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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 8-K

RELATING TO THE AMENDMENT AND RESTATEMENT OF A RIGHTS PLAN

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 31, 2002

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation)		   0-29092
(Commission File No.)		   54-1708481
(IRS Employer Identification No.)

1700 Old Meadow Road, Suite 300, McLean, VA
(Address of principal executive offices and zip code)

Registrant's telephone number, including area code:
 (703) 902-2800


Item 5.    Other Events.

        On December 31, 2002, Primus Telecommunications Group, Incorporated (the "Company") announced that it had signed an agreement to sell up to $42 million aggregate principal amount of convertible preferred stock to certain affiliates of AIG Capital Partners, Inc. and an additional institutional investor.

        A copy of a press release dated December 31, 2002 announcing the transaction is attached hereto as Exhibit 99.3 and incorporated by reference herein.


Item 7.    Exhibits.

  4.1   Certificate of Designation.

99.1
 
Stock Purchase Agreement dated as of December 31, 2002.

99.2
 
Registration Rights Agreement dated as of December 31, 2002.

99.3
 
Press Release of Primus Telecommunications Group, Incorporated dated December 31, 2002.

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SIGNATURE

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

    PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

Dated: December 31, 2002
 
By:
 
        Name:  Neil Hazard
        Title:    Executive Vice President and Chief
            Financial Officer

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INDEX TO EXHIBITS

4.1   Certificate of Designation.

99.1
 
Stock Purchase Agreement dated as of December 31, 2002.

99.2
 
Registration Rights Agreement dated as of December 31, 2002.

99.3
 
Press Release of Primus Telecommunications Group, Incorporated dated December 31, 2002.


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SIGNATURE
INDEX TO EXHIBITS

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Exhibit 4.1

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED


CERTIFICATE OF DESIGNATION

OF THE VOTING POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL AND OTHER SPECIAL RIGHTS AND QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS APPLICABLE TO THE

SERIES C CONVERTIBLE PREFERRED STOCK

Pursuant to Section 151 of the
General Corporation Law of
the State of Delaware

        I, John F. DePodesta, the Executive Vice President of Primus Telecommunications Group, Incorporated (the "Corporation"), a corporation organized and existing under the General Corporation Law of the State of Delaware (the "DGCL"), DO HEREBY CERTIFY that:

        Pursuant to authority conferred upon the Board of Directors of the Corporation (the "Board") by the First Amended and Restated Certificate of Incorporation of the Corporation (as amended and in effect as of the date hereof and as amended from time to time hereafter in accordance with and subject to the provisions hereof, the "Certificate") and, pursuant to the provisions of Section 151 of the DGCL, the Board, by action duly taken at a meeting thereof conducted in accordance with the provisions of the DGCL, adopted the following resolutions creating a series of 559,950 shares of Preferred Stock designated as Series C Convertible Preferred Stock (the "Series C Preferred"), out of the class of the Corporation's previously authorized preferred stock, par value $0.01 per share (the "Preferred Stock"), which resolutions remain in full force and effect on the date hereof:

        RESOLVED, that pursuant to the authority vested in the Board in accordance with the provisions of the Certificate, the Board hereby creates, authorizes and provides for the issuance of shares of Series C Preferred having the voting powers, designations, preferences and relative, participating, optional and other special rights, and qualifications, limitations and restrictions that are set forth as follows:

        Section 1.    Certain Definitions.    As used in this Certificate of Designation (this "Designation") with respect to the Series C Preferred, the following terms shall have the meanings provided in this Section 1, with all other capitalized terms used and not otherwise defined herein having the meanings assigned to such terms in the Certificate:

2

3

4

5

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        Section 2.    Designation and Amount.    There is hereby designated, as a new series of the Corporation's Preferred Stock, the "Series C Convertible Preferred Stock" of the Corporation, and the number of shares constituting such series shall be 559,950.

        Section 3.    Dividends and Distributions.    Each Series C Holder shall be entitled to receive non-cumulative dividends at a rate of eight percent (8%) per annum on the Series C Issue Price Per Share for, from and after the applicable Issue Date of, each issued and outstanding share of Series C Preferred held by such Series C Holder on applicable dividend dates. Such dividends shall be paid on the Series C Preferred (i) out of funds legally available for such payment on the applicable dividend date(s), (ii) on a pari passu and pro rata basis with any and all outstanding shares of new Preferred Stock issued pursuant to any Authorized Preferred Stock Issuance and in preference to and prior to the payment of any dividend on any other class or series (i.e., other than the new Preferred Stock issued as aforesaid), whether or not in existence as of the Initial Issue Date, of the Corporation's capital stock and, unless otherwise specifically declared and paid by the Corporation with respect to the Series C Preferred in the sole and absolute discretion of the Board, only if and when dividends are paid on any such other class(es) or series of the Corporation's capital stock, and (iii) in cash, in shares of Common Stock (valued for this purpose at the average daily closing price (as adjusted for stock splits, stock dividends and similar events, if any, occurring within the relevant thirty (30) day period) for the Common Stock during the period of thirty (30) consecutive trading days ending on the applicable dividend date) or as a combination of the foregoing, as determined by the Board.

        Section 4.    Liquidation and Liquidation Preference.    Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation (a "Liquidation"), each Series C Holder shall be entitled to receive, from the assets and proceeds remaining for distribution to the Corporation's stockholders after payment and discharge of the Corporation's liabilities upon such Liquidation and in preference to any distribution or payment on or with respect to the Common Stock or any other equity securities of the Corporation ranking junior to the Series C Preferred (but, in any event, pari passu and pro rata with the Series A Preferred Stock and, subject to the proviso set forth in clause (iv) of the definition of "Authorized Preferred Stock Issuance" above, any issued and outstanding shares of new Preferred Stock issued pursuant to an Authorized Preferred Stock Issuance), an amount with respect to each Series C Preferred share then outstanding and held by such Series C Holder (excluding specifically for this purpose any Series C Preferred shares previously converted or otherwise disposed of by such Series C Holder) equal to the Liquidation Preference. If, upon any Liquidation, the assets and proceeds of the Corporation to be distributed among the Series C Holders are insufficient to permit payment of the full amount of the Liquidation Preference then payable to all such Series C Holders, then, subject only to any liquidation rights as may be applicable on a pari passu basis to issued and outstanding shares of Series A Preferred Stock and any issued and outstanding shares of new Preferred Stock issued pursuant

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to an Authorized Preferred Stock Issuance, the entire assets and proceeds to be distributed by the Corporation shall be distributed ratably among such Series C Holders based on the aggregate Liquidation Preference amount represented by the shares of Series C Preferred held by each such Series C Holder. The Corporation shall mail to each Series C Holder written notice of any event or circumstance as would constitute a Liquidation hereunder not less than sixty (60) days (or, in the case of any involuntary Liquidation event or circumstance, such shorter period as is practicable in the circumstances) prior to the effective date thereof. Unless otherwise determined by the vote of Series C Holders representing not less than two-thirds (2/3) of the then-issued and outstanding shares of Series C Preferred, a Liquidation shall be deemed to include a merger, reorganization, sale or other transaction that (i) results in the transfer of fifty percent (50%) or more of the outstanding voting securities or voting power of the Corporation (computed on a Fully Diluted Basis), (ii) results in the holders of a majority of the Corporation's outstanding voting securities or voting power (computed on a Fully Diluted Basis) immediately prior to such transaction holding, directly or indirectly, less than a majority of the outstanding voting securities or voting power (on a similarly fully diluted basis) of the surviving entity, (iii) results in 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 Corporation's assets, or (iv) results in a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becoming the "beneficial owner" (as defined in Rule 13d-3 of the General Rules and Regulations under the Exchange Act) of more than fifty percent (50%) of the total voting power of the then-outstanding voting capital stock of the Corporation on a Fully Diluted Basis.

        Section 5.    Conversion of Series C Preferred; Anti-Dilution Adjustments.    

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9

      SCIPPS
  
ACR   = ECP   c CSO + ($$$/ECP)
CSO + AS		  
Where:        

 
 
ACR
=
Conversion Ratio as adjusted in accordance with this Section 5(d)(i), being the new Conversion Ratio applicable to the Series C Preferred upon and after each Additional Stock issuance giving rise to such adjustment, as from time to time subject to further adjustment (unless prohibited under Section 5(f) below) as provided in this Section 5(d) or in Section 5(e)(i) below

 
 
SCIPPS
=
Series C Issue Price Per Share

 
 
ECP
=
Effective Conversion Price in effect immediately prior to the determination of a Conversion Ratio adjustment pursuant to this Section 5(d)(i)

 
 
CSO
=
The number of shares of Common Stock outstanding immediately prior to the Additional Stock issuance giving rise to the Conversion Ratio adjustment pursuant to this Section 5(d)(i)

 
 
$$$
=
The amount of cash received and the fair value of non-cash consideration received for the Additional Stock issuance as determined in accordance with Sections 5(d)(iii), (iv)  and (v) below

 
 
AS
=
The number of shares of Additional Stock issued or issuable, as determined in accordance with Section 5(d)(vi) below, in connection with the Additional Stock issuance giving rise to the Conversion Ratio adjustment pursuant to this Section 5(d)(i)

10

11

12

13

14

        Section 6.    Voting Rights; Board Representation; Board Observer.    

        Section 7.    Protective Provisions.    For so long as the total issued and outstanding shares of Series C Preferred represents at least ten percent (10%) (excluding for purposes of such computation any shares of Common Stock or other securities of the Corporation then held by current or former Series C Holders) of the total outstanding voting securities or voting power of the Corporation

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(determined on a Fully Diluted Basis), the following matters with respect to the Corporation shall require the approval of:

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        Section 8.    Preemptive Rights.    For so long as the total issued and outstanding shares of Series C Preferred represents at least five percent (5%) (excluding for purposes of such computation any shares of Common Stock or other securities of the Corporation then held by current or former Series C Holders) of the total outstanding voting securities or voting power of the Corporation (determined on a Fully Diluted Basis), each Series C Holder shall be entitled, except in the case of any (i) registered public offerings, (ii) Excluded Issuances, (iii) issuances of capital stock upon exercise, conversion or exchange of any Employee Options, Convertible Securities, Other Stock Rights or Common Stock Equivalents, (iv) issuances of capital stock in connection with any Accretive Debt Exchanges, (v) issuances of shares of new Preferred Stock issued or issuable pursuant to any Authorized Preferred Stock Issuance, or (vi) other issuances (not made in connection with any issuance described in the above clauses (i) through (v)) that are made in the context of a transaction(s) representing, in the aggregate with respect to such transaction(s) as described in this clause (vi), no more than two million seven hundred forty-eight thousand eight hundred ninety-four (2,748,894) shares (as shall be (x) adjusted to reflect, if and when occurring after the Initial Issue Date, any split(s) or subdivision(s) of, or the payment or distribution of any Common Stock Equivalents on or with respect to, the entire

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class of Common Stock as described in Section 5(d)(vii) above, and (y) increased, if and when an Authorized Preferred Stock Issuance is effected pursuant to a firm purchase commitment entered into by the Corporation within forty-five (45) days after the Initial Issue Date as described in the second proviso to clause (ii) of the definition of "Authorized Preferred Stock Issuance" above, by a number of shares of Common Stock equal to the difference between (A) the total number of shares of Common Stock into which the new Preferred Stock issued pursuant to such Authorized Preferred Stock Issuance is convertible in accordance with its terms as of the date of issuance of such new Preferred Stock, divided by 0.97, minus (B) the total number of shares of Common Stock into which such new Preferred Stock is convertible in accordance with its terms as of the date of issuance of such new Preferred Stock) of Common Stock, to exercise the following rights to participate in subsequent equity issuances of the Corporation (any such issuance other than as excepted pursuant to the above clauses (i) through (vi), a "Subject Issuance"), which rights shall automatically and immediately terminate and be of no further force or effect as of the first date as of which the foregoing five percent (5%) threshold has not been satisfied:

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        Section 9.    Amendment.    This Designation shall not hereafter be amended without the affirmative vote (or written consent) of Series C Holders holding a majority of the issued and then-outstanding shares of Series C Preferred, voting separately from any other class or series of the Corporation's capital stock.

[signature page follows]

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        IN WITNESS WHEREOF, Primus Telecommunications Group, Incorporated has caused this Designation to be signed by its Executive Vice President and attested by its Secretary this 30th day of December, 2002.

  PRIMUS TELECOMMUNICATIONS GROUP,
    INCORPORATED
     
     
  By:  
   
  Name: John F. DePodesta
  Title: Executive Vice President
Attest:    
     
     
By:    
 
 
Name: Danielle O. Saunders  
Title: Secretary  


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CERTIFICATE OF DESIGNATION OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL AND OTHER SPECIAL RIGHTS AND QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS APPLICABLE TO THE SERIES C CONVERTIBLE PREFERRED STOCK

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Exhibit 99.1

EXECUTION VERSION


STOCK PURCHASE AGREEMENT

by and among

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED,

AIG GLOBAL SPORTS AND ENTERTAINMENT FUND, L.P.,

AIG GLOBAL EMERGING MARKETS FUND, L.L.C.,

GEM PARALLEL FUND, L.P

and

DUKE HOTELS LIMITED

        
Dated as of December 31, 2002


TABLE OF CONTENTS

 
    
  
   Page
ARTICLE 1 DEFINITIONS   1
    1.1 Definitions.   1

ARTICLE 2 PURCHASE AND SALE OF SERIES C PREFERRED STOCK
 
7
    2.1 Purchase and Sale of Series C Preferred Stock at the Initial Closing.   7
    2.2 Purchase and Sale of Series C Preferred Stock at Subsequent Closings.   7
    2.3 Closings.   7
    2.4 Form of Payment.   7
    2.5 Certificate of Designation.   8
    2.6 Use of Proceeds.   8

ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
 
8
    3.1 Organization and Qualification.   8
    3.2 Authorization; Enforcement; Validity.   8
    3.3 Capitalization.   9
    3.4 Issuance of Securities.   10
    3.5 No Conflicts.   10
    3.6 Compliance with Laws.   11
    3.7 SEC Documents; Financial Statements.   11
    3.8 Absence of Certain Changes.   12
    3.9 Absence of Litigation.   12
    3.10 Offering; No Integration.   12
    3.11 Employment Matters.   13
    3.12 Employee Benefit Plans.   13
    3.13 Intellectual Property Rights.   14
    3.14 Title.   15
    3.15 Environmental Laws.   15
    3.16 Insurance.   16
    3.17 Regulatory Permits.   16
    3.18 Tax Status.   16
    3.19 Transactions With Affiliates.   16
    3.20 Application of Takeover Protections.   17
    3.21 Rights Plans.   17
    3.22 No Other Agreements.   17
    3.23 Investment Company Status.   17
    3.24 Foreign Corrupt Practices.   17
    3.25 Indentures.   17
    3.26 Potential Conflicts of Interest.   18
    3.27 Trade Relations.   18
    3.28 Broker's, Finder's or Similar Fees.   18
    3.29 Nasdaq Compliance.   18
    3.30 Miscellaneous Transactions.   18
    3.31 Non-Operating Subsidiaries.   19

ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF EACH OF THE INVESTORS
 
19
    4.1 Organization.   19
    4.2 Authorization; Enforcement; Validity.   19
    4.3 No Conflicts.   19
    4.4 Purchase for Own Account.   19

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    4.5 Accredited Investor.   20
    4.6 Experience.   20
    4.7 Access to Information.   20
    4.8 General Solicitation.   20
    4.9 Reliance.   20
    4.10 Transfer or Resale.   20
    4.11 Legend.   21
    4.12 Governmental Authority Consents.   21
    4.13 Broker's, Finder's or Similar Fees.   21
    4.14 Statements to Nasdaq.   21

ARTICLE 5 CONDITIONS TO THE INVESTORS' OBLIGATIONS AT EACH CLOSING
 
21
    5.1 Representations and Warranties.   21
    5.2 Performance.   22
    5.3 Officer's Certificate.   22
    5.4 Approvals.   22
    5.5 Nasdaq Authorization Letter.   22
    5.6 Registration Rights Agreement.   22
    5.7 Opinion of Counsel.   22
    5.8 Organizational Documents.   22
    5.9 Filings.   22
    5.10 Nasdaq Listing.   22
    5.11 Reimbursement of Expenses.   23
    5.12 Purchased Shares.   23
    5.13 Amendment of Shareholder Rights Plan.   23
    5.14 Transfer Agent Letter.   23
    5.15 Restructuring Criteria.   23
    5.16 Subsequent Closing Specified Condition.   23
    5.17 Miscellaneous.   24

ARTICLE 6 CONDITIONS TO THE COMPANY'S OBLIGATIONS AT EACH CLOSING
 
24
    6.1 Representations and Warranties.   24
    6.2 Performance.   24
    6.3 Nasdaq Authorization Letter.   24
    6.4 Purchase Price.   24
    6.5 Miscellaneous.   24

ARTICLE 7 INDEMNIFICATION; SURVIVAL
 
24
    7.1 Indemnification.   24
    7.2 Notification.   25
    7.3 Survival.   26

ARTICLE 8 COVENANTS
 
26
    8.1 Commercially Reasonable Efforts.   26
    8.2 Form D and Blue Sky Laws.   26
    8.3 Financial Statements and Other Information.   27
    8.4 FIRPTA Certificate.   27
    8.5 Reservation of Common Stock.   27
    8.6 Inspection.   28
    8.7 Required Stockholder Approval.   28
    8.8 Board Representation & Board Observer.   28
    8.9 Reimbursable Expenses.   29

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    8.10 Stock Option Plans.   29
    8.11 Preemptive Rights.   29
    8.12 Protective Provisions.   29
    8.13 Payment of Excess Performance Adjustment Amounts.   29
    8.14 Insurance.   30
    8.15 Break-Up Fee.   30
    8.16 Publicity; Confidentiality.   30
    8.17 Net Debt Level.   30
    8.18 Further Assurances.   30
    8.19 Approval of Authorized Preferred Stock Issuance.   31

ARTICLE 9 TERMINATION OF AGREEMENT
 
31
    9.1 Termination.   31

ARTICLE 10 MISCELLANEOUS
 
31
    10.1 Entire Agreement.   31
    10.2 Counterparts.   31
    10.3 Headings.   31
    10.4 GOVERNING LAW.   31
    10.5 Consent to Jurisdiction.   32
    10.6 Severability.   32
    10.7 Rules of Construction.   32
    10.8 Notices.   32
    10.9 Successors and Assigns; Third Party Beneficiaries.   33
    10.10 Amendment and Waiver.   34
    10.11 Expenses.   34
    10.12 No Recourse to Specified Individuals.   34

iii

EXHIBITS
     
A   Certificate of Incorporation
B   By-laws
C   Form of Certificate of Designation
D   Form of Irrevocable Transfer Agent Instructions
E   Form of Registration Rights Agreement
F   Form of Opinion of Kelley Drye & Warren LLP
G   Form of Stock Certificate

SCHEDULES

I
 
Knowledge of the Company
II   Non-Operating Subsidiaries
III   Operating Subsidiaries
2.1   Initial Shares and Purchase Price
2.2   Additional Shares and Purchase Price
3.1   Subsidiaries
3.3   Capitalization
3.5   No Conflicts
3.7   SEC Documents
3.8   Absence of Certain Changes
3.9   Absence of Litigation
3.11   Employment Matters
3.12   Employee Benefit Plans
3.13   Intellectual Property
3.14   Title
3.16   Insurance
3.18   Taxes
3.19   Transactions with Affiliates
3.25   Indentures
3.26   Potential Conflicts of Interest
3.30   Miscellaneous Transactions

iv

STOCK PURCHASE AGREEMENT

        This STOCK PURCHASE AGREEMENT, dated as of December 31, 2002 (together with the Schedules and Exhibits attached hereto and made a part hereof, this "Agreement"), by and among Primus Telecommunications Group, Incorporated, a Delaware corporation (the "Company"), AIG Global Sports and Entertainment Fund, L.P., a limited partnership organized under the laws of the Cayman Islands ("AIG GSEF"), AIG Global Emerging Markets Fund, L.L.C., a limited liability company organized under the laws of the State of Delaware ("AIG Gem"), GEM Parallel Fund, L.P., a limited partnership organized under the laws of the State of Delaware ("AIG Gem Parallel" and together with AIG Gem, the "AIG Gem Investors," and collectively with AIG GSEF and AIG Gem, the "Lead Investors") and Duke Hotels Limited, a limited company organized under the laws of the Bahamas (the "Co-Investor" and, together with the Lead Investors, the "Investors").

        WHEREAS, upon the terms and conditions set forth in this Agreement, the Company desires to issue and sell to each of the Investors the number of shares of Series C Convertible Preferred Stock, par value $0.01 per share, of the Company (the "Series C Preferred Stock") set forth opposite the name of each such Investor on Schedule 2.1 and Schedule 2.2 hereto, for the aggregate purchase price set forth opposite each such Investor's name on Schedule 2.1 and Schedule 2.2 hereto; and

        WHEREAS, each share of Series C Preferred Stock is initially convertible (subject to adjustment as provided in the Certificate of Designation) into forty (40) fully paid and non-assessable shares of the Company's common stock, par value $0.01 per share (the "Common Stock"); and

        WHEREAS, the Company and the Investors are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Rule 506 of Regulation D as promulgated by the SEC (as defined herein) under the Securities Act (as defined herein).

        NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE 1

DEFINITIONS

        1.1    Definitions.    As used in this Agreement, the following terms have the meanings indicated:

2

3

4

5

6

ARTICLE 2

PURCHASE AND SALE OF SERIES C PREFERRED STOCK

        2.1    Purchase and Sale of Series C Preferred Stock at the Initial Closing.    Subject to the terms and conditions of this Agreement (including, without limitation, Articles 5 and 6 hereof), each Investor, severally and not jointly, agrees to purchase at the Initial Closing, and the Company agrees to issue and sell to the Investors at the Initial Closing, that number of shares of Series C Preferred Stock set forth opposite such Investor's name on Schedule 2.1 hereto for the aggregate purchase price set forth opposite such Investor's name on Schedule 2.1 hereto (all of the shares of Series C Preferred Stock being purchased pursuant to this Section 2.1 at the Initial Closing being referred to herein collectively as the "Initial Shares").

        2.2    Purchase and Sale of Series C Preferred Stock at Subsequent Closings.    Subject to the terms and conditions of this Agreement (including, without limitation, Articles 5 and 6 hereof), each Lead Investor, severally and not jointly, agrees to purchase at one or more Subsequent Closings, and the Company agrees to issue and sell to the Lead Investors at one or more Subsequent Closings, that number of shares of Series C Preferred Stock set forth opposite such Lead Investor's name on Schedule 2.2 hereto for the aggregate purchase price set forth opposite such Lead Investor's name on Schedule 2.2 hereto (all of the shares of Series C Preferred Stock being purchased pursuant to this Section 2.2 at the Subsequent Closings being referred to herein collectively as the "Additional Shares" and, together with the Initial Shares, the "Purchased Shares"). In the event that less than all of the Additional Shares are being issued and sold at any Subsequent Closing in accordance with Section 5.16 hereof, each Lead Investor shall purchase its proportionate percentage of the Additional Shares being issued and sold at such Subsequent Closing based on the total number of Additional Shares set forth opposite its name on Schedule 2.2 hereto.

        2.3    Closings.    The closing of the purchase and sale of the Initial Shares pursuant to Section 2.1 hereof (the "Initial Closing") shall take place at the offices of the Company at 10:00 a.m., local time, on the Business Day following the date on which the last to be fulfilled or waived of the conditions set forth in Articles 5 and 6 hereof (other than those conditions that by their nature can only be fulfilled at the Initial Closing) shall have been fulfilled or waived, or such other place and time to be mutually agreed upon by the Company and the Investors (the "Initial Closing Date"). The closing of the purchase and sale of any of the Additional Shares pursuant to Section 2.2 hereof (each, a "Subsequent Closing" and collectively, the "Subsequent Closings" and, together with the Initial Closing, collectively, the "Closings" and each, a "Closing") shall take place at the offices of the Company at 10:00 a.m., local time, on the third Business Day following the date on which the last to be fulfilled or waived of the conditions set forth in Articles 5 and 6 hereof shall have been fulfilled or waived, or such other place and time to be mutually agreed upon by the Company and the Lead Investors (each, a "Subsequent Closing Date" and collectively, the "Subsequent Closing Dates" and, together with the Initial Closing Date, collectively, the "Closing Dates" and each, a "Closing Date").

        2.4    Form of Payment.    At the Initial Closing, each Investor shall pay the Company for the Initial Shares to be issued and sold to such Investor at the Initial Closing the aggregate purchase price amount set forth opposite such Investor's name on Schedule 2.1 hereto by wire transfer of immediately available funds in accordance with the Company's wire transfer instructions delivered to the Investors prior to the date hereof. At each Subsequent Closing, each Lead Investor shall pay the Company by wire transfer of immediately available funds in accordance with the Company's wire transfer instructions delivered to the Investors prior to the date hereof the aggregate purchase price amount in respect of such Subsequent Closing as shall be obtained by multiplying the number of Additional Shares to be issued and sold to such Lead Investor at such Subsequent Closing by the then-effective Per Share Issue Price. The Per Share Issue Price shall be automatically adjusted from time to time after the date hereof so as to account for any stock splits, stock dividends or similar events with respect to

7


the Series C Preferred Stock occurring on or after the date hereof and on or before the date of the last to occur of the Subsequent Closings.

        2.5    Certificate of Designation.    The Purchased Shares shall have the preferences and rights set forth in the Certificate of Designation.

        2.6    Use of Proceeds.    The Company shall use the cash proceeds from the sale of the Purchased Shares for general corporate purposes and/or to satisfy, discharge, repurchase or otherwise retire Notes or other Company debt at less than face or stated value, as applicable, and otherwise to satisfy the Restructuring Criteria.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

        The Company hereby represents and warrants to each of the Investors as follows:

        3.1    Organization and Qualification.    Each of the Company and its Operating Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated or organized, and has the requisite corporate or other power and authorization to own its properties and to carry on its business as now being conducted. Each of the Company and its Operating Subsidiaries is duly qualified to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. No jurisdiction has claimed, in writing or otherwise, that the Company or any of its Operating Subsidiaries is required to qualify to do business as a foreign corporation or other entity in such jurisdiction and has failed to become so qualified, and, except as set forth on Schedule 3.1, neither the Company nor any of its Operating Subsidiaries has filed or is required to file any franchise, income or other tax returns in any such jurisdiction based upon the ownership or use of property located therein or the derivation of income therefrom. Schedule 3.1 attached hereto sets forth a true and complete list of all Operating Subsidiaries of the Company and, to the Knowledge of the Company, all Non-Operating Subsidiaries, in each case together with the percentage ownership (in the case of the Non-Operating Subsidiaries, to the Knowledge of the Company) of each such entity held by the Company, directly or indirectly. Except as set forth on Schedule 3.1, the Company owns or holds the capital stock or other economic equity or similar interests of each of its Operating Subsidiaries free and clear of any Lien.

        3.2    Authorization; Enforcement; Validity.    The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement and the other Transaction Documents, and to issue the Purchased Shares in accordance with the terms hereof and thereof. The execution and delivery of this Agreement and the other Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Purchased Shares and the reservation for issuance of the Common Stock and the issuance of such Common Stock issuable upon conversion of the Purchased Shares, have been duly authorized by the Company's Board of Directors and no further consent or authorization is required by the Company or its Board of Directors other than the Required Stockholder Approval. This Agreement has been, and as of the Initial Closing Date each of the other Transaction Documents will have been, duly executed and delivered by the Company, and this Agreement constitutes, and as of the Initial Closing Date each of the other Transaction Documents will constitute, the valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, fraudulent conveyance or transfer, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies (regardless of whether considered in a proceeding at law or in equity).

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        3.3    Capitalization.    (a) As of the date hereof, the authorized capital stock of the Company consists of (x) 150,000,000 shares of common stock, par value $0.01 per share, of which 64,924,906 shares are issued and outstanding and 7,647,149 shares are reserved for issuance upon exchange, exercise or conversion, as applicable, of Stock Equivalents; (y) 455,000 shares of Series A Convertible Preferred Stock, par value $0.01 per share, none of which are issued and outstanding or reserved for issuance; and (z) 2,000,000 shares of preferred stock, par value $0.01 per share, none of which are issued and outstanding, but 30,000 shares of which have been designated Series B Junior Participating Preferred Stock and reserved for issuance pursuant to the Shareholder Rights Plan.

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        3.4    Issuance of Securities.    (a) The Purchased Shares are duly authorized, and when issued and delivered to the Investors after payment therefor, will be validly issued, fully paid and non-assessable and not subject to any preemptive rights or similar rights that have not been satisfied, and assuming the accuracy of the representations and warranties of the Investors set forth in Article 4 of this Agreement, will be issued in compliance with the registration and qualification requirements of all applicable federal, state and foreign securities laws and will be free and clear of all Liens (other than any Liens that may be imposed by action of any Investor). As of the Initial Closing, the shares of Common Stock issuable upon conversion of the Purchased Shares shall have been duly reserved for issuance and, when issued in compliance with the provisions of the Certificate of Designation, will be validly issued, fully paid and non-assessable and will be free and clear of all Liens (other than any Liens that may be imposed by action of any Investor). None of the issued and outstanding shares of Common Stock were issued in violation of any preemptive rights.

        3.5    No Conflicts.    The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the reservation for issuance and issuance of the shares of Common Stock issuable upon conversion of the Purchased Shares) will not (i) result in a violation of the Certificate of Incorporation or the By-laws; (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, indenture or instrument to which the Company or any of its Operating Subsidiaries is a party (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not result, either individually or in the aggregate, in a Material Adverse Effect); or (iii) result in a violation of any Requirements of Law or Order applicable to the Company or any of its Operating Subsidiaries or by which any property or asset of the Company or any of its Operating Subsidiaries is bound or affected (except for any such violation that would not result, either individually or in the aggregate, in a Material Adverse Effect). Neither the Company nor any of its Operating Subsidiaries is in violation of any term of or in default under its Certificate of Incorporation, By-laws or their organizational charter or other similar documents, respectively. Except as set forth on Schedule 3.5, neither the Company nor any of its Operating Subsidiaries is in violation of any term of or in default under any contract, agreement, mortgage, Indebtedness, indenture or instrument, except where such violations and defaults would not result, either individually or in the aggregate, in a Material Adverse Effect or are not otherwise the subject of a bone fide dispute thereunder for more than one million dollars ($1,000,000)

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each. Except as specifically contemplated by this Agreement, as required under the Securities Act or as required by blue sky filings, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or Governmental Authority in order for it to execute, deliver or perform any of its obligations under or contemplated by the Transaction Documents. Except as set forth on Schedule 3.5, all consents, authorizations, orders, filings and registrations which the Company is required to obtain or make pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof.

