<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1996
REGISTRATION NO. 333-3984
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
TELEPORT COMMUNICATIONS GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 4813 13-3173139
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
ONE TELEPORT DRIVE
STATEN ISLAND, NEW YORK 10311-1011
(718) 355-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
JOHN W. THOMSON, ESQ.
VICE PRESIDENT AND SECRETARY
TELEPORT COMMUNICATIONS GROUP INC.
ONE TELEPORT DRIVE
STATEN ISLAND, NEW YORK 10311-1011
(718) 355-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S AGENT FOR SERVICE)
----------------
PLEASE ADDRESS A COPY OF ALL COMMUNICATIONS TO:
KEVIN F. REED, ESQ. ROHAN S. WEERASINGHE, ESQ.
TIMOTHY J. KELLEY, ESQ. ROBERT EVANS III, ESQ.
DOW, LOHNES & ALBERTSON SHEARMAN & STERLING
1200 NEW HAMPSHIRE AVENUE, N.W. 599 LEXINGTON AVENUE
WASHINGTON, D.C. 20036-6802 NEW YORK, N.Y. 10022-6069
(202) 776-2000 (212) 848-4000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
----------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS OF SECURITIES TO BE MAXIMUM AGGREGATE AMOUNT OF
REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2)
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<S> <C> <C>
% Senior Notes and % Senior Discount
Notes.................................. $600,000,000 $206,897
</TABLE>
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(1) Estimated solely for purposes of determining the registration fee.
(2) $172,414 of the registration fee was paid at the time of the original
filing of the Registration Statement and $34,483 is being paid herewith.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
TELEPORT COMMUNICATIONS GROUP INC.
CROSS-REFERENCE SHEET
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(b) OF REGULATION S-K
SHOWING THE LOCATION IN THE PROSPECTUS OF THE INFORMATION
REQUIRED BY THE ITEMS OF FORM S-1
<TABLE>
<CAPTION>
ITEM AND CAPTION LOCATION IN PROSPECTUS
---------------- ----------------------
<S> <C>
1.Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus.......................... Outside Front Cover Page
2.Inside Front and Outside Back Cover
Pages of Prospectus................. Inside Front Cover Page; Outside
Back Cover Page
3.Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges.. Prospectus Summary; Risk Factors;
The Reorganization; Selected
Combined Financial Data
4.Use of Proceeds....................... Prospectus Summary; Use of Proceeds
5.Determination of Offering Price....... *
6.Dilution.............................. *
7.Selling Security Holders.............. *
8.Plan of Distribution.................. Outside Front Cover Page;
Underwriting
9.Description of Securities to be
Registered.......................... Outside Front Cover Page; Prospectus
Summary; Description of Notes
10.Interests of Named Experts and
Counsel............................. *
11.Information with Respect to the
Registrant
(a)Description of Business............. Prospectus Summary; Risk Factors;
The Reorganization; Pro Forma
Financial Information; Management's
Discussion and Analysis of
Financial Condition and Results of
Operations; The Local
Telecommunications Service
Industry; Business; Certain
Relationships and Related
Transactions; Description of
Certain Indebtedness
(b)Description of Property............. Business
(c)Legal Proceedings................... Business
(d)Market Price of and Dividends on the
Registrant's Common Equity and
Related Stockholder Matters....... *
(e)Financial Statements................ Pro Forma Financial Information;
Combined Financial Statements
(f)Selected Combined Financial Data.... Capitalization; Selected Combined
Financial Data
(g)Supplementary Financial
Information....................... *
(h)Management's Discussion and Analysis
of Financial Condition and Results
of Operations..................... Management's Discussion and Analysis
of Financial Condition and Results
of Operations
(i)Changes in and Disagreements with
Accountants....................... *
(j)Directors and Executive Officers.... Management
(k)Executive Compensation.............. Management
(l)Security Ownership of Certain
Beneficial Owners and Management.. Principal Stockholders
(m)Certain Relationships and Related Management; Certain Relationships
Transactions...................... and Related Transactions;
Underwriting
12.Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities......................... *
</TABLE>
- --------
* Item is omitted because response is negative or item is inapplicable.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED JUNE 3, 1996
PROSPECTUS
, 1996 TCG
$ ===
TELEPORT COMMUNICATIONS GROUP INC.
$200,000,000 % SENIOR NOTES DUE 2006
$ % SENIOR DISCOUNT NOTES DUE 2007
----------
The Senior Notes due 2006 (the "Senior Notes") and the Senior Discount Notes
due 2007 (the "Senior Discount Notes" and, together with the Senior Notes, the
"Notes") are being offered hereby (the "Notes Offerings") by Teleport
Communications Group Inc. ("TCG" or the "Company"). The Senior Discount Notes
will be issued to generate gross proceeds to the Company of approximately $400
million and will be issued at a price of $ per $1,000 principal amount at
maturity, representing a yield to maturity of % (computed on a semi-annual
bond equivalent basis) calculated from , 1996.
The Company has also filed a registration statement with respect to the
offering of 23,500,000 shares of Class A Common Stock of the Company (together
with the Company's Class B Common Stock, the "Common Stock"), with 18,800,000
shares being offered in the United States and Canada (the "U.S. Offering") and
4,700,000 shares being offered in a concurrent offering outside the United
States and Canada (the "International Offering" and together with the U.S.
Offering, the "Stock Offerings"), which Stock Offerings will be made by
separate prospectuses. The Notes Offerings and the Stock Offerings are
collectively referred to herein as the "Offerings."
The Senior Notes will bear interest at the rate of % per annum payable in
cash commencing , 1996 and semiannually thereafter on and in
each year. The Senior Notes will mature on , 2006. Cash interest on the
Senior Discount Notes will not accrue prior to , 2001, provided however
that at any time prior to , 2001, the Company may elect to commence the
accrual of cash interest on an interest payment date, in which case the
outstanding principal amount at maturity of a Senior Discount Note will be
reduced to the Accreted Value of such Note as of such interest payment date and
cash interest will be payable on each interest payment date thereafter.
Commencing , 2001, cash interest will be payable semi-annually on
and of each year. The Senior Discount Notes will mature on ,
2007. See "Description of Notes--Terms of the Senior Discount Notes."
Except as set forth below, the Notes will not be redeemable at the Company's
option prior to , 2001. Thereafter, the Notes will be subject to
redemption, at the Company's option, in whole or in part, at the redemption
prices set forth herein, plus accrued and unpaid interest. In addition, at any
time prior to , 1999, the Company may redeem up to one-third of the
Notes at a redemption price of % of the principal amount in the case of the
Senior Notes and at a redemption price of % of the Accreted Value in the case
of the Senior Discount Notes with the net proceeds of one public or a private
sale of certain capital stock of the Company. Upon the occurrence of a Change
of Control, the Company will be required to make an offer to purchase all of
the Notes at a purchase price equal to, in the case of the Senior Discount
Notes, 101% of the Accreted Value thereof (if prior to , 2001) or, in
the case of the Senior Notes and (if on or after , 2001) the Senior
Discount Notes, 101% of the aggregate principal amount thereof, plus accrued
and unpaid interest thereon.
The Notes will be senior unsecured obligations of the Company ranking pari
passu in right of payment with all other existing and future senior unsecured
obligations of the Company. As of March 31, 1996, after giving effect to the
Reorganization and the Offerings, the Company had approximately $600.0 million
of senior debt outstanding. Since the Company conducts a substantial amount of
its business through subsidiaries, the Notes will be effectively subordinated
to all existing and future indebtedness and other liabilities and commitments
of the Company's subsidiaries, including trade payables. Substantially all of
such subsidiary indebtedness is, and is expected to be, secured by the assets
of the Company's subsidiaries or stock of the Company's subsidiaries. As of
March 31, 1996, after giving effect to the Reorganization and the Offerings,
such subsidiaries had approximately $192.4 million of total liabilities,
including approximately $52.5 million of indebtedness.
The Notes will not be listed on any securities exchange, and there can be no
assurance that there will be a secondary market therefor.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN EVALUATING AN INVESTMENT IN THE NOTES OFFERED
HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
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<S> <C> <C> <C>
PER SENIOR NOTE ........................ % % %
TOTAL .................................. $ $ $
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PER SENIOR DISCOUNT NOTE................ % % %
TOTAL................................... $ $ $
</TABLE>
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(1) Plus accretion or accrued interest, if any, from the date of issuance.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(3) Before deducting expenses of the Notes Offerings payable by the Company,
estimated at $1,574,000.
The Notes are being offered by the Underwriters, subject to prior sale, when,
as and if delivered to and accepted by the Underwriters and subject to various
prior conditions, including their right to reject orders in whole or in part.
It is expected that delivery of the Notes will be made in New York, New York on
or about , 1996, in book-entry form through the facilities of the Depository
Trust Company, against payment thereof in same day funds.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
CHASE SECURITIES INC.
TORONTO DOMINION SECURITIES (USA) INC.
<PAGE>
[PHOTO APPEARS HERE]
TCG's advanced Network Management Center operates twenty-four hours a day,
seven days a week, providing network monitoring, surveillance and diagnostic
support for TCG's local telecommunications services, including basic local
telephone services, enhanced switched services, dedicated services, high speed
data services and video channel transmission services.
----------------
WITH RESPECT TO SALES OF THE NOTES BEING OFFERED HEREBY TO CALIFORNIA
RESIDENTS, AS OF THE DATE OF THIS PROSPECTUS, SUCH NOTES MAY BE SOLD ONLY TO:
(1) "ACCREDITED INVESTORS" AS DEFINED IN REGULATION D UNDER THE SECURITIES ACT
OF 1933, (2) INSTITUTIONAL INVESTORS AS SET FORTH IN SEC. 25102(i) OF
CALIFORNIA'S CORPORATE SECURITIES LAW OF 1968, (3) ANY PERSON (OTHER THAN A
PERSON FORMED FOR THE SOLE PURPOSE OF PURCHASING THE NOTES OFFERED HEREBY) WHO
PURCHASES AT LEAST $1,000,000 AGGREGATE AMOUNT OF THE NOTES OFFERED HEREBY OR
(4) ANY PERSON WHO (A) HAS AN INCOME OF $65,000 AND A NET WORTH OF $250,000,
OR (B) HAS A NET WORTH OF $500,000 (IN EACH CASE, EXCLUDING HOME, HOME
FURNISHINGS AND PERSONAL AUTOMOBILES). EACH CALIFORNIA RESIDENT PURCHASING THE
NOTES OFFERED HEREBY WILL BE DEEMED TO REPRESENT BY SUCH PURCHASE THAT IT
COMES WITHIN ONE OF THE AFOREMENTIONED CATEGORIES AND THAT IT WILL NOT SELL OR
OTHERWISE TRANSFER SUCH NOTES TO A CALIFORNIA RESIDENT UNLESS THE TRANSFEREE
COMES WITHIN ONE OF THE AFOREMENTIONED CATEGORIES AND THAT IT WILL ADVISE THE
TRANSFEREE OF THIS CONDITION WHICH TRANSFEREE, BY BECOMING SUCH, WILL BE
DEEMED TO BE BOUND BY THE SAME RESTRICTIONS ON RESALE.
IN CONNECTION WITH THE NOTES OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE NOTES
OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements (including the notes thereto)
appearing elsewhere in this Prospectus. Unless the context otherwise requires,
the information set forth in this Prospectus gives effect to the transactions
described herein under "The Reorganization," and "TCGI" refers to Teleport
Communications Group Inc. and its consolidated subsidiaries and "TCG" and the
"Company" refer to TCGI and its consolidated partnerships after giving effect
to such transactions. Unless otherwise indicated, the information set forth in
this Prospectus does not give effect to the exercise of the Underwriters' over-
allotment options in the Stock Offerings. See "Glossary" for definitions of
certain other terms used in this Prospectus.
THE COMPANY
Teleport Communications Group Inc., the first and largest competitive local
exchange carrier in the United States, offers a wide range of local
telecommunications services in major metropolitan markets nationwide. The
Company competes with incumbent local exchange carriers as "The Other Local
Phone Company" SM by providing high quality, integrated local
telecommunications services, primarily over fiber optic digital networks, to
meet the voice, data and video transmission needs of its customers. TCG's
customers are principally telecommunications-intensive businesses, long
distance carriers and resellers, and wireless communications companies. TCG
offers these customers technologically advanced local telecommunications
services, as well as superior customer service, flexible pricing and vendor and
route diversity.
For over 10 years, TCG has developed, operated and expanded its local
telecommunications networks. The Company currently operates high capacity
state-of-the-art digital networks in 48 metropolitan markets, including 17 of
the 20 largest metropolitan areas. The Company operates networks in
metropolitan New York/New Jersey, Los Angeles, Chicago, San Francisco, Boston,
Detroit, Baltimore/Washington, D.C., Dallas, Houston, Miami/Ft. Lauderdale,
Seattle, San Diego, St. Louis, Pittsburgh, Phoenix, Denver, Milwaukee,
Indianapolis, Hartford and Omaha, and is developing networks in Cleveland,
Portland (Oregon), Salt Lake City, Nashville, Chattanooga, Knoxville and
Birmingham. As of March 31, 1996, the Company's networks spanned over 5,500
route miles, contained over 257,000 fiber miles and served approximately 5,300
buildings.
TCG has grown rapidly over the last several years, expanding its existing
networks, developing new networks and increasing its service offerings. On a
pro forma basis, after giving effect to the Reorganization, the Company's
revenues were approximately $184.9 million for 1995, substantially all of which
were derived from the provision of local telecommunications services.
Total revenues from the local telecommunications market in the United States
were estimated to have been approximately $96 billion in 1995. In the past,
competitive access providers, including the Company, were limited to serving
only the dedicated services portion of this market, which was estimated to have
been approximately $5 billion in 1995, whereas the local switched services
portion of this market for business customers was estimated to have been
approximately $55 billion. The Company has expanded into the switched services
market in a number of states over the last five years by constructing switched
networks and obtaining the necessary regulatory authorizations and
interconnection arrangements. With the passage of the Telecommunications Act of
1996 (the "1996 Act"), the Company believes that it is well positioned to
address a significantly larger portion of the local telecommunications market
and to improve its operating margins in the switched and dedicated services
markets by expanding its networks, installing additional high capacity digital
switches and offering new products and services.
3
<PAGE>
TCG has benefited substantially from its relationships with the four
stockholders of the Company, Tele-Communications, Inc. ("TCI"), Cox
Communications, Inc. ("Cox"), Comcast Corporation ("Comcast") and Continental
Cablevision, Inc. ("Continental") (collectively, the "Cable Stockholders"),
which are among the largest media and cable television companies in the United
States. Through such relationships, the Company has been able to utilize
rights-of-way, obtain fiber optic facilities and share the cost of building new
fiber optic networks, thereby allowing the Company to achieve significant
economies of scale and scope through capital efficiencies in extending its
existing networks in a rapid, efficient and cost-effective manner. As of March
31, 1996, after giving pro forma effect to the Reorganization, the Cable
Stockholders had invested approximately $770 million in the Company. See "The
Reorganization."
The Company believes that it has several advantages that enable it to compete
successfully in the new competitive local telecommunications marketplace,
including (i) extensive, technologically advanced networks located in major
metropolitan markets nationwide, (ii) strategic relationships with cable
television operators, (iii) state-of-the-art information systems and (iv) an
experienced management team with significant operational, technical, financial
and regulatory expertise in the local telecommunications industry.
BUSINESS STRATEGY
As a premier competitive local telecommunications carrier, the key elements
of the Company's business strategy are to:
. PROVIDE A WIDE RANGE OF LOCAL TELECOMMUNICATIONS SERVICES. The Company
provides a broad array of local telecommunications services to meet the
voice, data and video transmission needs of its customers, including basic
local exchange telephone services, enhanced switched services, dedicated
services, high speed switched data services and video channel transmission
services. In 1995, approximately 36% of the Company's revenues were
generated from switched services. The Company expects a growing portion of
its revenues to be derived from basic local exchange telephone services,
enhanced switched services and high speed switched data services as it
deploys digital switches in all of its markets. As of March 31, 1996, the
Company had 21 digital telephone switches and 27 asynchronous transfer mode
("ATM") switches in operation. On a pro forma basis, after giving effect to
the Reorganization, the Company's revenues from switched services, which
include local dial tone and local calling, grew by approximately 59% to
$63.9 million in 1995 from $40.2 million in 1994.
. FOCUS ON BUSINESS CUSTOMERS AND TELECOMMUNICATIONS CARRIERS. The Company's
networks serve large metropolitan markets, which have significant
concentrations of telecommunications-intensive businesses. The Company's
customers in these markets include financial services firms, media and
health care companies, long distance carriers and resellers, Internet
service providers, wireless communications companies and an increasing
number of small and medium-sized business customers. The national scope of
the Company's local networks allows it to offer high volume business
customers and long distance carriers uniformity of services, pricing,
quality standards and customer service. In addition, the Company has
arrangements with other telecommunications providers, including shared
tenant services providers, cable television companies and long distance
carriers, to resell TCG's services. Currently, certain major long distance
carriers are conducting trials of the resale of TCG's local exchange
services under such long distance carriers' brand names. In 1995,
approximately 62% of the Company's revenues were generated from business
customers and approximately 38% were generated from long distance carrier
customers.
. EXPAND GEOGRAPHIC REACH AND DENSITY OF EXISTING NETWORKS AND ENTER NEW
MARKETS. The Company plans to increase the geographic reach and density of
its existing networks by deploying additional fiber optic rings and
connecting additional customers to its networks. The Company anticipates
that making significant capital expenditures over the next several years to
expand its existing networks and to develop
4
<PAGE>
new networks will lead to significant increases in revenue opportunities.
As a facilities-based carrier, the Company utilizes a variety of means to
expand geographically, including rights-of-way, easements, poles, ducts and
conduits that are available from cable television operators, incumbent
local exchange carriers, railways and subways, electric, gas and water
utilities and municipal, state and federal street and highway authorities.
In the course of expanding its networks, the Company also has the ability
to reach TCG customers by reselling a portion of the telecommunications
services offered by certain incumbent local exchange carriers. However, the
Company believes that the extensive geographic reach and density of its
networks make it less reliant than other competitive local exchange
carriers on the networks of the incumbent local exchange carriers. In
addition, where appropriate, the Company has the ability to link customers
to its network through the use of microwave, including 38 GHz milliwave,
services. The Company plans to expand into additional metropolitan markets,
which the Company believes will further broaden its customer base and
enhance its ability to attract national business accounts for its services.
. BENEFIT SUBSTANTIALLY FROM RELATIONSHIPS WITH CABLE TELEVISION
OPERATORS. As of December 31, 1995, the Cable Stockholders collectively
passed approximately 47% of the country's 94 million homes passed by cable
television facilities. Through its relationships with cable television
operators, the Company has been able to utilize existing rights-of-way,
obtain fiber optic facilities and share the cost of building new fiber
optic networks, thereby allowing the Company to achieve significant
economies of scale and scope through capital efficiencies in extending its
existing networks in a rapid, efficient and cost-effective manner. The
Company is currently engaged in technical trials with certain cable
television operators, including Cable Stockholders, for the provision of
residential telephony services over the cable television operators' hybrid
fiber-coaxial networks with TCG providing switching, call processing,
calling features and ancillary services. The Company believes such trials
will evolve into commercial offerings by cable companies and that TCG may
become a provider of switching, call processing and other services to such
cable companies.
. OFFER HIGH QUALITY NETWORKS AND SUPERIOR CUSTOMER SERVICE. TCG believes
that it offers cost and service quality advantages over the incumbent local
exchange carriers as a result of its integrated operations, customer
support, network monitoring and management systems and state-of-the-art
technology deployed in the Company's digital networks. TCG consults closely
with its customers to develop competitively priced telecommunications
services that are tailored to their particular needs. The Company's
centrally managed customer support operations are also designed to
facilitate the processing of orders for changes and upgrades in services.
TCG believes that it provides greater attention and responsiveness to its
customers than do the incumbent local exchange carriers.
. SPEARHEAD REGULATORY REFORM. As the first and largest competitive local
exchange carrier, TCG has been at the forefront of industry efforts for
over a decade to introduce competition to the local telecommunications
market. The Company has aggressively pursued the goal of making competitive
local exchange services economically, technically and operationally
feasible by working for legislative and regulatory reform and through
negotiations with incumbent local exchange carriers. The Company will
continue its regulatory reform activities in an effort to ensure that the
1996 Act is implemented and interpreted in a manner that promotes fair
competition for local exchange services.
. CAPITALIZE ON MANAGEMENT TEAM EXPERIENCE. TCG's management team is
comprised of executives who are recognized as leaders in the development of
the competitive local telecommunications industry. This management team has
extensive operational, technical, financial and regulatory expertise as
well as a proven track record in a rapidly changing marketplace.
The Company's principal executive offices are located at One Teleport Drive,
Staten Island, New York 10311-1011, and its telephone number is (718) 355-
2000.
5
<PAGE>
THE REORGANIZATION
Prior to the consummation of the Reorganization and the Offerings,
subsidiaries of Cox, TCI, Comcast and Continental owned approximately 30%, 30%,
20% and 20%, respectively, of all of the outstanding capital stock of TCGI and
all of the partnership interests in TCG Partners, a New York general
partnership ("TCG Partners"), which was created in December 1992. Commencing in
1993, 14 partnerships (the "Local Market Partnerships") were formed among the
Company, affiliates of the Cable Stockholders and certain other cable
television operators to develop and operate local telecommunications networks.
In connection with the Offerings, TCGI and the Cable Stockholders have
entered into a reorganization agreement (the "Reorganization Agreement")
pursuant to which the Company will be reorganized (the "Reorganization"). The
principal transactions comprising the Reorganization are (i) the acquisition by
TCGI of TCG Partners, (ii) the acquisition by TCGI of additional interests in
the Local Market Partnerships, (iii) the contribution to TCGI of $269.0 million
aggregate principal amount of indebtedness, plus accrued interest from May
1995, owed by TCGI to the Cable Stockholders (except that TCI will retain a $26
million subordinated note of TCGI), (iv) the amendment and restatement of the
Certificate of Incorporation of TCGI, (v) the amendment and restatement of the
existing Stockholders' Agreement among TCGI and its stockholders and (vi) in
connection with Continental's recently announced proposed merger with U S WEST,
Inc., the redemption by TCGI of 7,807,881 shares (out of 25,761,330 shares) of
Class B Common Stock owned by Continental (7,975,738 shares if the over-
allotment options of the Underwriters of the Stock Offerings are exercised in
full).
Pursuant to the Reorganization, TCG Partners and 12 of the 14 Local Market
Partnerships will become wholly owned subsidiaries of TCGI, and the remaining
two (TCG Seattle and TCG San Francisco) will be majority owned by TCGI. In
addition, the Cable Stockholders have agreed to transfer their interests in
these two Local Market Partnerships to the Company at the earliest time such
transfers can be accomplished. Furthermore, subject to certain qualifications,
the Reorganization Agreement provides for TCGI to pursue the acquisition of the
partnership interests of the unaffiliated minority partners in those two Local
Market Partnerships.
The acquisition by TCGI of TCG Partners, the acquisition by TCGI of all of
the partnership interests not currently owned by it or TCG Partners in eight of
the Local Market Partnerships, the contribution to TCGI of the indebtedness
described above owed by TCGI to the Cable Stockholders and the amendment and
restatement of TCGI's Certificate of Incorporation and of the existing
Stockholders' Agreement will occur at or prior to the consummation of the
Offerings. In addition, TCGI has entered into a letter of intent which would
permit it to increase its partnership interest in TCG Seattle to 77.8%. The
acquisition by TCGI of the partnership interests in as many as five of the
other Local Market Partnerships is subject to certain regulatory consents and
approvals. Although the Company expects that such regulatory consents and
approvals will be granted, there can be no assurance that it will obtain such
consents and approvals. The Offerings will not be conditioned upon the
acquisition by TCGI of the remaining partnership interests in any of these five
Local Market Partnerships or the increase of TCGI's interest in TCG Seattle.
After giving effect to the Reorganization and the Offerings, TCI, Cox,
Comcast and Continental will own 37.1%, 29.7%, 19.5% and 13.7%, respectively,
of the Company's Class B Common Stock, representing 36.5%, 29.2%, 19.1% and
13.4%, respectively, of the combined voting power of the Company's Common
Stock. In addition, TCI will be issued, subject to certain conditions, 638,862
shares of Class A Common Stock in consideration for the acquisition of the
partnership interests of MicroNet, Inc. in TCG San Francisco and 372,666 shares
of Class A Common Stock in consideration for the acquisition of the partnership
interests of InterMedia Partners in TCG San Francisco.
See "Risk Factors--Limitations on Acquiring Certain Local Market
Partnerships," "Risk Factors--Control by Principal Stockholders; Conflicts of
Interest; Possible Competition" and "The Reorganization" for a more detailed
description of certain matters relating to the Reorganization.
6
<PAGE>
THE NOTES OFFERINGS
<TABLE>
<S> <C>
THE SENIOR NOTES
Maturity Date............ , 2006.
Interest................. % per annum, payable semi-annually in arrears
on and , commencing , 1996.
THE SENIOR DISCOUNT NOTES
Maturity Date............ , 2007.
Yield and Interest....... % per annum (compounded on a semi-annual bond
equivalent basis) calculated from , 1996.
Cash interest will not accrue prior to ,
2001; provided, however, that at any time prior
to , 2001, the Company may elect to commence
the accrual of cash interest on an interest
payment date. Commencing , 2001, cash
interest will be payable semi-annually on
and .
Issue Price.............. $ per $1,000 principal amount at maturity
of Senior Discount Notes.
Original Issue Discount....... Each Senior Discount Note is being offered at
an original issue discount for federal income
tax purposes. Thus, although cash interest is
not expected to accrue on the Senior Discount
Notes prior to , 2001 and there are not
expected to be any periodic payments of
interest on the Senior Discount Notes prior to
, 2001, original issue discount (i.e., the
difference between the stated redemption price
at maturity and the issue price of such Notes)
will accrue from the issue date of such Notes
up to , 2001 and will be includable as
interest income periodically in a holder's
gross income for federal income tax purposes in
advance of receipt of the cash payments to
which the income is attributable. See "Certain
Federal Income Tax Considerations--Original
Issue Discount."
ADDITIONAL TERMS OF NOTES
Optional Redemption........... Except as set forth below, the Notes will not
be redeemable at the Company's option prior to
, 2001. Thereafter the Notes will be
subject to redemption at the option of the
Company, in whole or in part, at the redemption
prices set forth herein. In addition, at any
time prior to , 1999, the Company may
redeem up to one-third of the Notes at a
redemption price of % of the principal amount
in the case of the Senior Notes and at a
redemption price of % of Accreted Value
thereof in the case of the Senior Discount
Notes with the net proceeds of (a) a Public
Equity Offering for gross proceeds of $150
million or more or (b) a sale or series or
related sales by the Company of its Capital
Stock (other than Disqualified Stock) to
Strategic Equity Investors for an aggregate
purchase price of $150 million or more. See
"Description of Notes--Optional Redemption" and
"--Certain Definitions."
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Change of Control.............
Upon the occurrence of a Change of Control, the
Company will be required to make an offer to
purchase all of the Notes at a purchase price
equal to, in the case of the Senior Discount
Notes, 101% of the Accreted Value thereof (if
prior to , 2001) or, in the case of the
Senior Notes and (if on or after , 2001)
the Senior Discount Notes, 101% of the
aggregate principal amount thereof, plus
accrued and unpaid interest thereon (if on or
after , 2001). There can be no assurance
that the Company will have sufficient funds to
complete any such purchase. See "Description of
Notes--Change of Control."
Ranking....................... The Notes will rank senior in right of payment
to all subordinated indebtedness of the Company
and pari passu in right of payment with all
senior indebtedness of the Company. The Company
is a holding company that conducts a
substantial amount of its business through
subsidiaries. The Notes will be effectively
subordinated to all current and future
indebtedness of the Company's subsidiaries,
including trade payables. Substantially all of
such subsidiary indebtedness is, and is
expected to be, secured by the assets of the
Company's subsidiaries or stock of the
Company's subsidiaries. As of March 31, 1996,
after giving effect to the Reorganization and
the Offerings, the Company had approximately
$600.0 million of senior debt outstanding. As
of March 31, 1996, after giving effect to the
Reorganization and the Offerings and the use of
proceeds thereof, the Company's subsidiaries
had approximately $192.4 million of total
liabilities, including approximately $52.5
million of indebtedness, and TCG New York Inc.
had approximately $230 million of availability
under the Revolving Credit Agreement. See
"Description of Certain Indebtedness."
Certain Covenants............. The Indentures relating to the Notes (the
"Indentures") will contain certain covenants
that will restrict, among other things, the
ability of the Company and its restricted
subsidiaries to incur certain indebtedness, to
pay dividends and make certain other restricted
payments, to create liens, to permit other
restrictions on dividend and other payments by
restricted subsidiaries of the Company, to
issue and sell capital stock of restricted
subsidiaries to guarantee certain indebtedness,
to sell assets, to enter into transactions with
affiliates and to merge, consolidate or
transfer substantially all of the assets of the
Company. The covenants require the Company to
make an offer to purchase specified amounts of
Notes in the event of certain asset sales.
There can be no assurance that the Company will
have sufficient funds to complete any purchase
of Notes upon a sale of assets of the Company.
See "Description of Notes--Certain Covenants--
Limitation on Asset Sales."
Use of Proceeds............... The net proceeds of the Notes Offerings,
together with the net proceeds of the Stock
Offerings, are estimated to be $937.3 million
(assuming an initial public offering price of
$16.00 per share). The Company intends to use
such proceeds (i) to redeem
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
up to 7,807,881 (7,975,738 shares if the over-
allotment options of the Underwriters of the
Stock Offerings are exercised in full) shares
of the Company's Class B Common Stock held by a
subsidiary of Continental for $118.5 million
($121.1 million if the over-allotment options
of the Underwriters of the Stock Offerings are
exercised in full), representing a price per
share equal to the initial public offering
price of the Class A Common Stock being offered
pursuant to the Stock Offerings, less the
applicable underwriting discounts and a pro
rata portion of the registration fees, (ii) to
repay approximately $155.0 million of bank
indebtedness of a subsidiary of the Company,
which amounts may be reborrowed, (iii) to
expand and develop existing and new networks
and (iv) for other general corporate and
working capital purposes, which may include
acquisitions. See "Use of Proceeds."
Concurrent Stock Offerings.... The Company has also filed a registration
statement with respect to the offering of
23,500,000 shares of Class A Common Stock. The
closing of the Notes Offerings is expected to
occur concurrently with the closing of the
Stock Offerings.
</TABLE>
For additional information concerning the Notes, see "Description of Notes."
RISK FACTORS
Prospective purchasers of the Notes should consider all of the information
contained in this Prospectus before making an investment in the Notes. In
particular, prospective purchasers should consider the factors set forth herein
under "Risk Factors."
9
<PAGE>
SUMMARY COMBINED FINANCIAL AND OTHER OPERATING DATA
The following tables present summary combined financial data derived from the
audited historical financial statements of TCGI for 1991, and from the audited
historical financial statements of TCGI and TCG Partners for 1992. Historical
summary combined financial data set forth below for the years 1993, 1994 and
1995 have been derived from the combined audited historical financial
statements of TCGI and TCG Partners, which have been audited by Deloitte &
Touche LLP, independent auditors, whose report thereon appears elsewhere in
this Prospectus. The following tables also present summary combined financial
data for the three months ended March 31, 1995 and March 31, 1996 derived from
the unaudited combined financial statements of TCGI and TCG Partners. In
addition, the following tables present summary combined financial data relating
to TCGI's and TCG Partners' unaudited results, as adjusted to give pro forma
effect to the Reorganization and the Offerings for the year 1995 and the three
months ended March 31, 1996 and as of March 31, 1996. In the opinion of
management, the unaudited combined financial statements have been prepared on
the same basis as the audited combined financial statements and include all
adjustments, which consist only of normal recurring adjustments, necessary for
a fair presentation of the financial position and the results of operations for
these periods. Operating results for the three months ended March 31, 1996 are
not necessarily indicative of the results that may be expected for the full
year.
The summary unaudited pro forma combined financial data do not purport to
represent what TCGI's and TCG Partners' combined results of operations or
financial condition would actually have been if the transactions that give rise
to the pro forma adjustments had occurred on the dates assumed. The following
information should be read in conjunction with "Pro Forma Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and TCGI's and TCG Partners' historical combined
financial statements and the notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------- ----------------------------------
PRO FORMA PRO FORMA
FOR THE FOR THE
REORGANIZATION REORGANIZATION
AND OFFERINGS AND OFFERINGS
1991 1992 1993 1994 1995 1995 1995 1996 1996
------- ------- -------- -------- -------- -------------- -------- -------- --------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Telecommunications
services............ $47,380 $57,256 $ 82,374 $ 99,983 $134,652 $ 184,852 $ 29,855 $ 39,553 $ 58,122
Management and
royalty fees from
Local Market
Partnerships(1)..... -- -- 1,555 20,691 31,517 -- 6,937 10,882 --
------- ------- -------- -------- -------- --------- -------- -------- --------
Total revenues....... 47,380 57,256 83,929 120,674 166,169 184,852 36,792 50,435 58,122
Operating expenses.... 22,728 31,876 48,224 60,255 73,743 101,089 17,124 22,520 32,467
Selling, general and
administrative(2).... 12,782 16,569 40,275 56,306 69,850 83,172 16,070 20,197 24,677
Depreciation and
amortization......... 9,550 12,035 16,197 19,933 37,837 62,531 7,297 12,849 21,556
------- ------- -------- -------- -------- --------- -------- -------- --------
Operating profit
(loss)............... 2,320 (3,224) (20,767) (15,820) (15,261) (61,940) (3,699) (5,131) (20,578)
------- ------- -------- -------- -------- --------- -------- -------- --------
Interest:
Interest income...... 636 446 1,072 1,711 4,067 4,822 1,106 1,190 981
Interest expense..... (885) (1,508) (1,407) (5,079) (23,331) (70,426) (4,600) (8,148) (18,432)
------- ------- -------- -------- -------- --------- -------- -------- --------
Net interest
expense............. (249) (1,062) (335) (3,368) (19,264) (65,604) (3,494) (6,958) (17,451)
------- ------- -------- -------- -------- --------- -------- -------- --------
Minority interest(3).. (98) (142) 796 1,395 663 2,673 201 150 855
Equity in loss of
unconsolidated affiliates.. -- -- (2,114) (11,763) (19,541) (1,368) (4,211) (6,528) (332)
------- ------- -------- -------- -------- --------- -------- -------- --------
Income (loss) before
taxes................ 1,973 (4,428) (22,420) (29,556) (53,403) (126,239) (11,203) (18,467) (37,506)
Income tax benefit
(provision).......... 484 -- 4,149 (433) (401) (401) (335) (225) (225)
------- ------- -------- -------- -------- --------- -------- -------- --------
Net income (loss)..... $ 2,457 $(4,428) $(18,271) $(29,989) $(53,804) $(126,640) $(11,538) $(18,692) $(37,731)
======= ======= ======== ======== ======== ========= ======== ======== ========
OTHER DATA:
EBITDA(4)............. $11,870 $ 8,811 $ (4,570) $ 4,113 $ 22,576 $ 591 $ 3,598 $ 7,718 $ 978
Capital expenditures.. 32,047 47,505 155,184 143,276 154,807 281,600 50,793 31,153 54,044
Ratio of earnings to
fixed charges(5)..... 3.23 -- -- -- -- -- -- -- --
Pro forma net income
(loss) per share..... -- -- -- -- -- (0.81) -- -- (0.24)
Dividends per share... -- -- -- -- -- -- -- -- --
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF MARCH 31,
------------------------------------------------------ --------------------------------
PRO FORMA
FOR THE REORGANIZATION
AND OFFERINGS
1991 1992 1993 1994 1995 1996 1996
-------- -------- ---------- ---------- ---------- -------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 4,208 $ 3,563 $ 31,716 $ 26,000 $ 11,862 $ 16,805 $ 702,815
Working capital......... (10,905) (12,507) (15,278) (32,719) (47,083) (42,015) 599,043
Fixed assets--at cost... 146,250 193,650 329,686 422,964 545,643 576,806 1,000,084
Total assets............ 136,727 171,583 365,202 486,983 614,793 658,906 1,671,821
Long-term debt
(including capital
lease obligations)..... 13,884 49,679 29,689 200,462 368,464 434,903 651,742
Minority interest(3).... 3,247 6,201 12,661 2,903 4,409 4,847 16,116
Stockholders' equity and
partners' capital
(deficit).............. $ 81,799 $ 77,371 $ 209,141 $ 179,152 $ 125,348 $106,656 $ 830,329
<CAPTION>
AS OF MARCH 31,
1996
----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA(6):
Metropolitan areas
served................. 8 10 18 33 48 48
Route miles............. 400 891 1,952 3,902 5,428 5,542
Fiber miles............. 20,238 42,902 90,700 167,314 253,285 257,041
Voice grade circuits.... 513,520 659,810 1,101,317 1,759,058 2,870,837 3,037,676
Digital telephone
switches................ 2 2 4 6 21 21
ATM switches............ -- -- -- -- 14 27
Employees............... 229 316 725 1,125 1,499 1,559
</TABLE>
- --------
(1) Under the terms of various management services arrangements among TCGI and
its unconsolidated Local Market Partnerships and certain other affiliates,
TCGI provides operating and administrative support services to such
entities, for which it earns management fees. Upon consummation of the
Reorganization, these fees will no longer be reflected as revenues.
(2) Included in selling, general and administrative expenses are expenses
incurred for services provided to the Local Market Partnerships, in the
amounts of $1.4 million, $19.4 million, $29.6 million, $6.5 million and
$10.2 million for the years 1993, 1994, 1995 and the three months ended
March 31, 1995 and March 31, 1996, respectively.
(3) Minority interest reflects Fidelity Communications Inc.'s equity interest
in Teleport Communications Boston for 1991, 1992, 1993 and 1994; a Cox
affiliate's interest in TCG San Diego for 1993 and 1994; and TCI and
Continental affiliates' interests in TCG St. Louis for 1994 and 1995 and
the three months ended March 31, 1995 and March 31, 1996. On a pro forma
basis, after giving effect to the Reorganization and the Offerings, the
minority interest reflects Viacom Telecom, Inc.'s equity interests of 22.2%
and 22.9% in TCG Seattle and TCG San Francisco, respectively, and
InterMedia Partners' equity interest of 4.2% in TCG San Francisco.
(4) EBITDA consists of earnings (loss) before interest, income taxes,
depreciation, amortization, minority interest and equity in losses of
unconsolidated affiliates. It is a measure commonly used in the
telecommunications industry and is presented to assist in understanding the
Company's operating results. Additionally, certain covenants contained in
the Indentures are based on EBITDA. EBITDA is not intended to represent
cash flows for the period. See the Combined Statements of Cash Flows
contained elsewhere in this Prospectus.
(5) The ratio of earnings to fixed charges is computed by dividing pretax
income from operations before fixed charges (other than capitalized
interest) by fixed charges. Fixed charges consist of interest charges and
amortization of debt expense and discount or premium related to
indebtedness, whether expensed or capitalized and that portion of rental
expense the Company believes to be representative of interest. For the
years 1992, 1993, 1994, 1995 and the three months ended March 31, 1995 and
March 31, 1996, earnings were insufficient to cover fixed charges by $4.4
million, $23.2 million, $31.0 million, $54.1 million, $11.4 million and
$18.6 million, respectively. On a pro forma basis, earnings would have been
insufficient to cover fixed charges by $128.9 million for 1995 and $38.4
million for the three months ended March 31, 1996.
(6) Operating data in all periods reflect operations of TCGI, TCG Partners and
the Local Market Partnerships and are derived from unaudited non-financial
records which were prepared by the Company.
11
<PAGE>
RISK FACTORS
Prior to purchasing any of the Notes offered hereby, prospective investors
should consider carefully the following factors in addition to the other
information contained in this Prospectus.
NEGATIVE CASH FLOW AND OPERATING LOSSES
The capital expenditures of TCG associated with the acquisition,
installation, development and expansion of its existing and new
telecommunications networks are substantial, and a significant portion of
these expenditures generally are incurred before any revenues are realized.
These expenditures, together with associated initial operating expenses,
generally result in negative cash flow and operating losses until an adequate
customer base and revenue stream for these networks have been established.
There can be no assurance that an adequate revenue base will be established in
each of the Company's networks or that the Company will achieve or sustain
profitability or generate sufficient positive cash flow to service its debt,
including the Notes.
SIGNIFICANT CAPITAL REQUIREMENTS
The development and expansion of the Company's existing and new networks and
services will require significant additional capital expenditures. The Company
will continue to evaluate additional revenue opportunities in each of its
markets and, as additional opportunities develop, the Company plans to make
additional capital investments in its networks that are required to pursue
such opportunities. TCG has historically been funded by capital contributions
and advances from the Cable Stockholders. Upon completion of the
Reorganization, however, the Cable Stockholders will no longer have any
obligation to make additional equity investments in or loans to TCG. See "The
Reorganization."
The Company expects to meet its capital needs with the proceeds of the
Offerings and internally generated cash flow, together with the proceeds from
existing and future credit facilities and other borrowings, and the proceeds
from sales of additional debt and equity securities. TCG New York, Inc., a
wholly owned subsidiary of TCGI ("TCNY"), has a Credit Agreement (the
"Revolving Credit Agreement"), pursuant to which certain financial
institutions have agreed to lend to TCNY up to $250 million to be used in part
to fund the Company's expansion and development of its networks. The ability
of TCNY to make distributions to the Company and to borrow the undrawn portion
of the commitment under the Revolving Credit Agreement is subject to the
compliance by TCNY with the covenants contained therein. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Description of Certain Indebtedness."
There can be no assurance that TCG will be successful in generating
sufficient cash flow or raising debt or equity capital in sufficient amounts
on terms acceptable to it. The failure to generate sufficient cash flow or to
raise sufficient funds may require the Company to delay or abandon some or all
of its development and expansion plans, which could have a material adverse
effect on TCG's growth, its ability to compete in the telecommunications
services industry and its ability to service its debt, including the Notes.
See "Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
SUBSTANTIAL LEVERAGE; INSUFFICIENCY OF EARNINGS TO COVER FIXED CHARGES
The Company will be highly leveraged after consummation of the Notes
Offerings. As of March 31, 1996, after giving pro forma effect to the
Reorganization and the application of the net proceeds from the Offerings, TCG
would have had approximately $651.7 million of consolidated total debt and
$830.3 million of consolidated stockholders' equity. The degree to which the
Company is leveraged could have a material adverse effect upon the Company.
For example: (i) the Company's ability to obtain additional financing in the
future for capital expenditures, acquisitions, working capital or general
corporate or other purposes may be limited, (ii) a substantial portion of
TCG's cash flow from operations will be dedicated to the payment of the
principal of, and interest on, its debt and (iii) TCG's substantial leverage
may make it more vulnerable to economic downturns, limit its ability to
withstand competitive pressures and reduce its flexibility in responding to
changing business and economic conditions. In addition, a failure to comply
with the covenants and other provisions of its debt instruments could result
in events of default under such instruments, which could permit acceleration
of the debt under such instruments and in some cases acceleration of debt
under other instruments that contain cross-default or cross-acceleration
provisions.
12
<PAGE>
After giving pro forma effect to the Reorganization, the Offerings and the
application of the net proceeds therefrom as if such transactions had occurred
at the beginning of the respective periods, the Company's earnings would have
been insufficient to cover its fixed charges by $128.9 million for the year
ended December 31, 1995 and $38.4 million for the three months ended March 31,
1996. Although TCG believes that it will be able to generate sufficient cash
flow from operations to meet its debt service obligations as they become due,
if it is unable to do so, it could face liquidity problems. In such
circumstances, the Company may be required to renegotiate the terms of the
instruments relating to its long-term debt or to refinance all or a portion of
its long-term debt. There can be no assurance, however, that TCG will be able
successfully to renegotiate such terms or refinance its indebtedness on terms
acceptable to it. If the Company were unable to refinance its indebtedness or
obtain new financing under these circumstances, TCG would have to consider
various other options such as the sale of certain assets to meet its required
debt service, the sale of additional equity, negotiations with its lenders to
restructure applicable indebtedness or other options available to it under
law.
HOLDING COMPANY STRUCTURE
TCG conducts a substantial amount of its business through its subsidiaries
and derives a substantial portion of its operating cash flow from its
subsidiaries. TCG intends to loan or contribute a portion of the net proceeds
from the Offerings to its subsidiaries. See "Use of Proceeds." The Notes are
not secured by any of the assets of the Company and will not initially be
guaranteed by any of the Company's subsidiaries (although under certain
circumstances the Company's subsidiaries may be required to guarantee the
Notes). See "Description of Notes--Certain Covenants--Limitation on Guarantees
of Indebtedness by Restricted Subsidiaries." The holders of any indebtedness,
and other creditors, of the Company's subsidiaries will be entitled to payment
of their indebtedness or other claims prior to the payment to the holders of
any general unsecured obligations of TCG, including the Notes. The Notes will
rank pari passu with any other unsecured obligations of the Company that are
not expressly subordinated to the Notes. TCG's ability to make interest and
principal payments when due to holders of the Notes is dependent upon the
receipt of sufficient funds from its subsidiaries and the receipt of
management fees, which may be limited by law or the terms of any debt
agreements to which the subsidiaries are a party. In addition, TCG intends to
borrow in the private debt markets through its subsidiaries. Since TCG's
subsidiaries do not generally guarantee the payment of principal or interest
on the Notes, the claims of holders of the Notes effectively will be
subordinated to the claims of creditors of such entities. Furthermore, TCG
contemplates that debt agreements that may be entered into between its
subsidiaries and financial institutions may prohibit the subsidiaries from
making dividend payments to TCG if an event of default exists under such debt
agreements or if the subsidiaries do not maintain specified financial ratios.
The Revolving Credit Agreement provides that TCNY is not permitted to pay
dividends to TCGI at any time prior to June 30, 1997, and may pay dividends to
TCGI thereafter only if (a) no default under the Revolving Credit Agreement
exists, (b) the ratio of the debt of TCNY to the product of two times its
operating cash flow for the prior two quarters is less than 5.0 to 1.0 and (c)
such dividend is not paid from the proceeds of any sale of assets. The
percentage of the Company's revenues and net income derived from TCNY was 65%
and 4%, respectively, for the year ended December 31, 1995 and 60% and 7%,
respectively, for the three months ended March 31, 1996.
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
The Senior Discount Notes will be issued with original issue discount within
the meaning of Section 1273(a) of the Internal Revenue Code of 1986, as
amended. Holders of obligations issued with original issue discount must
include such original issue discount in gross income for federal income tax
purposes as it accrues, in advance of the receipt of the cash attributable to
such income, under a method that takes into account the compounding of
interest. See "Certain Federal Income Tax Considerations."
RISKS OF EXPANSION
The Company's continued expansion and development of its networks will
depend on, among other things, the Company's ability to assess markets, design
fiber network backbone routes, install facilities, acquire rights-of-way and
building access, obtain any required governmental authorizations and permits
and implement interconnection with local exchange carriers, all in a timely
manner, at reasonable costs and on terms and conditions acceptable to TCG. The
Company's ability to manage this expansion effectively will require it to
13
<PAGE>
continue to implement and improve its operational and financial systems and to
expand, train and manage its employee base. TCG's inability to expand its
existing networks or install new networks or manage effectively such expansion
and installation could have a material adverse effect upon the Company's
business strategy, financial condition and results of operations. In addition,
to the extent that the Company's expansion is carried out through
acquisitions, there can be no assurance that any desired acquisition could be
made in a timely manner on terms and conditions acceptable to the Company or
that any such acquisition could be successfully integrated into the Company's
operations.
Currently, TCG's services are predominantly local. However, TCG has examined
from time to time, and will continue to examine, opportunities to expand into
other related telecommunications services. If the Company were to expand into
new categories of telecommunications services, it could incur certain
additional risks in connection with such expansion, including technological
compatibility risks, legal and regulatory risks and possible adverse reaction
by some of its current customers.
LIMITATIONS ON ACQUIRING CERTAIN LOCAL MARKET PARTNERSHIPS
Assuming completion of the Reorganization, TCG Partners and 12 of the 14
Local Market Partnerships will become wholly owned subsidiaries of TCGI, and
the remaining two (TCG Seattle and TCG San Francisco) will be majority owned
by TCGI. In addition, the Cable Stockholders have agreed to transfer their
interests in these two Local Market Partnerships to the Company at the
earliest time such transfers can be accomplished. The remaining interests held
in TCG San Francisco are held by Viacom Telecom, Inc. (22.9%) and InterMedia
Partners (4.2%), and the remaining interest held in TCG Seattle is held by
Viacom Telecom, Inc. (22.2%). TCI has entered into agreements to acquire,
subject to the satisfaction of certain conditions, the partnership interests
held by such unaffiliated minority partners in TCG San Francisco and TCG
Seattle. Pursuant to the Reorganization Agreement, if TCI acquires such
interests, it is required to transfer them to TCG; if TCI determines that it
is unable to acquire such interests, it will notify TCG, and TCG shall pursue
the acquisition of such partnership interests. There can be no assurance that
TCI or TCG will be able to acquire such interests. In addition, the
acquisition by TCGI of the partnership interests in as many as five of the
Local Market Partnerships (including TCG San Francisco) is subject to certain
regulatory consents and approvals. Although the Company expects that such
regulatory consents and approvals will be granted, there can be no assurance
that it will obtain such consents and approvals. See "The Reorganization."
DEPENDENCE UPON INTERCONNECTION WITH ILECS; SUBSTANTIAL COMPETITION
The Company operates in an increasingly competitive environment. Services
substantially similar to those offered by the Company are also offered by the
incumbent local exchange carriers ("ILECs") serving the metropolitan markets
currently served or intended to be served by the Company. ILECs have long-
standing relationships with their customers, have financial and technical
resources substantially greater than those of the Company, have the potential
to subsidize services of the type offered by the Company from service revenues
not subject to effective competition and benefit from federal and state laws
and regulations that, TCG believes, generally favor the ILECs over competitive
access providers ("CAPs") and competitive local exchange carriers ("CLECs").
Under certain circumstances, the FCC and state regulatory authorities provide
the ILECs with an ability to lower selectively the price of certain services
within the areas in which the Company operates. In addition, as a result of
the 1996 Act, ILECs are likely to obtain additional pricing flexibility with
regard to services that compete with those offered by the Company. Increased
price competition from ILECs could have a material adverse effect on the
Company's financial condition and results of operations. See "Business--
Competition;--Government Regulation." Also, under the 1996 Act, ILECs formerly
subject to restrictions on the provision of cable television service and
interLATA (interexchange) long distance services are no longer restricted from
entry into these businesses, subject to certain requirements in the 1996 Act
and rules and policies to be implemented by the FCC and the states. The FCC
may authorize a Regional Bell Operating Company ("RBOC") to provide interLATA
services in a state when the RBOC enters into a state utility commission-
approved agreement with one or more facilities-based competitors which provide
business and residential local exchange service and such agreements satisfy 14
specified interconnection requirements. Alternatively, if no such facilities-
based competitors achieve such interconnection, the RBOC may obtain authority
from the FCC to
14
<PAGE>
provide interLATA services if the RBOC obtains state utility commission
approval of a statement of generally available terms and conditions of
interconnection that satisfies the requirements. When an RBOC obtains
authority to provide interLATA services, it will be able to offer customers
local and long distance telephone services. Given the market power the RBOCs
currently possess in the local exchange market, the ability to provide both
local and long distance services could make the RBOCs very strong competitors.
To the extent TCG interconnects with and uses the ILECs' networks to service
the Company's customers, TCG is dependent upon the technology and capabilities
of the ILECs to meet certain telecommunications needs of the Company's
customers and to maintain its service standards. TCG will become increasingly
dependent on interconnection with ILECs as switched services become a greater
percentage of the Company's business. TCG has experienced increasing
difficulties in obtaining high quality, reliable and reasonably priced service
from certain ILECs over the last 18 months, and the attractiveness of the
Company's services to customers may be impaired as a result. The 1996 Act
imposes interconnection obligations on ILECs, but there can be no assurance
that the Company will be able to obtain the services it requires at rates, and
on terms and conditions, that permit the Company to offer switched services at
rates that are both profitable and competitive.
In most of the metropolitan areas in which TCG operates, at least one (and
in many markets several) other CAPs or CLECs offer many of the same local
telecommunications services provided by the Company, generally at similar
prices. Potential and actual new market entrants in the local
telecommunications services business include other CAPs and CLECs, ILECs
entering new geographic markets, cable television companies, electric
utilities, long distance and international carriers, microwave carriers,
wireless telephone system operators and private networks built by large end
users, many of which may have financial, personnel and other resources
substantially greater than those of TCG. In addition, the current trend of
business combinations and alliances in the telecommunications industry,
including mergers between RBOCs, may create significant new competitors for
the Company.
The 1996 Act also will increase competition in the local telecommunications
business. The 1996 Act requires all local exchange providers, including new
entrants, to offer their services for resale and requires ILECs to offer their
network facilities on an unbundled basis. There can be no assurance that any
unbundled rates or facilities offered by ILECs to TCG will be economically
attractive or technically viable. See "Business--Government Regulation--
Telecommunications Act of 1996." These requirements facilitate entry by new
competitors without substantial capital risk or investment. See "Business--
Competition."
FEDERAL AND STATE REGULATION
The Company is subject to federal and state regulation. In most states, TCG
is subject to certification and tariff filing requirements with respect to
intrastate services. In some instances, the certificate obtained by the
Company in a particular state limits the services that it is permitted to
provide in that state. These current restrictions on the services that may be
provided by the Company should be eliminated as a result of the 1996 Act,
which prohibits states from imposing legal restrictions that effectively
prohibit the provision of any telecommunications service. States will,
however, under the 1996 Act, retain authority to impose on the Company and
other telecommunications carriers requirements to preserve universal service,
protect public safety, ensure quality of service and protect consumers. States
are also responsible under the 1996 Act for mediating and arbitrating
interconnection arrangements between CLECs and ILECs if the carriers fail to
agree on such arrangements.
TCG is required to file tariffs for interstate services with the FCC,
although such tariff requirements are less restrictive than those imposed on
ILECs offering similar services. These tariffs must contain the rates, terms
and conditions under which service is generally available from TCG. Challenges
by third parties to the Company's tariff filings or related contractual
arrangements may cause TCG to incur substantial legal and administrative
expenses.
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<PAGE>
Under the 1996 Act, the Company will become subject to certain federal
regulatory obligations when it provides local exchange service in a market.
All local exchange carriers, including CLECs, must interconnect with other
carriers, make their services available for resale by other carriers, provide
nondiscriminatory access to rights-of-way, offer reciprocal compensation for
termination of traffic and provide dialing parity and telephone number
portability. In addition, the 1996 Act requires all telecommunications
carriers to ensure that their services are accessible to and usable by persons
with disabilities, and TCG and other CLECs may be required to contribute to a
universal service fund provided for in the 1996 Act but which has not yet been
established. Because the FCC has yet to adopt rules implementing the 1996 Act,
it is uncertain how burdensome these requirements will be for TCG.
The 1996 Act contains other provisions that may be subject to FCC rulemaking
and judicial interpretation, including provisions that limit the ability of a
cable television operator and its affiliates to acquire more than a 10%
financial interest or any management interest in a LEC which provides local
exchange service in such cable operator's franchise area. The Company believes
that the 1996 Act does not limit the acquisition of any of the interests
contemplated to be acquired in the Reorganization; however, there can be no
assurance that the FCC or a court would not reach a different determination as
to one or more of such interests.
In addition, no assurance can be given that changes to current regulations
or the adoption of new regulations by the FCC or state regulatory authorities
or legislative initiatives would not have a material adverse effect on TCG.
See "Business--Government Regulation."
GOVERNMENTAL AND OTHER AUTHORIZATIONS
The development, expansion and maintenance of the Company's networks will
depend on, among other things, its ability to obtain rights-of-way and any
other required governmental authorizations and permits, all in a timely
manner, at reasonable costs and on satisfactory terms and conditions. In some
of the cities or municipalities where TCG provides network services, it may
pay license or franchise fees, usually based on a percentage of gross revenues
or a per foot right-of-way fee. The 1996 Act permits municipalities to charge
such fees only if they are nondiscriminatory, but there can be no assurance
that municipalities that presently favor a particular carrier, typically the
ILEC, will conform their practices to the requirements of the 1996 Act in a
timely manner or without a legal challenge. Furthermore, there can be no
assurance that certain cities or municipalities that do not now impose fees
will not seek to impose fees, nor can there be any assurance that, following
the expiration of existing franchises, fees will remain at their current
levels or that the franchises will be renewed. Some of the Company's franchise
agreements also provide for increases or renegotiation of fees at intervals
prior to the expiration thereof.
In addition, TCG currently leases, and plans in the future to enter into
facility arrangements for, significant numbers of optical fibers from cable
television operators. There can be no assurance that municipalities which
regulate such cable television operators will not seek to impose additional
franchise fees or otherwise charge such cable television operators (subject to
reimbursement by TCG) in connection with such leases. There can also be no
assurance that such cable television systems or the Company will be able to
obtain all necessary permits, licenses, conduit agreements or pole attachment
agreements from governmental authorities or private rights-of-way providers
necessary to effectuate such lease transactions. As a result, there can be no
assurance that TCG will be able to expand its existing networks or develop new
networks successfully, which would have a material adverse effect on the
Company's growth and financial condition.
If any of the Company's existing franchise, license or similar agreements
for a particular metropolitan area were terminated prior to their expiration
dates or not renewed and TCG were forced to remove its fiber or abandon its
network in place, such termination would have a material adverse effect on the
Company's operations in that metropolitan area and could have a material
adverse effect on TCG.
16
<PAGE>
DEPENDENCE ON SIGNIFICANT CUSTOMERS
The Company has substantial business relationships with a few large
customers, including the major long distance carriers. During 1995, the
Company's top 10 customers accounted for approximately 57% of TCG's total pro
forma revenues. AT&T Corp. ("AT&T") and Sprint Corporation ("Sprint") each
accounted for more than 10% of such revenues, although no customer accounted
for 15% or more of such revenues. A significant reduction in the level of
services TCG performs for any of these customers could have a material adverse
effect on the Company's results of operations or financial condition. Most of
the Company's customer arrangements are subject to termination on short notice
and do not provide TCG with guarantees that service quantities will be
maintained at current levels, and there can be no assurance that such
arrangements will be continued at the same service quantity levels. TCG
believes that certain of the major long distance carriers are pursuing
alternatives to their current practices with regard to obtaining local
telecommunications services, including construction of their own facilities.
This type of activity could accelerate as a result of the 1996 Act, which
limits the authority of states to impose legal restrictions that have the
effect of prohibiting a company, including an IXC, from providing any
telecommunications service. In addition, the 1996 Act requires ILECs to
unbundle their network facilities and to offer their services for resale by
other companies at wholesale discounts. Accordingly, long distance carriers
soon will be able to provide local service by reselling the facilities or
services of an ILEC, which may be more cost-effective for an IXC than using
the services of the Company or another CAP or CLEC. See "Business--Customers
and Marketing."
CONTROL BY PRINCIPAL STOCKHOLDERS; CONFLICTS OF INTEREST; POSSIBLE COMPETITION
Immediately following the completion of the Offerings and after giving
effect to the Reorganization, the Cable Stockholders, who will hold all the
Class B Common Stock, representing approximately 98.2% of the combined voting
power of the Company's outstanding Common Stock, generally will have the
collective ability to control all matters requiring stockholder approval,
including the nomination and election of directors. The disproportionate
voting rights of the Class B Common Stock relative to the Class A Common Stock
may make TCG a less attractive target for a takeover than it otherwise might
be, or render more difficult or discourage a merger proposal, a tender offer
or a proxy contest, even if such actions were favored by a majority of the
holders of the Class A Common Stock. See "Principal Stockholders,"
"Description of Capital Stock" and "Certain Relationships and Related
Transactions--Amended Stockholders' Agreement."
All of the Cable Stockholders are in the telecommunications business and
may, now or in the future, provide services which are the same or similar to
those provided by TCG. No assurance can be given that the Cable Stockholders
will not compete with TCG in certain markets or in the provision of certain
telecommunications services. Continental has recently announced that it has
entered into an agreement pursuant to which it will merge with U S WEST, Inc.,
an ILEC and a competitor of the Company. Upon consummation of the Stock
Offerings, the directors designated by Continental will resign from the Board
of Directors of the Company. Although directors of TCG who are also directors,
officers or employees of the Cable Stockholders or any of their respective
affiliates have certain fiduciary obligations to TCG under Delaware law, such
directors and the Cable Stockholders, as the controlling stockholders of TCG,
are in positions that may create conflicts of interest with respect to certain
business opportunities available to and certain transactions involving the
Company. The Cable Stockholders have not adopted any special voting procedures
to deal with such conflicts of interest, and there can be no assurance that
any such conflict will be resolved in favor of TCG. In this regard, TCG's
Amended and Restated Certificate of Incorporation provides that TCG may not
provide certain (i) wireless communications services (other than products and
services delivered via point-to-point microwave and milliwave transmissions)
or (ii) telecommunications services to residences until, in each case, the
earlier of the date that is five years after the filing of the Amended and
Restated Certificate of Incorporation or the date on which the holders of
Class B Common Stock no longer represent at least 50% of the voting power of
the outstanding Common Stock of the Company, without the affirmative vote of
the holders of a majority of the Class B Common Stock, subject to certain
exceptions. See "Description of Capital Stock."
Affiliates of TCI, Cox and Comcast, which collectvely will designate a
majority of the directors of the Company, together with an affiliate of
Sprint, have formed Sprint Spectrum, a partnership created to provide
17
<PAGE>
certain wireless telecommunications services. The investments by TCI, Cox and
Comcast in Sprint Spectrum and in the Company may encourage these companies to
promote arrangements between the Company and Sprint Spectrum. As recently as
January 1996, TCI, Cox and Comcast expressed their intention to attempt to
integrate the business of the Company with the business of Sprint Spectrum. At
present, TCI, Cox and Comcast are not in any discussions with Sprint or Sprint
Spectrum with respect to the Company. However, the Company cannot predict
whether TCI, Cox and Comcast will attempt to achieve such an integration in
the future or whether they will be successful in doing so. The Company also
cannot predict the form that any such integration would take or its impact on
the Company's business.
POTENTIAL ISSUANCE OF PREFERRED STOCK; POTENTIAL ANTI-TAKEOVER PROVISIONS
The Company's Board of Directors has the authority, without any further vote
or action by the Company's stockholders, to issue up to 150,000,000 shares of
Preferred Stock in one or more series and to determine the designations,
powers, preferences and relative, participating, optional or other rights
thereof, including without limitation, the dividend rate (and whether
dividends are cumulative), conversion rights, voting rights, rights and terms
of redemption, redemption price and liquidation preference. Although the
Company has no current plans to issue any shares of Preferred Stock, the
rights of the holders of Common Stock would be subject to, and may be
adversely affected by, the rights of the holders of any Preferred Stock that
may be issued in the future. Issuance of Preferred Stock could have the effect
of delaying, deterring or preventing a change in control of the Company,
including the imposition of various procedural and other requirements that
could make it more difficult for holders of Common Stock to effect certain
corporate actions, including the ability to replace incumbent directors and to
accomplish transactions opposed by the incumbent Board of Directors. See
"Certain Relationships and Related Transactions--Amended Stockholders'
Agreement" and "Description of Capital Stock."
RAPID TECHNOLOGICAL CHANGES
The telecommunications industry has experienced and is expected to continue
to experience rapid and significant changes in technology. While TCG believes
that, for the foreseeable future, these changes will neither materially affect
the continued use of fiber optic cable or digital switches and transmission
equipment nor materially hinder the Company's ability to acquire necessary
technologies, the effect of technological changes on the Company's business
and operations cannot be predicted. Also, alternative technologies may develop
for the provision of services to customers. TCG may be required to select in
advance one technology over another; but it will be impossible to predict with
any certainty, at the time the Company is required to make its investment,
which technology will prove to be the most economic, efficient or capable of
attracting customer usage.
DEPENDENCE ON KEY PERSONNEL
The loss of the services of any of Robert Annunziata, John A. Scarpati,
Robert C. Atkinson, Alf T. Hansen or Stuart A. Mencher could have an adverse
impact on the Company. The Company has employment agreements with each of
Messrs. Annunziata, Scarpati, Atkinson, Hansen and Mencher. The Company does
not carry key man life insurance on any of such personnel. The Company
believes that the future success of TCG will depend in large part on its
continued ability to attract and retain highly skilled and qualified
personnel. See "Management."
ENVIRONMENTAL MATTERS
In connection with its management of The Teleport satellite earth station
complex in Staten Island, New York, TCG monitors electromagnetic radiation
levels in the vicinity of The Teleport facility on a quarterly basis. The
quarterly monitoring reports provided to TCG indicate that the type and level
of electromagnetic radiation being emitted into publicly accessible areas do
not violate any laws, rules or regulations of which TCG is aware. In addition,
the Company and its contractors are subject to various laws and regulations
governing hazardous or environmentally sensitive materials or conditions which
may occur in connection with the construction, installation, operation or
maintenance of the Company's facilities. There can be no assurance that
hazardous materials or conditions, including electromagnetic radiation emitted
from The Teleport satellite earth station
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<PAGE>
complex or any of TCG's other facilities, might not expose the Company to tort
or other claims that could have a material adverse effect on TCG.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Notes are new issues of securities, and there is currently no public
market for the Notes. TCG does not intend to apply for listing of the Notes on
any securities exchange or to seek their admission to trading in any automated
quotation system. TCG has been advised by the Underwriters that, following
completion of the initial offering of the Notes, the Underwriters presently
intend to make a market in the Notes, although they are under no obligation to
do so and may discontinue any market-making activities at any time without
notice. Accordingly, there can be no assurances as to whether an active public
market for the Notes will develop or, if a public market develops, as to the
liquidity of the trading market for the Notes. See "Underwriting."
