or more of our
then outstanding common stock;
(iii) an acquiring person engages in one or more ''self- dealing''
transactions as set forth in the rights plan; or
(iv) when there is an acquiring person, the acquiring person's
ownership interest is increased by more than 1% (for example
by means of a reverse stock split or recapitalization);
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then each holder of a right (other than those held by an acquiring person)
will thereafter have the right to receive, upon exercise, Series B Preferred
Stock (or, in certain circumstances, common stock, cash, property or other
Primus securities) having a current market value equal to two times the
exercise price of the right.
If:
(i) we are acquired in a merger or other business combination
transaction and we are not the surviving corporation (other
than a merger described in the preceding paragraph);
(ii) any person consolidates or merges with us and all or part of
our common stock is converted or exchanged for securities,
cash or property of any other person; or
(iii) 50% or more of our assets or earning power is sold or
transferred;
then each holder of a right (other than those held by an acquiring person)
shall therefore have the right to receive, upon exercise, common stock of the
acquiring person having a value equal to two times the exercise price of the
right.
Our board of directors may redeem the rights in whole, but not in
part, at a price of 0.001 per right (subject to adjustment in certain
events), payable, at the election of the board of directors, in cash or
shares of common stock. When the board of directors orders the redemption of
the rights, the rights will terminate and the only right of the holders of
rights will be to receive the redemption price.
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SELLING SECURITY HOLDERS
The debentures were originally issued by us to certain initial
purchasers led by Lehman Brothers Inc. and subsequently sold by the initial
purchasers in transactions exempt from the registration requirements of the
Securities Act to persons reasonably believed by the initial purchasers to be
qualified institutional buyers. Selling holders, including their transferees,
pledgees or donees or their successors, may from time to time offer and sell
pursuant to this prospectus any or all of the debentures and common stock
into which the debentures are convertible.
The following table sets forth information with respect to the
selling holders and the principal amounts of debentures beneficially owned by
each selling holder that may be offered under this prospectus. The
information is based on information provided by or on behalf of the selling
holders. The selling holders may offer all, some or none of the debentures or
common stock into which the debentures are convertible. Because the selling
holders may offer all or some portion of the debentures or the common stock,
no estimate can be given as to the amount of the debentures or the common
stock that will be held by the selling holders upon termination of any sales.
In addition, the selling holders identified below may have sold, transferred
or otherwise disposed of all or a portion of their debentures since the date
on which they provided the information regarding their debentures in
transactions exempt from the registration requirements of the Securities Act.
Principal Amount of Common Stock Issuable
Debentures Beneficially Upon Conversion of the
Name of Selling Holder Owned and Offered (1) Debentures and Offered
______________________ _______________________ ______________________
215 West 40th Street Co. 100,000 2,008.4
AIM America Growth Class 740,000 14,862.0
AIM Large Cap 520,000 10,443.5
Opportunities Fund
Aim Midcap Growth Fund 1,210,000 24,301.4
AIM Mid Cap Opportunities 4,000,000 80,335.3
Growth Fund
Argent Classic 5,000,000 100,419.1
Convertible Arbitrage
Fund (Bermuda) L.P.
AXP Bond Fund, Inc. 2,620,000 52,619.6
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AXP Utilities Income 12,000,000 241,006.0
Fund, Inc.
AXP Variable Portfolio - 1,150,000 23,096.4
Bond Fund
AXP Variable Portfolio - 2,130,000 42,778.6
Managed Fund
Allstate Insurance 1,750,000 35,146.7
Company
Bank Austria Cayman 1,000,000 20,083.8
Island, Ltd.
Bank of America Pension 1,500,000 30,125.7
Plan
BNP Arbitrage SNC 6,800,000 136,570.0
CIBC World Markets 12,970,000 260,487.3
Canadian Imperial Holding 1,000,000 20,083.8
Inc.
Castle Convertible Fund, 500,000 10,041.9
Inc.
Christian Science 500,000 10,041.9
Trustees for Gifts &
Endowment
Chrysler Corporation 5,590,000 112,268.6
Master Retirement Trust
Coastal Convertibles Ltd. 500,000 10,041.9
Deeprock & Co. 3,000,000 60,251.5
Delaware PERS 1,850,000 37,155.1
Depository Trust Co. 100,000 2,008.4
Deutsche Bank Securities, 23,860,000 479,200.2
Inc.
Donaldson, Lufkin & 5,000,000 100,419.2
Jenrette Securities Corp.
Evergreen Income & Growth 2,500,000 50,209.6
Fund
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FSS Franklin Small Cap 19,750,000 396,655.6
Growth Fund
Family Service Life 200,000 4,016.8
Insurance Co.
FIST Franklin Convertible 2,750,000 55,230.5
Securities Fund
Forest Alternative 75,000 1,506.3
Strategies Fund II
Forest Convertible Fund 180,000 3,615.1
LP
Forest Fulcbum Fund LP 955,000 19,180.1
Forest Global Convertible 4,245,000 85,255.9
Fund
Forest Investment 535,000 10,744.9
Management LLC
Forest Performance Fund 6,945,000 139,482.2
GCG Trust - Strategic 2,562,000 51,454.8
Equity Series
General Motors Welfare 2,300,000 46,192.8
Benefit Trust
Grace Brothers, Ltd 2,500,000 50,209.6
Guardian Life Insurance 7,000,000 140,586.8
Co.