        3.6    Compliance with Laws.    Taking into account Nasdaq's temporary relaxation of the minimum quantitative listing maintenance requirements, and other than the Company's failure to satisfy the requirements set forth in Nasdaq Marketplace Rules 4310(c)(2)(B) and 4310(c)(4), (i) neither the Company nor any of its Operating Subsidiaries is in violation of any Requirements of Law or Order applicable to the Company or its Operating Subsidiaries, except where such violations would not result, either individually or in the aggregate, in a Material Adverse Effect, (ii) the business of the Company and each of its Operating Subsidiaries is not being conducted in violation of any Requirements of Law or Order, except where such violations would not result, either individually or in the aggregate, in a Material Adverse Effect and (iii) the Company is not in violation of the listing requirements of Nasdaq and, to the Knowledge of the Company, no facts exist which would reasonably lead to delisting or suspension of the Common Stock by Nasdaq in the foreseeable future.

        3.7    SEC Documents; Financial Statements.    (a) Except as set forth on Schedule 3.7, since January 1, 1998, the Company has filed all material reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Exchange Act (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the "SEC Documents"). As of the respective dates of filing of such SEC Documents, such SEC Documents, as one or more may have been subsequently amended or restated by filings made by the Company with the SEC prior to the date hereof, complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents. None of the SEC Documents, as of the date filed and as they may have been subsequently amended or restated by filings made by the Company with the SEC prior to the date hereof, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with GAAP, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements or may exclude certain adjusting entries that are otherwise made at year-end) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). No other information provided to the Investors by (x) the Company concerning the Company or its direct or indirect Subsidiaries or their respective operations or (y) any Subsidiary of the Company concerning such Subsidiary or such Subsidiary's direct or indirect Subsidiaries or their respective operations, in each case which is not included in the SEC Documents, contains, to the Knowledge of the Company, any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they are or were made, not misleading. Except as set forth on Schedule 3.7, the Company is not required to file and will not be required to file any agreement, note, lease, mortgage, deed or other instrument entered into prior to the date hereof and to which the Company is

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a party or by which the Company is bound which has not been previously filed as an exhibit to its reports filed with the SEC under the Exchange Act. Except for the issuance of the Purchased Shares contemplated by this Agreement, no event, liability, development or circumstance has occurred or exists with respect to the Company or its Operating Subsidiaries or their respective business properties, operations or financial condition, that would be required to be disclosed by the Company under applicable securities laws and which has not been publicly disclosed. Except as set forth on Schedule 3.7 or disclosed in the SEC Documents, to the Knowledge of the Company, no circumstance, condition, event or arrangement exists that could reasonably be expected to give rise hereafter to any direct or indirect obligation or liability of the Company or its Subsidiaries that, individually or in the aggregate, could have a Material Adverse Effect.

        3.8    Absence of Certain Changes.    Except as disclosed in the SEC Documents, since December 31, 2001, there has been no change or development that has had or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect. Except as set forth on Schedule 3.8, neither the Company nor any of its Operating Subsidiaries has taken any steps, nor currently expects to take any steps, to seek protection pursuant to any bankruptcy law nor, to the Knowledge of the Company, have any reason to believe that its respective creditors intend to initiate involuntary bankruptcy proceedings. The Company has not declared or paid any dividends, and, as of the date hereof, except as disclosed in the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002 and June 30, 2002 or as set forth on Schedule 3.8, the Company has not, since December 31, 2001, sold any assets, individually or in the aggregate, in excess of two million five hundred thousand dollars ($2,500,000) outside of the ordinary course of business or had capital expenditures, individually or in the aggregate, in excess of thirty million dollars ($30,000,000).

        3.9    Absence of Litigation.    Except as set forth on Schedule 3.9, to the Knowledge of the Company, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, Governmental Authority or body pending or threatened against or affecting the Company, the Common Stock or any of the Operating Subsidiaries or any of the Company's or the Operating Subsidiaries' officers or directors in their capacities as such that could result in claims or charges individually in excess of one million dollars ($1,000,000), or in the aggregate in excess of five million dollars ($5,000,000). To the Knowledge of the Company, none of the directors or officers of the Company have been a party to any securities related litigation during the past five years other than as set forth in the 2001 Form 10-K under Item 3—Legal Proceedings.

        3.10    Offering; No Integration.    Subject to the accuracy of each Investor's representations set forth in this Agreement, the offer, sale and issuance of the Purchased Shares as contemplated by this Agreement are exempt from the registration requirements of the Securities Act and all applicable state

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securities laws, and neither the Company nor any of its Affiliates nor any other Person engaged by the Company or acting with express authority on its or their behalf will knowingly take any action hereafter that would cause the loss of such exemption. Neither the Company nor, to the Knowledge of the Company, any of its Affiliates nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would violate applicable state securities or "blue sky" laws or require registration of the issuance by the Company of any of the Purchased Shares under the Securities Act or cause the offering of the Purchased Shares to be integrated with prior offerings by the Company for purposes of the Securities Act or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system, including Nasdaq, on which any of the securities of the Company are listed or designated, nor will the Company or any of its Subsidiaries take any action or steps that would require registration of the issuance of any of the Purchased Shares by the Company under the Securities Act or cause the offering of the Purchased Shares to be integrated with other offerings.

        3.11    Employment Matters.    (a) Except as set forth on Schedule 3.11, neither the Company nor any of its Operating Subsidiaries is involved in any labor dispute (except any such dispute(s) as would not, either individually or in the aggregate, have a Material Adverse Effect) nor, to the Knowledge of the Company, is any such labor dispute threatened. Except as set forth on Schedule 3.11, neither the Company nor, to the Knowledge of the Company, any of its Operating Subsidiaries has received any notification that any employee is a member of or represented by a labor union which relates to such employee's relationship with the Company and none of the Company's or, to the Knowledge of the Company, its Operating Subsidiaries' employees is a member of or represented by any such labor union. Neither the Company nor any of its Operating Subsidiaries is a party to a collective bargaining agreement. No executive officer (as defined in Rule 501(f) of the Securities Act) has notified the Company that such officer intends to leave the Company or otherwise terminate such officer's employment with the Company.

        3.12    Employee Benefit Plans.    (a) Schedule 3.12 lists or describes each Plan with respect to which the Company reasonably expects to incur in the ordinary course of business an annual obligation of more than five hundred thousand dollars ($500,000) that the Company or any of its Operating Subsidiaries maintains or to which the Company or any of its Operating Subsidiaries contributes (the "Specified Plans"). Other than as set forth on Schedule 3.12, neither the Company nor any of its Operating Subsidiaries has any annual liability with respect to any Plan in an amount greater than or equal to $500,000. Neither the Company nor any Commonly Controlled Entity maintains or contributes to, or has within the preceding six years maintained or contributed to, or has any liability with respect to (x) any Specified Plan that is subject to Title IV of ERISA or Section 412 of the Code or (y) any "multiple employer plan" within the meaning of the Code or ERISA. Each Specified Plan (and related trust, insurance contract or funding instrument) has been established and administered in accordance with its terms, and complies in all material respects in form and in operation with the applicable requirements of ERISA and the Code and other applicable Requirements of Law. Each Plan (and related trust, insurance contract or funding instrument) other than the Specified Plans that is subject to the requirements of ERISA or the Code or other applicable Requirements of Law of any federal or state jurisdiction of the United States of America complies in all material respects in form and in operation with the applicable requirements of ERISA and the Code and other applicable Requirements of Law of United States federal or state jurisdictions; provided that, in the case of any such Plans as described in this sentence that are or have been established or administered by or on behalf of any

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Non-Operating Subsidiary, such representations and warranties are provided to the Knowledge of the Company only. No event, circumstance, condition or liability (or series of related events, circumstances, conditions or liabilities) with respect to any Plan or Plans has occurred or exists or has been incurred, in each case except as has not had, individually or in the aggregate, a Material Adverse Effect. All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each Specified Plan.

        3.13    Intellectual Property Rights.    Except as set forth on Schedule 3.13, to the Knowledge of the Company, the Company and its Operating Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights necessary to conduct their respective businesses as now conducted, except where the failure to own or possess such rights would not result, either individually or in the aggregate, in a Material Adverse Effect. To the Knowledge of the Company, neither the Company nor any of its Operating Subsidiaries is in default under any intellectual property license and the transactions contemplated hereby will not materially adversely affect the rights of the Company or any of its Operating Subsidiaries under any such licenses. To the Knowledge of the Company, none of the Company's or its Operating Subsidiaries' trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals,

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governmental authorizations, trade secrets or other intellectual property rights have expired or terminated, or are expected to expire or terminate (without being renewed) within two years from the date of this Agreement, except where such expiration or termination would not result, either individually or in the aggregate, in a Material Adverse Effect. Except as would not have a Material Adverse Effect, to the Knowledge of the Company, neither the Company nor its Operating Subsidiaries have infringed upon the trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, trade secrets or other intellectual property rights of others. Except as would not have a Material Adverse Effect or as set forth on Schedule 3.9, to the Knowledge of the Company, there is no claim, action or proceeding being made or brought against or being threatened against the Company or its Operating Subsidiaries regarding its trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, trade secrets, or infringement of other intellectual property rights of others. To the Knowledge of the Company, there is no pending United States or foreign patent application or trademark or copyright registration that would limit or prohibit the Company's or its Operating Subsidiaries' business as now conducted if such application or registration is granted. The Company and, to the Knowledge of the Company, its Operating Subsidiaries have taken commercially reasonable security measures to protect the secrecy, confidentiality and value of all of their material intellectual properties.

        3.14    Title.    The Company and its Operating Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them in either case which is material to the business of the Company and its Operating Subsidiaries, in each case free and clear of all Liens, except such as are set forth on Schedule 3.14 or such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company and any of its Operating Subsidiaries. To the Knowledge of the Company, any real property and facilities held under lease by the Company and any of its Operating Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and facilities by the Company and its Operating Subsidiaries.

        3.15    Environmental Laws.    (a) Except in each case where the failure of the Company and its Operating Subsidiaries would not, either individually or in the aggregate, have a Material Adverse Effect, the Company and its Operating Subsidiaries (i) are in compliance with any and all Environmental Laws, (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses, and (iii) are in compliance with all terms and conditions of any such permit, license or approval. Except as would not have a Material Adverse Effect, to the Knowledge of the Company, with respect to the Company and/or its Operating Subsidiaries (x) there are no past or present releases of any material into the environment, actions, activities, circumstances, conditions, events, incidents, or contractual obligations which may give rise to any common law environmental liability or any liability under any Environmental Law and (y) neither the Company nor any of its Operating Subsidiaries has received any notice with respect to the foregoing, nor is any action pending or threatened in connection with the foregoing. The term "Environmental Laws" means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, "Hazardous Materials") into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, injunctions, judgments, orders, permits or regulations issued, entered, promulgated or approved thereunder.

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        3.16    Insurance.    The Company and each of its Operating Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as the Company believes to be prudent and customary in the businesses in which the Company and its Operating Subsidiaries are engaged. Except as set forth on Schedule 3.16, neither the Company nor, to the Knowledge of the Company, any of its Operating Subsidiaries has been refused any insurance coverage sought or applied for and neither the Company nor, to the Knowledge of the Company, any of its Operating Subsidiaries has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business in all material respects as presently conducted.

        3.17    Regulatory Permits.    Except for Permits (as defined below) the absence of which would not result, either individually or in the aggregate, in a Material Adverse Effect, (i) the Company and its Operating Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses (the "Permits"), and (ii) neither the Company nor any such Operating Subsidiary has received any notice of proceedings relating to the revocation or modification of any such Permit.

        3.18    Tax Status.    Except as set forth on Schedule 3.18, each of the Company and, to the Knowledge of the Company, each of its Operating Subsidiaries (i) has made or filed all federal, state, local and foreign tax returns, reports, statements and declarations required by any jurisdiction to which it is subject, and each such return, report, statement and declaration is true, correct and complete in all material respects, (ii) has paid all material taxes, penalties, interest, additions to tax and other governmental assessments and charges to the extent due and payable, whether or not shown to be due on any such return, report, statement or declaration, except to the extent such amounts are being contested in good faith and for which the Company or such Operating Subsidiary has made appropriate reserves on its books, (iii) has withheld or deducted all material taxes or other amounts from payments to employees or other persons required to be deducted or withheld, and has timely paid over such taxes or other amounts to the appropriate taxing authorities to the extent due and payable, except to the extent such amounts are being contested in good faith and for which the Company or such Operating Subsidiary has made appropriate reserves on its books, and (iv) has set aside on its books provisions reasonably adequate for the payment of all material taxes for periods subsequent to the periods to which such returns, reports, statements or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and, to the Knowledge of the Company, there is no basis for any such claim.

        3.19    Transactions With Affiliates.    Except as set forth on Schedule 3.19 or in the SEC Documents, and other than grants of stock options set forth on Schedule 3.3, none of the officers, directors or employees of the Company is presently a party to any transaction with the Company or any of its Operating Subsidiaries (other than for services as employees, officers or directors) that would be required to be reported by Regulation S-K, Item 404, promulgated under the Securities Act, including any contract, agreement or other arrangement providing for the furnishing of services to or by,

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providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such officer, director or employee or, to the Knowledge of the Company, any corporation, partnership, trust or other entity in which any such officer, director, or employee has a substantial interest or is an officer, director, trustee or partner.

        3.20    Application of Takeover Protections.    The Company and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under the Shareholder Rights Plan or other rights agreement) or other similar anti-takeover provision under the Certificate of Incorporation, the laws of the State of Delaware or the laws of any other state which is or could become applicable to the Investors as a result of the transactions contemplated by this Agreement, including, without limitation, the Company's issuance of the Purchased Shares and the shares of Common Stock issuable upon conversion thereof (the "Conversion Shares" and, together with the Purchased Shares, the "Securities") and the Investors' ownership of such Securities. The Company specifically represents, warrants and agrees that, regardless of the number of Purchased Shares or Conversion Shares of which each Investor is deemed the Beneficial Owner (as defined in the Shareholder Rights Plan), none of the Investors are intended to be or will be deemed to be an Acquiring Person within the meaning of the Shareholder Rights Plan because of the acquisition of any of the Securities pursuant to this Agreement, and the acquisition of any of the Securities pursuant to this Agreement, shall not, under any circumstances, trigger a Section 11(a)(ii) Event or Section 13 Event within the meaning of the Shareholder Rights Plan; provided, however, that only Securities acquired pursuant to or contemplated by this Agreement (including the Conversion Shares) shall be deemed excluded from the number of shares of Common Stock deemed Beneficially Owned by each Investor in determining whether such Investor is an Acquiring Person within the meaning of the Shareholder Rights Plan.