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<PAGE>
THE REORGANIZATION
Prior to the consummation of the Reorganization and the Offerings,
subsidiaries of Cox, TCI, Comcast and Continental owned approximately 30%,
30%, 20% and 20%, respectively, of all of the outstanding capital stock of
TCGI and all of the partnership interests in TCG Partners.
The Company, together with the Cable Stockholders and certain other cable
television operators, formed the 14 Local Market Partnerships to develop and
operate local telecommunications networks in various markets across the United
States.
The following table sets forth for each Local Market Partnership the
ownership as of June 3, 1996, the ownership immediately prior to the
consummation of the Offerings and the ownership assuming consummation of the
Reorganization following the consummation of the Offerings:
<TABLE>
<CAPTION>
OWNERSHIP ASSUMING
LOCAL MARKET OWNERSHIP AS OF JUNE 3, OWNERSHIP IMMEDIATELY COMPLETE CONSUMMATION
PARTNERSHIP 1996 PRIOR TO OFFERINGS OF THE REORGANIZATION
- ------------------- -------------------------- --------------------- ---------------------
<S> <C> <C> <C>
TCG Chicago TCGI, Continental and TCI TCG TCG
TCG Connecticut TCG Partners, Comcast, Cox TCG TCG
and TCI
TCG Dallas TCGI, TCG Partners, and TCG TCG
TCI
TCG Detroit(a) TCG Partners, Booth TCG TCG
Telecable, Inc., Time
Warner Entertainment-
Advance Newhouse
Partnership, TCI, Comcast
and Continental
TCG Illinois TCG Partners, Continental TCG TCG
and TCI
TCG Los Angeles(b) TCGI, TCG Partners, TCG, Comcast, TCG
Comcast, Continental, Cox Continental, Cox
and TCI and TCI
TCG Omaha(b) TCG Partners and Cox TCG and Cox TCG
TCG Phoenix TCG Partners, Cox and TCI TCG TCG
TCG Pittsburgh(b) TCG Partners and TCI TCG and TCI TCG
TCG San Diego(b) TCG Partners and Cox TCG and Cox TCG
TCG San Francisco TCGI, TCG Partners, TCG, InterMedia TCG
(b)(c) InterMedia Partners, Partners, Viacom
Viacom Telecom, Inc. and Telecom, Inc. and
TCI TCI
TCG Seattle(c) TCGI, TCI and Viacom TCG, TCI and Viacom TCG
Telecom, Inc. Telecom, Inc.
TCG South Florida TCGI, TCG Partners, TCG TCG
Comcast, Continental and
TCI
TCG St. Louis TCG Partners, Continental TCG TCG
and TCI
</TABLE>
- --------
(a) The unaffiliated minority partners in TCG Detroit have agreed to transfer
their interests to TCGI.
(b) Transfers require state regulatory approval.
(c) Certain transfers may require the consent of Viacom Telecom, Inc.
20
<PAGE>
In connection with the Offerings, the Company and the Cable Stockholders
have entered into the Reorganization Agreement, pursuant to which the
Reorganization will be effected. The principal transactions comprising the
Reorganization are the following:
(i) Acquisition of TCG Partners. Prior to the consummation of the
Offerings, TCGI will acquire from the Cable Stockholders all of the
partnership interests in TCG Partners.
(ii) Acquisition of Additional Interests in Local Market
Partnerships. Subject to obtaining certain regulatory consents and
approvals, TCGI will acquire all the partnership interests in the Local
Market Partnerships other than TCG San Francisco and TCG Seattle. Upon such
acquisitions, at least eight of which will occur at or prior to the
consummation of the Offerings, these 12 Local Market Partnerships will
become wholly owned subsidiaries of TCGI. In addition, following receipt of
any required regulatory consent, TCGI will acquire the Cable Stockholders'
interests in TCG San Francisco and TCG Seattle at the earliest time that
such acquisitions can be accomplished without minority partner consent or
upon receipt of the consent of such minority partners. Accordingly, as soon
as practicable after January 1, 1997, and subject to obtaining regulatory
consents and approvals, the Company's interest in TCG San Francisco will
increase from 35.0% to 72.9%; and as soon as practicable after January 1,
1997, the Company's interest in TCG Seattle will increase from 35.0% to
77.8%. TCGI has entered into a letter of intent with Viacom Telecom, Inc.
under which it may be able to increase its interests in TCG San Francisco
(subject to regulatory consents) and TCG Seattle prior to such date. TCI
has entered into agreements to acquire the partnership interests held by
the unaffiliated minority partners in TCG San Francisco and TCG Seattle,
subject to certain conditions. Pursuant to the Reorganization Agreement, if
TCI acquires such interests, it is required to transfer them to TCG; if TCI
determines that it is unable to acquire such interests, it will notify TCG,
and TCG shall pursue the acquisition of such partnership interests. The
acquisition by TCGI of the partnership interests in as many as five of the
Local Market Partnerships is subject to certain regulatory consents and
approvals. The Company initiated the process of obtaining such regulatory
consents and approvals in April 1996. Although the Company expects that
such regulatory consents and approvals will be granted, there can be no
assurance that it will obtain such consents and approvals. The partnership
interests held by the two partners in TCG Detroit that are not affiliated
with either TCG or the Cable Stockholders will be acquired by TCG
immediately following the closing of the Offerings in consideration of the
issuance to the current holders of such partnership interests of Class A
Common Stock with an aggregate value of $9.2 million. TCG has granted to
such holders "piggy-back" registration rights with respect to such Class A
Common Stock.
(iii) Contribution of Indebtedness. As of March 31, 1996, the Company
owed the Cable Stockholders the aggregate principal amount of approximately
$269.0 million, plus accrued interest from May 1995 of $16.4 million,
pursuant to the Loan Agreement, dated as of May 5, 1993, as amended, among
TCGI and its stockholders (the "Stockholder Loan Agreement"). Prior to the
consummation of the Offerings, the Cable Stockholders will contribute to
TCGI all amounts outstanding under the Stockholder Loan Agreement (except
that TCI will retain a subordinated note of TCG in the amount of $26
million, bearing interest at the rate of 7.5% per annum, with principal and
interest payable at maturity five years from the date of consummation of
the Reorganization) and the Stockholder Loan Agreement will be terminated.
(iv) Amendment and Restatement of Certificate of Incorporation. Prior to
the consummation of the Offerings, TCGI's certificate of incorporation will
be amended and restated to provide for, among other things, the increase of
its authorized share capitalization and the division of its authorized
common stock into two classes of Common Stock with different voting rights,
with each share of Class A Common Stock having one vote per share, each
share of Class B Common Stock having 10 votes per share and each share of
Class B Common Stock being convertible at any time into one share of Class
A Common Stock. The Cable Stockholders will initially be the only holders
of the Class B Common Stock and will have approximately 98.2% of the
combined voting power of the Company's outstanding Common Stock. See
"Principal Stockholders" and "Description of Capital Stock."
(v) Amended Stockholders' Agreement. Prior to the consummation of the
Offerings, the Cable Stockholders and TCGI will enter into an Amended and
Restated Stockholders' Agreement (the "Amended
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<PAGE>
Stockholders' Agreement") which will provide for, among other things, the
corporate governance of the Company, certain demand registration rights and
certain stock transfer restrictions. With respect to corporate governance,
the Amended Stockholders' Agreement will provide that at each annual
meeting of the Company's stockholders at which directors are elected, the
holders of the Class B Common Stock will vote their shares in favor of
nominees for director to be designated as follows: (i) the holders of the
Class B Common Stock will designate 10 nominees (with the right of a holder
of Class B Common Stock to designate one or more nominees depending on the
percentage of the Class B Common Stock held by it), (ii) the Chief
Executive Officer of the Company will be designated as a nominee and (iii)
the Board of Directors with the unanimous consent of the holders of Class B
Common Stock that have the right to designate nominees for director shall
designate two individuals who are neither employed by nor affiliated with
TCGI or any holder of Class B Common Stock as nominees for director. Under
the Amended Stockholders' Agreement, a holder of Class B Common Stock
generally must hold, together with its affiliates, at least nine percent of
the Class B Common Stock in order to have the right to designate a director
nominee. The holders of the Class A Common Stock will not have the right,
as a class, under the Company's Amended and Restated Certificate of
Incorporation and the Amended Stockholders' Agreement to nominate any
individuals for election to the Board of Directors. The ability of
Continental (or its successor) to designate any directors after the earlier
of the consummation of its merger with U S WEST, Inc. or the Stock
Offerings will be limited in accordance with the terms of the Amended
Stockholders' Agreement. The Amended Stockholders' Agreement will terminate
when the aggregate voting power of the Class B Common Stock represents less
than 30% of the combined voting power of all outstanding Common Stock. See
"Certain Relationships and Related Transactions--Amended Stockholders'
Agreement."
(vi) Redemption of Class B Common Stock. Continental has recently
announced that it has entered into an agreement pursuant to which it will
merge with and into U S WEST, Inc. The Department of Justice has informed
the Company that it is in discussions with Continental, in connection with
its proposed merger with U S WEST, Inc., to require Continental to divest
its interest in the Company within a time frame to be agreed upon, but
which would not be earlier than June 30, 1997. TCGI has agreed to purchase
from the Continental subsidiary that is a stockholder of TCGI 7,807,881
shares (7,975,738 shares if the over-allotment options of the Underwriters
of the Stock Offerings are exercised in full) of Class B Common Stock at a
price per share equal to the initial public offering price of the Class A
Common Stock offered hereby, less the applicable underwriting discount and
a pro rata portion of the registration fees. Continental paid approximately
$60 million for the shares of Common Stock originally issued to it on May
5, 1993 (which will be converted into 14,000,070 shares of Class B Common
Stock as part of the Reorganization prior to the consummation of the
Offerings). As part of the Reorganization, as noted below, Continental will
also receive an additional 11,761,260 shares of Class B Common Stock in
consideration of (a) its contribution of $53.8 million in principal amount,
plus accrued interest thereon from May 1995, owed to it under the
Stockholder Loan Agreement and (b) its transfer to TCG of its partnership
interests in TCG Partners and the Local Market Partnerships in which its
subsidiaries are partners. Continental has contributed an aggregate amount
of $62.1 million as capital of TCG Partners and such Local Market
Partnerships.
The acquisition by TCGI of TCG Partners, the acquisition by TCGI of all of
the partnership interests not currently owned by it or TCG Partners in eight
of the Local Market Partnerships, the contribution to TCGI of certain
indebtedness owed by TCGI to the Cable Stockholders and the amendment and
restatement of TCGI's Certificate of Incorporation and of the existing
Stockholders' Agreement will occur at or prior to the consummation of the
Offerings. The Offerings will not be conditioned upon either the acquisition
by TCGI of the remaining partnership interests in the other six Local Market
Partnerships or the redemption of the shares owned by Continental.
In consideration of the transfers and contributions of their interests in
TCG Partners, the Local Market Partnerships and the amounts outstanding under
the Stockholder Loan Agreement, the Company will issue to Comcast,
Continental, Cox and TCI 11,621,988 shares of Class B Common Stock, 11,761,260
shares of Class B Common Stock, 18,045,594 shares of Class B Common Stock and
27,821,388 shares of Class B Common Stock,
22
<PAGE>
respectively. In addition, TCI will hold the $26 million subordinated note
described above, and TCI will be issued 638,862 shares of Class A Common Stock
upon its transfer to the Company of a partnership interest in TCG San
Francisco it has acquired from an unaffiliated minority partner (MicroNet,
Inc.), and will be issued 372,666 shares of Class A Common Stock upon its
transfer to the Company of an additional partnership interest in TCG San
Francisco that it may acquire from an unaffiliated minority partner
(InterMedia Partners) after the date of the Reorganization Agreement.
After giving effect to the Reorganization and the Offerings, TCI, Cox,
Comcast and Continental will own 37.1%, 29.7%, 19.5% and 13.7%, respectively,
of the Company's Class B Common Stock, representing 36.5%, 29.2%, 19.1% and
13.4%, respectively, of the combined voting power of the Company's Common
Stock.
23
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company of the Notes Offerings are estimated to be
approximately $581.9 million after deducting estimated underwriting discount
and expenses of the Notes Offerings. The net proceeds to the Company from the
Stock Offerings (at an assumed initial public offering price of $16.00 per
share) are estimated to be approximately $355.4 million (approximately $408.9
million if the Underwriters' over-allotment options are exercised in full)
after deducting estimated underwriting discount and expenses of the Stock
Offerings.
TCG intends to use the net proceeds of the Offerings (i) to redeem 7,807,881
shares (7,975,738 shares if the over-allotment options of the Underwriters of
the Stock Offerings are exercised in full) of Class B Common Stock held by a
subsidiary of Continental for $118.5 million ($121.1 million if the over-
allotment options of the Underwriters of the Stock Offerings are exercised in
full), representing a price per share equal to the initial public offering
price of the Class A Common Stock being offered pursuant to the Stock
Offerings, less the applicable underwriting discount and a pro rata portion of
the registration fee, (ii) to repay approximately $155.0 million outstanding
under the Revolving Credit Agreement, which amount may be reborrowed and (iii)
the remaining approximately $663.8 million to expand and develop existing and
new networks and for general corporate and working capital purposes, which may
include acquisitions. A significant portion of such proceeds will be
contributed or advanced to the Company's subsidiaries which own and operate
the networks in the local markets. Expected capital expenditures for the
expansion, development and acquisition of networks include (i) the purchase
and installation of switches, electronics, fiber and other additional
technologies in existing networks and in networks to be constructed in new
markets and (ii) the acquisition and expansion of networks currently owned and
operated by other companies. Expected expenditures for general corporate and
working capital purposes include (i) expenditures with respect to the
Company's management information system and corporate service support
infrastructure and (ii) operating and administrative expenses with respect to
new networks and debt service.
The Company's expansion into additional markets is expected to be
accomplished primarily by the development of new networks and also by the
acquisition of existing networks. Many factors will influence the Company's
determination as to the use of the net proceeds of the Offerings. The Company
has no specific plans for a significant portion of the net proceeds of the
Offerings. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
The Revolving Credit Agreement was entered into in May 1995, and the amounts
being repaid were used for expansion and development of the Company's networks
and for general corporate purposes. All loans outstanding under the Revolving
Credit Agreement must be paid in full no later than February 27, 2004. The
interest rate on the loans being repaid under the Revolving Credit Agreement
as of March 31, 1996 was approximately 6.3%. When needed by the Company, such
proceeds can be reborrowed under the Revolving Credit Agreement, subject to
satisfaction of customary conditions to borrowings. Toronto Dominion (Texas),
Inc. is the Administrative Agent under the Revolving Credit Agreement and The
Toronto-Dominion Bank is a lender under the Revolving Credit Agreement, and
each of them is an affiliate of Toronto Dominion Securities (USA) Inc., which
is one of the underwriters under the Notes Offerings. An amount equal to
approximately $14.0 million, plus interest accrued thereon, will be paid to
The Toronto-Dominion Bank from the proceeds of the Offerings as a payment on
the revolving credit facility. Chemical Bank is the Documentation Agent and a
lender under the Revolving Credit Agreement and is an affiliate of Chase
Securities Inc., which is one of the underwriters under the Notes Offerings.
An amount equal to approximately $14.0 million, plus interest accrued thereon,
will be paid to Chemical Bank from the proceeds of the Offerings as a payment
on the revolving credit facility. See "Description of Certain Indebtedness"
and "Underwriting."
Pending the foregoing uses, the net proceeds of the Offerings will be
invested in short-term, interest bearing investment-grade securities.
24
<PAGE>
CAPITALIZATION
The following table sets forth the historical combined capitalization of the
Company as of March 31, 1996 and as adjusted to reflect the Reorganization and
the Offerings. This table should be read in conjunction with the Selected
Combined Financial Data, the Pro Forma Financial Information and the combined
financial statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
-----------------------------------------------
PRO FORMA FOR
PRO FORMA FOR THE REORGANIZATION
ACTUAL THE REORGANIZATION AND OFFERINGS
-------- ------------------ ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents...... $ 16,805 $ 36,000 $ 702,815
======== ======== ==========
Current portion of capital
lease obligations............. $ 4,575 $ 18,694 $ 18,694
======== ======== ==========
Long-term debt:
Revolving Credit Agreement... $155,000 $155,000 $ --
Senior Notes due 2006........ -- -- 200,000
Senior Discount Notes due
2007........................ -- -- 400,000
Unamortized Notes issuance
costs....................... -- -- (18,074)
Subordinated debt to Cable
Stockholders................ 269,000 -- --
Long-term capital lease obli-
gations..................... 10,903 43,816 43,816
TCI Note..................... -- 26,000 26,000
-------- -------- ----------
Total long-term debt....... 434,903 224,816 651,742
-------- -------- ----------
Minority interest.............. 4,847 16,116 16,116
-------- -------- ----------
Stockholders' equity and part-
ners' capital (deficit):
Preferred Stock, $.01 par
value; no shares authorized
or outstanding; 150,000,000
shares authorized and no
shares outstanding on a pro
forma basis................. -- -- --
Common Stock, $1.00 par
value; 3,000 shares
authorized, 1,667 shares
issued and outstanding...... 2 -- --
Class A Common Stock, $.01
par value; 450,000,000
shares authorized, 1,215,125
and 24,715,125 shares issued
and outstanding on a pro
forma basis, respectively... -- 12 247
Class B Common Stock, $.01
par value; 300,000,000
shares authorized,
139,250,370 and 131,442,489
shares issued and outstand-
ing on a pro forma basis,
respectively................ -- 1,393 1,314
Additional paid-in capital... 195,388 769,390 1,124,632
Accumulated deficit.......... (76,290) (177,355) (177,355)
Partners' capital (deficit).. (12,444) -- --
-------- -------- ----------
106,656 593,440 948,838
Treasury stock, 7,807,881
shares of Class B Common
Stock, at cost.............. -- -- (118,509)
-------- -------- ----------
Total stockholders' equity and
partners' capital (deficit)... 106,656 593,440 830,329
-------- -------- ----------
$546,406 $834,372 $1,498,187
======== ======== ==========
</TABLE>
25
<PAGE>
SELECTED COMBINED FINANCIAL DATA
The following tables present selected combined financial data derived from
the audited historical financial statements of TCGI for 1991, and from the
audited historical financial statements of TCGI and TCG Partners for 1992.
Historical annual selected combined financial data set forth below for the
years 1993, 1994 and 1995 have been derived from the combined audited
historical financial statements of TCGI and TCG Partners, which have been
audited by Deloitte & Touche LLP, independent auditors, whose report thereon
appears elsewhere in this Prospectus. The following tables also present
selected combined financial data for the three months ended March 31, 1995 and
March 31, 1996 derived from the unaudited combined financial statements of
TCGI and TCG Partners. In the opinion of management, the unaudited combined
financial statements have been prepared on the same basis as the audited
combined financial statements and include all adjustments, which consist only
of normal recurring adjustments, necessary for a fair presentation of the
financial position and the results of operations for these periods. Operating
results for the three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the full year.
The following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
TCGI's and TCG Partners' historical combined financial statements and the
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
---------------------------------------------- -------------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- -------- -------- -------- -------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Telecommunications
services.............. $47,380 $57,256 $ 82,374 $ 99,983 $134,652 $ 29,855 $ 39,553
Management and royalty
fees from Local Market
Partnerships(1)....... -- -- 1,555 20,691 31,517 6,937 10,882
------- ------- -------- -------- -------- -------- --------
Total revenues......... 47,380 57,256 83,929 120,674 166,169 36,792 50,435
Operating expenses...... 22,728 31,876 48,224 60,255 73,743 17,124 22,520
Selling, general and ad-
ministrative(2)........ 12,782 16,569 40,275 56,306 69,850 16,070 20,197
Depreciation and amorti-
zation................. 9,550 12,035 16,197 19,933 37,837 7,297 12,849
------- ------- -------- -------- -------- -------- --------
Operating profit
(loss)................. 2,320 (3,224) (20,767) (15,820) (15,261) (3,699) (5,131)
------- ------- -------- -------- -------- -------- --------
Interest:
Interest income........ 636 446 1,072 1,711 4,067 1,106 1,190
Interest expense....... (885) (1,508) (1,407) (5,079) (23,331) (4,600) (8,148)
------- ------- -------- -------- -------- -------- --------
Net Interest expense... (249) (1,062) (335) (3,368) (19,264) (3,494) (6,958)
------- ------- -------- -------- -------- -------- --------
Minority interest(3).... (98) (142) 796 1,395 663 201 150
Equity in loss of uncon-
solidated affiliates... -- -- (2,114) (11,763) (19,541) (4,211) (6,528)
------- ------- -------- -------- -------- -------- --------
Income (loss) before
taxes.................. 1,973 (4,428) (22,420) (29,556) (53,403) (11,203) (18,467)
Income tax benefit (pro-
vision)................ 484 -- 4,149 (433) (401) (335) (225)
------- ------- -------- -------- -------- -------- --------
Net income (loss)....... $ 2,457 $(4,428) $(18,271) $(29,989) $(53,804) $(11,538) $(18,692)
======= ======= ======== ======== ======== ======== ========
OTHER DATA:
EBITDA(4)............... $11,870 $ 8,811 $ (4,570) $ 4,113 $ 22,576 $ 3,598 $ 7,718
Capital expenditures.... 32,047 47,505 155,184 143,276 154,807 50,793 31,153
Ratio of earnings avail-
able to cover fixed
charges(5)............. 3.23 -- -- -- -- -- --
Dividends per share..... -- -- -- -- -- -- --
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------- AS OF MARCH 31,
1991 1992 1993 1994 1995 1996
------- ------- -------- -------- -------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equiva-
lents.................. $ 4,208 $ 3,563 $ 31,716 $ 26,000 $ 11,862 $ 16,805
Working capital......... (10,905) (12,507) (15,278) (32,719) (47,083) (42,015)
Fixed assets--at cost... 146,250 193,650 329,686 422,964 545,653 576,806
Total assets............ 136,727 171,583 365,202 486,983 614,793 658,906
Long-term debt (includ-
ing capital lease
obligations)........... 13,884 49,679 29,689 200,462 368,464 434,903
Minority interest(3).... 3,247 6,201 12,661 2,903 4,409 4,847
Stockholders' equity and
partners' capital
(deficit).............. 81,799 77,371 209,141 179,152 125,348 106,656
</TABLE>
26
<PAGE>
- --------
Footnotes to Selected Combined Financial Data
(1) Under the terms of various management services arrangements among TCGI and
its unconsolidated Local Market Partnerships and certain other affiliates,
TCGI provides operating and administrative support services to such
entities, for which it earns management fees. Upon consummation of the
Reorganization, these fees will no longer be reflected as revenues.
(2) Included in selling, general and administrative expenses are expenses
incurred for services provided to the Local Market Partnerships, in the
amounts of $1.4 million, $19.4 million, $29.6 million, $6.5 million and
$10.2 million for the years 1993, 1994 and 1995 and the three months ended
March 31, 1995 and March 31, 1996, respectively.
(3) Minority interest reflects Fidelity Communications Inc.'s equity interest
in Teleport Communications Boston for 1991, 1992, 1993 and 1994; a Cox
affiliate's interest in TCG San Diego for 1993 and 1994; and TCI and
Continental affiliates' interests in TCG St. Louis for 1994 and 1995 and
the three months ended March 31, 1995 and March 31, 1996.
(4) EBITDA consists of earnings (loss) before interest, income taxes,
depreciation, amortization, minority interest and equity in losses of
unconsolidated affiliates. It is a measure commonly used in the
telecommunications industry and is presented to assist in understanding
the Company's operating results. Additionally, certain covenants contained
in the Indentures are based on EBITDA. EBITDA is not intended to represent
cash flows for the period. See the Combined Statements of Cash Flows
contained elsewhere in this Prospectus.
(5) The ratio of earnings to fixed charges is computed by dividing pretax
income from operations before fixed charges (other than capitalized
interest) by fixed charges. Fixed charges consist of interest charges and
amortization of debt expense and discount or premium related to
indebtedness, whether expensed or capitalized and that portion of rental
expense the Company believes to be representative of interest. For the
years 1992, 1993, 1994 and 1995 and the three months ended March 31, 1995
and March 31, 1996, earnings were insufficient to cover fixed charges by
$4.4 million, $23.2 million, $31.0 million, $54.1 million, $11.4 million
and $18.6 million, respectively.
27
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following pro forma condensed consolidated balance sheet and statements
of operations are presented for the Company as of March 31, 1996 and for the
year ended December 31, 1995 and the three months ended March 31, 1996. Such
pro forma results reflect the effects of the Reorganization and the
application of the proceeds of and other transactions related to the Offerings
as if they had occurred at the end of the period for the condensed
consolidated balance sheet and at the beginning of the period for the
condensed consolidated statement of operations. Such pro forma adjustments
have been applied to the condensed combined historical data.
The condensed consolidated pro forma financial information is provided for
informational purposes only and does not purport to represent what the
financial position and results of operations would actually have been if such
transactions had in fact occurred as described above and are not intended to
project the Company's financial position or results of operations for any
future period.
The condensed consolidated pro forma financial information gives effect to
pro forma adjustments which are described in the accompanying notes. The
condensed consolidated pro forma financial information and accompanying notes
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and TCGI's and TCG Partners'
historical combined financial statements and the notes thereto included
elsewhere in this Prospectus.
28
<PAGE>
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
MARCH 31, 1996
UNAUDITED
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
COMBINED PRO FORMA FOR THE
TCGI AND REORGANIZATION FOR THE OFFERINGS REORGANIZATION
TCG PARTNERS ADJUSTMENTS REORGANIZATION ADJUSTMENTS AND OFFERINGS
------------ -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equiva-
lents................ $ 16,805 $ 19,195 (1) $ 36,000 $666,815 (4) $ 702,815
Accounts receivable,
net.................. 33,568 9,660 (1) 43,228 -- 43,228
Prepaid expenses and
other current
assets............... 6,139 5,078 (1) 11,217 -- 11,217
-------- -------- ---------- -------- ----------
Total current as-
sets............... 56,512 33,933 90,445 666,815 757,260
-------- -------- ---------- -------- ----------
Fixed assets--at cost... 576,806 423,278 (1) 1,000,084 1,000,084
Less accumulated de-
preciation and amor-
tization............. (126,273) (39,729)(1) (166,002) -- (166,002)
-------- -------- ---------- -------- ----------
Fixed assets--net..... 450,533 383,549 834,082 -- 834,082
-------- -------- ---------- -------- ----------
Investment in
unconsolidated
affiliates............. 118,985 (102,502)(1) 16,483 -- 16,483
-------- -------- ---------- -------- ----------
Goodwill................ 26,649 5,573 (1) 54,159 -- 54,159
21,937 (3)
-------- -------- ---------- -------- ----------
Other assets............ 6,227 3,610 (1) 9,837 -- 9,837
-------- -------- ---------- -------- ----------
Total assets............ $658,906 $346,100 $1,005,006 $666,815 $1,671,821
======== ======== ========== ======== ==========
LIABILITIES AND STOCK-
HOLDERS' EQUITY AND
PARTNERS' CAPITAL (DEF-
ICIT)
Current liabilities..... $ 98,527 $ 61,509 (1) $ 155,217 $ 3,000 (4) $ 158,217
(16,437)(3)
11,618 (2)
Non-current liabilities:
Revolving Credit
Agreement............ 155,000 -- 155,000 (155,000)(4) --
Senior Notes due
2006................. -- -- -- 200,000 (4) 200,000
Senior Discount Notes
due 2007............. -- -- -- 400,000 (4) 400,000
Unamortized Notes
issuance costs....... -- -- -- (18,074)(4) (18,074)
Subordinated debt to
Cable Stockholders... 269,000 (269,000)(3) -- -- --
Capital lease obliga-
tions................ 10,903 32,913 (1) 43,816 -- 43,816
TCI Note.............. -- 26,000 (3) 26,000 -- 26,000
Minority interest..... 4,847 (4,847)(1) 16,116 -- 16,116
16,116 (2)
Other................. 13,973 1,444 (1) 15,417 -- 15,417
-------- -------- ---------- -------- ----------
Total liabilities... 552,250 (140,684) 411,566 429,926 841,492
Stockholders' equity
and partners' capital
(deficit)............. 106,656 233,144 (1) 593,440 355,398 (4) 948,838
259,437 (3)
(5,797)(2)
Treasury stock,
7,807,881 shares of
Class B Common Stock,
at cost............... -- -- -- (118,509)(4) (118,509)
-------- -------- ---------- -------- ----------
Total stockholders' eq-
uity and partners'
capital (deficit)..... 106,656 486,784 593,440 236,889 830,329
-------- -------- ---------- -------- ----------
Total liabilities and
stockholders' equity
and partners' capital
(deficit).............. $658,906 $346,100 $1,005,006 $666,815 $1,671,821
======== ======== ========== ======== ==========
</TABLE>
See notes to condensed consolidated pro forma financial information.
29
<PAGE>
CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
UNAUDITED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMBINED PRO FORMA
TCGI AND PRO FORMA FOR THE
TCG REORGANIZATION FOR THE OFFERINGS REORGANIZATION
PARTNERS ADJUSTMENTS REORGANIZATION ADJUSTMENTS AND OFFERINGS
-------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenues:
Telecommunications
services............. $134,652 $50,200 (1) $184,852 $184,852
Management and royalty
fees................. 31,517 (31,517)(1) -- --
-------- -------- ----------- -------- -----------
Total revenues...... 166,169 18,683 184,852 184,852
-------- -------- ----------- -------- -----------
Expenses:
Operating............. 73,743 27,346 (1) 101,089 101,089
Selling, general and
administrative....... 69,850 13,322 (1) 83,172 83,172
Depreciation and amor-
tization............. 37,837 24,694 (1) 62,531 62,531
-------- -------- ----------- -------- -----------
Total expenses...... 181,430 65,362 246,792 246,792
-------- -------- ----------- -------- -----------
Operating loss.......... (15,261) (46,679) (61,940) (61,940)
-------- -------- ----------- -----------
Interest income......... 4,067 755 (1) 4,822 4,822
Interest expense........ (23,331) (3,875) (1) (11,569) $(58,857) (4) (70,426)
(2,006) (3)
17,643 (3)
-------- -------- ----------- -------- -----------
(19,264) 12,517 (6,747) (58,857) (65,604)
-------- -------- ----------- -------- -----------
Loss before minority
interest, equity in
losses of
unconsolidated
affiliates and income
taxes.................. (34,525) (34,162) (68,687) (58,857) (127,544)
Minority interest....... 663 (663)(1) 2,673 2,673
2,673 (2)
Equity in losses of
unconsolidated
affiliates............. (19,541) 18,173 (1) (1,368) (1,368)
-------- -------- ----------- -------- -----------
Loss before taxes....... (53,403) (13,979) (67,382) (58,857) (126,239)
Income tax provision.... (401) -- (5) (401) (401)
-------- -------- ----------- -------- -----------
Net loss................ $(53,804) $(13,979) $(67,783) $(58,857) $(126,640)
======== ======== =========== ======== ===========
Loss per share.......... $(0.48) $(0.81)
=========== ===========
Number of shares used
for
computation............ 140,465,000 156,158,000
=========== ===========
</TABLE>
See notes to condensed consolidated pro forma financial information.
30
<PAGE>
CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996
UNAUDITED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMBINED PRO FORMA
TCGI AND PRO FORMA FOR THE
TCG REORGANIZATION FOR THE OFFERINGS REORGANIZATION
PARTNERS ADJUSTMENTS REORGANIZATION ADJUSTMENTS AND OFFERINGS
-------- -------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Revenues:
Telecommunications
services.............. $ 39,553 $18,569 (1) $58,122 $58,122
Management and royalty
fees.................. 10,882 (10,882)(1) -- --
-------- ------- ----------- -------- -----------
Total revenues........ 50,435 7,687 58,122 58,122
-------- ------- ----------- -------- -----------
Expenses:
Operating.............. 22,520 9,947 (1) 32,467 32,467
Selling, general and
administrative........ 20,197 4,480 (1) 24,677 24,677
Depreciation and
amortization.......... 12,849 8,707 (1) 21,556 21,556
-------- ------- ----------- -------- -----------
Total expenses........ 55,566 23,134 78,700 78,700
-------- ------- ----------- -------- -----------
Operating loss.......... (5,131) (15,447) (20,578) (20,578)
-------- ------- ----------- -----------
Interest income......... 1,190 (209)(1) 981 981
Interest expense........ (8,148) (1,074)(1) (5,489) $(12,943)(4) (18,432)
(525)(3)
4,258 (3)
-------- ------- ----------- -------- -----------
(6,958) 2,450 (4,508) (12,943) (17,451)
-------- ------- ----------- -------- -----------
Loss before minority
interest, equity in
losses of
unconsolidated
affiliates and income
taxes.................. (12,089) (12,997)(1) (25,086) (12,943) (38,029)
Minority interest....... 150 (150)(1) 855 855
855 (2)
Equity in losses of
unconsolidated
affiliates............. (6,528) 6,196 (1) (332) (332)
-------- ------- ----------- -------- -----------
Loss before taxes....... (18,467) (6,096) (24,563) (12,943) (37,506)
Income tax provision.... (225) -- (5) (225) (225)
-------- ------- ----------- -------- -----------
Net loss................ $(18,692) $(6,096) $(24,788) $(12,943) $(37,731)
======== ======= =========== ======== ===========
Loss per share.......... $(0.18) $(0.24)
=========== ===========
Number of shares used
for computation........ 140,465,000 156,158,000
=========== ===========
</TABLE>
See notes to condensed consolidated pro forma financial information.
31
<PAGE>
NOTES TO CONDENSED CONSOLIDATED PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
(1) TCGI holds more than 50% of the partnership interests of TCG St. Louis
which, accordingly, is already consolidated with TCGI for financial
reporting and accounting purposes. Upon consummation of the
Reorganization, the remaining 13 Local Market Partnerships, which are
currently accounted for under the equity method, will become either wholly
owned or majority owned subsidiaries of TCG. As a result, the revenues,
expenses, assets and liabilities of these Local Market Partnerships will
be consolidated with those of TCGI for financial reporting and accounting
purposes.
(2) In connection with the Reorganization, TCGI purchased the minority
interest in TCG South Florida of Hyperion Telecommunications, Inc. of
Florida for $11,618, resulting in goodwill of $8,367 being recorded.
Additionally, adjustments were made to reflect the issuance of Class A
Common Stock in exchange for the partnership interests of other minority
partners in TCG San Francisco and TCG Detroit. Finally, adjustments were
made to reflect the following remaining minority ownership interests:
<TABLE>
<CAPTION>
LOCAL MARKET MINORITY
PARTNERSHIP OWNERSHIP INTERESTS
------------ -------------------
<C> <S>
TCG San Francisco........... 22.9% Viacom Telecom, Inc.; 4.2% InterMedia
Partners
TCG Seattle................. 22.2% Viacom Telecom, Inc.
</TABLE>
(3) In connection with the Reorganization, the Cable Stockholders will
contribute to TCGI all amounts outstanding under the Stockholder Loan
Agreement (except that TCI will retain a subordinated note of TCGI in the
amount of $26.0 million, bearing interest at the rate of 7.5% per annum,
with principal and interest payable at maturity five years from the date
of consummation of the Reorganization) and the Stockholder Loan Agreement
will be terminated.
(4) Reflects the effects of the issuance of the Common Stock and Notes under
the Offerings including the redemption of Class B Common Stock held by a
subsidiary of Continental. Interest expense has been increased to reflect
the interest on the Notes of 10% (including accretion of the discount on
the Senior Discount Notes) and decreased to reflect the repayment of bank
indebtedness of the Company under the Revolving Credit Agreement. Interest
expense adjustments related to the Offerings consist of the following:
<TABLE>
<S> <C>
Interest expense on the Senior Notes and the Senior Discount
Notes........................................................... $60,000
Amortization of Notes issuance costs............................. 1,807
Reversal of interest expense on Revolving Credit Agreement....... (2,950)
-------
$58,857
=======
</TABLE>
A 0.25% change in the actual interest rate applicable to the Notes would
result in a change in the pro forma interest expense of $1,500 and $379 for
the year ended December 31, 1995 and the three months ended March 31, 1996,
respectively.
(5) No provision has been made for taxes, principally due to the use of net
operating losses.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis should be read in conjunction with
TCGI's and TCG Partners' historical combined audited financial statements and
the notes thereto and the pro forma financial information included elsewhere
in this Prospectus.
OVERVIEW
TCG, the first and largest competitive local exchange carrier in the United
States, offers a wide range of local telecommunications services in major
metropolitan markets nationwide. The Company competes with ILECs as "The Other
Local Phone Company"SM by providing high quality, integrated local
telecommunications services, primarily over fiber optic digital networks, to
meet the voice, data and video transmission needs of its customers. The
Company's initial business in New York City was limited to dedicated private
line service and management of the telecommunications infrastructure at The
Teleport office park and satellite earth station complex located in Staten
Island, New York. TCG subsequently expanded, and continues to expand, its
service offerings as justified by market demand and as permitted by regulatory
reform. Concurrently with the expansion of its service offerings, TCG has
expanded geographically by developing local telecommunications networks in 48
metropolitan markets throughout the United States.
The costs associated with the initial installation and expansion of each
network, including development, installation, certain organizational costs and
early operating expenses, are significant and result in negative cash flow for
that market until an adequate customer base and revenue stream have been
established. In addition to capital expenditures, TCG begins to incur direct
operating costs upon commencement of the installation phase of a network for
such items as salaries and office rent. The exact amounts and timing of these
expenditures and costs are subject to a variety of factors which may vary
greatly by geographic market. As network installation progresses, TCG incurs
rights-of-way costs, increased sales and marketing expenses (including sales
commissions) and, in certain markets, franchise fees and taxes paid to local
governments based on revenue. Although the Company's revenues have increased
substantially, the Company's expenses associated with the expansion and
development of its local telecommunications networks has exceeded such
revenues. The Company expects its net losses to grow as it continues to expand
its networks. However, generally, after the network infrastructure is
established, the Company can add customers and revenues with less additional
expense. After a customer is added and the volume of such customer's
communications traffic handled by TCG grows, incremental revenues can be added
with minimal additional expense, providing significant contributions to
EBITDA.
As of December 31, 1995, the Company's combined financial statements for
TCGI and TCG Partners reflect the consolidated financial results of the
Company's wholly owned subsidiaries located in Baltimore, Boston, Cleveland,
Denver, Houston, Indianapolis, Milwaukee, metropolitan New York/New Jersey,
Portland (Oregon), Providence, Salt Lake City and Washington, D.C., and the
Local Market Partnership in St. Louis in which the Company owns 60.8% of the
partnership interests. Additionally, the combined financial statements for
TCGI and TCG Partners for 1995 reflect the Company's equity in losses of 13
unconsolidated Local Market Partnerships, as well as the Company's equity in
losses of Eastern TeleLogic Corporation ("ETC"), in which the Company retains
an approximate 25% indirect interest. Management fees and royalty fees charged
to the Local Market Partnerships by TCGI are recorded as revenue in the
combined financial statements and, under generally accepted accounting
principles, may not be netted against expenses.
To develop and operate the Local Market Partnerships, TCG Partners, a New
York general partnership, was created in December 1992. The establishment of
the Company's Local Market Partnerships resulted in the deconsolidation,
beginning in 1993, of certain entities which formerly were wholly owned. Under
generally accepted accounting principles, such unconsolidated entities are
accounted for under the equity method, and, accordingly, resulted in the Local
Market Partnerships' revenues, expenses, assets and liabilities being excluded
from the combined amounts. This accounting treatment may affect the
comparability of amounts from year to year.
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The pro forma financial information presented in this Prospectus reflects
the acquisition of all interests in 12 Local Market Partnerships as part of
the Reorganization, including TCG St. Louis, which is consolidated for
financial reporting and accounting purposes, and the acquisition of a majority
of the interests of the remaining two Local Market Partnerships (TCG Seattle
and TCG San Francisco). Adjustments relating to the Reorganization include
adjustments for consolidating the remaining 13 Local Market Partnerships that
were previously accounted for under the equity method of accounting.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
Revenues
Total revenues increased to $50.4 million for the three months ended March
31, 1996 from $36.8 million for the three months ended March 31, 1995,
representing an increase of $13.6 million, or 37%. Telecommunications services
revenue increased to $39.6 million for the three months ended March 31, 1996
from $29.9 million for the three months ended March 31, 1995, an increase of
$9.7 million, or 32%. Revenue increases occurred in every revenue category,
most significantly in switched services. This increase in revenues is a result
of increased market penetration primarily in TCG's existing markets as well as
expansion into new markets.
Management and royalty fees from Local Market Partnerships increased to
$10.9 million for the three months ended March 31, 1996 from $6.9 million for
the three months ended March 31, 1995, an increase of $4.0 million, or 58%.
These fees are directly related to operating and administrative support
services provided by TCGI to unconsolidated Local Market Partnerships. The
increase in management fees revenue for the first quarter of 1996 compared to
the first quarter of 1995 is due to the continuing support provided to TCG's
unconsolidated Local Market Partnerships. Upon consummation of the
Reorganization, these fees will no longer be reflected as revenues. The impact
on revenues of not including the management fees received from the Company's
unconsolidated Local Market Partnerships would have been a decrease in total
revenues for the three months ended March 31, 1996 of $10.2 million, compared
to actual total revenues for such period.
On a pro forma basis, had telecommunications services revenue generated by
unconsolidated Local Market Partnerships been included for the combined
financial statements for TCGI and TCG Partners, total revenues would have
increased to $58.1 million for the three months ended March 31, 1996 from
$39.7 million for the three months ended March 31, 1995, reflecting an $18.4
million, or 46% increase. This revenue growth is a direct result of increased
market penetration of all telecommunications service offerings in existing
markets and the addition of new markets. On a pro forma basis, annualized
monthly recurring revenue increased to approximately $223.2 million for March
1996 from $148.0 million for March 1995, an increase of $75.2 million, or 51%.
Monthly recurring revenue represents monthly service charges billable to
telecommunications services customers for the month indicated, but excluding
non-recurring revenues for certain one-time services, such as installation
fees or equipment charges.
On a pro forma basis, switched revenue increased to $22.3 million for the
three months ended March 31, 1996 from $13.5 million for the three months
ended March 31, 1995, an increase of $8.8 million, or 65%. This increase is
primarily related to growth in switched services. Increased monthly line-
related revenue as well as sales growth in enhanced switched services products
to new customers have also contributed to overall switched services revenue
growth. On a pro forma basis, dedicated services revenue increased to $34.1
million for the three months ended March 31, 1996 from $25.2 million recorded
for the three months ended March 31, 1995, an increase of $8.9 million, or
35%.
Operating Expenses
Operating expenses increased to $22.5 million for the three months ended
March 31, 1996 from $17.1 million for the three months ended March 31, 1995,
an increase of $5.4 million, or 32%. This increase is directly related to the
costs associated with the expansion of TCG's networks throughout the country.
These expenses include costs associated specifically with network operations
including compensation costs for technical personnel, access, rights-of-way,
node, rent and maintenance expenses. On a pro forma basis, operating expenses
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increased to $32.5 million for the three months ended March 31, 1996 from
$22.7 million for the three months ended March 31, 1995, an increase of $9.8
million, or 43%. Operating expenses grew less than revenues, reflecting TCG's
operating leverage.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $20.2 million for
the three months ended March 31, 1996 from $16.1 million for the three months
ended March 31, 1995, an increase of $4.1 million, or 25%. This increase is
attributable to the costs required to maintain an infrastructure which
supports the continued expansion of the Company's networks, the introduction
of new services and the delivery of high levels of customer service. These
costs include compensation, occupancy, insurance, professional fees, and sales
and marketing expenses. On a pro forma basis, selling, general and
administrative expenses increased to $24.7 million for the three months ended
March 31, 1996 from $18.7 million recorded for the three months ended March
31, 1995, an increase of $6.0 million, or 32%.
EBITDA
EBITDA increased to $7.7 million for the three months ended March 31, 1996
from $3.6 million for the three months ended March 31, 1995, an increase of
$4.1 million, or 114%. This increase is primarily attributable to increases in
dedicated and switched services revenues as well as increased management fees
revenue from Local Market Partnerships for support services. Furthermore, TCG
has obtained increased efficiencies through greater automation and through
lower access costs. On a pro forma basis, EBITDA increased to $978,000 for the
three months ended March 31, 1996 from negative $1.7 million for the three
months ended March 31, 1995, an increase of $2.7 million. The Local Market
Partnerships, included in the pro forma financial data as a result of the
Reorganization, have negative EBITDA due to the start-up or rapid expansion of
the networks of such Local Market Partnerships.
Depreciation and Amortization Expense
Depreciation and amortization expense increased to $12.8 million for the
three months ended March 31, 1996 from $7.3 million for the three months ended
March 31, 1995, an increase of $5.5 million, or 75%. This increase is
primarily attributable to increased depreciation related to the expansion of
the local telecommunications networks throughout the country and to a change
in the estimated useful lives of certain electronic equipment, which was made
during 1995 in order to conform with industry standards. On a pro forma basis,
depreciation and amortization expense increased to $21.6 million for the three
months ended March 31, 1996 from $11.5 million for the three months ended
March 31, 1995, an increase of $10.1 million, or 88%.
Interest Income
Interest income increased to $1.2 million for the three months ended March
31, 1996 from $1.1 million for the three months ended March 31, 1995, an
increase of $0.1 million, or 9%.
Interest Expense
Interest expense increased to $8.1 million for the three months ended March
31, 1996 from $4.6 million for the three months ended March 31, 1995, an
increase of $3.5 million, or 76%. This resulted from borrowings under the
Revolving Credit Agreement and increased borrowings under the Stockholder Loan
Agreement, as well as increased capital lease obligations.
Equity in Loss of Unconsolidated Affiliates
Equity in loss of unconsolidated affiliates increased to $6.5 million for
the three months ended March 31, 1996 from $4.2 million for the three months
ended March 31, 1995, an increase of $2.3 million. This increase is directly
attributable to the development and operation of 13 Local Market Partnerships
and TCGI's equity share in the losses of ETC.
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Income Taxes
During the three months ended March 31, 1996 and March 31, 1995, TCGI
generated net operating losses and, accordingly, incurred a net tax benefit.
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," such tax benefit was fully offset, each
quarter, by a valuation allowance. Each quarter's provision for income taxes,
which does not fluctuate substantially, resulted from state income taxes where
TCGI is required to file separate income tax returns.
TCG Partners is not subject to federal or state and local income taxes. The
distributive share of each partner in a Local Market Partnership of
partnership revenues, expenses and other items is computed on the basis of the
respective partner's capital interest in the partnership and is reported by
the partners in their respective federal or state and local income tax return.
Net Loss
The combined results of TCGI and TCG Partners reflected a net loss of $18.7
million for the three months ended March 31, 1996 compared to net loss of
$11.5 million for the three months ended March 31, 1995, an increase of $7.2
million, or 63%. This increase in net loss is attributable to the factors
discussed above. On a pro forma basis, the net loss increased to $37.7 million
for the three months ended March 31, 1996 from $11.1 million for the three
months ended March 31, 1995, an increase of $26.6 million, or 240%.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Revenues
Total revenues increased to $166.2 million for 1995 from $120.7 million for
1994, representing an increase of $45.5 million, or 38%. Telecommunications
services revenue increased to $134.7 million for 1995 from $100.0 million for
1994, an increase of $34.7 million, or 35%. Revenues increased in every
revenue category, most significantly in switched services. This increase
reflects increased sales of services in existing and new markets and growth of
TCG's customer base. Management and royalty fees from Local Market
Partnerships increased to $31.5 million for 1995, an increase of $10.8
million, or 52%, from $20.7 million for 1994. These fees are directly related
to operating and administrative support services provided by TCGI to
unconsolidated Local Market Partnerships. The increase in management fees
revenue in 1995 over 1994 is due to the increased support that was provided to
these unconsolidated Local Market Partnerships, specifically in developing
existing dedicated services businesses as well as in building new switched
businesses. Upon consummation of the Reorganization, these fees will no longer
be reflected as revenues. The impact on revenues of not including the
management fees received from the Company's unconsolidated Local Market
Partnerships would have been a decrease in total revenues for the year ended
December 31, 1995 of $29.6 million, compared to actual revenues for such
period.
On a pro forma basis, had telecommunication services revenue generated by
unconsolidated Local Market Partnerships been included in the combined
financial statements of TCGI and TCG Partners, total revenues would have
increased to $184.9 million for 1995 from $122.2 million for 1994, an increase
of $62.7 million, or 51%. This growth in revenues is a direct result of
increased market penetration of all telecommunications service offerings in
existing markets and the addition of new markets. On a pro forma basis,
annualized monthly recurring revenue increased to approximately $211.1 million
for December 1995 from $135.6 million for December 1994, an increase of $75.5
million, or 56%. Monthly recurring revenue represents monthly service charges
billable to telecommunications services customers for the month indicated, but
excluding non-recurring revenues for certain one-time services, such as
installation fees or equipment charges.
On a pro forma basis, switched revenue increased to $63.9 million for 1995
from $40.2 million for 1994, an increase of $23.7 million, or 59%. This
increase is due primarily to increases in switched, local and toll services
and IXC access usage volumes. Also contributing to this increase were
increased sales of additional enhanced switched service products to customers
in existing and new markets. On a pro forma basis, dedicated services revenue
increased to $116.5 million for 1995 from $78.8 million for 1994, an increase
of $37.7 million, or 48%.
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Operating Expenses
Operating expenses increased to $73.7 million for 1995 from $60.3 million
for 1994, an increase of $13.4 million, or 22%. This increase is primarily
attributable to costs associated with the expansion of networks throughout the
country, including technical personnel costs and access, rights-of-way, node,
rent and maintenance expenses. The increase in operating expenses is also
attributable to the access and maintenance expenses associated with the growth
of switched services in existing markets and the expansion into new markets.
On a pro forma basis, operating expenses increased to $101.1 million for 1995
from $74.0 million for 1994, an increase of $27.1 million, or 37%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $69.9 million for
1995 from $56.3 million for 1994, an increase of $13.6 million, or 24%. This
increase is a result of the continued expansion of network infrastructure to
support continued expansion of the Company's networks, including costs
associated with servicing the increased number of both dedicated and switched
services customers. These costs include expenses related to compensation,
occupancy, insurance and professional fees. On a pro forma basis, selling,
general and administrative expenses increased to $83.2 million for 1995 from
$62.3 million for 1994, an increase of $20.9 million, or 34%.
EBITDA
EBITDA increased to $22.6 million for 1995 from $4.1 million for 1994, an
increase of $18.5 million. This increase is primarily attributable to
increases in dedicated and switched services revenues as well as increased
management fees revenue from the Local Market Partnerships for support
services. Additionally, TCG has reduced its operating and administrative
expenses, as a percentage of revenues, primarily by obtaining lower unit
access costs through negotiation of, and participation in regulatory
proceedings relating to, various interconnection and reciprocal agreements
with ILECs across the country, and by obtaining greater efficiencies through
automation. On a pro forma basis, EBITDA increased to $591,000 for 1995 from
negative $14.0 million for 1994, an increase of $14.6 million. The Local
Market Partnerships, included in the pro forma financial data as a result of
the Reorganization, have negative EBITDA because of the rapid expansion of the
networks of such Local Market Partnerships.
Depreciation and Amortization Expense
Depreciation and amortization expense increased to $37.8 million for 1995
from $19.9 million for 1994, an increase of $17.9 million, or 90%. This
increase is primarily attributable to increased depreciation associated with
the expansion of the local telecommunications networks throughout the country
and a change in estimated useful lives of certain equipment which was made
during 1995 in order to conform with industry standards. On a pro forma basis,
depreciation and amortization expense increased to $62.5 million for 1995 from
$29.4 million for 1994, an increase of $33.1 million, or 113%.
Interest Income
Interest income increased to $4.1 million for 1995 from $1.7 million in
1994, an increase of $2.4 million, or 141%, due to a greater average balance
in cash and cash equivalents.
Interest Expense
Interest expense increased to $23.3 million for 1995 from $5.1 million in
1994, an increase of $18.2 million, or 357%. This increase is primarily
attributable to the interest due Cable Stockholders under the Stockholder Loan
Agreement as well as interest under the Revolving Credit Agreement which was
entered into in May 1995. Also contributing to the increased interest expense
is an increase of $15.2 million in capital lease obligations under
arrangements entered into with various Cable Stockholders.
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Equity in Loss of Unconsolidated Affiliates
Equity in loss of unconsolidated affiliates increased to $19.5 million for
1995 from $11.8 million for 1994, an increase of $7.7 million. This increase
is directly attributable to the development and operation of twelve
unconsolidated Local Market Partnerships for 1993 and 1994 as well as the
recording of TCG's equity in losses of TCG San Diego during a portion of 1994
and TCGI's equity share in the losses of ETC.
Income Taxes
In 1995 and 1994, TCGI generated net operating losses and, accordingly,
incurred a net tax benefit. In accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," such tax
benefit was fully offset, each year, by a valuation allowance. Both the 1995
and 1994 provisions for income taxes, which do not fluctuate substantially
year to year, resulted from state income taxes where TCGI is required to file
separate state income tax returns.
As of December 31, 1995, TCGI had operating loss carryforwards for tax
purposes of approximately $105.3 million, expiring principally in 2009 through
2011.
TCG Partners is not subject to federal, state or local income taxes. The
distributive share of each partner in a Local Market Partnership of
partnership revenues, expenses and other items is computed on the basis of the
respective partner's capital interest in the partnership and is reported by
the partners in their respective federal or state income tax returns.
Net Loss
The combined results of TCGI and TCG Partners reflected a net loss of $53.8
million for 1995, from a net loss of $30.0 million for 1994, an increase of
$23.8 million, or 79%. This increase in net loss is attributable to the
factors discussed above. On a pro forma basis, the net loss increased to
$126.6 million for 1995 from $30.1 million for 1994, an increase of $96.5
million, or 321%.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
Revenues
Total revenues increased to $120.7 million for 1994 from $83.9 million for
1993, an increase of $36.8 million, or 44%. The increase in revenue for 1994
is primarily attributable to the increased penetration of existing markets and
customers, initiation of new market operations and management fees earned from
the newly established Local Market Partnerships for support services rendered.
Growth of the switched services revenue base also contributed to the overall
increase in telecommunications revenues for 1994 over 1993.
Management and royalty fees from Local Market Partnerships increased to
$20.7 million for 1994 from $1.6 million for 1993, an increase of $19.1
million. These fees are directly related to operating and administrative
services provided by TCGI to unconsolidated Local Market Partnerships. In
November 1993, six Local Market Partnerships were formed among TCGI and TCG
Partners and various cable operators. Prior to November 1993, these
unconsolidated affiliates had been wholly owned by TCGI and TCG Partners and
revenues recorded by these affiliates were included in operating revenue.
These fees will be eliminated in consolidation after the Reorganization. The
impact on revenues of not including the management fees received from the
Company's unconsolidated Local Market Partnerships would have been a decrease
in total revenues for the year ended December 31, 1994 of $19.4 million,
compared to actual revenues for such period.
Operating Expenses
Operating expenses increased to $60.3 million for 1994 from $48.2 million
for 1993, an increase of $12.1 million, or 25%. This increase is primarily
attributable to the additional operational costs incurred to support increased
dedicated and switched sales volume and network expansion, including off-
network access services purchased from ILECs.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $56.3 million for
1994 from $40.3 million for 1993, an increase of $16.0 million, or 40%. This
increase resulted from the change to equity accounting beginning in November
1993 and which was continued through 1994, upon the development and operation
of the various Local Market Partnerships as well as overall increases in
administrative expenses for wholly owned and majority owned subsidiaries and
partnerships.
EBITDA
EBITDA increased to $4.1 million for 1994, from negative EBITDA of $4.6
million for 1993, an increase of $8.7 million. This increase is partly
attributable to increased telecommunications services revenues generated by
consolidated subsidiaries and partnerships, as well as the recording of equity
in losses of certain Local Market Partnerships for 1994, compared to the
recording of net losses for these same networks for 1993.
Depreciation and Amortization Expense
Depreciation and amortization expense increased to $19.9 million for 1994
from $16.2 million for 1993, an increase of $3.7 million, or 23%. The
expansion of the New York, Boston and Houston networks accounts for a
substantial portion of this increase. Also contributing to this increase is
the amortization of goodwill associated with the 1994 acquisition of the
remaining interest in Teleport Communications Boston.
Interest Income
Interest income increased to $1.7 million for 1994 from $1.1 million in
1993, an increase of $0.6 million, or 55%, due to a greater average balance in
cash and cash equivalents.
Interest Expense
Interest expense increased to $5.1 million for 1994 from $1.4 million in
1993, an increase of $3.7 million, or 264%. This increase is directly
attributable to the indebtedness incurred pursuant to the Stockholder Loan
Agreement in 1994 which was required in order to finance TCG's expansion
effort.
Equity in Loss of Unconsolidated Affiliates
Equity in loss of unconsolidated affiliates increased to $11.8 million for
1994 from $2.1 million for 1993, an increase of $9.7 million. This increase is
directly attributable to the formation of seven unconsolidated Local Market
Partnerships in 1993 and the formation of five unconsolidated Local Market
Partnerships in 1994.
Income Taxes
In 1994 and 1993, TCGI generated net operating losses and, accordingly,
incurred a net tax benefit. In accordance with SFAS No. 109, "Accounting for
Income Taxes," such benefit was partially offset in 1993 and fully offset in
1994 by a valuation allowance. The 1994 provision for income taxes resulted
from state income taxes where subsidiaries of TCG are required to file
separate state income tax returns.
Net Loss
The combined results of TCGI and TCG Partners reflected a net loss of $30.0
million for 1994, from a net loss of $18.3 million for 1993, an increase of
$11.7 million, or 64%. This increase in net loss is attributable to the
factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, TCGI and TCG Partners had total combined assets of
$658.9 million, an increase of $522.2 million from $136.7 million as of
December 31, 1991. An additional $346.1 million of assets were accumulated
through the Local Market Partnerships with various cable television operators.
This growth has been funded by the Cable Stockholders and through $120.0
million of equity contributions to TCG, $30.0 million of
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equity contributions to TCG Partners and aggregate principal of $269.0 million
(plus accrued interest of $16.4 million from May 1, 1995 to March 31, 1996)
borrowed by TCG under the Stockholder Loan Agreement. In addition, such growth
has been funded, since May 1995, through $155.0 million under the Revolving
Credit Agreement and $275.6 million of direct investment in the Local Market
Partnerships by the Cable Stockholders and other cable television operators as
of March 31, 1996. In the aggregate, after giving pro forma effect to the
Reorganization, the Cable Stockholders had invested approximately $770 million
in the Company, which includes approximately $75 million of paid-in capital at
the time of their original investment.
The Company has historically raised a significant amount of equity capital
through the creation of Local Market Partnerships with the Cable Stockholders
and other cable television operators. Through the Local Market Partnerships,
the participating cable television operators were encouraged to combine their
resources to build a local telecommunications infrastructure under the
direction of the Company. Such local market focus enabled the Company to
efficiently establish and expand its networks.
The Company has incurred significant net operating losses resulting from the
development and operation of new networks. TCG expects that such losses will
continue to increase as TCG emphasizes the development, construction and
expansion of its networks and builds its customer base and that while cash
provided by operations may be sufficient to fund modest incremental growth it
will not be sufficient to fund the extensive expansion and development of
networks as currently planned.
Net cash provided by financing activities for the three months ended March
31, 1996 was $67.2 million and for the year ended December 31, 1995 was $157.7
million comprised primarily of borrowings under the Revolving Credit Agreement
and the Stockholder Loan Agreement. Net cash provided by financing activities
for 1994 and 1993 was $171.6 million and $129.8 million, respectively. Net
cash provided by (used in) operating activities was $(1.7) million for the
three months ended March 31, 1996 and $36.1 million, $87.8 million and $45.4
million for 1995, 1994 and 1993, respectively. Net cash used for investing
activities was $60.6 million for the three months ended March 31, 1996 and
$208.0 million, $265.0 million and $147.1 million for 1995, 1994 and 1993,
respectively. As of March 31, 1996, cash and cash equivalents were $16.8
million and undrawn availability under the Revolving Credit Agreement was
$74.6 million.
TCGI and TCG Partners made capital expenditures of $31.2 million for the
three months ended March 31, 1996 and $154.8 million, $143.3 million and
$155.2 million in 1995, 1994 and 1993, respectively. Additional capital
expenditures made by the Local Market Partnerships aggregated $22.9 million
for the three months ended March 31, 1996 and $126.8 million, $131.1 million
and $32.6 million for 1995, 1994 and 1993, respectively. The Company
anticipates that capital expenditures will be approximately $400 million to
$425 million in 1996 and $450 million in the aggregate to $475 million in the
aggregate in 1997, primarily for the expansion, development and construction
of its networks, the acquisition and deployment of switches and expansion of
operating support systems. Actual capital expenditures will depend on numerous
factors beyond TCG's control or ability to predict, including the nature of
future expansion and acquisition opportunities, economic conditions, customer
demand, competition, regulatory developments and the availability of funding.
In May 1995, TCGI entered into a $250 million Revolving Credit Agreement. In
December 1995, the obligations under the Revolving Credit Agreement were
assumed by TCNY, a wholly owned subsidiary of TCGI. TCNY is permitted to loan
funds drawn under the Revolving Credit Agreement to TCGI and TCG Partners. The
Revolving Credit Agreement is secured by the pledge of the common stock and
partnership interests of the subsidiaries of TCNY. Interest on borrowings
under the Revolving Credit Agreement is at varying rates. The Revolving Credit
Agreement matures on February 27, 2004 and is subject to a quarterly reduction
of commitment commencing January 1, 1999. The availability of credit under the
Revolving Credit Agreement is subject to the maintenance of certain financial
ratios. The Company expects to repay all or a portion of the credit facility
under the Revolving Credit Agreement with the proceeds of the Offerings and to
utilize the credit facility under the Revolving Credit Agreement, as
necessary, to fund short-term financing requirements from time to time, as
well as having the availability under the Revolving Credit Agreement to fund
the continued growth of the New York network and for general corporate
purposes. Amounts borrowed by TCNY under the Revolving Credit Agreement may be
lent to TCGI for general corporate purposes, so long as such indebtedness is
evidenced by
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promissory notes executed by TCGI in favor of TCNY, and such promissory notes
are pledged to the lenders under the Revolving Credit Agreement. See
"Description of Certain Indebtedness."
The Company believes that the net proceeds from the Offerings and the amount
of credit available under the Revolving Credit Agreement will be adequate for
its 1996 and 1997 funding requirements. However, the Company's financing
strategy is to remain financially flexible to market opportunities which are
consistent with the Company's long-range growth plans.
The Company from time to time evaluates acquisitions and investments in
light of the Company's long range plans. The Company may have future
opportunities with certain of its Cable Stockholders to invest in additional
markets as a minority partner or shareholder as well as opportunities as a
managing partner or controlling shareholder in new or existing
telecommunications ventures which are consistent with the Company's business
plans. See "Certain Relationships and Related Transactions." The Company
expects to continue to build on its existing relationships with cable
television providers and other strategic customers, suppliers and
telecommunications carriers. Such acquisitions, investments and/or strategic
arrangements, if available, could use a material portion of the Company's
financial resources following the Offerings and may accelerate the need for
raising additional capital in the future.
Earnings before fixed charges were insufficient to cover fixed charges for
the three months ended March 31, 1996 and 1995 by $18.6 million and $11.4
million respectively, and for 1995, 1994 and 1993 by $54.1 million, $31.0
million and $23.2 million, respectively. On a pro forma basis, the Company's
earnings would have been insufficient to cover fixed charges for the three
months ended March 31, 1996 by $38.4 million and by $128.9 million for 1995.
For a period of time, the Company may have excess liquidity as a result of
the Offerings. The Company expects to invest such excess funds in short-term,
interest bearing investment-grade securities until such funds are used to fund
the capital investments and operating needs of the Company's business.
EFFECTS OF NEWLY ISSUED ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of." This statement is effective for fiscal years
beginning after December 15, 1995. Management has evaluated the effect on its
financial condition and results of operations from the adoption of this
statement and does not believe an impairment of the long-lived assets has
occurred.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock Based
Compensation," which requires adoption of the disclosure provisions no later
than fiscal years beginning after December 15, 1995 and adoption of the
measurement and recognition provisions for non-employee transactions no later
than after December 15, 1995. The new standard defines a fair value method of
accounting for the issuance of stock options and other equity instruments.
Under the fair value method, compensation cost is measured at the grant date
based on the fair value of the award and is recognized over the service
period, which is usually the vesting period. Pursuant to SFAS No. 123,
companies are encouraged, but not required, to adopt the fair value method of
accounting for employee stock-based transactions. Companies are also permitted
to continue to account for such transactions under Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," but would
be required to disclose in a note to the financial statements pro forma net
income and per share amounts as if the Company had applied the new method of
accounting. SFAS No. 123 also requires increased disclosures for stock-based
compensation arrangements regardless of the method chosen to measure and
recognize compensation for employee stock-based arrangements. TCG has elected
to continue to account for such transactions under APB No. 25. TCG has
determined that if SFAS No. 123 had been adopted, its impact on the combined
statement of operations for the year ended December 31, 1995 would be
insignificant.
EFFECTS OF INFLATION
Inflation has not had a significant effect on the Company's operations.
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THE LOCAL TELECOMMUNICATIONS SERVICES INDUSTRY
INDUSTRY HISTORY
On January 1, 1984, AT&T (then referred to as the "Bell System") divested
itself of the Bell Operating Companies (the "BOCs"), which were transferred to
seven holding companies (the Regional Bell Operating Companies). Following
this divestiture (the "Divestiture"), each BOC continued to conduct local
telephone and other telecommunications business in geographically defined
areas, referred to as "Local Access and Transport Areas" or "LATAs".
Prior to the Divestiture, the BOCs and "independent" local exchange
telephone companies not affiliated with the Bell System had government-
regulated monopolies for most local telephone services. The Divestiture
encouraged the growth of competition for long distance services and terminal
equipment by prohibiting the BOCs from entering these markets, but the BOCs
retained monopoly control over the market for local telephone services.