Guardian Pension Trust 300,000 6,025.1
Highbridge International 7,125,000 143,097.3
LLC
ICI American Holdings 925,000 18,577.5
Trust
IDS Life Series Fund, 100,000 2,008.4
Inc. - Income Portfolio
JMG Capital Partners, LP 6,650,000 133,557.5
JMG Triton Offshore Fund, 4,000,000 80,335.3
Ltd.
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K.D. Offshore Fund CV 1,000,000 20,083.8
Kellner, DiLeo & Co. 600,000 12,050.3
LLT Limited 230,000 4,619.3
Lehman Brothers, Inc. 11,884,000 238,676.2
Libertyview Funds LP 1,000,000 20,083.8
Lipper Convertibles, L.P. 8,450,000 169,708.4
Lipper Offshore 1,000,000 20,083.8
Convertibles, L.P.
Lipper Offshore 500,000 10,041.9
Convertibles, L.P. #2
Lyxor Master Fund 2,350,000 47,197.0
Metropolitan Museum of 500,000 10,041.9
Art
Morgan Stanley Dean 3,000,000 60,251.5
Witter Convertible
Securities Trust
Motion Picture Industry 650,000 13,054.5
Health Plan -- Active
Member Fund
Motion Picture Industry 325,000 6,527.2
Health Plan -- Retiree
Member Fund
New York Life Insurance & 9,500,000 190,796.4
Annuity Corporation
New York Life Insurance 1,000,000 20,083.8
Company
OCM Convertible Trust 2,770,000 55,632.2
Ohio National Growth & 5,500,000 110,461.1
Income
Pacific Life Insurance 1,000,000 20,083.8
Company
Partner Reinsurance 1,190,000 23,899.8
Company Ltd.
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People's Benefit Life 3,000,000 60,251.5
Insurance Company
(Teamsters Sep. Account)
People's Benefit Life 4,000,000 80,335.3
Insurance Company
Quattro Fund Ltd. 500,000 10,041.9
Ramius Capital Group 1,000,000 20,083.8
Holdings, Ltd
Retail Clerks Pension 2,000,000 40,167.7
Trust #2
RS Diversified Growth 5,500,000 110,461.1
Fund
RS Midcap Opportunities 5,500,000 110,461.1
Fund
Sain Partners, LC 30,000 602.5
St. Alban's Partners Ltd. 4,000,000 80,335.3
Saltzman, Arnold A. 30,000 602.5
Saltzman, Arnold A. 20,000 401.7
Trustee FBO Xylon
Saltzman 76 Tr
Saltzman, Marian 767 - 20,000 401.7
Arnold. A. Saltzman Jr.
State Employees' 2,845,000 57,138.5
Retirement Fund of the
State of Delaware
State of Connecticut 6,275,000 126,026.0
Combined Investment Funds
State of Oregon Equity 7,325,000 147,114.1
Target/United Funds, Inc. 750,000 15,062.9
- High Income Portfolio
Tennessee Consolidated 1,500,000 30,125.7
Retirement System
Total Return Portfolio 1,579,000 31,712.4
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TQA Master Fund 250,000 5,021.0
TQA Master Plus Fund 250,000 5,021.0
Value Line Convertible 1,000,000 20,083.8
Fund, Inc.
Vanguard Convertible 5,855,000 117,590.8
Securities Fund, Inc.
Van Kampen Convertible 1,091,000 21,911.5
Securities Fund
Van Kampen Harbor Fund 5,909,000 118,675.4
Zeneca Holdings Trust 900,000 18,075.4
Total 280,565,000 5,634,819.7
____________
(1) Amounts indicated may be in excess of the total amount registered due
to sales or transfers exempt from the registration requirements of
the Securities Act since the date upon which the selling holders
provided to us the information regarding their debentures.
Information concerning the selling holders may change from time to
time and any changed information will be set forth in supplements to this
prospectus if and when necessary. In addition, the conversion rate and
therefore, the number of shares of common stock issuable upon conversion of
the debentures, is subject to adjustment under certain circumstances.
Accordingly, the aggregate principal amount of debentures and the number of
shares of common stock into which the debentures are convertible may increase
or decrease.
With the exception of Lehman Brothers Inc., Morgan Stanley Dean Witter
and CIBC World Markets, none of the selling holders nor any of their affiliates,
officers, directors or principal equity holders has held any position or office
or has had any material relationship with us within the past three years.
Lehman Brothers Inc. acted as initial purchaser of the debentures and has acted
as managing underwriter in an underwritten public offering of our common stock
in October 1999 and as an initial purchaser of our 11 3/4% Senior Notes due
2004, our 9 7/8% Senior Notes due 2008, our 11 1/4% Senior Notes due 2009 and
our 12 3/4% Senior Notes due 2009. Morgan Stanley Dean Witter acted as initial
purchaser of the debentures and has acted as an underwriter in an underwritten
public offering of our common stock in October 1999 and as an initial
purchaser of our our 11 3/4% Senior Notes due 2004 and our 11 1/4% Senior Notes
due 2009. CIBC World Markets has acted as an underwriter in an underwritten
public offering of our common stock in October 1999.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of the material United States federal
income tax consequences of the ownership of debentures and conversion shares
as of the date hereof. Except where noted, this summary deals only with
debentures and shares of common stock issued upon conversion of the
debentures ("conversion shares") held as capital assets and does not deal
with special situations. For example, this summary does not address:
- tax consequences to holders who may be subject to special
tax treatment, such as dealers in securities or currencies,
financial institutions, tax-exempt entities, traders in
securities that elect to use a mark-to-market method of
accounting for their securities holdings, corporations that
accumulate earnings to avoid federal income tax or life
insurance companies;
- tax consequences to persons holding debentures as part of a
hedging, integrated, constructive sale or conversion
transaction or a straddle;
- tax consequences to holders of debentures whose "functional
currency" is not the U.S. dollar;
- alternative minimum tax consequences, if any; or
- any state, local or foreign tax consequences.