        3.21    Rights Plans.    Except for the Shareholder Rights Plan, the Company has not adopted any other shareholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Common Stock or a change in control of the Company.

        3.22    No Other Agreements.    The Company has not, directly or indirectly, made any agreements with any Investors relating to the terms or conditions of the transactions contemplated by the Transaction Documents except as set forth in the Transaction Documents.

        3.23    Investment Company Status.    The Company is not, and upon consummation of the sale of the Purchased Shares will not be, an "investment company," a company controlled by an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended.

        3.24    Foreign Corrupt Practices.    To the Knowledge of the Company, neither the Company nor any of its Operating Subsidiaries, nor any director, executive officer, authorized agent, employee or other person acting on behalf of the Company or any Operating Subsidiary has, in the course of his actions for, or on behalf of, the Company or any Operating Subsidiary used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

        3.25    Indentures.    The Company has delivered to the Investors true and complete copies of all material notices, certificates, communications and other instruments that have been delivered by the Company, its Affiliates or any of their respective officers or employees pursuant to all indentures with respect to the Notes and other material Indebtedness of the Company. The conversion price of the Convertible Debentures in effect as of the date hereof is $49.7913. Except for (i) that certain Supplemental Indenture, dated as of January 20, 1999, between the Company and First Union National

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Bank in respect of the Company's 113/4% Senior Notes due 2004 and (ii) that certain First Supplemental Indenture, dated as of June 30, 1999, between the Company and First Union National Bank in respect of the Company's 111/4% Senior Notes due 2009, none of the indentures in respect of the Notes and none of the Notes have been amended or modified in any material manner since the original issuance of such Notes. Except as described in the SEC Documents, and except as set forth on Schedule 3.25 or as undertaken to achieve the Restructuring Criteria, no redemption, repurchase or defeasance of any of the Notes has occurred since the original issuance thereof.

        3.26    Potential Conflicts of Interest.    Except as set forth on Schedule 3.26 or disclosed in the SEC Documents, to the Knowledge of the Company, no officer, director or stockholder beneficially owning more than 5% of the outstanding shares of Common Stock, no spouse of any such officer, director or stockholder, and no Affiliate of any of the foregoing (a) owns, directly or indirectly, any interest in (excepting less than one percent (1%) stock holdings for investment purposes in securities of publicly held and traded companies), or is an officer, director, employee or consultant of, any Person which is, or is engaged in business as, a competitor of the Company or any of its Operating Subsidiaries; (b) owns, directly or indirectly, any interest in any Person which interest is required to be reported in the SEC Documents pursuant to Regulation S-K; (c) owns, directly or indirectly, in whole or in part, any tangible or intangible property that the Company or any of its Operating Subsidiaries use, in the conduct of business; or (d) has any cause of action or other claim whatsoever against, or owes or has advanced any amount to, the Company or any of its Operating Subsidiaries, except for claims in the ordinary course of business such as for accrued vacation pay, accrued benefits under employee benefit plans, and similar matters and agreements existing on the date hereof.

        3.27    Trade Relations.    There exists no actual or, to the Knowledge of the Company, threatened termination, cancellation or limitation of, or any material adverse modification or change in, the business relationship of the Company or any of its Operating Subsidiaries with, or any contract or arrangement with, any customer or supplier or any group of customers or suppliers, which, if such termination, cancellation or limitation, or material modification or change, occurred, would have a Material Adverse Effect.

        3.28    Broker's, Finder's or Similar Fees.    There are no brokerage commissions, finder's fees or similar fees or commissions payable by the Company or any of its Operating Subsidiaries in connection with the transactions contemplated hereby based on any agreement, arrangement or understanding with the Company or any of its Operating Subsidiaries or any action taken by any such Person.

        3.29    Nasdaq Compliance.    The Common Stock is listed on Nasdaq, and the Company has taken no action designed to or, to the Knowledge of the Company, likely to have the effect of suspension of or delisting the Common Stock from Nasdaq.

        3.30    Miscellaneous Transactions.    Except as set forth on Schedule 3.30, neither the Company nor any of its Operating Subsidiaries has engaged in any transaction (or series of related transactions) in the past three (3) fiscal years, or any transaction (or series of related transactions) that is ongoing, that involves (i) any swap of revenue streams (including, without limitation, any swap of indefeasible rights of use or other similar right); (ii) any off-balance sheet financing of any asset (including, without limitation, any synthetic lease for real property); (iii) any payments to or credit arrangements with any customers or potential customers in an amount individually in excess of ten thousand dollars ($10,000) in connection with entering into any sales contract involving the Company's or any of its Operating Subsidiaries' products or services (a "Company Sales Contract"); (iv) any long- or short-term commitment by the Company to purchase goods or services of any other company in exchange for or in connection with entering into any Company Sales Contract; (v) any grant of any right to acquire any securities of the Company in connection with entering into any Company Sales Contract; or (vi) any other arrangement, understanding or agreement with any third party that would have the effect of artificially reducing the Company's expenses, increasing the Company's net revenues or otherwise

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distorting the Company's results of operations and financial condition such that the financial statements of the Company do not or will not fairly present in all material respects the financial position of the Company as the date of such financial statements and the results of the Company's operations and cash flows for the periods therein indicated (subject, in the case of unaudited statements, to normal year-end audit adjustments) in accordance with GAAP, consistently applied during the periods therein indicated (except (x) as may be otherwise indicated in such financial statements or the notes thereto, or (y) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements or may exclude certain adjusting entries that are otherwise made at year-end).

        3.31    Non-Operating Subsidiaries.    None of the Non-Operating Subsidiaries conducts any business or other operations. No event, circumstance, condition or liability (or series of related events, circumstances, conditions or liabilities) with respect to any one or more of the Non-Operating Subsidiaries has occurred or exists or has been incurred that has had or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF EACH OF THE INVESTORS

        Each of the Investors hereby represents and warrants, severally and not jointly, to the Company as follows:

        4.1    Organization.    Such Investor is a limited partnership, corporation, partnership or limited liability company duly organized and validly existing under the laws of the jurisdiction of its formation.

        4.2    Authorization; Enforcement; Validity.    Such Investor has the requisite partnership, corporate or limited liability company, as the case may be, power and authority to execute, deliver and perform its obligations under this Agreement and each of the other Transaction Documents to which it is a party. The execution, delivery and performance by such Investor of this Agreement and each of the other Transaction Documents to which it is a party and the transactions contemplated hereby and thereby have been duly authorized by all necessary partnership, corporate or limited liability company, as the case may be, action. This Agreement has been, and as of the Initial Closing Date each of the other Transaction Documents will have been, duly executed and delivered by such Investor, and no further consent or authorization is required by such Investor or its governing body, and this Agreement constitutes and, as of the Initial Closing Date each of the other Transaction Documents will constitute, the legal, valid and binding obligations of such Investor, enforceable against it in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability (regardless of whether considered in a proceeding at law or in equity).

        4.3    No Conflicts.    The execution, delivery and performance by such Investor of this Agreement and each of the other Transaction Documents to which it is a party and the transactions contemplated hereby and thereby (i) do not contravene the terms of such Investor's organizational documents, or any amendment thereof, (ii) do not violate, conflict with or result in any breach or contravention of, or the creation of any Lien under, any contractual obligation of such Investor or any Requirement of Law applicable to such Investor, and (iii) do not violate any Orders against, or binding upon, such Investor.

        4.4    Purchase for Own Account.    The Purchased Shares to be acquired by such Investor pursuant to this Agreement are being or will be acquired for its own account and with no intention of distributing or reselling such Purchased Shares or any part thereof in any transaction that would be in violation of the securities laws of the United States of America, any state of the United States or any foreign jurisdiction, without prejudice, however, to the rights of such Investor at all times to sell or

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otherwise dispose of all or any part of such Purchased Shares or the Conversion Shares, subject to the terms and conditions of the Registration Rights Agreement, under an effective registration statement under the Securities Act, or under an exemption from such registration available under the Securities Act, and subject, nevertheless, to the disposition of such Investor's property being at all times within its control.

        4.5    Accredited Investor.    Such Investor is an "Accredited Investor" within the meaning of Rule 501 of Regulation D under the Securities Act, as presently in effect.

        4.6    Experience.    Such Investor, either alone or together with its representatives, has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in its Purchased Shares. Such Investor is able to bear the economic risk of an investment in the Purchased Shares.

        4.7    Access to Information.    Such Investor acknowledges that it has reviewed the SEC Documents and has been afforded: (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Purchased Shares and the merits and risks of investing in the Purchased Shares; (ii) access to publicly available information about the Company, the Condition of the Company and, to the extent there is publicly available information about the Company's Subsidiaries, the Company's Subsidiaries sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment. Neither such inquiries nor any other investigation conducted by or on behalf of such Investor or its representatives or counsel shall modify, amend or affect such Investor's right to rely on the truth and accuracy of the Company's representations and warranties contained in the Transaction Documents.

        4.8    General Solicitation.    Such Investor is not purchasing the Purchased Shares as a result of any advertisement, article, notice or other communication regarding the Purchased Shares published in any newspaper, magazine or similar media or broadcast over television or radio or presented at any seminar or any other general solicitation or general advertisement.

        4.9    Reliance.    Such Investor understands and acknowledges that: (i) the Purchased Shares are being offered and sold to it without registration under the Securities Act in a private placement that is exempt from the registration provisions of the Securities Act and (ii) the availability of such exemption depends in part on, and the Company will rely upon the accuracy and truthfulness of, the foregoing representations and such Investor hereby acknowledges and consents to such reliance.

        4.10    Transfer or Resale.    Such Investor understands and acknowledges that (i) the Securities have not been and are not being registered under the Securities Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder or (B) such Investor provides the Company with reasonable assurance that such Securities can be sold, assigned or transferred pursuant to Rule 144 promulgated under the Securities Act (or a successor rule thereto) ("Rule 144"); (ii) any sale of Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the Securities Act) may require compliance with some other exemption under the Securities Act or the rules and regulations of the SEC thereunder; and (iii) except as set forth in the Registration Rights Agreement, neither the Company nor any other person is under any obligation to register the Securities under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder.

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        4.11    Legend.    Such Investor understands and acknowledges that the stock certificates representing the Securities, except as set forth below, shall bear a restrictive legend in substantially the following form:

The legend set forth above shall be removed upon a written request to the Company's transfer agent for removal and the Company shall issue the relevant securities without such legend to the holder of the Securities requesting such removal if (i) such Securities are registered for resale under the Securities Act, (ii) in connection with a sale transaction, a public sale, assignment or transfer of the Securities may be made without registration under the Securities Act, or (iii) such holder provides the Company with reasonable assurances that the Securities can be sold pursuant to Rule 144. Notwithstanding anything to the contrary in the foregoing, the Company shall have no obligation to register the Securities except in accordance with the Registration Rights Agreement.

        4.12    Governmental Authority Consents.    The Investors are not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or Governmental Authority in order for them to execute, deliver or perform any of their obligations under or contemplated by the Transaction Documents.

        4.13    Broker's, Finder's or Similar Fees.    There are no brokerage commissions, finder's fees or similar fees or commissions payable by the Investors in connection with the transactions contemplated hereby based on any agreement, arrangement or understanding with the Investors or any action taken by any such Person.

        4.14    Statements to Nasdaq.    The statements set forth in the third paragraph of the Nasdaq Application Letter under the heading "Rule 4350(i)(1)(B)" describing the Investors and their relationship among one another are true and correct as of the date of the Nasdaq Application Letter.

ARTICLE 5

CONDITIONS TO THE INVESTORS' OBLIGATIONS AT EACH CLOSING

        The obligations of each Investor to purchase and pay for the Initial Shares at the Initial Closing and each Lead Investor to purchase and pay for the Additional Shares at each Subsequent Closing, in each case as provided in Article 2 hereof, are subject to the satisfaction by the Company or waiver by such Investor of each of the following conditions, the waiver of which shall not be effective against any Investor who does not consent thereto:

        5.1    Representations and Warranties.    The representations and warranties of the Company contained in Article 3 shall be true and correct on and as of the Initial Closing Date, with the same effect as though such representations and warranties had been made on and as of the Initial Closing Date (except for representations and warranties that speak as of a specific date, in which case such representations and warranties shall be true and correct on and as of such specific date).

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        5.2    Performance.    The Company shall have performed and complied with all agreements and obligations contained in this Agreement or the other Transaction Documents that are required to be performed or complied with by it on or before each Closing Date.

        5.3    Officer's Certificate.    With respect to the Initial Closing only, the Company shall have delivered to the Investors a certificate of an executive officer of the Company, dated the Initial Closing Date, certifying to the effect that the conditions contained in Sections 5.1 and 5.2 have been fulfilled.

        5.4    Approvals.    Subject only to obtaining the Required Stockholder Approval, if any, with respect to the Additional Shares, all authorizations, approvals or permits, if any, of any Governmental Authority that are required in connection with the issuance and sale of the Purchased Shares pursuant to this Agreement shall be obtained and effective as of the Initial Closing Date. The Company shall have obtained all necessary "blue sky" permits and qualifications, or have the availability of exemptions therefrom, required by any state for the offer and sale of the Purchased Shares.

        5.5    Nasdaq Authorization Letter.    With respect to the Initial Closing only, the Company shall have obtained and delivered to the Investors a copy of an express and unqualified written authorization from Nasdaq (the "Nasdaq Authorization Letter") authorizing the consummation of the transactions contemplated hereby in accordance with the terms hereof and the other Transaction Documents without first obtaining the approval of the stockholders of the Company as might otherwise be required pursuant to the Nasdaq Marketplace Rules.

        5.6    Registration Rights Agreement.    With respect to the Initial Closing only, the Company and the Investors shall have entered into a registration rights agreement substantially in the form attached hereto as Exhibit E (the "Registration Rights Agreement").

        5.7    Opinion of Counsel.    The Investors shall have received the opinion of Kelley Drye & Warren LLP, counsel to the Company, dated the Initial Closing Date, in the form set forth as Exhibit F attached hereto.

        5.8    Organizational Documents.    With respect to the Initial Closing only, the Company shall have delivered to the Investors (a) a certificate evidencing the good standing of the Company in the State of Delaware issued by the Secretary of State of the State of Delaware and dated no earlier than three (3) Business Days prior to the Initial Closing Date, (b) a certificate of the Secretary of the Company, dated as of the Initial Closing Date, certifying as to (i) the resolutions of the Board of Directors approving this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby and the appointment of Mr. Paul Pizzani to the Board of Directors to serve in the capacity as a director of the Company (and certifying that such resolutions have not been modified, amended or revoked and remain in full force and effect), (ii) the Certificate of Incorporation, as in effect as of the Initial Closing Date, and (iii) the By-laws, as in effect as of the Initial Closing Date, and (c) a certified copy (or copy thereof) of the Certificate of Incorporation as certified by the Secretary of State of the State of Delaware as of a date within five (5) Business Days of the Initial Closing Date.