Competition in the long distance market accelerated dramatically and, by the
end of 1995, AT&T's long distance competitors had captured approximately 40%
of the interstate long distance market.
The Divestiture did not directly provide for competition in local markets.
After the Divestiture, however, a number of factors served to promote
competition in some local telecommunications market segments, including (i)
increasing customer desire for an alternative to the ILEC monopoly,
particularly among business customers, prompted in part by competition in the
long distance market, (ii) technological advances in the transmission of data
and video requiring greater capacity and reliability levels than copper-based
ILEC networks were able to accommodate, (iii) a monopoly position and rate of
return-based pricing structure which provided little incentive for the ILECs
to upgrade their networks or meet specialized customer needs, (iv) the
development of fiber optics and digital electronic technology, which combined
the ability to economically build a high-capacity digital network with the
ability to transmit voice, data and video signals at high speeds and (v) the
significant "access charges" that long distance carriers were required to pay
to the ILECs to originate and terminate long distance telephone calls on the
ILECs' networks.
The first competitors in the local market were designated as "competitive
access providers" or "CAPs" by the FCC because they provided special access
services (e.g., dedicated lines for local access links to long distance
networks). With the establishment of its New York City network in 1985, TCG
was the first CAP to offer a competitive service in a local market. Initially,
CAPs provided special access (dedicated access lines) by installing fiber
optic facilities connecting long distance carriers' "points of presence" (or
"POPs") within a metropolitan area and, in some cases, connecting end users
(primarily large businesses) to long distance carriers' POPs. CAPs also
provided private line services connecting multiple locations of a single end
user within a local market area with dedicated fiber optic lines. CAPs such as
TCG used the technological advantage and substantial capacity and economies of
scale inherent in fiber optic technology to offer customers service that
initially was generally less expensive and of higher quality than could be
obtained from the ILECs, due in part to the ILECs' more antiquated copper-
based facilities and higher overhead costs. In addition, CAPs generally
offered shorter installation and repair intervals and improved reliability in
comparison to the ILECs. In recent years, the ILECs steadily have been
increasing the amount of fiber used in their networks, thereby decreasing the
competitive advantage held by the CAPs in the special access and private line
markets.
As CAPs proliferated during the latter part of the 1980's, federal and some
state regulators issued rulings which permitted and sometimes encouraged local
competition and opened some local market segments to new entrants. These
rulings allowed CAPs to offer a number of new services, including, in certain
states, certain switched services (but not basic local exchange telephone
service). Beginning in 1994, a few states permitted CAPs to become
"competitive local exchange carriers" or "CLECs", and thus to begin providing
local exchange services, primarily to business customers. By the time the 1996
Act was adopted, approximately half the states had removed legal prohibitions
on the provision of competitive local exchange service. Legal and regulatory
restrictions in the remaining states will be significantly reduced by the 1996
Act.
While many companies have been organized over the last decade to provide CAP
or CLEC services, only a few have grown to significant size. These large CAPs
and CLECs operate in multiple local markets and have acquired a number of
smaller CAPs. Recently, new CAPs or CLECs have been created, primarily to
serve small markets.
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THE LOCAL TELECOMMUNICATIONS SERVICES MARKET
The national market for telecommunications services can be divided into two
basic segments: local services and long distance services. The Company
estimates, based on FCC data, that local telecommunications services accounted
for revenues of approximately $96 billion in 1995 and long distance services
generated revenues of approximately $70 billion. Revenues for both local and
long distance services include revenues received for local access charges
assessed by LECs to IXCs, which represent approximately 40% of long distance
revenues.
The various local telecommunications services are: (i) local services,
estimated to be approximately $55 billion, which generally include basic local
exchange services, (ii) dedicated services, estimated to be approximately $5
billion, which include private line and special access services, (iii) IXC
switched access services, estimated to be approximately $22 billion, which
consist of charges received by local exchange carriers from long distance
carriers and (iv) toll services, estimated to be approximately $13 billion,
which include intraLATA long distance calls. The Company estimates that the
local switched services market for business customers is approximately $55
billion, or approximately 62% of the aggregate of local services revenue, IXC
switched access services revenue and toll services revenue. The following
chart illustrates the estimated revenues derived in 1995 from each of these
service categories:
1995 ESTIMATED LOCAL TELECOMMUNICATIONS REVENUE(*)
(dollars in billions)
[GRAPH APPEARS HERE]
(*)Company estimates based on 1988-1994 FCC statistics.
CAPs initially entered the local telecommunications market by providing
dedicated services (special access or private line) only to customers directly
connected to the CAP network. A series of state public utility commission
decisions beginning in 1989 and FCC decisions beginning in 1991 requiring
expanded interconnection (or "colocation") permitted CAPs to interconnect
their networks with the largest ILECs' networks. This expanded interconnection
gave CAPs the option to access customers by either leasing facilities from an
ILEC through a colocation arrangement or installing extensions to the CAP's
own network, depending on the relative cost and other factors. The FCC
initiated an investigation of the ILECs' rates for colocation, which
investigation is still pending, and until that investigation has been
concluded there can be no assurances that expanded interconnection will have a
material effect on the Company's results of operations. If the FCC's
investigation concludes favorably to the Company, TCG anticipates that these
expanded interconnection opportunities will create new business and service
opportunities for the Company and enhance the continued expansion of its
networks and customer base. Conversely, the FCC has stated that colocation
customers might
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be required to make limited additional payments to certain ILECs in the event
the FCC finds their originally proposed colocation rates were appropriate. The
Company does not believe that there would be any significant potential
financial impact on the Company from such a requirement. Additionally, future
rates for colocation will be established pursuant to the interconnection
negotiations under the 1996 Act. See "Business--Government Regulation."
In addition to the FCC's actions and proposals, an increasing number of
states have encouraged competition in various aspects of the intrastate local
telecommunications market. The intrastate local market consists of intrastate
access services, basic local exchange services and local private line special
access services. While the majority of state initiatives were originally
limited to intrastate private line and special access services, many states
are in the process of changing their statutes or regulations to permit
competition for switched services, including basic local exchange telephone
services. Those states that have not made these changes will be required to do
so under the 1996 Act. Entry into the market for switched local
telecommunications services expands significantly the size of the market that
can be served by CLECs such as TCG. As the Company captures customers' local
exchange business, it will also increase its revenues from switched access
charges collected from IXCs to reach these end users.
The 1996 Act further increases the opportunities available to CLECs by
requiring the ILECs to offer various network elements such as switching,
transport and loops (i.e., the facilities connecting a customer's premises and
a LEC central office) on an unbundled basis. ILECs also are required to offer
their retail services at wholesale rates for resale by other companies. In
conjunction with the removal of certain legal barriers to facilities-based
competitive local services, these unbundling and resale requirements will
provide the Company with the technical capability to provide any local
telephone service to any customer, regardless of where the customer is located
relative to the Company's network. As with expanded interconnection, however,
the pricing of these unbundled network elements and services will determine
whether service can be provided by TCG to off-network customers at rates that
are both competitive and profitable. In addition, competitors other than TCG,
including the major IXCs, will be able to take advantage of the unbundling and
resale requirements imposed on the ILECs under the 1996 Act, thereby
facilitating entry of competitors that have not invested in local distribution
facilities. See "Risk Factors--Dependence Upon Interconnection with ILECs;
Substantial Competition."
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BUSINESS
THE COMPANY
Teleport Communications Group Inc., the first and largest competitive local
exchange carrier in the United States, offers a wide range of local
telecommunications services in major metropolitan markets nationwide. The
Company competes with incumbent local exchange carriers as "The Other Local
Phone Company"SM by providing high quality, integrated local
telecommunications services, primarily over fiber optic digital networks, to
meet the voice, data, and video transmission needs of its customers. TCG's
customers are principally telecommunications-intensive businesses, long
distance carriers and resellers, and wireless communications companies. TCG
offers these customers technologically advanced local telecommunications
services, as well as superior customer service, flexible pricing and vendor
and route diversity.
For over 10 years, TCG has developed, operated and expanded its local
telecommunications networks. The Company currently operates high capacity
state-of-the-art digital networks in 48 metropolitan markets, including 17 of
the 20 largest metropolitan areas. The Company operates networks in
metropolitan New York/New Jersey, Los Angeles, Chicago, San Francisco, Boston,
Detroit, Baltimore/Washington, D.C., Dallas, Houston, Miami/Ft. Lauderdale,
Seattle, San Diego, St. Louis, Pittsburgh, Phoenix, Denver, Milwaukee,
Indianapolis, Hartford and Omaha, and is developing networks in Cleveland,
Portland (Oregon), Salt Lake City, Nashville, Chattanooga, Knoxville and
Birmingham. As of March 31, 1996, the Company's networks spanned over 5,500
route miles, contained over 257,000 fiber miles and served approximately 5,300
buildings.
TCG has grown rapidly over the last several years, expanding its existing
networks, developing new networks and increasing its service offerings. On a
pro forma basis, after giving effect to the Reorganization, the Company's
revenues were approximately $184.9 million for 1995, substantially all of
which were derived from the provision of local telecommunications services.
Total revenues from the local telecommunications market in the United States
were estimated to have been approximately $96 billion in 1995. In the past,
competitive access providers, including the Company, were limited to serving
only the dedicated services portion of this market, which was estimated to
have been approximately $5 billion in 1995, whereas the local switched
services portion of this market for business customers was estimated to have
been approximately $55 billion. The Company has expanded into the switched
services market in a number of states over the last five years by constructing
switched networks and obtaining the necessary regulatory authorizations and
interconnection arrangements. With the passage of the 1996 Act, the Company
believes that it is well positioned to address a significantly larger portion
of the local telecommunications market and to improve its operating margins in
the switched and dedicated services markets by expanding its networks,
installing additional high capacity digital switches and offering new products
and services.
TCG has benefited substantially from its relationships with the Cable
Stockholders, which are among the largest media and cable television companies
in the United States. Through such relationships, the Company has been able to
utilize rights-of-way, obtain fiber optic facilities and share the cost of
building new fiber optic networks, thereby allowing the Company to achieve
significant economies of scale and scope through capital efficiencies in
extending its existing networks in a rapid, efficient and cost-effective
manner. As of March 31 1996, after giving pro forma effect to the
Reorganization, the Cable Stockholders had invested approximately $770 million
in the Company. See "The Reorganization."
The Company believes that it has several advantages that enable it to
compete successfully in the new competitive local telecommunications
marketplace, including (i) extensive, technologically advanced networks
located in major metropolitan markets nationwide, (ii) strategic relationships
with cable television operators, (iii) state-of-the-art information systems
and (iv) an experienced management team with significant operational,
technical, financial and regulatory expertise in the local telecommunications
industry.
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BUSINESS STRATEGY
As a premier competitive local telecommunications carrier, the key elements
of the Company's business strategy are to:
. PROVIDE A WIDE RANGE OF LOCAL TELECOMMUNICATIONS SERVICES. The Company
provides a broad array of local telecommunications services to meet the
voice, data and video transmission needs of its customers, including basic
local exchange telephone services, enhanced switched services, dedicated
services, high speed switched data services and video channel transmission
services. In 1995, approximately 36% of the Company's revenues were
generated from switched services. The Company expects a growing portion of
its revenues to be derived from basic local exchange telephone services,
enhanced switched services and high speed switched data services as it
deploys digital switches in all of its markets. As of March 31, 1996, the
Company had 21 digital telephone switches and 27 ATM switches in operation.
On a pro forma basis, after giving effect to the Reorganization, the
Company's revenues from switched services, which include local dial tone
and local calling, grew by approximately 59% to $63.9 million in 1995 from
$40.2 million in 1994.
. FOCUS ON BUSINESS CUSTOMERS AND TELECOMMUNICATIONS CARRIERS. The Company's
networks serve large metropolitan markets, which have significant
concentrations of telecommunications-intensive businesses. The Company's
customers in these markets include financial services firms, media and
health care companies, long distance carriers and resellers, Internet
service providers, wireless communications companies and an increasing
number of small and medium-sized business customers. The national scope of
the Company's local networks allows it to offer high volume business
customers and long distance carriers uniformity of services, pricing,
quality standards and customer service. In addition, the Company has
arrangements with other telecommunications providers, including shared
tenant services providers, cable television companies and long distance
carriers, to resell TCG's services. Currently, certain major long distance
carriers are conducting trials of the resale of TCG's local exchange
services under such long distance carriers' brand names. In 1995,
approximately 62% of the Company's 1995 revenues were generated from
business customers and approximately 38% were generated from long distance
carrier customers.
. EXPAND GEOGRAPHIC REACH AND DENSITY OF EXISTING NETWORKS AND ENTER NEW
MARKETS. The Company plans to increase the geographic reach and density of
its existing networks by deploying additional fiber optic rings and
connecting additional customers to its networks. The Company anticipates
that making significant capital expenditures over the next several years to
expand its existing networks and to develop new networks will lead to
significant increases in revenue opportunities. As a facilities-based
carrier, the Company utilizes a variety of means to expand geographically,
including rights-of-way, easements, poles, ducts and conduits that are
available from cable television operators, incumbent local exchange
carriers, railways and subways, electric, gas and water utilities and
municipal, state and federal street and highway authorities. In the course
of expanding its networks, the Company also has the ability to reach TCG
customers by reselling a portion of the facilities of incumbent local
exchange carriers. However, the Company believes that the extensive
geographic reach and density of its networks make it less reliant than
other competitive local exchange carriers on the networks of the incumbent
local exchange carriers. In addition, where appropriate, the Company has
the ability to link customers to its network through the use of microwave,
including 38 GHz milliwave, services. The Company plans to expand into
additional metropolitan markets, which the Company believes will further
broaden its customer base and enhance its ability to attract national
business accounts for its services.
. BENEFIT SUBSTANTIALLY FROM RELATIONSHIPS WITH CABLE TELEVISION
OPERATORS. As of December 31, 1995, the Cable Stockholders collectively
passed approximately 47% of the country's 94 million homes passed by cable
television facilities. Through its relationships with cable television
operators, the Company has been
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able to utilize existing rights-of-way, obtain fiber optic facilities and
share the cost of building new fiber optic networks, thereby allowing the
Company to achieve significant economies of scale and scope through capital
efficiencies in extending its existing networks in a rapid, efficient and
cost-effective manner. The Company is currently engaged in technical trials
with certain cable television operators, including Cable Stockholders, for
the provision of residential telephony services over the cable television
operators' hybrid fiber-coaxial networks with TCG providing switching, call
processing, calling features and ancillary services. The Company believes
such trials will evolve into commercial offerings by cable companies and
that TCG may become a provider of switching, call processing and other
services to such cable companies.
. OFFER HIGH QUALITY NETWORKS AND SUPERIOR CUSTOMER SERVICE. TCG believes
that it offers cost and service quality advantages over the incumbent local
exchange carriers as a result of its integrated operations, customer
support, network monitoring and management systems and the state-of-the-art
technology deployed in the Company's digital networks. TCG consults closely
with its customers to develop competitively priced telecommunications
services that are tailored to their particular needs. The Company's
centrally managed customer support operations are also designed to
facilitate the processing of orders for changes and upgrades in services.
TCG believes that it provides greater attention and responsiveness to its
customers than do the incumbent local exchange carriers.
. SPEARHEAD REGULATORY REFORM. As the first and largest competitive local
exchange carrier, TCG has been at the forefront of industry efforts for
over a decade to introduce competition to the local telecommunications
market. The Company has aggressively pursued the goal of making competitive
local exchange services economically, technically and operationally
feasible by working for legislative and regulatory reform and through
negotiations with incumbent local exchange carriers. The Company will
continue its regulatory reform activities in an effort to ensure that the
1996 Act is implemented and interpreted in a manner that promotes fair
competition for local exchange services.
. CAPITALIZE ON MANAGEMENT TEAM EXPERIENCE. TCG's management team is
comprised of executives who are recognized as leaders in the development of
the competitive local telecommunications industry. This management team has
extensive operational, technical, financial and regulatory expertise as
well as a proven track record in a rapidly changing marketplace.
THE COMPANY'S SERVICES
The Company provides its customers with a wide array of local
telecommunications services, including basic local exchange telephone
services, enhanced switched services, dedicated services, high-speed switched
data services and video channel transmission services. Switched voice services
offered by the Company use primarily high-capacity digital switches to route
voice transmissions anywhere on the public switched telephone network. TCG's
dedicated services, which include private line and special access services,
use high-capacity digital circuits to carry voice, data and video
transmissions from point-to-point in multiple configurations. The Company
provides its media industry customers with point-to-point, broadcast-quality
video channels for video transmissions between two or more locations,
including video link services to all the major television networks as well as
to other programmers. The Company also provides private network management and
systems integration services for businesses that require combinations of
various dedicated and switched telecommunications services.
Switched Services
The Company's switched services provide customers with local dial tone and
local calling capabilities and connections to their interexchange carriers.
The Company's switched services include the following:
TCG Centrex(R) service gives voice and data customers a choice for analog,
digital voice-only and ISDN telephone lines to customers' desktops. With
TCG Centrex(R), TCG owns, houses, manages and maintains the switch. TCG
Centrex(R) allows customers to retain control over network configurations.
Lines can be added, deleted and moved as needed. Business customers can
utilize TCG as their primary Centrex provider, as a supplement to the
ILEC's Centrex service, or as an addition to a fully-utilized PBX.
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TeleXpress(R) service is utilized by PBX users to provide access to the
local, regional and long distance telephone networks. PBX customers may use
either the Company's telephone numbers or their ILEC-assigned telephone
numbers. Customer access to the Company's local exchange services is
accomplished by a DS-1 digital connection or analog trunks between the
customer's PBX port and the Company's switching centers.
Extended Area Service (EAS) provides customers with a competitive
alternative to ILEC service for intraLATA toll calls. It is a customized,
high-quality local calling plan available to TCG Centrex(R) and
TeleXpress(R) customers and PBX users. TCG works with customers to devise
cost-saving EAS programs based on actual usage and calling patterns.
Local Telephone Service is basic local exchange service which can be
tailored to a customer's particular calling requirements. Local telephone
service includes operator and directory assistance services, as well as an
optional intraLATA toll plan.
TCG Pay Phone Services provides full public pay telephone service to public
customers and dial tone services and access lines to other public pay
telephone providers. TCG is the primary provider of public pay phone
service for all properties of The Port Authority of New York and New
Jersey, including Kennedy, La Guardia and Newark airports.
Switched Access Services provide interexchange carriers with a switched
connection to their customers for the origination and termination of long
distance telephone calls.
Integrated Services Digital Network (ISDN) Services provide TCG's customers
with multiple voice and data communication services over a single
telecommunications line. The Company's ISDN services allow customers to
perform multiple functions such as simultaneous voice and computer links,
and enable the Company to offer customers value-added features. High speed
ISDN applications include desk top video conferencing, LAN-to-LAN
connection and Internet access.
Dedicated Services
The Company's dedicated services, which include special access and digital
private line services, use high-capacity digital circuits to carry voice, data
and video transmissions from point-to-point in flexible configurations
involving different standardized transmission speeds and circuit capacities,
including:
DS-O A dedicated service that accommodates business communications with
digital data transmission through a voice grade equivalent circuit with a
capacity of up to 64 kbps. This service offers a private line digital
channel for connecting telephones, fax machines, personal computers and
other telecommunications equipment. Multiple DS-O services are offered in a
variety of combinations, depending on the particular application and can
also provide voice grade analog connections.
DS-1 A high speed digital channel that typically links customer locations
to long distance carriers or other customer locations. Used for multiple
voice or data transmissions, access to the Internet and interconnection of
LANs, DS-1 services accommodate digital data transmission capacity of up to
1.544 mbps, the equivalent of 24 voice grade circuits.
European-Standard DS-1(E-1) The Company was the first U.S.-based local
carrier to offer this dedicated high capacity service, which allows
customers to accommodate their international traffic with a digital data
transmission capacity of up to 2.048 mbps, which is equivalent to 30 voice
grade equivalent circuits. This dedicated service offers international
business customers the flexibility to connect their United States locations
to international circuits that operate at the high capacity European
standard transmission speed.
DS-3 With digital data transmission capacity of up to 44.736 mbps, this
dedicated service provides a very high capacity digital channel, which is
equivalent to 28 DS-1 circuits or 672 voice grade equivalent circuits.
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This is a digital service used by long distance carriers for central office
connections and by some large corporate users to link multiple sites. It is
also used for data services applications.
TCG OmniLink A standard Optical Carrier (OC) service for those customers
requiring enhanced network survivability, advanced network architectures
and centralized network monitoring and management capabilities. With TCG
OmniLink, customers enjoy the benefit of dedicated private local OC3 or
OC12 SONET rings between various customer-designated sites and the
Company's nodes.
Data Services
The Company offers its customers a broad array of data services that enable
customers to create their own internal computer networks and access external
computer networks and the Internet. In 1992, TCG introduced its LANLINK native
speed LAN inter-networking data service which is used to connect workstations
and personal computer users on one or more LANs. LANLINK provides users with
transmission capacity for 10 mbps Ethernet, 4 and 16 mbps Token Ring and 100
mbps FDDI LAN interconnections. Native speed services avoid the bottleneck
problems that are frequently encountered with customary DS-1 connections by
providing the customer with a circuit that matches the transmission speeds of
its LAN. LANLINK provides dedicated circuits, guaranteed transmission capacity
and guaranteed bandwidth for virtually all LAN applications. Users can share
files and databases as if they were all working on the same computer, or
within the same LAN.
As companies and communications become more sophisticated, there is an
increased need for customer access to superior traffic management of sensitive
data, video and voice transmission within a single metropolitan area, or
between various company operations. The Company's switched data services offer
sophisticated switching technology over the Company's SONET/ATM backbone and
provide high standards in reliability and flexibility while enabling users to
reduce the costs associated with interconnecting various geographically
dispersed and architecturally diverse information systems. The Company's ATM
platform supports evolving high-speed applications, such as multimedia,
desktop video conferencing and medical imaging. TCG offers native connections
to both end users as well as interexchange data carriers. Customer connections
are provided for "early adopters" who interface directly with ATM connections,
as well as Ethernet, Token Ring, FDDI and Frame Relay architectures.
Additionally, the Company's services allow users to interconnect both high
speed and low speed LAN environments. Customers also benefit from flexible
billing, as well as detailed usage reports.
Video Services
TCG provides analog video link services to its media industry customers,
including all of the major television networks as well as to many cable
services and independent programmers. The Company's video services include
offering a broadcast quality, analog channel which can be provided on a point-
to-point or point-to-multipoint basis.
CUSTOMERS AND MARKETING
The Company's customers are principally telecommunications-intensive
businesses, long distance carriers and resellers, and wireless communications
companies. In 1985, the Company's customers were primarily long distance
carriers. While the Company's carrier business has continued to grow, in 1995
end user customers accounted for approximately 62% of the Company's revenues.
During 1995, the Company's top 10 customers accounted for approximately 57% of
TCG's total pro forma revenues. AT&T and Sprint each accounted for more than
10% of such revenues, and no customer accounted for 15% or more of such
revenues. See "Risk Factors--Dependence on Significant Customers."
Marketing itself as "The Other Local Phone Company,"SM the Company has
sought to establish "TCG(R)" as a recognized brand name for its services and
products. The Company's marketing emphasizes its state-of-the-art digital
networks, flexibly priced products and services, responsive customer service
orientation and integrated operations, customer support and network monitoring
and management systems. For large telecommunications-intensive businesses that
depend on accurate and reliable telecommunications, the Company promotes the
operational and strategic security achieved through vendor diversity. The
Company's centrally managed
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customer support operations are designed to facilitate the processing of
orders for changes and upgrades in TCG customer services. The Company seeks to
be among the first to introduce new telecommunications products and service,
thereby increasing usage among existing TCG customers and attracting new
customers to the Company's networks.
The Company generally offers its services in accordance with applicable
tariffs filed with the FCC (for interstate services) and the state public
utility commissions (for intrastate services). As a non-dominant carrier, TCG
does not have to cost-justify its rates and frequently enters into customer
and service specific arrangements. The services offered by TCG are typically
priced at a modest discount to the prices of the ILECs.
With a direct sales force in each of its markets, TCG targets the large
telecommunications-intensive businesses concentrated in the major metropolitan
markets served by its networks. The Company's customers in these markets
include financial services firms, media and health care companies, education
and governmental institutions and an increasing number of small and medium-
sized business customers. In addition, TCG markets its services through sales
agents, landlords, advertisements, trade journals, media relations, direct
mail and participation in trade conferences.
TCG also targets long distance carriers and resellers, Internet service
providers, wireless telephone companies through its national sales
organization. The Company has master services agreements with a significant
number of the long distance carriers, including eight of the largest. AT&T
considers TCG a preferred national supplier of dedicated and switched access
services. By providing long distance companies a local connection to their
customers, the Company enables them to avoid complete dependence on the ILECs
for access and to obtain a high quality, reliable local connection at a
savings over the ILECs' charges. The national scope of the Company's local
networks allows it to offer high volume business customers and long distance
carriers uniformity of services, pricing, quality standards and customer
service. In addition, the Company has arrangements with other
telecommunications providers, including shared tenant services providers,
cable television companies and long distance carriers, to resell TCG's
services. TCG is currently engaged in technical trials pursuant to which
certain long distance carriers are reselling TCG local exchange service and
intraLATA toll service bundled with their long distance service. These trials
began in the second half of 1995, and as of March 31, 1996, served a limited
number of end-user customers. Because of the limited scope and preliminary
nature of these trials, the Company is unable to determine at this time
whether these services will be expanded. The Company believes that it has been
and will continue to be one of the largest providers of competitive local
access services for long distance carriers.
THE NETWORKS
The Company uses the latest technologies and network architectures to
develop a highly reliable infrastructure for delivering high-speed, quality
digital transmissions of voice, data and video telecommunications. The basic
transmission platform consists primarily of optical fiber equipped with high
capacity SONET equipment deployed in self-healing rings. These SONET rings
give TCG the capability of routing customer traffic simultaneously in both
directions around the ring thereby eliminating loss of service in the event of
a cable cut. The Company extends SONET rings or point to point links from
rings to each customer's premises over its own fiber optic cable, unbundled
facilities obtained from ILECs, microwave (including 38 GHz milliwave)
transmission facilities and other technologies. TCG also installs diverse
building entry points where a customer's security needs require such
redundancy. TCG then places necessary customer-dedicated or shared electronic
equipment at a location near or in the customer's premises to terminate the
link.
TCG serves its customers from one or more nodes or hubs strategically
positioned throughout its networks. The node houses the transmission and
switching equipment needed to interconnect customers with each other, the
interexchange carriers and other local exchange networks. Redundant
electronics, with automatic switching to the backup equipment in the event of
failure, protects against signal deterioration or outages. Continuous
monitoring of system components focuses on proactively avoiding problems
rather than just reacting upon failure.
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TCG adds switched, dedicated and data services to its basic fiber optic
transmission platform by installing sophisticated digital electronics at its
network nodes and at customer locations. TCG's advanced ISDN capable digital
telephone switches are connected to multiple ILEC and long distance carrier
switches to provide TCG's customers access to every telephone in the local
market as well as across the country and around the world. Similarly, TCG
provides ATM switched and LAN multiplexers at the customer's premises and in
its nodes to provide high speed LAN interconnection services.
The Company's strategy for adding customers is designed to maximize the
speed and impact of its marketing efforts while maintaining attractive rates
of return on capital invested to connect customers directly to its networks.
To initially serve a new customer, for example, TCG may use various
transitional links, such as reselling a portion of the ILEC's network and,
where appropriate, using alternative transmission services such as microwave,
including 38 GHz milliwave, transmission. Once the new customer's
communications volume and product needs are identified, the Company may build
its own fiber optic connection between the customer's premises and its network
to accommodate (i) the customer's needs and (ii) the Company's efforts to
maximize return on network investment.
In February 1996, the Company acquired a minority investment in BizTel
Communications, Inc., which, through a wholly owned subsidiary, BizTel, Inc.
("BizTel"), holds FCC licenses to provide telecommunications services
utilizing 38 GHz digital milliwave transmission in 156 geographic areas, which
have a population of approximately 175 million people, and including more than
80 of the largest 100 metropolitan markets and all markets where TCG operates.
BizTel also has 102 licenses pending FCC approval in geographic areas which
have a population of an additional 44 million people. The 38 GHz milliwave
facilities can be used by TCG to economically connect customers to the
Company's networks, to provide network redundancy, diverse routing or quick
temporary installations and to provide stand-alone facilities where the
Company does not have networks. In connection with such acquisition, TCG
entered into two agreements with BizTel regarding the use, construction and
maintenance of certain transmission facilities operated by BizTel. These
agreements are not material to the Company's business or operations taken as a
whole.
In determining which new markets to enter, the Company carefully analyzes
the potential customer base and competitive conditions within the market. The
Company is planning on building new facilities, entering into fiber leases and
other arrangements with cable television companies and other carriers,
acquiring existing telecommunications providers and exploiting new
technologies that have the potential to enhance network expansion (such as the
use of microwave radio facilities). The Company also seeks to utilize
relationships with the Cable Stockholders or other cable television operators
who have an existing presence in the market and with which the Company may be
able to develop a fiber optic network rapidly and efficiently. As a
facilities-based carrier, the Company utilizes a variety of means to expand
geographically, including rights-of-way, easements, poles, ducts and conduits
that are available from cable television operators, incumbent local exchange
carriers, railways and subways, electric, gas and water utilities and
municipal, state and federal street and highway authorities. TCG plans to
continue making selected acquisitions of existing local telecommunications
networks in markets in which it has existing local telecommunications
operations or which are geographically proximate to such markets, as well as
in markets that are otherwise attractive to TCG. See "Risk Factors--
Governmental and Other Authorizations."
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The following chart sets forth information regarding each of the Company's
active or currently planned local telecommunications networks as of March
31, 1996:
<TABLE>
<CAPTION>
DATE OF SERVICES
METROPOLITAN FIRST -----------------------
AREA METROPOLITAN MARKET(a) REVENUE DEDICATED SWITCHED DATA
------------ ---------------------- ----------- --------- -------- ----
<C> <S> <C> <C> <C> <C> <C>
New York/New Jersey.......... Bergen-Passaic Nassau-Suffolk 7/85 X X X
Jersey City New York
Middlesex-Somerset- Newark
Hunterdon Trenton
Boston....................... Boston Lawrence 5/89 X X X
Brockton Worcester
San Francisco(b)............. Oakland 4/90 X X X
San Francisco
San Jose
Chicago...................... Chicago 5/90 X X X
Gary
Los Angeles.................. Los Angeles-Long Beach 10/90 X X X
Orange County
Houston...................... Houston 5/91 X X X
Dallas....................... Dallas 6/91 X X X
Fort Worth-Arlington
Omaha........................ Omaha 1/93 X X
Seattle(b)................... Bellingham 1/93 X X
Seattle-Bellevue-Everett
Tacoma
San Diego.................... San Diego 2/93 X X X
Milwaukee.................... Kenosha 8/93 X X
Milwaukee-Waukesha
Racine
Detroit(b)................... Detroit 11/93 X X
Miami/Ft. Lauderdale......... Fort Lauderdale 12/93 X X
Miami
W. Palm Beach-Boca Raton
Phoenix...................... Phoenix-Mesa 3/94 X X
Hartford..................... Bridgeport New London-Norwich 3/94 X X X
Danbury New Haven-Meriden
Hartford Waterbury
St. Louis.................... St. Louis 3/94 X X
Indianapolis................. Indianapolis 10/94 X
Baltimore/Washington, D.C. .. Baltimore 10/94 X X
Washington, D.C.
Pittsburgh................... Pittsburgh 1/95 X X X
Denver....................... Boulder-Longmont 8/95 X X
Denver
Providence................... Providence-Fall River-Warwick 9/95 X
Cleveland.................... Cleveland-Lorain-Elyria in progress
Portland (Oregon)............ Portland-Vancouver in progress
Salt Lake City............... Salt Lake City-Ogden in progress
Birmingham................... Birmingham in progress
Chattanooga.................. Chattanooga in progress
Knoxville.................... Knoxville in progress
Nashville.................... Nashville in progress
</TABLE>
--------
(a) Consists of primary metropolitan statistical areas, metropolitan
statistical areas and New England consolidated metropolitan areas, as
defined by the U.S. Census Bureau.
(b) Local Market Partnerships with minority partners that are not affiliated
with either the Company or the Cable Stockholders.
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<PAGE>
Information Systems Infrastructure
TCG uses state-of-the-art technology in its information systems
infrastructure. TCG also uses an integrated, nationwide client server platform
and coherent relational databases to increase employee productivity, link
itself electronically to its customers and develop real time data and
information. The architecture also enables TCG to rapidly and continually re-
engineer its processes and procedures to lower its costs and to respond
rapidly to changing industry conditions. The Company's information systems
deliver the necessary data at the network, regional or corporate level, and
also by customer and vendor. The Company's information systems enable the
delivery of superior customer service, real time support of network
operations, and on-line financial reporting. Using the latest open system
standards and architecture, TCG is positioned to either purchase or develop
its own information support systems as the situation demands.
Network Monitoring and Management
All elements of TCG's digital networks are integrated onto a single platform
and monitored on an end-to-end basis by TCG's Network Management Center
("NMC"). The NMC monitors and manages all of TCG's networks seven days a week,
24 hours a day and provides real-time alarm, status and performance
information for each circuit and piece of equipment in TCG's networks around
the country. The NMC also affords improved disaster recovery to customers
through remote circuit provisioning and cross-connect features.
Advanced Technology Integration Center
The Company's Advanced Technology Integration Center is a comprehensive
telecommunications technology, applications and services development
laboratory, equipped with state-of-the-art systems and equipment, including
those used by TCG in the operation of its local digital networks. The center
is designed to provide a self-contained testing and integration environment,
fully compatible with the Company's digital networks, for the purposes of (i)
verifying the technical and operational integrity of new equipment prior to
installation in the networks, (ii) developing new services and applications,
(iii) providing a realistic training environment for technicians, engineers
and others and (iv) providing a network simulation environment to assist in
fault isolation and recovery.
COMPETITION
The Company faces substantial competition in each of the metropolitan areas
it serves or plans to serve from entities that offer services similar to those
offered by TCG, including ILECs such as Ameritech, Bell Atlantic, BellSouth,
NYNEX, Pacific Telesis Group, SBC Communications, U S WEST, Inc. and GTE. The
Company believes that ILECs generally benefit from their long-standing
relationships with customers, substantial technical and financial resources
and federal and state regulations that could provide them with increased
pricing flexibility as competition increases. In addition, in most of the
metropolitan areas in which the Company currently operates, at least one, and
sometimes several, other CAPs or CLECs offer substantially similar services at
substantially similar prices to those of the Company. Other CLECs, CAPs, cable
television companies, electric utilities, long distance carriers, microwave
carriers, wireless telephone system operators and private networks built by
large end users may offer services similar to those offered by the Company.
The Company believes that the 1996 Act will provide increased business
opportunities by opening all local markets to competition and requiring ILECs
to provide increased direct interconnection. However, under the 1996 Act, the
FCC and some state regulatory authorities may provide ILECs with increased
flexibility to reprice their services as competition develops and as ILECs
allow competitors to interconnect to their networks. In addition, some new
entrants in the local market may have the ability to price their services
below the prices charged by the Company. If the ILECs and other competitors
lower their rates and can sustain significantly lower prices over time, this
may adversely affect revenues of TCG if it is required by market pressure to
price at or below the ILECs' prices. If regulatory decisions permit the ILECs
to charge CAPs/CLECs substantial fees for interconnection to the ILECs'
networks or afford ILECs other regulatory relief, such decisions could also
have a
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<PAGE>
material adverse effect on the Company. However, the Company believes that the
negative effects of the 1996 Act may be more than offset by (i) the increased
revenues available as a result of being able to address the entire local
exchange market, (ii) mutual reciprocal compensation with the ILEC that
results in TCG terminating its local exchange traffic on the ILEC's network at
little or no net cost to TCG, (iii) obtaining access to off-network customers
through more reasonably priced expanded interconnection with ILEC networks and
(iv) a shift by IXCs to purchase access services from CAPs/CLECs instead of
ILECs. There can be no assurance, however, that these anticipated results will
offset completely the effects of increased competition as a result of the 1996
Act.
In addition, historically, the Company has been able to build new networks
and expand existing networks in a more timely and economical manner than most
CAP or CLEC competitors through strategic arrangements such as leasing fiber
optic cable from cable operators that already possess rights-of-way and have
facilities in place. The Company intends to use its experience and presence in
the telecommunications industry to further develop and expand its existing
telecommunications infrastructure.
GOVERNMENT REGULATION
Nationally, the recent trend has been for federal and state legislators and
regulators to permit and promote additional competition in the local
telecommunications industry, which the Company believes should contribute to
an increase in the market opportunities for TCG. Because these developments
require numerous implementation actions by individual federal and state
regulatory commissions, and are subject to particular legal, political and
economic conditions, it is not possible to predict the pace at which such
liberalization will occur.
Telecommunications Act of 1996
On February 8, 1996, President Clinton signed the Telecommunications Act of
1996, the most comprehensive reform of the nation's telecommunications laws
since the Communications Act of 1934 (the "Communications Act"). The Company
believes that the 1996 Act will result in substantial changes in the
marketplace that should be largely favorable for TCG.
The 1996 Act prohibits state and local governments from enforcing any law,
rule or legal requirement that prohibits or has the effect of prohibiting any
person from providing any interstate or intrastate telecommunications service.
This provision of the 1996 Act should enable TCG to provide a full range of
local telecommunications services in any state. States retain jurisdiction
under the 1996 Act to adopt regulations necessary to preserve universal
service, protect public safety and welfare, ensure the continued quality of
telecommunications services and safeguard the rights of consumers. States are
also responsible for mediating and arbitrating CLEC-ILEC interconnection
arrangements if voluntary agreements are not reached. Therefore, the degree of
state regulation of local telecommunications services may be substantial.
The 1996 Act imposes a number of access and interconnection requirements on
all local exchange providers, including CLECs, with additional requirements
imposed on ILECs. The 1996 Act requires CLECs and ILECs to first attempt to
resolve interconnection issues through negotiation for at least 135 days.
During these negotiations, the parties may submit disputes to state regulators
for mediation and, after the negotiation period has expired, the parties may
submit outstanding disputes to state regulators for arbitration. On February
8, 1996, TCG requested that the BOCs commence negotiations with respect to
interconnection negotiations. If the negotiations fail, TCG may request state
regulators to arbitrate between June 22, 1996 and July 17, 1996.
The 1996 Act provides a detailed list of items which are subject to these
interconnection negotiations, as well as a detailed set of duties for all
affected carriers. All local exchange carriers, including CLECs, have a duty
to (i) not unreasonably limit the resale of their services, (ii) provide
number portability if technically feasible, (iii) provide dialing parity to
competing providers, (iv) provide access to poles, ducts and conduits and (v)
establish reciprocal compensation arrangements for the transport and
termination of telecommunications. In addition to those general duties of all
LECs, ILECs have additional duties to (i) interconnect at any technically
feasible point and provide service equal in quality to that provided to their
customers or the ILEC itself, (ii) provide unbundled access to network
elements at any technically feasible point, (iii) offer retail services at
54
<PAGE>
wholesale prices for the use of competitors, (iv) provide reasonable public
notice of changes in the network or the information necessary to use the
network and (v) provide for physical colocation. The 1996 Act further imposes
various pricing guidelines for the provision of certain of these services. The
ILECs have a statutory duty to negotiate in good faith regarding these
arrangements, and the RBOCs, in particular, must successfully achieve
agreements, leading to the development of facilities based competition for
business and residential users, in order to enter the long distance markets
within their regions. To the extent that the Company cannot reach a successful
negotiated conclusion to these issues, it will be forced to engage in
arbitration before the state public utility commissions which, with respect to
the RBOCs, under the 1996 Act must be completed no later than November 8,
1996. However, because negotiated agreements are also subject to state public
utility commission approval, which must be completed within 90 days, the
likely effective date of negotiated agreements and arbitrated agreements will
be similar. The Company does not have sufficient information to predict the
likely results of such arbitrations, whether such arbitrations are likely to
provide superior agreements for the Company compared to those achievable
through negotiation, or what effect these arbitrated agreements might have on
the Company's business prospects. Moreover, the Company has previously
experienced numerous disputes with ILECs regarding interconnection issues, but
expects that the influence of the 1996 Act will be to reduce the degree of
such disputes. Finally, because the Company is presently operating in
virtually all of the states in which it holds CLEC authority pursuant to
interim interconnection arrangements or interim state public utility
commission interconnection rules and policies, which will be replaced in the
future by the agreements negotiated pursuant to the 1996 Act, the Company can
continue to operate as a CLEC during the pendency of these negotiations and
arbitrations.
As noted above, the Company, in those states in which it is a CLEC, is
subject to five obligations under the 1996 Act. Specifically, the Company must
(i) not unreasonably limit the resale of its services, (ii) provide number
portability if technically feasible, (iii) provide dialing parity to competing
providers, (iv) provide access to poles, ducts and conduits and (v) establish
reciprocal compensation arrangements for the transport and termination of
telecommunications. In those states in which it is a CLEC, the Company already
largely complies with these requirements. The Company does not restrict sale
of its services, engages in reciprocal compensation arrangements, and provides
dialing parity. The Company generally leases poles, ducts and conduits, and
therefore owns few such rights of way subject to the requirement to make them
available to other carriers. Finally, the Company believes that its switches
can be upgraded to provide interim number portability.
The 1996 Act establishes procedures under which a BOC can provide interLATA
services within its telephone service area if it enters into a state-approved
interconnection agreement with one or more companies which provide local
exchange service to business and residential customers predominantly over such
companies' own facilities. The ability of the BOCs to provide interLATA
services will enable them to provide customers with a full range of local and
long distance telecommunications services. The provision of interLATA services
by BOCs may reduce the market share of the major long distance carriers, which
are among the Company's largest customers, but the Company believes it will
also encourage IXCs to use the Company's and other CLECs' services instead of
BOC services wherever possible. When BOCs provide long distance service
outside their telephone service area they will be potential customers for TCG
and other CAPs and CLECs.
The 1996 Act requires the FCC to establish an explicit mechanism for
subsidizing service to rural areas, low-income customers, schools and
libraries. Although the details will be determined by the FCC, all carriers
will be required to contribute, and carriers that serve eligible customers
will be able to receive subsidies. This subsidy mechanism may provide an
additional source of revenue to those ILECs and CLECs willing and able to
provide service to markets that traditionally have been considered less
desirable, either because of the high cost of providing service or the limited
revenues that might be available.
The 1996 Act contains other provisions that may be subject to FCC rulemaking
and judicial interpretation, including provisions that limit the ability of a
cable television operator and its affiliates to acquire more than a 10%
financial interest or any management interest in a LEC which provides local
exchange service in such cable operator's franchise area. The Company believes
that the 1996 Act does not limit the acquisition of any of the interests
contemplated to be acquired in the Reorganization; however, there can be no
assurance that the FCC or a court would not reach a different determination as
to the acquisition of one or more of such interests.
55
<PAGE>
Federal Regulation
Through a series of regulatory proceedings, the FCC has established
different levels of regulation for "dominant carriers" and "nondominant
carriers." For domestic interstate telecommunications purposes, only the ILECs
are classified as dominant carriers, and all other carriers are classified as
nondominant carriers. As a nondominant carrier, the Company is required to
file tariffs and periodic reports with the FCC concerning the Company's
interstate circuits and deployment of network facilities. The FCC has proposed
eliminating this reporting requirement for interexchange carriers, and another
CAP has filed a petition with the FCC asking that it permit CAPs to dispense
with filing of FCC tariffs, at the option of the carrier. The FCC has not as
yet taken any substantive action on the petition, and the Company has no
information as to when the FCC is likely to act, and whether, even if the
petition is granted, such "permissive detariffing" will be extended to embrace
CLECs as well as CAPs. If the petition is granted and does extend to the
Company's interstate services and CLEC operations, it will improve the
Company's ability to adjust interstate prices and will reduce its interstate
regulatory compliance costs. The petition does not, however, impact the
Company's state public utility commission tariff requirements. Whether or not
it is subject to a tariff filing requirement, TCG must offer its interstate
services on a nondiscriminatory basis, at just and reasonable rates and is
subject to the complaint provisions of the Communications Act. For its current
offering of interstate services as a nondominant carrier, TCG is not subject
to rate of return or price cap regulation by the FCC and may install and
operate digital facilities for the transmission of interstate communications
without prior FCC authorization. Under the 1996 Act, TCG may become subject to
additional federal regulatory obligations when it provides local exchange
service in a market, such as the access and interconnection requirements that
are imposed on all local exchange providers. See "--Telecommunications Act of
1996."
State Regulation
Most state public utility commissions require carriers that wish to provide
local and other jurisdictionally intrastate common carrier services to be
authorized to provide such services. The Company's operating subsidiaries and
affiliates are authorized as common carriers in California, Colorado,
Connecticut, Florida, Illinois, Indiana, Maryland, Massachusetts, Michigan,
Missouri, Nebraska, New Jersey, New York, Ohio, Pennsylvania, Rhode Island,
Texas, Washington and Wisconsin. The authority held by the Company's
subsidiaries and affiliates varies in the scope of the intrastate services
permitted, ranging from certifications in, for example, California, Florida,
Illinois, New York, Pennsylvania, Texas and Washington, which permit the
provision or resale of all dedicated and switched services, including basic
local exchange services, to the certificates in Ohio and Rhode Island, for
example, which only permit the provision of intrastate private line services.
TCG works continuously to expand its intrastate service authority to cover
additional jurisdictions and additional services, a process which the Company
believes will be simpler following the recent enactment of the 1996 Act, which
prohibits states from imposing any legal requirement that has the effect of
prohibiting any company from providing any telecommunications service. TCG has
filed or expects to file applications for authority to provide local exchange
service in all of its markets in which it does not have such authority. TCG
typically is not subject to price regulation or to rate of return regulation
for its intrastate services. In most states, TCG is required to file tariffs
setting forth the terms, conditions and prices for intrastate services. In
some jurisdictions, the Company's tariff can list a rate range or set prices
on an individual customer basis. The Company may be subject to additional
regulatory burdens in some states, such as quality of service requirements and
universal service contributions.
Local Government Authorizations
The Company may be required to obtain from municipal authorities street
opening and construction permits and other rights of way to install and expand
its digital networks in certain cities. In some cities, the Company's
affiliates or subcontractors may already possess the requisite authorizations
to construct or expand the Company's networks.
In some of the metropolitan areas where TCG provides network services, the
Company pays license or franchise fees based on a percent of gross revenues.
There can be no assurance that municipalities that do not
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currently impose fees will not seek to impose fees in the future, nor is there
any assurance that, following the expiration of existing franchises, fees will
remain at their current levels. Under the 1996 Act, municipalities are
required to impose such fees on a nondiscriminatory basis. There can be no
assurance, however, that municipalities that currently favor the ILECs will
conform their practices in a timely manner or without legal challenges by the
Company or another CAP or CLEC.
If any of the Company's existing franchise or license agreements for a
particular metropolitan area were terminated prior to its expiration date and
TCG were forced to remove its fiber optic cables from the streets or abandon
its network in place, even with compensation, such termination could have a
material adverse effect on the Company's operation in that metropolitan area
and could have a material adverse effect on the Company.
Teleport Communications, a wholly owned subsidiary of TCNY, and the City of
New York entered into a Franchise Agreement, dated as of May 2, 1994 (the "New
York Franchise"), pursuant to which the City of New York granted to Teleport
Communications the non-exclusive right for a term of fifteen years to provide
Telecommunications Services (as defined in the New York Franchise) in the City
of New York. In addition to other payments specifically required by the New
York Franchise, the New York Franchise requires that Teleport Communications
pay to the City of New York as an annual franchise fee an amount based on a
percentage of Teleport Communications' gross revenues. The Company is
restricted under the terms of the New York Franchise from providing cable
service or mobile telecommunications services in the City of New York.
EMPLOYEES
As of March 31, 1996, the Company employed 1,559 full-time employees, none
of whom was represented by a union or covered by a collective bargaining
agreement. TCG believes that its relations with its employees are good. In
connection with the construction and maintenance of its digital networks and
the conduct of its other business operations, the Company uses third party
contractors, some of whose employees may be represented by unions or
collective bargaining agreements. TCG believes that its success will depend in
part on its ability to attract and retain highly qualified employees.
PROPERTIES
The Company leases network hub sites and other facility locations and sales
and administrative offices in each of the cities in which it operates
networks. During the years 1994 and 1995, rental expense for such facilities
and offices totaled $12.5 million and $16.4 million, respectively. The Company
owns no material real estate. Management believes that its properties, taken
as a whole, are in good operating condition and are suitable and adequate for
the Company's business operations. The Company currently leases approximately
200,000 square feet of space at The Teleport complex in Staten Island, New
York, where its corporate headquarters are located.
LEGAL PROCEEDINGS
The Company is a party to various claims and legal proceedings arising in
the ordinary course of business. The Company does not believe that such claims
or proceedings, individually or in the aggregate, will have a material adverse
effect on the Company's financial condition or results of operations.
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MANAGEMENT
EXECUTIVE OFFICERS
The executive officers of the Company and their respective ages and
positions are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert Annunziata....... 48 Chairman, President, Chief Executive Officer and
Chief Operating Officer
Robert C. Atkinson...... 45 Senior Vice President, Legal, Regulatory and
External Affairs
Joel D. Gross........... 41 Senior Vice President, Corporate Development
Alf T. Hansen........... 53 Senior Vice President, National Operations
J. Curt Hockemeier...... 47 Senior Vice President, Affiliate Services
Marvin L. Lindsey....... 55 Senior Vice President, Engineering and MIS
Stuart A. Mencher....... 57 Senior Vice President, National Sales and Marketing
John A. Scarpati........ 45 Senior Vice President and Chief Financial Officer
Kenneth A. Shulman...... 42 Senior Vice President, Technology
Maria Terranova-Evans... 40 Vice President and Controller
Wayne G. Fox............ 40 Vice President and Treasurer
John W. Thomson......... 48 Vice President and Secretary
W. Terrell Wingfield, 43 Vice President and General Counsel
Jr. ...................
</TABLE>
Robert Annunziata has been Chairman of the Board of the Company since 1990
and President and Chief Executive Officer since 1985. Prior to that, Mr.
Annunziata had been Senior Vice President and Chief Operating Officer since
1983. He has been a director of the Company since 1984. He has 29 years of
experience in the telecommunications industry, including 17 years in a variety
of operations and marketing positions with AT&T. He has served as President of
the World Teleport Association ("WTA") from 1987 to 1991 and remains a WTA
director. He currently serves on the New York State Governor's Advisory Board
on Telecommunications and the New York City Mayor's Alliance for International
Business.
Robert C. Atkinson has been Senior Vice President--Legal, Regulatory and
External Affairs since February 1990. Prior to that, he had been Vice
President--Regulatory and External Affairs since 1985. Prior to joining the
Company, Mr. Atkinson held various business development, regulatory and
government relations positions at ITT World Communications, Inc., Satellite
Business Systems, GTE Sprint and RCA Global Communications, Inc. He was a
founder and first President of the Association for Local Telecommunications
Services ("ALTS"), the CAP/CLEC trade association.
Joel D. Gross has been Senior Vice President--Corporate Development since
February 1993. Prior to that, he had been Vice President and Senior Securities
Analyst--Telecommunications for Donaldson, Lufkin & Jenrette Securities
Corporation since 1987 and Vice President and Senior Securities Analyst--
Telecommunications for Dean Witter since 1985. Prior to that, Mr. Gross worked
in a variety of management positions at AT&T.
Alf T Hansen has been Senior Vice President--National Operations since
February 1993. Prior to that, he had been Vice President--National Operations
since March, 1990 and Vice President--Engineering and Operations since March
1989. Prior to joining the Company, Mr. Hansen worked at AT&T for 22 years in
various managerial positions.
J. Curt Hockemeier has been Senior Vice President--Affiliate Services since
January 1993. Prior to that, he had been Vice President and General Manager of
Cox Cable Oklahoma City since 1983.
Marvin L. Lindsey has been Senior Vice President--Engineering and MIS since
December 1993. Prior to that, he had been an independent telecommunications
consultant for various large international telecommunications companies since
July 1991. Mr. Lindsey was Service Vice President of AT&T's Business
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Communications organization from April 1987 to July 1991 and worked more than
28 years in various technical and operations positions with AT&T.
Stuart A. Mencher has been Senior Vice President--National Sales and
Marketing since February 1994. Prior to that, he had been Senior Vice
President--New York Operations since February 1993 and Vice President and
General Manager of TCNY since June 1992. From June 1991 until May 1992, Mr.
Mencher worked as an independent consultant in the international
telecommunications industry. From March 1987 to January 1990, Mr. Mencher
served as a Senior Vice President of MCI Telecommunications Corp., primarily
responsible for sales and marketing, and, from February 1990 to May 1991, he
served as Senior Vice President of the U.S. Distribution Division of
Motorola/Codex Corp. Prior to joining MCI, Mr. Mencher served in a variety of
senior sales and marketing management positions with AT&T Information Systems
following almost sixteen years of sales and marketing management experience
with IBM's Data Processing Division.
John A. Scarpati has been Senior Vice President and Chief Financial Officer
since March 1990. Mr. Scarpati has held various executive officer positions
since joining TCG in August 1984, including Vice President, Chief Financial
Officer, Treasurer and Controller. Mr. Scarpati is a director of Comcast CAP
of Philadelphia, Inc. He was a director of the Company in 1991. He is also a
Certified Public Accountant.
Kenneth A. Shulman has been Senior Vice President--Technology since August
1995. Prior to that, he had been Vice President of Applied Research and
Development since February 1994, Vice President of Technology and Network
Planning since October 1991, Director, Engineering and Technology since June
1990 and Director, Research and Technology since November 1989. Prior to
joining the Company in 1987, Mr. Shulman held positions as Director--Systems
Engineering at MCI International, as District Manager--Integrated Network
Evolution Planning at Bell Communications Research and as Supervisor--
Switching Systems Engineering at Bell Laboratories. Mr. Shulman is a director
of BizTel Communications, Inc.
Maria Terranova-Evans has been Vice President and Controller since February
1992. Mrs. Evans has held various managerial and executive financial positions
since joining TCG in September 1984 including accounting Manager, Controller,
and accounting Director/Controller. She is also a Certified Public Accountant.
Wayne G. Fox has been Vice President and Treasurer since June 1995. Prior to
that, he had been Vice President--Corporate Ventures since January 1993 and
Managing Director of Corporate Ventures since November 1992. Mr. Fox was a
director of the Company from April 1991 to November 1992. Prior to joining the
Company, he had been a Vice President and Director in the Mergers &
Acquisitions Group for Merrill Lynch Capital Markets. Mr. Fox is a director of
BizTel Communications, Inc.
John W. Thomson has been Vice President and Secretary since June 1984. Mr.
Thomson also served as General Counsel of TCG from June 1984 until February
1996, and as Senior Counsel for Merrill Lynch & Co., Inc. from 1981 to 1988.
W. Terrell Wingfield, Jr. has been Vice President and General Counsel since
March 1996. From March 1994 to February 1996, Mr. Wingfield served as Regional
Vice President--Central Region Operations, and from January 1993 to March 1994
as Counsel--Affiliate Services. Prior to that, Mr. Wingfield had been Senior
Counsel of Cox Enterprises, Inc. since 1989.
Messrs. Annunziata, Scarpati, Atkinson, Mencher and Hansen have entered into
employment agreements with the Company which are described below. See "--
Employment Agreements." The employment agreements with Messrs. Annunziata,
Scarpati, and Atkinson expire on December 31, 1998 and the employment
agreements with Messrs. Mencher and Hansen expire on December 31, 1999.
Messrs. Gross, Lindsey, Hockemeier and Shulman serve as officers pursuant to
employment agreements they have entered into with the Company. Mr. Gross'
agreement expires on June 30, 1998, and the agreements of Messrs. Lindsey,
Hockemeier and Shulman expire on June 30, 1999. All other executive officers
of the Company serve at the pleasure of the Board of Directors. Officers of
the Company are elected annually by the Board of Directors and hold office
until their successors are elected and qualified.
59
<PAGE>
DIRECTORS
The following persons (except for James Bruce Llewellyn and C.B. Rogers,
Jr.) are the directors of TCG. Following the execution of the Amended
Stockholders' Agreement and upon the consummation of the Offerings, the
Company anticipates that Messrs. Llewellyn and Rogers will be elected to the
Company's Board of Directors as independent directors.
Robert Annunziata has been Chairman of the Board since 1990 and a director
since 1984. See "--Executive Officers" for a description of Mr. Annunziata's
employment experience.
Brendan R. Clouston, age 43, has been a director since April 1996. Prior to
that time, he was a director of TCG from November 1992 to October 1995. Mr.
Clouston has been Executive Vice President of TCI since January 1994 and
President and Chief Executive Officer of TCI Communications, Inc. ("TCIC")
since October 1994. Prior to that, he had been Executive Vice President and
Chief Operating Officer of TCIC since March 1992 and Senior Vice President of
TCIC since December 1991. From 1987 through 1991, Mr. Clouston served in
various executive positions with United Artists Entertainment Company and its
predecessor United Artists Communications, Inc., most recently as Executive
Vice President and Chief Financial Officer. He is a director of C-Span, the
National Cable Television Association and TeleWest International.
Ronald H. Cooper, age 39, has been a director since February 1996. Mr.
Cooper has been Executive Vice President of Continental since 1995. Prior to
that, he had been Senior Vice President of Continental's Southern California
management region since 1988. He is a director of the New England Cable News
Channel.
John R. Dillon, age 54, has been a director since December 1991. Mr. Dillon
has been Senior Vice President and Chief Financial Officer of Cox Enterprises,
Inc. since 1990. He is also a director of Cox, Cox Enterprises, Inc. and the
Georgia Center for Advanced Telecommunications Technology.
Gerald W. Gaines, age 40, has been a director since November 1994. Mr.
Gaines has been Senior Vice President of Telephony Services for TCI since
1994. Prior to that, he had been President of GCG Inc., a management services
firm servicing the telecommunications industry, since 1991.
Nancy Hawthorne, age 45, has been a director since May 1993. Ms. Hawthorne
has been Senior Vice President and Chief Financial Officer of Continental
since 1992. Prior to December 1993, she had also been Treasurer for
Continental. Prior to December 1992, she was a Senior Vice President and the
Treasurer of Continental. She is a director of Optus Vision, Perini
Corporation and the New England Zenith Fund.
James O. Robbins, age 53, has been a director since April 1996. Mr. Robbins
has served as Chief Executive Officer of Cox since May 1994. Prior to that,
Mr. Robbins had been President of Cox since 1985. Mr. Robbins has been a
director of Cox since May 1994. Mr. Robbins is a member of the Executive
Committee of the National Cable Television Association.
Brian L. Roberts, age 36, has been a director since April 1996. Mr. Roberts
has been President of Comcast since 1990 and a director of Comcast since 1987.
He is also a director of Turner Broadcasting System, Inc., Comcast UK Cable
Partners Limited, Cablevision Investment of Detroit, Inc. and Storer
Communications, Inc. He is chairman as well as a member of the Executive
Committee of the National Cable Television Association.
Larry E. Romrell, age 56, has been a director since April 1996. Prior to
that time, he was a director of TCG from November 1992 to October 1995. Mr.
Romrell has been Executive Vice President of TCI since January 1994 and
President of TCI Technology Ventures since September 1994. Prior to that, he
had been Senior Vice President of TCIC from 1991 to October 1994. Mr. Romrell
previously held various executive positions with WestMarc Communications,
Inc., a subsidiary of TCI.
Lawrence S. Smith, age 48, has been a director since May 1993. Mr. Smith has
been Executive Vice President of Comcast since January 1996. Prior to that, he
had been Senior Vice President of Accounting and Administration for Comcast
for more than five years. Mr. Smith is a director of Comcast UK Cable Partners
Limited.
60
<PAGE>
David M. Woodrow, age 50, has been a director since November 1992. Mr.
Woodrow has been Senior Vice President of Broadband Services for Cox since
1994. Prior to that, he had been Senior Vice President of Operations for Cox
since 1989. He is a director of the Telecommunications Subcommittee of
CableLabs.
James Bruce Llewellyn, age 68, has been the Chairman of the Board of the
Philadelphia Coca-Cola Bottling Company since 1988. Prior to 1988, he was the
principal stockholder and chairman of the ABC television network affiliate in
Buffalo, New York and partner in the Washington, D.C. law firm of Dickstein,
Shapiro & Morin. He serves on the Board of Directors of Chase Manhattan
Corporation, Coors Brewing Company, Essence Communications, Inc. and Black
Shopping Network, Inc. From 1989 to 1994, he also served as the Chairman of
Garden State Cablevision, Inc.
C.B. Rogers, Jr., age 66, has been Chairman of Equifax, Inc. since 1992. He
was Chief Executive Officer of Equifax, Inc. from 1989 to January 1996. He is
Chairman of the Board of Directors and the Executive Committee of Equifax,
Inc. Mr. Rogers is a former Senior Vice President of International Business
Machines Corporation where he was employed 33 years before joining Equifax,
Inc. in 1987. He also serves on the Board of Directors of Sears Roebuck & Co.,
Briggs & Stratton Corporation, Dean Witter Reynolds, Inc. and Dean Witter,
Discover & Co.
BOARD COMPOSITION
Directors are elected annually. The Amended Stockholders' Agreement provides
that the Board of Directors shall consist of 13 directors and that at each
annual meeting of the Company's stockholders at which directors are elected,
the holders of the Class B Common Stock (all of which is currently held by the
Cable Stockholders) will vote their shares in favor of nominees for director
to be designated as follows: (i) the holders of Class B Common Stock will
designate 10 nominees (with the right of a holder of Class B Common Stock to
designate one or more nominees depending on the percentage of the Class B
Common Stock held by it), (ii) the Board of Directors will designate the Chief
Executive Officer of the Company as a nominee and (iii) the Board of Directors
with the unanimous approval of the holders of Class B Common Stock that have
the right to designate nominees for director shall designate by unanimous
consent two individuals who are neither employed by nor affiliated with TCG or
any holder of Class B Common Stock as nominees for director. The holders of
the Class A Common Stock will not have the right, as a class, under the
Company's Amended and Restated Certificate of Incorporation or the Amended
Stockholders' Agreement to nominate any individuals for election to the Board
of Directors. Under the Amended Stockholders' Agreement, a holder of Class B
Common Stock generally is entitled to designate one director nominee for each
9% of the outstanding shares of Class B Common Stock held by it and its
affiliates. Pursuant to the Amended Stockholders' Agreement, subject to
certain exceptions, upon the consummation of the Stock Offerings, Continental
loses the right to designate any director nominees, and the right to designate
such director nominees will be reallocated among the other holders of Class B
Common Stock with each of Cox and TCI being entitled to designate an
additional director.
It is currently anticipated that directors who are officers of the Company
or of any of the holders of Class B Common Stock will receive no compensation
for their services as directors. Each director who is not an officer of the
Company or of any of the holders of Class B Common Stock is entitled to
receive an annual retainer of $25,000 (to be paid 50% in cash and 50% in Class
A Common Stock) and an additional $1,000 plus reasonable expenses for
attending each meeting of the Board of Directors. Each such director is also
entitled to be paid $1,000 annually for each committee of the Board of
Directors for which such director serves as chairman.
Messrs. Dillon, Robbins and Woodrow are designees of Cox. Messrs. Clouston,
Gaines and Romrell are designees of TCI. Messrs. Roberts and Smith are
designees of Comcast. Mr. Cooper and Ms. Hawthorne are designees of
Continental. Upon consummation of the Stock Offerings, each of Mr. Cooper and
Ms. Hawthorne will resign from the Board of Directors, and each of Cox and TCI
will designate an additional director. See "Certain Relationships and Related
Transactions--Amended Stockholders' Agreement."
61
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of TCG has established the Compensation and Benefits
Committee (the "Compensation Committee") to address and make recommendations
with respect to the compensation of executive officers and the establishment
of compensation and benefit plans. Messrs. Cooper, Dillon, Gaines and Smith
currently constitute the Compensation Committee.
AUDIT COMMITTEE
The Board of Directors has established an Audit Committee to meet with and
consider suggestions from members of management and of the Company's internal
audit staff, as well as with the Company's independent accountants, concerning
the financial operations of the Company. The Audit Committee also has the
responsibility to review audited financial statements of the Company and
consider and recommend the employment of, and approve the fee arrangements
with, independent accountants for both audit functions and for advisory and
other consulting services. Messrs. Dillon, Gaines, Hawthorne and Smith are the
members of the Audit Committee.
EXECUTIVE COMPENSATION
The following table shows compensation paid to, deferred or accrued for the
benefit of the Company's President, Chief Executive Officer and Chief
Operating Officer and each of the four remaining most highly compensated
executive officers (the "Named Executive Officers") for all services rendered
to TCG during the fiscal year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------
NAME AND ALL OTHER
PRINCIPAL COMPENSA-
POSITION YEAR SALARY(a) BONUS TION (b)
--------- ---- -------------------- ---------
<S> <C> <C> <C> <C>
Robert Annunziata....................... 1995 $240,000 $185,580 $27,879
President, Chief Executive Officer and
Chief Operating Officer
John A. Scarpati........................ 1995 159,931 115,020 20,088
Senior Vice President and Chief
Financial Officer
Robert C. Atkinson...................... 1995 156,711 90,455 13,549
Senior Vice President
Alf T. Hansen........................... 1995 148,462 95,250 13,168
Senior Vice President
Stuart A. Mencher....................... 1995 146,284 96,200 10,337
Senior Vice President
</TABLE>
- --------
(a) Includes amounts deferred under the Teleport Communications Group Inc.
Retirement Savings Plan (the "Savings Plan") and Make-Up Plan of Teleport
Communications Group Inc. for the Retirement Savings Plan (the "Make-Up
Plan").