The discussion below is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), and regulations, rulings and
judicial decisions as of the date hereof. Those authorities may be changed,
perhaps retroactively, so as to result in United States federal income tax
consequences different from those discussed below.
If you are considering the purchase of debentures, you should consult
your own tax advisors concerning the United States federal income tax
consequences to you and any consequences arising under the laws of any other
taxing jurisdiction.
Consequences to United States Holders
The following is a summary of the United States federal tax
consequences that will apply to you if you are a United States holder of
debentures or conversion shares.
Certain consequences to "non-United States holders" of debentures and
conversion shares are described under "-Consequences to Non-United States
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Holders" below. "United States holder" means a beneficial owner of a
debenture that is:
- a citizen or resident of the United States;
- a corporation or partnership created or organized in or
under the laws of the United States or any political
subdivision of the United States;
- an estate the income of which is subject to United States
federal income taxation regardless of its source; or
- a trust that (1) is subject to the supervision of a court
within the United States and the control of one or more
United States persons or (2) has a valid election in effect
under applicable United States Treasury regulations to be
treated as a United States person.
Payment of Interest
We intend to take the position for U.S. federal income tax purposes
that the likelihood of the occurrence of a Reset Transaction is remote and
that, consequently, the debentures are not classified as contingent payment
debt instruments. The remainder of our discussion assumes that this position
is correct. If the IRS successfully challenged our position, the debentures
would be treated as contingent payment debt instruments. In such case:
- you would be required, regardless of your usual method of
accounting, to use the accrual method with respect to the
debentures;
- you could be required to accrue interest income in excess of
interest payments you actually receive; and
- any gain, and to some extent loss, you realize on the sale,
exchange or redemption of the debentures would be treated as
ordinary.
Constructive Dividend
The conversion price of the debentures will be adjusted in certain
circumstances. Under Section 305(c) of the Code, adjustments (or failures to
make adjustments) that have the effect of increasing your proportionate
interest in our assets or earnings may in some circumstances result in a
deemed distribution to you. Any deemed distributions will be taxable as a
dividend, return of capital, or capital gain in accordance with the earnings
and profits rules under the Code.
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Sale, Exchange and Retirement of Debentures
Except as provided below under "-Conversion of Debentures into Common
Shares," you will generally recognize gain or loss upon the sale, exchange,
retirement or other disposition of a debenture equal to the difference
between the amount realized (less any accrued interest which will be taxable
as such) upon the sale, exchange, retirement or other disposition and your
adjusted tax basis in the debenture. Your tax basis in a debenture will
generally be equal to the amount you paid for the debenture. Any gain or loss
will be capital gain or loss. If you are an individual and have held the
debenture for more than one year, your capital gain may be taxable at a
reduced rate. Your ability to deduct capital losses may be limited.
Conversion of Debentures into Common Shares
You will not recognize gain or loss on the conversion of your
debentures into conversion shares (except to the extent of cash received in
lieu of a fractional conversion share). The amount of gain or loss on the
deemed sale of such fractional conversion share will be equal to the
difference between the amount of cash you receive in respect of such
fractional conversion share, and the portion of your tax basis in the
debenture that is allocable to the fractional conversion share. The tax basis
of the conversion shares received upon a conversion will equal the adjusted
tax basis of the debenture that was converted, reduced by the portion of the
tax basis that is allocable to any fractional conversion share. Your holding
period for conversion shares will include the period during which you held
the debentures.
You should contact your tax advisors concerning the ownership of
conversion shares.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to certain
payments of principal and interest paid on the debentures and dividends paid
on the conversion shares and to the proceeds of sale of a debenture or
conversion share made to you unless you are an exempt recipient (such as a
corporation). A 31 percent backup withholding tax will apply to such payments
if you fail to provide your taxpayer identification number or certification
of foreign or other exempt status or fail to report in full dividend and
interest income.
Any amounts withheld under the backup withholding rules will be
allowed as a refund or a credit against your United States federal income tax
liability provided the required information is furnished to the IRS.
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Consequences to Non-United States Holders
The following is a summary of the United States federal tax
consequences that will apply to you if you are a non-United States holder of
debentures or conversion shares. The term "non-United States holder" means a
beneficial owner of a debenture that is not a United States holder.
U.S. Federal Withholding Tax
The 30% U.S. federal withholding tax will not apply to any payment to
you of principal or interest on a debenture provided that:
- you do not actually or constructively own 10% or more of the
total combined voting power of all classes of our stock that
are entitled to vote within the meaning of section 871(h)(3)
of the Code;
- you are not a controlled foreign corporation that is related
to us through stock ownership;
- you are not a bank whose receipt of interest on a debenture
is described in section 881(c)(3)(A) of the Code; and
- you provide your name and address, and certify, under
penalties of perjury, that you are not a United States
person (which certification may be made on an IRS Form
W-8BEN (or successor form)) or a financial institution
holding the debenture on your behalf certifies, under
penalties of perjury, that such statement has been received
by it and furnishes a paying agent with a copy thereof.
If you cannot satisfy the requirements described above, payments of
interest will be subject to the 30% U.S. federal withholding tax, unless you
provide us with a properly executed (1) IRS Form W-8BEN (or successor form)
claiming an exemption from or reduction in withholding under the benefit of a
tax treaty or (2) IRS Form W-8ECI (or successor form) stating that interest
paid on the debenture is not subject to withholding tax because it is
effectively connected with your conduct of a trade or business in the United
States.