        5.9    Filings.    The Company shall have made all filings, if any, under all applicable federal and state securities laws necessary to consummate the issuance of the Purchased Shares pursuant to this Agreement in compliance with such laws.

        5.10    Nasdaq Listing.    With respect to the Initial Closing only, the Common Stock shall not have been suspended by the SEC from trading on Nasdaq nor have been delisted by Nasdaq nor shall suspension by the SEC or Nasdaq or delisting by Nasdaq have been threatened (for any reason other than the failure to satisfy the minimum quantitative listing maintenance requirements set forth in Nasdaq Marketplace Rules 4310(c)(2)(B) and 4310(c)(4)) either (A) in writing by the SEC or Nasdaq or (B) as a result of a failure to maintain the other minimum listing maintenance requirements of Nasdaq. With respect to the Initial Closing only, the Company shall be in full compliance with the

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Nasdaq Marketplace Rules (except for the minimum quantitative listing maintenance requirements set forth in Nasdaq Marketplace Rules 4310(c)(2)(B) and 4310(c)(4)), including, without limitation, having filed such forms as are necessary to comply with Nasdaq Marketplace Rule 4310(c)(17).

        5.11    Reimbursement of Expenses.    With respect to the Initial Closing only, the Reimbursable Expenses shall have been paid by the Company to the Investors by wire transfer of immediately available funds in accordance with the Investors' written wire transfer instructions delivered to the Company prior to the date hereof.

        5.12    Purchased Shares.    The Company shall have delivered to each Investor valid certificates in the form attached hereto as Exhibit G representing, in the case of the Initial Closing, the number of Initial Shares set forth opposite such Investor's name on Schedule 2.1 hereto or, in the case of any Subsequent Closing, the number of Additional Shares to be issued and sold to such Investor at such Subsequent Closing, in each case registered in the name of such Investor.

        5.13    Amendment of Shareholder Rights Plan.    With respect to the Initial Closing only, the Company shall have delivered to the Investors evidence that the Shareholder Rights Plan has been amended, in form and substance satisfactory to the Investors, establishing that each Investor is an Exempt Person (as defined in the Shareholder Rights Plan) and to permit each Investor to consummate the transactions contemplated by this Agreement (including the purchase by the Lead Investors of the full number of Additional Shares) and each of the other Transaction Documents without triggering a Section 11(a)(ii) Event (as defined in the Shareholder Rights Plan) or a Section 13 Event (as defined in the Shareholder Rights Plan).

        5.14    Transfer Agent Letter.    The Company shall have delivered to such Investor (a) a letter from the Company's transfer agent certifying the number of shares of Common Stock outstanding as of a date no earlier than three (3) Business Days prior to the Initial Closing Date and (b) a copy of the irrevocable transfer agent instructions delivered by the Company to, and acknowledged as received by, such transfer agent prior to each Closing Date in the form attached hereto as Exhibit D.

        5.15    Restructuring Criteria.    With respect to the Initial Closing only, the Company shall have effectuated such transactions and otherwise have taken such measures with respect to its Indebtedness as appropriate to cause or result in, after giving pro forma effect to application of Investment Amount proceeds as contemplated by Section 2.6 hereof, (A) Net Debt of the Company immediately following the Initial Closing being no more than four hundred eighty-five million dollars ($485,000,000), (B) a weighted-average annual interest rate attributable to the Company's Net Debt outstanding immediately following the Initial Closing of less than thirteen percent (13%) per annum for the two year period following the Initial Closing Date, and (C) aggregate underwriting, exchange agent and/or similar investment advisory fees incurred in connection with the implementation of the foregoing being reasonable and customary (the foregoing items (A), (B) and (C), the "Restructuring Criteria").

        5.16    Subsequent Closing Specified Condition.    With respect to each Subsequent Closing only, the Company shall have delivered to the Lead Investors a certificate of an executive officer of the Company, dated the applicable Subsequent Closing Date, certifying to the effect that (i) the Required Stockholder Approval has been obtained as of such Subsequent Closing Date, in which case all of the remaining Additional Shares not theretofore sold and issued to the Lead Investors shall be sold and issued to the Lead Investors at such Subsequent Closing, or (ii) each of AIG GSEF's and the AIG Gem Investors' respective fully diluted ownership interest in the Company on an "as converted" basis as of the applicable Subsequent Closing Date has been diluted since the Initial Closing Date (taking into account the effect of adjustments to the Conversion Ratio in accordance with the terms of the Certificate of Designation) as a result of additional issuances of equity securities of the Company, or Stock Equivalents, in accordance with the terms of the Certificate of Designation, such that each of AIG GSEF's and the AIG Gem Investors' respective fully diluted ownership interest in the Company on an "as converted" basis, after giving effect to the sale and issuance to the Lead Investors on such

23


Subsequent Closing Date of the maximum number of Additional Shares as may be sold and issued to the Lead Investors without either of AIG GSEF's or the AIG Gem Investors' respective fully diluted ownership interest in the Company on an "as converted" basis exceeding nineteen and ninety-nine one-hundredths of one percent (19.99%), is less than nineteen and ninety-nine one-hundredths of one percent (19.99%); provided, however, that in no event shall the number of Additional Shares issued at any Subsequent Closing to the Lead Investors in the aggregate be less than that number of Additional Shares as shall be obtained by dividing one million dollars ($1,000,000.00) by the Per Share Issue Price in effect as of the applicable Subsequent Closing Date, or (iii) a third party has acquired equity securities of the Company, or securities convertible into or exercisable or exchangeable for equity securities of the Company, resulting in such third party, directly or indirectly through one or more affiliates, holding a fully diluted ownership interest in the Company on an "as converted" basis that is greater than that of the Lead Investors in the aggregate, in which case all of the remaining Additional Shares not theretofore sold and issued to the Lead Investors shall be sold and issued to the Lead Investors at such Subsequent Closing.

        5.17    Miscellaneous.    With respect to the Initial Closing only, the Company shall have delivered to the Investors such other documents relating to the transactions contemplated by the Transaction Documents as the Investors or their counsel may reasonably request.

ARTICLE 6

CONDITIONS TO THE COMPANY'S OBLIGATIONS AT EACH CLOSING

        The obligations of the Company to sell, issue and deliver the Purchased Shares to each Investor at the Closings, as provided in Article 2 hereof, are subject to the satisfaction by such Investor or waiver by the Company of each of the following conditions:

        6.1    Representations and Warranties.    The representations and warranties of such Investor contained in Article 4 shall be true and correct on and as of the Initial Closing Date with the same effect as though such representations and warranties had been made on and as of the Initial Closing Date (except for representations and warranties that speak as of a specific date, in which case such representations and warranties shall be true and correct on and as of such specific date).

        6.2    Performance.    Such Investor shall have performed and complied with all agreements and obligations contained in this Agreement or the other Transaction Documents that are required to be performed or complied with by it on or before each Closing Date.

        6.3    Nasdaq Authorization Letter.    With respect to the Initial Closing only, the Company shall have received the Nasdaq Authorization Letter.

        6.4    Purchase Price.    Such Investor shall have paid its respective purchase price for such Investor's Purchased Shares in the manner described in Article 2 hereof, which purchase price shall be, in the case of the Initial Closing, as indicated on Schedule 2.1 hereto or, in the case of any Subsequent Closing, as calculated in accordance with Sections 2.2 and 2.4 hereof.

        6.5    Miscellaneous.    With respect to the Initial Closing only, each Investor shall have delivered to the Company such other documents relating to the transactions contemplated by the Transaction Documents as the Company or its counsel may reasonably request.

ARTICLE 7

INDEMNIFICATION; SURVIVAL

        7.1    Indemnification.    Except as otherwise provided in this Article 7, the Company, on the one hand, and each of the Investors severally and not jointly, on the other hand (each of the Company, on the one hand, and each of the Investors severally and not jointly, on the other hand, an "Indemnifying

24

Party") agrees to indemnify, defend and hold harmless the other and their Affiliates and their respective officers, directors, agents, advisors, employees, subsidiaries, partners, members and controlling persons (each, an "Indemnified Party") to the fullest extent permitted by law from and against any and all claims, damages, liabilities, losses and expenses (but excluding incidental, consequential or punitive damages), or written threats thereof (including, without limitation, any claim by a third party and including reasonable fees, disbursements and other charges of counsel incurred by the Indemnified Party in any action between the Indemnifying Party and the Indemnified Party or between the Indemnified Party and any third party) (collectively, "Losses") resulting from or arising out of any breach of any representation or warranty, covenant or agreement by the Indemnifying Party in this Agreement or the other Transaction Documents or any document, instrument or certificate contemplated hereby or thereby. In connection with the obligation of the Indemnifying Party to indemnify for expenses as set forth above, the Indemnifying Party shall, upon presentation of appropriate invoices containing reasonable detail, reimburse each Indemnified Party for all such expenses (including reasonable fees, disbursements and other charges of counsel incurred by the Indemnified Party in any action between the Indemnifying Party and the Indemnified Party or between the Indemnified Party and any third party) as they are incurred by such Indemnified Party. To the extent that the undertaking by the Indemnifying Party to indemnify the Indemnified Parties under this Article 7 may be unenforceable for any reason, the Indemnifying Party shall make the maximum contribution to the payment and satisfaction of each of the Losses that is permissible under applicable law.

        7.2    Notification.    Each Indemnified Party under this Article 7 shall, promptly after the receipt of notice of the commencement of any proceeding against such Indemnified Party or receipt of a written threat thereof in respect of which indemnity may be sought from the Indemnifying Party under this Article 7, notify the Indemnifying Party in writing of the commencement or threat thereof, which notice shall include the basis of all claims asserted in such proceeding or threat, reasonable detail concerning such facts giving rise to such claims of which the Indemnified Party has knowledge and the Losses for which the Indemnified Party is seeking indemnification (or a reasonable and good faith estimate thereof). The failure of any Indemnified Party to deliver to the Indemnifying Party the notice required by this Section 7.2 shall not relieve the Indemnifying Party from any liability which it may have to such Indemnified Party (a) other than pursuant to this Article 7 or (b) under this Article 7 unless, and only to the extent that, such omission results in the Indemnifying Party's forfeiture of substantive rights or defenses, it being understood that the failure of any Indemnified Party to give notice to the Indemnifying Party of any threat shall in all events be deemed not to result in any such forfeiture of substantive rights or defenses. In case any such proceeding shall be brought against any Indemnified Party, and it shall notify the Indemnifying Party of the commencement thereof, the Indemnifying Party shall be entitled to assume the defense thereof at its own expense, with counsel satisfactory to such Indemnified Party in its reasonable judgment; provided, however, that any Indemnified Party may, at its own expense, retain separate counsel to participate in such defense at its own expense. Notwithstanding the foregoing, in any proceeding in which both the Indemnifying Party, on the one hand, and an Indemnified Party, on the other hand, are, or are reasonably likely to become, a party, such Indemnified Party shall have the right to employ separate counsel and to control its own defense of such proceeding if, in the reasonable opinion of counsel to such Indemnified Party, a conflict or potential conflict exists under the applicable legal canons of ethics or bar association rules between the Indemnifying Party, on the one hand, and such Indemnified Party, on the other hand, that would make such separate representation advisable; provided, however, that in such circumstances the Indemnifying Party (i) shall not be liable for the fees and expenses of more than one counsel to all Indemnified Parties and (ii) shall reimburse the Indemnified Parties for all of such fees and expenses of such counsel incurred in any action between the Indemnifying Party and the Indemnified Parties or between the Indemnified Parties and any third party, as such expenses are incurred. The Indemnifying Party agrees that it will not, without the prior written consent of the Indemnified Party, settle, compromise or

25


consent to the entry of any judgment in any pending or threatened proceeding relating to the matters contemplated hereby (if any Indemnified Party is a party thereto or has been actually threatened to be made a party thereto) unless such settlement, compromise or consent includes an unconditional release of each Indemnified Party from all liability arising or that may arise out of such proceeding. The Indemnifying Party shall not be liable for any settlement of any proceeding effected against an Indemnified Party without the Indemnifying Party's written consent, which consent shall not be unreasonably withheld. The rights accorded to an Indemnified Party hereunder shall be in addition to any rights that any Indemnified Party may have at common law, by separate agreement or otherwise; provided, however, that notwithstanding the foregoing or anything to the contrary contained in this Agreement, nothing in this Article 7 shall restrict or limit any rights that any Indemnified Party may have to seek equitable relief.

        7.3    Survival.    All of the representations and warranties of the Company (except for the representations and warranties of the Company set forth in Section 3.31 hereof) and the Investors made herein shall survive the execution and delivery of this Agreement and the Initial Closing for a period of twelve (12) months from the later of the date hereof and the Initial Closing Date. The representations and warranties of the Company set forth in Section 3.31 hereof shall survive the execution and delivery of this Agreement and the Initial Closing until the later of (i) the first date upon which the issued and outstanding shares of Series C Preferred Stock held by the Investors, as a group, represent less than five percent (5%) of the total voting power of the Company determined on a fully diluted and "as converted" basis or (ii) the twenty-four (24) month anniversary of the Initial Closing Date. Subject to Section 9.1 hereof, all agreements and covenants of the Company and the Investors made herein shall survive the execution and delivery of this Agreement and the Initial Closing indefinitely except to the extent otherwise specifically provided herein. Notwithstanding anything to the contrary contained herein, each Investor shall be responsible only for its own representations, warranties, agreements and covenants hereunder.

ARTICLE 8
COVENANTS

        The Company and the Investors hereby covenant and agree as follows:

        8.1    Commercially Reasonable Efforts.    Each party shall use its commercially reasonable efforts to timely satisfy each of the conditions to be satisfied by it as provided in Articles 5 and 6 of this Agreement.

        8.2    Form D and Blue Sky Laws.    The Company agrees to file a Form D with respect to the Purchased Shares following each Closing Date as required under Regulation D of the Securities Act and to provide a copy thereof to each Investor promptly after such filing. The Company shall make all filings and reports relating to the offer and sale of the Purchased Shares required under applicable securities or "blue sky" laws of the states of the United States following each Closing Date.

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        8.3    Financial Statements and Other Information.    Until such time as the Investors shall no longer hold, as a group, shares of Series C Preferred Stock representing at least five percent (5%) of the total voting power or voting securities of the Company on a fully diluted and as converted basis, the Company shall, unless such information is contained in SEC Documents and has been filed with the SEC through and is available to the Investors via EDGAR, deliver to each Investor:

        8.4    FIRPTA Certificate.    If requested by any of the Investors, as promptly as practicable, but not later than five (5) days after the end of each fiscal year of the Company, the Company shall deliver to each Investor, in form and substance satisfactory to such Investor, a certificate signed by an executive officer of the Company in customary form certifying that the Company is not a "foreign person" within the meaning of Section 1445 of the Code.

        8.5    Reservation of Common Stock.    The Company shall at all times reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issue or delivery upon conversion of the Purchased Shares, as provided in the Certificate of Designation, the maximum number of shares of Common Stock that may be issuable or deliverable upon such conversion. Such

27


shares of Common Stock shall at all times remain duly authorized and, when issued or delivered in accordance with the Certificate of Designation, shall be validly issued, fully paid and non-assessable.