(b) Includes amounts contributed by TCG to the Savings Plan, the Make-Up Plan
and the Basic and Supplemental Group Life Insurance Plans for each Named
Executive Officer as follows:
<TABLE>
<CAPTION>
SAVINGS MAKE-UP GROUP LIFE
PLAN PLAN PLAN
------- -------- ----------
<S> <C> <C> <C>
Mr. Annunziata................................... $ 6,750 $ 19,507 $ 1,622
Mr. Scarpati..................................... 8,063 11,521 504
Mr. Atkinson..................................... 5,438 7,651 460
Mr. Hansen....................................... 5,438 6,676 1,054
Mr. Mencher...................................... 4,125 4,900 1,312
</TABLE>
62
<PAGE>
1993 STOCK OPTION PLAN
TCG established the Teleport Communications Group Inc. 1993 Stock Option
Plan (the "Option Plan") effective September 26, 1993. The Option Plan
provides for the issuance of incentive stock options ("ISOs") and non-
qualified stock options ("NQSOs") to key employees and consultants of TCG.
Under the Option Plan, an aggregate of 5,383,350 shares of Common Stock were
available for issuance, and as of December 31, 1995, 2,845,290 shares remained
available for additional grants. The Option Plan has been amended to increase
the number of shares available under the Option Plan to 7% of the aggregate
number of shares of Class A Common Stock and Class B Common Stock outstanding,
determined on a fully diluted basis as of the effective date of the Stock
Offerings. TCG intends to register the shares reserved under the Option Plan
with the SEC. The Option Plan provides for an adjustment of the number of
shares available for grant as options in the event of a stock split, stock
dividend, combination of shares, spin-off, spin-out or other similar change,
exchange or reclassification of the Common Stock at the discretion of the
Compensation Committee which administers the Option Plan. The Compensation
Committee has determined that the shares to be made available through the
options are shares of Class A Common Stock, and the Option Plan has been
amended accordingly. No individual may receive options (ISOs and NQSOs) for
more than 1,008,000 shares.
The Compensation Committee will be composed of two or more disinterested
members of the Company's Board of Directors (i.e., directors who have not
received an award of securities under the Option Plan during the year prior to
their appointment to the Compensation Committee). The Compensation Committee
currently consists of Messrs. Cooper, Dillon, Gaines and Smith.
The Compensation Committee has the discretion to determine which eligible
individuals will receive options, the number of shares to be covered by the
options, the exercise date of the options, whether the options should be ISOs
or NQSOs, and the terms and conditions of the options. The individuals
eligible for awards are key employees and consultants of TCG. The exercise
price of any option may not be less than the fair market value of the stock on
the date the option is granted. At the time an ISO is granted, the fair market
value of the Common Stock for which the ISO will vest in any year may not
exceed $100,000. Options awarded under the Option Plan generally are not
assignable or transferable except by the laws of descent and distribution. The
specific terms of any option awarded under the Stock Option Plan will be
reflected in a stock option agreement executed by TCG and the optionee. The
Compensation Committee has the discretion to amend an option to accelerate the
date upon which the option may be exercised. The Compensation Committee may
permit the exercise price to be paid in cash, through delivery of other shares
of Common Stock, by delivering irrevocable instructions to a financial
institution to deliver promptly to TCG the portion of sale or loan proceeds
sufficient to pay the exercise price, or through an election to have shares of
Common Stock withheld from the shares otherwise to be received by the
optionee.
Once vested, an option may remain exercisable until the earliest of: (i) 10
years from the date of grant, (ii) 30 days from the date on which the optionee
ceases to be employed by TCG or (iii) if the optionee's employment ceases by
reason of his or her death, disability, or retirement (under the terms of the
Savings Plan), the earlier of 10 years from the date of grant or one year
after the death, disability or retirement. If the optionee is terminated
without Cause or for Good Reason, after a Change in Control, all of his or her
options shall immediately vest and become exercisable for one year following
the Change in Control, but in no event beyond ten years from the date the
option was granted. A "Change in Control" occurs if there is a direct or
indirect transfer of 50% or more of the legal or beneficial ownership of the
Common Stock, in one or more transactions, to any entity other than to any of
the Cable Stockholders or to any of their controlled subsidiaries. Cause means
the willful and continued failure by the optionee to substantially perform his
or her duties with TCG or the willful engaging by the optionee in conduct that
is materially injurious to TCG. "Good Reason" means a reduction in
compensation, a relocation of optionee's place of employment of more than
fifty miles or a reduction in the optionee's benefits. Optionees who are
subject to Section 16 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), must hold any options granted to them under the Option Plan
for a least six months from the date of the award. Only employees of TCG may
receive ISOs.
63
<PAGE>
The Option Plan may be amended, suspended or terminated by the Board of
Directors of TCG in whole or in part at any time; provided that no such
amendment, suspension or termination of the Option Plan may adversely affect
the rights of or obligations to the optionees without such optionees' consent.
The Board of Directors of TCG also must obtain stockholder approval for any
change in the Option Plan that would materially increase the cost of the
Option Plan, materially increase the number of shares which may be issued
under the Option Plan or materially modify the requirements as to eligibility
for participation under the Option Plan.
The grant of an option under the Option Plan will not have any immediate
effect on the federal income tax liability of TCG or the optionee. If the
Compensation Committee grants an optionee a NQSO, then the optionee will
recognize ordinary income at the time he or she exercises the NQSO equal to
the difference between the fair market value of the Common Stock and the
exercise price paid by the optionee, and TCG will receive a deduction for the
same amount.
If the Compensation Committee grants an optionee an ISO then the optionee
generally will not recognize any taxable income at the time he or she
exercises the ISO but will recognize income only at the time he or she sells
the Common Stock acquired by exercise of the ISO. The optionee will recognize
income equal to the difference between the exercise price paid by the optionee
and the amount received for sale of the Common Stock, and such income
generally will be eligible for capital gain treatment. TCG generally is not
entitled to an income tax deduction for the grant of an ISO or as a result of
either the optionee's exercise of an ISO or the optionee's sale of the Common
Stock acquired through exercise of an ISO. However, if the optionee sells the
Common Stock within two years of the date of the grant to him or her of the
ISO or within one year of the date of the transfer to him or her of the Common
Stock following exercise of the ISO, the option is treated for federal income
tax purposes as if it were a NQSO: the income recognized by the optionee will
not be eligible for capital gain treatment and TCG will be entitled to a
federal income tax deduction equal to the amount of income recognized by the
optionee.
The Option Plan provides for put and call rights with respect to any Common
Stock acquired under the Option Plan so long as the Common Stock of TCG is not
listed on a national exchange or quoted on Nasdaq. An optionee has the right
to put the Common Stock he or she acquired under the Option Plan during the 60
days following the earlier of (i) his or her termination of employment or (ii)
the date the optionee has exercised all of his or her options (and met any
applicable holding period necessary to receive ISO treatment). TCG has the
right to call the Common Stock an optionee has acquired under the Option Plan,
upon thirty days' prior notice. The per share price paid for the Common Stock
under the put and call rights is based upon the appraised value of TCG as of
the preceding December 31.
The Compensation Committee has determined to grant certain executives and
employees awards of options to acquire an aggregate of 1,815,984 shares of
Class A Common Stock under the Option Plan as of the effective date of the
Stock Offerings in the form of: (i) 10-year options for shares of Class A
Common Stock of the Company having an exercise price per share equal to the
price per share of the Class A Common Stock offered hereby (the "Stock
Offerings Price") (the "Par Options"); and (ii) 10-year options for shares of
Class A Common Stock having an exercise price per share equal to 135% of the
Stock Offerings Price per share (the "Premium Options").
1992 UNIT APPRECIATION PLAN
TCG established the Teleport Communications Group Inc. 1992 Unit
Appreciation Plan (the "1992 UAP") effective January 1, 1992. The 1992 UAP
provides for the issuance to key employees of TCG and its affiliates of
incentive deferred compensation in the form of interests in the appreciation
in the fair market value of the Common Stock (a "Unit"). Each Unit has a value
equal to the fair market value of a share of Common Stock multiplied by 8.40
(as adjusted for dilutive events).
64
<PAGE>
Under the 1992 UAP, Units were awarded to 26 employees of TCG. The awards
are subject to a five-year vesting schedule under which any employee who
terminated prior to December 31, 1994 would forfeit the entire award, any
employee who terminated between December 31, 1994 and December 30, 1995 would
be 60% vested, any employee who terminates between December 31, 1995 and
December 30, 1996 will be 80% vested and any employee who terminates on or
after December 31, 1996 will be fully vested in his or her Units.
Nevertheless, an employee who retires at normal retirement age would be fully
vested, an employee who retires at early retirement age would be 20% vested
for each full year elapsed since January 1, 1992 and any employee terminated
for Cause would forfeit all Units. Cause has the same meaning as in the Option
Plan. In the event an employee's employment is terminated without Cause or is
terminated for Good Reason following a Change in Control, the employee's
rights to his or her Units will immediately vest in full, and the employee
shall receive payment of his benefits within thirty days of the termination.
Good Reason has the same meaning as in the Option Plan. Change in Control
means the direct or indirect transfer of 50% or more of the legal or
beneficial ownership of TCG stock, in one or more transactions, to any entity
other than to Cox Enterprises, Inc. or TCI.
The value of the benefit to the employee under the 1992 UAP is equal to the
appreciation in the value of the Unit from January 1, 1992 until the earlier
of December 31, 1996, or the date the employee's employment with TCG
terminates. However, for those for whom the value of their Units is being
measured as of December 31, 1996, the value of their Units shall be the
greater of the value determined as described in the preceding sentence or the
average of the values on December 31, 1995 and December 31, 1996. The initial
base price of each Unit as of January 1, 1992 was $30.00, and the 1992 UAP
limits the amount of the appreciation to 200% of this value, or $60 for all
employees except Mr. Annunziata. Pursuant to Mr. Annunziata's employment
agreement, there is no limit on the appreciation he may receive under the 1992
UAP. See "--Employment Agreements." Benefits under the 1992 UAP are payable as
soon as practicable following the valuation of the Units, but not later than
March 31 following the end of the appreciation period. The Compensation
Committee has the discretion to pay benefits in cash or a combination of cash
and Common Stock. In the event TCG terminates the Plan, all Units will become
immediately 100% vested.
1993 UNIT APPRECIATION PLAN
TCG established the Teleport Communications Group Inc. 1993 Unit
Appreciation Plan (the "1993 UAP") effective January 1, 1993. The 1993 UAP
provides for the issuance to key employees of TCG and its affiliates of
incentive deferred compensation in the form of interests in the appreciation
in the fair market value of the Common Stock. The terms of the 1993 UAP are
substantially identical to the terms of the 1992 UAP, except that the initial
base price for each Unit as of January 1, 1993 is $34.85, the maximum benefit
per Unit is $69.70, and the vesting schedule and the maximum appreciation
period for a Unit is set forward one year. Under the 1993 UAP, Units were
awarded to 18 employees of TCG.
65
<PAGE>
The following table sets forth information as of December 31, 1995
concerning the value of stock option and UAP awards held by (i) each Named
Executive Officer, (ii) all executive officers as a group and (iii) all non-
executive officer employees as a group and concerning the value of stock
options awarded to the foregoing in 1996. No stock option or UAP awards were
made to any director who is not an executive officer. No stock options were
exercised by any Named Executive Officer in 1995.
FISCAL YEAR-END OPTION/UAP VALUES AND 1996 OPTION GRANT VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/UAPS AT OPTIONS/UAPS AT
FY-END(#)(a) FY-END($)(b)(c)
------------------------- -------------------------
NAME PLAN EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Robert Annunziata....... 1996 Par Options -- 121,036 -- $ 1,234,568
President, Chief 1996 Premium Options -- 30,259 -- 265,432
Executive Officer and 1993 Options 111,654 167,482 $ 961,072 1,441,610
Chief Operating Officer 1992 UAP 20,000 5,000 2,004,600 501,150
John A. Scarpati........ 1996 Par Options -- 64,149 -- $ 654,321
Senior Vice President 1996 Premium Options -- 16,037 -- 140,679
and Chief Financial 1993 Options 39,877 59,815 $ 343,240 514,861
Officer 1992 UAP 9,600 2,400 576,000 144,000
Robert C. Atkinson...... 1996 Par Options -- 44,380 -- $ 452,675
Senior Vice President 1996 Premium Options -- 11,095 -- 97,325
1993 Options 31,901 47,852 $ 274,592 411,889
1992 UAP 8,800 2,200 528,000 132,000
Alf T. Hansen........... 1996 Par Options -- 34,294 -- $ 349,794
Senior Vice President 1996 Premium Options -- 8,573 -- 75,206
1993 Options 27,116 40,674 $ 233,403 350,105
1992 UAP 5,200 1,300 312,000 78,000
Stuart A. Mencher....... 1996 Par Options -- 32,276 -- $ 329,218
Senior Vice President 1996 Premium Options -- 8,069 -- 70,782
1993 Options 20,736 31,104 $ 178,485 267,728
1992 UAP 5,200 1,300 312,000 78,000
Executive Officer
Group.................. 1996 Par Options -- 441,782 -- $ 4,506,174
1996 Premium Options -- 110,446 -- 968,829
1995 Options -- 5,782 -- 7,425
1994 Options -- 7,975 -- 40,815
1993 Options 302,264 588,977 $2,586,763 5,047,161
1993 UAP 2,820 1,880 196,554 131,036
1992 UAP 71,680 17,920 5,105,400 1,276,350
Non-Executive Officer
Employee Group......... 1996 Par Options(d) -- 1,030,613 -- $10,512,257
1996 Premium Options(d) -- 233,143 -- 2,045,133
1996 Options -- 25,122 -- 256,244
1995 Options -- 245,560 -- 315,334
1994 Options -- 268,967 -- 1,376,499
1993 Options -- 1,118,537 -- 9,594,144
1993 UAP 11,400 7,600 $ 794,580 529,720
1992 UAP 39,680 9,920 2,380,800 595,200
</TABLE>
- --------
(a) For the 1992 and 1993 UAP Plans, exercisable/unexercisable means
vested/unvested. All options granted, except 1996 options to the President
and all Senior Vice Presidents become exercisable over a five-year period,
with 20% of the option award becoming exercisable as of each anniversary
of the date of grant. 1996 options granted to the President and all Senior
Vice Presidents become exercisable over a five-year period, with 40% of
the options becoming exercisable as of the second anniversary of the date
of grant and an additional 20% becoming exercisable as of each anniversary
thereafter. All options granted to employees
66
<PAGE>
at the Vice President level and below become exercisable over a five-year
period, with 60% becoming exercisable as of the third anniversary of the
date of grant and an additional 20% becoming exercisable on the fourth and
fifth anniversary of the date of grant. All UAP awards vest over a five-
year period, with 20% of the award becoming vested as of each anniversary
of the date of grant.
(b) There were two tranches of options awarded in 1993 with exercise prices of
$6.90 and $7.84, respectively. The exercise prices per share for 1994 and
1995 options are $10.39 and $14.22, respectively. The base prices per Unit
for 1992 and 1993 UAP awards are $30.00 and $34.85 respectively. All UAP
awards, other than those granted to Mr. Annunziata, are limited to an
appreciation of 200% of the base price of the award. As of December 31,
1995, the fair market value per share of Common Stock, as determined by an
independent appraiser, was $15.50.
(c) Par Options will have an exercise price per share equal to the Stock
Offerings price per share of Class A Common Stock offered hereby (the
"Stock Offerings Price"), and Premium Options will have an exercise price
per share equal to 135% of the Stock Offerings Price. Other options issued
in 1996, but prior to the Stock Offerings, have an exercise price equal to
the Stock Offerings price. The values of all options reflected in the
table as granted in 1996 are determined in accordance with the Black
Scholes model of valuing stock options, and the initial public offering
price is assumed to be $17.00 per share for purposes of calculating such
values.
(d) Individual 1996 option awards have not been finally determined for the
non-executive officer employee group. The Compensation Committee has
determined to grant 1996 Par Options for 1,472,395 shares and 1996 Premium
Options for 343,589 shares to all executive officers and other employees
in the aggregate, and has determined to grant 1996 Par Options for 441,782
shares and 1996 Premium Options for 110,446 shares to the executive
officer group.
EMPLOYEE STOCK PURCHASE PLAN
TCG has adopted the Teleport Communications Group Inc. Employee Stock
Purchase Plan ("the Stock Purchase Plan"), effective as of the effective date
of the Stock Offerings. The Stock Purchase Plan is administered by a committee
designated by the Board of Directors (the "ESP Committee"). Each eligible
employee will be given an option to purchase up to a number of shares of Class
A Common Stock equal to 10% of his or her compensation plus bonus paid for the
calendar year preceding the year the option is awarded, divided by the
purchase price per share under the option. The Board of Directors has
authorized the issuance under the Stock Purchase Plan of a maximum number of
shares of Class A Common Stock equal to the maximum number of shares for which
all eligible employees as of the Stock Offerings could elect to be granted
options for the first offering period. It is expected that options relating to
approximately 745,000 shares of Class A Common Stock will be available for
issuance under the Stock Purchase Plan. TCG intends to register the shares
reserved under the Stock Purchase Plan with the SEC.
Options granted under the Stock Purchase Plan will expire 12 months after
the grant date. In no case may an employee receive an option which would
permit him or her to purchase more than $25,000 of shares, valued as of the
grant date, for each calendar year in which the option is outstanding.
Eligible employees are those individuals employed by TCG as of the grant date.
The price of the shares offered to employees under the Stock Purchase Plan
will be 85% of the fair market value of the Class A Common Stock on the grant
date. Several payment options are available under the Stock Purchase Plan: (i)
employees may authorize TCG to withhold from their pay each payroll period
during the 12 months succeeding the grant date, an amount to be applied toward
the purchase of shares, (ii) employees may provide TCG with a lump sum cash
payment five days prior to the exercise date, (iii) employees may elect a
cashless exercise whereby they agree to sell immediately upon exercise,
through irrevocable broker instructions provided to TCG, such portion of their
option shares as is necessary to satisfy the exercise price and to promptly
remit such sale proceeds to TCG and (iv) subject to the consent of the ESP
Committee, employees may direct TCG to withhold from their option shares such
shares as are necessary to satisfy the exercise price.
Generally, the employee does not recognize taxable income, and TCG is not
entitled to an income tax deduction, on the grant or exercise of an option
under the Stock Purchase Plan. If the employee sells the shares
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acquired upon exercise of his or her option at least one year after the date
he or she exercised the option and at least two years after the date the
option was granted to him or her, then the discount between the fair market
value of the shares on the date of grant and the exercise price will be
recognized as ordinary income and the appreciation over the fair market value
as of the date of grant will be treated as a capital gain. TCG will be
entitled to an income tax deduction corresponding to the amount of ordinary
income recognized by the employee. If the employee sells the shares acquired
upon the exercise of his or her option at any time within (i) one year after
the date of exercise of the option, or (ii) two years after the date the
option was granted, then the employee will recognize ordinary income in an
amount equal to the excess, if any, of (x) the lesser of the sale price or the
fair market value on the date of exercise, over (y) the exercise price of the
option. TCG will generally be entitled to a deduction in an amount equal to
the amount of ordinary income recognized by the employee.
The Stock Purchase Plan may be amended, suspended or terminated by the Board
of Directors at any time, provided no such amendment, suspension or
termination of the Stock Purchase Plan may adversely affect the rights of or
obligations to the participants without such participants' consent, and any
such amendment, suspension or termination will be subject to the approval of
TCG stockholders to the extent required by any federal or state law or
regulation of any stock exchange.
1996 EQUITY INCENTIVE PLAN
TCG has established the Teleport Communications Group Inc. 1996 Equity
Incentive Plan (the "Equity Incentive Plan"), effective as of the effective
date of the Stock Offerings, to provide opportunities for select employees of
TCG to participate in the appreciation in the value of TCG after the initial
public offering. It is anticipated that the Board of Directors will authorize
the issuance of up to 637,792 shares of Class A Common Stock under the Equity
Incentive Plan. TCG intends to register such shares with the SEC. The Equity
Incentive Plan is administered by the Compensation Committee which has the
full and discretionary power to award shares under the Equity Incentive Plan.
Under the Equity Incentive Plan, each employee who has an award under the
1992 UAP or the 1993 UAP, whether or not he has elected to defer receipt of
the payment of benefits thereunder pursuant to the Deferred Compensation Plan
(as defined herein), and who is currently employed by TCG as of the effective
date of the Stock Offerings has the right to waive his interest in all or any
portion of his benefit in the 1992 UAP or 1993 UAP. In exchange therefor, the
employee will be granted such number of shares under the Equity Incentive Plan
that are equal to the value of the portion of the employee's benefit so waived
(determined as of the effective date of the Stock Offerings) multiplied by
120%, and divided by the initial public offering price per share of Class A
Common Stock. No employee may receive more than 54,000 shares under the Equity
Incentive Plan. A share under the Equity Incentive Plan is equivalent in value
to one share of Class A Common Stock. Thus, the value of the benefit payable
under the Equity Incentive Plan will increase with any appreciation of Class A
Common Stock. It is anticipated that one or more of the Named Executive
Officers will elect to exchange UAP awards for shares under the Equity
Incentive Plan.
Shares under the Equity Incentive Plan granted in exchange for 1992 UAP
benefits are subject to a two-year vesting schedule, with 70% of the shares
becoming vested as of the first anniversary of the Stock Offerings and the
remaining 30% becoming vested as of the second anniversary of the Stock
Offerings. Shares granted in exchange for the 1993 UAP benefits are subject to
a three-year vesting schedule, with 70% of the shares becoming vested as of
the second anniversary of the Stock Offerings and the remaining 30% becoming
vested as of the third anniversary of the Stock Offerings. A participant shall
become 100% vested in his shares in the event of death, total disability or a
Change in Control. Change in Control has the same meaning as in the Option
Plan. In the event a participant's employment is terminated for Cause, his
interest in each and every share awarded under the Equity Incentive Plan shall
be forfeited. Termination for Cause has the same meaning under the Equity
Incentive Plan as it does under the 1992 UAP and 1993 UAP.
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Shares under the Equity Incentive Plan will be paid to a participant either
in one lump sum cash payment or in shares of Class A Common Stock, as
determined in the discretion of the Compensation Committee, on the payment
date elected by the participant at the time he elects to participate in the
Equity Incentive Plan. In general, the payment date elected may be the last
business day of any calendar quarter during the period commencing June 30,
1998 and ending June 30, 2001.
RETIREMENT SAVINGS PLAN
TCG established the Savings Plan, a defined contribution plan which includes
a qualified cash or deferred arrangement under Section 401(k) of the Code,
effective January 1, 1992. Employees of TCG who have completed one year of
employment are eligible to participate in the Savings Plan, subject to certain
exceptions. An employee participating in the Savings Plan may elect to defer
and have contributed to the Savings Plan an amount up to 15% of such
employee's eligible compensation, on a pre-tax basis. The Savings Plan
provides for TCG to contribute a matching contribution to a participating
employee's account under the Savings Plan in an amount equal to 50% of the
amount of eligible compensation deferred and contributed to the employee's
account, up to 6% of such employee's eligible compensation, provided that the
maximum amount of such contribution shall not exceed $1,500 per participant
per year. In addition, the Savings Plan also provides for TCG to contribute to
each participating employee's account under the Savings Plan an amount equal
to a certain percentage of such participant's eligible compensation, which
percentage, limited to a maximum of 8%, is based on the employee's years of
employment with TCG and annual salary. Such contributions are allocated solely
to participating employees who have attained age twenty-one. TCG contributions
pursuant to the Savings Plan are subject to a five-year vesting schedule,
based upon each participating employee's years of employment with TCG.
Matching contributions vest at the rate of 20% per year of service such that
an employee's account will be fully (100%) vested after five years of service.
Other contributions made by TCG are subject to a five-year cliff vesting
schedule, with 0% vested for an employee with less than five years of service
and 100% vested for an employee with five or more years of service.
MAKE-UP PLAN FOR THE RETIREMENT SAVINGS PLAN
TCG established the Make-Up Plan, effective January 1, 1993. The President
of TCG and Senior Vice Presidents and Vice Presidents who are eligible to make
pre-tax salary deferrals to the Savings Plan are eligible for the Make-Up
Plan. The Make-Up Plan is an unfunded, non-qualified deferred compensation
plan which provides benefits to participants equal to those which would have
been provided under the Savings Plan but for the imposition of certain limits
under the Code and under the terms of the Savings Plan. For all participants,
the Make-Up Plan provides an additional matching contribution equal to the
amount which would have been contributed under the Savings Plan for such
participants, but for the $1,500 cap on matching contributions under the
Savings Plan. Senior Vice Presidents and the President of TCG are also
eligible for additional employer contributions under the Make-Up Plan equal to
the amount of employer contributions which would have been contributed to the
Savings Plan on their behalf, but for the limitation imposed by the Code on
compensation which may be taken into account in determining employer
contributions under the Savings Plan.
DEFERRED COMPENSATION PLAN
TCG established the Deferred Compensation Plan of Teleport Communications
Group Inc. (the "Deferred Compensation Plan"), effective as of January 1,
1996, to allow employees with UAP awards the opportunity to defer the payment
of such awards to a date later than that provided under the terms of the
awards. During each January, beginning with January 1996, with respect to any
UAP award that will become payable in the succeeding calendar year, a UAP
participant may elect to defer the payment of any portion of such UAP award,
in increments of 25%, for a period of one to five years or until his
termination of employment; provided, however, that the Deferred Compensation
Plan's Administrative Committee must approve any deferral beyond five years.
Notwithstanding any election made by a participant, all amounts under the
Deferred Compensation Plan shall be paid as of the participant's termination
of employment. Payments under the Deferred Compensation Plan will be paid in a
lump sum.
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The portion of any UAP award deferred under the Deferred Compensation Plan
will be contributed to a grantor trust established by TCG and shall be
invested thereunder in the same funds and in the same proportion that
contributions to the participant's account under the Savings Plan are
invested. The assets of the trust remain general assets of TCG, and the rights
of a participant in the Deferred Compensation Plan to the assets of the trust
are no greater than the rights of any other general unsecured creditor of TCG.
EMPLOYMENT AGREEMENTS
Robert Annunziata has entered into an employment agreement with TCG, dated
as of December 18, 1992 and as amended. The agreement provides that Mr.
Annunziata will be employed as Chairman of the Board of Directors, President
and Chief Executive Officer of TCG. The agreement establishes a base salary to
be paid to Mr. Annunziata each year which is subject to annual adjustment by
the Compensation Committee and increased at least 6% per year. For 1995, Mr.
Annunziata's base salary was $240,000. In addition, he is entitled to annual
bonuses in the range of 0% to 90% of his base salary, subject to the
attainment of certain performance objectives. The amount of the bonus is
determined at the discretion of the Compensation Committee. If the annual
goals set by the Compensation Committee are achieved, the target bonus is 60%
of Mr. Annunziata's base salary. Pursuant to the agreement, Mr. Annunziata
received 25,000 units under the Company's 1992 UAP. Mr. Annunziata would be
entitled to receive an award of comparable or greater economic opportunity
under any future unit appreciation plan adopted by TCG. In connection with
awards under the 1992 UAP, the agreement provides that the maximum
appreciation of 200% per Unit does not apply to Units awarded to him. In the
event of a direct or indirect transfer of 50% or more of the beneficial
ownership of the capital stock of TCG in one or more transactions to any
entity other than any of the Cable Stockholders and their respective
controlled subsidiaries (a "Change in Control"), all Units granted to Mr.
Annunziata under the 1992 UAP will fully vest and become payable. If TCG
terminates Mr. Annunziata's employment without Cause or if Mr. Annunziata
terminates his employment for Good Reason or within six months of a Change in
Control, then Mr. Annunziata is entitled to receive: (i) the continued payment
of his base salary, plus an annual bonus equal to no less than 50% of his base
salary, for a period of 30 months, (ii) immediate and full vesting of all
forms of deferred, contingent long-term compensation, including all UAP
awards, (iii) the greater of the options vested under the terms of his stock
option award as of the termination date, or options for 89,722 shares of
Common Stock in the event of resignation for Good Reason or, in the event of
termination without Cause, of options for 167,481 shares of Common Stock and
(iv) the continuance of all benefits and perquisites for 30 months, or if
earlier, until the date Mr. Annunziata commences other employment providing
comparable benefits. Mr. Annunziata may be terminated for Cause if he
materially breaches his employment agreement by acting or willfully failing to
act with results that are materially and demonstrably injurious to the
business of TCG. Mr. Annunziata may terminate his employment for Good Reason
if (i) without his prior written consent, there is a material reduction in his
functions, duties and responsibilities as Chief Executive Officer, (ii)
without his consent, his office is relocated outside the Northeast Corridor or
(iii) there is a material breach of his employment agreement by TCG. If Mr.
Annunziata's employment agreement terminates for any reason he (or his estate)
will have the right to put any stock of TCG that was paid to him under any UAP
within 30 days after such termination at the appraised value of such stock
under such UAP. Mr. Annunziata has agreed not to compete with TCG for the term
of his employment with TCG and for an additional period of two years
thereafter in the local telecommunications business.
Each of the other Named Executive Officers also has entered into an
employment agreement with TCG, dated as of July 12, 1994. The terms of each of
these four agreements are substantially identical. The terms of the employment
agreements of Messrs. Scarpati and Atkinson expire on December 31, 1998, and
the employment agreements of Messrs. Hansen and Mencher expire on December 31,
1999. Each agreement specifies the base salary to be received by the
executive, and provides for annual adjustment of the base salary by the CEO,
with the approval of the Compensation Committee, provided that the annual
increase must be at least 5%. The following base salaries were provided for
1995: Mr. Scarpati--$159,931, Mr. Atkinson--$156,711, Mr. Mencher--$146,284
and Mr. Hansen--$148,462. In addition, each executive is entitled to annual
bonuses in the range of 0% to 60% of his base salary, subject to the
attainment of certain performance objectives established by the CEO with the
approval of the Compensation Committee. The amount of the bonus is determined
at the discretion of the Compensation Committee. If the annual goals set by
the Compensation
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Committee are achieved, the target bonus must be at least 40% of the
executive's base salary. If TCG terminates the executive's employment without
Cause or if, following a Change in Control, the executive gives TCG at least
six months notice that he is terminating employment, then the executive is
entitled to receive (i) annual payments equal to his base salary, plus an
annual bonus equal to no less than 30% of his base salary, plus benefits,
through the end of the term of the agreement, but for no less than six months
and (ii) continued employment service credit, for the remaining term of the
employment agreement, for purposes of vesting under all forms of deferred
compensation and long-term incentive plans. The executive may be terminated
for Cause if he materially breaches his employment agreement by acting or
willfully failing to act with results that are materially and demonstrably
injurious to the business of TCG. With certain exceptions, a Change in Control
is deemed to occur if there is a direct or indirect transfer of 50% or more of
the legal or beneficial ownership of stock of TCG, in one or more
transactions, to any entity other than to any of the Cable Stockholders or any
of their controlled subsidiaries. Each agreement provides that during the six-
month period following his termination for any reason, the executive shall
have the right to require TCG to purchase from him any stock of TCG that he
owns, at the then appraised value or, if he terminates on or after July 1 of
any year, at the appraised value as of the following December 31. Each
executive has agreed not to compete with TCG during the term of his employment
or while he is receiving the severance benefits described above.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Recapitalization. Pursuant to the Reorganization Agreement, TCG and the
Cable Stockholders will effect the Reorganization, consisting of (i) the
acquisition by TCG of TCG Partners, (ii) the acquisition by TCG of additional
interests in the Local Market Partnerships, (iii) the contribution to TCG of
certain indebtedness owed by TCGI to the Cable Stockholders, (iv) the
amendment and restatement of the Certificate of Incorporation of TCGI, (v) the
amendment and restatement of the existing Stockholders' Agreement among TCGI
and its stockholders and (vi) redemption by the Company of 7,807,881 shares
(7,975,738 shares if the over-allotment options of the Underwriters of the
Stock Offerings are exercised in full) of Class B Common Stock held by a
subsidiary of Continental. See "The Reorganization."
Amended Stockholders' Agreement. In connection with the Reorganization, TCG
and the Cable Stockholders will enter into the Amended Stockholders'
Agreement. See "The Reorganization." The following summary description of the
Amended Stockholders' Agreement does not purport to be complete and is
qualified in its entirety by reference to the text of the Amended
Stockholders' Agreement, which is filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. Furthermore, there can be no
assurance that the Cable Stockholders will not cause the Amended Stockholders'
Agreement to be amended, modified or terminated or cause TCG to waive any
provision of the Amended Stockholders' Agreement.
The Amended Stockholders' Agreement provides that at each annual meeting of
the Company's stockholders at which directors are elected, the holders of the
Class B Common Stock will vote their shares in favor of nominees for director
to be designated as follows: (i) the holders of Class B Common Stock will
designate ten nominees (with the right of a holder of Class B Common Stock to
designate one or more nominees depending on the percentage of the Class B
Common Stock held by it), (ii) the Board of Directors of the Company will
designate by unanimous consent the Chief Executive Officer of the Company as a
nominee and (iii) the Board of Directors with the unanimous approval of the
holders of Class B Common Stock that have the right to designate nominees for
director shall designate two individuals who are neither employed by nor
affiliated with TCG or any holder of Class B Common Stock as nominees for
director. Under the Amended Stockholders' Agreement, a holder of Class B
Common Stock generally is entitled to designate one director nominee for each
9% of the outstanding shares of Class B Common Stock held by it and its
affiliates. The holders of the Class A Common Stock will not have the right,
as a class, under the Company's Amended and Restated Certificate of
Incorporation or the Amended Stockholders' Agreement to nominate any
individuals for election to the Board of Directors. The ability of Continental
Teleport (or its successor) to designate any directors after the earlier of
the consummation of its merger with U S WEST, Inc. or of the Stock Offerings
is limited in accordance with the terms of the Amended Stockholders'
Agreement. If Continental Teleport is not permitted to designate one or more
directors pursuant to certain contingencies described in the Amended
Stockholders' Agreement, the ability of the other holders of Class B Common
Stock to designate directors would be subject to adjustment in accordance with
the terms of the Amended Stockholders' Agreement.
The Amended Stockholders' Agreement prohibits any transfer of Class B Common
Stock held by the parties thereto, unless expressly permitted under the terms
thereof. Parties to the Amended Stockholders' Agreement have certain buy/sell
rights thereunder.
Each holder of Class B Common Stock has the right to sell all or a part of
its Class B Common Stock upon receiving a bona fide offer from an unaffiliated
third party, subject to giving notice to the other holders of Class B Common
Stock who have designated at least one director, which notice shall contain an
offer to sell such stock to such other holders of Class B Common Stock on the
terms and conditions set forth in the offer from the third party. Subject to
certain limitations, the non-selling holders of Class B Common Stock have the
right to purchase pro rata all of the Class B Common Stock offered. If the
non-selling holders of Class B Common Stock do not purchase all of the Class B
Common Stock offered, the offering holders of Class B Common Stock may sell
the Class B Common Stock to the third party on the terms contained in the
offer made to the other holders of Class B Common Stock. However, unless the
amount of Class B Common Stock is sufficient to entitle the transferee to
designate a nominee for director under the Amended Stockholders' Agreement
(i.e., the total percentage of Class B Common Stock that would be held by the
transferee and certain of its affiliates is at least nine percent) and the
transferee agrees to become a party to the Amended Stockholders' Agreement,
any Class B Common Stock included in the stock being sold must be converted to
Class A Common Stock.
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If any party desires to convert Class B Common Stock to Class A Common
Stock, it must first offer that stock to the other holders of Class B Common
Stock who have designated at least one director. If such other holders do not
elect to buy such stock, then such stock can be converted to Class A Common
Stock and sold by the selling stockholder free of restrictions under the
Amended Stockholders' Agreement. See "Description of Capital Stock."
The parties to the Amended Stockholders' Agreement will have demand
registration rights on the following terms: (i) no demand may be made for the
first six months after the Offerings, (ii) such parties collectively will have
the right to make one demand per year (with any such party having the right to
make such demand), (iii) the amount which can be sold pursuant to any demand
may be limited if the managing underwriter selected by the Company with the
approval of the party to the Amended Stockholders' Agreement that has included
the largest number of shares in the registration advises the Company that
marketing factors require a limitation of the number of shares to be
underwritten and (iv) if the amount determined pursuant to clause (iii) is
less than the aggregate amount which such parties want to sell in such
offering, each such party will have the right to sell its pro rata portion of
the maximum amount; provided, however, that during the period ending 42 months
after the date of the Offerings, if Continental is subject to a regulatory
requirement as a result of its merger with U S WEST, Inc. to reduce or
eliminate its investment in the Company, Continental will have a priority
claim in specified percentages on the amount specified in clause (iii) above
and the balance will be split proportionately among the other stockholders
which are a party to the Amended Stockholders' Agreement. The parties to the
Amended Stockholders' Agreement participating in the registration must
reimburse the Company for its out-of-pocket expenses incurred in connection
with any such demand registration.
The Amended Stockholders' Agreement will terminate when the aggregate voting
power of the Class B Common Stock represents less than 30% of the aggregate
voting power of all outstanding Common Stock.
Eastern TeleLogic Corporation and Comcast. In connection with the May 1993
issuance of TCG's stock to Comcast Teleport and Continental Teleport, TCG
purchased from Comcast Corporation, the parent corporation of Comcast
Teleport, for approximately $6.5 million, 49% of the issued and outstanding
stock of Comcast CAP of Philadelphia, Inc. ("Comcast CAP"), which owns 51% of
the outstanding stock of ETC on a fully-diluted basis. ETC is a competitive
access provider in the Philadelphia metropolitan area. In connection with its
purchase of stock of Comcast CAP, TCG entered into a stockholders' agreement
with Comcast Corporation and Comcast CAP providing for, among other things,
the corporate governance of Comcast CAP, stock transfer restrictions, rights
of first refusal and preemptive rights. Pursuant to the terms of the
respective stockholders' agreements among the stockholders of ETC and Comcast
CAP, TCG may, in the event of the exercise of certain put, call and redemption
rights, increase its percentage interest in ETC up to 74%. The purchase price
to be paid by TCG if its percentage interest in ETC were increased as a result
of the exercise of such put, call or redemption rights would be based on the
price paid to the minority shareholders of ETC for the purchase of their
shares in ETC, which price would be based on the fair market value of such
shares, on a fully-diluted basis, as determined by agreement among the parties
or, in the absence of such agreement, by the determination of independent
investment banking firms. In April 1996, TCG and Comcast entered into an
agreement pursuant to which TCG agreed that, upon exercise of put rights
(which are not exercisable until October 1, 1996) by the minority shareholders
of ETC, or other sale (which must be approved by TCG) by the minority
shareholders to Comcast, TCG would acquire, on terms and for a price yet to be
negotiated, all of the direct and indirect interests in ETC not currently
owned by it. While the Company cannot predict whether it will be required to
acquire such interests or the price of such interests, the Company estimates
that the cost of acquiring such interests would exceed $100 million. In
addition, in its agreement with Comcast, TCG agreed to provide to Comcast,
after acquisition of the ETC interests described above, certain services on
customary terms in the Philadelphia area, and Comcast agreed to utilize
exclusively TCG's wireline telecommunications services in the Philadelphia
area, subject to certain qualifications.
Operator Managed Ventures Services Agreements with Cox. Pursuant to the
terms of three Operator Managed Ventures Services Agreements between TCG and
certain affiliates of Cox, TCG has options to acquire up to a 35% interest in
the competitive access businesses conducted by such affiliates of Cox in New
Orleans, Oklahoma City and the Hampton Roads, Virginia area, respectively. To
the extent the Cox competitive access provider has derived revenue from any
contract entered into by TCG as a result of sales efforts engaged in by TCG on
behalf of such Cox operations, the purchase price shall be the ratio of the
annual TCG generated revenue to total annual revenue of the Cox operation
multiplied by the book value of the assets of the Cox operation. If
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such ratio is less than 35%, TCG may purchase the balance, up to 35%, of that
Cox operation for the fair market value (as determined in accordance with the
Operator Managed Ventures Services Agreements) of the operation.
TCG also provides management services to certain affiliates of Cox under
these agreements, including billing services, network monitoring and accounts
receivable functions. Under the terms of the agreements, TCG retains 8% of the
collected revenues from Cox customers as a royalty fee. Royalty fees recorded
from Cox were approximately $98,000, $27,000 and $0 for 1995, 1994 and 1993,
respectively, and are included in management and royalty fees in the
statements of operations. Included in accounts receivable-trade are
approximately $262,000 and $99,000 at December 31, 1995 and 1994,
respectively, for amounts owed by Cox customers.
Fidelity. In 1987, a subsidiary of TCG and a subsidiary of FMR Corp. created
a joint venture, Teleport Communications Boston. Pursuant to a series of
transactions consummated in October 1994, TCG acquired from a subsidiary of
FMR Corp. the 50% partnership interest in Teleport Communications Boston that
it did not own. As part of the transaction, TCG reimbursed the FMR Corp.
subsidiary for approximately $7 million of capital contributions paid by that
subsidiary to Teleport Communications Boston. The purchase price for the
partnership interest was $30.5 million which was paid by TCG's purchase of
stock of Continental valued at $30.5 million, and the delivery of that stock
to the FMR Corp. subsidiary. As a result of those transactions, Teleport
Communications Boston became a wholly owned subsidiary of TCG.
Residential Telephony Trials. At the request of certain cable television
operators, including Cable Stockholders, TCG is participating in residential
telephony trials in Arlington Heights, Illinois, Hartford, Connecticut and the
San Francisco Bay area. Although there are no agreements in effect, TCG
expects to be fully reimbursed for its costs incurred in connection with these
trials. At March 31, 1996, the amount due to TCG for reimbursement was
$644,100, and is included in miscellaneous accounts receivable.
Sales of Fiber Optic Cable. In 1994, TCG entered into agreements with
providers of fiber optic cable that contained discounts for certain volumes of
purchases. The agreements permitted TCG to purchase cable on behalf of
affiliates, including minority partners in the local market partnerships, and
to apply those purchases toward the volume discounts. In 1995, TCG purchased
cable on behalf of certain of the Cable Stockholders which it then sold to
them at cost. At March 31, 1996, the amount receivable from the owners was
approximately $3.4 million. TCG has purchased cable on behalf of unaffiliated
parties as well.
CAP Assets. In connection with the formation of the Local Market
Partnerships in Chicago, Dallas, Pittsburgh and Seattle, TCI has contributed
to the capital of such Local Market Partnerships certain businesses it owned
which provided local telecommunications services in the service area of such
Local Market Partnerships, in exchange for partnership interests in such Local
Market Partnerships. None of such businesses had a value in excess of $20.0
million, and each was valued based on the cost thereof.
Facilities Arrangements. Affiliates of the Cable Stockholders have entered
into two types of arrangements with the Local Market Partnerships pursuant to
which fiber optic and cable transmission facilities are made available to the
Local Market Partnerships. Pursuant to the terms of one type of such
arrangements, providing an indefeasible right of use, the compensation payable
by a Local Market Partnership is based on the affiliate's cost of construction
of such facilities, generally payable over five years. For the year ending
December 31, 1996, the approximate annual payments being made to TCI, Cox,
Continental and Comcast pursuant to such arrangements with the Local Market
Partnerships are expected to amount to $6.1 million, $3.4 million, $1.2
million and $879,000, respectively. Under the terms of the other type of such
arrangements, the Local Market Partnership agrees to provide, install and
maintain all customer premise and nodal electronics equipment and provide 24-
hour electronics maintenance and monitoring with respect to the cable
transmission service. The compensation payable by such Local Market
Partnership is based on a percentage of the total monthly recurring amount
which such Local Market Partnership bills to its customers which are served
through such affiliate's cable transmission service. The Company believes that
the terms of these arrangements are favorable to the Company and were
negotiated on an arm's-length basis.
The Company believes that the terms, taken as a whole, of the transactions
described under the headings "Eastern TeleLogic Corporation and Comcast,"
"Operator Managed Ventures Services Agreements with Cox," "Fidelity,"
"Residential Telephony Trials," "Sales of Fiber Optic Cable," "CAP Assets" and
"Facilities Arrangements," were no less favorable to the Company than could
have been obtained from unaffiliated parties.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table provides information, as of March 31, 1996, and as
adjusted to reflect the Reorganization, the purchase by the Company of
7,807,881 shares of Class B Common Stock held by Continental and the sale of
23,500,000 shares of Class A Common Stock by TCG in the Stock Offerings, with
respect to the beneficial ownership of the Company's Common Stock by (i) each
person known by TCG to be the beneficial owner of more than 5% of any class of
the Company's voting securities, (ii) the Named Executive Officers and (iii)
all directors and executive officers as a group. Except as otherwise
indicated, the address of each holder is the same as the Company. Each holder
has sole voting and investment power with respect to all shares of stock
listed as owned by such person.
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK PERCENT OF VOTE
------------- --------------- OF ALL CLASSES
NUMBER OF NUMBER OF OF COMMON
NAME SHARES % SHARES % STOCK
---- --------- --- ---------- ---- ---------------
<S> <C> <C> <C> <C> <C> <C>
Cox(1)(6).................. -- -- 39,087,594 29.7% 29.2%
TCI(2)(6).................. 638,862 2.6% 48,779,388 37.1% 36.5%
Comcast(3)(6).............. -- -- 25,622,058 19.5% 19.1%
Continental(4)(6).......... -- -- 17,953,449 13.7% 13.4%
Robert Annunziata(7)....... 111,654 * -- -- *
John A. Scarpati(7)........ 39,877 * -- -- *
Robert C. Atkinson(7)...... 31,901 * -- -- *
Alf T. Hansen(7)........... 27,116 * -- -- *
Stuart A. Mencher(7)....... 20,736 * -- -- *
All directors and executive
officers as a group
(13 persons, including
those named above)(5)(7).. 302,264 1.2% -- -- *
</TABLE>
- --------
* Less than 1%.
(1) Owned by Cox Teleport Partners, Inc., a wholly owned subsidiary of Cox, a
subsidiary of Cox Enterprises, Inc. The business address for Cox Teleport
Partners, Inc. and Cox Enterprises, Inc. is 1400 Lake Hearn Drive,
Atlanta, Georgia 30319.
(2) Owned by TCI Teleport, Inc., a wholly owned subsidiary of TCI. The
business address of TCI Teleport, Inc. and TCI is 5619 DTC Parkway,
Englewood, Colorado 80111-3000.
(3) Owned by Comcast Teleport, Inc., a wholly owned subsidiary of Comcast. The
business address of Comcast Teleport, Inc. and Comcast is 1500 Market
Street, Philadelphia, Pennsylvania 19102.
(4) Owned by Continental Teleport, Inc., a wholly owned subsidiary of
Continental. The business address of Continental Teleport, Inc. and
Continental is The Pilot House, Lewis Wharf, Boston, Massachusetts 02110.
(5) Except for the directors and executive officers named above, none of the
other directors of the Company beneficially own any shares of Class A
Common Stock or Class B Common Stock.
(6) As a result of the Amended Stockholders' Agreement, the Cable
Stockholders may be deemed to share beneficial ownership of the shares
beneficially owned by each of them.
(7) Represents shares of Class A Common Stock beneficially owned by the
officer through vested rights to options issued under the 1993 Stock
Option Plan.
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<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
On May 22, 1995, the Company entered into a Loan Agreement (the "Revolving
Credit Agreement") with Toronto Dominion (Texas), Inc., as administrative
agent, Chemical Bank, as documentation agent, and the Banks (as defined in the
Revolving Credit Agreement) to finance capital expenditures and working
capital needs of TCG New York, Inc. and of the Local Market Partnerships and
to repay debt of the Company, TCNY and its subsidiaries to the Cable
Stockholders. On December 19, 1995, pursuant to an Assumption Agreement, all
the rights and obligations of the Company pursuant to the Revolving Credit
Agreement were assumed by TCNY and the Company was released from any and all
obligations of TCNY under the Revolving Credit Agreement; provided, however,
that TCG is obligated to repay to TCNY an amount equal to the portion of the
proceeds of the loans which are provided to TCG or its other subsidiaries, and
notes evidencing such obligation must be collaterally assigned to the Banks as
security for the obligations of TCNY under the Revolving Credit Agreement.
The initial amount available to TCNY under the Revolving Credit Agreement
was $250 million; however, the available amount will be reduced according to a
prearranged progressive schedule until maturity at February 27, 2004. As of
March 31, 1996, $155 million was outstanding and TCNY had $74.6 million in
available capacity under the Revolving Credit Agreement.
At the option of TCNY, advances bear interest at a rate based on (i) the
Base Rate, which is the higher of (a) the Prime Rate of The Toronto-Dominion
Bank or (b) the Federal Funds Rate or (ii) the LIBOR. The interest rate on the
Revolving Credit Agreement as of March 31, 1996 was approximately 6.3%.
Interest on Base Rate advances is payable every calendar quarter. Interest on
LIBOR advances is payable at least every three months, or more frequently, at
the option of TCNY. In addition, TCNY must pay a commitment fee equal to
0.375% per annum on the unused commitment amount. The advances are guaranteed
by the subsidiaries of TCNY and secured by all the indebtedness of the
subsidiaries of TCNY to TCNY, the capital stock of the subsidiaries of TCNY
and the partnership interests of two of the subsidiaries of TCNY in Teleport
Communications New York, itself a subsidiary of TCNY and by the collateral
assignment of any notes evidencing loans made by TCNY to TCG or other
subsidiaries of TCG.
The Revolving Credit Agreement contains a number of covenants that restrict
TCNY and its subsidiaries from, among other things and except as specifically
provided in the Revolving Credit Agreement, incurring other indebtedness,
creating liens on their assets, liquidating, entering into merger or
consolidation transactions, disposing of assets outside the ordinary course of
business, providing guarantees, making certain investments and acquisitions,
entering into transactions with affiliates other than on an arms' length
basis, having unfunded ERISA Affiliates (as defined in the Revolving Credit
Agreement) and allowing the subsidiaries of TCNY to enter into transactions
limiting their ability to pay dividends to TCNY. The Revolving Credit
Agreement provides that TCNY is not permitted to pay dividends to TCGI at any
time prior to June 30, 1997, and may pay dividends to TCGI thereafter only if
(a) no default under the Revolving Credit Agreement exists, (b) the ratio of
the debt of TCNY to the product of two times its operating cash flow for the
prior two quarters is less than 5.0 to 1.0 and (c) such dividend is not paid
from the proceeds of any sale of assets. Amounts borrowed by TCNY under the
Revolving Credit Agreement may be lent to TCGI for general corporate purposes,
so long as such indebtedness is evidenced by promissory notes executed by TCGI
in favor of TCNY, and such promissory notes are pledged to the lenders under
the Revolving Credit Agreement. Finally, TCNY and its subsidiaries are
required to maintain certain levels of cash flow.
The Revolving Credit Agreement also contains customary events of default,
including, but not limited to, cross-default to other indebtedness of TCNY or
its subsidiaries, cross-acceleration to the indebtedness of TCG under the
Notes, certain decisions by the FCC, the loss of a Material License (as
defined in the Revolving Credit Agreement) and a Change of Control of TCNY
(which is defined as a change in the ownership of the stock of TCNY that
results in less than 50.1% of all voting rights relating to TCNY's capital
stock being owned, directly or indirectly, by one or more of the Cable
Stockholders, any of the Cable Stockholders and Sprint Corporation
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<PAGE>
or any person owned by Sprint Corporation and any of the Cable Stockholders).
The occurrence of an event of default would allow Toronto Dominion (Texas),
Inc., Chemical Bank and the Banks to accelerate the maturity of the
outstanding advances, call the guarantee of the subsidiaries of TCNY and
foreclose on the collateral.
Toronto Dominion (Texas), Inc. is the Administrative Agent under the
Revolving Credit Agreement and The Toronto-Dominion Bank is a lender under the
Revolving Credit Agreement, and each of them is an affiliate of Toronto
Dominion Securities (USA) Inc., which is one of the underwriters under the
Notes Offerings. An amount equal to approximately $14.0 million, plus interest
accrued thereon, will be paid to The Toronto-Dominion Bank from the proceeds
of the Offerings as a payment on the revolving credit facility. Chemical Bank
is the Documentation Agent and a lender under the Revolving Credit Agreement
and is an affiliate of Chase Securities Inc., which is one of the underwriters
under the Notes Offerings. An amount equal to approximately $14.0 million,
plus interest accrued thereon, will be paid to Chemical Bank from the proceeds
of the Offerings as a payment on the revolving credit facility. See
"Underwriting."
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<PAGE>
DESCRIPTION OF NOTES
GENERAL
The Senior Notes will be issued pursuant to an Indenture (the "Senior Notes
Indenture") between the Company and United States Trust Company of New York,
as trustee (in such capacity, the "Senior Notes Trustee"). The Senior Discount
Notes will be issued pursuant to an Indenture (the "Senior Discount Notes
Indenture") between the Company and United States Trust Company of New York,
as trustee (in such capacity, the "Senior Discount Notes Trustee"). Any
references herein to a "Trustee" means the Senior Notes Trustee or the Senior
Discount Notes Trustee, as the context requires. The form and terms of the
Notes include those stated in the Indentures and those made part of the
Indentures by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The Notes are subject to all such terms, and holders
of the Notes are referred to the Indentures and the Trust Indenture Act for a
statement thereof. The following summary of certain provisions of the
Indentures does not purport to be complete and is qualified in its entirety by
reference to the Indentures, including the definitions therein of certain
terms used below. The proposed forms of the Indenture have been filed as
exhibits to the Registration Statement of which this Prospectus is a part. The
definitions of certain terms used in the following summary are set forth below
under "--Certain Definitions."
The Notes will be unsecured obligations of the Company, ranking pari passu
in right of payment with all senior unsecured Indebtedness of the Company. On
a pro forma basis, after giving effect to the Reorganization, the Stock
Offerings and the sale of the Notes and the application of the net proceeds
therefrom (including the reduction of Indebtedness outstanding under the
Revolving Credit Agreement), at March 31, 1996, the Company would have had
approximately $651.7 million of Indebtedness outstanding (including $26
million of unsecured Indebtedness that will be subordinated to the Notes).
A significant portion of the operations of the Company is conducted through
its subsidiaries and, therefore, the Company is dependent upon the cash flow
of its subsidiaries to meet its obligations, including its obligations under
the Notes. As a result, the Notes will be effectively subordinated to all
existing and future indebtedness and other liabilities and commitments of such
subsidiaries, including borrowings under the Revolving Credit Agreement. On a
pro forma basis, after giving effect to the Reorganization, the Stock
Offerings and the sale of the Notes and the application of the net proceeds
therefrom, at March 31, 1996, the subsidiaries of the Company would have had
approximately $192.4 million of total liabilities, including $52.5 million of
Indebtedness, and additional availability under the Revolving Credit Agreement
of $230 million.
TERMS OF THE SENIOR NOTES
The Senior Notes will be issued in an aggregate principal amount of $200
million and will mature on , 2006. The Senior Notes will bear interest at
the rate of % per annum from , 1996 or from the most recent interest
payment date to which interest has been paid or duly provided for, payable in
cash on and semiannually thereafter on and in each year until
the principal thereof is paid or duly provided for, to holders of record on
the immediately preceding and , respectively. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
The Senior Notes will be payable as to principal, premium, if any, and
interest at the office or agency of the Company maintained for such purpose
within the City and State of New York or, at the option of the Company,
payment of interest may be made by check mailed to the holders of certificated
Senior Notes at their respective addresses set forth in the register of
holders of such Notes. Until otherwise designated by the Company, the
Company's office or agency in New York will be the office of the Trustee
maintained for such purpose. The Senior Notes will be issued in registered
form, without coupons, and in denominations of $1,000 and integral multiples
thereof.
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<PAGE>
Optional Redemption
Except as set forth below, the Senior Notes are not redeemable at the
Company's option prior to , 2001. Thereafter, the Senior Notes will be
subject to redemption at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount thereof) set forth below plus
accrued and unpaid interest thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001........................................................... %
2002........................................................... %
2003........................................................... %
2004 and thereafter............................................ 100%
</TABLE>
In addition, in the event of the first to occur after the Issuance Date and
prior to , 1999 of (a) a Public Equity Offering for gross proceeds of $150
million or more or (b) a sale or series of related sales by the Company of its
Capital Stock (other than Disqualified Stock) to one or more Strategic Equity
Investors for an aggregate purchase price of $150 million or more, the Company
may, at its option, within 60 days thereof, use up to 33% of the net proceeds
of such equity offering or sales to redeem a maximum of one-third of the
aggregate principal amount of the Senior Notes originally issued at a
redemption price of % of the principal amount of the Senior Notes so
redeemed; provided that at least one-half of the aggregate principal amount of
such Senior Notes originally issued remains outstanding after such redemption.
Any such redemption may be effected only once and must be effected upon not
less than 30 nor more than 60 days' notice given within 30 days following such
Public Equity Offering or the most recent sale to a Strategic Equity Investor,
as the case may be.
TERMS OF THE SENIOR DISCOUNT NOTES
The Senior Discount Notes will be issued at a discount to their principal
amount to generate aggregate gross proceeds to the Company of approximately
$400 million and will mature on , 2007. The Senior Discount Notes will
accrete at a rate of %, compounded semiannually, to an aggregate principal
amount of $ million by , 2001. Interest will not accrue on the Senior
Discount Notes prior to , 2001. Thereafter, interest on the Senior Discount
Notes will accrue at the rate of % per annum and will be payable in cash
semiannually on and (each an "Interest Payment Date"), commencing
on , 2001, to holders of record on the immediately preceding and ,
respectively; provided, however, that at any time prior to , 2001, the
Company may elect to commence the accrual of cash interest on an Interest
Payment Date (from and after such interest payment date), in which case the
outstanding principal amount at Stated Maturity of each Senior Discount Note
will on such Interest Payment Date be reduced to the Accreted Value of such
Note as of such Interest Payment Date and cash interest shall be payable with
respect to such Note on each Interest Payment Date thereafter. Except as
otherwise described in this paragraph, interest on the Senior Discount Notes
will accrue from the most recent date to which interest has been paid or, if
no interest has been paid, from , 2001. Interest and Accreted Value will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
The Senior Discount Notes will be payable as to principal, premium, if any,
and interest at the office or agency of the Company maintained for such
purpose within the City and State of New York or, at the option of the
Company, payment of interest may be made by check mailed to the holders of
certificated Senior Discount Notes at their respective addresses set forth in
the register of holders of such Notes. Until otherwise designated by the
Company, the Company's office or agency in New York will be the office of the
Trustee maintained for such purpose. The Senior Discount Notes will be issued
in registered form, without coupons, and in denominations of $1,000 and
integral multiples thereof.
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<PAGE>
Optional Redemption
Except as set forth below, the Senior Discount Notes are not redeemable at
the Company's option prior to , 2001. Thereafter, the Senior Discount Notes
will be subject to redemption at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount thereof (subject to
possible reduction as set forth above)) set forth below plus accrued and
unpaid interest thereon to the applicable redemption date, if redeemed during
the twelve-month period beginning on of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001........................................................... %
2002........................................................... %
2003........................................................... %
2004 and thereafter............................................ 100%
</TABLE>
In addition, in the event of the first to occur after the Issuance Date and
prior to , 1999 of (a) a Public Equity Offering for gross proceeds of $150
million or more or (b) a sale or series of related sales by the Company of its
Capital Stock (other than Disqualified Stock) to one or more Strategic Equity
Investors for an aggregate purchase price of $150 million or more, the Company
may, at its option, within 60 days thereof, use up to 67% of the net proceeds
of such equity offering or sales to redeem up to one-third of the aggregate
principal amount of the Senior Discount Notes originally issued at a
redemption price of % of the Accreted Value as of the redemption date of
the Senior Discount Notes so redeemed; provided that at least one-half of the
aggregate principal amount of such Senior Discount Notes originally issued
remains outstanding after such redemption. Any such redemption may be effected
only once and must be effected upon not less than 30 nor more than 60 days'
notice given within 30 days following such Public Equity Offering or the most
recent sale to a Strategic Equity Investor, as the case may be.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Notes will have
the right to require the Company to repurchase all or any part (equal to
$1,000 in principal amount or an integral multiple thereof) of such holder's
Notes pursuant to the offer described below (the "Change of Control Offer") at
a purchase price (the "Purchase Price") equal to (a) in the case of the Senior
Notes, 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, to such Change of Control Payment Date, or (b) in case of the Senior
Discount Notes, (i) 101% of the Accreted Value thereof on any Change of
Control Payment Date (as defined below) occurring prior to , 2001, plus any
accrued and unpaid interest not otherwise included in the Accreted Value to
such Change of Control Payment Date or (ii) 101% of the principal amount
thereof (subject to possible reduction as set forth under "--Principal,
Maturity and Interest") on any Change of Control Payment Date occurring on or
after , 2001, in each case in accordance with the procedures set forth in
the applicable Indenture.
Within 30 days following any Change of Control, the Company will mail a
notice to each holder stating: (1) that the Change of Control Offer is being
made pursuant to the provisions of the applicable Indenture described herein
under "--Change of Control" and that all Notes duly and timely tendered will
be accepted for payment; (2) the Purchase Price and the purchase date (the
"Change of Control Payment Date"), which date shall be no earlier than 30 days
nor later than 60 days from the date such notice is mailed; (3) that any Notes
not tendered will continue to accrete and/or accrue interest, as the case may
be; (4) that, unless the Company defaults in the payment of the Purchase
Price, all Notes accepted for payment pursuant to the Change of Control Offer
shall cease to accrete and/or accrue interest, as the case may be, after the
Change of Control Payment Date; (5) that holders electing to have any Notes
purchased pursuant to a Change of Control Offer will be required to
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<PAGE>
surrender the Notes, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Notes completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the third
Business Day preceding the Change of Control Payment Date; (6) that holders
will be entitled to withdraw their election if the Paying Agent receives, not
later than the close of business on the second Business Day preceding the
Change of Control Payment Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the holder, the principal amount of Notes
delivered for purchase, and a statement that such holder is withdrawing his
election to have such Notes purchased; (7) that holders whose Notes are being
purchased only in part will be issued new Notes equal in principal amount to
the unpurchased portion of the Notes surrendered, which unpurchased portion
must be equal to $1,000 in principal amount or an integral multiple thereof;
(8) the instructions that the holders of Notes must follow in order to tender
their Notes; and (9) the circumstances and relevant facts regarding such
Change of Control.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Notes in connection with a Change of Control.
The holders' right to require, subject to certain conditions, the Company to
repurchase its Notes upon a Change of Control may deter a third party from
acquiring the Company in a transaction that constitutes a Change of Control.
If a Change of Control Offer is made, there can be no assurance that the
Company will have sufficient funds to pay the Purchase Price for all of the
Notes that might be delivered by holders seeking to accept the Change of
Control Offer. In the event that a Change of Control Offer occurs at a time
when the Company does not have sufficient funds available to repurchase the
Notes or at a time when the Company is prohibited from repurchasing the Notes
under the terms of other Indebtedness (and the Company is unable either to
obtain the consent of holders of such other Indebtedness or to repay such
other Indebtedness), an Event of Default would occur under the Indentures.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company. Although there is a developing body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of the
holders of Notes to require the Company to repurchase such Notes as a result
of a sale, lease, transfer, conveyance or other disposition of less than all
of the assets of the Company and its subsidiaries to another Person may be
uncertain.
SELECTION AND NOTICE
If less than all of the Senior Notes or the Senior Discount Notes, as the
case may be, are to be redeemed at any time, a selection of Notes for
redemption will be made by the relevant Trustee on a pro rata basis, subject
to the requirements of any national securities exchange on which such Notes
are listed, provided that no Note of $1,000 or less shall be redeemed in part.
Notice of redemption shall be mailed by first class mail at least 30 but not
more than 60 days before the redemption date to each holder of Notes to be
redeemed at its registered address. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the
portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon cancellation of the original Note. On and
after the redemption date, with respect to the Notes or portions thereof
called for redemption, discount will cease to accrete or interest will cease
to accrue, as the case may be.
CERTAIN COVENANTS
Limitation on Incurrence of Indebtedness
The Indentures will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable
with respect to (collectively, "incur") any Indebtedness (including, without
limitation, Acquired Indebtedness)
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<PAGE>
other than Permitted Indebtedness, unless, in the case of Indebtedness of the
Company exclusively, (a) no Default or Event of Default shall have occurred
and be continuing at the time of the proposed incurrence thereof or would
occur as a result of such proposed incurrence and (b) after giving effect to
such incurrence on a pro forma basis (i) with respect to such proposed
incurrence of Indebtedness on or prior to January 1, 2001, the Company's
Indebtedness to Adjusted Total Equity Ratio would not exceed 1.0 to 1.0, and
(ii) with respect to such proposed incurrence of Indebtedness thereafter, the
Company's Indebtedness to EBITDA Ratio would not equal or exceed 5.0 to 1.0.
Limitation on Restricted Payments
The Indentures will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, make any
Restricted Payment unless, at the time of such Restricted Payment and after
giving pro forma effect thereto:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof;
(b) the aggregate amount of all Restricted Payments subsequent to the
Issuance Date would not exceed the greater of:
(1) the sum of:
(w) cumulative EBITDA of the Company and its Restricted
Subsidiaries less 1.4 times cumulative Consolidated Interest
Expense, in each case for the period (treated as one accounting
period) beginning on the first day of the Company's fiscal quarter
in which the Issuance Date occurs, and ending on the last day of the
Company's fiscal quarter immediately preceding such proposed
Restricted Payment; plus
(x) 100% of the net cash proceeds received by the Company from any
Person from the issuance and sale subsequent to the Issuance Date of
Equity Interests of the Company or of debt securities of the Company
that have been converted into such Equity Interests (other than
Equity Interests (or convertible debt securities) sold to a
Restricted Subsidiary and other than Disqualified Stock or debt
securities that have been converted into Disqualified Stock); minus
(y) 100% of all Investments made pursuant to clause (d) of the
definition of "Permitted Investments" less any such amounts invested
in Local Market Partnerships that become Restricted Subsidiaries
prior to the first anniversary of the Issuance Date; minus
(z) the amount of any Investments in Joint Ventures pursuant to
clause (e)(ii) of the definition of "Permitted Investments" less the
Fair Market Value of the Company's interest in any Joint Ventures
that become Restricted Subsidiaries but not in excess of the amount
of any such Investments in such Joint Ventures pursuant to such
clause (e)(ii); and
(2) $10 million; and
(c) the Company would have been permitted to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
test set forth in clause (b) of the covenant entitled "Limitation on
Incurrence of Indebtedness."