Any dividends paid to you with respect to the conversion shares (and,
after December 31, 2000, any deemed dividends resulting from certain
adjustments, or failure to make adjustments, to the number of conversion
shares to be issued on conversion of the conversion share) generally will be
subject to withholding tax at a 30% rate or such lower rate as may be
specified by an applicable income tax treaty. However, dividends that are
effectively connected with the conduct of a trade or business within the
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United States and, where a tax treaty applies, are attributable to a United
States permanent establishment, are not subject to the withholding tax, but
instead are subject to United States federal income tax on a net income basis
at applicable graduated individual or corporate rates. In order to be exempt
from withholding tax under this exception, you must provide us with a
properly executed IRS Form W-8ECI (or successor form) stating that dividends
paid on the conversion shares are not subject to withholding tax because the
conversion shares are effectively connected with your conduct of a trade or
business in the United States. If you are a foreign corporation, any such
effectively connected dividends may, under certain circumstances, be subject
to an additional "branch profits tax" at a 30% rate or such lower rate as may
be specified by an applicable income tax treaty.
Until December 31, 2000, dividends paid to an address outside the
United States are presumed to be paid to a resident of such country (unless
the payer has knowledge to the contrary) for purposes of the withholding tax
discussed above and, under the current interpretation of United States
Treasury regulations, for purposes of determining the applicability of a tax
treaty rate. However, in order to claim the benefit of an applicable treaty
rate (and avoid backup withholding as discussed below) for dividends paid
after December 31, 2000, you are required to provide us with a properly
executed IRS Form W-8BEN (or successor form) claiming an exemption from
withholding under the benefit of a tax treaty.
The 30% U.S. federal withholding tax will not apply to any gain that
you realize on the sale, exchange, retirement or other disposition of a
debenture or conversion share.
U.S. Federal Estate Tax
The U.S. federal estate tax will not apply to debentures owned by you
at the time of your death, provided that (1) you do not own 10% or more of
the total combined voting power of all classes of our voting stock (within
the meaning of the Code and the U.S. Treasury regulations) and (2) interest
on the debenture would not have been, if received at the time of your death,
effectively connected with your conduct of a trade or business in the United
States. However, conversion shares held by you at the time of your death will
be included in your gross estate for United States federal estate tax
purposes unless an applicable estate tax treaty provides otherwise.
U.S. Federal Income Tax
If you are engaged in a trade or business in the United States and
interest on a debenture or dividends on a conversion share are effectively
connected with the conduct of that trade or business, you (although exempt
from the 30% withholding tax) will be subject to United States federal income
tax on that interest or dividend on a net income basis in the same manner as
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if you were a United States person as defined under the Code. In addition, if
you are a foreign corporation, you may be subject to a branch profits tax
equal to 30% (or lower applicable treaty rate) of your earnings and profits
for the taxable year, subject to adjustments, that are effectively connected
with your conduct of a trade or business in the United States. For this
purpose, interest and dividends on the conversion shares will be included in
earnings and profits.
Any gain or income realized on the disposition of a debenture or
conversion share generally will not be subject to United States federal
income tax unless (1) that gain or income is effectively connected with the
conduct of a trade or business in the United States by you, (2) you are an
individual who is present in the United States for 183 days or more in the
taxable year of that disposition, and certain other conditions are met or (3)
we are or have been a "U.S. real property holding corporation" for United
States federal income tax purposes.
We believe that we are not and do not anticipate becoming a U.S. real
property holding corporation.
Information Reporting and Backup Withholding
In general, you will not be subject to backup withholding and
information reporting with respect to payments that we make to you provided
that we do not have actual knowledge that you are a United States person and
you have given us the statement described above under "-U.S. Federal
Withholding Tax."
In addition, you will not be subject to backup withholding or
information reporting with respect to the proceeds of the sale of a debenture
or conversion share within the United States or conducted through certain
U.S.-related financial intermediaries, if the payor receives the statement
described above and does not have actual knowledge that you are a United
States person, as defined under the Code, or you otherwise establish an
exemption.
U.S. Treasury regulations were issued that generally modify the
information reporting and backup withholding rules applicable to certain
payments made after December 31, 2000. In general, these U.S. Treasury
regulations will not significantly alter the present rules discussed above,
except in certain special situations.
Any amounts withheld under the backup withholding rules will be
allowed as a refund or a credit against your United States federal income tax
liability provided the required information is furnished to the IRS.
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Consequences to Us
Limitation under Section 279
Generally, under Section 279 of the Code, an interest deduction in
excess of $5.0 million is not permitted with respect to certain "corporate
acquisition indebtedness". Corporate acquisition indebtedness includes any
indebtedness that is:
- issued to provide consideration for the direct or indirect
acquisition of stock or assets of another corporation;
- subordinated;
- convertible directly or indirectly into the stock of the
issuing corporation; and
- issued by a corporation that has a debt to equity ratio that
exceeds 2 to 1.
Our ability to deduct all of the interest payable on the debentures will
depend on the application of the foregoing tests to us.
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PLAN OF DISTRIBUTION
The selling holders and their successors, including their
transferees, pledgees or donees or their successors, may sell the debentures
and the common stock into which the debentures are convertible directly to
purchasers or through underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, concessions or commissions from the
selling holders or the purchasers. These discounts, concessions or
commissions as to any particular underwriter, broker-dealer or agent may be
in excess of those customary in the types of transactions involved.