        8.6    Inspection.    Except as otherwise limited by applicable Requirements of Law, and subject to any confidentiality-related restrictions, limitations and obligations that the Company may reasonably request from the Investors, the Company shall permit representatives of the Investors to visit and inspect any of its properties, to examine its corporate, financial and operating records and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with their respective directors, officers and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably requested upon reasonable advance notice to the Company.

        8.7    Required Stockholder Approval.    After the date hereof, the Company shall prepare and file with the SEC a proxy statement to be distributed to the Company's stockholders in connection with a special or annual meeting of the Company's stockholders to be held as promptly as practicable and in any event no later than June 30, 2003, which proxy statement, including any amendments or supplements thereto, shall solicit votes in favor of the Required Stockholder Approval (the "Proxy Statement"). Unless and until the condition set forth in Section 5.16 hereof has otherwise been satisfied such that all of the Additional Shares have been sold and issued to the Lead Investors in accordance with the terms hereof, the Company shall use all reasonable commercial efforts to have or cause the Proxy Statement to be cleared by the SEC as promptly as practicable. The Company agrees to provide the Lead Investors and their counsel with drafts of the Proxy Statement prior to filing it with the SEC and any written comments the Company or its counsel may receive from the SEC with respect to the Proxy Statement promptly after the receipt of such comments. The Company will cause the Proxy Statement (i) not to contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading and (ii) to comply as to form with the applicable provisions of the Exchange Act and the rules and regulations thereunder. Following clearance by the SEC of the Proxy Statement, the Company shall, unless the condition set forth in Section 5.16 hereof has otherwise been satisfied such that all of the Additional Shares have been sold and issued to the Lead Investors in accordance with the terms hereof, promptly distribute the Proxy Statement to its stockholders and call and arrange for a special or annual meeting of its stockholders and take such other actions as are required or necessary in order to obtain the Required Stockholder Approval as promptly as practicable. In connection with the solicitation of the Company's stockholders in order to obtain the Required Stockholder Approval, the Board of Directors shall recommend that the Company's stockholders vote in favor of the proposal submitted for their consideration such that, should the requisite number of votes voting in favor of the proposal be obtained, the Required Stockholder Approval shall be obtained.

        8.8    Board Representation & Board Observer.    The Investors shall be entitled to representation on the Board of Directors of the Company and the board observer rights as and in the manner provided in the Certificate of Designation. The Company shall take such steps as are necessary to permit the appointment of the Preferred Director (as defined in the Certificate of Designation) by the holders of the Purchased Shares in accordance with applicable law, the Certificate of Incorporation (including the Certificate of Designation) and the Bylaws of the Company. The Company shall pay the costs and expenses, including reasonable travel, hotel and meal expenses, incurred by the Preferred Director in connection with the execution of his responsibilities in his capacity as a director of the Company. The Company shall in no manner be required to reimburse or make payment for any costs or expenses incurred by or on behalf of the board observer (whether or not relating to attendance at or observation of any Board of Directors meeting), and the Investor (or, as applicable, the holders from time to time of the Purchased Shares) shall bear sole and exclusive responsibility for such costs and expenses of the board observer.

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        8.9    Reimbursable Expenses.    At the Initial Closing, the Company shall reimburse the Investors for the reasonable fees and expenses of their counsel incurred in connection with the transactions contemplated by this Agreement on presentation by the Investors of such reasonable documentation evidencing such fees and expenses; provided, however, that the aggregate amount payable by the Company for all such fees and expenses shall not exceed $300,000 (collectively, the "Reimbursable Expenses"); and provided further, however, that, in the event that the Initial Closing does not occur on or before December 31, 2002 (as such date may be extended pursuant to Section 9.1) for any reason other than the Investors' breach of this Agreement, the Company shall pay to the Investors, no later than five (5) Business Days following the Company's receipt of the Investors' request for such payment, which request shall include reasonable documentation evidencing such fees and expenses, an aggregate amount equal to the Reimbursable Expenses by wire transfer of immediately available funds.

        8.10    Stock Option Plans.    From and after the Initial Closing Date, the Company shall maintain an employee stock option plan (the "Employee Stock Option Plan") pursuant to which an aggregate maximum (as subject to increase in accordance with the provisions of the Certificate of Designation) of 9,000,000 shares of Common Stock (as adjusted for stock splits and similar events) may be issued from and after the Initial Closing Date upon exercise of Employee Options; provided, however, that upon the forfeiture of any Employee Options, the number of shares of Common Stock that would have been issuable upon exercise of such forfeited Employee Options shall be forever ignored and not counted for purposes of determining whether the aggregate maximum number of shares of Common Stock issuable upon exercise of Employee Options has been reached, and such forfeited Employee Options may thereafter be reissued subject to the terms herein and in the Certificate of Designation. Additional Employee Options may from time to time be granted after the Initial Closing Date pursuant to the Employee Stock Option Plan as determined by the Board of Directors; provided, however, that, subject to any increase in the aggregate maximum number of shares of Common Stock issuable upon exercise of Employee Options as aforesaid, no additional Employee Options shall be granted if, as of the date such additional Employee Options are to be granted, taking into account the number of shares of Common Stock issuable upon exercise thereof, the number of shares of Common Stock issued after the Initial Closing Date upon exercise of Employee Options plus the number of shares of Common Stock issuable upon exercise of unexercised and unforfeited Employee Options granted or to be granted is greater than 9,000,000 shares (as adjusted for stock splits and similar events).

        8.11    Preemptive Rights.    The Investors shall be entitled to exercise preemptive rights as and in the manner provided in the Certificate of Designation.

        8.12    Protective Provisions.    The Investors shall be entitled to the protective provisions and rights as and in the manner provided in the Certificate of Designation.

        8.13    Payment of Excess Performance Adjustment Amounts.    To the extent, and only to the extent, that the Company does not pay any Performance Adjustment Amount in cash pursuant to Section 5(e)(v) of the Certificate of Designation and any Conversion Ratio adjustment pursuant to Section 5(e) of the Certificate of Designation is not made in full by reason of Section 5(f)(i) of the Certificate of Designation, the Company shall, within fifteen (15) days after the date such Conversion Ratio adjustment would have otherwise been made pursuant to Section 5(e)(i) of the Certificate of Designation, remit to each Investor, in satisfaction and discharge of any and all rights of such Investor with respect to such adjustment except as otherwise provided in this Section 8.13, an amount in cash as shall be determined by multiplying the Performance Adjustment Amount (or such proportionate percentage thereof if a portion of the adjustment provided for in Section 5(e)(i) has been made) by the number of shares of Series C Preferred Stock then held by such Investor. In the case of any shares of Series C Preferred Stock that are issued as Additional Shares after the date(s) on which any cash payments were made or required to be made by the Company to the Investors pursuant to this Section 8.13, the Company shall, within fifteen (15) days after the date such Additional Shares are issued, pay to the Investors holding such Additional Shares a cash amount equal to the cash amount(s)

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as would have been paid to the holder(s) of such Additional Shares had the same been issued and outstanding on the date(s) of any cash payment(s) made by the Company or required to be made by the Company pursuant to this Section 8.13 prior to the date of issuance of such Additional Shares.

        8.14    Insurance.    The Company shall use its commercially reasonable efforts to maintain (or, in the Company's discretion, to make self-insurance provision as to such matters on terms reasonably acceptable to the Investors) directors' and officers' liability insurance for each of the Company's directors and officers with coverage amounts of not less than ten million dollars ($10,000,000) on an aggregate basis naming the Company as the sole beneficiary under such policies.

        8.15    Break-Up Fee.    In the event that each of the conditions to the Initial Closing set forth in Articles 5 and 6 above (other than the condition described in Section 6.4) has been satisfied or waived and the Investors are ready, willing and able to proceed with the Initial Closing on or before December 31, 2002, and the Company elects not to proceed with the Initial Closing on or before the scheduled Initial Closing Date (which scheduled Initial Closing Date shall be on or before December 31, 2002), the Company shall pay to the Investors an amount equal to $500,000 plus reasonable fees and expenses of Investors' counsel in the aggregate not to exceed $300,000 (such fees and expenses to be verified by the Investors' presentation of reasonable documentation evidencing such fees and expenses), and neither party shall have any further liability to the other except as set forth in Article 7 hereof.

        8.16    Publicity; Confidentiality.    Within fifteen (15) calendar days of the date hereof, the Company shall prepare and file a Current Report on Form 8-K (the "Form 8-K") with the SEC disclosing the transactions contemplated hereby and filing this Agreement as an exhibit thereto. Prior to filing the Form 8-K with the SEC, the Company shall provide a draft of the Form 8-K to the Investors for their review and comment. Except for the Form 8-K and as may be required by applicable Requirements of Law, none of the parties hereto shall issue a press release or make any public announcement or otherwise make any disclosure concerning this Agreement, the transactions contemplated hereby, the Investors or the business, technology and financial affairs of the Company, without prior approval by the other parties hereto; provided, however, that nothing in this Agreement shall restrict any of the parties from disclosing information (a) that is already publicly available, (b) that was known to such party on a non-confidential basis prior to its disclosure by the other party, (c) that may be required or appropriate in response to any summons or subpoena or in connection with any litigation, or any Requirement of Law, provided that such party will use reasonable efforts to notify the other party(ies) in advance of such disclosure so as to permit the other party(ies) to seek a protective order or otherwise contest such disclosure, and such party will use reasonable efforts to cooperate, at the expense of the other party(ies), with the other party(ies) in pursuing any such protective order, (d) to the other party's officers, directors, shareholders, advisors, employees, members, partners, controlling persons, auditors or counsel or (e) to Persons from whom releases, consents or approvals are required, or to whom notice is required to be provided, pursuant to the transactions contemplated by the Transaction Documents. If any announcement is required by any Requirement of Law to be made by any party hereto, prior to making such announcement such party will deliver a draft of such announcement to the other parties and shall give the other parties reasonable opportunity to comment thereon.

        8.17    Net Debt Level.    The Company shall use its commercially reasonable efforts to reduce its Net Debt to less than four hundred sixty-five million dollars ($465,000,000) as soon as practicable following the Initial Closing Date.

        8.18    Further Assurances.    Each of the parties shall execute such documents and perform such further acts (including, without limitation, obtaining any consents, exemptions, authorizations or other actions by, or giving any notices to, or making any filings with, any Governmental Authority or any

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other Person) as may be reasonably required or desirable to carry out or to perform the provisions of this Agreement.

        8.19    Approval of Authorized Preferred Stock Issuance.    In the event that any firm commitment to purchase any preferred stock of the Company pursuant to an Authorized Preferred Stock Issuance is entered into between the Company and any third-party purchaser(s) (such commitment to be subject only to such shareholder approval of the issuance of such new preferred stock as may be required by applicable law or regulation) within forty-five (45) days of the date hereof, each of the Investors agrees to affirmatively vote in favor of the issuance of such new preferred stock to such third-party purchaser(s) with respect to all shares of Series C Preferred Stock and all shares of Common Stock then held by such Investor at any special or annual meeting of stockholders at which stockholder approval is sought by the Company for such issuance so long as such issuance satisfies the criteria of an Authorized Preferred Stock Issuance.

ARTICLE 9

TERMINATION OF AGREEMENT

        9.1    Termination.    This Agreement shall be terminated and be null and void and of no further force or effect, and the Company's and the Investors' obligation to complete the purchase and sale of the Purchased Shares to be issued and sold at the Initial Closing and any Subsequent Closing shall be rescinded, if the Initial Closing shall not have occurred on or prior to December 31, 2002 unless extended by mutual written agreement, and the Lead Investors' obligation to complete the purchase and sale of any theretofore unissued Additional Shares shall terminate if all of the Additional Shares shall not have been issued to the Lead Investors on or before June 30, 2003 or if the Company's stockholders shall have voted against the sale and issuance of the Additional Shares to the Lead Investors; provided, however, that, notwithstanding the foregoing, the provisions of Article 7 and Sections 8.9, 8.15, 8.16, 10.1, 10.4, 10.5, 10.6, 10.8, 10.9 and 10.11 shall survive the termination of this Agreement.

ARTICLE 10

MISCELLANEOUS

        10.1    Entire Agreement.    This Agreement, together with the Schedules and Exhibits hereto, and the other Transaction Documents are intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein and therein. There are no restrictions, promises, representations, warranties or undertakings, other than those set forth or referred to herein or therein. This Agreement, together with the Schedules and Exhibits hereto, and the other Transaction Documents supersede all prior agreements and understandings between the parties with respect to such subject matter.

        10.2    Counterparts.    This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

        10.3    Headings.    The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

        10.4    GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW THEREOF.

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        10.5    Consent to Jurisdiction.    To the extent permitted by applicable law, any judicial proceeding brought in connection with this Agreement must be brought in the United States District Court for the Southern District of New York, and, by execution and delivery of this Agreement, each party (i) accepts, generally and unconditionally, the exclusive jurisdiction of such court and any related appellate court, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement, (ii) irrevocably waives any objection it may now or hereafter have as to the venue of any such suit, action or proceeding brought in such a court or that such court is an inconvenient forum and (iii) waives personal service of process and consents to service of process upon it by certified or registered mail, return receipt requested, at its address specified or determined in accordance with Section 10.8 hereof, and service so made shall be deemed completed on the fifth Business Day after such service is deposited in the mail. Nothing in this Section 10.5 shall affect the right of any party hereto to serve process in any other manner permitted by applicable law.

        10.6    Severability.    If any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof.

        10.7    Rules of Construction.    Unless the context otherwise requires, references to sections or subsections refer to sections or subsections of this Agreement.

        10.8    Notices.    All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be delivered by registered or certified first-class mail, return receipt requested, facsimile transmission, courier service or personal delivery as follows:

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        All such notices, demands and other communications shall be deemed to have been duly given when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial courier service by 5:00 pm EST on a Business Day, otherwise, on the next succeeding Business Day; five (5) Business Days after being deposited in the mail, postage prepaid, if mailed; and when receipt is mechanically acknowledged by 5:00 pm EST on a Business Day, if sent via facsimile, otherwise, on the next succeeding Business Day. Any party may by notice given in accordance with this Section 10.8 designate another address or Person for receipt of notices hereunder.

        10.9    Successors and Assigns; Third Party Beneficiaries.    This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto. Subject to applicable

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securities laws and the terms and conditions thereof, the Investors may assign any of their rights under this Agreement to any of their respective Affiliates; provided, however, that in such circumstances, such assigning Investor(s) shall remain primarily liable for such Investor's obligations hereunder. The Company may not assign any of its rights under this Agreement without the written consent of the Investors. Except as provided in Article 7 with respect to the limited class of other Persons identified specifically therein, no Person other than the parties hereto and their successors and permitted assigns shall be a beneficiary of this Agreement.

        10.10    Amendment and Waiver.    (a) No failure or delay on the part of the Company or the Investors in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the Company or the Investors at law, in equity or otherwise.

        10.11    Expenses.    Except as otherwise expressly provided in this Agreement, whether or not the transactions contemplated by this Agreement are consummated, the Investors, on the one hand, and the Company, on the other hand, shall pay the fees and expenses of their respective legal counsel, accountants, investment bankers and other experts, agents and representatives incident to the negotiation and preparation of this Agreement, and the consummation of the transactions contemplated by this Agreement.