The foregoing provisions of this covenant will not prohibit (i) the payment
of any dividend (or similar distribution with respect to Equity Interests)
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indentures; (ii) the redemption, purchase, retirement or other acquisition of
any Equity Interests of the Company or any Restricted Subsidiary in exchange
for, or out of the proceeds of the substantially concurrent sale (other than
to a Restricted Subsidiary) of, other Equity Interests (other than any
Disqualified Stock) of the Company; (iii) the redemption, purchase, retirement
or other acquisition of any Equity Interests of a Restricted Subsidiary in
exchange for, or out of the proceeds of the substantially concurrent sale
(other than to another Restricted Subsidiary) of, other Equity Interests
(other than Disqualified Stock) of such Restricted Subsidiary, (iv) the
redemption, purchase, defeasance,
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acquisition or retirement of Indebtedness that is subordinated to the Notes
(including premium, if any, and accrued and unpaid interest, fees and
expenses) in exchange for, or out of the proceeds of the substantially
concurrent sale (other than to a Restricted Subsidiary) of, (A) Equity
Interests (other than Disqualified Stock) of the Company or (B) Refinancing
Indebtedness permitted to be incurred under the covenant entitled "Limitation
on Incurrence of Indebtedness"; (v) any purchase, redemption, retirement or
acquisition, from minority partners in Local Market Partnerships existing on
the Issuance Date, of any Capital Stock of such Local Market Partnership at
the time or after it becomes a Restricted Subsidiary; (vi) any distribution in
respect of partners' income tax liability and any other distribution that is
required to be made pursuant to the terms of any partnership agreement or
similar operating agreement in effect as of the Issuance Date governing any
Local Market Partnership existing as of the Issuance Date or, to the extent
that it is pro rata or required under law, any distribution that is required
to be made pursuant to the terms of any other similar partnership or similar
operating agreement entered into after the Issuance Date; (vii) the purchase,
redemption, retirement or acquisition by the Company of shares of Capital
Stock of the Company from Continental Teleport, Inc. pursuant to the
Reorganization Agreement as described under "Use of Proceeds"; (viii) the
purchase, redemption or other acquisition or retirement for value of Capital
Stock, or options, warrants or rights to purchase or acquire shares of Capital
Stock, of the Company or any Restricted Subsidiary, or similar securities,
held by officers or employees or former officers or employees of the Company
or its Restricted Subsidiaries (or their estates or beneficiaries under their
estates), upon death, disability, retirement or termination of employment in
an aggregate amount not to exceed $2 million per year; and (ix) Permitted
Investments.
For purposes of this covenant, if a particular Restricted Payment involves a
non-cash payment, including a distribution of assets, then the amount of such
Restricted Payment shall be deemed to be an amount equal to the sum of the
cash portion of such Restricted Payment, if any, plus an amount equal to the
Fair Market Value of the non-cash portion of such Restricted Payment.
Not later than the date of making any Restricted Payment (other than those
described under clauses (v), (vi), (vii) or (viii) of the second preceding
paragraph), the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by clause (b), to the extent applicable,
of the covenant entitled "Limitation on Restricted Payments" were computed,
which calculations may be based upon the Company's latest available financial
statements.
Limitation on Liens
The Indentures will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or otherwise suffer to exist any Lien (other than Permitted Liens) on
any property or asset now owned or hereafter acquired, of the Company or any
such Restricted Subsidiary, unless (a) in the case of any Lien securing
Indebtedness that is expressly subordinated in right of payment to the Notes,
the Notes are secured by a Lien on such property or assets that is senior in
priority to such Lien for so long as such Indebtedness shall be so secured and
(b) in the case of any other Lien, the Notes are equally and ratably secured
with the obligation or liability secured by such Lien for so long as such
obligation or liability shall be so secured.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Indentures will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to (a) pay dividends,
in cash or otherwise, or make any other distributions on its Capital Stock or
with respect to any other interest or participation in, or measured by, its
profits owned by, or pay any Indebtedness owed to, the Company or any of its
Restricted Subsidiaries or (b) make loans or advances to the Company or any of
its Restricted Subsidiaries or (c) transfer any of its properties or assets to
the Company or any of its Restricted Subsidiaries, except, in each case, for
such encumbrances or restrictions existing under or by reason of (i) the
Revolving Credit Agreement, provided that
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any such encumbrances or restrictions, taken as a whole, are no more
restrictive than those contained in the Revolving Credit Agreement as in
effect on the Issuance Date, (ii) applicable law, (iii) any instrument
governing Indebtedness or Capital Stock of a Person acquired by the Company or
any of its Restricted Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in connection
with such acquisition), which encumbrance or restriction is not applicable to
any Person, or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired, (iv) customary
nonassignment provisions in leases, rights-of-way agreements and other
agreements entered into in the ordinary course of business and consistent with
past practices, (v) with respect to clause (c) above, purchase money
obligations for property acquired in the ordinary course of business, (vi)
Refinancing Indebtedness permitted to be incurred under the covenant entitled
"Limitation on Incurrence of Indebtedness," provided that the restrictions
contained in the agreements governing such Refinancing Indebtedness are no
more restrictive than those contained in the agreements governing the
Indebtedness being refinanced, (vii) any other Indebtedness permitted to be
incurred by a Restricted Subsidiary under the covenant entitled "Limitation on
Incurrence of Indebtedness," provided that the restrictions contained in the
agreements governing such Indebtedness are similar to those contained in the
Revolving Credit Agreement as in effect on the Issuance Date, (viii)
provisions of the partnership agreement or other operating agreement in effect
as of the Issuance Date governing any Local Market Partnership existing as of
the Issuance Date, and (ix) any agreement effecting the renewal, refundings,
refinancing or extension of any Indebtedness referred to in the preceding
clause (iii) provided that the restrictions contained in the agreements
governing such new Indebtedness are no more restrictive than those contained
in the agreements governing the Indebtedness being extended, renewed,
refinanced or replaced. For a description of certain restrictions in the
Revolving Credit Agreement relevant to this covenant, see "Description of
Certain Indebtedness."
Limitation on Issuance and Sale of Capital Stock of Restricted Subsidiaries
The Indentures will provide that the Company (a) will not permit any
Restricted Subsidiary to issue any Capital Stock (other than to the Company or
a Wholly Owned Restricted Subsidiary) and (b) will not permit any Person
(other than the Company or a Restricted Subsidiary) to own any Capital Stock
of any Restricted Subsidiary; provided, however, that this covenant will not
prohibit (i) the sale or other disposition of all, but not less than all, of
the issued and outstanding Capital Stock of any Restricted Subsidiary owned by
the Company or any Restricted Subsidiary in compliance with the other
provisions of the Indentures, (ii) the ownership by directors of director's
qualifying shares or the ownership by foreign nationals of Capital Stock of
any Restricted Subsidiary, to the extent mandated by applicable law, (iii) the
ownership of Capital Stock of a Restricted Subsidiary issued and outstanding
either (A) as of the Issuance Date (including minority partnership interests
in Local Market Partnerships existing on the Issuance Date) or (B) prior to
the time that such Person becomes a Restricted Subsidiary so long as such
Capital Stock was not issued in contemplation of such Person's becoming a
Restricted Subsidiary of the Company or otherwise being acquired by the
Company or (iv) the issue or sale of Capital Stock of a Restricted Subsidiary
in a transaction not prohibited by the covenant entitled "Limitation on Asset
Sales," provided that such Restricted Subsidiary would remain a Restricted
Subsidiary after such transaction.
Limitation on Guarantees of Indebtedness by Restricted Subsidiaries
The Indentures will provide that the Company will not permit any Restricted
Subsidiary, directly or indirectly, to Guarantee, assume or in any other
manner become liable for the payment of any Indebtedness of the Company unless
(i) (A) such Restricted Subsidiary simultaneously executes and delivers a
supplemental indenture to the relevant Indenture providing for a Guarantee of
payment of the Senior Notes or Senior Discount Notes, as the case may be,
Notes by such Restricted Subsidiary and (B) with respect to any Guarantee of
subordinated Indebtedness of the Company by a Restricted Subsidiary, any such
Guarantee shall be subordinated to such Restricted Subsidiary's Guarantee with
respect to the relevant Notes at least to the same extent as such
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subordinated Indebtedness is subordinated to the Notes and (ii) such
Restricted Subsidiary waives and will not in any manner whatsoever claim or
take the benefit or advantage of, any rights of reimbursement, indemnity or
subrogation or any other rights against the Company or any other Restricted
Subsidiary as a result of any payment by such Restricted Subsidiary under its
Guarantee until the relevant Notes have been paid in full. The incurrence by a
Restricted Subsidiary as a primary obligor of any Indebtedness that is
guaranteed by the Company will not be deemed a Guarantee of the Company's
Indebtedness for purposes of this covenant.
Notwithstanding the foregoing, any Guarantee of the relevant Notes or waiver
of rights created pursuant to the provisions described in the foregoing
paragraph will provide by their terms that they will be automatically and
unconditionally released and discharged upon the release by the holders of the
Indebtedness of the Company described in the preceding paragraph of their
Guarantee by such Restricted Subsidiary (including any deemed release upon
payment in full of all obligations under such Indebtedness, except by or as a
result of payment under such Guarantee), at a time when (A) no other
Indebtedness of the Company has been Guaranteed by such Restricted Subsidiary
or (B) the holders of all such other Indebtedness which is Guaranteed by such
Restricted
Subsidiary also release their Guarantee by such Restricted Subsidiary
(including any deemed release upon payment in full of all obligations under
such Indebtedness, except by or as a result of payment under such Guarantee).
Limitation on Asset Sales
The Indentures will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, cause, make or suffer to exist any
Asset Sale unless (a) the Company (or the applicable Restricted Subsidiary, as
the case may be) receives consideration at the time of such Asset Sale at
least equal to the Fair Market Value of the assets or property sold or
otherwise disposed of and (b) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of
Eligible Cash Equivalents (or, if less than 75%, the remainder of such
consideration consists of Telecommunications Assets).
Within 365 days after any Asset Sale, the Company (or the applicable
Restricted Subsidiary, as the case may be) may apply (but shall not be
required to apply) the Net Proceeds from such Asset Sale (a) to permanently
reduce outstanding Indebtedness of the Company that is pari passu in right of
payment with the Notes or Indebtedness of any Restricted Subsidiary or (b) to
invest or reinvest in properties and assets that will be used in the
Telecommunications Business. Any Net Proceeds from any Asset Sale that are not
used, invested or reinvested at the end of such 365-day period as provided in
the preceding sentence constitute "Excess Proceeds." Pending final application
of any Net Proceeds of an Asset Sale, such Net Proceeds may only be invested
in Eligible Cash Equivalents or applied to pay Obligations under the Revolving
Credit Agreement. When the aggregate amount of Excess Proceeds exceeds $10
million, the Company will be required to make an offer (an "Asset Sale Offer")
to all holders of the Notes to purchase on a pro rata basis the maximum
principal amount of Notes that may be purchased out of such Excess Proceeds at
an offer price in cash in an amount equal to (a) in the case of the Senior
Notes, 100% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the date fixed for the closing of such offer, or (b) in the case of
the Senior Discount Notes, 100% of the Accreted Value on the date fixed for
closing of such offer (if such date is prior to , 2001) plus any accrued
and unpaid interest not otherwise included in the Accreted Value on such date,
or 100% of the principal amount thereof (subject to possible reduction as set
forth under "--Principal, Maturity and Interest") plus accrued and unpaid
interest, if any, to the date fixed for the closing of such offer (if such
date is on or after , 2001) in accordance with the procedures set forth in
the Indentures. To the extent that the aggregate Accreted Value or principal
amount, as the case may be, of the Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds remaining after the consummation of any
required Asset Sale Offer to the holders of the Notes, the Company may use any
remaining Excess Proceeds for general corporate purposes not otherwise
prohibited by the Indentures. If the aggregate Accreted Value or principal
amount, as the case may be, of the Notes surrendered by holders thereof
exceeds the amount of Excess Proceeds, then the Trustee will select the Notes
to be purchased on the basis set forth under "--Selection and Notice" above.
Upon completion of any required Asset Sale Offer to the holders of the Notes,
the amount of Excess Proceeds will be reset at zero. The provisions of this
covenant shall not apply to any transaction that is permitted under the
provisions of the covenant described
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under "Limitation on Merger, Consolidation or Sale of Assets" and to certain
transactions that are not "Asset Sales," including certain Restricted
Payments. See "--Certain Definitions" for the definition of Asset Sale.
Limitation on Transactions with Stockholders and Affiliates
The Indentures will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, render any
services to or receive any services from, conduct any business or enter into
or permit to exist any transaction or series of related transactions within
any twelve-month period (including, but not limited to, the purchase, sale,
exchange, lease, transfer or other disposition of any of its properties or
assets) or enter into any contract, agreement, understanding, loan, advance or
guarantee with, or for the benefit of, any holder (or any Affiliate of such
holder) of 5% or more of any class of Capital Stock of the Company or with any
Affiliate of the Company or any Restricted Subsidiary (each of the foregoing,
an "Affiliate Transaction"), unless (a) such Affiliate Transaction is fair to
the Company or the relevant Restricted Subsidiary and on terms that are no
less favorable, taken as a whole, to the Company or the relevant Restricted
Subsidiary than those that could have been obtained in a comparable
transaction by the Company or such Restricted Subsidiary with an unrelated
Person (or, in the event that there are no comparable transactions involving
unrelated Persons to apply for comparative purposes, is otherwise on terms
that, taken as a whole, the Company has determined to be fair to the Company
or the relevant Restricted Subsidiary) and (b) the Company delivers to the
Trustee with respect to any Affiliate Transaction involving an aggregate
consideration in excess of $15 million, either (i) a resolution of the Board
of Directors set forth in an Officers' Certificate certifying that each such
Affiliate Transaction complies with clause (a) above and which Board
Resolution shall have been approved by a majority of the directors on the
Board of Directors who are disinterested with respect to such transaction or
(ii) a written opinion from a nationally recognized investment banking firm
that each such Affiliate Transaction complies with clause (a) above (without
regard to the parenthetical clause thereof).
Notwithstanding the foregoing provisions, the following shall not be deemed
to be Affiliate Transactions: (A) any transaction (1) in the ordinary course
of business between the Company or any Restricted Subsidiary and any Affiliate
thereof engaged in the Telecommunications Business or (2) with respect to the
lease or sharing or other use of cable or fiber lines, equipment, transmission
capacity, rights-of-way or other access rights, between the Company or any
Restricted Subsidiary and any other Person, provided, however, in either case,
that such transaction is on terms that are no less favorable, taken as a
whole, to the Company or the relevant Restricted Subsidiary than those that
could have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person (or, in the event that there
are no comparable transactions involving unrelated Persons to apply for
comparative purposes, is otherwise on terms that, taken as a whole, the
Company has determined to be fair to the Company or the relevant Restricted
Subsidiary); (B) any transaction between the Company and any Wholly Owned
Restricted Subsidiary or between any Wholly Owned Restricted Subsidiaries; (C)
any employment agreement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business and consistent with the past
practice of the Company or such Restricted Subsidiary, (including ordinary
course transactions with officers or directors with respect to compensation,
bonus, employee benefit and severance arrangements, and payments under
indemnification arrangements existing as of the Issuance Date or as may be
permitted by law with any officer or director); (D) transactions permitted by
the provisions of the Indentures described above under "Limitation on
Restricted Payments"; (E) transactions undertaken pursuant to contractual
obligations in place as of the Issuance Date; (F) purchases of goods and
services, any service trials, market testing and new product arrangements
entered into in the ordinary course of business and on terms consistent with
past practice; and (G) all transactions necessary to effect the
Reorganization.
Limitation on Merger, Consolidation or Sale of Assets
The Indentures will provide that the Company may not consolidate or merge
with or into (whether or not the Company is the surviving Person), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions, to
another Person unless (i) the Company is the surviving corporation or the
Person formed by or surviving any such consolidation or merger (if
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other than the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation,
partnership or limited liability company organized or existing under the laws
of the United States, any state thereof or the District of Columbia; (ii) the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or to which such sale, assignment, transfer, lease, conveyance or
other disposition shall have been made assumes all the obligations of the
Company, pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, under the Notes and the Indentures and, in the
case of such surviving Person that is a partnership, at least one subsidiary
of such Person which shall be a corporation organized or existing under the
laws of the United States, any state thereof or the District of Columbia and
which shall also assume the Obligations of the Company under the Notes as a
co-obligor with such surviving Person; (iii) immediately before and after
giving effect to such transaction or series of transactions on a pro forma
basis (including, without limitation, any Indebtedness incurred or anticipated
to be incurred in connection with or in respect of such transaction or series
of transactions), no Default or Event of Default shall have occurred and be
continuing or would result therefrom; and (iv) immediately after giving effect
to any such transaction or series of transactions on a pro forma basis
(including, without limitation, any Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction or series of
transactions) as if such transaction or series of transactions had occurred on
the first day of the determination period, the Company (or the surviving
entity if the Company is not continuing) would be permitted to incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
covenant entitled "Limitation on Incurrence of Indebtedness."
REPORTS TO HOLDERS
The Company shall deliver to the Trustee and to the holders, within 30 days
after it files them with the Commission, copies of its annual and quarterly
reports which the Company is required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act. Notwithstanding that the Company may
not be required to remain subject to the reporting requirements of Section 13
or 15(d) of the Exchange Act or otherwise report on an annual and quarterly
basis on forms provided for such annual and quarterly reporting pursuant to
rules and regulations promulgated by the Commission, the Indentures will
require the Company to continue to file with the Commission and provide to the
Trustee and to the holders annual audited financial statements and quarterly
unaudited financial statements, along in each case with a "Management's
Discussion and Analysis of Results of Operations and Financial Condition," all
in the form the Company would be required to file were it subject to the
Exchange Act reporting requirements. The Company shall not be obligated to
file any such reports with the Commission if the Commission does not permit
such filings.
EVENTS OF DEFAULT AND REMEDIES
The Indentures will provide that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest on the
Senior Notes or the Senior Discount Notes, as the case may be; (ii) default in
the payment when due of principal of or premium, if any, on the Senior Notes
or the Senior Discount Notes, as the case may be; (iii) failure by the Company
to comply with the provisions described under "--Change of Control" and in the
covenant entitled "Limitation on Asset Sales"; (iv) failure by the Company for
60 days after notice by the Trustee or the holders of 25% of the aggregate
principal amount of the outstanding Senior Notes or the Senior Discount Notes,
as the case may be, to comply with any covenants and agreements contained in
the relevant Indenture or Notes (other than a default in the performance, or
breach, of a covenant or agreement which is specifically dealt with in (i),
(ii) or (iii) above); (v) default under any mortgage, indenture or instrument
under which there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Restricted Subsidiaries), whether such Indebtedness or guarantee now
exists, or is created after the Issuance Date, which default (a) is caused by
a failure to pay when due at stated maturity principal or interest on such
Indebtedness within the grace period (including any extension thereof granted
by the holders of such Indebtedness) provided in such Indebtedness (a "Payment
Default") or (b) results in the acceleration of such Indebtedness prior to its
express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been
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a Payment Default or the maturity of which has been so accelerated, aggregates
$25 million or more; (vi) failure by the Company or any Restricted Subsidiary
to pay final judgments aggregating in excess of $25 million (net of any amount
as to which a reputable insurance company has accepted liability), which
judgments are not stayed or bonded within 60 days after their entry; (vii) any
Guarantee by a Guarantor of the Senior Notes or the Senior Discount Notes, as
the case may be, being held in any judicial proceeding to be unenforceable or
invalid, provided any other Guarantee by such Guarantor giving rise to such
obligation to Guarantee such Notes is not held unenforceable, or failure of
any Guarantee of the Senior Notes or the Senior Discount Notes, as the case
may be, to be in full force and effect, or the assertion that such Guarantee
is invalid or unenforceable by any such Guarantor; and (viii) certain events
of bankruptcy or insolvency with respect to the Company or any of its
Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in aggregate principal amount of the outstanding Senior Notes
or the Senior Discount Notes, as the case may be, may declare all such Notes
to be due and payable immediately. Notwithstanding the foregoing, in the case
of an Event of Default arising from certain events of bankruptcy or
insolvency, with respect to the Company or any Significant Subsidiary, all
outstanding Notes will become due and payable without further action or
notice. Holders of the Senior Notes or the Senior Discount Notes, as the case
may be, may not enforce the relevant Indenture or Notes except as provided in
such Indenture. Subject to certain limitations, holders of a majority in
aggregate principal amount of the then outstanding Senior Notes or the Senior
Discount Notes, as the case may be, may direct the Trustee in its exercise of
any trust or power. The Trustee may withhold from holders of the Senior Notes
or the Senior Discount Notes, as the case may be, notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal, premium, if any, or interest) if it determines that
withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the outstanding
Senior Notes or Senior Discount Notes, as the case may be, by notice to the
Trustee may on behalf of the holders of all of such Notes waive any existing
Default or Event of Default and its consequences (including rescind any
acceleration of the Notes) under the relevant Indenture except a continuing
Default or Event of Default in the payment of interest or premium, if any, on
or the principal of, such Notes or as a result of a failure to comply with the
provisions described under "--Change of Control" and in the covenant entitled
"Limitation on Asset Sales".
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, agent, incorporator or stockholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Notes or the Indentures or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each holder of the Notes by
accepting a Note irrevocably waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the
Notes. Such waiver may not be effective to waive liabilities under the Federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
SATISFACTION AND DISCHARGE OF THE INDENTURE; DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
Obligations discharged with respect to the outstanding Senior Notes or Senior
Discount Notes, as the case may be, ("Legal Defeasance") except for (i) the
rights of holders of outstanding Notes to receive payments solely from the
funds held in trust in respect of the principal of, premium, if any, and
interest on such Notes when such payments are due, (ii) the Company's
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's
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obligations in connection therewith and (iv) the Legal Defeasance provisions
of the relevant Indenture. In addition, the Company may, at its option and at
any time, elect to have the obligations of the Company released with respect
to certain covenants that are described in an Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the relevant
Notes. In the event Covenant Defeasance occurs, certain events (not including
non-payment of such Notes, bankruptcy and insolvency events) described under
"--Events of Default" will no longer constitute Events of Default with respect
to such Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the relevant Notes, cash in U.S. dollars, non-callable U.S.
Government Securities, or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest on
the relevant outstanding Notes on the stated maturity or on the applicable
redemption date, as the case may be, of such principal or installment of
principal of, premium, if any, or interest on such outstanding Notes; (ii) in
the case of Legal Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably satisfactory to the
Trustee confirming that (A) the Company has received from, or there has been
published by, the Internal Revenue Service or (B) since 1996, there has
been a change in the applicable federal income tax law, in either case to the
effect that, and based thereon such opinion of counsel shall confirm that, the
holders of the relevant outstanding Notes will not recognize income, gain or
loss for federal income tax purposes solely as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if such
Legal Defeasance had not occurred; (iii) in the case of Covenant Defeasance,
the Company shall have delivered to the Trustee an opinion of counsel in the
United States reasonably acceptable to the Trustee confirming that the holders
of the relevant outstanding Notes will not recognize income, gain or loss for
federal income tax purposes solely as a result of such Covenant Defeasance and
will be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Covenant Defeasance
had not occurred; (iv) no Default or Event of Default under the relevant Notes
from bankruptcy or insolvency events have occurred, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance shall not result in a breach or violation of, or
constitute a default under the relevant Indenture or any other material
agreement or instrument to which the Company is a party or by which the
Company is bound; (vi) the Company shall have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditor's
rights generally; (vii) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company
with the intent of preferring the holders of the relevant Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying or
defrauding creditors of the Company or others; and (viii) the Company shall
have delivered to the Trustee an Officers' Certificate and an opinion of
counsel, each stating that all conditions precedent provided for or relating
to the Legal Defeasance or the Covenant Defeasance have been complied with.
CONCERNING THE TRUSTEE
The Indentures will contain certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. The Trustee will be permitted to
engage in other transactions; however, if it acquires any conflicting interest
it must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The holders of a majority in aggregate principal amount of the outstanding
Senior Notes or Senior Discount Notes, as the case may be, will have the right
to direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee, subject to certain exceptions.
The Indentures will provide that in case an Event of Default shall occur
(which shall not be cured), the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his
own affairs. Subject to
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such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the relevant Indenture at the request of any holder
of Notes, unless such holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indentures or
the Notes may be amended or supplemented with the consent of the holders of at
least a majority in aggregate principal amount of the relevant outstanding
Notes (including consents obtained in connection with a tender offer or
exchange offer for such Notes), and any existing default or compliance with
any provision of the relevant Indenture or such Notes may be waived with the
consent of the holders of a majority in aggregate principal amount of the
outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for such Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any of the Senior Notes or Senior Discount Notes, as the case
may be, held by a non-consenting holder of such Notes) (i) reduce the
principal amount of such Notes whose holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or premium on or change the
fixed maturity of any such Note or alter the provisions with respect to the
redemption of such Notes (other than provisions described above under "--
Change of Control" and the covenant entitled "Limitation on Asset Sales"),
(iii) reduce the rate of or change the time for payment of interest on any
such Note, (iv) waive a default in the payment of principal or premium, if
any, or interest on any such Note (except a rescission of acceleration of such
Notes by the holders of at least a majority in aggregate principal amount of
such Notes and a waiver of the payment default that resulted from such
acceleration), (v) make the principal of, or premium, if any, or interest on,
any such Note payable in money other than that stated in such Notes, (vi) make
any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of holders of Notes to receive payments of principal or
premium, if any, of interest on the Notes, (vii) waive a redemption payment
with respect to any such Note or (viii) make any change in the foregoing
amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of Senior
Notes or Senior Discount Notes, as the case may be, the Company and the
Trustee may amend or supplement the relevant Indenture or the relevant Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to holders of the Notes in the case of
a merger or consolidation, to make any change that would provide any
additional rights or benefits to the holders of the Notes or that does not
materially and adversely affect the legal rights under the Indenture of any
such holder, or to comply with requirements of the Commission in order to
maintain the qualification of the Indenture under the Trust Indenture Act.
GLOBAL SECURITIES
Upon issuance, all Senior Notes will be represented by one or more global
securities and all Senior Discount Notes will be represented by one or more
global securities (each, a "Global Security"). Each Global Security will be
deposited with, or on behalf of, the Depository Trust Company (the
"Depositary") and registered in the name of a nominee of the Depositary. Notes
will not be exchangeable for certificated notes; provided that (i) if the
Depositary is at any time unwilling or unable to continue as Depositary and a
successor depositary is not appointed by the Company within 90 days or (ii) if
an Event of Default has occurred and is continuing with respect to the Senior
Notes or the Senior Discount Notes and holders of more than 25% in aggregate
principal amount of such Notes at the time outstanding represented by the
Global Note advise the Trustee that the continuation of a book-entry system
through the Depositary (or a successor thereto) with respect to such Notes is
no longer required, the Company will issue certificated notes in exchange for
the Global Security representing the Senior Notes or the Senior Discount
Notes, as the case may be. In addition, the Company may at any time and in its
sole discretion determine not to have the Senior Notes or the Senior Discount
Notes represented by a Global Security and, in such event, will issue
certificated notes in exchange therefor.
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Upon the issuance of a Global Security, the Depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts
of the Senior Notes or the Senior Discount Notes, as the case may be,
represented by the Global Security to the accounts of institutions that have
accounts with the Depositary ("Participants"). The accounts to be credited
shall be designated by the Underwriters. Ownership of beneficial interests in
a Global Security will be limited to Participants or Persons that may hold
interests through Participants. Ownership of beneficial interests in a Global
Security will be shown on, and the transfer of that ownership will be effected
only through, records maintained by the Depositary with respect to
Participants' interests or by the Participants or by Persons that hold through
Participants with respect to beneficial owners' interests. The laws of some
states require that certain purchasers of securities take physical delivery of
such securities in definitive form. Such ownership limits and such laws may
impair the ability to transfer beneficial interests in a Global Security.
Principal and interest payments on Senior Notes or Senior Discount Notes, as
the case may be, registered in the name of the Depositary or its nominee will
be made to the Depositary or its nominee, as the case may be, as the
registered owner of the Global Security representing such Notes. The Company
also expects that the Depositary, upon receipt of any payment of principal or
interest in respect of a Global Security, will immediately credit
Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global
Security as shown on the records of the Depositary. The Company also expects
that payments by Participants to owners of beneficial interests in a Global
Security held through such Participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name,"
and will be the responsibility of such Participants. None of the Company, the
Trustee, any paying agent or any registrar for the Senior Notes or the Senior
Discount Notes will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in a Global Security or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
The Depository Trust Company, New York, New York, ("DTC") will be the
Initial Depositary with respect to the Notes. DTC has advised the Company that
it is a limited-purpose trust company organized under the laws of the State of
New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934. DTC was created to hold securities of its Participants
and to facilitate the clearance and settlement of securities transactions
among its Participants in such securities through electronic book-entry
changes in accounts of the Participants, thereby eliminating the need for
physical movement of securities certificates. DTC's Participants include
securities brokers and dealers (including the Underwriters), banks, trust
companies, clearing corporations and certain other organizations, some of whom
(and/or their representatives) own DTC. Access to DTC's book-entry system is
also available to others, such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly. Persons who are not Participants may
beneficially own securities held by DTC only through Participants.
LIMITATIONS ON RIGHTS OF BENEFICIAL OWNERS
As long as the Depositary, or its nominee, is the holder of a Global
Security, the Depositary or its nominee, as the case may be, will be
considered the sole owner or holder of the Notes represented by such Global
Security for all purposes under the relevant Indenture or such Global
Security. Except as set forth above, owners of beneficial interests in a
Global Security will not be entitled to have Notes represented by such Global
Security registered in their names, will not receive or be entitled to receive
physical delivery of Senior Notes or Senior Discount Notes, as the case may
be, in definitive form and will not be considered the owners or holders
thereof under the Indenture governing such Notes or under such Global
Security. Accordingly, each person owning a beneficial interest in such Global
Security must rely on the procedures of the Depositary and, if such person is
not a Participant, on the procedures of the Participant through which such
person directly or indirectly owns its interest, to exercise any rights of a
holder under the relevant Indenture or such Global Security.
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DTC has informed the Company that under existing DTC policies and industry
practices, if the Company requests any action of holders, or if any owner of a
beneficial interest in such Global Security desires to give any notice or take
any action that a holder is entitled to give or take under the relevant
Indenture or the relevant Global Security, DTC would authorize and cooperate
with each Participant to whose account any portion of the Senior Notes or the
Senior Discount Notes, as the case may be, represented by such Global Security
is credited on DTC's books and records to give such notice or take such
action. Any person owning a beneficial interest in such Global Security that
is not a Participant must rely on any contractual arrangements it has
directly, or indirectly through its immediate financial intermediary, with a
Participant to give such notice or take such action.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indentures. Reference
is made to the relevant Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Accreted Value" means with respect to any Senior Discount Note, as of any
specified date on or prior to , 2001, the amount provided below for each
$1,000 principal amount Notes:
(i) if the specified date occurs on one of the following dates (each a
"Semiannual Accrual Date"), the Accreted Value will equal the amount set forth
below for such Semiannual Accrual Date:
<TABLE>
<CAPTION>
ACCRETED
SEMIANNUAL ACCRUAL DATE VALUE
----------------------- --------
<S> <C>
, 1997...................................................... $
, 1997...................................................... $
, 1998...................................................... $
, 1998...................................................... $
, 1999...................................................... $
, 1999...................................................... $
, 2000...................................................... $
, 2000...................................................... $
, 2001...................................................... $
, 2001...................................................... $1,000
</TABLE>
(ii) if the specified date occurs before the first Semiannual Accrual Date,
the Accreted Value will equal the sum of (a) $ and (b) an amount equal to
the product of (1) the Accreted Value for the first Semiannual Accrual Date
less $ multiplied by (2) a fraction, the numerator of which is the number
of days from the Issue Date to the specified date, using a 360-day year of
twelve 30-day months, and the denominator of which is the number of days from
the Issuance Date to the first Semiannual Accrual Date, using a 360-day year
of twelve 30-day months; or
(iii) if the specified date occurs between two Semiannual Accrual Dates, the
Accreted Value will equal the sum of (a) the Accreted Value for the Semiannual
Accrual Date immediately preceding such specified date and (b) an amount equal
to the product of (1) the Accreted Value for the immediately following
Semiannual Accrual Date less the Accreted Value for the immediately preceding
Semiannual Accrual Date multiplied by (2) a fraction, the numerator of which
is the number of days from the immediately preceding Semiannual Accrual Date
to the specified date, using a 360-day year of twelve 30-day months, and the
denominator of which is 180.
"Acquired Indebtedness" means (a) Indebtedness of any other Person existing
at the time such other Person merged with or into or became a Restricted
Subsidiary, including Indebtedness incurred in connection with or in
contemplation of such other Person merging with or into or becoming a
Restricted Subsidiary, (b) Indebtedness of any other Person assumed by the
Company or a Restricted Subsidiary in connection with the acquisition of
assets from such other Person, and (c) Indebtedness secured by a Lien
encumbering any asset acquired by the Company or a Restricted Subsidiary.
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"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise.
"Asset Sale" means (a) any sale, lease, transfer, conveyance or other
disposition of any assets (including by way of a sale-leaseback) other than
the sale or transfer of inventory or goods (including equipment) held for sale
in the ordinary course of business (provided that the sale, lease, transfer,
conveyance or other disposition of all or substantially all of the assets of
the Company shall not be deemed to be an "Asset Sale" and shall be governed by
the provisions of the relevant Indenture described under "--Change of Control"
or the covenant entitled "Limitation on Merger, Consolidation or Sale of
Assets") or (b) any issuance, sale, lease, transfer, conveyance or other
disposition of any Equity Interests of any of the Company's Restricted
Subsidiaries (other than director's qualifying shares) to any Person.
Notwithstanding the foregoing, none of the following shall be deemed to be an
Asset Sale: (i) a swap or other exchange of cable, fiber line or other
equipment or transmission capacity or of networks or systems between the
Company or any Restricted Subsidiary and any other Person which is an exchange
at Fair Market Value, (ii) an issuance and sale of Equity Interests by a
Restricted Subsidiary to the Company or to another Restricted Subsidiary
including any such issuance in connection with the contribution to such
Restricted Subsidiary of Telecommunications Assets, (iii) any Asset Sale or
Asset Sales which, in any calendar year, involve assets with an aggregate Fair
Market Value not in excess of $5 million, (iv) any lease of cable, fiber optic
or transmission capacity, any lease of equipment or equipment space, any grant
of indefeasible rights-of-use or rights-of-access or similar rights and grants
of nominal title to assets by the Company or a Restricted Subsidiary entered
into in the ordinary course and consistent with past practices; (v) any sale
or other disposition of any or all of the capital stock or assets of an
Unrestricted Subsidiary; and (vi) any sale, transfer or conveyance of Eligible
Cash Equivalents or Permitted Temporary Investments. Additionally, the
contribution of Telecommunications Assets to an Unrestricted Subsidiary
whereby the Company or a Restricted Subsidiary receives an equity interest in
such Unrestricted Subsidiary shall be deemed not to be an Asset Sale and will
be deemed to be a Restricted Payment and be governed by the covenant entitled
"Limitation on Restricted Payments."
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be so required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means, with respect to any specified Person, any and all
shares, interests, participations, rights or other equivalents (however
designated) of capital stock, including, without limitation, partnership
interests of such Person.
"Change of Control" means (a) the sale, lease, transfer, conveyance or other
disposition of all or substantially all of the assets of the Company to any
"person" or "group" (within the meaning of Sections 13(d)(3) and 14(d)(2) of
the Exchange Act or any successor provision to either of the foregoing,
including any group acting for the purpose of acquiring, holding or disposing
of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act)
other than Permitted Holders (except in connection with a liquidation or
dissolution of the Company that does not constitute a Change of Control under
clause (b) below), (b) the approval by the requisite stockholders of the
Company of a plan of liquidation or statutory dissolution (which shall not be
construed to include a plan of merger or consolidation) of the Company, unless
Permitted Holders "beneficially own" (as defined in Rule 13d-3 under the
Exchange Act) at least the same percentage of voting power after the
consummation of such plan as before or otherwise retain the right or ability,
by voting power, to control the Person that acquires the proceeds of such
liquidation or dissolution, (c) any "person" or "group" (within the meaning of
Sections 13(d)(3) and 14(d)(2) of the Exchange Act or any successor provision
to either of the foregoing, including any group acting for the purpose of
acquiring, holding or disposing of securities within the meaning of Rule 13d-
5(b)(1) under the Exchange Act), other than Permitted Holders, becomes the
"beneficial
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owner" (as so defined) of more than 35% of the total voting power of all
classes of the voting stock of the Company and/or warrants or options to
acquire such voting stock, calculated on a fully diluted basis, provided that
Permitted Holders "beneficially own" (as so defined) in the aggregate a
percentage of such voting stock or warrants having a lesser percentage of
voting power than such other "person" or "group" and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election a majority of the Company's Board of Directors, or (d) during any
period of two consecutive years, individuals who at the beginning of such
period constituted the Company's Board of Directors (together with any new
directors whose election or appointment by such board or whose nomination for
election by the stockholders of the Company was approved by a vote of the
Permitted Holders or a majority of the directors then still in office who were
either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Company's Board of Directors then in office.
"Common Stock" means, with respect to the Company, the Class A Common Stock,
the Class B Common Stock or any similar common stock of the Company.
"Consolidated Interest Expense" means, with respect to the Company and its
Restricted Subsidiaries, for any period, the amount of interest in respect of
Indebtedness (including amortization of original issue discount, amortization
of debt issuance costs, and non-cash interest payments on any Indebtedness and
the interest portion of any deferred payment obligation and after taking into
account the effect of elections made under any Interest Rate Agreement,
however denominated, with respect to such Indebtedness), the net costs
associated with Interest Rate Agreements, preferred stock dividends of the
Company (and of its Restricted Subsidiaries if paid to a Person other than the
Company or its Restricted Subsidiaries) and the interest component of rentals
in respect of any Capital Lease Obligation paid, in each case whether accrued
or scheduled to be paid or accrued by the Company and its Restricted
Subsidiaries during such period to the extent such amounts were deducted in
computing Consolidated Net Income, determined on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, with respect to the Company for any period,
the aggregate net income of the Company and its Restricted Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the net income of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting shall
be included only to the extent of the amount of dividends or distributions
paid to the Company or a Restricted Subsidiary, (ii) the net income of any
Person acquired in a pooling of interests transaction for any period prior to
the date of such acquisition shall be excluded, (iii) the cumulative effect of
a change in accounting principles shall be excluded, (iv) all items classified
as extraordinary gains or losses of the Company or a Restricted Subsidiary for
such period shall be excluded, (v) the net income of any Restricted Subsidiary
shall be included only to the extent that the declaration or payment of
dividends or similar distributions by such Restricted Subsidiary of such net
income is not at the time prohibited by the operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to such Restricted Subsidiary, and (vi)
with respect to a non-Wholly Owned Restricted Subsidiary, any aggregate net
income (or loss) in excess of the Company's or such Restricted Subsidiary's
pro rata share of such non-Wholly Owned Restricted Subsidiary's net income (or
loss) shall be excluded.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the holder thereof, in whole or in part, on or prior to the
date on which the relevant Notes mature.
"EBITDA" means, with respect to the Company and its Restricted Subsidiaries,
for any period, an amount equal to (A) the sum of (i) Consolidated Net Income
for such period (exclusive of any gain or loss realized in such period upon an
Asset Sale), plus (ii) the provision for taxes for such period based on income
or profits to
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the extent such income or profits were included in computing Consolidated Net
Income and any provision for taxes utilized in computing net loss under clause
(i) hereof, plus (iii) Consolidated Interest Expense for such period, plus
(iv) depreciation for such period on a consolidated basis to the extent
deducted in calculating Consolidated Net Income, plus (v) amortization of
intangibles for such period on a consolidated basis to the extent deducted in
calculating Consolidated Net Income, plus (vi) any other non-cash item
reducing Consolidated Net Income for such period, plus (vii) any premium or
penalty paid in connection with repurchasing, redeeming, retiring, defeasing
or acquiring any Indebtedness prior to maturity to the extent deducted in
calculating Consolidated Net Income, minus (B) all non-cash items increasing
Consolidated Net Income for such period, determined in accordance with GAAP
consistently applied.
"Eligible Cash Equivalents" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the United States
government or any agency or instrumentality thereof having maturities of not
more than one year and one day from the date of acquisition, (iii)
certificates of deposit and Eurodollar time deposits with maturities of one
year or less from the date of acquisition, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case
with any commercial bank(s) domiciled in the United States or in any member of
the OECD having capital and surplus in excess of $500 million and a Keefe Bank
Watch Rating of "B" or better, (iv) repurchase obligations with a term of not
more than seven days for underlying securities of the types described in
clauses (ii) and (iii) entered into with any financial institution meeting the
qualifications specified in clause (iii) above, (v) commercial paper rated no
lower than P-2 or the equivalent thereof by Moody's Investors Service, Inc. or
no lower than A-2 or the equivalent thereof by Standard & Poor's Ratings Group
and in each case maturing within one year and one day after the date of
acquisition, (vi) direct obligations issued by any state of the United States
or any political subdivision of any such state or political instrumentality
thereof maturing, or subject to tender at the option of the holder thereof,
within ninety (90) days after the date of acquisition, having a rating of A
from Standard & Poor's Ratings Group or A-2 from Moody's Investors Service,
Inc., and (vii) investments in money market funds substantially all of whose
assets comprise securities of the types described in clauses (i) through (vi).
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any Indebtedness that is
convertible into, or exchangeable for, Capital Stock, except to the extent
such Indebtedness has been so converted or exchanged).
"Exchange Rate Contract" means, with respect to any Person, any currency
swap agreements, forward exchange rate agreements, foreign currency futures or
options, exchange rate collar agreements, exchange rate insurance and other
agreements or arrangements, or combinations thereof, the principal purpose of
which is to provide protection against fluctuations in currency exchange
rates. An Exchange Rate Contract may also include an Interest Rate Agreement.
"Existing Indebtedness" means Indebtedness of the Company and its Restricted
Subsidiaries in existence on the Issuance Date, including Indebtedness
incurred under the Revolving Credit Agreement as in effect on the Issuance
Date, until such amounts are repaid.
"Fair Market Value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length transaction, for cash, between a
willing seller and a willing buyer, neither of whom is under pressure or
compulsion to complete the transaction. Fair Market Value shall be determined
(i) for an amount not in excess of $15 million, by the Chief Financial Officer
of the Company, or (ii) for an amount of $15 million or more, by the Board of
Directors of the Company acting in good faith and shall be evidenced by a
Board Resolution, and in either case shall be set forth in an Officers'
Certificate delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting
profession, which may be in effect from time to time and are applied on a
consistent basis.
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"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means any Restricted Subsidiary which is a guarantor of the
relevant Notes, including any Person that is required after the Issuance Date
to execute a guarantee of such Notes pursuant to the covenant entitled
"Limitations on Guarantees of Indebtedness by Restricted Subsidiaries" until a
successor replaces such party pursuant to the applicable provisions of the
relevant Indenture and, thereafter shall mean such successor.
"Indebtedness" means, with respect to any Person, without duplication, (i)
any indebtedness of such Person, whether or not contingent, in respect of
borrowed money or evidenced by bonds, notes, debentures or similar instruments
or letters of credit (or reimbursement agreements in respect thereof) or
banker's acceptances or the balance deferred and unpaid of the purchase price
of any property (including pursuant to capital leases and Sale-Leaseback
Transactions) or representing any hedging obligations under an Exchange Rate
Contract or an Interest Rate Agreement, except any such balance that
constitutes an accrued expense or trade payable or customer deposit received
in the ordinary course of business, if and to the extent any of the foregoing
indebtedness (other than obligations under an Exchange Rate Contract or an
Interest Rate Agreement) would appear as a liability upon a balance sheet of
such Person prepared in accordance with GAAP, (ii) Indebtedness of others
secured by a Lien on any asset of such Person (whether or not such
Indebtedness is assumed by such Person), but, if such indebtedness is
otherwise non-recourse to such Person, only to the extent of the lesser of
(x) the Fair Market Value of such asset at the time of determination and (y)
the amount of such Indebtedness, (iii) to the extent not otherwise included,
the Guarantee of items defined in clauses (i) and (ii) above and (iv) the
maximum fixed redemption or repurchase price of Disqualified Stock of such
Person at the time of determination. For purposes of the preceding sentence,
(1) the maximum fixed repurchase price of Disqualified Stock that does not
have a fixed repurchase price shall be calculated in accordance with the terms
of such Disqualified Stock as if such Disqualified Stock were repurchased on
any date on which Indebtedness shall be required to be determined pursuant to
the Indenture; provided, however, that if such Disqualified Stock is not then
permitted to be repurchased, the repurchase price shall be the book value of
such Disqualified Stock, and (2) the amount outstanding at any time of any
Indebtedness issued with original issue discount is the accreted value of such
Indebtedness.
"Indebtedness to EBITDA Ratio" means, as at any date of determination, the
ratio of (i) the aggregate amount of Indebtedness of the Company and its
Restricted Subsidiaries on a consolidated basis as at the date of
determination to (ii) the aggregate amount of EBITDA of the Company and its
Restricted Subsidiaries for the four preceding fiscal quarters for which
financial information is available immediately prior to the date of
determination; provided that any Indebtedness incurred or retired by the
Company or any of its Restricted Subsidiaries during the fiscal quarter in
which the determination date occurs shall be calculated as if such
Indebtedness was so incurred or retired on the first day of such four fiscal
quarter period; and provided further that (x) if the transaction giving rise
to the need to calculate the Indebtedness to EBITDA Ratio would have the
effect of increasing or decreasing Indebtedness or EBITDA in the future,
Indebtedness or EBITDA shall be calculated on a pro forma basis as if such
transaction had occurred on the first day of such four fiscal quarter period
preceding the date of determination, and (y) if during such four fiscal
quarter period, the Company or any of its Restricted Subsidiaries shall have
engaged in any Asset Sale, EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive), or increased by an amount equal to
the EBITDA (if negative), directly attributable to the assets which are the
subject of such Asset Sale and any related retirement of Indebtedness as if
such Asset Sale and related retirement of Indebtedness had occurred on the
first day of such period and (z) if during such four fiscal quarter period the
Company or any of its Restricted Subsidiaries shall have acquired any material
assets out of the ordinary course of business, EBITDA shall be calculated on a
pro forma basis as if such asset acquisition and related financing had
occurred on the first day of such period.
"Indebtedness to Adjusted Total Equity Ratio" means as of the date of
determination the ratio of (i) the aggregate amount of Indebtedness of the
Company and its Restricted Subsidiaries on a consolidated basis as at the date
of determination to (ii) the sum of (a) the total equity investments in the
Company as of , 1996
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adjusted to give effect to the Stock Offerings and the repurchase of shares
of Class B Common Stock from Continental, provided that any issuance of Equity
Interests pursuant to the Reorganization shall be included only to the extent
actually issued and shall be treated as if issued on or prior to the Issuance
Date regardless of the date such Equity Interests were actually issued (after
giving effect to the Reorganization on a pro forma basis, total equity
investments is expected to be $ million), (b) two times the aggregate net
cash proceeds to the Company from the issuance of any Equity Interests (other
than Disqualified Stock) subsequent to the Issuance Date, (c) two times the
aggregate net cash proceeds to the Company from the sales of Disqualified
Stock of the Company or debt securities of the Company convertible into Equity
Interests of the Company, in either case upon conversion thereof into Equity
Interests (other than Disqualified Stock) of the Company subsequent to the
Issuance Date; provided, however, that, for purposes of calculation of the
Indebtedness to Adjusted Total Equity Ratio the net cash proceeds from the
sale of Capital Stock of the Company, including Capital Stock issued upon the
conversion of convertible Indebtedness, described in clause (b) or (c) above,
shall not be included if such proceeds have been utilized to make (x) a
Restricted Payment, (y) a Permitted Investment under clause (d) of the
definition of Permitted Investment (provided that such amounts shall be
included to the extent of such amounts invested in Local Market Partnerships
that become Restricted Subsidiaries prior to the first anniversary of the
Issuance Date) or (z) a Permitted Investment pursuant to clause (e)(ii) of the
definition of Permitted Investments (provided that such amounts shall be
included to the extent of the Fair Market Value of the Company's interest in
any Joint Ventures that become Restricted Subsidiaries but not in excess of
the amount of any such Investments in such Joint Ventures pursuant to such
clause (e)(ii)).
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement the principal purpose of which is to protect the party
indicated therein against fluctuations in interest rates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans
(including Guarantees, advances or capital contributions (excluding
commission, travel and similar advances and loans, in each case, made to
officers and employees) made in the ordinary course of business), purchases or
other acquisitions for consideration of Indebtedness, Equity Interests or
other securities and all other items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. Investments
shall exclude accounts receivable and other extensions of trade credit on
commercially reasonable terms in accordance with the Company's normal trade
practice. In addition, the Fair Market Value of the net assets of any
Restricted Subsidiary at the time that such Restricted Subsidiary is
designated an Unrestricted Subsidiary shall be deemed to be an "Investment"
made by the Company in such Unrestricted Subsidiary at such time.
"Issuance Date" means the date on which the Notes are first authenticated
and issued.
"Joint Venture" means any Person engaged in the Telecommunications Business
in which the Company or any Restricted Subsidiary owns an Equity Interest and
which may be an Unrestricted Subsidiary.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale, net of (a)
the direct costs relating to such Asset Sale (including, without limitation,
legal, title, recording, accounting and investment banking fees, and sales
commissions) and any relocation expenses incurred as a result thereof, (b)
taxes paid or payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements), (c)
amounts required to be applied to the repayment of Indebtedness secured by a
Lien on the asset or assets that are the subject of such Asset Sale or in
order to obtain a consent necessary to effect such Asset Sale and (d) any
reserve for adjustment
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or indemnification in respect of the sale price of such asset or assets
(provided that any such reserves shall be added back to Net Proceeds upon the
release of such reserves) and required distributions to holders of minority
interests. Furthermore, the amount of (i) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet or in the
notes thereto) of the Company or any Restricted Subsidiary that are assumed by
the transferee of any assets sold in an Asset Sale and (ii) any notes or other
obligations received by the Company or any such Restricted Subsidiary from
such transferee that are immediately converted by the Company or such
Restricted Subsidiary into Eligible Cash Equivalents, shall be deemed to be
Eligible Cash Equivalents (to the extent of the Eligible Cash Equivalents
received in such conversion) for purposes of clause (b) of the covenant
entitled "Limitation on Asset Sales."
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness (a) as to which none of the Company or any Restricted Subsidiary:
(i) provides credit support (including any undertaking, agreement or
instrument which would constitute Indebtedness); (ii) is directly or
indirectly liable; or (iii) constitutes the lender, and (b) no default with
respect to which (including any rights which the holders thereof may have to
take enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any Restricted Subsidiary to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior
to its stated maturity.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Holders" means Comcast Corporation, a Pennsylvania corporation,
Continental Cablevision Inc., a Delaware corporation, Cox Communications,
Inc., a Delaware corporation, Tele-Communications, Inc., a Delaware
corporation, U S WEST, Inc., a Delaware corporation, any successor (by merger,
consolidation, transfer or otherwise) (i) to all or substantially all of the
business or assets of any of the foregoing or (ii) to cable television systems
of any of the foregoing with at least five million cable television households
passed, and any Person at least 51% of the Capital Stock of which is owned,
directly or indirectly, by one or any group of the foregoing Permitted
Holders.
"Permitted Indebtedness" means: (1) for Indebtedness of either the Company
or any Restricted Subsidiary (a) Telecommunications Assets Indebtedness, (b)
Indebtedness owed by the Company to any Restricted Subsidiary (but only so
long as such Indebtedness is held by such Restricted Subsidiary) and
Indebtedness owed by a Restricted Subsidiary to the Company or any other
Restricted Subsidiary (but only so long as such Indebtedness is held by the
Company or such other Restricted Subsidiary); (c) Indebtedness under any
Exchange Rate Contract or Interest Rate Agreements, provided that the
obligations under such agreements are related to payment obligations on
Existing Indebtedness or Refinancing Indebtedness of the Company or a
Restricted Subsidiary, as applicable, or Indebtedness permitted to be incurred
pursuant to the covenant entitled "Limitation on Incurrence of Indebtedness";
(d) letters of credit or performance bonds or performance guarantees incurred
in the ordinary course of business and consistent with industry practice; (e)
Existing Indebtedness; (f) Indebtedness issued in exchange for or the proceeds
of which are used to extend, refinance, renew, replace or refund outstanding
Indebtedness that is incurred or outstanding pursuant to clauses (a), (e), (h)
or this clause (f) of this definition or clause (b) of the covenant entitled
"Limitation on Incurrence of Indebtedness" (the "Refinancing Indebtedness");
provided, however, that (i) the principal amount of, and any premium payable
in respect of, such Refinancing Indebtedness shall not exceed the principal
amount of Indebtedness so extended, refinanced, renewed, replaced or refunded
(plus the amount of reasonable expenses incurred in connection therewith);
(ii) the Refinancing Indebtedness shall have a (A) Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of,
and (B) a stated maturity no earlier than the stated maturity of, the
Indebtedness being extended, refinanced, renewed, replaced or refunded; (iii)
the Refinancing Indebtedness shall rank in right of payment to the relevant
Notes on terms no less favorable to the holders of such Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced or refunded; and (iv) the Company shall incur
Refinancing Indebtedness only to refinance Indebtedness of the Company or of a
Restricted Subsidiary and a Restricted Subsidiary shall incur Refinancing
Indebtedness only to refinance Indebtedness of such Restricted Subsidiary or
any other Restricted Subsidiary; (g) Indebtedness represented by performance
bonds, surety or appeal bonds, or similar obligations incurred in
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the ordinary course of business; (h) Indebtedness incurred in connection with
a prepayment or redemption of the Notes pursuant to a Change of Control,
provided that such Indebtedness is Indebtedness of the Company and the
principal amount of such Indebtedness does not exceed 101% of the principal
amount of the Notes prepaid or redeemed (plus the amount of reasonable
expenses incurred in connection therewith) and that such Indebtedness has (A)
a Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of, and (B) a stated maturity no earlier than the
Stated Maturity of, the relevant Notes; (i) ordinary course Capital Lease
Obligations or purchase money debt for plant or equipment secured by a Lien on
property acquired, constructed or developed by the Company or any Restricted
Subsidiary in an aggregate amount not to exceed $20 million outstanding at any
time; and (j) additional Indebtedness in an aggregate principal amount not to
exceed $50 million at any one time outstanding; (2) for Indebtedness of the
Company, Indebtedness evidenced by the Notes; and (3) for Indebtedness of any
Restricted Subsidiary, Indebtedness or Guarantee of Indebtedness under the
Revolving Credit Agreement in an aggregate amount not to exceed $400 million
outstanding at any time.
"Permitted Investments" means (a) any Investments in the Company or in a
Restricted Subsidiary (including through a purchase of Equity Interests in
such Restricted Subsidiary from another Person), provided that any purchase of
Equity Interests in a Restricted Subsidiary from any Person other than another
Restricted Subsidiary shall be a Permitted Investment only if such Restricted
Subsidiary is engaged in the Telecommunications Business; (b) any Investments
in Eligible Cash Equivalents; (c) Investments by the Company or any Restricted
Subsidiary in a Person (including through a purchase of Equity Interests in
such Person from another Person), if as a result of such Investment (i) such
person becomes a Restricted Subsidiary that is engaged in the
Telecommunications Business or (ii) such person is merged or consolidated with
or into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Restricted Subsidiary that is engaged in the
Telecommunications Business; (d) Investments up to an aggregate of $150
million in Local Market Partnerships existing at the Issuance Date, which
Investments are used to fund a Telecommunications Business, provided that no
such Investment in a Local Market Partnership pursuant to this clause (d) may
be made after the first anniversary of the Issuance Date; (e) Investments
after the Issuance Date in Joint Ventures in an aggregate amount not to exceed
the sum of (i) (1) for any Joint Venture, $200 million and (2) for Joint
Ventures in which the Company or any Restricted Subsidiary owns a 35% or
greater share of Equity Interests and is the managing partner, $200 million
plus any amount not invested pursuant to the preceding clause (1), plus (ii)
for any Joint Venture, the net cash proceeds received by the Company from any
Person from the issuance and sale subsequent to the Issuance Date of Equity
Interests of the Company or of debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
convertible debt securities) sold to a Restricted Subsidiary and other than
Disqualified Stock or debt securities that have been converted into
Disqualified Stock) subsequent to the Issuance Date, plus (iii) for any Joint
Venture, the Fair Market Value of the Company's interest in any Joint Ventures
that become Restricted Subsidiaries but not in excess of the amount of any
such Investments in such Joint Ventures pursuant to clause (e)(ii), provided,
that amounts added pursuant to this clause (iii) out of Investments originally
made pursuant to subclause (i)(2) of this clause (e) shall not be used for
Investments in Joint Ventures not described in such subclause (i)(2); (f)
loans and advances to employees made in the ordinary course of business and
consistent with past practice in an aggregate amount not to exceed $1 million
outstanding at any time; (g) bonds, notes, debentures, partnership or joint
venture interests, stock or other securities received as a result of Asset
Sales permitted under the covenant described in "Limitation on Asset Sales";
(h) any Investments in Permitted Temporary Investments of the proceeds from
the issuance of the Notes and from the Stock Offering; (i) any Investments in
prepaid expenses, negotiable instruments held for collection and lease,
utility and workers' compensation, performance and other similar deposits; and
(j) any Exchange Rate Contract or Interest Rate Contract.
"Permitted Liens" means (a) Liens in favor of the Company; (b) Liens on
property of a Person existing at the time such Person is merged into or
consolidated with the Company or any Restricted Subsidiary; provided that such
Liens were not granted in contemplation of such merger or consolidation and do
not secure any property or assets of the Company or any of its Restricted
Subsidiaries other than the property or assets subject
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to the Liens prior to such merger or consolidation; (c) liens imposed by law,
including restrictions on transfer of governmental licenses, permits and
authorizations and carriers', warehousemen's, landlords' and mechanics' liens
and other similar liens arising in the ordinary course of business which
secure payment of obligations not more than 60 days past due or are being
contested in good faith and by appropriate proceedings; (d) Liens existing on
the Issuance Date; (e) Liens for taxes, assessments or governmental charges or
claims that are not yet delinquent or that are being contested in good faith
by appropriate proceedings promptly instituted and diligently concluded;
provided that any reserve or other appropriate provision as shall be required
in conformity with GAAP shall have been made therefor; (f) easements, rights
of way, restrictions and other similar easements, licenses, restrictions on
the use of properties or minor imperfections of title, or other incidental
Liens not incurred in connection with the borrowing of money or the obtaining
of advances or credit, that in the aggregate, are not material in amount, and
do not in any case materially detract from the properties subject thereto or
interfere with the ordinary course of the business of the Company or its
Restricted Subsidiaries; (g) Liens securing Indebtedness incurred under the
Revolving Credit Agreement; (h) Liens securing Telecommunications Assets
Indebtedness; (i) Liens of utility companies and other Persons pursuant to
pole attachment agreements or other easement agreements, and restrictions on
the transfer of rights under franchises, pole attachment agreements or other
easements, and any encumbrances created in favor of franchising authorities
and customers by provisions or franchises on plant and equipment located in
the areas covered thereby; (j) Liens under capitalized leases or purchase
money security interests relating to Indebtedness permitted to be incurred
under the "Limitation of Incurrence of Indebtedness" covenant; (k) Liens
incurred to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (l) any Lien to secure obligations under
workmen's compensation laws or similar legislation including unemployment
insurance or social security laws; (m) Liens in the form of a pledge of
Capital Stock of a Restricted Subsidiary to secure Indebtedness of such
Restricted Subsidiary that is otherwise permitted to be incurred pursuant to
the covenant entitled "Limitation on Incurrence of Indebtedness"; (n) Liens
arising as a result of any grant of indefeasable rights-of-use or rights-of-
access or similar rights and grants of nominal title to assets entered into in
the ordinary course and consistent with past practice; and (o) Liens securing
Refinancing Indebtedness, provided that the Indebtedness being refinanced is
secured and such Liens encumber no additional assets than those pursuant to
the Indebtedness being refinanced.
"Permitted Temporary Investments" means (a) all Eligible Cash Equivalents,
except that each use of the term "one year" in such definition is changed to
"two years" and (b) debt securities issued by any Person which has outstanding
pari passu debt securities with an investment grade rating by Standard &
Poor's Ratings Group or Moody's Investors Service, Inc. and that mature within
two years and one day after the date of acquisition.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, trust, unincorporated organization or government or
any agency or political subdivision thereof.
"Public Equity Offering" means an underwritten public offering (other than
the Stock Offering) by the Company after the Issuance Date of Common Stock of
the Company pursuant to a registration statement filed pursuant to the
Securities Act of 1933, as amended.
"Reorganization" means all of the transactions that are described in this
Prospectus under the caption "The Reorganization" as constituting the
"Reorganization" which are to be effected pursuant to the Reorganization
Agreement.
"Reorganization Agreement" means the Reorganization Agreement, dated as of
April 18, 1996, among the Company, TCI Communications, Inc., Cox
Communications, Inc., Comcast Corporation and Continental Cablevision, Inc.
"Restricted Payment" means (a) any dividend or any distribution on any
Equity Interests (other than dividends or distributions in additional Equity
Interests (other than Disqualified Stock) of the Company or a Restricted
Subsidiary or dividends or distributions payable to the Company or any Wholly
Owned Restricted Subsidiary); (b) any purchase, redemption, acquisition or
retirement for value of any Equity Interests of the
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Company or any Restricted Subsidiary or other Affiliate of the Company (other
than any such Equity Interests owned by the Company or any Wholly Owned
Restricted Subsidiary) that is not a Permitted Investment; (c) any defeasance,
purchase, redemption, acquisition or retirement for value prior to final
maturity of any Indebtedness that is subordinated in right of payment (whether
pursuant to its terms or by operation of law) to the Notes or the guarantees
thereof by the Guarantors; and (d) any Investment that is not a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of the Company which is not an
Unrestricted Subsidiary.
"Revolving Credit Agreement" means the Loan Agreement dated as of May 22,
1995, as amended, among TCG New York Inc., the Banks, as defined in the Loan
Agreement, Toronto Dominion (Texas), Inc., and Chemical Bank, as such
agreement may be amended, modified, supplemented, refunded, refinanced or
replaced from time to time.
"Sale-Leaseback Transaction" means any direct or indirect arrangement, or
series of related arrangements, with any Person (other than the Company or a
Restricted Subsidiary) or to which any Person (other than the Company or a
Restricted Subsidiary) is a party, providing for the leasing to the Company or
to a Restricted Subsidiary of any property for an aggregate term exceeding
three years, whether owned by the Company or by any Subsidiary of the Company
at the Issue Date or later acquired, which has been or is to be sold or
transferred by the Company or such Restricted Subsidiary to such Person or to
any other Person from whom funds have been or are to be advanced by such
Person on the security of such property.
"Significant Subsidiary" means any Restricted Subsidiary which is a
"significant subsidiary" as defined in Rule 1-02(w) of Regulation S-X under
the Securities Act of 1933, as amended.
"Stated Maturity," when used with respect to a Note or any installment or
interest thereon, means the date specified in such Note as the final date on
which the principal of such Note or such installment of interest is due and
payable.
"Strategic Equity Investor" means a corporation or entity with an equity
market capitalization, a net asset value or annual revenues of at least $2
billion that owns and operates businesses in the telecommunications,
information systems, entertainment, cable or similar or related industries.
"Subsidiary" means, with respect to a specified Person, any corporation,
association or other business entity of which 50% or more of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by any
Person or one or more of the other Subsidiaries of that Person or a
combination thereof.
"Telecommunications Assets" means, with respect to any Person, any asset
that is utilized by such Person, directly or indirectly, for the design,
development, construction, installation, integration, operation, management or
provision of telecommunications systems and/or services, including without
limitation, any businesses or services in which the Company is currently
engaged and including any computer systems used in a Telecommunications
Business. Telecommunications Assets shall include stock, joint venture or
partnership interests where substantially all of the assets of the entity
being acquired consist of Telecommunications Assets.
"Telecommunications Assets Indebtedness" means Indebtedness incurred
(including in the case of discount or paid in kind Indebtedness any accretion
on such Indebtedness or notes payable in respect of such Indebtedness) by the
Company or a Restricted Subsidiary to finance the construction, expansion,
development or acquisition of Telecommunications Assets or the acquisition of
the Capital Stock of a Restricted Subsidiary substantially all the assets of
which are Telecommunications Assets, provided that the net cash proceeds from
the issuance of such Indebtedness do not exceed, as of the date of incurrence
of such Indebtedness, 100 percent of the lesser of cost or Fair Market Value
of such Telecommunications Assets so constructed or acquired; provided
further, however, that if an acquired Restricted Subsidiary has outstanding
previously incurred
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Indebtedness, such previously incurred indebtedness will also constitute
Telecommunications Assets Indebtedness if such previously incurred
Indebtedness was not incurred in contemplation of such acquisition and all
such Indebtedness is Non-Recourse Indebtedness, except to the acquired
Restricted Subsidiary.