The debentures and the common stock into which the debentures are
convertible may be sold in one or more transactions at fixed prices, at
prevailing market prices at the time of sale, at prices related to the
prevailing market prices, at varying prices determined at the time of sale,
or at negotiated prices. These sales may be effected in transactions, which may
involve crosses or block transactions:
- on any national securities exchange or U.S. inter-dealer
system of a registered national securities association on
which the debentures or the common stock may be listed or
quoted at the time of sale;
- in the over-the-counter market;
- in transactions otherwise than on these exchanges or systems
or in the over-the-counter market;
- through the writing of options, whether the options are
listed on an options exchange or otherwise; or
- through the settlement of short sales.
In connection with the sale of the debentures and the common stock
into which the debentures are convertible or otherwise, the selling holders
may enter into hedging transactions with broker-dealers or other financial
institutions, which may in turn engage in short sales of the debentures or
the common stock into which the debentures are convertible in the course of
hedging the positions they assume. The selling holders may also sell the
debentures or the common stock into which the debentures are convertible
short and deliver these securities to close out their short positions, or
loan or pledge the debentures or the common stock into which the debentures
are convertible to broker-dealers that in turn may sell these securities.
The aggregate proceeds to the selling holders from the sale of the
debentures or common stock into which the debentures are convertible offered
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by them will be the purchase price of the debentures or common stock less
discounts and commissions, if any. Each of the selling holders reserves the
right to accept and, together with their agents from time to time, to reject,
in whole or in part, any proposed purchase of debentures or common stock to
be made directly or through agents. We will not receive any of the proceeds
from sales of debentures or underlying common stock by the selling holders.
Our outstanding common stock is listed for trading on the Nasdaq
National Market. We do not intend to list the debentures for trading on any
national securities exchange or on the Nasdaq National Market and can give no
assurance about the development of any trading market for the debentures.
In order to comply with the securities laws of some states, if
applicable, the debentures and common stock into which the debentures are
convertible may be sold in these jurisdictions only through registered or
licensed brokers or dealers. In addition, in some states the debentures and
common stock into which the debentures are convertible may not be sold unless
they have been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied with.
The selling holders and any underwriters, broker-dealers or agents
that participate in the sale of the debentures and common stock into which
the debentures are convertible may be "underwriters" within the meaning of
Section 2(11) of the Securities Act. Any discounts, commissions, concessions
or profit they earn on any resale of the shares may be underwriting discounts
and commissions under the Securities Act. Selling holders who are
"underwriters" within the meaning of Section 2(11) of the Securities Act will
be subject to the prospectus delivery requirements of the Securities Act. The
selling holders have acknowledged that they understand their obligations to
comply with the provisions of the Exchange Act and the rules thereunder
relating to stock manipulation, particularly Regulation M.
In addition, any securities covered by this prospectus that qualify
for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold
under Rule 144 or Rule 144A rather than pursuant to this prospectus. A
selling holder may not sell any debentures or common stock described in this
prospectus and may not transfer, devise or gift these securities by other
means not described in this prospectus.
To the extent required, the specific debentures or common stock to be
sold, the names of the selling holders, the respective purchase prices and
public offering prices, the names of any agent, dealer or underwriter, and
any applicable commissions or discounts with respect to a particular offer
will be set forth in an accompanying prospectus supplement or, if
appropriate, a post-effective amendment to the registration statement of
which this prospectus is a part.
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We entered into a registration rights agreement for the benefit of
holders of the debentures to register their debentures and common stock under
applicable federal and state securities laws under specific circumstances and
at specific times. The registration rights agreement provides for
cross-indemnification of the selling holders and us and their and our
respective directors, officers and controlling persons against specific
liabilities in connection with the offer and sale of the debentures and the
common stock, including liabilities under the Securities Act. We will pay
substantially all of the expenses incurred by the selling holders incident to
the offering and sale of the debentures and the common stock.
LEGAL MATTERS
The validity of the debentures offered by this prospectus and of the
shares of common stock issuable upon conversion thereof will be passed upon
for us by Simpson Thacher & Bartlett, New York, New York.
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EXPERTS
The consolidated financial statements and the related financial
statement schedule incorporated in this prospectus by reference from the
Company's Annual Report on Form 10-K have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report, which is incorporated
herein by reference, and have been so incorporated in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
The combined financial statements of Telegroup, Inc. and certain
subsidiaries as of December 31, 1997 and 1998, and for each of the three
years in the period ended December 31, 1998 incorporated by reference in this
prospectus have been audited by KPMG LLP, independent certified public
accountants, to the extent and for the periods indicated in their report
thereon. Such combined financial statements have been incorporated by
reference in reliance upon the report of KPMG LLP, and upon the authority of
said firm as experts in accounting and auditing.
The report of KPMG LLP covering the December 31, 1998 combined
financial statements of Telegroup, Inc. and certain subsidiaries, contains an
explanatory paragraph that states that Telegroup, Inc. has filed for
protection under Chapter 11 of the United States Bankruptcy Code due to
significant financial and liquidity problems. These circumstances raise
substantial doubt about its ability to continue as a going concern. The
combined financial statements of Telegroup, Inc. and certain subsidiaries do
not include any adjustments that might result from the outcome of this
uncertainty.
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PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
$300,000,000 5 3/4% Convertible Subordinated Debentures due 2007
and
6,025,149 Shares of Common Stock
Issuable Upon Conversion of the Debentures
PROSPECTUS
JUNE __, 2000
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses, other than the
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of the debentures and common stock being registered.