        10.12    No Recourse to Specified Individuals.    Except in cases constituting actionable fraud by any such individual, in no event shall the Investors have any recourse against any individual named on Schedule I to this Agreement personally under, relating to or arising out of this Agreement or any other Transaction Document, including with respect to any representation or warranty made by the Company herein or therein.

        [Remainder of page intentionally left blank.]

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        IN WITNESS WHEREOF, the undersigned have executed, or have caused to be executed, this Stock Purchase Agreement as of the date first written above.

    PRIMUS TELECOMMUNICATIONS GROUP,
INCORPORATED
         
         
    By:    
     
      Name:  
      Title:  
         
         
    AIG GLOBAL SPORTS AND
ENTERTAINMENT FUND, L.P.
         
         
    By: AIG GSEF, L.P.,
its General Partner
         
      By: AIG GSEF INVESTMENT, LTD.,
its General Partner
         
         
      By:  
       
        Name:
        Title:
         
         
    AIG GLOBAL EMERGING MARKETS FUND, L.L.C.
         
    By: AIG Capital Management Corp.,
its Managing Member
         
    By:    
     
      Name:  
      Title:  
         
         
    GEM PARALLEL FUND, L.P.
         
    By: AIG Capital Management Corp.,
its General Partner
         
    By:    
     
      Name:  
      Title:  
         
         
    DUKE HOTELS LIMITED
         
    By:    
     
      Name:  
      Title:  


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STOCK PURCHASE AGREEMENT by and among PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED, AIG GLOBAL SPORTS AND ENTERTAINMENT FUND, L.P., AIG GLOBAL EMERGING MARKETS FUND, L.L.C., GEM PARALLEL FUND, L.P and DUKE HOTELS LIMITED
TABLE OF CONTENTS

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Exhibit 99.2

EXECUTION VERSION


REGISTRATION RIGHTS AGREEMENT

by and among

PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED,
AIG GLOBAL SPORTS AND ENTERTAINMENT FUND, L.P.,
AIG GLOBAL EMERGING MARKETS FUND, L.L.C.,
GEM PARALLEL FUND, L.P.
and
DUKE HOTELS LIMITED

       
Dated as of December 31, 2002


TABLE OF CONTENTS

 
    
    
   Page
1.   Definitions.   1
2.   General; Securities Subject to this Agreement.   3
    (a)   Grant of Rights   3
    (b)   Registrable Securities.   3
    (c)   Holders of Registrable Securities.   3
3.   Demand Registration.   3
    (a)   Request for Demand Registration   3
    (b)   Incidental or "Piggy-Back" Rights with Respect to a Demand Registration.   4
    (c)   Effective Demand Registration.   4
    (d)   Expenses.   4
    (e)   Underwriting Procedures.   4
    (f)   Selection of Approved Underwriter.   5
4.   Incidental or "Piggy-Back" Registration.   5
    (a)   Request for Incidental Registration   5
    (b)   Expenses.   6
5.   Registration on Form S-3.   6
6.   Holdback Agreements.   7
    (a)   Restrictions on Public Sale by Designated Holders   7
    (b)   Restrictions on Public Sale by the Company.   7
7.   Registration Procedures.   8
    (a)   Obligations of the Company   8
    (b)   Seller Information.   10
    (c)   Notice to Discontinue.   10
    (d)   Registration Expenses.   10
8.   Indemnification; Contribution.   11
    (a)   Indemnification by the Company   11
    (b)   Indemnification by Designated Holders.   11
    (c)   Conduct of Indemnification Proceedings.   12
    (d)   Contribution.   12
9.   Rule 144.   13
10.   Miscellaneous.   13
    (a)   Recapitalizations, Exchanges, etc   13
    (b)   No Inconsistent Agreements.   13
    (c)   Remedies.   14
    (d)   Amendments and Waivers.   14
    (e)   Notices.   14
    (f)   Successors and Assigns; Third Party Beneficiaries.   16
    (g)   Counterparts.   16
    (h)   Headings.   16
    (i)   GOVERNING LAW.   16
    (j)   Consent to Jurisdiction.   16
    (k)   Severability.   16
    (l)   Rules of Construction.   16
    (m)   Entire Agreement.   16
    (n)   Further Assurances.   17
    (o)   Other Agreements.   17

i

REGISTRATION RIGHTS AGREEMENT

        This REGISTRATION RIGHTS AGREEMENT, dated as of December 31, 2002 (this "Agreement"), is made and entered into by and among Primus Telecommunications Group, Incorporated, a Delaware corporation (the "Company"), AIG Global Sports and Entertainment Fund, L.P., a limited partnership organized under the laws of the Cayman Islands ("AIG GSEF"), AIG Global Emerging Markets Fund, L.L.C., a limited liability company organized under the laws of the State of Delaware ("AIG Gem"), GEM Parallel Fund, L.P., a limited partnership organized under the laws of the State of Delaware ("AIG Gem Parallel," and collectively with AIG GSEF and AIG Gem, the "Lead Investors") and Duke Hotels Limited, a limited company organized under the laws of the Bahamas (the "Co-Investor," and together with the Lead Investors, the "Investors").

        WHEREAS, pursuant to the Stock Purchase Agreement, dated as of December 31, 2002 (the "Stock Purchase Agreement"), by and among the Company and the Investors, the Company has agreed to issue and sell to the Investors, on the terms and conditions set forth therein, an aggregate of 559,950 shares of Series C Convertible Preferred Stock, par value $0.01 per share (the "Series C Preferred Stock"), of the Company; and

        WHEREAS, in order to induce each of the Investors to purchase shares of Series C Preferred Stock, the Company has agreed to grant registration rights with respect to the Registrable Securities (as hereinafter defined) as set forth in this Agreement.

        NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows:

        1.    Definitions.    As used in this Agreement, the following terms have the meanings indicated:

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        2.    General; Securities Subject to this Agreement.    (a) Grant of Rights. The Company hereby grants registration rights to the Designated Holders upon the terms and conditions set forth in this Agreement.

        3.    Demand Registration.    (a) Request for Demand Registration. At any time from and after the date hereof, the Designated Holders holding at least two-thirds (2/3) of the Registrable Securities (the "Initiating Holders"), may make a written request to the Company to register, and the Company shall register, under the Securities Act and on an appropriate registration statement form as reasonably determined by the Company and approved by the Initiating Holders, such approval not to be unreasonably withheld, conditioned or delayed (a "Demand Registration"), the number of Registrable Securities stated in such request; provided, however, that the Company shall not be obligated to effect (x) more than two (2) such Demand Registrations (subject to Section 3(e)(ii) below) or (y) any Demand Registration in which the aggregate proceeds to the Initiating Holders are expected to be less than ten million dollars ($10,000,000). If following receipt of a written request for a Demand Registration the Board of Directors, in its reasonable and good faith judgment, determines that any registration of Registrable Securities should not be made or continued because it would materially interfere with any material financing, acquisition, corporate reorganization or merger or other material transaction involving the Company (a "Valid Business Reason"), the Company may (x) postpone filing a Registration Statement relating to a Demand Registration until such Valid Business Reason no longer exists, but in no event for more than one hundred fifty (150) days, and (y) in case a Registration Statement has been filed relating to a Demand Registration, if the Valid Business Reason has not resulted from actions taken by the Company, the Company, upon the approval of a majority of the Board of Directors, may cause such Registration Statement to be withdrawn and its effectiveness terminated or may postpone amending or supplementing such Registration Statement. The Company shall give written notice of its determination to postpone or withdraw a Registration Statement and of the fact that the Valid Business Reason for such postponement or withdrawal no longer exists, in each case, promptly after the occurrence thereof. Notwithstanding anything to the contrary contained herein, the Company may not postpone or withdraw a filing under this Section 3(a) more than once in any twelve (12) month period. Each request for a Demand Registration by the Initiating Holders shall state the amount of the Registrable Securities proposed to be sold and the intended method of disposition thereof.

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        4.    Incidental or "Piggy-Back" Registration.    (a) Request for Incidental Registration. If at any time the Company proposes to file a Registration Statement under the Securities Act with respect to an offering by the Company for its own account (other than a Registration Statement on Form S-4 or S-8 or any successor thereto) or for the account of any stockholder of the Company other than the Designated Holders, then the Company shall give written notice of such proposed filing to each of the Designated Holders at least twenty (20) days before the anticipated filing date, and such notice shall describe the proposed registration and distribution and offer such Designated Holders the opportunity to register the number of Registrable Securities as each such Designated Holder may request (an "Incidental Registration"). The Company shall use all commercially reasonable efforts (within twenty (20) days of the notice provided for in the preceding sentence) to cause the managing underwriter or underwriters in the case of a proposed underwritten offering (the "Company Underwriter") to permit each of the Designated Holders who have requested in writing to participate in the Incidental Registration to include its or his Registrable Securities in such offering on the same terms and conditions as the securities of the Company or the account of such other stockholder, as the case may be, included therein. In connection with any Incidental Registration under this Section 4(a) involving an

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underwritten offering, the Company shall not be required to include any Registrable Securities in such underwritten offering unless the Designated Holders thereof accept the terms of the underwritten offering as agreed upon between the Company, such other stockholders, if any, and the Company Underwriter, and then only in such quantity as the Company Underwriter believes will not jeopardize the success of the offering by the Company. If the Company Underwriter determines that the registration of all or part of the Registrable Securities which the Designated Holders have requested to be included would materially adversely affect the success of such offering, then the Company shall be required to include in such Incidental Registration, to the extent of the amount that the Company Underwriter believes may be sold without causing such adverse effect, first, all of the securities to be offered for the account of the Company or on the account of the selling stockholder that caused the registration statement that has triggered the Incidental Registration to be filed, as the case may be; second, the Registrable Securities to be offered for the account of the Designated Holders pursuant to this Section 4, pro rata based on the number of Registrable Securities owned by each such Designated Holder; and third, any other securities requested to be included in such offering; provided, however, that in the event that any firm commitment to purchase any preferred stock of the Company pursuant to an Authorized Preferred Stock Issuance is entered into between the Company and any New Investor (such commitment to be subject only to such shareholder approval of the issuance of such new preferred stock as may be required by applicable law or regulation) within forty-five (45) days of the date hereof and, in connection with such issuance, any New Investor is granted registration rights in accordance with Section 10(b) hereof permitting such New Investor to exercise demand registration rights or piggyback registration rights with respect to any registration described in this Section 4(a) and any such New Investor exercises such demand or piggyback registration rights and, in connection therewith, any Designated Holder requests to participate in such registration pursuant to this Section 4(a) such that the Company Underwriter advises the Company in its reasonable opinion that the aggregate amount of securities requested to be included in such offering is sufficiently large to have a material adverse effect on the success of such offering, then the Company shall be required to include in such Incidental Registration, to the extent of the amount that the Company Underwriter believes may be sold without any such material adverse effect, first, all of the securities to be offered on the account of the Company or on the account of the selling stockholder that caused the registration statement that has triggered the Incidental Registration to be filed, as the case may be, provided such selling stockholder is not a New Investor; second, the Registrable Securities to be offered for the account of the Designated Holders pursuant to this Section 4 and the securities to be offered for the account of any New Investor (pro rata based on the amount of securities requested to be included in such registration by such Designated Holders and New Investors); and third, any other securities requested to be included in such offering.

        5.    Registration on Form S-3.    For so long as the Company is qualified to the use Form S-3 or any successor form, in addition to the rights contained in the forgoing provisions of this Agreement, the Initiating Holders shall have the right at any time and from time to time to request registrations on Form S-3 (such requests shall be in writing and shall state the number of shares of Registrable Securities to be disposed of and the intended methods of disposition of such shares by such Initiating Holder or Initiating Holders, as the case may be) and the Company shall use its commercially reasonable efforts to cause such shares to be registered for the offering as soon as practicable on Form S-3 (or any successor form to Form S-3), but in any event within sixty (60) days; provided, however, that the aggregate proceeds for any such requested registration shall be expected to exceed $1,000,000; and provided further, however, that the Company shall not be obligated to file more than one Form S-3 requested by the Initiating Holders in any six (6) month period. Any request for registration pursuant to this Section 5 (a "Form S-3 Registration") shall not be counted as a Demand

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Registration pursuant to Section 3(a) hereof. If, following receipt of a written request for a Form S-3 Registration, the Board of Directors, in its reasonable and good faith judgment, determines that any registration of Registrable Securities should not be made or continued because of a Valid Business Reason, the Company may (x) postpone filing a Registration Statement relating to such Form S-3 Registration until such Valid Business Reason no longer exists, but in no event for more than one hundred fifty (150) days, and (y) in case a Registration Statement has been filed relating to a Form S-3 Registration, if the Valid Business Reason has not resulted from actions taken by the Company, the Company, upon the approval of a majority of the Board of Directors, may cause such Registration Statement to be withdrawn and its effectiveness terminated or may postpone amending or supplementing such Registration Statement. The Company shall give written notice of its determination to postpone or withdraw a Registration Statement and of the fact that the Valid Business Reason for such postponement or withdrawal no longer exists, in each case, promptly after the occurrence thereof. Notwithstanding anything to the contrary contained herein, the Company may not postpone or withdraw a filing under this Section 5 more than once in any twelve (12) month period. The Company shall give written notice to all other Designated Holders of the receipt of a request for registration pursuant to this Section 5 and shall provide a reasonable opportunity for such other Designated Holders to participate in the registration, provided that if the registration is for an underwritten offering, the terms of Section 3(e), including, without limitation, the provisions relating to the exclusion of other securities prior to any reduction of Registrable Securities included in any such underwriting, shall apply to all participants in such offering. Notwithstanding the foregoing, the Company shall not be required to effect registration under this Section 5 if nationally recognized counsel for the Company, which counsel shall be reasonably acceptable to the Initiating Holders requesting registration under this Section 5, shall deliver an opinion addressed to such Initiating Holders that, pursuant to Rule 144 under the Securities Act or otherwise, such Initiating Holders can publicly sell the Registrable Securities as to which registration has been requested in a three-month period without registration under the Securities Act and without any limitation with respect to offerees, manner of offering or the size of the transaction.

        6.    Holdback Agreements.    (a) Restrictions on Public Sale by Designated Holders. To the extent (i) requested (A) by the Company or the Initiating Holders, as the case may be, in the case of a non-underwritten Public Offering and (B) by the Approved Underwriter or the Company Underwriter, as the case may be, in the case of an underwritten Public Offering and (ii) all of the Company's officers and directors execute agreements identical to those referred to in this Section 6(a), each Designated Holder agrees (x) not to effect any public sale or distribution of any Registrable Securities or of any securities convertible into or exchangeable or exercisable for such Registrable Securities, including a sale pursuant to Rule 144 under the Securities Act, or offer to sell, contract to sell (including without limitation any short sale), grant any option to purchase or enter into any hedging or similar transaction with the same economic effect as a public sale with respect to any Registrable Securities and (y) not to make any request for a Demand Registration or Form S-3 Registration under this Agreement, during the one hundred eighty (180) day period or such shorter period, if any, mutually agreed upon by such Designated Holder and the requesting party beginning on the effective date of the Registration Statement (except as part of such registration) for such Public Offering. No Designated Holder of Registrable Securities subject to this Section 6(a) shall be released from any obligation under any agreement, arrangement or understanding entered into pursuant to this Section 6(a) unless all other Designated Holders of Registrable Securities subject to the same obligation are also released. All Designated Holders of Registrable Securities shall be automatically released from any obligations under any agreement, arrangement or understanding entered into pursuant to this Section 6(a) immediately upon the expiration of the 180-day period.