"Telecommunications Business" means the design, development, construction,
acquisition, installation, integration, management or provision of
telecommunications systems and/or services, including, without limitation, any
business or services in which the Company or any of its Restricted
Subsidiaries is engaged at the Issuance Date.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors of the Company as an Unrestricted
Subsidiary pursuant to a Board Resolution; but, in each case, only to the
extent that such Subsidiary (a) has no Indebtedness other than Non-Recourse
Indebtedness and (b) has not guaranteed any Indebtedness of the Company or any
of its Restricted Subsidiaries. Any such designation by the Board of Directors
shall be evidenced to the Trustee by filing with the Trustee a certified copy
of the Board Resolution giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions and was permitted by the covenant entitled "Limitation on
Restricted Payments." If, at any time, any Unrestricted Subsidiary would fail
to meet the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be
incurred by a Restricted Subsidiary as of such date (and, if such Indebtedness
is not permitted to be incurred as of such date under the covenant entitled
"Limitation on Incurrence of Indebtedness," the Company shall be in default of
such covenant). The Board of Directors of the Company may at any time
designate any Unrestricted Subsidiary as a Restricted Subsidiary and such
designation shall only be permitted if (i) the incurrence of the Indebtedness
of such Subsidiary is permitted under the covenant entitled "Limitation on
Incurrence of Indebtedness," and (ii) no Default or Event of Default would be
in existence following such designation. For so long as any Subsidiary is an
Unrestricted Subsidiary, all Subsidiaries of such Unrestricted Subsidiary
shall also be deemed to be Unrestricted Subsidiaries and shall be required to
meet the tests and comply with the restrictions set forth above.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (y) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means, at any time, a Restricted
Subsidiary all of the Capital Stock of which (except directors' qualifying
shares) is at the time owned directly or indirectly by the Company.
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DESCRIPTION OF CAPITAL STOCK
Prior to the consummation of the Offerings, TCG will amend its Amended and
Restated Certificate of Incorporation to change its authorized capital stock
to 900 million shares, including 450 million shares of Class A Common Stock,
$.01 par value per share, 300 million shares of Class B Common Stock, $.01 par
value per share, and 150 million shares of preferred stock, $.01 par value per
share (the "Preferred Stock"). Upon completion of the Stock Offerings, there
will be no preferred stock outstanding and Cox Teleport Partners, TCI
Teleport, Comcast Teleport and Continental Teleport will own of record all of
the outstanding shares of Class B Common Stock. See "Principal Stockholders."
The following summary description relating to the capital stock of the
Company does not purport to be complete. The rights of the holders of TCG's
capital stock will be set forth in TCG's Amended and Restated Certificate of
Incorporation, as so amended in accordance with the preceding paragraph, as
well as the Amended and Restated Stockholders' Agreement, the forms of both of
which are filed as exhibits to the Registration Statement of which this
Prospectus forms a part. The summary set forth below is qualified by reference
to such exhibits and to the applicable provisions of the Delaware General
Corporation Law (the "DGCL").
COMMON STOCK
The preferences and relative rights of the Class A Common Stock and Class B
Common Stock are substantially identical in all respects, except for voting
rights and conversion rights.
Voting Rights. Each share of Class A Common Stock entitles the holder to one
vote and each share of Class B Common Stock entitles the holder to 10 votes on
each matter to be voted upon by the holders of the Common Stock. The holders
of the shares of Class A Common Stock and Class B Common Stock vote as one
class on all matters to be voted on by stockholders, including the election of
directors, except as provided by the DGCL and except that, for a period of
five years from the date of filing of TCG's Amended and Restated Certificate
of Incorporation, so long as the holders of Class B Common Stock represent at
least 50% of the voting power of the outstanding Common Stock, the approval of
the holders of a majority of the Class B Common Stock is required for the
Company to provide (i) wireless communications services that use radio
spectrum for cellular, personal communications service (PCS), enhanced
specialized mobile radio (ESMR), paging, mobile telecommunications and any
other voice or data wireless services whether fixed or mobile; provided,
however, that the Company may provide any brand telecommunications products
and services delivered via point-to-point microwave transmissions; and (ii)
telecommunications services to residences; provided, however, that the Company
may provide telecommunications services to residences to the extent required
by a regulatory authority having jurisdiction over the Company's business,
including requirements of the Company's local exchange carrier certificates
and common carrier obligations, if any, or in any geographic area in which
such services are offered as of July 1, 1996, but only to the extent of the
services then so offered.
Neither the holders of Class A Common Stock nor the holders of Class B
Common Stock have cumulative voting rights. For a discussion of the effects of
the disproportionate voting rights of the Class A Common Stock and Class B
Common Stock, see "Risk Factors--Control by Principal Stockholders; Conflicts
of Interest; Possible Competition."
Dividends. Each share of Common Stock is entitled to receive dividends from
funds legally available therefor if, as and when declared by the Board of
Directors of TCG. Class A Common Stock and Class B Common Stock share equally,
on a share-for-share basis, in any dividends declared by the Board of
Directors. If at any time a distribution of the Class A Common Stock or Class
B Common Stock is to be paid in shares of Class A Common Stock, Class B Common
Stock or any other securities of the Company, such dividends may be declared
and paid only as follows: (1) a share distribution consisting of Class A
Common Stock to holders of Class A Common Stock and Class B Common Stock, on
an equal per share basis; or to holders of Class A Common Stock only, but in
such event there shall also be a simultaneous share distribution to holders of
Class B Common Stock consisting of shares of Class B Common Stock on an equal
per share basis; (2) a share distribution consisting of Class B Common Stock
to holders of Class B Common Stock and Class A Common
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Stock, on an equal per share basis; or to holders of Class B Common Stock
only, but in such event there shall also be a simultaneous share distribution
to holders of Class A Common Stock consisting of shares of Class A Common
Stock on an equal per share basis; and (3) a share distribution consisting of
any other class of securities of the Company other than Common Stock, to the
holders of Class A Common Stock and the holders of Class B Common Stock on an
equal per share basis. If the Company shall in any manner subdivide or combine
the outstanding shares of Class A Common Stock or Class B Common Stock, the
outstanding shares of the other class of Common Stock shall be proportionally
subdivided or combined in the same manner and on the same basis as the
outstanding shares of Class A Common Stock or Class B Common Stock, as the
case may be, that have been subdivided or combined.
Conversion. Under the Amended and Restated Certificate of Incorporation,
each share of Class B Common Stock is convertible at any time and from time to
time at the option of the holder thereof into one share of Class A Common
Stock. Upon conversion, the Class B Common Stock will automatically lose its
special voting rights. The Class A Common Stock has no conversion rights.
Other. Stockholders of TCG have no preemptive or other rights to subscribe
for additional shares. All holders of Common Stock, regardless of class, are
entitled to share equally on a share-for-share basis in any assets available
for distribution to stockholders on liquidation, dissolution or winding up of
TCG. No shares of the Common Stock are subject to redemption or a sinking
fund. All outstanding shares are, and all shares offered by this Prospectus
will be, when sold, validly issued, fully paid and nonassessable. TCG may not
subdivide or combine shares of Common Stock without at the same time
proportionally subdividing or combining shares of the other classes.
PREFERRED STOCK
The Company's Board of Directors is authorized to provide for the issuance
of Preferred Stock in one or more series and to fix the designations,
preferences, powers and relative, participating, optional and other rights,
qualifications, limitations and restrictions thereof, including the dividend
rate, conversion rights, voting rights, redemption price and liquidation
preference and to fix the number of shares to be included in any such series.
Any Preferred Stock so issued may rank senior to the Common Stock with respect
to the payment of dividends or amounts upon liquidation, dissolution or
winding up, or both. In addition, any such shares of Preferred Stock may have
class or series voting rights.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 of the DGCL prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which such
stockholder became an interested stockholder, unless (i) prior to such date,
the board of directors of the corporation approved such business combination
or the transaction which resulted in such stockholder becoming an interested
stockholder, (ii) upon consummation of the transaction which resulted in such
stockholder becoming an interested stockholder, the interested stockholder
owned at least 85% of the outstanding voting stock of the corporation or (iii)
on or after such date the business combination is approved by the board of
directors of the corporation and approved at a meeting (and not by written
consent) by the affirmative vote of at least 66 2/3% of the outstanding voting
stock which is not owned by the interested stockholder. The term "business
combination" is broadly defined to include mergers, asset sales, other
transfers, loans, guaranties and other transactions resulting in a financial
benefit to the stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years, did own)
15% or more of the corporation's voting stock. Each of Cox Teleport Partners,
Inc., TCI Teleport, Inc., Comcast Teleport, Inc. and Continental Teleport,
Inc., is an "interested stockholder" of TCG. Corporations, pursuant to a
provision in their certificate of incorporation, may choose not to be governed
by Section 203 of the DGCL. The Amended and Restated Certificate of
Incorporation of TCG does not contain such a provision; thus, TCG is governed
by Section 203 of the DGCL.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of the anticipated material United States federal
income tax consequences of the purchase, ownership and disposition of the
Notes, but does not purport to be a complete analysis of all potential tax
effects. This summary is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), existing and proposed regulations thereunder, published
rulings and court decisions, all as in effect and existing on the date hereof
and all of which are subject to change at any time, which change may be
retroactive. This summary applies only to those persons who are the initial
Holders of Notes, who acquired the Notes for cash and who hold Notes as
capital assets and does not address the tax consequences to taxpayers who are
subject to special rules (such as financial institutions, tax-exempt
organizations and insurance companies) or aspects of federal income taxation
that may be relevant to a prospective investor based upon such investor's
particular tax situation. Accordingly, purchasers of Notes should consult
their own tax advisors with respect to the particular consequences to them of
the purchase, ownership and disposition of the Notes, including the
applicability of any state, local or foreign tax laws to which they may be
subject, as well as with respect to the possible effects of changes in federal
and other tax laws.
SENIOR DISCOUNT NOTES--ORIGINAL ISSUE DISCOUNT
General. Because the Senior Discount Notes are being issued at a discount
from their "stated redemption price at maturity," the Senior Discount Notes
will have original issue discount ("OID") for federal income tax purposes. For
federal income tax purposes, OID on a Senior Discount Note will be the excess
of the stated redemption price at maturity of the Note over its issue price.
The issue price of the Senior Discount Notes will be the first price to the
public (excluding bond houses and brokers) at which a substantial amount of
the Senior Discount Notes is sold. The stated redemption price at maturity of
a Senior Discount Note will be the sum of all payments to be made on such
Note, including all stated interest payments. As a result, each Senior
Discount Note will bear OID in an amount equal to the excess of (i) the sum of
its principal amount and all stated interest payments over (ii) its issue
price. (If any interest is "qualified stated interest," the stated redemption
price at maturity does not include "qualified stated interest" payments.
Qualified stated interest is stated interest that is unconditionally payable
at least annually at a single fixed rate that appropriately takes into account
the length of the interval between payments. Because there will be no required
payment of interest on the Senior Discount Notes until , 2001, none of the
interest payments on the Senior Discount Notes, under the stated payment
schedule, will constitute qualified stated interest.)
A Holder will be required to include OID in income periodically over the
term of a Senior Discount Note before receipt of the cash or other payment
attributable to such income, regardless of the Holder's method of tax
accounting. In general, a Holder must include in gross income for federal
income tax purposes the sum of the daily portions of OID with respect to the
Senior Discount Note for each day during the taxable year or portion of a
taxable year on which such Holder holds the Note. The daily portion is
determined by allocating to each day of any accrual period within a taxable
year a pro rata portion of an amount equal to the adjusted issue price of the
Senior Discount Note at the beginning of the accrual period multiplied by the
yield to maturity of the Note. For purposes of computing OID, the Company will
use six-month accrual periods that end on the days in the calendar year
corresponding to the maturity date of the Senior Discount Notes and the date
six months prior to such maturity date, with the exception of an initial short
accrual period. The adjusted issue price of a Senior Discount Note at the
beginning of any accrual period is the issue price of the Note increased by
the amount of OID previously includible in the gross income of the Holder, and
decreased by any payments previously made on the Note. The yield to maturity
is the discount rate that, when used in computing the present value of all
payments of principal and interest to be made on the Senior Discount Note,
produces an amount equal to the issue price of the Note. Under these rules,
Holders may have to include in gross income increasingly greater amounts of
OID in each successive accrual period. A Holder's tax basis in a Senior
Discount Note will be increased by the amount of any OID includible in the
Holder's income under the rules discussed above and decreased by the amount of
any payment (including payments of stated interest) with respect to the Note.
The Company may elect to commence the accrual of cash interest on any
interest payment date prior to , 2001. Under the OID rules, solely for
purposes of determining the amount of OID that is includible
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in income by a holder of a note, it is presumed that the issuer will exercise
an option to pay cash interest early if such exercise will lower the yield-to-
maturity of the note. The Company believes that it will not be presumed to
exercise its option to pay interest early because the exercise of such option
would not lower the yield-to-maturity of the Senior Discount Notes. However,
if, contrary to such presumption, the Company exercises such option, then
solely for purposes of the accrual of OID, the yield and maturity of the Senior
Discount Notes will be redetermined by treating the Senior Discount Notes as
reissued on such date for an amount equal to the adjusted issue price on such
date. On the presumption that the Company will not exercise the option to pay
cash interest early, the Company believes the yield to maturity of the Senior
Discount Notes will be %, compounded semi-annually.
EFFECT OF MANDATORY AND OPTIONAL REDEMPTION ON OID
In the event of a Change of Control, as defined in the Indenture, the Company
will be required to offer to redeem all of the Senior Discount Notes at
redemption prices specified elsewhere herein. Such redemption rights should not
affect, and will not be treated by the Company as affecting, the determination
of the yield or maturity of the Senior Discount Notes.
The Company may redeem the Senior Discount Notes, in whole or in part, at any
time on or after , 2001, at redemption prices specified elsewhere herein
plus accrued interest to the date of redemption. The Treasury Regulations
contain rules for determining the "maturity date" and the stated redemption
price at maturity of an instrument that may be redeemed prior to its stated
maturity date at the option of the issuer. Under the OID rules, solely for
purposes of the accrual of OID, it is assumed that the issuer will exercise any
option to redeem a debt instrument if such exercise will lower the yield-to-
maturity of the debt instrument. The Company believes that it will not be
presumed to redeem the Senior Discount Notes prior to their stated maturity
under these rules because the exercise of such option would not lower the
yield-to-maturity of the Senior Discount Notes.
In the event of certain registered offerings or sales of capital stock prior
to , 1999, the Company at its option may redeem up to one-third of the
Senior Discount Notes then outstanding at redemption prices specified elsewhere
herein; provided that at least one-half of the aggregate principal amount of
the Senior Discount Notes originally issued remains outstanding after such
redemption. The Treasury Regulations contain rules for determining the
"maturity date" and the stated redemption price at maturity of an instrument
that may be redeemed prior to its stated maturity date upon the occurrence of
one or more contingencies. Under such Treasury Regulations the "maturity date"
and stated redemption price at maturity of such an instrument are determined by
assuming that payments will be made according to the instrument's stated
payment schedule, unless based upon all the facts and circumstances as of the
issue date, it is more likely than not that the instrument's stated payment
schedule will not occur, in which case, the "maturity date" and stated
redemption price at maturity will be computed based on the payment schedule
most likely to occur. The Company believes that, under these regulations, the
"maturity date" and stated redemption price at maturity of the Senior Discount
Notes would be determined on the basis of the stated maturity and stated
payment schedule, because it is more likely than not to occur based on the
facts and circumstances known as of the issue date.
If it should be presumed that the Company will exercise any of its options to
redeem, then the maturity date of the Senior Discount Notes for the purpose of
calculating yield to maturity would be the exercise date of such call option
and the stated redemption price at maturity for each Senior Discount Note would
equal the amount payable upon such exercise. If subsequently the call option is
not exercised then, for purposes of the OID rules, the issuer would be treated
as having issued on the presumed exercise date of the call option a new debt
instrument in exchange for the existing instrument. The new debt instrument
deemed issued would have an issue price equal to the call price. As a result,
another OID computation would have to be made with respect to the
constructively issued new debt instrument.
MARKET DISCOUNT AND ACQUISITION PREMIUM ON SENIOR DISCOUNT NOTES
The "market discount" and "acquisition premium" rules described below will
not apply to original Holders who purchase the Senior Discount Notes at the
issue price.
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If the initial purchase price of a Senior Discount Note is greater than the
issue price, the difference will be considered "acquisition premium." The
amount of OID included in the Holder's gross income will be reduced to take
the acquisition premium into account.
If the initial purchase price of a Senior Discount Note is less than the
issue price, the difference will be considered "market discount" unless it is
de minimis in amount. Any gain realized on a disposition of the Note will
generally be treated as ordinary interest income to the extent of the market
discount that accrued (but was not previously included in income) while the
Note was held by the purchaser. Further, partial principal payments are
included in income as ordinary income to the extent of the accrued market
discount not previously included in income by the Holder. A Holder of a Senior
Discount Note that acquired the Note with market discount may be required to
defer the deduction of a portion of the interest paid or accrued on debt
incurred or continued to purchase or carry the Note, unless the Holder elects
to include market discount in income currently as it accrues.
A Holder of a Senior Discount Note with market discount may elect to include
market discount currently in income as such discount accrues, with a
corresponding increase in the Holder's tax basis in the Note. If a Holder
makes this election, the Holder will be deemed to have made an election to
include market discount in income currently with respect to all other debt
instruments having market discount that the purchaser acquires during the
taxable year of the election or thereafter.
The Senior Discount Notes provide for optional and mandatory redemption, in
whole or in part, prior to maturity. If the Senior Discount Notes were to be
redeemed, a Holder generally would be required to include in income as
ordinary income the portion of the gain recognized on the redemption to the
extent of the accrued market discount on the Notes (not previously included in
income), if any.
SALE, EXCHANGE AND REDEMPTION OF SENIOR DISCOUNT NOTES
Generally, any sale, exchange or redemption of Senior Discount Notes will
result in taxable gain or loss equal to the difference between the amount of
cash or other property received (except to the extent of accrued OID on Senior
Discount Notes, which will be taxable as such) and the Holder's adjusted tax
basis in the Note. A Holder's adjusted tax basis for determining gain or loss
on the sale or other disposition of a Senior Discount Note will initially
equal the cost of the Note to such Holder and will be increased by any amounts
included in income as OID, market discount or de minimis market discount which
the Holder has previously elected to accrue in gross income on an annual basis
and decreased by any amortized premium which the Holder has previously elected
to offset against interest on the Notes and by the amount of any cash payments
received by such Holder regardless of whether such payments are denominated as
principal or interest. Except to the extent that the market discount rules
described above apply, any gain or loss upon a sale, exchange, or retirement
of a Senior Discount Note will be capital gain or loss if the Note is held as
a capital asset, and will be long term capital gain or loss if the Note has
been held by the Holder for more than one year.
If the Company redeems some, but not all, of the Senior Discount Notes held
by a Holder, the Holder would be required to treat its Senior Discount Notes
as two debt instruments, one that is retired for the redemption proceeds and
one that remains outstanding. The adjusted issue price, tax basis, and accrued
but unpaid OID would be allocated between the two instruments. Such Holder
would recognize gain or loss on the retired instrument as described in the
previous paragraph.
THE AHYDO RULE
The Senior Discount Notes will constitute "applicable high yield discount
obligations" ("AHYDOs") if the yield to maturity of such Notes is equal to or
greater than the sum of the relevant applicable federal rate (the "AFR") for
the month in which the Notes are issued, plus 5 percentage points. The semi-
annual AFR for long-term debt instruments issued in June, 1996 is 6.92%. If
the Senior Discount Notes are AHYDOs, a portion of the tax deductions that
would otherwise be available to the Company in respect of the Senior Discount
Notes will be deferred or disallowed, which, in turn, might reduce the after-
tax cash flows of the Company. More particularly, if the Senior Discount Notes
constitute AHYDOs, the Company will not be entitled to deduct OID that accrues
with respect to such Notes until amounts attributable to OID are paid in cash.
In addition, if the yield to maturity of the Senior Discount Notes exceeds the
sum of the relevant AFR plus six percentage points
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(the "Excess Yield"), the "disqualified portion" of the OID accruing on the
Senior Discount Notes will be characterized as a nondeductible dividend with
respect to the Company and also may be treated as a dividend distribution
solely for purposes of the dividends received deduction of Sections 243, 246
and 246A of the Code with respect to Holders which are U.S. corporations. In
general, the "disqualified portion" of OID for any accrual period will be
equal to the product of (i) a percentage determined by dividing the Excess
Yield by the yield to maturity and (ii) the OID for the accrual period.
Subject to otherwise applicable limitations, such a corporate Holder will be
entitled to a dividends received deduction with respect to the disqualified
portion of the accrued OID if the Company has sufficient current or
accumulated "earnings and profits." To the extent that the Company's earnings
and profits are insufficient, any portion of the OID that otherwise would have
been recharacterized as a dividend for purposes of the dividends received
deduction will continue to be taxed as ordinary OID income in accordance with
the rules described above in "Original Issue Discount." Treatment of the
Senior Discount Notes as AHYDOs will not disqualify interest or OID with
respect to Senior Discount Notes from the portfolio interest exception
described below under "Foreign Holders," provided all applicable requirements
for the exception are otherwise satisfied.
THE SENIOR NOTES
The Senior Notes were not issued with (and thus do not bear) original issue
discount. The market discount and acquisition premium rules described below
will not apply to original Holders who purchase Senior Notes at the issue
price.
A Holder who purchases a Senior Note at a premium (generally, at a cost in
excess of the greater of its principal amount or the amount payable on an
earlier call date) may elect to amortize such premium as an offset to interest
income on the Senior Note. A Holder who purchases a Senior Note at a discount
(generally, at a cost less than its principal amount) that exceeds a
statutorily defined de minimis amount will be subject to the "market discount"
rules of the Code. The market discount rules provide in part that gain
realized on a disposition of a note is treated as ordinary interest income to
the extent of accrued market discount not previously included in income by the
Holder. The market discount rules also require a Holder receiving a partial
principal payment on a note acquired at market discount to include such
payment as ordinary interest income to the extent of the accrued market
discount not previously included in income by the Holder. The purchaser of a
Senior Note at market discount may also be required to defer the deduction of
a portion of the interest paid or accrued on debt incurred or continued to
purchase or carry the note unless the purchaser elects to include market
discount in income as it accrues.
A Holder of a Senior Note with market discount may elect to include market
discount currently in income as such discount accrues, with a corresponding
increase in the Holder's tax basis in the Note. If a Holder makes this
election, it will be deemed to have made the election with respect to all
other debt instruments having market discount that the Holder acquires during
the taxable year of the election or thereafter.
Upon a sale, exchange or redemption of a Senior Note, a Holder will
recognize gain or loss measured by the difference between the amount received
in exchange therefor (except to the extent the consideration received is
attributable to stated interest not previously taken into account, which
consideration is treated as interest income) and such Holder's adjusted tax
basis in the Senior Note. Any gain or loss recognized on the redemption, sale
or exchange of a Senior Note will be capital gain or loss if the Senior Note
is held as a capital asset (except as noted above with respect to Holders who
acquire a Senior Note at a market discount), and will be long term capital
gain or loss if the Senior Note has been held by a Holder for more than one
year.
In certain circumstances, notes issued in connection with the same
transaction or related transactions may be treated as a single note for
purposes of the OID rules. The Company believes that a substantial portion of
each of the Senior Notes and the Senior Discount Notes will be issued to
purchasers not related to the Company or to other purchasers and who do not
purchase both Senior Notes and Senior Discount Notes in connection with the
same transaction or related transactions, and that, therefore, the aggregation
rules will not apply.
FOREIGN HOLDERS
The following discussion is a summary of certain United States Federal
income tax consequences to a Foreign Person that holds a Note. The term
"Foreign Person" means a nonresident alien individual or foreign
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corporation, but only if the income or gain on the Note is not "effectively
connected with the conduct of a trade or business within the United States,"
in which case the nonresident alien individual or foreign corporation will be
subject to tax on such income or gain in essentially the same manner as a
United States citizen or resident or a domestic corporation, as discussed
above, and in the case of a foreign corporation, may also be subject to the
branch profits tax.
Under the "portfolio interest" exception to the general rules for the
withholding of tax on interest and original issue discount paid to a Foreign
Person, a Foreign Person will not be subject to United States tax (or to
withholding) on interest or OID on a Note, provided that (i) the Foreign
Person does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote
and (ii) the Company, its paying agent or the person who would otherwise be
required to withhold tax receives either (A) a statement (an "Owner's
Statement") on the Internal Revenue Service's Form W-8 signed under penalties
of perjury by the beneficial owner of the Note in which the owner certifies
that the owner is not a United States person and which provides the owner's
name and address, or (B) a statement signed under penalties of perjury by a
financial institution holding the Note on behalf of the beneficial owners,
together with a copy of the Owner's Statement. Regulations proposed in April,
1996 would retain these procedures for certifying that a Holder is a Foreign
Person and would add several alternative certification procedures. A Foreign
Person who does not qualify for the "portfolio interest" exception would
generally be subject to United States withholding tax at a flat rate of 30%
(or a lower applicable treaty rate) on interest payments and payments
(including proceeds from a sale, exchange or retirement) attributable to OID
on the Notes.
Gain recognized by a Foreign Person upon the redemption, sale or exchange of
a Note (including any gain representing accrued market discount) will not be
subject to United States tax unless the Foreign Person is an individual
present in the United States for 183 days or more during the taxable year in
which the Note is redeemed, sold or exchanged, and certain other requirements
are met, in which case the Foreign Person will be subject to United States Tax
at a flat rate of 30% (unless exempt by applicable treaty).
Federal Estate and Gift Tax
A Note beneficially owned by an individual who at the time of death is a
Non-United States Holder will not be subject to United States federal estate
tax as a result of such individual's death, provided that such individual does
not actually or constructively own 10% or more of the total combined voting
power of all classes of stock of the Company entitled to vote within the
meaning of Section 871(h)(3) of the Code and provided that the interest
payments with respect to such Note would not have been, if received at the
time of such individual's death, effectively connected with the conduct of a
United States trade or business by such individual.
Any Non-United States Holder will not be subject to United States federal
gift tax on a transfer of Notes, unless such person is an individual who is a
domiciliary of the United States.
BACKUP WITHHOLDING
A Holder may be subject, under certain circumstances, to backup withholding
at a 31% rate with respect to payments received with respect to the Notes.
This withholding generally applies only if the Holder (i) fails to furnish his
or her social security or other taxpayer identification number ("TIN"), (ii)
furnishes an incorrect TIN, (iii) is notified by the Internal Revenue Service
that he or she has failed to report properly payments of interest and
dividends and the Internal Revenue Service has notified the Company that he or
she is subject to backup withholding, or (iv) fails, under certain
circumstances, to provide a certified statement, signed under penalty of
perjury, that the TIN provided is his or her correct number and that he or she
is not subject to backup withholding. Any amount withheld from a payment to a
Holder under the backup withholding rules is allowable as a credit against
such Holder's Federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service. Certain Holders
(including, among others, corporations and foreign individuals who comply with
certain certification requirements described above under "Foreign Holders")
are not subject to backup withholding. Holders should consult their tax
advisors as to their qualification for exemption from backup withholding and
the procedure for obtaining such an exemption.
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UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Underwriting Agreement") between the Company and Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch"), Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), Chase Securities Inc. ("CSI") and Toronto Dominion Securities (USA)
Inc. ("TD," together, the "Underwriters"), the Company has agreed to sell to
the Underwriters, and each Underwriter has severally agreed to purchase from
the Company, the aggregate principal amount at maturity of Notes set forth
opposite its name below. The Underwriting Agreement provides that, subject to
the terms and conditions set forth therein, the Underwriters will be obligated
to purchase all of the Notes if any Notes are purchased.
<TABLE>
<CAPTION>
SENIOR NOTES SENIOR DISCOUNT NOTES
UNDERWRITERS PRINCIPAL AMOUNT PRINCIPAL AMOUNT AT MATURITY
------------ ---------------- ----------------------------
<S> <C> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation.........
Merrill Lynch, Pierce, Fenner &
Smith
Incorporated...........
Morgan Stanley & Co.
Incorporated.............
Chase Securities Inc............
Toronto Dominion Securities
(USA) Inc......................
----- -----
Total....................... $ $
===== =====
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
thereunder are subject to certain conditions precedent. The Underwriting
Agreement also provides that the Company will indemnify the Underwriters
against certain liabilities and expenses, including those under the Securities
Act. The nature of the Underwriters' obligations is such that they are
committed to purchase all of the Notes if the Notes are purchased.
The Underwriters propose to offer the Notes directly to the public initially
at the price to the public set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession not in excess of % of
the principal amount at maturity of the Notes. The Underwriters may allow, and
such dealers may reallow, a discount not in excess of % of the principal
amount at maturity of the Notes to certain other dealers. After the initial
offering of the Notes, the offering price and other selling terms may be
changed by the Underwriters.
The Company has been advised by the Underwriters that they presently intend
to make a market in the Notes in the secondary market, as permitted by
applicable laws and regulations, but that they are not obligated to do so and
may discontinue any such market making at any time without notice. The Notes
will not be listed on any securities exchange, and there can be no assurance
that a secondary market for the Notes will develop.
Certain Underwriters have from time to time provided customary brokerage and
investment banking services to the Company and expect in the future to provide
such services, for which they have received and will receive customary fees
and commissions.
Merrill Lynch & Co., Inc., an affiliate of one of the Underwriters, was the
majority owner of the Company from its inception until November 1992. Merrill
Lynch & Co., Inc. was one of the Company's first customers and remains one of
its 10 largest customers. From March 3, 1983 to November 23, 1992, the Company
was included in the consolidated federal and combined local income tax returns
for Merrill Lynch & Co., Inc. A Stockholders' Agreement among Cox Teleport,
Inc., Merrill Lynch Group, Inc. and TCG, dated December 11, 1991, includes
provisions governing the allocation and payment of taxes by TCG and the
Merrill Lynch affiliated group for the period from December 11, 1991, through
November 23, 1992. In addition, Merrill Lynch/WFC/L, Inc., an affiliate of
Merrill Lynch, has subleased portions of the Merrill Lynch Headquarters, World
Financial Center, New York, to TC Systems, Inc., a subsidiary of TCG.
Morgan Stanley & Co. Incorporated is also a long-standing and significant
customer for the Company's telecommunications services. Donaldson, Lufkin &
Jenrette Securities is also a customer of the Company. The Company's provision
of telecommunications services to Underwriters is on an arms'-length basis.
DLJ, Merrill Lynch and Morgan Stanley and certain of their affiliates have
been retained to act as underwriters in connection with the Stock Offerings.
CSI is an affiliate of a lender under the Revolving Credit Agreement. TD is
an affiliate of the administrative agent and a lender under the Revolving
Credit Agreement.
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LEGAL MATTERS
The legality of the Notes offered hereby and certain other legal matters
will be passed upon for TCG by Dow, Lohnes & Albertson, Washington, D.C., and
for the Underwriters by Shearman & Sterling, New York, New York.
EXPERTS
The combined financial statements of Teleport Communications Group Inc. and
its subsidiaries and TCG Partners as of December 31, 1995 and 1994 and for
each of the three years in the period ended December 31, 1995 and the combined
financial statements of Local Market Partnerships to be acquired by Teleport
Communications Group Inc. as of December 31, 1995 and 1994 and for each of the
three years in the period ended December 31, 1995 included in this Prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein, and are included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
TCG has filed with the Securities and Exchange Commission (the "SEC") a
Registration Statement on Form S-1 under the Securities Act with respect to
the Notes being offered in the Notes Offerings. For the purposes hereof, the
term "Registration Statement" means the original Registration Statement and
any and all amendments thereto, including the schedules and exhibits to such
original Registration Statement or any such amendment. This Prospectus does
not contain all of the information set forth in the Registration Statement, to
which reference hereby is made. Each statement made in this Prospectus
concerning a document filed as an exhibit to the Registration Statement is
qualified in its entirety by reference to such exhibit for a complete
statement of its provisions.
TCG is not currently subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). As a result
of the Offerings, TCG will become subject to the informational requirements of
the Exchange Act and in accordance therewith will file periodic reports, proxy
statements and other information relating to its business, financial
statements and other matters. Any interested party may inspect the
Registration Statement, the reports, proxy statements and other information
without charge, at the public reference facilities of the SEC at its principal
office at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, and at its regional offices in Chicago (Northwestern Atrium Center,
Suite 1400, 500 West Madison Street, Chicago, Illinois 60601), and in New York
(Seven World Trade Center, 13th Floor, New York, New York 10048). Any
interested party may obtain copies of all or any portion of the Registration
Statement, the reports, proxy statements and other information at prescribed
rates from the Public Reference Section of the SEC at its principal office at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549.
The Company intends to distribute to all holders of the Notes offered hereby
annual reports containing audited consolidated financial statements and a
report thereon by its independent certified public accountants and quarterly
reports containing unaudited consolidated financial information for each of
the first three quarters of each fiscal year.
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GLOSSARY
Access charges--The fees paid by long distance carriers for the local
connections between the long distance carriers' networks and the long distance
carriers' customers.
ATM (asynchronous transfer mode)--A recently commercialized switching and
transmission technology that is one of a general class of packet technologies
that relay traffic by way of an address contained within the first five bits
of a standard fifty-three bit-long packet or cell. ATM-based packet transport
was specifically developed to allow switching and transmission of mixed voice,
data and video at varying rates. The ATM format can be used by many different
information systems, including LANs.
BOC (Bell Operating Company)--A telephone operating subsidiary of an RBOC;
an incumbent local exchange carrier.
CAP (competitive access provider)--A company that provides dedicated
services (private line, local transport and special access) telecommunications
services as an alternative to the ILEC.
Central offices--A telecommunications center where switches and other
telecommunications facilities are housed. CAPs may connect with ILEC networks
either at this location or through a remote location.
Centrex--A switched service that offers dial tone and other features similar
to those of Private Branch Exchange ("PBX"), except the switching equipment is
located at the carrier's premises and not at the customer's premises. These
features include direct dialing within a given telephone system, direct
dialing of outgoing telephone calls and automatic identification of incoming
telephone calls. This is a value-added service that carriers can provide to a
wide range of business customers.
Colocation--The ability of a telecommunications carrier to interconnect its
network to the ILEC's network by extending its facilities to the ILEC's
central office. Physical colocation occurs when the interconnecting carrier
places its network equipment within the ILEC's central offices. Virtual
colocation is an alternative to physical colocation under which the ILEC
permits a carrier to interconnect its network to the ILEC's network in a
manner which is technically, operationally and economically comparable to
physical colocation, even though the interconnecting carrier's network
connection equipment is not physically located within the central offices.
CLEC (competitive local exchange carrier)--A company that provides local
exchange services in competition with the incumbent local exchange carrier.
Dedicated--Telecommunications lines dedicated to, or reserved for use by, a
particular customer along predetermined routes (in contrast to links which are
temporarily established).
Digital--A means of storing, processing and transmitting information by
using distinct electronic or optical pulses that represent the binary digits 0
and 1. Digital transmission and switching technologies use a sequence of these
pulses to represent information as opposed to the continuously variable analog
signal. The precise digital numbers preclude any distortion (such as
graininess or snow in the case of video transmission, or static or other
background distortion in the case of audio transmission).
Diverse routing--A telecommunications network configuration in which signals
are transmitted simultaneously along two different paths so that if one path
is cut or impaired, traffic can continue in the other direction without
interrupting service. The Company's networks generally provide diverse
routing.
DS-0, DS-1, DS-3--Standard North American telecommunications industry
digital signal formats, which are distinguishable by bit rate (the number of
binary digits (0 and 1) transmitted per second). DS-0 service has a bit rate
of 64 kilobits per second. DS-1 service has a bit rate of 1.544 megabits per
second and DS-3 service has a bit rate of 44.736 megabits per second. A DS-0
can transmit a single uncompressed voice conversation.
112
<PAGE>
FCC--Federal Communications Commission.
Fiber Miles--The number of route miles of fiber optic cable installed
(excluding pending installations) along a telecommunications path multiplied
by the number of fibers in the cable. See the definition of "route mile"
below.
Fiber Optics--Fiber optic technology involves sending laser light pulses
across glass strands in order to transmit digital information. Fiber optic
cable is the medium of choice for the telecommunications and cable industries.
Fiber is immune to electrical interference and environmental factors that
affect copper wiring and satellite transmission.
Hybrid fiber coaxial (HFC)--A new technology consisting of fiber optic
distribution facilities and coaxial cable deployed to the home or business.
This technology enables the operator to offer a wide variety of two-way
broadband services, including telecommunications and entertainment.
Interconnection decisions--Rulings by the FCC announced in September 1992
and August 1993, which require the BOCs and other large ILECs to provide
interconnection in ILEC central offices to any CAP, long distance carrier or
end user requesting such interconnection to provide interstate special access
or switched transport services.
ILECs (incumbent local exchange carriers)--The local phone companies, either
a BOC or an independent (such as GTE) which provides local exchange services.
Internet--The name used to describe the global open network of computers
that permits a person with access to the Internet to exchange information with
any other computer connected to the network.
ISDN (Integrated Services Digital Network)--ISDN is an internationally
agreed standard which, through special equipment, allows two-way, simultaneous
voice and data transmission in digital formats over the same transmission
line. ISDN permits video conferencing over a single line, for example, and
also supports a multitude of value-added switched service applications such as
Incoming Calling Line Identification. ISDN's combined voice and data
networking capabilities reduce costs for end users and result in more
efficient use of available facilities. ISDN combines standards for highly
flexible customer to network signaling with both voice and data within a
common facility.
IXC (interexchange carrier)--a long distance carrier.
Kbps (kilobits)--One thousand bits of information. The information-carrying
capacity (i.e., bandwidth) of a circuit may be measured in "thousands of bits
per second."
LANs (local area networks)--The interconnection of computers for the purpose
of sharing files, programs and peripheral devices such as printers and high-
speed modems. LANs may include dedicated computers or file servers that
provide a centralized source of shared files and programs. LANs are generally
confined to a single customer's premises and may be extended or interconnected
to other locations through the use of bridges and routers.
LATA (local access and transport area)--The geographical areas within which
a local telephone company may offer telecommunications services, as defined in
the divestiture order known as the Modified Final Judgment ("MFJ") unless and
until redefined by the FCC pursuant to the Telecommunications Act of 1996.
Local exchange--A geographic area defined by the appropriate state
regulatory authority in which telephone calls generally are transmitted
without toll charges to the calling or called party.
Local Exchange Service/Local Exchange Telephone Service--Basic local
telephone service, including the provision of telephone numbers, dial tone and
calling within the local exchange area.
113
<PAGE>
Long distance carriers (interexchange carriers or IXC)--Long distance
carriers providing services between LATAs, on an interstate or intrastate
basis. A long distance carrier may be facilities-based or offer service by
reselling the services of a facilities-based carrier.
Local transport services--Dedicated lines between the ILEC's central offices
and long distance carrier POPs used to carry switched traffic.
Mbps (megabit)--One million bits of information. The information-carrying
capacity (i.e., bandwidth) of a circuit may be measured in "millions of bits
per second."
Multiplexing--An electronic or optical process that combines a number of
lower speed transmission signals into one higher speed signal. There are
various techniques for multiplexing, including frequency division (splitting
the total available frequency bandwidth into smaller frequency slices), time
division (slicing a channel into timeslots and placing each signal into its
assigned timeslot), and statistical (wherein multiplexed signals share the
same channel and each transmits only when it has data to send).
Nodes--An individual point of origination and termination or intersection on
the network, usually where electronics are housed.
PBX (private branch exchange)--A customer owned and operated switch on
customer premises, typically used by large businesses with multiple telephone
lines.
PBX trunk--A transmission facility which connects a PBX to the Company's or
ILEC's central office switching center.
POPs (points of presence)--Locations where a long distance carrier has
installed transmission equipment in a service area that serves as, or relays
telephone calls to, a network switching center of the same long distance
carrier.
Private line--A private, dedicated telecommunications link between different
customer locations (excluding long distance carrier POPs).
Public switched network--The switched network available to all users
generally on a shared basis (i.e., not dedicated to a particular user). The
local exchange telephone service networks operated by ILECs are the largest
and often the only public switched networks in a given locality.
PUC (public utility commission)--A state regulatory body, established in
most states, which regulates utilities, including telecommunications companies
providing intrastate services. In some states this regulatory body may have a
different name, such as public service commission ("PSC").
RBOC (Regional Bell Operating Company)--The holding company which owns a
BOC.
Reciprocal compensation--An arrangement in which two local exchange carriers
agree to terminate traffic originating on each other's networks in exchange
for a negotiated level of compensation.
Redundant electronics--A telecommunications facility that uses two separate
electronic devices to transmit a telecommunications signal so that if one
device malfunctions, the signal may continue without interruption.
Route mile--The number of miles along which fiber optic cables are
installed.
SONET (synchronous optical network)--A set of standards for optical
communications transmission systems that define the optical rates and formats,
signal characteristics, performance, management and maintenance information to
be embedded within the signals and the multiplexing techniques to be employed
in optical communications transmission systems. SONET facilitates the
interoperability of dissimilar vendors equipment. SONET benefits business
customers by minimizing the equipment necessary for various telecommunications
applications and supports networking diagnostic and maintenance features.
114
<PAGE>
Special access services--The lease of private, dedicated telecommunications
lines or circuits on an ILEC's or a CAP's network which run to or from the
long distance carrier's POPs. Special access services do not require the use
of switches. Examples of special access services are telecommunications
circuits running between POPs of a single long distance carrier, from one long
distance carrier's POP to another long distance carrier's POP or from an end
user to its long distance carrier's POP.
Switch--A mechanical or electronic device that opens or closes circuits or
selects the paths or circuits to be used for the transmission of information.
Switching is a process of linking different circuits to create a temporary
transmission path between users. Within this document, switches generally
refer to voice grade telecommunications switches unless specifically stated
otherwise.
Switched access services--The connection between a long distance carrier's
POP and an end user's premises through the switching facilities of a local
exchange carrier.
Toll services--Otherwise known as EAS or intra LATA toll services are those
calls that are beyond the free local calling area but originate and terminate
within the same LATA; such calls are usually priced on a measured basis.
Voice grade equivalent circuit--One DS-0. One voice grade equivalent circuit
is equal to 64 kilobits of bandwidth.
115
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES AND TCG PARTNERS
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES AND TCG PARTNERS:
AUDITED FINANCIAL STATEMENTS:
Independent Auditors' Report............................................ F-2
Combined Balance Sheets at December 31, 1995 and 1994................... F-3
Combined Statements of Operations for the Years Ended December 31, 1995,
1994 and 1993.......................................................... F-4
Combined Statements of Changes in Stockholders' Equity and Partners'
Capital (Deficit) for the Years Ended December 31, 1995, 1994 and
1993................................................................... F-5
Combined Statements of Cash Flows for the Years Ended December 31, 1995,
1994 and 1993.......................................................... F-6
Notes to Combined Financial Statements.................................. F-7
UNAUDITED INTERIM FINANCIAL STATEMENTS:
Combined Balance Sheet at March 31, 1996................................ F-18
Combined Statements of Operations for the Three Months Ended March 31,
1996 and 1995.......................................................... F-19
Combined Statements of Cash Flows for the Three Months Ended March 31,
1996 and 1995.......................................................... F-20
Notes to Combined Interim Financial Statements.......................... F-21
LOCAL MARKET PARTNERSHIPS TO BE ACQUIRED BY TELEPORT COMMUNICATIONS GROUP
INC.:
AUDITED FINANCIAL STATEMENTS:
Independent Auditors' Report............................................ F-22
Combined Balance Sheets at December 31, 1995 and 1994................... F-23
Combined Statements of Operations and Partners' Capital for the Years
Ended December 31, 1995, 1994, and 1993................................ F-24
Combined Statements of Cash Flows for the Years Ended December 31, 1995,
1994 and 1993.......................................................... F-25
Notes to Combined Financial Statements.................................. F-26
UNAUDITED INTERIM FINANCIAL STATEMENTS:
Combined Balance Sheet at March 31, 1996................................ F-31
Combined Statements of Operations for the Three Months Ended March 31,
1996 and 1995.......................................................... F-32
Combined Statements of Cash Flows for the Three Months Ended March 31,
1996 and 1995.......................................................... F-33
Notes to Combined Interim Financial Statements.......................... F-34
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Teleport Communications Group Inc. and
Partners of TCG Partners:
We have audited the accompanying combined balance sheets of Teleport
Communications Group Inc. and its subsidiaries and TCG Partners (collectively,
"TCG"), both of which are under common ownership and common management, as of
December 31, 1995 and 1994 and the related combined statements of operations,
changes in stockholders' equity and partners' capital (deficit), and cash
flows for the three years ended December 31, 1995, 1994 and 1993. These
financial statements are the responsibility of TCG's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the combined financial position of TCG at December 31, 1995
and 1994 and the combined results of their operations and their combined cash
flows for the three years ended December 31, 1995, 1994 and 1993 in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
New York, New York
February 16, 1996
(February 29, 1996 as to Note 6, April 24, 1996 as to Note 1 and May 13, 1996
as to Note 12)
F-2
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES AND TCG PARTNERS
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 11,862 $ 26,000
--------- --------
Accounts receivable:
Trade--net of allowance for doubtful accounts ($1,161 in
1995 and $1,457 in 1994)................................ 26,196 19,535
Related parties.......................................... 4,640 6,264
Miscellaneous--net of allowance for doubtful accounts
($543 in 1995 and $747 in 1994)......................... 2,037 1,669
--------- --------
Accounts receivable--net............................... 32,873 27,468
--------- --------
Prepaid expenses......................................... 4,939 3,950
--------- --------
Other current assets..................................... 532 481
--------- --------
Total current assets..................................... 50,206 57,899
--------- --------
Fixed assets--at cost:
Communications network................................... 492,858 389,010
Other.................................................... 52,795 33,954
--------- --------
545,653 422,964
Less accumulated depreciation and amortization........... (113,202) (78,973)
--------- --------
Fixed assets--net...................................... 432,451 343,991
--------- --------
Investment in unconsolidated affiliates................... 99,299 53,958
--------- --------
Goodwill--net of accumulated amortization ($1,716 in 1995
and $279 in 1994)........................................ 27,008 28,445
--------- --------
Other assets.............................................. 5,829 2,690
--------- --------
Total assets............................................. $ 614,793 $486,983
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
(DEFICIT)
Current liabilities:
Accounts payable and accrued liabilities................. $ 92,104 $ 62,015
Current portion of capital lease obligations ($3,338 in
1995 and $1,076 in 1994 with related parties)........... 4,354 1,845
Notes payable to unconsolidated affiliates............... -- 25,983
Other current liabilities................................ 831 775
--------- --------
Total current liabilities................................ 97,289 90,618
Capital lease obligations ($10,017 in 1995 and $2,634 in
1994 with related parties)............................... 11,964 2,962
Subordinated debt to parents.............................. 269,000 197,500
Long-term bank debt....................................... 87,500 --
Minority interest......................................... 4,409 2,903
Other liabilities......................................... 19,283 13,848
--------- --------
Total liabilities........................................ 489,445 307,831
--------- --------
Commitments and contingencies
</TABLE>
<TABLE>
<S> <C> <C>
Stockholders' equity and partners' capital (deficit):
Stockholders' equity (common stock, $1.00 par value;
authorized, 3,000 shares; outstanding, 1,667 shares)...... 129,742 162,129
Partners' capital (deficit)................................ (4,394) 17,023
-------- --------
Total stockholders' equity and partners' capital
(deficit)................................................. 125,348 179,152
-------- --------
Total liabilities and stockholders' equity and partners'
capital (deficit)......................................... $614,793 $486,983
======== ========
</TABLE>
See notes to combined financial statements.
F-3
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES AND TCG PARTNERS
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Telecommunications services.................... $134,652 $ 99,983 $ 82,374
Management and royalty fees from affiliates.... 31,517 20,691 1,555
-------- -------- --------
Total revenues............................... 166,169 120,674 83,929
-------- -------- --------
Expenses:
Operating...................................... 73,743 60,255 48,224
Selling, general and administrative............ 69,850 56,306 40,275
Depreciation and amortization.................. 37,837 19,933 16,197
-------- -------- --------
Total expenses............................... 181,430 136,494 104,696
-------- -------- --------
Operating loss................................... (15,261) (15,820) (20,767)
-------- -------- --------
Interest:
Interest income................................ 4,067 1,711 1,072
Interest expense ($18,763 in 1995, $4,998 in
1994 and $1,123 in 1993 with related
parties)...................................... (23,331) (5,079) (1,407)
-------- -------- --------
Total interest............................... (19,264) (3,368) (335)
-------- -------- --------
Loss before minority interest, equity in losses
of unconsolidated affiliates and income tax
(provision) benefit............................. (34,525) (19,188) (21,102)
Minority interest................................ 663 1,395 796
Equity in losses of unconsolidated affiliates.... (19,541) (11,763) (2,114)
-------- -------- --------
Loss before income tax (provision) benefit....... (53,403) (29,556) (22,420)
Income tax (provision) benefit................... (401) (433) 4,149
-------- -------- --------
Net loss......................................... $(53,804) $(29,989) $(18,271)
======== ======== ========
</TABLE>
See notes to combined financial statements.
F-4
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES AND TCG PARTNERS
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL
(DEFICIT)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
-------------------------------------
TOTAL
STOCKHOLDERS'
EQUITY AND
ADDITIONAL RETAINED PARTNERS' PARTNERS'
COMMON PAID-IN EARNINGS CAPITAL CAPITAL
STOCK CAPITAL (DEFICIT) TOTAL (DEFICIT) (DEFICIT)
------ ---------- --------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1993................... $ 1 $ 75,348 $ 2,360 $ 77,709 $ (338) $ 77,371
Net loss.............. -- -- (13,240) (13,240) (5,031) (18,271)
Issuance of capital
stock................ 1 120,040 -- 120,041 -- 120,041
Capital
contributions........ -- -- -- -- 30,000 30,000
---- -------- -------- -------- -------- --------
BALANCE, DECEMBER 31,
1993................... 2 195,388 (10,880) 184,510 24,631 209,141
Net loss.............. -- -- (22,381) (22,381) (7,608) (29,989)
---- -------- -------- -------- -------- --------
BALANCE, DECEMBER 31,
1994................... 2 195,388 (33,261) 162,129 17,023 179,152
Net loss.............. -- -- (32,387) (32,387) (21,417) (53,804)
---- -------- -------- -------- -------- --------
BALANCE, DECEMBER 31,
1995................... $ 2 $195,388 $(65,648) $129,742 $ (4,394) $125,348
==== ======== ======== ======== ======== ========
</TABLE>
See notes to combined financial statements.
F-5
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES AND TCG PARTNERS
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................... $ (53,804) $ (29,989) $ (18,271)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization............. 37,837 19,933 16,197
Deferred income taxes..................... -- -- (4,149)
Equity in losses of unconsolidated
affiliates............................... 19,541 11,763 2,114
Amortization of deferred credits.......... (2,228) (1,886) (658)
Provision for losses on accounts
receivable............................... 877 768 549
Minority interest........................... (663) (1,395) (796)
(Increase) decrease in operating assets and
increase (decrease) in operating
liabilities:
Accounts receivable....................... (12,771) (8,958) (7,495)
Other assets.............................. (3,108) 592 (2,152)
Accounts payable and accrued liabilities.. 45,832 94,472 60,738
Deferred credits.......................... 4,628 2,453 (628)
--------- --------- ---------
Net cash provided by operating
activities............................. 36,141 87,753 45,449
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for communications net-
work....................................... (120,814) (118,924) (130,833)
Capital expenditures for other fixed as-
sets....................................... (18,842) (19,968) (5,135)
Acquisition of Diginet...................... -- -- (12,581)
Due to (from) related parties............... (6,707) (69,007) (8,689)
Purchase of minority interest in TCB........ -- (36,975) --
Investment in unconsolidated affiliates--
cash component............................. (61,604) (42,342) (9,487)
Advances to unconsolidated affiliate........ (3,400) -- --
Repayment of advances to unconsolidated af-
filiate.................................... 3,400 -- --
Reimbursement of funds advanced to unconsol-
idated affiliates.......................... -- 22,190 19,607
--------- --------- ---------
Net cash used for investing activities.. (207,967) (265,026) (147,118)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt.... 159,000 172,500 55,400
Repayment of long-term debt................. -- -- (79,984)
Issuance of capital stock................... -- -- 120,041
Capital contributions from minority
partners................................... 2,168 6,058 5,756
Capital contribution........................ -- -- 30,000
Principal payments under capital lease
obligations................................ (3,480) (459) (1,391)
Repayments of short-term debt............... -- (6,542) --
--------- --------- ---------
Net cash provided by financing
activities............................. 157,688 171,557 129,822
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. (14,138) (5,716) 28,153
CASH AND CASH EQUIVALENTS, JANUARY 1.......... 26,000 31,716 3,563
--------- --------- ---------
CASH AND CASH EQUIVALENTS, DECEMBER 31........ $ 11,862 $ 26,000 $ 31,716
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION--Cash paid during the year for
interest..................................... $ 8,675 $ 5,693 $ 1,099
========= ========= =========
</TABLE>
See notes to combined financial statements.
F-6
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES AND TCG PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. ORGANIZATION AND OPERATIONS
Teleport Communications Group Inc. ("TCGI"), incorporated in March 1983, and
TCG Partners, formed in December 1992, (collectively, "TCG") are each owned
30.05994 percent by wholly-owned subsidiaries of Cox Communications, Inc.
("Cox"), 29.93994 percent by wholly-owned subsidiaries of Tele-Communications,
Inc. ("TCI"), 20.00006 percent by wholly-owned subsidiaries of Comcast
Corporation ("Comcast"), and 20.00006 percent by wholly-owned subsidiaries of
Continental Cablevision, Inc. ("Continental").
TCGI and TCG Partners are affiliated through common ownership and
management.
TCG, the first and largest competitive local exchange carrier in the United
States, offers a wide range of local telecommunications services in major
metropolitan markets nationwide. TCG competes with incumbent local exchange
carriers as "The Other Local Phone Company"SM by providing high quality,
integrated local telecommunications services, primarily over fiber optic
digital networks, to meet the voice, data and video transmission needs of its
customers. TCG's customers are principally telecommunications-intensive
businesses, long distance carriers and resellers and wireless communications
companies. TCG offers these customers technologically advanced local
telecommunications services, as well as superior customer service, flexible
pricing and vendor and route diversity.
In connection with the proposed public offerings of Class A Common Stock and
Notes, TCGI and its owners entered into a reorganization agreement dated April
18, 1996 pursuant to which TCG Partners and certain of the unconsolidated
affiliates will become wholly owned subsidiaries of TCGI, and TCGI will
acquire the minority interests of certain of the owners of the remaining
unconsolidated affiliates.
On April 19, 1996 and April 24, 1996, TCGI filed registration statements
with the Securities and Exchange Commission for the registration of Class A
Common Stock and Senior Discount Notes, respectively.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination--The accompanying combined financial statements
include the accounts of TCGI and its subsidiaries and of TCG Partners.
Minority interest represents other partners' equity in TCG St. Louis in 1995
and 1994 and in Teleport Communications Boston, a Massachusetts partnership
("TCB"), in 1994 (until acquisition) and in 1993. In addition, TCG San Diego
was included in minority interest from June 1, 1993 (date of inception)
through May 31, 1994. Effective June 1, 1994, TCG San Diego became an
unconsolidated affiliate due to Times Mirror Inc. acquiring an interest in the
partnership. All significant intercompany transactions and balances have been
eliminated. Investments in which TCG holds less than a 50 percent interest are
accounted for under the equity method.
Basis of Accounting--The accompanying combined financial statements have
been prepared on the accrual basis of accounting.
Revenue Recognition--Revenue on dedicated line and switch services is
recognized in accordance with the terms of the underlying customer contracts
or tariffs and over the period in which the services are provided.
Depreciation and Amortization--Depreciation and amortization are computed on
the straight-line basis over the estimated useful lives of the assets or the
length of the lease, whichever is shorter. Estimated useful lives are 5 to 25
years for the communications network and 3 to 5 years for other fixed assets,
except for buildings which are 40 years.
During 1995, TCG completed a review of the useful lives of its fixed assets.
TCG determined that the lives of certain electronics equipment were longer
than industry standard, while the lives of other electronics equipment were
shorter than industry standard. Therefore, TCG adjusted the estimated useful
lives of certain
F-7
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES AND TCG PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
electronics equipment to conform with industry standard, effective December 1,
1995. The effect of these changes in estimate increased depreciation expense
for the year ended December 31, 1995 by approximately $700,000.
Goodwill--Goodwill represents the excess purchase price paid over the net
assets associated with the purchase of the remaining partnership interest in
Teleport Communications, a New York partnership, and TCB. Goodwill is
amortized on a straight line basis over 40 years for Teleport Communications
and 20 years for TCB. The goodwill amortization recorded in 1995, 1994 and
1993 was $1,437,000, $207,000 and $35,000, respectively.
The carrying value of intangible assets is periodically reviewed and
impairments will be recognized when the undiscounted expected future cash
flows, computed after interest expense derived from the related operations, is
less than their carrying value. Effective January 1, 1995, TCG changed its
estimate of the useful life of the goodwill associated with TCB to 20 years.
The effect of this change in estimate was to increase depreciation and
amortization expense by approximately $650,000.
Deferred Credits--Deferred credits principally represent advance payments
received from customers for long-term fiber optic service, and are amortized
into income over the life of the related contracts. The current portions,
$831,000 and $775,000 at December 31, 1995 and 1994, respectively, are
included in other current liabilities and the non-current portions, $5,392,000
and $3,216,000 at December 31, 1995 and 1994, respectively, are included in
other liabilities.
Income Taxes--TCGI accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes," pursuant to which deferred income tax assets and liabilities are
determined based on the difference between the financial statement and tax
bases of assets and liabilities, using enacted tax rates currently in effect.
State and local taxes are based on factors other than income.
TCG Partners is not subject to Federal or state and local income taxes. Each
partner's distributive share of partnership revenues, expenses and other items
is computed on the basis of the respective partner's capital interest in the
partnership and is reported by the partners in their respective Federal or
state income tax returns.
Financial Instruments--Financial instruments which potentially subject TCG
to concentration of credit risk consist of accounts receivable. Concentrations
of credit risk with respect to accounts receivable are limited due to the
dispersion of TCG's customer base among different industries and geographic
areas in the United States, by credit granting policies adopted by TCG, and by
remedies provided by terms of contracts, tariffs and statutes.
Cash Equivalents--TCG considers all highly liquid instruments readily
convertible to known amounts of cash to be cash equivalents.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Long-Lived Assets--In March 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." This statement is effective for fiscal years beginning
after December 15, 1995. Management has evaluated the effect on its financial
condition and results of operations from the adoption of this statement and
does not believe an impairment of the long-lived assets has occurred.
Stock-Based Compensation--In October 1995, the FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which requires adoption of the
disclosure provisions no later than fiscal years beginning after December 15,
1995 and adoption of the measurement and recognition provisions for non-
employee
F-8
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES AND TCG PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
transactions no later than after December 15, 1995. The new standard defines a
fair value method of accounting for the issuance of stock options and other
equity instruments. Under the fair value method, compensation cost is measured
at the grant date based on the fair value of the award and is recognized over
the service period, which is usually the vesting period. Pursuant to SFAS No.
123, companies are encouraged, but are not required, to adopt the fair value
method of accounting for employee stock-based transactions. Companies are also
permitted to continue to account for such transactions under Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," but would be required to disclose in a note to the financial
statements pro forma net income and, per share amounts as if the company had
applied the new method of accounting. SFAS No. 123 also requires increased
disclosures for stock-based compensation arrangements regardless of the method
chosen to measure and recognize compensation for employee stock-based
arrangements. TCG has elected to continue to account for such transactions
under APB No. 25. TCGI has determined that if SFAS No. 123 had been adopted,
its impact to the combined statement of operations for the year ended December
31, 1995 would have been insignificant.
Presentation--Certain 1994 and 1993 amounts have been reclassified to
conform with the 1995 presentation.
3. INCOME TAXES
There are no current income taxes payable based on TCGI's operating loss.
The following temporary differences compose the net deferred income tax
liability (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred income tax liabilities--depreciation,
amortization and excess credits...................... $ 23,294 $ 17,495
-------- --------
Deferred income tax assets:
Deferred revenue.................................... (2,089) (1,308)
Assets recorded for tax purposes.................... (1,301) (1,514)
Incentive compensation.............................. (3,303) (2,134)
Operating loss...................................... (35,233) (19,594)
Equity on investments............................... (710) (694)
Excess credits...................................... -- (684)
-------- --------
(42,636) (25,928)
Less valuation allowance............................ 20,264 9,355
-------- --------
Total deferred tax assets......................... (22,372) (16,573)
-------- --------
Deferred income taxes payable--net.................... $ 922 $ 922
======== ========
</TABLE>
In 1995, 1994 and 1993, the income tax benefits of approximately
$10,909,000, $7,782,000 and $5,722,000, respectively, have been offset by
increases in the valuation allowance of $10,909,000, $7,782,000 and
$1,573,000, respectively, due to the uncertainty of realizing the benefit of
the loss carryforwards.
F-9
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES AND TCG PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of the statutory Federal income tax rate to TCGI's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Statutory Federal income
tax rate............... 35.0 % 35.0 % (35.0)%
State and local taxes,
less federal benefit... 1.3 % 2.0 % 0.0 %
Unutilized tax benefit
due to net operating
loss................... (33.3)% (35.5)% 9.0 %
Permanent differences
and other.............. (1.7)% 0.5 % 2.1 %
----- ----- -----
Effective rate.......... 1.3 % 2.0 % (23.9)%
===== ===== =====
</TABLE>
At December 31, 1995, TCGI's had operating loss carryforwards for tax
purposes of approximately $105,300,000, expiring principally in 2009 through
2011.
4. RELATED PARTY TRANSACTIONS
In connection with the management of its unconsolidated partnerships and
certain other affiliates, TCGI has entered into management services
agreements. Under the terms of such agreements, TCGI provides certain
operating and administrative services to such entities, for which it earns
management fees. Management fees earned were approximately $29,638,000,
$19,403,000 and $1,380,000 in 1995, 1994 and 1993, respectively.
At the request of certain cable television operators, including Cable
Stockholders, TCG is participating in residential telephone trials in
Arlington Heights, Illinois, Hartford, Connecticut and the San Francisco Bay
area. TCG expects to be fully reimbursed for its costs incurred in connection
with these trials. At December 31, 1995, the amount due to TCG for this
reimbursement was $461,000, and is included in miscellaneous accounts
receivable.
TCG also provides management services to certain affiliates of Cox under
three Operator Managed Ventures Services Agreements, including billing
services, network monitoring and accounts receivable functions. Under the
terms of the agreements, TCG retains 8% of the collected revenues from Cox
customers as a royalty fee. Royalty fees recorded from Cox were approximately
$98,000, $27,000 and $0 for 1995, 1994 and 1993, respectively, and are
included in management and royalty fees in the statements of operations.
Included in accounts receivable--trade are approximately $262,000 and $99,000
at December 31, 1995 and 1994, respectively, for amounts owed by Cox
customers.
In 1995 TCG purchased cable on behalf of certain of its owners which it then
sold to them at cost. At December 31, 1995, the amount receivable from the
owners was $3,683,000.
Revenues earned from all services to the other partner of TCB and its
affiliates were approximately $3,709,000 and $771,000 for the years ended
December 31, 1994 and 1993, respectively.
5. EMPLOYEE BENEFIT PLANS
Teleport Communications Group Retirement Savings Plan. TCGI has a Retirement
Savings Plan with a 401(k) savings component and a retirement component
covering substantially all eligible employees of TCG with one or more years of
service. Under the 401(k) component of the plan, participants may make pre-tax
contributions and TCG matches 50 percent of the first 6 percent of annual
eligible compensation to a maximum company contribution of $1,500 per
employee. Under the retirement component of the plan, TCG contributes an
amount based on years of service and annual eligible compensation.
In 1995, 1994 and 1993, TCG made matching contributions of $735,963,
$456,259 and $257,709, respectively, as required by the 401(k) component and
$977,949, $606,390 and $288,838 respectively, under the retirement component
of the plan.
F-10
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES AND TCG PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
TCGI has established a nonqualified, unfunded, deferred compensation Make-Up
Plan of Teleport Communications Group Inc. (the "Make-Up Plan") for the
Teleport Communications Group Inc. Retirement Savings Plan (the "Retirement
Savings Plan"). The purpose of the Make-Up Plan is to provide certain eligible
participants benefits which would have been payable under the Retirement
Savings Plan, but were limited by the maximum company match of $1,500, as well
as compensation limits set forth by the IRS. Expenses incurred in connection
with the Make-Up Plan were insignificant.
Teleport Communications Group Unit Appreciation Plan. TCGI has established a
Teleport Communications Group Unit Appreciation Plan (the "UAP"). During the
years ended December 31, 1993 and 1992, TCGI made awards of deferred
compensation in the form of units (the "Units"), pursuant to the UAP, to
certain eligible employees of TCGI. The initial base price of each Unit as of
January 1, 1993 and 1992 was $34.85 and $30.00, respectively. Awards under the
UAP are subject to a five-year vesting schedule, pursuant to which the Units
granted will be partially vested commencing as of December 31, 1995 and
December 31, 1994, respectively, and fully vested no later than December 31,
1997 and December 31, 1996, respectively, subject to certain exceptions. The
terms of the UAP have been modified pursuant to employment agreements with
certain employees, as provided therein. In connection with the UAP, TCGI
recognized compensation expense of $2,474,845, $6,070,955 and $3,047,436 for
the years ended December 31, 1995, 1994 and 1993, respectively. In January
1996, TCGI adopted a plan which permits the awards under the UAP to be
deferred in whole or in part at the election of the participants for certain
periods.