All the amounts shown are estimates except for the registration fee and the
filing fee.
Registration fee............................................ $ 79,200
Legal fees and expenses..................................... $ 75,000
Accounting fees and
expenses.................................................... $ 25,000
Printing and engraving...................................... $ 50,000
Miscellaneous............................................... $ 20,500
________
Total............................................. $250,000
Item 15. Indemnification of Officers and Directors.
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 our Amended and Restated By-Laws provides that we,
to the full extent permitted by Section 145 of the DGCL, shall indemnify all
of our past and present directors and may indemnify all of our past or
present employees or other agents. To the extent that a director, officer,
employee or agent of our's 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 us against actually and reasonably incurred expenses in
connection therewith. Such expenses may be paid by us 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 our
Amended and Restated Certificate of Incorporation provides that no director
shall be liable to us for monetary damages for breach of fiduciary duty as a
director, except for liability
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(i) for any breach of the director's duty of loyalty to us or
our 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
our capital stock or
(iv) for any transaction from which the director derived an
improper personal benefit.
We have obtained a policy insuring us and our directors and officers
against certain liabilities, including liabilities under the 1933 Act.
Pursuant to Section 5(h) of the TresCom merger agreement (as amended)
(filed as Appendix A to the Joint Proxy Statement/Prospectus on Form S-4, No.
333-51797, dated May 4, 1998), we 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 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 company which survived the TresCom merger 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 TresCom merger
agreement.
Item 16. Exhibits.
Exhibit
Number Description
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, filed with the Commission on June 10,
1998 (the "S-8 Registration Statement").
3.2 Amended and Restated Bylaws of Primus; Incorporated
by reference to Exhibit 3.2 of the Registration
Statement on Form S-1, No. 333-10875, filed with the
Commission on August 27, 1996 (the "IPO Registration
Statement").
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4.1 Specimen Certificate of Primus Common Stock;
Incorporated by reference to Exhibit 4.1 of the IPO
Registration Statement.
4.2 Indenture relating to the 11 3/4% Senior Notes due 2004;
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 Supplemental Indenture relating to the 11 3/4% Senior Notes
due 2004 between Primus and First Union National Bank dated
January 20, 1999; Incorporated by reference to Exhibit 4.3
to Amendment No. 1 to the Company's Registration Statement
on Form S-4, No. 333-76965, filed with the Commission on May
6, 1999.
4.4 Specimen 11 3/4% Senior Note due 2004; Incorporated by
reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-4, No. 333-90179, filed with the
Commission on November 2, 1999 (the "November S-4").
4.5 Warrant Agreement relating to the 11 3/4% Senior
Notes due 2004; Incorporated by reference to Exhibit
4.2 of the 1997 Senior Note Registration Statement.
4.6 Indenture relating to the 9 7/8% Senior Notes due
2008, dated May 19, 1998, between Primus and First
Union National Bank; Incorporated by reference to
Exhibit 4.4 of the Registration Statement on Form
S-4, No 333-58547 (the "1998 Senior Note
Registration Statement").
4.7 Specimen 9 7/8% Senior Note due 2008; Incorporated
by reference to Exhibit A included in Exhibit 4.6.
4.8 Indenture relating to the 11 1/4% Senior Notes due
2009, dated January 29, 1999, between Primus and
First Union National Bank; Incorporated by reference
to Exhibit 4.7 of the 1998 Form 10-K.
4.9 Specimen 11 1/4% Senior Note due 2009; Incorporated
by reference to Exhibit A included in Exhibit 4.8.
4.10 Indenture relating to the 12 3/4% Senior Notes due 2009,
dated October 15, 1999, between the Company and First Union
National Bank; Incorporated by reference to Exhibit 4.11 of
the November S-4.
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4.11 Specimen 12 3/4% Senior Note due 2009; Incorporated
by reference to Exhibit A to Exhibit 4.10 hereto.
4.12 Indenture relating to the 5 3/4% Convertible
Subordinated Debentures due 2007, dated February 24,
2000, between the Company and First Union National
Bank; Incorporated by reference to Exhibit 4.16 to
the 1999 10-K, filed with the Commission on March
30, 2000.
4.13 Specimen 5 3/4% Convertible Subordinated Debenture
due 2007; Incorporated by reference to Exhibit A to
Exhibit 4.12 hereto.
4.14 Rights Agreement, dated as of December 23, 1998, between
Primus and StockTrans, Inc., including the Form of Rights
Certificate (Exhibit A), the Certificate of Designation
(Exhibit B) and the Form of Summary of Rights (Exhibit C);
Incorporated reference to Exhibit 4.1 to the Company's
Registration Statement on Form 8-A, No 000-29092 filed with
the Commission on December 30, 1998.
4.16 Form of legend on certificates representing shares
of Common Stock regarding Series B Junior
Participating Preferred Stock Purchase Rights;
Incorporated by reference to Exhibit 4.2 to the
Company's Registration Statement on Form 8-A, No
000-29092 filed with the Commission on December 30,
1998.
4.17 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.
4.18 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.
4.19 Warrant Agreement between the Company and Warburg,
Pincus Investors, L.P.; Incorporated by reference to
Exhibit 10.6 to the TresCom Form S-1.
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4.20 Resale Registration Rights Agreement relating to the
5 3/4% Convertible Subordinated Debentures, dated
February 24, 2000, among the Company, certain of its
subsidiaries, Lehman Brothers Inc., Merrill Lynch,
Pierce, Fenner & Smith, Incorporated and Morgan
Stanley & Co. Incorporated; Incorporated by
reference to Exhibit 10.24 to the 1999 10-K.