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        7.    Registration Procedures.    (a) Obligations of the Company. Whenever registration of Registrable Securities has been requested pursuant to Section 3, 4 or 5 of this Agreement, the Company shall use all commercially reasonable efforts to effect the registration and sale of such Registrable Securities in accordance with the intended method of distribution thereof as quickly as reasonably practicable, and in connection with any such request, the Company shall, as expeditiously as reasonably practicable:

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        8.    Indemnification; Contribution.    (a) Indemnification by the Company. The Company agrees to indemnify and hold harmless each Designated Holder, its partners, directors, officers, affiliates and each Person who controls (within the meaning of Section 15 of the Securities Act) such Designated Holder from and against any and all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) (each, a "Liability" and collectively, "Liabilities"), arising out of or based upon any untrue, or allegedly untrue, statement of a material fact contained in any Registration Statement, prospectus or preliminary prospectus (as amended or supplemented if the Company shall have furnished any amendments or supplements thereto) or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which such statements were made, except insofar as such Liability arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission contained in such Registration Statement, preliminary prospectus or final prospectus in reliance and in conformity with information concerning such Designated Holder furnished in writing to the Company by such Designated Holder expressly for use therein, including, without limitation, the information furnished to the Company pursuant to Section 7(b). The Company shall also provide customary indemnities to any underwriters of the Registrable Securities, their officers, directors and employees and each Person who controls such underwriters (within the meaning of Section 15 of the Securities Act) to the same extent as provided above with respect to the indemnification of the Designated Holders of Registrable Securities.

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        9.    Rule 144.    The Company covenants that it shall (a) file any reports required to be filed by it under the Exchange Act and (b) take such further action as each Designated Holder may reasonably request (including providing any information necessary to comply with Rule 144 under the Securities Act), all to the extent required from time to time to enable such Designated Holder to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such rule may be amended from time to time or (ii) any similar rules or regulations hereafter adopted by the SEC. The Company shall, upon the request of any Designated Holder, deliver to such Designated Holder a written statement as to whether it has complied with such requirements.

        10.    Miscellaneous.    (a) Recapitalizations, Exchanges, etc. The provisions of this Agreement shall apply to the full extent set forth herein with respect to (i) the shares of Series C Preferred Stock, (ii) any and all shares of Common Stock into which the shares of Series C Preferred Stock are converted, exchanged or substituted in any recapitalization or other capital reorganization by the Company and (iii) any and all equity securities of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in conversion of, in exchange for or in substitution of, the shares of Series C Preferred Stock and shall be appropriately adjusted for any stock dividends, splits, reverse splits, combinations, recapitalizations and the like occurring after the date hereof. The Company shall use all commercially reasonable efforts to cause any successor or assign (whether by merger, consolidation, sale of assets or otherwise) to enter into a new registration rights agreement with the Designated Holders on terms substantially the same as this Agreement as a condition of any such transaction.

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(i) if to the Company, to:

Primus Telecommunications Group, Incorporated
1700 Old Meadow Road
McLean, VA 22102
Facsimile: (703) 902-2814
Attention: John F. DePodesta, Executive Vice President

with copies to:

Primus Telecommunications Group, Incorporated
1700 Old Meadow Road
McLean, VA 22102
Facsimile: (703) 902-2814
Attention: Danielle O. Saunders, General Counsel

and

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Kelley Drye & Warren LLP
8000 Towers Crescent Drive
Suite 1200 Vienna, VA 22182
Facsimile: (703) 918-2450
Attention: Joseph B. Hoffman, Esq.

(ii)
if to any of the Lead Investors, to:

AIG Global Sports and Entertainment Fund, L.P.
AIG Global Emerging Markets Fund, L.L.C.
GEM Parallel Fund, L.P.
c/o AIG Capital Partners, Inc.
175 Water St., 23rd Floor
New York, NY 10038
Facsimile: (212) 458-2153
Attention: Corporate Counsel

with copies to:

PH Capital, LLC
1266 East Main Street
4th Floor
Stamford, CT 06902
Facsimile: (203) 921-2448
Attention: Geoff Hamlin

and

Pillsbury Winthrop LLP
Financial Centre
695 East Main Street
Stamford, CT 06901
Facsimile: (203) 965-8226
Attention: Robert J. Rawn, Esq.

(iii)
if to the Co-Investor, to:

Duke Hotels Limited
c/o Greenaap Consultants Ltd.
66 Merrion Square
Dublin 2, Ireland
Facsimile: +353 (1) 662-0506
Attention: Ian Buchanan

with copies to:

c/o AIG Capital Partners, Inc.
175 Water St., 23rd Floor
New York, NY 10038
Facsimile: (212) 458-2153
Attention: Corporate Counsel

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[Remainder of page intentionally left blank.]

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        IN WITNESS WHEREOF, the undersigned have executed, or have caused to be executed, this Registration Rights Agreement on the date first written above.

    PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED

 
 
By:
 
 
       
Name:
Title:

 
 
AIG GLOBAL SPORTS AND
ENTERTAINMENT FUND, L.P.

 
 
By:
 
AIG GSEF, L.P.,
its General Partner

 
 
 
 
By:
 
AIG GSEF INVESTMENTS, LTD.,
its General Partner

 
 
 
 
By:
 
 
           
Name:
Title:

 
 
AIG GLOBAL EMERGING MARKETS FUND, L.L.C.

 
 
By:
 
AIG Capital Management Corp.,
its Managing Member

 
 
By:
 
 
       
Name:
Title:

 
 
GEM PARALLEL FUND, L.P.

 
 
By:
 
AIG Capital Management Corp.,
its General Partner

 
 
By:
 
 
       
Name:
Title:

 
 
DUKE HOTELS LIMITED

 
 
By:
 
 
       
Name:
Title:


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REGISTRATION RIGHTS AGREEMENT by and among PRIMUS TELECOMMUNICATIONS GROUP, INCORPORATED, AIG GLOBAL SPORTS AND ENTERTAINMENT FUND, L.P., AIG GLOBAL EMERGING MARKETS FUND, L.L.C., GEM PARALLEL FUND, L.P. and DUKE HOTELS LIMITED
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Exhibit 99.3

[primus LOGO]

FOR IMMEDIATE RELEASE

Contact:
Jordan Darrow, VP, Investor Relations
& Corporate Communications
PRIMUS Telecommunications Group
(212) 703-0116
 jdarrow@primustel.com


PRIMUS TELECOMMUNICATIONS RAISES $42 MILLION IN CONVERTIBLE
PREFERRED STOCK FINANCING

        McLean, Virginia—December 31, 2002—PRIMUS Telecommunications Group, Incorporated ("PRIMUS" or the "Company") (Nasdaq: PRTL), a global facilities-based Total Service Provider offering an integrated portfolio of voice, data, Internet and web hosting services, today announced it has signed an agreement to sell newly-issued shares of its Series C Convertible Preferred Stock (the "Series C Preferred") for an aggregate purchase price of $42 million in a private offering to two private equity funds sponsored by the American International Group, Inc. (collectively, "AIG") and an additional institutional investor that is a limited partner of one of the funds. The new Series C Preferred will be convertible into shares of the Company's Common Stock at a conversion price of $1.876 per share, subject to certain adjustments, which today represents approximately a 25.2% fully-diluted ownership interest in PRIMUS.

        The first phase of the transaction closed today with PRIMUS receiving approximately $33 million from AIG and the additional investor, with AIG obtaining a 19.99% ownership interest in PRIMUS' issued and outstanding capital stock. It is expected that the balance of the transaction will close upon the earlier to occur of either approval by PRIMUS' shareholders for AIG to own in excess of 19.99% of PRIMUS' issued and outstanding capital stock, or subsequent issuances of PRIMUS capital stock to third parties which would bring AIG's ownership of the Series C Preferred (including the remaining Series C Preferred) below the 20% threshold.

        PRIMUS intends to use the proceeds from the financing for general corporate purposes, including working capital, debt reduction and potential acquisitions involving industry consolidation opportunities. As part of this transaction, PRIMUS has the right to issue up to $75 million of additional principal amount of Convertible Preferred Stock on similar terms through June 1, 2004, and, if such issuances are contractually committed within the next 45 days, such additional Convertible Preferred Stock can be issued on the same terms, including pricing, as those offered to AIG, subject only to obtaining requisite shareholder approval. The proceeds from any such additional issuances of Convertible Preferred Stock would be used for similar purposes.

        "The investment announced today marks a significant milestone in PRIMUS' execution of the three-pronged strategy we announced two years ago," stated K. Paul Singh, Chairman and Chief Executive Officer of PRIMUS. "In late 2000, as we surveyed a bleak economic landscape and uncertain future for the telecommunications sector, we resolved to become an industry survivor through implementing a bold strategy to dramatically reduce our debt, aggressively grow our EBITDA (earnings before interest, taxes, depreciation and amortization) and, when substantial progress was made on both those fronts, to access additional capital. Since that time, we have reduced our debt by over 50% and we have grown our EBITDA from slightly positive to a projected level approaching $100 million for 2002. With today's announcement, we can record substantial progress on the third prong of our strategy."


        "The AIG investment, which brings to PRIMUS a sophisticated and resourceful partner, is a tangible validation of the progress we have made and their belief in our future potential. The transaction improves our liquidity, strengthens our balance sheet, provides resources to permit us to resume a growth strategy, and also sets the platform for potential future equity investments in PRIMUS," Mr. Singh commented. "As a consequence, we are now able to address 2003 with enhanced vitality and a refreshed commitment to growth. We believe that, given the turmoil that exists in the telecommunications sector generally, consolidation opportunities are becoming increasingly available at attractive valuations and terms. Clearly, now is the time to accumulate cash resources to enable us to seize opportunities as a potential consolidator to build greater long term value for our shareholders. The new funding and the flexibility to raise additional Convertible Preferred equity position us to target accretive acquisition opportunities."

        The Series C Preferred has an initial conversion price of $1.876 per share, subject from time-to-time to weighted-average antidilution adjustments, provided that such adjustments do not result in an adjusted conversion price of less than $1.754 per share. The Series C Preferred will be subject to mandatory conversion when the Company's Common Stock trades for a defined period above three times the then applicable conversion price. The Series C Preferred will be subject to certain performance adjustments, payable as an adjustment to the conversion price or in cash at the Company's option, which feature will be extinguished upon the Company's attaining any one of certain specified performance targets (including a reduction in total net debt to $405 million or less, an average daily closing price for the Company's Common Stock during any thirty day period that equals or exceeds the then applicable conversion price, or reduction to a level of 3.625 or less in the Company's net debt/EBITDA ratio). Each share of Series C Preferred is entitled to a liquidation preference payment ahead of the Company's Common Stock equal to the then applicable conversion price multiplied by the number of shares of Common Stock into which such share is convertible plus an amount representing a 15% internal rate of return (less dividends and distributions previously made). So long as holders of the Series C Preferred maintain certain minimum ownership percentage interests in PRIMUS, they will be entitled to nominate one member (at greater than 5% levels) and one observer (at greater than 10% levels) to PRIMUS' Board of Directors.

# # #

PRIMUS Telecommunications Group, Incorporated (NASDAQ: PRTL) is a global facilities-based Total Service Provider offering bundled voice, data, Internet, digital subscriber line (DSL), Web hosting, enhanced application, virtual private network (VPN), and other value-added services. PRIMUS owns and operates an extensive global backbone network of owned and leased transmission facilities, including over 300 IP points-of-presence (POPs) throughout the world, ownership interests in over 23 undersea fiber optic cable systems, 19 international gateway and domestic switches, a satellite earth station and a variety of operating relationships that allow it to deliver traffic worldwide. PRIMUS has been expanding its e-commerce and Internet capabilities with the deployment of a global state-of-the-art broadband fiber optic ATM+IP network. Founded in 1994 and based in McLean, VA, PRIMUS serves corporate, small- and medium-sized businesses, residential and data, ISP and telecommunication carrier customers primarily located in the North America, Europe and Asia Pacific regions of the world. News and information are available at PRIMUS's Web site at www.primustel.com.

* * *

Statements in this press release constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are based on current expectations, and are not strictly historical statements. Forward-looking statements include without limitation statements set forth in this document and elsewhere regarding, among other things: the Company's expectations of future liquidity, earnings before interest, taxes, depreciation and amortization ("EBITDA"), sales, net revenue, gross profit, operating profit, net income, cash flow, network development, Internet services development, traffic development, capital expenditures, selling, general and administrative expenses, goodwill impairment charges, service introductions and cash requirements; the Company's financing and/or debt repurchase, restructuring or exchange plans or initiatives; liquidity and debt service forecasts; management's plans, goals, expectations, guidance, objectives, strategy, and timing for future operations, product plans and performance, predictions or expectations of future growth, results or cash flow; and management's assessment of market factors and future financial performance. Factors and risks, including certain of those described in greater detail in the captions below, that could cause actual results or circumstances to differ materially from those set forth or contemplated in forward-looking statements include: changes in business conditions, prevailing trade credit terms or revenues arising from, among other reasons, further telecommunications carrier bankruptcies or adverse bankruptcy related developments affecting the Company's large carrier customers; the failure of certain vendors to make adequate concessions concerning the deferral of principal payments and the reduction of interest rates; the possible inability to raise capital when needed, or at all; the inability to reduce, exchange or restructure debt significantly, or in amounts sufficient to conduct regular ongoing operations; changes in the telecommunications or Internet industry or the general economy or capital markets; adverse tax rulings from applicable taxing authorities; DSL, Internet and telecommunication competition; changes in financial, capital market and economic conditions; changes in service offerings or business strategies; inability to lease space for data centers at commercially reasonable rates; difficulty in migrating customers or integrating other assets; difficulty in provisioning VoIP services; changes in the regulatory schemes and regulatory enforcement in the markets in which the Company operates; restrictions on the Company's ability to follow certain strategies or complete certain transactions as a result of its capital structure or debt covenants; the inability to reduce debt significantly; risks associated with the Company's limited DSL, Internet and Web hosting experience and expertise; entry into developing markets; the possible inability to hire and/or retain qualified sales, technical and other personnel, particularly as we continue to attempt to grow our data-centric services, and manage growth; and risks associated with international operations (including foreign currency translation risks); dependence on effective information systems; dependence on third parties to enable us to expand and manage our global network and operations; and dependence on the implementation and performance of the Company's global ATM+IP communications network; and the inability to obtain requisite shareholder approval to consummate proposed transactions. As such, actual results or circumstances may vary materially from such forward-looking statements or expectations. Readers are also cautioned not to place undue reliance on these forward-looking statements which speak only as of the date these statements were made. Primus is not necessarily obligated to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.



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PRIMUS TELECOMMUNICATIONS RAISES $42 MILLION IN CONVERTIBLE PREFERRED STOCK FINANCING