The following table provides additional information concerning the Unit
Appreciation Plan awards:
<TABLE>
<CAPTION>
NUMBER NUMBER NUMBER
OF UNITS NUMBER OF VALUE OF UNITS OF UNITS OF UNITS VALUE OF UNITS
INITIAL OUTSTANDING AT UNITS VESTED AT VESTED AT OUTSTANDING AT VESTED AT VESTED AT
YEAR OF NUMBER DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
AWARD OF UNITS 1995 1995(1) 1995 1994(2) 1994 1994
------- -------- -------------- --------------- -------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
1993............ 36,000 23,700 14,220 $ 991,134 25,100 -- --
1992............ 170,850 139,200 111,360 7,486,200 156,850 94,110 $5,926,500
------- ------- ------- ---------- ------- ------ ----------
Total........... 206,850 162,900 125,580 $8,477,334 181,950 94,110 $5,926,500
======= ======= ======= ========== ======= ====== ==========
<CAPTION>
NUMBER
OF UNITS
OUTSTANDING AT
YEAR OF DECEMBER 31,
AWARD 1993
------- --------------
<S> <C>
1993............ 36,000
1992............ 160,350
--------------
Total........... 196,350
==============
</TABLE>
- --------
(1) No Units awarded in 1993 were vested prior to December 31, 1995.
(2) No Units awarded in 1992 were vested prior to December 31, 1994.
Teleport Communications Group Stock Option Plan. TCGI established the
Teleport Communications Group Stock Option Plan (the "SOP") effective
September 26, 1993. TCGI has made long term incentive compensation awards in
the form of stock option grants pursuant to the SOP to eligible employees. The
SOP reserved 128.175000 shares for issuance pursuant to stock option grants.
Adjusted for the recapture of stock options issued to former employees, as of
February 16, 1996, stock options relating to 59.91685 shares were outstanding.
Stock options were granted at fair value and no compensation expense has been
recognized in connection with the options.
F-11
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES AND TCG PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The following table provides additional information concerning SOP awards.
<TABLE>
<CAPTION>
NUMBER NUMBER NUMBER NUMBER NUMBER
OF SHARES OF SHARES OF SHARES OF SHARES OF SHARES
UNDERLYING RANGE OF EXERCISE UNDERLYING UNDERLYING UNDERLYING UNDERLYING
OPTIONS PRICES OF OPTIONS OPTIONS OPTIONS OPTIONS OPTIONS
ISSUED ISSUED DURING OUTSTANDING AT EXERCISED CANCELLED EXERCISABLE AT
YEAR DURING YEAR YEAR YEAR-END DURING YEAR DURING YEAR YEAR-END
---- ----------- ----------------- -------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
1995.................... 6.7880 $597,227 60.4300 .6456 5.1244 7.1967
1994.................... 7.7149 $436,217 59.4120 -- 5.2694 3.7503
1993.................... 56.9665 $289,643-$329,140 56.9665 -- -- --
</TABLE>
Employment Agreements. TCGI's employment agreements are with certain of its
executive officers and senior management personnel. These agreements are
effective through December 31, 1996, unless terminated earlier by the
executive or TCGI, and provide for annual salaries, cost-of-living
adjustments, additional compensation in the form of bonuses based on the
performance of TCGI and the executive, and participation in the various
benefit plans of TCGI. The agreements contain certain benefits to the
executive if TCGI terminates the executive's employment without cause or if
the executive terminated his employment as a result of change in ownership of
TCGI. The salary and bonus expense related to these executives for the year
ended December 31, 1995 approximated $2,133,000. TCGI's remaining aggregate
commitments for salaries under such agreements is approximately $1,480,000.
In the event the executive terminates his employment as a result of a change
in control, the agreements provide for the payment of a base salary plus an
annual bonus in a minimum amount equal to 30 percent of such base salary,
except for the President whose minimum annual bonus is 50% of base salary.
6. LONG-TERM DEBT
Long-term debt at December 31 consists of the following (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Subordinated debt to parents, weighted average rate
1995, 6.82% and 1994, 5.51% due through 2002........... $269,000 $197,500
Long-term bank debt, weighted average rate 6.80%, due
through 2004........................................... 87,500 --
-------- --------
Total................................................. $356,500 $197,500
======== ========
</TABLE>
The aggregate long-term debt maturing during the next five years is as
follows (in thousands):
<TABLE>
<CAPTION>
YEARS AMOUNT
----- --------
<S> <C>
1996............................................................. $ --
1997............................................................. --
1998............................................................. --
1999............................................................. 12,500
2000............................................................. 50,000
Thereafter........................................................ 294,000
--------
$356,500
========
</TABLE>
TCGI has a loan agreement with Cox, Continental, Comcast and TCI aggregating
$349,600,000 ($269,000,000 and $197,500,000 outstanding at December 31, 1995
and 1994, respectively). Borrowings bear interest at 75 basis points above the
one-month London Interbank Offered Rate ("LIBOR").
F-12
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES AND TCG PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Total interest expense for this loan was $17,643,000, $5,477,000 and
$656,000 for the years ended December 31, 1995, 1994, and 1993, respectively.
At December 31, 1995, $12,179,000 of such interest was included in accrued
expenses.
In May 1995, TCGI entered into a loan agreement (the "Revolving Credit
Agreement") with seventeen banks (the "Bank Group") for a total credit
facility of $250,000,000 ($87,500,000 outstanding at December 31, 1995).
Interest on borrowings under this agreement is at varying rates based, at
TCGI's option, on the prime rate of Toronto-Dominion Bank (the administrative
agent for the banks) or the LIBOR plus a spread based on certain financial
ratios. Commitment fees on the unused amount of the credit facility of 3/8 of
1 percent are payable under this agreement.
Additionally, TCGI entered into an agreement with Comcast, Continental, Cox
and TCI, whereby TCGI's debt to related parties was subordinated to the long-
term indebtedness from the Bank Group.
The shares of capital stock owned by TCGI in certain of the wholly owned
subsidiaries of TCGI (TC New York Holdings I, Inc., TC New York Holdings II,
Inc., TCG Payphones, Inc., and TC Systems, Inc., collectively the "Restricted
Subsidiaries") were pledged as collateral to secure the loan and may not be
pledged to any other party under the terms of the Revolving Credit Agreement.
In December 1995, the capital stock of the wholly owned Restricted
Subsidiaries of TCGI was transferred to TCG New York, Inc., a wholly owned
subsidiary of TCGI. TCG New York, Inc. assumed all obligations under the
Revolving Credit Agreement as of the date of transfer. TCG New York, Inc. is
permitted under the terms of the Revolving Credit Agreement to advance funds
to TCGI. When made, such advances are to be evidenced by notes from TCGI to
TCG New York, Inc. which will be pledged as collateral under the Revolving
Credit Agreement to the Bank Group.
The Revolving Credit Agreement contains various covenants and conditions,
including restrictions on additional indebtedness, maintenance of certain
financial ratios and limitations on capital expenditures. None of these
covenants negatively impact TCGI's liquidity or capital resources at this
time.
Subsequent to December 31, 1995, TCG New York Inc. increased its borrowing
under the Revolving Credit Agreement. Total borrowings under this agreement
were $155,000,000 as of February 29, 1996.
The total amount of interest paid on long-term debt in 1995, 1994 and 1993
was approximately $7,642,000, $5,477,000 and $656,000, respectively.
TCG's long-term debt had fair values that approximated their carrying
amounts.
7. FINANCIAL INSTRUMENTS
TCGI has entered into interest rate swap agreements to mitigate the impact
of changes in interest rates on its long-term bank debt. At December 31, 1995,
TCGI had interest rate swaps with commercial banks with a notional value of
$55,000,000. The average fixed interest rate is 5.93 percent. These agreements
effectively fix TCGI's interest rate exposure on various LIBOR based floating
rate notes (which range from 5.87 percent to 5.94 percent). TCGI is exposed to
credit loss in the event of nonperformance by the other parties to the
interest rate swap agreements; however, TCGI does not anticipate
nonperformance by the counterparts.
F-13
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES AND TCG PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
8. INVESTMENT IN UNCONSOLIDATED AFFILIATES
During 1995, TCG contributed cash ($12,114,000) for a 40 percent partnership
interest in TCG Pittsburgh. TCI holds the remaining 60 percent interest in the
Pittsburgh partnership.
During 1994, TCG contributed cash and certain other assets, or agreed to
contribute certain other assets, subject to certain liabilities, in exchange
for partnership interests in TCG Seattle (35 percent), TCG San Francisco (35
percent), TCG Los Angeles (35 percent), TCG Phoenix (35 percent), and TCG
Dallas Systems (44.9 percent). Such initial contributions of cash and net
assets aggregated $9,712,000 and $19,100,000, respectively. In addition, TCG
Partners reduced its partnership interest in TCG San Diego from 50 to 46.35
percent on June 1, 1994 as a result of Times Mirror Inc. acquiring an interest
in the partnership. TCI also holds a portion of all these new partnerships
formed in 1994. Cox, Comcast, Continental and various unrelated parties have
partnership interests in several of the partnerships.
In 1993, partnerships were formed for TCG Chicago (35 percent), TCG Illinois
(35 percent), TCG Detroit (44.9 percent), TCG Dallas (44.9 percent), TCG South
Florida (35 percent) and TCG Connecticut (35 percent). In connection with such
formation, TCG contributed cash of $13,601,000 and net assets of $24,700,000.
Subsequent to the partnerships' formation, the partnerships reimbursed TCG
for the pre-organization operating expenses and capital expenditures incurred
by the TCG subsidiaries prior to the formation of the partnerships. Such
amounts were included in the liabilities contributed by such subsidiaries to
the partnerships upon formation. The purpose of these partnerships is to
acquire, own, design, construct, operate, manage and sell certain local
telecommunications services in the respective metropolitan areas.
In connection with the establishment of these partnerships, local licensing
regulations, state regulatory requirements, and contractual restrictions did
not permit the transfer of title of fixed assets from certain TCG subsidiaries
to the local partnerships. At December 31, 1994, the obligations of TCG to
contribute the fixed assets once the appropriate approvals were received were
evidenced by noninterest-bearing notes aggregating approximately $25,983,000.
Depreciation of the related fixed assets, which remained recorded on the books
and records of the TCG subsidiary, was accounted for by a reduction of the
note payable. TCG transferred title of certain fixed assets from the TCG
subsidiary to the local partnership in 1994 and upon obtaining the necessary
approvals in 1995, TCG transferred title of the remaining fixed assets.
Additionally, the excess of the contributed capital, as defined in the
partnership agreement, over the historical carrying value of the net assets
contributed by the TCG subsidiaries (aggregating approximately $36,162,000 and
$39,500,000 at December 31, 1995 and 1994, respectively) is being amortized
over periods representing the average remaining useful lives of the
contributed assets, and is classified in the line item investments in
unconsolidated affiliates in the accompanying combined balance sheets as a
reduction to such account.
Summarized financial information for these investments, including Comcast
CAP (see Note 9), as of December 31, 1995 and 1994, and for the periods then
ended, is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Total assets............................................. $501,094 $359,940
Total liabilities........................................ 151,562 32,533
Total revenues........................................... 68,389 35,404
Net loss................................................. (47,408) (31,955)
</TABLE>
F-14
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES AND TCG PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
9. ACQUISITIONS
Effective October 1, 1995, TC Systems, Inc., a wholly owned subsidiary of
TCG New York, Inc., entered into an assumption agreement with Local Area
Telecommunications, Inc. ("LOCATE") to acquire certain assets subject to
associated liabilities. Aggregate assets and associated liabilities at that
time were approximately $2.7 million. TC Systems is managing the assets and
funding the associated operating losses pending the closing of the transaction
which is expected to occur as of May 31, 1996.
Effective September 1, 1994, TCG Indiana, Inc., a wholly owned subsidiary of
TCG Partners, entered into an agreement with City Signal Inc. to purchase all
the assets of City Signal Inc. of Indianapolis for approximately $2.6 million,
representing the assets acquired subject to the liabilities assumed. The
results of operations related to City Signal Inc. are included in the
accompanying combined financial statements from September 1, 1994. The results
of operations prior to September 1, 1994 were insignificant.
On October 24, 1994, Teleport paid $6,978,433 to FMR Corp., representing a
return of Fidelity Communications Inc.'s share of TCB's capital calls received
from March 1993 to February 1994, including interest in the amount of
$503,433. On the same date, TCG Partners entered into a purchase agreement
with FMR Corp. to purchase 100 percent of the capital stock of Fidelity
Communications Inc. In accordance with the purchase agreement, TCG Partners
gave a promissory note in the amount of $30,500,000 to Continental Cablevision
Inc. ("Continental") in consideration of Continental issuing to Fidelity Non-
Profit Management Foundation 62,886 shares of Continental common stock and in
exchange for Fidelity Non-Profit Management Foundation transferring all of the
common stock of Fidelity to TCG Partners.
On November 9, 1994, TCGI, on behalf of TCG Partners, paid Continental
$30,605,320 in payment of TCG Partners' promissory note, including interest of
$105,320. TCG Partners' promissory note was canceled on November 15, 1994 and
subsequently all security interests of Continental in the stock of Fidelity
Communications Inc. were released.
In connection with the issuance of capital stock to Comcast and Continental
in 1993, TCGI purchased from the parent of Comcast, for approximately $6.5
million, 49 percent of the issued and outstanding stock of Comcast CAP, which
owns 51 percent of the outstanding capital stock of Eastern TeleLogic
Corporation ("ETC"), on a fully-diluted basis. Such purchase price was
evidenced by a note payable in one year from the date thereof with interest at
the LIBOR rate plus .75 percent per annum and was secured by a pledge to the
parent of Comcast of the capital stock of Comcast CAP. On June 30, 1994, this
note was repaid in full.
On August 24, 1994 and September 19, 1994, TCGI increased its investment in
Comcast CAP by approximately $3.2 million in the aggregate. These investments
primarily represented TCGI's 49 percent participation in Comcast CAP's
purchase of various issues of ETC's convertible subordinated debt. Such
investment is included in investments in unconsolidated affiliates in the
accompanying combined balance sheets. On October 3, 1995, ETC converted
principal and interest on these notes to Common Stock.
In March and July 1995, TCGI and Comcast CAP provided interim financing to
ETC for ETC to expand its network geographically. TCGI's portion of the
financing was approximately $3.4 million in the form of convertible
subordinated demand promissory notes. On October 3, 1995, ETC repaid these
notes plus interest.
During February 1993, Teleport Communications Chicago Inc., a wholly owned
subsidiary of TCGI, entered into an agreement by and among Communications
Credit Corporation, Northern Telecom Finance Corporation and Diginet, Inc. to
purchase substantially all of the assets of Diginet, Inc. ("Diginet"). Such
purchase was consummated on August 9, 1993, effective June 30, 1993, for
approximately $12.6 million,
F-15
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES AND TCG PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
representing the assets acquired subject to the liabilities assumed. The
results of operations of Diginet are included in the accompanying combined
financial statements from July 1, 1993. The results of operations prior to
July 1, 1993 were insignificant.
10. COMMITMENTS AND CONTINGENCIES
Under the terms of contracts with various parties, TCG is obligated to pay
franchise fees, office rents, node rents and right-of-way fees in connection
with its fiber optic network through 2022. These contracts provide for certain
scheduled increases and for possible escalation of basic rentals based on a
change in the cost of living or on other factors. TCG expects to enter into
other contracts for additional franchise fees, office rents, node rents,
rights-of-way, facilities, equipment, and maintenance services in the future.
A summary of such fixed commitments at December 31, 1995 is as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS AMOUNT
----- -------
<S> <C>
1996.............................................................. $12,030
1997.............................................................. 11,303
1998.............................................................. 11,071
1999.............................................................. 11,098
2000.............................................................. 10,822
Thereafter......................................................... 42,585
-------
Total............................................................ $98,909
=======
</TABLE>
Rent expense under operating leases was approximately $11,770,000,
$11,185,000 and $8,701,000 for the years ended December 31, 1995, 1994 and
1993, respectively.
Communications network includes assets acquired under capital leases of
approximately $22,430,000 and $7,279,000 (including approximately $16,615,000
and $4,051,000 with related parties) at December 31, 1995 and 1994,
respectively. The related accumulated depreciation and amortization was
approximately $1,085,000 and $471,000, respectively.
The following is a schedule, by year, of future minimum payments under the
leases, together with the present value of the net minimum payments as of
December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
YEARS AMOUNT
----- -------
<S> <C>
1996............................................................. $ 5,878
1997............................................................. 5,114
1998............................................................. 4,474
1999............................................................. 3,519
2000............................................................. 1,173
-------
Total minimum lease payments...................................... 20,158
Less amount representing interest................................. 3,840
-------
Total obligations under capital leases............................ $16,318
=======
</TABLE>
Teleport Communications is subject to a revenue sharing agreement with The
Port Authority of New York and New Jersey (the "Port Authority"). Based on the
agreement, Teleport Communications is obligated to pay five percent of its
gross revenues, and may be required to pay a "net return rental fee," as
defined, to the extent its cumulative net return exceeds the entitlement
amount. Teleport Communications is also required to remit to the Port
Authority a minimum payment currently equal to $250,000 annually.
F-16
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC. AND SUBSIDIARIES AND TCG PARTNERS
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Teleport Communications entered into a 15 year franchise agreement with the
City of New York during 1994, which among other things, requires a payment
based on certain gross revenues, as defined in the agreement. The franchise
provides for the payment of 10 percent of certain gross revenues in 1995 and
1996, six percent in 1997 and five percent thereafter, all subject to certain
set-offs, reductions and adjustments. The franchise also provides that
commencing with calendar year 1995, payment to the City will be no less than
$200,000 per year.
In the ordinary course of business, TCG is involved in various litigation
and regulatory matters, proceedings and claims. In the opinion of TCG's
management, after consultation with counsel, the outcome of such proceedings
will not have a materially adverse effect on TCG's combined financial
position, results of operations or cash flows.
11. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Noncash investing activities for the years ended December 31, 1995, 1994 and
1993 were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Fixed assets acquired under capital leases........... $15,151 $4,384 $6,635
======= ====== ======
Right of way obtained in exchange for cable
installation........................................ $ 1,330 $ -- $ --
======= ====== ======
</TABLE>
12. SUBSEQUENT EVENTS
On February 2, 1996, TCGI entered into a Stock Purchase Agreement, subject
to Board approval, with all the shareholders of BizTel Communications, Inc.
for the eventual purchase by TCGI of certain capital stock of BizTel
Communications, Inc. and certain related transactions. Such purchase closed on
February 29, 1996.
On May 13, 1996, in connection with the Reorganization, TCGI purchased the
partnership interest of Hyperion Telecommunications, Inc. of Florida in TCG
South Florida for $11,618,000.
F-17
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC.
AND SUBSIDIARIES AND TCG PARTNERS
COMBINED BALANCE SHEET
MARCH 31, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
Current assets:
Cash and cash equivalents.......................................... $ 16,805
--------
Accounts receivable:
Trade--net of allowance for doubtful accounts of $2,362........... 26,041
Related parties................................................... 5,763
Miscellaneous--net of allowance for doubtful accounts of $910..... 1,764
--------
Accounts receivable--net........................................ 33,568
--------
Prepaid expenses................................................... 5,220
--------
Other current assets............................................... 919
--------
Total current assets.............................................. 56,512
--------
Fixed assets--at cost:
Communications network............................................. 518,861
Other.............................................................. 57,945
--------
576,806
Less accumulated depreciation and amortization..................... (126,273)
--------
Fixed assets--net............................................... 450,533
--------
Investment in unconsolidated affiliates............................. 118,985
--------
Goodwill--net of accumulated amortization of $2,076................. 26,649
--------
Other assets........................................................ 6,227
--------
Total assets...................................................... $658,906
========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<S> <C>
Current liabilities:
Accounts payable and accrued liabilities............................ $ 93,024
Current portion of capital lease obligation ($3,657 with related
parties)........................................................... 4,575
Other current liabilities........................................... 928
--------
Total current liabilities.......................................... 98,527
Capital lease obligations ($9,196 with related parties).............. 10,903
Subordinated debt to parents......................................... 269,000
Long-term bank debt.................................................. 155,000
Minority interest.................................................... 4,847
Other liabilities.................................................... 13,973
--------
Total liabilities.................................................. 552,250
--------
Commitments and contingencies
Stockholders' equity and partners' capital (deficit):
Stockholders' equity (common stock, $1.00 par value; authorized,
3,000 shares; outstanding,
1,667 shares)...................................................... 119,100
Partners' capital (deficit)......................................... (12,444)
--------
Total stockholders' equity and partners' capital (deficit)......... 106,656
--------
Total liabilities and stockholders' equity and partners' capital
(deficit)........................................................... $658,906
========
</TABLE>
See notes to combined financial statements.
F-18
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC.
AND SUBSIDIARIES AND TCG PARTNERS
COMBINED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenues:
Telecommunications services............................. $ 39,553 $ 29,855
Management fees from affiliates......................... 10,882 6,937
-------- --------
Total revenues........................................ 50,435 36,792
-------- --------
Expenses:
Operating............................................... 22,520 17,124
Selling, general and administrative..................... 20,197 16,070
Depreciation and amortization........................... 12,849 7,297
-------- --------
Total expenses........................................ 55,566 40,491
-------- --------
Operating loss............................................ (5,131) (3,699)
-------- --------
Interest:
Interest income......................................... 1,190 1,106
Interest expense ($5,353 in 1996 and $4,077 in 1995 with
related parties)....................................... (8,148) (4,600)
-------- --------
Total interest........................................ (6,958) (3,494)
-------- --------
Loss before minority interest, equity in losses of
unconsolidated affiliates and income tax provision....... (12,089) (7,193)
Minority interest......................................... 150 201
Equity in losses of unconsolidated affiliates............. (6,528) (4,211)
-------- --------
Loss before income tax provision.......................... (18,467) (11,203)
Income tax provision...................................... (225) (335)
-------- --------
Net loss.................................................. (18,692) (11,538)
Stockholders' equity and partners' capital, beginning of
period................................................... 125,348 179,152
-------- --------
Stockholders' equity and partners' capital, end of
period................................................... $106,656 $167,614
======== ========
</TABLE>
See notes to combined financial statements.
F-19
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC.
AND SUBSIDIARIES AND TCG PARTNERS
COMBINED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................. $(18,692) $(11,538)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization........................... 12,849 7,297
Equity in losses of unconsolidated affiliates........... 6,528 4,211
Amortization of deferred credits........................ (561) (501)
Provision for losses on accounts receivable............. 428 181
Minority interest....................................... (150) (201)
(Increase) decrease in operating assets and increase
(decrease) in operating liabilities:
Accounts receivable.................................... 269 1,625
Due to (from) related parties.......................... 2,549 --
Other assets........................................... (1,150) 442
Accounts payable and accrued liabilities............... (4,186) 19,847
Deferred credits....................................... 437 1,419
-------- --------
Net cash provided by (used in) operating activities... (1,679) 22,782
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for communications network.......... (25,943) (45,188)
Capital expenditures for other fixed assets.............. (5,150) (4,565)
Due to (from) related parties............................ (3,950) --
Notes receivable......................................... -- (1,470)
Investment in unconsolidated affiliates--cash component.. (25,523) (18,416)
-------- --------
Cash used in investing activities..................... (60,566) (69,639)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt................. 67,500 71,500
Capital contributions from minority partners............. 588 993
Principal payments under capital lease obligations....... (900) (567)
-------- --------
Net cash provided by financing activities............. 67,188 71,926
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS................. 4,943 25,069
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............ 11,862 26,000
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................. $ 16,805 $ 51,069
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--Cash
paid during the period for interest...................... $ 1,653 $ 4,083
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION--Fixed
assets acquired under capital leases..................... $ 60 $ 1,078
======== ========
</TABLE>
See notes to combined financial statements.
F-20
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC.
AND SUBSIDIARIES AND TCG PARTNERS
NOTES TO COMBINED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
1. PRESENTATION
In the opinion of the management of Teleport Communications Group Inc.
("TCGI") and TCG Partners, the accompanying unaudited combined financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of March
31, 1996 and the results of operations and cash flows for the three month
periods ended March 31, 1996 and 1995. The results of operations for the three
months ended March 31, 1996 are not necessarily indicative of results that may
be expected for any other interim period or for the full year.
The financial statements should be read in conjunction with the combined
financial statements and notes thereto for the year ended December 31, 1995.
The accounting policies used in preparing these financial statements are the
same as those described in the December 31, 1995 combined financial
statements.
2. LONG-TERM DEBT
Long-term debt at March 31, 1996 consisted of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Subordinated debt to parents.................................. $269,000
Long-term bank debt........................................... 155,000
--------
Total....................................................... $424,000
========
</TABLE>
The aggregate long-term debt maturing during the next five years is as
follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, AMOUNT
------------------------ --------
<S> <C>
1997......................................................... $ --
1998......................................................... --
1999......................................................... 12,500
2000......................................................... 50,000
2001......................................................... 90,000
Thereafter................................................... 271,500
--------
$424,000
========
</TABLE>
3. INVESTMENT IN UNCONSOLIDATED AFFILIATES
On February 2, 1996, TCGI entered into a Stock Purchase Agreement with all
the shareholders of Biztel Communications, Inc. (formerly Video/Phone Systems,
Inc.) for the purchase by TCGI of certain capital stock of Video/Phone
Systems, Inc. and certain related transactions. Subsequently, on February 29,
1996, the aforementioned transaction was consummated resulting in TCGI's
ownership of approximately 49% of the outstanding common stock of Biztel
Communications, Inc.
Summarized financial information for the investments in the Local Market
Partnerships, Comcast CAP and Biztel Communications, Inc. as of March 31, 1996
and for the three months then ended is as follows (in thousands):
<TABLE>
<S> <C>
Total assets.................................................. $522,549
Total liabilities............................................. 145,241
Total revenues................................................ 24,151
Net loss...................................................... (17,094)
</TABLE>
On May 13, 1996, in connection with the Reorganization, TCGI purchased the
partnership interest of Hyperion Telecommunications, Inc. of Florida in TCG
South Florida for $11,618,000.
F-21
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Teleport
Communications Group Inc. and
Partners of TCG Partners:
We have audited the accompanying combined balance sheets of the Local Market
Partnerships, as defined in Note 1, as of December 31, 1995 and 1994 and the
related combined statements of operations and partners' capital and of cash
flows for the three years ended December 31, 1995, 1994 and 1993. These
financial statements are the responsibility of the Local Market Partnerships'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the combined financial position of the Local Market
Partnerships at December 31, 1995 and 1994 and the combined results of their
operations and their combined cash flows for the three years ended December
31, 1995, 1994 and 1993 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
New York, New York
February 16, 1996 (May 13, 1996 as to Note 9)
F-22
<PAGE>
COMBINED FINANCIAL STATEMENTS OF LOCAL MARKET PARTNERSHIPS
TO BE ACQUIRED BY TELEPORT COMMUNICATIONS GROUP INC.
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
ASSETS
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 20,973 $ 22,987
-------- --------
Accounts receivable:
Trade--net of allowance for doubtful accounts ($359 in
1995 and $222 in 1994).................................. 7,774 5,373
Related parties.......................................... 2,079 896
Miscellaneous--net of allowance for doubtful accounts
($543 in 1995 and $747 in 1994)......................... 560 755
-------- --------
Accounts receivable--net............................... 10,413 7,024
-------- --------
Prepaid expenses.......................................... 2,934 1,696
-------- --------
Notes receivable.......................................... -- 25,983
-------- --------
Other current assets...................................... 790 422
-------- --------
Total current assets..................................... 35,110 58,112
-------- --------
Fixed assets--at cost:
Communications network.................................... 391,432 227,969
Other..................................................... 8,941 3,851
-------- --------
400,373 231,820
Less accumulated depreciation and amortization............ (32,086) (7,037)
-------- --------
Fixed assets--net...................................... 368,287 224,783
-------- --------
Goodwill--net of accumulated amortization ($5,033 in 1995
and $2,422 in 1994)....................................... 41,782 38,227
-------- --------
Other assets............................................... 3,459 2,776
-------- --------
Total assets............................................. $448,638 $323,898
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued liabilities.................. $ 49,462 $ 37,244
Current portion of capital lease obligations ($11,620 in
1995 and $7,831 in 1994 with related parties)............ 14,892 10,711
Due to Teleport Communications Group Inc.................. 1,789 6,857
Other current liabilities................................. 828 743
-------- --------
Total current liabilities................................ 66,971 55,555
Capital lease obligations ($30,503 in 1995 and $31,961 in
1994 with related parties)................................ 35,989 37,227
Other liabilities.......................................... 4,925 5,057
-------- --------
Total liabilities........................................ 107,885 97,839
-------- --------
Commitments and contingencies
Partners' capital.......................................... 340,753 226,059
-------- --------
Total liabilities and partners' capital.................. $448,638 $323,898
======== ========
</TABLE>
See notes to combined financial statements.
F-23
<PAGE>
COMBINED FINANCIAL STATEMENTS OF LOCAL MARKET PARTNERSHIPS TO BE ACQUIRED BY
TELEPORT COMMUNICATIONS GROUP INC.
COMBINED STATEMENTS OF OPERATIONS AND PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Revenues:
Telecommunication services....................... $ 50,276 $ 23,752 $ 943
-------- -------- -------
Expenses:
Operating........................................ 31,073 16,842 537
Selling, general and administrative.............. 41,195 26,830 1,601
Depreciation and amortization.................... 23,645 10,216 185
-------- -------- -------
Total expenses................................ 95,913 53,888 2,323
-------- -------- -------
Operating loss.................................... (45,637) (30,136) (1,380)
Interest:
Interest income.................................. 2,393 1,908 68
Interest expense--($4,763 in 1995, $4,333 in
1994 and $67 in 1993 with related parties)...... (5,622) (4,783) (194)
-------- -------- -------
(3,229) (2,875) (126)
-------- -------- -------
Net loss.......................................... (48,866) (33,011) (1,506)
Partners' capital contributions................... 163,560 244,814 15,762
Partners' capital, January 1...................... 226,059 14,256 --
-------- -------- -------
Partners' capital, December 31.................... $340,753 $226,059 $14,256
======== ======== =======
</TABLE>
See notes to combined financial statements.
F-24
<PAGE>
COMBINED FINANCIAL STATEMENTS OF LOCAL MARKET PARTNERSHIPS TO BE ACQUIRED BY
TELEPORT COMMUNICATIONS GROUP INC.
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................... $ (48,866) $ (33,011) $ (1,506)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.............. 23,645 10,216 185
Amortization of deferred credits........... (755) (256) --
Provision for losses on accounts receiv-
able...................................... 464 196 --
Gain on sale of fixed assets............... ( 3) -- --
(Increase) decrease in operating assets and
increase (decrease) in operating
liabilities:
Accounts receivable........................ (3,174) (4,798) (369)
Other assets............................... (1,908) (3,953) (46)
Deferred charges........................... (687) 50 --
Accounts payable and accrued liabilities... 11,157 10,590 1,152
Due to (from) Teleport Communications Group
Inc. ..................................... (5,811) 5,580 199
Deferred credits........................... 555 5,135 --
--------- --------- --------
Net cash used in operating activities..... (25,383) (10,251) (385)
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for communications net-
work........................................ (99,032) (105,151) (5,078)
Capital expenditures for other fixed assets.. (5,090) (2,280) (356)
--------- --------- --------
Cash used in investing activities......... (104,122) (107,431) (5,434)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash transferred from managing partner....... -- 10,570 --
Partners' capital contributions--cash compo-
nent........................................ 138,683 170,786 14,998
Due to (from) Teleport Communications Group
Inc. ....................................... 6,706 (43,510) --
Principal payments under capital lease obli-
gations..................................... (17,898) (6,035) (321)
--------- --------- --------
Net cash provided by financing activi-
ties..................................... 127,491 131,811 14,677
--------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. (2,014) 14,129 8,858
CASH AND CASH EQUIVALENTS, JANUARY 1.......... 22,987 8,858 --
--------- --------- --------
CASH AND CASH EQUIVALENTS, DECEMBER 31........ $ 20,973 $ 22,987 $ 8,858
========= ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION--Cash paid during the year for
interest..................................... $ 5,413 $ 4,186 $ 194
========= ========= ========
</TABLE>
See notes to combined financial statements.
F-25
<PAGE>
COMBINED FINANCIAL STATEMENTS OF LOCAL MARKET PARTNERSHIPS TO BE ACQUIRED BY
TELEPORT COMMUNICATIONS GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1. ORGANIZATION AND OPERATIONS
Teleport Communications Group Inc. ("TCGI") and TCG Partners ("TCGP")
(collectively, "TCG") together with the four owners of TCGI and TCGP, which
are wholly owned subsidiaries of Tele-Communications, Inc. ("TCI"), Cox
Communications, Inc. ("Cox"), Comcast Corporation ("Comcast") and Continental
Cablevision, Inc. ("Continental") (collectively the "Cable Stockholders"), and
certain other cable television operators formed 14 partnerships (the "Local
Market Partnerships") to develop and operate local telecommunications networks
in various markets across the United States. The following is a list of the
Local Market Partnerships:
TCG Chicago TCG Omaha
TCG Connecticut TCG Phoenix
TCG Dallas TCG Pittsburgh
TCG Dallas Systems TCG San Diego
TCG Detroit* TCG San Francisco*
TCG Illinois TCG Seattle*
TCG Los Angeles TCG South Florida*
* Local Market Partnerships with minority partners that are not affiliated
with either the Company or the Cable Stockholders. (See Note 9.)
Effective January 1, 1996 the assets and liabilities of TCG Dallas Systems
were transferred to TCG Dallas.
Certain of the Local Market Partnerships commenced operations prior to
December 31, 1993; the results of such operations are not significant to the
combined financial statements.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Combination--The accompanying combined financial statements
include the accounts of the Local Market Partnerships. All intercompany
transactions and balances among the Local Market Partnerships have been
eliminated.
Basis of Accounting--The accompanying combined financial statements have
been prepared on the accrual basis of accounting.
Revenue Recognition--Revenue is recognized in accordance with the terms of
the underlying customer contracts or tariffs and over the period in which the
services are provided.
Depreciation and Amortization--Depreciation and amortization are computed on
the straight-line basis over the estimated useful lives of the assets or the
length of the lease, whichever is shorter. Estimated useful lives are 5 to 25
years for the communications network and 3 to 5 years for other fixed assets,
except for buildings which are 40 years.
During 1995, the Local Market Partnerships completed a review of the useful
lives of their fixed assets. The Local Market Partnerships determined that the
lives of certain electronics equipment were longer than industry standard,
while the lives of other electronics equipment were shorter than industry
standard. Therefore, the Local Market Partnerships adjusted the estimated
useful lives of certain electronics equipment to conform with industry
standard, effective December 1, 1995. The effect of these changes in estimate
increased depreciation expense for the year ended December 31, 1995 by
approximately $135,000.
F-26
<PAGE>
COMBINED FINANCIAL STATEMENTS OF LOCAL MARKET PARTNERSHIPS
TO BE ACQUIRED BY TELEPORT COMMUNICATIONS GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Goodwill--Goodwill represents the excess of the capital credited to the
partners over the historical basis of the net assets contributed by the
partners. Such goodwill is being amortized over the average remaining useful
lives of the contributed assets. The related amortization was $2,611,000,
$2,422,000 and $26,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
Deferred Credits--Deferred credits principally represent advance payments
received from customers for long-term fiber optic service, and are amortized
into income over the life of the related contracts. The current portions,
$828,000 and $743,000 at December 31, 1995 and 1994, respectively, are
included in accounts payable and accrued liabilities and the non-current
portions, $4,091,000 and $4,376,000 at December 31, 1995 and 1994,
respectively, are included in other liabilities.
Income Taxes--The Local Market Partnerships are not subject to Federal or
state and local income taxes. Each partner's distributive share of partnership
revenues, expenses and other items is computed on the basis of the respective
partner's capital interest in the partnership for reporting by the partners in
their respective Federal and state and local income tax returns.
Financial Instruments--Financial instruments which potentially subject the
Local Market Partnerships to concentration of credit risk consist of accounts
receivable. Concentrations of credit risk with respect to accounts receivable
are limited due to the dispersion of the Local Market Partnerships' customer
base among different industries and geographic areas in the United States, by
credit granting policies adopted by the Local Market Partnerships' and by
remedies provided by terms of contracts, tariffs and statutes.
Cash Equivalents--The Local Market Partnerships consider all highly liquid
instruments readily convertible to known amounts of cash to be cash
equivalents.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Presentation--Certain 1994 and 1993 amounts have been reclassified to
conform with the 1995 presentation.
F-27
<PAGE>
COMBINED FINANCIAL STATEMENTS OF LOCAL MARKET PARTNERSHIPS
TO BE ACQUIRED BY TELEPORT COMMUNICATIONS GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. PARTNERS' CAPITAL
A summary of changes in partners' capital for the years ended December 31,
1995 and 1994 is as follows (in thousands):
<TABLE>
<CAPTION>
PARTNERS' PARTNERS' PARTNERS'
CAPITAL CAPITAL CAPITAL
JANUARY 1, CAPITAL NET DECEMBER 31, CAPITAL NET DECEMBER 31,
1994 CONTRIBUTIONS LOSS 1994 CONTRIBUTIONS LOSS 1995
---------- ------------- -------- ------------ ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
TCGI/TCGP............... $6,042 $ 90,962 $(12,300) $ 84,704 $ 62,297 $(18,231) $128,771
Continental............. -- 38,524 (4,925) 33,599 16,712 (6,294) 44,017
TCI..................... -- 72,232 (8,978) 63,254 48,941 (13,365) 98,830
Comcast................. -- 10,436 (1,532) 8,904 8,226 (2,354) 14,776
Times Mirror Access,
Inc. .................. -- 8,589 (964) 7,625 7,284 (2,136) 12,773
Viacom Telecom Inc. .... -- 11,097 (1,435) 9,662 5,896 (2,366) 13,192
Cox..................... 8,214 3,365 (1,344) 10,235 8,591 (1,907) 16,918
Metrovision
Telecommunications of
Michigan, Inc. ........ -- 1,080 (153) 927 719 (197) 1,449
Booth Telecable, Inc. .. -- 1,062 (151) 911 707 (194) 1,424
Micronet Inc. .......... -- 2,580 (328) 2,252 1,058 (528) 2,782
InterMedia Partners..... -- 1,505 (191) 1,314 617 (308) 1,623
Hyperion
Telecommunications
Inc., of Florida....... -- 2,279 (478) 1,801 1,693 (664) 2,830
M.H. Lightnet, Inc., of
Florida................ -- 1,103 (232) 871 819 (322) 1,368
------- -------- -------- -------- -------- -------- --------
Total.................. $14,256 $244,814 $(33,011) $226,059 $163,560 $(48,866) $340,753
======= ======== ======== ======== ======== ======== ========
</TABLE>
For the year ended December 31, 1993, TCGI/TCGP contributed $6,651,312 and
Cox contributed $9,111,312. The respective shares of the net loss were
$609,661 and $896,644, respectively.
4. RELATED PARTY TRANSACTIONS
TCGI provides various services to and makes certain cash payments on behalf
of each Local Market Partnership (including providing employees to each Local
Market Partnership whose salaries and benefits, which include participation in
the Teleport Communications Group Stock Option Plan, the Teleport
Communications Group Unit Appreciation Plan, and the Teleport Communications
Group Inc. Retirement Savings Plan (including the deferred compensation Make-
Up Plan) are charged directly to each Local Market Partnership. Such expenses
were $23,097,125, $15,777,834 and $847,228 for the years ended December 31,
1995, 1994 and 1993, respectively.
TCGI and its subsidiaries provide each Local Market Partnership with various
management services that include accounting and financial reporting,
marketing, regulatory, legal, systems support and other services. Total
management fees charged to Local Market Partnerships for such services were
$20,770,300, $13,717,415 and $884,227 for the years ended December 31, 1995,
1994 and 1993, respectively, and are included, where appropriate, in operating
or selling, general and administrative expenses in the combined statements of
operations and partners' capital. In the opinion of management, such charges
have been made on a basis which is considered to be reasonable; however, these
charges are not necessarily indicative of the total cost that the Local Market
Partnerships would have incurred had they operated on a stand-alone basis.
In accordance with the Management Services Agreements, TCGI charges each
Local Market Partnership a royalty fee based on revenues. The royalty fees
charged to the Local Market Partnerships were $1,674,695, $1,170,258, and
$158,698 for the years ended December 31, 1995, 1994 and 1993, respectively,
and are included in operating expenses in the combined statements of
operations and partners' capital.
F-28
<PAGE>
COMBINED FINANCIAL STATEMENTS OF LOCAL MARKET PARTNERSHIPS
TO BE ACQUIRED BY TELEPORT COMMUNICATIONS GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
5. PENSION PLANS
TCGI implemented a retirement savings plan effective January 1, 1992 with a
401(k) savings component and a retirement component covering substantially all
eligible employees of TCGI, as well as other related entities, including
employees dedicated to each Local Market Partnership, with one or more years
of service. Under the 401(k) component of the plan, participants may make pre-
tax contributions and TCGI matches 50 percent of the first 6 percent of
eligible compensation to a maximum company contribution of $1,500 per
employee. Under the retirement component of the plan, TCGI contributes an
amount based on years of service and eligible compensation.
Expenses allocated to the Local Market Partnerships from TCGI aggregated
$288,144, $238,936 and $2,868 for the years ended December 31, 1995, 1994 and
1993, respectively, for contributions required under the plan.
6. COMMITMENTS AND CONTINGENCIES
Under the terms of contracts with various parties, the Local Market
Partnerships are obligated to pay franchise fees, office rents, node rents and
right-of-way fees in connection with their fiber optic networks through 2019.
These contracts provide for certain scheduled increases and for possible
escalation of basic rentals based on a change in the cost of living or on
other factors. The Local Market Partnerships expect to enter into other
contracts for additional franchise fees, office rents, node rents, rights-of-
way, facilities, equipment, and maintenance services in the future.
A summary of such fixed commitments at December 31, 1995 is as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS AMOUNT
----- -------
<S> <C>
1996............................................................. $ 5,653
1997............................................................. 5,113
1998............................................................. 4,867
1999............................................................. 4,606
2000............................................................. 4,130
Thereafter........................................................ 17,412
-------
Total........................................................... $41,781
=======
</TABLE>
Communications network includes assets acquired under capital leases of
approximately $77,241,000 and $54,569,000 (including approximately $68,482,000
and $50,898,000 with related parties) at December 31, 1995 and 1994,
respectively. The related accumulated depreciation and amortization was
approximately $5,456,000 and $1,907,000 at December 31, 1995 and 1994,
respectively.
The following is a schedule, by year, of future minimum payments under the
leases, together with the present value of the net minimum payments as of
December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
YEARS AMOUNT
----- -------
<S> <C>
1996............................................................ $18,818
1997............................................................ 17,461
1998............................................................ 14,456
1999............................................................ 7,962
2000............................................................ 2,248
-------
Total minimum lease payments..................................... 60,945
Less amount representing interest................................ 10,064
-------
Total obligations under capital leases........................... $50,881
=======
</TABLE>
F-29
<PAGE>
COMBINED FINANCIAL STATEMENTS OF LOCAL MARKET PARTNERSHIPS
TO BE ACQUIRED BY TELEPORT COMMUNICATIONS GROUP INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
In the ordinary course of business, the Local Market Partnerships are
involved in various litigation and regulatory matters, proceedings and claims.
In the opinion of the Local Market Partnerships' management, after
consultation with counsel, the outcome of such proceedings will not have a
materially adverse effect on the Local Market Partnerships' combined financial
position, results of operations or cash flows.
7. NOTES RECEIVABLE
Local licensing regulations, state regulatory requirements, and contractual
restrictions did not permit the immediate transfer of title of fixed assets
from Teleport Communications Los Angeles, Inc. ("TCLA"), Teleport
Communications San Francisco, Inc. ("TCSF") and Teleport Communications
Dallas, Inc. ("TCD") to TCG Los Angeles ("TCGLA"), TCG San Francisco ("TCGSF")
and TCG Dallas ("TCGD"), respectively, in 1994. The obligations of TCLA, TCSF,
and TCD to contribute the fixed assets once the appropriate approvals were
received was evidenced by noninterest-bearing notes aggregating $9,912,758,
$10,955,201 and $5,115,358, respectively, at December 31, 1994. Depreciation
on the related fixed assets of $194,913, $200,678 and $458,191, respectively,
for the period January 1, 1995 to the date of transfer was accounted for by a
reduction of the notes on the books of TCGLA, TCGSF and TCGD, respectively.
Once the appropriate approvals were received, TCLA, TCSF and TCD transferred
title of the fixed assets to TCGLA, TCGSF and TCGD.
8. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Noncash investing and financing activities for the years ended December 31,
1995, 1994 and 1993 were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Fixed assets acquired under capital leases........ $ 22,672 $ 47,823 $(4,887)
======== ======== =======
Transfer of title to fixed assets................. $ 25,130 $ -- $ --
======== ======== =======
Assets contributed by partners.................... $ -- $(23,464) $(1,207)
Liabilities assumed by partnership................ -- 27,895 1,596
Agreed-upon value assigned to assets.............. 18,170 43,800 --
Net assets contributed............................ (12,004) (7,975) --
-------- -------- -------
Goodwill recorded upon inception of partnerships.. $ 6,166 $ 40,256 $ 389
======== ======== =======
Contribution of assets from partners credited to
the partners' capital accounts................... $ 18,170 $ 62,183 $ --
======== ======== =======
Reimbursement of pre-organization funding from
partners credited to the partners' capital
accounts......................................... $ 6,706 $ 1,275 $ 764
======== ======== =======
</TABLE>
9. SUBSEQUENT EVENTS
On January 2, 1996, January 19, 1996 and January 23, 1996, additional
capital contributions of $6,000,000, $31,917,150, and $4,082,850,
respectively, were made by the partners.
On May 13, 1996, in connection with the Reorganization, TCGI purchased the
partnership interest of Hyperion Telecommunications, Inc. of Florida in TCG
South Florida for $11,618,000.
F-30
<PAGE>
COMBINED FINANCIAL STATEMENTS OF LOCAL MARKET PARTNERSHIPS
TO BE ACQUIRED BY TELEPORT COMMUNICATIONS GROUP INC.
COMBINED BALANCE SHEET
MARCH 31, 1996
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
<S> <C>
Current assets:
Cash and cash equivalents.......................................... $ 19,194
--------
Accounts receivable:
Trade--net of allowance for doubtful accounts of $383............. 10,162
Miscellaneous--net of allowance for doubtful accounts of $14...... 626
Related parties................................................... 1,341
--------
Accounts receivable--net........................................ 12,129
--------
Prepaid expenses................................................... 4,405
--------
Other current assets............................................... 671
--------
Total current assets.............................................. 36,399
--------
Fixed assets--at cost:
Communications network............................................. 413,261
Other.............................................................. 10,017
--------
423,278
Less accumulated depreciation and amortization..................... (39,729)
--------
Fixed assets--net............................................... 383,549
--------
Goodwill--net of accumulated amortization of $5,744................. 41,071
--------
Other assets........................................................ 3,612
--------
Total assets...................................................... $464,631
========
</TABLE>
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<S> <C>
Current liabilities:
Accounts payable and accrued liabilities............................. $ 43,812
Current portion of capital lease obligations ($12,030 with related
parties)............................................................ 13,298
Due to Teleport Communications Group Inc. ........................... 2,446
Other current liabilities............................................ 803
--------
Total current liabilities........................................... 60,359
Capital lease obligations ($26,977 with related parties).............. 32,931
Other liabilities..................................................... 5,045
--------
Total liabilities................................................... 98,335
--------
Commitments and contingencies
Partners' capital..................................................... 366,296
--------
Total liabilities and partners' capital............................. $464,631
========
</TABLE>
See notes to combined financial statements.
F-31
<PAGE>
COMBINED FINANCIAL STATEMENTS OF LOCAL MARKET PARTNERSHIPS
TO BE ACQUIRED BY TELEPORT COMMUNICATIONS GROUP INC.
COMBINED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
Revenues:
Telecommunications services.............................. $ 18,594 $ 9,922
-------- --------
Expenses:
Operating................................................ 11,148 6,948
Selling, general and administrative...................... 14,187 9,050
Depreciation and amortization............................ 8,432 3,838
-------- --------
Total expenses......................................... 33,767 19,836
-------- --------
Operating loss............................................. (15,173) (9,914)
-------- --------
Interest:
Interest income.......................................... 534 489
Interest expense ($1,576 in 1996 and $1,075 in 1995 with
related parties)........................................ (1,818) (1,274)
-------- --------
Total interest......................................... (1,284) (785)
-------- --------
Net loss................................................... (16,457) (10,699)
Partners' capital contributions............................ 42,000 48,045
Partners' capital, beginning of period..................... 340,753 226,059
-------- --------
Partners' capital, end of period........................... $366,296 $263,405
======== ========
</TABLE>
See notes to combined financial statements.
F-32
<PAGE>
COMBINED FINANCIAL STATEMENTS OF LOCAL MARKET PARTNERSHIPS
TO BE ACQUIRED BY TELEPORT COMMUNICATIONS GROUP INC.
COMBINED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................. $(16,457) $(10,699)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 8,432 3,839
Amortization of deferred credits........................ (220) (222)
Provision for losses on accounts receivable............. 98 52
(Increase) decrease in operating assets and increase
(decrease) in operating liabilities:
Accounts receivable.................................... (2,553) 2,456
Due to (from) related parties.......................... (806) (6,540)
Other assets........................................... (1,581) (601)
Accounts payable and accrued liabilities............... (5,515) 6,569
Deferred credits....................................... 856 135
-------- --------
Net cash used in operating activities................. (17,746) (5,011)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for communications network.......... (22,337) (25,524)
Capital expenditures for other fixed assets.............. (1,034) (562)
-------- --------
Cash used in investing activities..................... (23,371) (26,086)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partners' capital contributions.......................... 42,000 48,045
Principal payments under capital lease obligations....... (4,862) (3,645)
Due to (from) Teleport Communications Group Inc. ........ 2,200 533
-------- --------
Net cash provided by financing activities............. 39,338 44,933
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...... (1,779) 13,836
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............ 20,973 22,987
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................. $ 19,194 $ 36,823
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION--Cash
paid during the period for interest...................... $ 1,262 $ 819
======== ========
SUPPLEMENTAL DISCLOSURE OF NONCASH INFORMATION--Fixed
assets acquired under capital leases..................... $ 323 $ 161
======== ========
</TABLE>
See notes to combined financial statements.
F-33
<PAGE>
COMBINED FINANCIAL STATEMENTS OF
LOCAL MARKET PARTNERSHIPS TO BE
ACQUIRED BY TELEPORT COMMUNICATIONS GROUP INC.
NOTES TO COMBINED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
1. PRESENTATION
In the opinion of the management of Teleport Communications Group Inc.
("TCGI") and TCG Partners, the accompanying unaudited combined financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of March
31, 1996 and the results of operations and cash flows for the three month
periods ended March 31, 1996 and 1995. The results of operations for the
three months ended March 31, 1996 are not necessarily indicative of results
that may be expected for any other interim period or for the full year.
The financial statements should be read in conjunction with the combined
financial statements and notes thereto for the year ended December 31,
1995. The accounting policies used in preparing these financial statements
are the same as those described in the December 31, 1995 combined financial
statements.
2. SUBSEQUENT EVENT
On May 13, 1996, in connection with the Reorganization, TCGI purchased the
partnership interest of Hyperion Telecommunications, Inc. of Florida in TCG
South Florida for $11,618,000.
F-34
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHO-
RIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 12
The Reorganization....................................................... 20
Use of Proceeds.......................................................... 24
Capitalization........................................................... 25
Selected Combined Financial Data......................................... 26
Pro Forma Financial Information.......................................... 28
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 33
The Local Telecommunications Services Industry........................... 42
Business................................................................. 45
Management............................................................... 58
Certain Relationships and Related Transactions........................... 72
Principal Stockholders................................................... 75
Description of Certain Indebtedness...................................... 76
Description of Notes..................................................... 78
Description of Capital Stock............................................. 103
Certain Federal Income Tax Considerations................................ 105
Underwriting............................................................. 110
Legal Matters............................................................ 111
Experts.................................................................. 111
Additional Information................................................... 111
Glossary................................................................. 112
Index to Combined Financial Statements................................... F-1
</TABLE>
----------------
UNTIL , 1996, ALL DEALERS EFFECTING TRANSACTIONS IN THE NOTES, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPEC-
TUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UN-
SOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$
TCG
===
TELEPORT COMMUNICATIONS GROUP INC.
$200,000,000
% SENIOR NOTES DUE 2006
$
% SENIOR DISCOUNT NOTES DUE 2007
----------------
PROSPECTUS
----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
CHASE SECURITIES INC.
TORONTO DOMINION SECURITIES
(USA) INC.
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the expenses of issuance and distribution of the shares of
the debt securities registered hereunder on Form S-1, other than the
underwriting discounts and commissions. All amounts except the Registration
Fee and NASD Filing Fee are estimated.
<TABLE>
<S> <C>
Registration Fee.................................................. $ 172,414
NASD Filing Fee................................................... $ 30,500
Printing and Engraving Fees....................................... *
Blue Sky Fees and Expenses........................................ *
Legal Fees and Expenses........................................... *
Accounting Fees and Expenses...................................... *
Trustee's Fees.................................................... *
Miscellaneous..................................................... *
----------
Total........................................................... $1,574,000
==========
</TABLE>
- --------
* To be supplied by amendment.
All of the above expenses have been or will be paid by Teleport
Communications Group Inc.; provided, however, that Teleport Communications
Group Inc. will be reimbursed by Continental for $ and $ , for the
Registration Fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article V of the Amended and Restated Certificate of Incorporation of
Teleport Communications Group Inc. ("TCGI") (the "Certificate of
Incorporation"), provides that to the fullest extent of Section 102 of the
General Corporation Law of the State of Delaware (the "DGCL"), a director of
TCGI shall not be personally liable to TCGI or its stockholders for monetary
damages for breach of fiduciary duty as a director.
Section 102(b)(7) of the DGCL, provides that a corporation (in its original
certificate of incorporation or an amendment thereto) may eliminate or limit
the personal liability of a director (or certain persons who, pursuant to the
provisions of the certificate of incorporation, exercise or perform duties
conferred or imposed upon directors by the DGCL) to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that such provisions shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the DGCL (providing for liability of directors for
unlawful payment of dividends or unlawful stock purchases or redemptions) or
(iv) for any transaction from which the director derived an improper personal
benefit.
Under Section 145 of the DGCL, in general, a corporation may indemnify its
directors, officers, employees or agents against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by them in connection with any action, suit or proceeding
brought by third parties to which they may be made parties by reason of their
being or having been directors, officers, employees or agents and shall so
indemnify such persons if they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe their conduct was unlawful. Article VIII of the
Certificate of Incorporation provides that TCGI shall indemnify its officers,
directors, employees and agents to the full extent permitted by Delaware law.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following is a summary of securities sold by TCGI during the past three
years without registration under the Act.
1. On May 5, 1993, TCGI issued and sold 333.335 shares of its common stock
representing approximately 20% of the then outstanding capital stock of TCGI
to each of Comcast Teleport, Inc. and Continental Teleport, Inc., for a
purchase price of approximately $60 million each.
2. Prior to the consummation of the Offerings, TCGI will issue 69,250,230
shares of Class B Common Stock to the Cable Stockholders in exchange for the
contribution by the Cable Stockholders of approximately $269.0 million
aggregate principal amount of indebtedness, plus accrued interest from May
1995, owed by TCGI under the Stockholder Loan Agreement (except that TCI will
retain a $26 million subordinated note of TCGI) and for the transfer by the
Cable Stockholders, directly or indirectly, of their partnership interests in
TCG Partners and the Local Market Partnerships.
3. Concurrent with the consummation of the Offerings, TCGI will issue
approximately 285,750 shares and 290,513 shares of Class A Common Stock to be
issued to Booth Telecable, Inc. and Time Warner Entertainment- Advance-
Newhouse Partnership, respectively, in consideration for their partnership
interests in TCG Detroit, which share amounts have been calculated on the
basis of an aggregate acquisition price of approximately $9.2 million and at
an assumed initial public offering price of $16.00 per share for the Class A
Common Stock.
In each of the foregoing instances, the issuance of common stock was deemed
to be exempt from the registration requirements of the Act as a transaction
not involving any public offering, pursuant to Section 4(2) of the Act.
ITEM 16. EXHIBITS
(a) Exhibits:
TELEPORT COMMUNICATIONS GROUP INC.
<TABLE>
<CAPTION>
EXHIBIT LIST
------------
<C> <S>
*1 Form of Underwriting Agreement
**2.1 Reorganization Agreement, dated as of April 18, 1996
**3.1 Amended and Restated Certificate of Incorporation of TCGI
**3.2 Form of Amended and Restated Certificate of Incorporation of TCGI
**3.3 Amended and Restated By-laws of TCGI
**3.4 Form of Amended and Restated By-laws of TCGI
3.5 Form of Amended and Restated Certificate of Incorporation of TCGI
**4.1 Amended and Restated Stockholders' Agreement, dated as of May 5, 1993,
as amended November 2, 1993
**4.2 Form of Amended and Restated Stockholders' Agreement (incorporated by
reference to Exhibit E of Exhibit 2.1 hereof)
4.3 Form of Indenture between TCGI and United States Trust Company of New
York, as Trustee, relating to the % Senior Discount Notes due 2007
of TCGI
4.4 Form of Indenture between TCGI and United States Trust Company of New
York, as Trustee, relating to the % Senior Notes due 2006 of TCGI
*5 Opinion of Dow, Lohnes & Albertson (including consent)
5.1 Tax Opinion of Dow, Lohnes & Albertson
**10.1 New York Franchise Agreement, dated May 2, 1994, as amended
**10.2 Participation Agreement, dated May 15, 1984
**10.3 Agreement of Lease, dated May 15, 1984
**10.4 The Keepwell Agreement, dated June 7, 1984, as amended
**10.5 Agreement of Lease with Teleport Associates, dated November 10, 1987
**10.6 Agreement of Sublease between Merrill Lynch/WFC/L, Inc. and TC Systems,
Inc., dated January 30, 1990
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT LIST
------------
<C> <S>
**10.7 Loan Agreement, dated May 5, 1993
**10.8 Amendment No. 1 to Loan Agreement, dated March 1, 1994
**10.9 Amendment No. 2 to Loan Agreement, dated October 24, 1994
**10.10 Amendment No. 3 to Loan Agreement, dated February 15, 1995
**10.11 Loan Agreement, dated May 22, 1995 and related documents
*10.12 Amendment No. 1 to Loan Agreement, dated , 1996
**10.13 Teleport Communications Group Inc. 1992 Unit Appreciation Plan
**10.14 Teleport Communications Group Inc. 1993 Unit Appreciation Plan, as
amended
**10.15 Teleport Communications Group Inc. Stock Option Plan
*10.16 Form of Teleport Communications Group Inc. Employee Stock Purchase
Plan
**10.17 Deferred Compensation Plan of Teleport Communications Group Inc.
**10.18 Make-Up Plan of Teleport Communications Group Inc. for the Retirement
Savings Plan
**10.19 Teleport Communications Group Inc. 1996 Equity Incentive Plan
**10.20 Robert Annunziata Employment Agreement, dated December 18, 1992, as
amended
**10.21 John A. Scarpati Employment Agreement, dated July 12, 1994, as amended
**10.22 Robert C. Atkinson Employment Agreement, dated July 12, 1994, as
amended
**10.23 Stuart A. Mencher Employment Agreement, dated July 12, 1994, as
amended
**10.24 Alf T. Hansen Employment Agreement, dated July 12, 1994, as amended
10.25 Partnership Agreement of TCG Detroit, dated as of November 1, 1993
10.26 Amended and Restated Partnership Agreement of TCG Los Angeles, dated
as of March 1, 1994
10.27 Partnership Agreement of TCG Pittsburgh, dated as of March 1, 1994
10.28 Partnership Agreement of TCG San Diego, dated as of June 1, 1994
10.29 Partnership Agreement of TCG San Francisco, dated as of January 1,
1994, as amended
10.30 Partnership Agreement of TCG Seattle, dated as of January 1, 1994, as
amended
10.31 Agreement among Teleport Communications Group Inc. and Comcast
Corporation, dated April 18, 1996
12 Statement re: computation of ratios
**21 Subsidiaries of Teleport Communications Group Inc.
23.1 Consent of Deloitte & Touche LLP
*23.2 Consent of Dow, Lohnes & Albertson (contained in their opinion filed
as Exhibit 5)
23.3 Consent of James Bruce Llewellyn
23.4 Consent of C.B. Rogers, Jr.
**24 Power of Attorney (included on page II-5)
25 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939 of United States Trust Company of New York, as Trustee
27 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of TCGI pursuant to
the provisions described under Item 14 above or otherwise, TCGI has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by TCGI of expenses incurred
or paid by a director, officer or controlling person of TCGI in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, TCGI will, unless in the opinion of their counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by them is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
TCGI hereby undertakes that:
1. For purposes of determining any liability under the Act, the information
omitted from the form of prospectus filed as a part of this Registration
Statement in reliance upon Rule 430A and contained in the form of prospectus
filed by TCGI pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall
be deemed part of this Registration Statement as of the time it was declared
effective.
2. For the purpose of determining any liability under the Act, each post-
effective amendment that contains a form of prospectus shall be deemed to be a
new Registration Statement relating to the securities offered therein, and the
offering of such securities at such time shall be deemed to be the initial
bona fide offering thereof.
3. It will provide the underwriters at the closing specified in the
underwriting agreements certificates in such denominations and registered in
such names as required by the underwriters to permit prompt delivery to each
purchaser.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
TELEPORT COMMUNICATIONS GROUP INC. HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK, STATE OF NEW YORK, ON JUNE
3, 1996.
Teleport Communications Group Inc.
/s/ Robert Annunziata
By: _________________________________
ROBERT ANNUNZIATA PRESIDENT AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO.1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE
DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
Chairman of the
* Board of Directors, June 3, 1996
- ------------------------------------- President, Chief
ROBERT ANNUNZIATA Executive Officer,
and Chief Operating
Officer
Senior Vice
/s/ John A. Scarpati President and Chief June 3, 1996
- ------------------------------------- Financial Officer
JOHN A. SCARPATI (Principal
Financial Officer)
Vice President and
* Controller June 3, 1996
- ------------------------------------- (Principal
MARIA TERRANOVA-EVANS Accounting Officer)
II-5
<PAGE>
SIGNATURE TITLE DATE
Director
* June 3, 1996
- -------------------------------------
JAMES O. ROBBINS
Director
* June 3, 1996
- -------------------------------------
BRIAN L. ROBERTS
Director
* June 3, 1996
- -------------------------------------
RONALD H. COOPER
Director
* June 3, 1996
- -------------------------------------
BRENDAN R. CLOUSTON
Director
* June 3, 1996
- -------------------------------------
JOHN R. DILLON
Director
* June 3, 1996
- -------------------------------------
GERALD W. GAINES
Director
* June 3, 1996
- -------------------------------------
NANCY HAWTHORNE
Director
* June 3, 1996
- -------------------------------------
LAWRENCE S. SMITH
Director
* June 3, 1996
- -------------------------------------
LARRY E. ROMRELL
Director
* June 3, 1996
- -------------------------------------
DAVID M. WOODROW
* John A. Scarpati, by signing his name hereto, does sign this document on
behalf of each of the persons indicated above for whom he is attorney-in-fact
pursuant to a power of attorney duly executed by such person and filed with the
Securities and Exchange Commission.
By: /s/ John A. Scarpati
-------------------------------------
JOHN A. SCARPATI
ATTORNEY-IN-FACT
II-6
<PAGE>
Inside Front Cover
- ------------------
- - Map of the United States with graphic areas enlarged and color coded to
indicate current operating networks and networks in development.
Cover Page of Prospectus
- ------------------------
- - TCG Logo
Page 2
- ------
- - Photograph of TCG's advanced Network Management Center at Staten Island, NY.
Page 43
- -------
- - Pie chart representing $96 billion market of 1995 Estimated Local
Telecommunications Revenue, indicating local services revenue ($55 billion),
toll services revenue ($13 billion), 1 X C switched access services revenue
($22 billion), dedicated services revenue ($5 billion) and other revenue ($1
billion).
Inside Back Cover
- -----------------
- - Diagram of the interrelationship of TCG's fiber optic Sonet Networks,
ISDN/Telephone switches, and ATM switches
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
------- ----------- ----
<C> <S> <C>
*1 Form of Underwriting Agreement
**2.1 Reorganization Agreement, dated as of April 18, 1996
**3.1 Amended and Restated Certificate of Incorporation of TCGI
**3.2 Form of Amended and Restated Certificate of Incorporation of
TCGI
**3.3 Amended and Restated By-laws of TCGI
**3.4 Form of Amended and Restated By-laws of TCGI
3.5 Form of Amended and Restated Certification of Incorporation of
TCGI
**4.1 Amended and Restated Stockholders' Agreement, dated May 5,
1993, as amended November 2, 1993
**4.2 Form of Amended and Restated Stockholders' Agreement
(incorporated by reference to Exhibit E of Exhibit 2.1 hereof)
4.3 Form of Indenture between TCGI and United States Trust Company
of New York, as Trustee, relating to the % Senior Discount
Notes due 2007 of TCGI
4.4 Form of Indenture between TCGI and United States Trust Company
of New York, as Trustee, relating to the % Senior Notes due
2006 of TCGI
*5 Opinion of Dow, Lohnes & Albertson (including consent)
5.1 Tax Opinion of Dow, Lohnes & Albertson
**10.1 New York Franchise Agreement, dated May 2, 1994, as amended
**10.2 Participation Agreement, dated May 15, 1984
**10.3 Agreement of Lease, dated May 15, 1984
**10.4 The Keepwell Agreement, dated June 7, 1984, as amended
**10.5 Agreement of Lease with Teleport Associates, dated November 10,
1987
**10.6 Agreement of Sublease between Merrill Lynch/WFC/L, Inc. and TC
Systems, Inc., dated
January 30, 1990
**10.7 Loan Agreement, dated May 5, 1993
**10.8 Amendment No. 1 to Loan Agreement, dated March 1, 1994
**10.9 Amendment No. 2 to Loan Agreement, dated October 24, 1994
**10.10 Amendment No. 3 to Loan Agreement, dated February 15, 1995
**10.11 Loan Agreement, dated May 22, 1995 and related documents
*10.12 Amendment No. 1 to Loan Agreement, dated , 1996
**10.13 Teleport Communications Group Inc. 1992 Unit Appreciation Plan
**10.14 Teleport Communications Group Inc. 1993 Unit Appreciation Plan
**10.15 Teleport Communications Group Inc. 1993 Stock Option Plan, as
amended
*10.16 Form of Teleport Communications Group Inc. Employee Stock
Purchase Plan
**10.17 Deferred Compensation Plan of Teleport Communications Group
Inc.