*5.1 Opinion of Simpson Thacher & Bartlett
*23.1 Consent of Deloitte & Touche, independent auditors to Primus
*23.2 Consent of KPMG LLP, independent auditors to Telegroup, Inc.
23.3 Consent of Simpson Thacher & Bartlett (included in Exhibit
5.1)
24.1 Power of Attorney (included on signature page)
*25.1 Form T-1 Statement of Eligibility and Qualification of First
Union National Bank as Trustee
* Filed herewith
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act 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 end 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
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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.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(5) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the registrant pursuant to provisions described in Item 15, or otherwise,
the registrant 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 registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
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controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that is has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of McLean, state of Virginia, on
June 12, 2000.
PRIMUS TELECOMMUNICATIONS GROUP,
INCORPORATED
By: /s/ K. Paul Singh
---------------------------------------
K. Paul Singh, Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1933,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
Chairman, President and June 12, 2000
/s/ K. Paul Singh Chief Executive Officer
------------------ (Principal Executive Officer)
K. Paul Singh and Director
/s/ Neil L. Hazard Executive Vice President and June 12, 2000
------------------ Chief Financial Officer
Neil L. Hazard (Principal Financial Officer
and Principal Accounting
Officer)
/s/ John F. DePodesta Executive Vice President and June 12, 2000
--------------------- Director
John F. DePodesta
/s/ Herman Fialkov Director June 12, 2000
---------------------
Herman Fialkov
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------------------- Director
David E. Hershberg
/s/ Douglas M. Karp Director June 12, 2000
-------------------
Douglas M. Karp
------------------ Director
John Puente
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Exhibit 5.1
Opinion of Simpson Thacher & Bartlett
June 12, 2000
Primus Telecommunications Group, Incorporated
1700 Old Meadow Road
McLean, Virginia 22102
Ladies and Gentlemen:
We have acted as counsel to Primus Telecommunications Group,
Incorporated, a Delaware corporation (the "Company"), in connection with the
Registration Statement on Form S-3 (the "Registration Statement") filed by the
Company with the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Act"), relating to the resale by
certain selling security holders of up to $300,000,000 aggregate principal
amount of the Company's 5 3/4% Convertible Subordinated Debentures due 2007
(the "Debentures") and 6,025,149 shares of the Company's common stock, par
value $.01 per share, issuable upon conversion thereof. The Debentures were
issued under an Indenture dated as of February 24, 2000 between the Company
and First Union National Bank (the "Indenture").
The Debentures were initially sold in reliance on Section 4(2) of
the Act and may be resold or delivered from time to time as set forth in the
Registration Statement, any amendment thereto and the prospectus contained
therein (the "Prospectus") pursuant to Rule 415 under the Act.
We have examined the Registration Statement, the Indenture,
duplicates of the Debentures and a form of common stock certificate. We also
have examined the originals, or duplicates or certified or conformed copies,
of such records, agreements, instruments and other documents and have made
such other and further investigations as we have deemed relevant and necessary
in connection with the opinions expressed herein. As to questions of fact
material to this opinion, we have relied upon certificates of public officials
and of officers and representatives of the Company.
In rendering the opinions set forth below, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, the conformity
to original documents of all documents submitted to us as duplicates or
certified or conformed copies, and the authenticity of the originals of such
latter documents. We have also assumed that the Indenture is the valid and
legally binding obligation of the Trustee.
Based upon the foregoing, and subject to the qualifications and
limitations stated herein, we are of the opinion that:
1. The Debentures have been duly authorized, executed and issued by
the Company and, assuming that they have been duly authenticated by
the Trustee, constitute valid and legally binding obligations of the
Company, enforceable against the Company in accordance with their
terms.
<PAGE>
2. The shares of common stock initially issuable upon conversion of the
Debentures have been duly authorized and, when issued and delivered
in accordance with the provisions of the Debentures and the Indenture,
will be validly issued, fully paid and nonassessable.
Our opinion set forth in paragraph 1 above is subject to (i) the
effects of bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally, (ii) general equitable principles (whether considered in a
proceeding in equity or at law) and (iii) an implied covenant of good faith
and fair dealing.
We are members of the Bar of the State of New York and we do not
express any opinion herein concerning any law other than the law of the State
of New York and the Delaware General Corporation Law.
We hereby consent to the filing of this opinion letter as Exhibit
5.1 to the Registration Statement and to the use of our name under the caption
"Legal Matters" in the Prospectus included in the Registration Statement.
Very truly yours,
/s/ Simpson Thacher & Bartlett
SIMPSON THACHER & BARTLETT
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Exhibit 23.1
Independent Auditors' Consent
We consent to the incorporation by reference in this Registration Statement
of Primus Telecommunications Group, Incorporated and subsidiaries ("the
Company") on Form S-3 of our report dated February 10, 2000 except for Note
17 as to which the date is March 13, 2000, appearing in the Company's Annual
Report on Form 10-K for the year ended December 31, 1999. We also consent to
the reference to us under the heading "Experts" in the Prospectus, which is a
part of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
McLean, Virginia
June 7, 2000
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Exhibit 23.2
Independent Auditors' Consent
The Board of Directors
Primus Telecommunications Group, Incorporated:
We consent to the incorporation by reference in the registration statement on
Form S-3 of Primus Telecommunications Group, Incorporated of our report dated
July 9, 1999, with respect to the combined balance sheets of Telegroup, Inc.
and certain subsidiaries as of December 31, 1997 and 1998, and the related
combined statements of operations, comprehensive losses, shareholders' equity
(deficit), and cash flows for each of the years in the three-year period
ended December 31, 1998, which report appears in the Form 8-K/A of Primus
Telecommunications Group, Incorporated filed with the Securities and Exchange
Commission on August 2, 1999 and to the reference to our firm under the
heading "Experts" in the prospectus.
Our report dated July 9, 1999, contains an explanatory paragraph that states
that Telegroup, Inc. has filed for protection under Chapter 11 of the United
States Bankruptcy Code due to significant financial and liquidity problems.
These circumstances raise substantial doubt about its ability to continue as
a going concern. The combined financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ KPMG LLP
Lincoln, Nebraska
June 6, 2000
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Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED,
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an application to determine eligibility of a trustee pursuant to
Section 305(b) (2) _____
FIRST UNION NATIONAL BANK
(Exact name of Trustee as specified in its charter)
230 SOUTH TRYON STREET, 9TH FL.
CHARLOTTE, NC 28288-1179
(Address of principal executive office) (Zip Code)
22-1147033
(I.R.S. Employer Identification No.)
Sarah A. McMahon (804) 343-6057
800 East Main Street, Richmond, Virginia 23219
Primus Telecommunications Group, Incorporated
(Exact name of obligor as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
54-1708481
(I.R.S. Employer Identification No.)
1700 Old Meadow Road
McLean, VA 22102
(Address of principal executive offices)(Zip Code)
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<PAGE>
Debt Securities
(Primus Telecommunications Group, Incorporated
5-3/4% Convertible Subordinated Debentures due 2007)
1. General information.
(a) The following are the names and addresses of each examining or
supervising authority to which the Trustee is subject:
The Comptroller of the Currency, Washington, D.C.
Federal Reserve Bank of Richmond, Richmond, Virginia.
Federal Deposit Insurance Corporation, Washington, D.C.
Securities and Exchange Commission, Division of Market Regulation,
Washington, D.C.
(b) The Trustee is authorized to exercise corporate trust powers.
2. Affiliations with obligor.
The obligor is not an affiliate of the Trustee.
3. Voting Securities of the Trustee.
Response not required.
(See answer to Item 13)
4. Trusteeships under other indentures.
Response not required.
(See answer to Item 13)
5. Interlocking directorates and similar relationships with the obligor
or underwriters.
Response not required.
(See answer to Item 13)
6. Voting securities of the Trustee owned by the obligor or its
officials.
Response not required.
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<PAGE>
(See answer to Item 13)
7. Voting securities of the Trustee owned by underwriters or their
officials.
Response not required.
(See answer to Item 13)
8. Securities of the obligor owned or held by the Trustee.
Response not required.
(See answer to Item 13)
9. Securities of underwriters owned or held by the Trustee.
Response not required.
(See answer to Item 13)
10. Ownership or holdings by the Trustee of voting securities of certain
affiliates or security holders of the obligor.
Response not required.
(See answer to Item 13)
11. Ownership or holdings by the Trustee of any securities of a person
owning 50 percent or more of the voting securities of the obligor.
Response not required.
(See answer to Item 13)
12. Indebtedness of the obligor to the Trustee.
Response not required.
(See answer to Item 13)
13. Defaults by the obligor.
A. None
B. None
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<PAGE>
14. Affiliations with the underwriters.
Response not required.
(See answer to Item 13)
15. Foreign trustee.
Trustee is a national banking association organized under the laws of the
United States.
16. List of Exhibits.
(1) *Articles of Incorporation.
(2) Certificate of Authority of the Trustee to conduct business. No
Certificate of Authority of the Trustee to commence business is furnished
since this authority is continued in the Articles of Association of the
Trustee.
(3) *Certificate of Authority of the Trustee to exercise corporate trust
powers.
(4) *By-Laws.
(5) Inapplicable.
(6) Consent by the Trustee required by Section 321(b) of the Trust
Indenture Act of 1939 as amended. Included at Page 5 of this Form T-1
Statement.
(7) *Report of condition of Trustee. See Attached.
(8) Inapplicable.
(9) Inapplicable.
Exhibits thus designated have heretofore been filed with the Securities and
Exchange Commission, have not been amended since filing are
incorporated herein by reference
(See Exhibit T-1 Registration Number 333-76965).
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as amended,
the Trustee, FIRST UNION NATIONAL BANK, a national banking association
organized and existing under the laws of the United States of America, has
duly caused this Statement of Eligibility and Qualification to be signed on
its behalf by the undersigned, thereunto duly authorized, all in the City of
Richmond, and in the Commonwealth of Virginia on the 8th day of June, 2000.
FIRST UNION NATIONAL BANK
(Trustee)
BY: /s/ Patricia S. Welling
Patricia A. Welling
Vice President
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<PAGE>
EXHIBIT T-1 (6)
CONSENT OF TRUSTEE
Under Section 321(b) of the Trust Indenture Act of 1939 and in connection
with the issuance by Primus Telecommunications Group, Incorporated Debt
Securities, First Union National Bank, as the Trustee herein named, hereby
consents that reports of examinations of said Trustee by Federal, State,
Territorial or District authorities may be furnished by such authorities to
the Securities and Exchange Commission upon requests therefor.
FIRST UNION NATIONAL BANK
BY: /s/ Patricia A. Welling
----------------------------------
Vice President
Patricia A. Welling, Vice President
Dated: June 8, 2000
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