**10.18 Make-Up Plan of Teleport Communications Group Inc. for the
Retirement Savings Plan
**10.19 Teleport Communications Group Inc. 1996 Equity Incentive Plan
**10.20 Robert Annunziata Employment Agreement, dated December 18,
1992, as amended
**10.21 John A. Scarpati Employment Agreement, dated July 12, 1994, as
amended
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION NO.
------- ----------- ----
<C> <S> <C>
**10.22 Robert C. Atkinson Employment Agreement, dated July 12, 1994,
as amended
**10.23 Stuart A. Mencher Employment Agreement, dated July 12, 1994, as
amended
**10.24 Alf T. Hansen Employment Agreement, dated July 12, 1994, as
amended
10.25 Partnership Agreement of TCG Detroit, dated as of November 1,
1993
10.26 Amended and Restated Partnership Agreement of TCG Los Angeles,
dated as of March 1, 1994
10.27 Partnership Agreement of TCG Pittsburgh, dated as of March 1,
1994
10.28 Partnership Agreement of TCG San Diego, dated as of June 1,
1994
10.29 Partnership Agreement of TCG San Francisco, dated as of January
1, 1994, as amended
10.30 Partnership Agreement of TCG Seattle, dated as of January 1,
1994, as amended
10.31 Agreement among Teleport Communications Group Inc. and Comcast
Corporation, dated April 18, 1996
12 Statement re computation of ratios
**21 Subsidiaries of Teleport Communications Group Inc.
23.1 Consent of Deloitte & Touche LLP
*23.2 Consent of Dow, Lohnes & Albertson (contained in their opinion
filed as Exhibit 5)
23.3 Consent of James Bruce Llewellyn
23.4 Consent of C.B. Rogers, Jr.
**24 Power of Attorney (included on page II-5)
25 Form T-1 Statement of Eligibility under the Trust Indenture Act
of 1939 of United States Trust Company of New York, as Trustee
27 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
<PAGE>
EXHIBIT 3.5
DRAFT: May 22, 1996
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TELEPORT COMMUNICATIONS GROUP INC.
The undersigned officers of Teleport Communications Group Inc., a Delaware
corporation (the "Corporation"), do hereby certify as follows:
-----------
1. The name of the Corporation is "Teleport Communications Group Inc.,"
and the name under which the Corporation was originally incorporated is "Merrill
Lynch Technology Group, Inc." The date of filing of the original Certificate of
Incorporation of the Corporation with the Secretary of State was March 3, 1983.
2. This Amended and Restated Certificate of Incorporation restates and
integrates and further amends the Second Amended and Restated Certificate of
Incorporation of the Corporation dated as of May 4, 1993, as amended by a
Certificate of Amendment dated as of March 14, 1994, and as corrected by a
Certificate of Correction dated as of December 19, 1994.
3. This Amended and Restated Certificate of Incorporation was adopted by
the unanimous written consent of stockholders of the Corporation in accordance
with the applicable provisions of Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware.
4. The text of the Certificate of Incorporation as amended, restated or
supplemented heretofore, is further amended and restated hereby to read as
herein set forth in full:
Article I: Name.
The name of this corporation (the "Corporation") is:
Teleport Communications Group Inc.
Article II: Registered Office.
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, 19801. The registered agent in charge thereof
is The Corporation Trust Company.
<PAGE>
Article III: Business.
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware and to have and exercise all the powers conferred by the laws
of the State of Delaware upon corporations formed under the General Corporation
Law of the State of Delaware.
Article IV: Authorized Capital Stock.
A. Authorized Shares. The total number of shares of all classes of
-----------------
capital stock that the Corporation shall have authority to issue is Nine
Hundred Million (900,000,000) shares, of which (i) Seven Hundred Fifty Million
(750,000,000) shares, of a par value of $0.01 per share, shall be Common Stock
(the "Common Stock"), and (ii) One Hundred Fifty Million (150,000,000) shares,
of a par value of $0.01 per share, shall be Preferred Stock (hereinafter called
"Preferred Stock"). The Common Stock shall be divided into classes as follows:
Four Hundred Fifty Million (450,000,000) shares of Class A Common Stock ("Class
A Stock") and Three Hundred Million (300,000,000) shares of Class B Common Stock
("Class B Stock").
B. Class A Stock and Class B Stock.
-------------------------------
1. Powers, Preferences and Rights.
------------------------------
Except as otherwise provided in this paragraph B of Article IV, each share
of Common Stock shall be identical.
2. Voting Rights.
-------------
a. If there shall be only one class of Common Stock
outstanding, each share of Common Stock shall entitle the holder thereof to one
vote.
b. If both classes of Common Stock are issued and outstanding,
each share of Class A Stock shall entitle the holder thereof to one vote and
each share of Class B Stock shall entitle the holder thereof to ten votes.
Except as set forth herein or as may otherwise be required by the laws of the
State of Delaware, all actions submitted to a vote of stockholders of the
Corporation (including, without limitation, any proposed amendment to this
Certificate that would increase the number of authorized shares of Class A
Stock, of Class B Stock or of any class or series of voting Preferred Stock, if
any, or decrease the number of authorized shares of any such class or series of
stock (but not below the number of shares thereof then outstanding)) shall be
voted on by the holders of Class A Stock and Class B Stock (as well as the
holders of any Preferred Stock,
2
<PAGE>
if any, entitled to vote thereon) voting together as a single class, and no
separate vote or consent of the holders of shares of Class A Stock, the holders
of the shares of Class B Stock or the holders of voting shares of Preferred
Stock shall be required for the approval of any such matter.
c. Until the earlier of (i) the date that is five years after
the date of filing of this Amended and Restated Certificate of Incorporation and
(ii) the date on which the holders of Class B Stock no longer represent at least
50% of the voting power of the outstanding Common Stock, the Corporation shall
not, directly or through a subsidiary or affiliate, engage in the business of
providing, offering, promoting or branding any of the following
telecommunications products or services unless approved by the affirmative vote
or written consent of the holders of at least a majority of the shares of Class
B Common Stock:
(a) Wireless communications services that use radio spectrum for cellular,
personal communications service (PCS), enhanced specialized mobile
radio (ESMR), paging, mobile telecommunications and any other voice or
data wireless services whether fixed or mobile; provided, however, that
the Corporation may provide and brand telecommunications products and
services delivered via point-to-point microwave transmissions; and
(b) Telecommunications services to residences; provided, however, that the
Corporation may provide telecommunications services to residences to
the extent required by a regulatory authority having jurisdiction over
the Corporation's business, including requirements of the Corporation's
local exchange carrier certificates and common carrier obligations, if
any, or in any geographic area in which such services are offered as of
July 1, 1996, but only to the extent of the services then so offered.
d. Except as otherwise provided by law or pursuant to this
Article IV or by resolution or resolutions of the Board of Directors of the
Corporation (the "Board") providing for the issuance of any series of Preferred
Stock, the holders of the Class A Stock and the Class B Stock shall have sole
voting power for all purposes, each holder of the Class A Stock and Class B
Stock being entitled to vote as provided in subparagraph 2.b of paragraph B of
this Article IV.
3
<PAGE>
3. Dividends.
---------
a. Subject to subparagraph 3.b. of paragraph B of this
Article IV, if and when dividends on the Class A Stock and Class B Stock are
declared payable from time to time by the Board as provided in this subparagraph
3.a of paragraph B of Article IV, the holders of Class A Stock and the holders
of Class B Stock shall be entitled to share equally, on a per share basis, in
such dividends, subject to the limitations described below.
b. If at any time a distribution on the Class A Stock or
Class B Stock is to be paid in shares of Class A Stock, Class B Stock or any
other securities of the Corporation, such dividends may be declared and paid
only as follows:
(1) a share distribution consisting of Class A Stock to
holders of Class A Stock and Class B Stock, on an equal
per share basis; or to holders of Class A Stock only, but
in such event there shall also be a simultaneous share
distribution to holders of Class B Stock consisting of
shares of Class B Stock on an equal per share basis;
(2) a share distribution consisting of Class B Stock to
holders of Class B Stock and Class A Stock, on an equal
per share basis; or to holders of Class B Stock only, but
in such event there shall also be a simultaneous share
distribution to holders of Class A Stock consisting of
shares of Class A Stock on an equal per share basis; and
(3) a share distribution consisting of any other class of
securities of the Corporation other than Common Stock, to
the holders of Class A Stock and the holders of Class B
Stock on an equal per share basis.
c. If the Corporation shall in any manner reclassify,
subdivide or combine the outstanding shares of Class A Stock or Class B Stock,
the outstanding shares of the other class of Common Stock shall be
proportionally reclassified, subdivided or combined in the same manner and on
the same basis as the outstanding shares of Class A Stock or Class B Stock, as
the case may be, that have been reclassified subdivided or combined.
d. Subject to provisions of law and the preferences of the
Preferred Stock and of any other stock ranking prior to the Class A Stock or the
Class B Stock as to dividends, the
4
<PAGE>
holders of the Class A Stock and the Class B Stock shall be entitled to receive
dividends at such time and in such amounts as may be determined by the Board and
declared out of any funds lawfully available therefor, and shares of Preferred
Stock of any class shall not be entitled to share therein except as otherwise
expressly provided in the resolution or resolutions of the Board providing for
the issue of such series. Dividends shall be payable only as and when declared
by the Board of Directors.
4. Conversion of Class B Stock by Holder.
-------------------------------------
a. The holder of each share of Class B Stock shall have the
right at any time, or from time to time, at such holder's option, to convert
such share into one fully paid and nonassessable share of Class A Stock on and
subject to the terms and conditions hereinafter set forth.
b. In order to exercise his conversion privilege, the holder
of any shares of Class B Stock to be converted shall present and surrender the
certificate or certificates representing such shares, duly endorsed, during
usual business hours at any office or agency of the Corporation maintained for
the transfer of Class B Stock and shall deliver a written notice of the election
of the holder to convert the shares represented by such certificate or any
portion thereof specified in such notice. Such notice shall also state the name
or names (with address) in which the certificate or certificates for shares of
Class A Stock issuable on such conversion shall be registered. If required by
the Corporation, any certificate for shares surrendered for conversion shall be
accompanied by instruments of transfer, in form satisfactory to the Corporation,
duly executed by the holder of such shares or his duly authorized representa-
tive. Each conversion of shares of Class B Stock shall be deemed to have been
effected at the close of business on the date (the "conversion date") on which
the certificate or certificates representing such shares shall have been
surrendered and such notice and any required instruments of transfer shall have
been received as aforesaid, and the person or persons in whose name or names any
certificate or certificates for shares of Class A Stock shall be issuable on
such conversion shall be, for the purpose of receiving dividends and for all
other corporate purposes whatsoever, deemed to have become the holder or
holders of record of the shares of Class A Stock represented thereby on the
conversion date.
c. As promptly as practicable after the presentation and
surrender for conversion, as herein provided, of any certificate for shares of
Class B Stock, the Corporation shall issue and deliver at such office or agency,
to or upon the written order of the holder thereof, certificates for the number
of shares of Class A Stock issuable upon such conversion. In case any
certificate for shares of Class B Stock shall be surren-
5
<PAGE>
dered for conversion of a part only of the shares represented thereby, the
Corporation shall deliver at such office or agency, to or upon the written order
of the holder thereof, a certificate or certificates for the number of shares of
Class B Stock represented by such surrendered certificate that are not being
converted. The issuance of certificates for shares of Class A Stock issuable
upon the conversion of shares of Class B Stock by the registered holder thereof
shall be made without charge to the converting holder for any tax imposed on the
Corporation in respect of the issue thereof. The Corporation shall not, however,
be required to pay any tax that may be payable with respect to any transfer
involved in the issue and delivery of any certificate in a name other than that
of the registered holder of the shares being converted, and the Corporation
shall not be required to issue or deliver any such certificate unless and until
the person requesting the issue thereof shall have paid to the Corporation the
amount of such tax or has established to the satisfaction of the Corporation
that such tax has been paid.
d. Upon any conversion of shares of Class B Stock into shares
of Class A Stock pursuant hereto, no adjustment with respect to dividends shall
be made; only those dividends shall be payable on the shares so converted as
have been declared and are payable to holders of record of shares of Class B
Stock on a date prior to the conversion date with respect to the shares so
converted; and only those dividends shall be payable on shares of Class A Stock
issued upon such conversion as have been declared and are payable to holders of
record of shares of Class A Stock on or after such conversion date.
e. In case of any sale or conveyance of all or substantially
all of the property or business of the Corporation as an entirety, a holder of a
share of Class B Stock shall have the right thereafter to convert such share
into the kind and amount of cash, shares of stock and other securities and
properties receivable upon such sale or conveyance by a holder of one share of
Class A Stock and shall have no other conversion rights with regard to such
share. The provisions of this subparagraph 4.e of paragraph B of Article IV
shall similarly apply to successive sales or conveyances.
f. Shares of the Class B Stock converted into Class A Stock
shall be retired and shall resume the status of authorized but unissued shares
of Class B Stock.
g. Such number of shares of Class A Stock as may from time to
time be required for such purpose shall be reserved for issuance upon conversion
of outstanding shares of Class B Stock.
h. Shares of Class A Stock shall not be convertible into
shares of Class B Stock.
6
<PAGE>
6. Priority of Preferred Stock.
---------------------------
The Class A Stock and the Class B Stock are subject to all the powers,
rights, privileges, preferences and priorities of any series of Preferred Stock
as may be stated herein and as shall be stated and expressed in any resolution
or resolutions adopted by the Board, pursuant to authority expressly granted to
and vested in it by the provisions of this Article IV.
7. Liquidation, Dissolution or Winding Up.
--------------------------------------
In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntarily or involuntarily (sometimes referred to as
liquidation), after payment or provision for payment of the debts and other
liabilities of the Corporation and the preferential amounts to which the holders
of any stock ranking prior to the Class A Stock and the Class B Stock in the
distribution of the Corporation's assets shall be entitled upon such
liquidation, dissolution or winding up, the holders of the Class A Stock and the
Class B Stock shall be entitled to share equally, on a per share basis, in the
distribution of the remaining assets of the Corporation. Neither the
consolidation or merger of the Corporation with or into any other corporation or
corporations nor the sale, transfer or lease of all or substantially all of the
assets of the Corporation shall itself be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this
paragraph 7.
C. Preferred Stock.
---------------
Shares of Preferred Stock may be issued from time to time in one or more
series. Shares of Preferred Stock that may be redeemed, purchased or acquired
by the Corporation may be reissued except as otherwise provided by law. The
Board is hereby authorized to fix or alter the designations and powers, prefer-
ences and relative, participating, optional or other rights, if any, and
qualifications, limitations or restrictions thereof, including, without
limitation, the dividend rate (and whether dividends are cumulative), conversion
rights, if any, voting rights, rights and terms of redemption (including sinking
fund provisions, if any), redemption price and liquidation preferences of any
wholly unissued series of Preferred Stock, and the number of shares constituting
any such series and the designation thereof, or any of them, and to increase or
decrease the number of shares of any series subsequent to the issue of shares of
that series, but not below the number of shares of such series then outstanding.
7
<PAGE>
Article V: Number of Directors and Limitation of Liability of Directors.
A. Number of Directors. The number of directors that shall constitute
-------------------
the whole Board of the Corporation shall be as specified in the Bylaws of the
Corporation, as the same may be amended from time to time. In the absence of
such a provision in the Bylaws of the Corporation, the number of directors that
shall constitute the whole Board of the Corporation shall be thirteen.
B. Limitation of Liability of Directors. The Corporation shall, to the
------------------------------------
fullest extent permitted by Section 145 of the General Corporation Law of the
State of Delaware, as the same may be amended and supplemented, or any successor
provision thereto, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section and, as
provided in said section shall advance expenses, including reasonable attorneys'
fees, of any and all such persons, and the indemnification and advancement of
expenses provided for herein shall not be deemed exclusive of any other rights
to which a person seeking indemnification or advancement of expenses may be
entitled under any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his or her official capacity and as
to action in another capacity while holding such office, and shall continue as
to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors, and administrators of such
persons. To the fullest extent permitted by Section 102 of the General
Corporation Law of the State of Delaware, as the same may be amended and
supplemented, or any successor provision thereto, a director of the Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director.
C. Future Amendments. In addition to the provisions of paragraph B of
-----------------
this Article V, if the General Corporation Law of the State of Delaware is
amended hereafter to authorize or permit corporate action further limiting or
eliminating the personal liability of a director to the Corporation or its
stockholders, then the liability of each director of the Corporation shall be
further limited or eliminated to the fullest extent permitted by any such future
amendment of the law of the State of Delaware.
D. Repeal or Modification. Any repeal or modification of this Article V
----------------------
or any provision hereof shall not increase the personal liability of any
director or the Corporation for any act or occurrence taking place prior to such
repeal or modification, or otherwise adversely affect any right or protection of
a director of the Corporation existing at the time of such repeal or
modification.
8
<PAGE>
Article VI: Meetings.
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws of the Corporation may provide. The books of the
Corporation may be kept (subject to any provision of Delaware law) outside the
State of Delaware at such place or places as may be designed from time to time
by the Board or in the Bylaws of the Corporation. Elections of directors need
not be by written ballot unless the Bylaws of the Corporation shall so provide.
Article VII: Election of Directors.
A. Stockholders' Meeting. The directors who are directors on the date
---------------------
that the Amended and Restated Certificate of Incorporation of the Corporation is
filed with the Secretary of State of Delaware shall serve until the first annual
meeting of stockholders at which directors are elected following that date. The
Directors shall be elected at the annual meeting of stockholders, and each
director elected shall hold office until such director's successor has been
elected and qualified. Directors need not be stockholders of the Corporation.
B. Directors Elected by Preferred Stock. During any period when the
------------------------------------
holders of Preferred Stock or any one or more series thereof, voting as a class,
shall be entitled to elect a specified number of directors by reason of dividend
arrearages or other contingencies giving them the right to do so, then and
during such times as such right continues the then otherwise authorized number
of directors shall be increased by such specified number of directors, and the
holders of the Preferred Stock or such series thereof, voting as a class, shall
be entitled to elect the additional directors so provided for, pursuant to the
provisions of such Preferred Stock or series; and each such additional director
shall serve until the annual meeting at which his term of office shall expire
and until his successor shall be elected and shall qualify, or until his right
to hold such office terminates pursuant to the provisions of such Preferred
Stock or series, whichever occurs earlier. Whenever the holders of such
Preferred Stock or series thereof are divested of such rights to elect a
specified number of directors, voting as a class, pursuant to the provisions of
such Preferred Stock or series, the terms of office of all directors elected by
the holders of such Preferred Stock or series, voting as a class pursuant to
such provisions, or elected to fill any vacancies resulting from the death,
resignation or removal of directors so elected by the holders of such Preferred
Stock or series, shall forthwith terminate and the authorized number of
directors shall be reduced accordingly.
C. Removal. Subject to the rights of any series of Preferred Stock then
-------
outstanding, any director, or the entire
9
<PAGE>
Board, may be removed from office at any time by the affirmative vote of the
holders of shares that entitle the holders to cast a majority of the votes
entitled to be cast by the holders of all shares of capital stock of the
Corporation that are entitled to vote generally in the election of directors of
the Corporation.
D. Notice of Stockholder Nominees. Nominations of persons for election
------------------------------
to the Board shall be made only at a meeting of stockholders and only (1) by or
at the direction of the Board or (2) by any stockholder of the Corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this paragraph D of Article VII. Such
nominations, other than those made by or at the direction of the Board, shall be
made pursuant to timely notice in writing to the Secretary of the Corporation.
To be timely, a stockholder's notice shall be delivered to or mailed and
received at the principal executive offices of the Corporation not less than
thirty days nor more than sixty days prior to the meeting; provided, however,
that if less than forty days notice or prior public disclosure of the date of
the meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. For purpose of this paragraph D of Article VII,
any adjournment(s) or postponement(s) of the original meeting whereby the
meeting will reconvene within thirty days from the original date shall be
deemed for purposes of this notice to be a continuation of the original meeting
and no nominations by a stockholder of persons to be elected directors of the
Corporation may be made at any such reconvened meeting and no nominations by a
stockholder of persons to be elected directors of the Corporation may be made at
any such reconvened meeting unless pursuant to a notice that was timely for the
meeting on the date originally scheduled. Such stockholder's notice shall set
forth: (i) as to each person whom the stockholder proposes to nominate for
election or re-election as a director, all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to the Securities
Exchange Act of 1934, as amended (including such person's written consent to
being named in the proxy statement as a nominee and to serving as a director if
elected); and (ii) as to the stockholder giving the notice (a) the name and
address, as they appear on the Corporation's books, of such stockholder, and (b)
the class and number of shares of the Corporation that are beneficially owned by
such stockholder. Notwithstanding the foregoing, nothing in this paragraph D of
Article VII shall be interpreted or construed to require the inclusion of
information about any such nominee in any proxy statement distributed by, at the
direction of, or on behalf of the Board. The chairman of the meeting shall, if
the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the
10
<PAGE>
procedures prescribed by this paragraph D of Article VII, and if he should so
determine, he shall so declare to the meeting and the defective nomination shall
be disregarded.
Article VIII: Indemnification.
The Corporation shall indemnify, in the manner and to the full extent
permitted by law, any person (or the estate of any person) who was or is a party
to, or is threatened to be made a party to, any threatened, pending or completed
action, suit or proceeding, whether or not by or in the right of the
Corporation, and whether civil, criminal, administrative, investigative or
otherwise, by reason of the fact that such person is or was a director, officer
or employee of the Corporation, or is or was serving at the request of the
Corporation as a director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise. The Corporation may, to
the full extent permitted by law, purchase and maintain insurance on behalf of
any such person against any liability that may be asserted against him. To the
full extent permitted by law, the indemnification provided herein shall include
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement, and, in the manner provided by law, any such expenses may be paid
by the Corporation in advance of the final disposition of such action, suit or
proceeding. The indemnification provided herein shall not be deemed to limit
the right of the Corporation to indemnify any other person for any such expenses
to the full extent permitted by law, nor shall it be deemed exclusive of any
other rights to which any person seeking indemnification from the Corporation
may be entitled under any agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
Article IX: Stockholder Proposals at Annual Meetings.
Business may be properly brought before an annual meeting by a stockholder
only upon the stockholder's timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than thirty days nor more than sixty days prior to the meeting as
originally scheduled; provided, however, that if less than forty days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the tenth day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made. For purposes of this Article IX, any adjournment(s) or
postponement(s) of the original meeting whereby the meeting will reconvene
within thirty days from the original date shall be deemed for purposes of notice
to be a continuation
11
<PAGE>
of the original meeting and no business may be brought before any reconvened
meeting unless such timely notice of such business was given to the Secretary of
the Corporation for the meeting as originally scheduled. A stockholder's notice
to the Secretary shall set forth as to each matter the stockholder proposes to
bring before the annual meeting (i) a brief description of the business desired
to be brought before the annual meeting, (ii) the name and record address of the
stockholder proposing such business, and (iii) the class and number of shares of
the Corporation that are beneficially owned by the stockholder proposing such
business. Notwithstanding the foregoing, nothing in this Article IX shall be
interpreted or construed to require the inclusion of information about any such
proposal in any proxy statement distributed by, at the direction of, or on
behalf of the Board. The chairman of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not properly
brought before the meeting in accordance with the provisions of this Article IX,
and if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
Article X: Call of Special Meetings.
Special meetings of the stockholders of the Corporation for any purpose or
purposes may be called at any time by the Board, or by a majority of the members
of the Board. Such special meetings may not be called by any other person or
persons or in any other manner.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
12
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed in its corporate name by its [Vice-]President and attested to by its
Secretary this [_] day of ______, 1996.
TELEPORT COMMUNICATIONS
GROUP INC.
By:________________________________
Name:______________________________
[Vice-]President
And:_______________________________
Name:______________________________
Secretary
13
<PAGE>
EXHIBIT 4.3
================================================================================
TELEPORT COMMUNICATIONS GROUP INC.,
Issuer
AND
UNITED STATES TRUST COMPANY OF NEW YORK,
Trustee
____________________
INDENTURE
Dated as of June __, 1996
_____________________
$___________
_____% Senior Discount Notes
due 2007
================================================================================
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC.
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND INDENTURE, DATED AS OF _______________
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
<S> <C>
(S) 310(a)(1)........................ 607
(a)(2)........................ 607
(b)........................... 608
(S) 312(c)........................... 701
(S) 314(a)........................... 703
(a)(4)........................ 1008(a)
(c)(1)........................ 102
(c)(2)........................ 102
(e)........................... 102
(S) 315(b)........................... 601
(S) 316(a)(last
sentence)..................... 101 ("Outstanding")
(a)(1)(A)..................... 502, 512
(a)(1)(B)..................... 513
(b)........................... 508
(c)........................... 104(d)
(S) 317(a)(1)........................ 503
(a)(2)........................ 504
(b)........................... 1003
(S) 318(a)........................... 111
</TABLE>
<PAGE>
TABLE OF CONTENTS/1/
PAGE
PARTIES..................................................... 1
RECITALS OF THE COMPANY
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
<TABLE>
<CAPTION>
<S> <C>
SECTION 101. Definitions.............................. 1
Accreted Value.................................... 2
Acquired Indebtedness............................. 2
Act............................................... 2
Affiliate......................................... 2
Asset Sale........................................ 3
Board of Directors................................ 3
Board Resolution.................................. 3
Business Day...................................... 3
Capital Lease Obligation.......................... 4
Capital Stock..................................... 4
Change of Control................................. 4
Class A Common Stock and Class B Common Stock..... 4
Commission........................................ 5
Common Stock...................................... 5
Company........................................... 5
Company Request or Company Order.................. 5
Consolidated Interest Expense..................... 5
Consolidated Net Income........................... 5
Corporate Trust Office............................ 6
Default........................................... 6
Defaulted Interest................................ 6
Disqualified Stock................................ 6
EBITDA............................................ 6
Eligible Cash Equivalents......................... 6
Equity Interests.................................. 7
</TABLE>
- ----------
/1/ Note: This table of contents shall not, for any purpose, be deemed to be a
part of this Indenture.
<PAGE>
ii
<TABLE>
<CAPTION>
PAGE
<S> <C>
Event of Default.................................. 7
Exchange Act...................................... 7
Exchange Rate Contract............................ 7
Existing Indebtedness............................. 7
Fair Market Value................................. 7
Federal Bankruptcy Code........................... 8
GAAP.............................................. 8
Guarantee......................................... 8
Guarantor......................................... 8
Holder............................................ 8
Indebtedness...................................... 8
Indebtedness to Adjusted Total Equity Ratio....... 9
Indebtedness to EBITDA Ratio...................... 9
Indenture......................................... 10
Interest Payment Date............................. 10
Interest Rate Agreement........................... 10
Investments....................................... 10
Issuance Date..................................... 11
Joint Venture..................................... 11
Lien.............................................. 11
Local Market Partnership.......................... 11
Maturity.......................................... 11
Net Proceeds...................................... 11
Non-Recourse Indebtedness......................... 12
Obligations....................................... 12
Officers' Certificate............................. 12
Opinion of Counsel................................ 12
Outstanding....................................... 12
Paying Agent...................................... 13
Permitted Holders................................. 13
Permitted Indebtedness............................ 13
Permitted Investments............................. 14
Permitted Liens................................... 15
Permitted Temporary Investments................... 16
Person............................................ 16
Predecessor Security.............................. 17
Preferred Stock................................... 17
Public Equity Offering............................ 17
Redemption Date................................... 17
Redemption Price.................................. 17
</TABLE>
<PAGE>
iii
<TABLE>
<CAPTION>
PAGE
<S> <C>
Registration Statement............................ 17
Regular Record Date............................... 17
Reorganization.................................... 17
Reorganization Agreement.......................... 17
Responsible Officer............................... 17
Restricted Payment................................ 18
Restricted Subsidiary............................. 18
Revolving Credit Agreement........................ 18
Sale-Leaseback Transaction........................ 18
Securities........................................ 18
Security Register and Security Registrar.......... 18
Significant Subsidiary............................ 19
Special Record Date............................... 19
Stated Maturity................................... 19
Stock Offering.................................... 19
Strategic Equity Investor......................... 19
Subsidiary........................................ 19
Telecommunications Assets......................... 19
Telecommunications Assets Indebtedness............ 19
Telecommunications Business....................... 20
Trust Indenture Act or TIA........................ 20
Trustee........................................... 20
Unrestricted Subsidiary........................... 20
Vice President.................................... 21
Voting Stock...................................... 21
Weighted Average Life to Maturity................. 21
Wholly Owned Restricted Subsidiary................ 21
SECTION 102. Compliance Certificates and Opinions..... 21
SECTION 103. Form of Documents Delivered to Trustee... 22
SECTION 104. Acts of Holders.......................... 22
SECTION 105. Notices, etc., to Trustee, Company....... 24
SECTION 106. Notice to Holders; Waiver................ 24
SECTION 107. Effect of Headings and Table of Contents. 25
SECTION 108. Successors and Assigns................... 25
SECTION 109. Separability Clause...................... 25
SECTION 110. Benefits of Indenture.................... 25
SECTION 111. Governing Law............................ 25
SECTION 112. Legal Holidays........................... 25
</TABLE>
<PAGE>
iv
ARTICLE TWO
SECURITY FORMS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 201. Forms Generally........................................... 26
SECTION 202. Form of Face of Security.................................. 26
SECTION 203. Form of Reverse of Security.............................. 28
SECTION 204. Form of Trustee's Certificate of Authentication........... 31
</TABLE>
ARTICLE THREE
THE SECURITIES
<TABLE>
<CAPTION>
<S> <C>
SECTION 301. Title and Terms........................................... 32
SECTION 302. Denominations............................................. 33
SECTION 303. Execution, Authentication, Delivery and Dating............ 33
SECTION 304. Temporary Securities...................................... 34
SECTION 305. Registration, Registration of Transfer and Exchange....... 35
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.......... 36
SECTION 307. Payment of Interest; Interest Rights Preserved............ 37
SECTION 308. Persons Deemed Owners..................................... 38
SECTION 309. Cancellation.............................................. 38
SECTION 310. Computation of Interest................................... 39
SECTION 311. No Personal Liability of Directors, Officers, Employees and
Stockholders............................................. 39
</TABLE>
ARTICLE FOUR
SATISFACTION AND DISCHARGE
<TABLE>
<S> <C>
SECTION 401. Satisfaction and Discharge of Indenture................... 39
SECTION 402. Application of Trust Money................................ 40
</TABLE>
ARTICLE FIVE
REMEDIES
<TABLE>
<CAPTION>
<S> <C>
SECTION 501. Events of Default......................................... 40
SECTION 502. Acceleration of Maturity; Rescission and Annulment........ 42
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.................................................. 43
</TABLE>
<PAGE>
v
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 504. Trustee May File Proofs of Claim.......................... 44
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities............................................... 45
SECTION 506. Application of Money Collected............................ 45
SECTION 507. Limitation on Suits....................................... 46
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest..................................... 47
SECTION 509. Restoration of Rights and Remedies........................ 47
SECTION 510. Rights and Remedies Cumulative............................ 47
SECTION 511. Delay or Omission Not Waiver.............................. 47
SECTION 512. Control by Holders........................................ 48
SECTION 513. Waiver of Past Defaults................................... 48
SECTION 514. Waiver of Stay or Extension Laws.......................... 49
</TABLE>
ARTICLE SIX
THE TRUSTEE
<TABLE>
<CAPTION>
<S> <C>
SECTION 601. Notice of Defaults........................................ 49
SECTION 602. Certain Rights of Trustee................................. 49
SECTION 603. Trustee Not Responsible for Recitals or Issuance of
Securities............................................... 51
SECTION 604. May Hold Securities....................................... 51
SECTION 605. Money Held in Trust....................................... 51
SECTION 606. Compensation and Reimbursement............................ 51
SECTION 607. Corporate Trustee Required; Eligibility................... 52
SECTION 608. Resignation and Removal; Appointment of Successor......... 53
SECTION 609. Acceptance of Appointment by Successor.................... 54
SECTION 610. Merger, Conversion, Consolidation or Succession to
Business................................................. 54
</TABLE>
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE
<TABLE>
<S> <C>
SECTION 701. Disclosure of Names and Addresses of Holders.............. 55
SECTION 702. Reports by Trustee........................................ 55
</TABLE>
<PAGE>
vi
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 801. Limitation on Merger, Consolidation or Sale of Assets..... 55
SECTION 802. Successor Substituted..................................... 57
SECTION 803. Securities to Be Secured in Certain Events................ 57
</TABLE>
ARTICLE NINE
SUPPLEMENTAL INDENTURES
<TABLE>
<CAPTION>
<S> <C>
SECTION 901. Supplemental Indentures Without Consent of Holders........ 58
SECTION 902. Supplemental Indentures with Consent of Holders........... 58
SECTION 903. Execution of Supplemental Indentures...................... 59
SECTION 904. Effect of Supplemental Indentures......................... 60
SECTION 905. Conformity with Trust Indenture Act....................... 60
SECTION 906. Reference in Securities to Supplemental Indentures........ 60
SECTION 907. Notice of Supplemental Indentures......................... 60
</TABLE>
ARTICLE TEN
COVENANTS
<TABLE>
<CAPTION>
<S> <C>
SECTION 1001. Payment of Principal, Premium, if any, and Interest...... 60
SECTION 1002. Maintenance of Office or Agency.......................... 61
SECTION 1003. Money for Security Payments to Be Held in Trust.......... 61
SECTION 1004. Corporate Existence...................................... 63
SECTION 1005. Payment of Taxes and Other Claims........................ 63
SECTION 1006. Maintenance of Properties................................ 63
SECTION 1007. Insurance................................................ 63
SECTION 1008. Statement by Officers as to Default...................... 64
SECTION 1009. Reports to Holders....................................... 64
SECTION 1010. Change of Control........................................ 64
SECTION 1011. Limitation on Incurrence of Indebtedness................. 65
SECTION 1012. Limitation on Restricted Payments........................ 66
SECTION 1013. Limitation on Liens...................................... 68
SECTION 1014. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries........................ 68
SECTION 1015. Limitation on Issuance and Sale of Capital
Stock of Restricted Subsidiaries......................... 69
SECTION 1016. Limitation on Guarantees of Indebtedness by
</TABLE>
<PAGE>
vii
<TABLE>
<CAPTION>
PAGE
<S> <C>
Restricted Subsidiaries.................................. 70
SECTION 1017. Limitation on Asset Sales................................ 71
SECTION 1018. Limitation on Transactions with Stockholders
and Affiliates........................................... 72
SECTION 1019. Waiver of Certain Covenants.............................. 74
</TABLE>
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
<TABLE>
<CAPTION>
<S> <C>
SECTION 1101. Right of Redemption...................................... 74
SECTION 1102. Applicability of Article................................. 74
SECTION 1103. Election to Redeem; Notice to Trustee.................... 74
SECTION 1104. Selection by Trustee of Securities to Be Redeemed........ 75
SECTION 1105. Notice of Redemption..................................... 75
SECTION 1106. Deposit of Redemption Price.............................. 76
SECTION 1107. Securities Payable on Redemption Date.................... 76
SECTION 1108. Securities Redeemed in Part.............................. 77
</TABLE>
ARTICLE TWELVE
RESERVED
ARTICLE THIRTEEN
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1301. Company's Option to Effect Legal Defeasance or
Covenant Defeasance......................................... 77
SECTION 1302. Legal Defeasance and Discharge................................ 77
SECTION 1303. Covenant Defeasance........................................... 78
SECTION 1304. Conditions to Legal Defeasance or
Covenant Defeasance......................................... 78
SECTION 1305. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions............... 80
SECTION 1306. Reinstatement................................................. 81
</TABLE>
<PAGE>
viii
PAGE
ARTICLE FOURTEEN
RESERVED
TESTIMONIUM.................................................
SIGNATURES AND SEALS........................................
<PAGE>
INDENTURE, dated as of June __, 1996 between TELEPORT
COMMUNICATIONS GROUP, INC., a corporation duly organized and existing under the
laws of the State of Delaware (herein called the "Company"), having its
principal office at One Teleport Drive, Staten Island, New York 10311-1011, and
UNITED STATES TRUST COMPANY OF NEW YORK, a [corporation/trust company] duly
organized and existing under the laws of the State of New York, Trustee (herein
called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of ____% Senior
Discount Securities due 2007 (herein called the "Securities"), of substantially
the tenor and amount hereinafter set forth, and to provide therefor the Company
has duly authorized the execution and delivery of this Indenture.
This Indenture is subject to the provisions of the Trust Indenture Act of
1939, as amended, that are required to be part of this Indenture and shall, to
the extent applicable, be governed by such provisions.
All things necessary have been done to make the Securities, when executed
by the Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company and to make this Indenture a valid
agreement of the Company, in accordance with their and its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
<PAGE>
2
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and "self-
liquidating paper," as used in TIA Section 311, shall have the meanings
assigned to them in the rules of the Commission adopted under the Trust
Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as
are generally accepted at the date of such computation; and
(d) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Accreted Value" means, with respect to any Security, as of any date
of determination prior to ____, 2001, the sum of (a) the initial issue price of
such Security and (b) the portion of the excess of the principal amount at
stated maturity of such Security over such initial issue price which shall have
been amortized through such date, such amount to be so amortized on a daily
basis and compounded semiannually on each ____ and ____ at the rate of ___% per
annum from the date of issuance of the Securities through the date of
determination computed on the basis of a 360-day year of twelve 30-day months.
"Acquired Indebtedness" means (a) Indebtedness of any other Person
existing at the time such other Person merged with or into or became a
Restricted Subsidiary, including Indebtedness incurred in connection with or in
contemplation of such other Person merging with or into or becoming a Restricted
Subsidiary, (b) Indebtedness of any other Person assumed by the Company or a
Restricted Subsidiary in connection with the acquisition of assets from such
other Person, and (c) Indebtedness secured by a Lien encumbering any asset
acquired by the Company or a Restricted Subsidiary.
"Act," when used with respect to any Holder, has the meaning specified
in Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the
<PAGE>
3
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
"Asset Sale" means (a) any sale, lease, transfer, conveyance or other
disposition of any assets (including by way of a sale-leaseback) other than the
sale or transfer of inventory or goods (including equipment) held for sale in
the ordinary course of business (provided that the sale, lease, transfer,
conveyance or other disposition of all or substantially all of the assets of the
Company shall not be deemed to be an "Asset Sale" and shall be governed by the
provisions of Section 1010 or Article Eight) or (b) any issuance, sale, lease,
transfer, conveyance or other disposition of any Equity Interests of any of the
Company's Restricted Subsidiaries (other than director's qualifying shares) to
any Person. Notwithstanding the foregoing, none of the following shall be
deemed to be an Asset Sale: (i) a swap or other exchange of cable, fiber line
or other equipment or transmission capacity or of networks or systems between
the Company or any Restricted Subsidiary and any other Person which is an
exchange at Fair Market Value, (ii) an issuance and sale of Equity Interests by
a Restricted Subsidiary to the Company or to another Restricted Subsidiary
including any such issuance in connection with the contribution to such
Restricted Subsidiary of Telecommunications Assets, (iii) an Asset Sale
involving assets with a Fair Market Value not in excess of $2 million, (iv) any
lease of cable, fiber optic or transmission capacity, any lease of equipment or
equipment space, any grant of indefeasible rights-of-use or rights-of-access or
similar rights and grants of nominal title to assets entered into in the
ordinary course and consistent with past practices, (v) any sale or other
disposition of any or all of the capital stock or assets of an Unrestricted
Subsidiary, and (vi) any sale, transfer or conveyance of Eligible Cash
Equivalents. Additionally, the contribution of Telecommunications Assets to an
Unrestricted Subsidiary whereby the Company or a Restricted Subsidiary receives
an equity interest in such Unrestricted Subsidiary shall be deemed not to be an
Asset Sale and shall be deemed to be a Restricted Payment and be governed by
Section 1012.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
are authorized or obligated by law or executive order to close.
<PAGE>
4
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be so required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means, with respect to any specified Person, any and
all shares, interests, participations, rights, or other equivalents (however
designated) of corporate stock, including, without limitation, partnership
interests of such Person.
"Change of Control" means (a) the sale, lease, transfer, conveyance or
other disposition of all or substantially all of the assets of the Company to
any "person" or "group" (within the meaning of Sections 13(d)(3) and 14(d)(2) of
the Exchange Act or any successor provision to either of the foregoing,
including any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act) other
than Permitted Holders, (b) the approval by the requisite stockholders of the
Company of a plan of liquidation or statutory dissolution (which shall not be
construed to include a plan of merger or consolidation) of the Company, unless
Permitted Holders "beneficially own" (as defined in Rule 13d-3 under the
Exchange Act) at least the same percentage of voting power after the
consummation of such plan as before or otherwise retain the right or ability, by
voting power, to control the Person that acquires the proceeds of such
liquidation or dissolution, (c) any "person" or "group" (within the meaning of
Sections 13(d)(3) and 14(d)(2) of the Exchange Act or any successor provision to
either of the foregoing, including any group acting for the purpose of
acquiring, holding or disposing of securities within the meaning of Rule 13d-
5(b)(1) under the Exchange Act), other than Permitted Holders, becomes the
"beneficial owner" (as so defined) of more than 35% of the total voting power of
all classes of the Voting Stock of the Company and/or warrants or options to
acquire such Voting Stock, calculated on a fully diluted basis, provided that
Permitted Holders "beneficially own" (as so defined) a percentage of such Voting
Stock or warrants having a lesser percentage of voting power than such other
"person" or "group" and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the Board
of Directors, or (d) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors (together
with any new directors whose election or appointment by such board or whose
nomination for election by the stockholders of the Company was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors then in office.
"Class A Common Stock" and "Class B Common Stock" mean the two classes
of Common Stock of the Company authorized to be issued by the Company pursuant
to Article IV of the Amended and Restated Certificate of Incorporation of the
Company.
<PAGE>
5
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Stock" means, with respect to the Company, the Class A Common
Stock, the Class B Common Stock or any similar common stock of the Company.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, its President, any Vice
President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Consolidated Interest Expense" means, with respect to the Company and
its Restricted Subsidiaries, for any period, the amount of interest in respect
of Indebtedness (including amortization of original issue discount, amortization
of debt issuance costs, and non-cash interest payments on any Indebtedness and
the interest portion of any deferred payment obligation and after taking into
account the effect of elections made under any Interest Rate Agreement, however
denominated, with respect to such Indebtedness), the net costs associated with
Interest Rate Agreements, Preferred Stock dividends of the Company (and of its
Restricted Subsidiaries if paid to a Person other than the Company or its
Restricted Subsidiaries) and the interest component of rentals in respect of any
Capital Lease Obligation paid, in each case whether accrued or scheduled to be
paid or accrued by the Company and its Restricted Subsidiaries during such
period to the extent such amounts were deducted in computing Consolidated Net
Income, determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to the Company for any
period, the aggregate net income of the Company and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the net income of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid to
the Company or a Restricted Subsidiary, (ii) the net income of any Person
acquired in a pooling of interests transactions for any period prior to the date
of such acquisition shall be excluded, (iii) the cumulative effect of a change
in accounting principles shall be excluded, (iv) all items classified as
extraordinary gains or losses of the Company or a Restricted Subsidiary for such
period shall be excluded, (v) the net income of any Restricted Subsidiary shall
be included only to the extent that the declaration or payment of dividends or
similar distributions by such Restricted Subsidiary of such net income is not at
<PAGE>
6
the time prohibited by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Restricted Subsidiary, and (vi) with respect to a
non-Wholly Owned Restricted Subsidiary, any aggregate net income (or loss) in
excess of the Company's or such Restricted Subsidiary's pro rata share of such
non-Wholly Owned Restricted Subsidiary's net income (or loss) shall be excluded.
"Corporate Trust Office" means the principal corporate trust office of
the Trustee, at which at any particular time its corporate trust business shall
be administered, which office at the date of execution of this Indenture is
located at 114 West 47th Street, New York, NY 10036, except that with respect to
presentation of Securities for payment or for registration of transfer or
exchange, such term shall mean the office or agency of the Trustee at which, at
any particular time, its corporate agency business shall be conducted.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 307.
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
on which the Securities mature.
"EBITDA" means, with respect to the Company and its Restricted
Subsidiaries, for any period, an amount equal to (A) the sum of (i) Consolidated
Net Income for such period (exclusive of any gain or loss realized in such
period upon an Asset Sale), plus (ii) the provision for taxes for such period
based on income or profits to the extent such income or profits were included in
computing Consolidated Net Income and any provision for taxes utilized in
computing net loss under clause (i) hereof, plus (iii) Consolidated Interest
Expense for such period, plus (iv) depreciation for such period on a
consolidated basis, plus (v) amortization of intangibles for such period on a
consolidated basis, plus (vi) any other non-cash item reducing Consolidated Net
Income for such period, plus (vii) any premium or penalty paid in connection
with repurchasing, redeeming, retiring, defeasing or acquiring any Indebtedness
prior to maturity, minus (B) all non-cash items increasing Consolidated Net
Income for such period, determined in accordance with GAAP consistently applied.
"Eligible Cash Equivalents" means (i) United States dollars, (ii)
securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof having maturities of
not more than one year and one day
<PAGE>
7
from the date of acquisition, (iii) certificates of deposit and Eurodollar time
deposits with maturities of one year or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any commercial bank(s) domiciled in the United
States or in any member of the OECD having capital and surplus in excess of $500
million and a Keefe Bank Watch Rating of "B" or better, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) entered into with any financial
institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper rated no lower than P-2 or the equivalent thereof by Moody's
Investors Service, Inc. or no lower than A-2 or the equivalent thereof by
Standard & Poor's Ratings Group and in each case maturing within one year and
one day after the date of acquisition, (vi) direct obligations issued by any
state of the United States or any political subdivision of any such state or
political instrumentality thereof maturing, or subject to tender at the option
of the holder thereof, within ninety (90) days after the date of acquisition,
having a rating of A from Standard & Poor's Ratings Group or A-2 from Moody's
Investors Service, Inc., and (vii) investments in money market funds
substantially all of whose assets comprise securities of the types described in
clauses (i) through (vi).
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any Indebtedness that is
convertible into, or exchangeable for, Capital Stock, except to the extent such
Indebtedness has been so converted or exchanged).
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Rate Contract" means, with respect to any Person, any
currency swap agreements, forward exchange rate agreements, foreign currency
futures or options, exchange rate collar agreements, exchange rate insurance and
other agreements or arrangements, or combinations thereof, the principal purpose
of which is to provide protection against fluctuations in currency exchange
rates. An Exchange Rate Contract may also include an Interest Rate Agreement.
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries in existence on the Issuance Date, including
Indebtedness incurred under the Revolving Credit Agreement as in effect on the
Issuance Date, until such amounts are repaid.
"Fair Market Value" means, with respect to any asset or property, the
price which could be negotiated in an arm's-length transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under pressure
or compulsion to complete the transaction. Fair Market Value shall be
determined (i) for an amount not in excess of $15 million,
<PAGE>
8
by the Chief Financial Officer of the Company, or (ii) for an amount of $15
million or more, by the Board of Directors acting in good faith and shall be
evidenced by a Board Resolution, and in either case shall be set forth in an
Officers' Certificate delivered to the Trustee.
"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11 of the
United States Code, as amended from time to time.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which may be in effect from time to time and are applied on a consistent basis.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means any Restricted Subsidiary which is a guarantor of
the Securities, including any Person that is required after the Issuance Date to
execute a guarantee of the Securities pursuant to Section 1016 until a successor
replaces such party pursuant to the applicable provisions of this Indenture and,
thereafter shall mean such successor.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indebtedness" means, with respect to any Person, without duplication,
(i) any indebtedness of such Person, whether or not contingent, in respect of
borrowed money or evidenced by bonds, notes, debentures or similar instruments
or letters of credit (or reimbursement agreements in respect thereof) or
banker's acceptances or the balance deferred and unpaid of the purchase price of
any property (including pursuant to capital leases and Sale-Leaseback
Transactions) or representing any hedging obligations under an Exchange Rate
Contract or an Interest Rate Agreement, except any such balance that constitutes
an accrued expense or trade payable or customer deposit received in the ordinary
course of business, if and to the extent any of the foregoing indebtedness
(other than obligations under an Exchange Rate Contract or an Interest Rate
Agreement) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (ii) Indebtedness of others secured by a Lien
on any asset of such Person (whether or not such Indebtedness is assumed by such
Person), but, if such indebtedness is otherwise non-recourse to such Person,
only to
<PAGE>
9
the extent of the lesser of (x) the Fair Market Value of such asset at the time
of determination and (y) the amount of such Indebtedness, (iii) to the extent
not otherwise included, the Guarantee of items defined in clauses (i) and (ii)
above and (iv) the maximum fixed redemption or repurchase price of Disqualified
Stock of such Person at the time of determination. For purposes of the
preceding sentence, (1) the maximum fixed repurchase price of Disqualified Stock
that does not have a fixed repurchase price shall be calculated in accordance
with the terms of such Disqualified Stock as if such Disqualified Stock were
repurchased on any date on which Indebtedness shall be required to be determined
pursuant to this Indenture; provided, however, that if such Disqualified Stock
is not then permitted to be repurchased, the repurchase price shall be the book
value of such Disqualified Stock, and (2) the amount outstanding at any time of
any Indebtedness issued with original issue discount is the accreted value of
such Indebtedness.
"Indebtedness to Adjusted Total Equity Ratio" means as of the date of
determination the ratio of (i) the aggregate amount of Indebtedness of the
Company and its Restricted Subsidiaries on a consolidated basis as at the date
of determination to (ii) the sum of (a) the total equity investments in the
Company as of ________, 1996 adjusted to give effect to the Stock Offering and
the repurchase of 7,807,881 shares of Class B Common Stock from Continental
Cablevision, Inc. as described in the Registration Statement, provided that any
issuance of Equity Interests pursuant to the Reorganization shall be included
only to the extent actually issued and shall be treated as if issued on or prior
to the Issuance Date regardless of the date such Equity Interests were actually
issued, (b) two times the aggregate net proceeds to the Company from the
issuance of any Equity Interests (other than Disqualified Stock) subsequent to
the Issuance Date, (c) two times the net cash proceeds from the sales of
Disqualified Stock of the Company or debt securities of the Company convertible
into Disqualified Stock, in either case upon conversion thereof into Equity
Interests (other than Disqualified Stock) subsequent to the Issuance Date;
provided, however, that, for purposes of calculation of the Indebtedness to
Adjusted Total Equity Ratio the net cash proceeds from the sale of Capital Stock
of the Company, including Capital Stock issued upon the conversion of
convertible Indebtedness, described in clause (b) or (c) above, shall not be
included if such proceeds have been utilized to make a (x) Restricted Payment,
(y) a Permitted Investment under clause (d) of the definition of Permitted
Investment (provided that such amounts shall be included to the extent of such
amounts invested in Local Market Partnerships that become Restricted
Subsidiaries prior to the first anniversary of the Issuance Date) or (z) a
Permitted Investment pursuant to clause (e)(ii) of the definition of Permitted
Investments (provided that such amounts shall be included to the extent of the
Fair Market Value of the Company's interest in any Joint Ventures that become
Restricted Subsidiaries but not in excess of the amount of any such Investments
in such Joint Ventures pursuant to such clause (e)(ii)).
"Indebtedness to EBITDA Ratio" means, as at any date of determination,
the ratio of (i) the aggregate amount of Indebtedness of the Company and its
Restricted
<PAGE>
10
Subsidiaries on a consolidated basis as at the date of determination to (ii) the
aggregate amount of EBITDA of the Company and its Restricted Subsidiaries for
the four preceding fiscal quarters for which financial information is available
immediately prior to the date of determination; provided that any Indebtedness
incurred or retired by the Company or any of its Restricted Subsidiaries during
the fiscal quarter in which the determination date occurs shall be calculated as
if such Indebtedness was so incurred or retired on the first day of such four
fiscal quarter period; and provided further that (x) if the transaction giving
rise to the need to calculate the Indebtedness to EBITDA Ratio would have the
effect of increasing or decreasing Indebtedness or EBITDA in the future,
Indebtedness or EBITDA shall be calculated on a pro forma basis as if such
transaction had occurred on the first day of such four fiscal quarter period
preceding the date of determination, and (y) if during such four fiscal quarter
period, the Company or any of its Restricted Subsidiaries shall have engaged in
any Asset Sale, EBITDA for such period shall be reduced by an amount equal to
the EBITDA (if positive), or increased by an amount equal to the EBITDA (if
negative), directly attributable to the assets which are the subject of such
Asset Sale and any related retirement of Indebtedness as if such Asset Sale and
related retirement of Indebtedness had occurred on the first day of such period
and (z) if during such four fiscal quarter period the Company or any of its
Restricted Subsidiaries shall have acquired any material assets out of the
ordinary course of business, EBITDA shall be calculated on a pro forma basis as
if such asset acquisition and related financing had occurred on the first day of
such period.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Interest Rate Agreement" means, for any Person, any interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement the principal purpose of which is to protect the party
indicated therein against fluctuations in interest rates.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of loans
(including Guarantees, advances or capital contributions (excluding commission,
travel and similar advances and loans, in each case, made to officers and
employees) made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities and all other items that are or would be classified as investments on
a balance sheet prepared in accordance with GAAP. Investments shall exclude
accounts receivable and other extensions of trade credit on commercially
reasonable terms in accordance with the Company's normal trade practice. In
addition, the Fair Market Value of
<PAGE>
11
the net assets of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary shall be deemed to be an
"Investment" made by the Company in such Unrestricted Subsidiary at such time.
"Issuance Date" means the date on which the Securities are first
authenticated and issued.
"Joint Venture" means any Person engaged in the Telecommunications
Business in which the Company or any Restricted Subsidiary owns an Equity
Interest and which may be an Unrestricted Subsidiary.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Local Market Partnership" means the partnerships created among
Affiliates of the Company and of the Permitted Holders to develop and operate
local telecommunications networks across the United States including, on the
date hereof, the Local Market Partnerships listed in Schedule I hereto.
"Maturity," when used with respect to any Security, means the date on
which the principal of such Security or an installment of principal becomes due
and payable as herein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, notice of redemption or otherwise.
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale, net
of (a) the direct costs relating to such Asset Sale (including, without
limitation, legal, title, recording, accounting and investment banking fees, and
sales commissions) and any relocation expenses incurred as a result thereof, (b)
taxes paid or payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements), (c)
amounts required to be applied to the repayment of Indebtedness secured by a
Lien on the asset or assets that are the subject of such Asset Sale or in order
to obtain a consent necessary to effect such Asset Sale and (d) any reserve for
adjustment or indemnification in respect of the sale price of such asset or
assets (provided that any such reserves shall be added back to Net Proceeds upon
the release of such reserves) and required distributions to holders of minority
interests. Furthermore, the amount of (i) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet or in the
notes thereto) of the Company or any Restricted Subsidiary that are assumed by
the transferee of any assets sold in an Asset Sale
<PAGE>
12
and (ii) any notes or other obligations received by the Company or any such
Restricted Subsidiary from such transferee that are immediately converted by the
Company or such Restricted Subsidiary into Eligible Cash Equivalents, shall be
deemed to be Eligible Cash Equivalents (to the extent of the Eligible Cash
Equivalents received in such conversion) for purposes of clause (b) of the first
paragraph of Section 1017.
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness (a) as to which none of the Company or any Restricted Subsidiary:
(i) provides credit support (including any undertaking, agreement or instrument
which would constitute Indebtedness); (ii) is directly or indirectly liable; or
(iii) constitutes the lender, and (b) no default with respect to which
(including any rights which the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of the Company or any
Restricted Subsidiary to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officers' Certificate" means a certificate signed by the Chairman,
the President or a Vice President, and by the Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary of the Company, and delivered to the
Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, including an employee of the Company, and who shall be
acceptable to the Trustee.
"Outstanding," when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or set aside
and segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities; provided that, if such
Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor satisfactory to the
Trustee has been made;
<PAGE>
13
(iii) Securities, except to the extent provided in Sections 1302 and
1303, with respect to which the Company has effected legal defeasance
and/or covenant defeasance as provided in Article Thirteen; and
(iv) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands the Securities are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in making such calculation or in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which the
Trustee knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or such other
obligor.
"Paying Agent" means any Person (including the Company acting as
Paying Agent) authorized by the Company to pay the principal of (and premium, if
any) or interest on any Securities on behalf of the Company.
"Permitted Holders" means Comcast Corporation, a Pennsylvania
corporation, Continental Cablevision Inc., a Delaware corporation, Cox
Communications, Inc., a Delaware corporation, Tele-Communications, Inc., a
Delaware corporation, US WEST Inc., a Delaware corporation, and any Person at
least 51% of the Capital Stock of which is owned, directly or indirectly, by one
or any group of the foregoing Permitted Holders.
"Permitted Indebtedness" means: (1) for Indebtedness of either the
Company or any Restricted Subsidiary (a) Telecommunications Assets Indebtedness;
(b) Indebtedness owed by the Company to any Restricted Subsidiary (but only so
long as such Indebtedness is held by such Restricted Subsidiary) and
Indebtedness owed by a Restricted Subsidiary to the Company or any other
Restricted Subsidiary (but only so long as such Indebtedness is held by the
Company or such other Restricted Subsidiary); (c) Indebtedness under any
Exchange Rate Contract or Interest Rate Agreements, provided that the
obligations under such agreements are related to payment obligations on Existing
Indebtedness or Refinancing
<PAGE>
14
Indebtedness of the Company or a Restricted Subsidiary, as applicable, or
Indebtedness permitted to be incurred pursuant to Section 1011; (d) letters of
credit or performance bonds or performance guarantees incurred in the ordinary
course of business and consistent with industry practice; (e) Existing
Indebtedness; (f) Indebtedness issued in exchange for or the proceeds of which
are used to extend, refinance, renew, replace or refund outstanding Indebtedness
that is incurred or outstanding pursuant to clauses (a), (e), (h) or this clause
(f) of this definition or clause (b) of Section 1011 (the "Refinancing
Indebtedness"); provided, however, that (i) the principal amount of, and any
premium payable in respect of, such Refinancing Indebtedness shall not exceed
the principal amount of Indebtedness so extended, refinanced, renewed, replaced
or refunded (plus the amount of reasonable expenses incurred in connection
therewith); (ii) the Refinancing Indebtedness shall have a (A) Weighted Average
Life to Maturity equal to or greater than the Weighted Average Life to Maturity
of, and (B) a stated maturity no earlier than the stated maturity of, the
Indebtedness being extended, refinanced, renewed, replaced or refunded; (iii)
the Refinancing Indebtedness shall rank in right of payment to the Securities on
terms no less favorable to the Holders of Securities as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced or refunded; and (iv) the Company shall incur Refinancing Indebtedness
only to refinance Indebtedness of the Company or of a Restricted Subsidiary and
a Restricted Subsidiary shall incur Refinancing Indebtedness only to refinance
Indebtedness of such Restricted Subsidiary or any other Restricted Subsidiary;
(g) Indebtedness represented by performance bonds, surety or appeal bonds, or
similar obligations incurred in the ordinary course of business; (h)
Indebtedness incurred in connection with a prepayment or redemption of the
Securities pursuant to a Change of Control, provided that such Indebtedness is
Indebtedness of the Company and the principal amount of such Indebtedness does
not exceed 101% of the principal amount of the Securities prepaid or redeemed
(plus the amount of reasonable expenses incurred in connection therewith) and
that such Indebtedness has (A) a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, and (B) a stated maturity
no earlier than the Stated Maturity of, the Securities; (i) ordinary course
Capital Lease Obligations or purchase money debt for plant or equipment secured
by a Lien on property acquired, constructed or developed by the Company or any
Restricted Subsidiary in an aggregate amount not to exceed $20 million
outstanding at any time; and (j) additional Indebtedness in an aggregate
principal amount not to exceed $50 million at any one time outstanding; (2) for
Indebtedness of the Company, Indebtedness evidenced by the Securities; and (3)
for Indebtedness of any Restricted Subsidiary, Indebtedness or Guarantee of
Indebtedness under the Revolving Credit Agreement in an aggregate amount not to
exceed $400 million outstanding at any time.
"Permitted Investments" means (a) any Investments in the Company or in
a Restricted Subsidiary (including through a purchase of Equity Interests in
such Restricted Subsidiary from another Person), provided that any purchase of
Equity Interests in a Restricted Subsidiary from any Person other than another
Restricted Subsidiary shall be a
<PAGE>
15
Permitted Investment only if such Restricted Subsidiary in engaged in the
Telecommunications Business; (b) any Investments in Eligible Cash Equivalents;
(c) Investments by the Company or any Restricted Subsidiary in a Person
(including through a purchase of Equity Interests in such Person from another
Person), if as a result of such Investment (i) such person becomes a Restricted
Subsidiary that is engaged in the Telecommunications Business or (ii) such
person is merged or consolidated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary that is engaged in the Telecommunications Business; (d)
Investments up to an aggregate of $150 million in one or more of the Local
Market Partnerships listed in Schedule I hereto, which Investments are used to
fund a Telecommunications Business; provided that no such Investment in a Local
Market Partnership pursuant to this clause (d) may be made after the first
anniversary of the Issuance Date; (e) Investments after the Issuance Date in
Joint Ventures in an aggregate amount not to exceed the sum of (i) (l) for any
Joint Venture, $200 million and (2) for Joint Ventures in which the Company or
any Restricted Subsidiary owns a 35% or greater share of Equity Interests and is
the managing partner, $200 million plus any amount not invested pursuant to the
preceding clause (1), plus (ii) for any Joint Venture, the net cash proceeds
received by the Company from any Person from the issuance and sale subsequent to
the Issuance Date of Equity Interests of the Company or of debt securities of
the Company that have been converted into such Equity Interests (other than
Equity Interests (or convertible debt securities) sold to a Restricted
Subsidiary and other than Disqualified Stock or debt securities that have been
converted into Disqualified Stock) subsequent to the Issuance Date, plus (iii)
for any Joint Venture, the Fair Market Value of the Company's interest in any
Joint Ventures that become Restricted Subsidiaries but not excess of the amount
of any such Investments in such Joint Ventures pursuant to clause (e)(ii),
provided that amounts added pursuant to this clause (iii) out of Investments
originally made pursuant to subclause (i)(2) of this clause (e) shall not be
used for Investments in Joint Ventures not described in such subclause (i)(2);
(f) loans and advances to employees made in the ordinary course of business and
consistent with past practice in an aggregate amount not to exceed $1 million
outstanding at any time; (g) bonds, notes, debentures, partnership or joint
venture interests, stock or other securities received as a result of Asset Sales
permitted under Section 1017; (h) any Investments in Permitted Temporary
Investments of the proceeds from the issuance of the Securities and from the
Stock Offering; (i) any Investments in prepaid expenses, negotiable instruments
held for collection and lease, utility and workers' compensation, performance
and other similar deposits; and (j) any Exchange Rate Contract or Interest Rate
Contract.
"Permitted Liens" means (a) Liens in favor of the Company; (b) Liens
on property of a Person existing at the time such Person is merged into or
consolidated with the Company or any Restricted Subsidiary; provided that such
Liens were not granted in contemplation of such merger or consolidation and do
not secure any property or assets of the Company or any of its Restricted
Subsidiaries other than the property or assets subject to the Liens prior to
such merger or consolidation; (c) liens imposed by law, including
<PAGE>
16
restrictions on transfer of governmental licenses, permits and authorizations
and carriers', warehousemen's, landlords', and mechanics' liens and other
similar liens arising in the ordinary course of business which secure payment of
obligations not more than 60 days past due or are being contested in good faith
and by appropriate proceedings; (d) Liens existing on the Issuance Date; (e)
Liens for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested in good faith by appropriate proceedings
promptly instituted and diligently concluded; provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (f) easements, rights of way, restrictions and other similar
easements, licenses, restrictions on the use of properties or minor
imperfections of title, or other incidental Liens not incurred in connection
with the borrowing of money or the obtaining of advances or credit, that in the
aggregate, are not material in amount, and do not in any case materially detract
from the properties subject thereto or interfere with the ordinary course of the
business of the Company or its Restricted Subsidiaries; (g) Liens securing
Indebtedness incurred under the Revolving Credit Agreement; (h) Liens securing
Telecommunications Assets Indebtedness; (i) Liens of utility companies and other
Persons pursuant to pole attachment agreements or other easement agreements, and
restrictions on the transfer of rights under franchises, pole attachment
agreements or other easements, and any encumbrances created in favor of
franchising authorities and customers by provisions or franchises on plant and
equipment located in the areas covered thereby; (j) Liens under capitalized
leases or purchase money security interests relating to Indebtedness permitted
to be incurred under Section 1011; (k) Liens incurred to secure the performance
of statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (l)
any Lien to secure obligations under workmen's compensation laws or similar
legislation including unemployment insurance or social security laws; (m) Liens
in the form of a pledge of Capital Stock of a Restricted Subsidiary to secure
Indebtedness of such Restricted Subsidiary that is otherwise permitted to be
incurred pursuant to Section 1011; (n) Liens arising as a result of any grant of
indefeasible rights-of-use or rights-of-access or similar rights and grants of
nominal title to assets entered into in the ordinary course and consistent with
past practice; and (o) Liens securing Refinancing Indebtedness, provided that
the Indebtedness being refinanced is secured and such Liens encumber no
additional assets than those pursuant to the Indebtedness being refinanced.
"Permitted Temporary Investments" means (a) all Eligible Cash
Equivalents, except that each use of the term "one year" in such definition is
changed to "two years" and (b) debt securities issued by any Person which has
outstanding pari passu debt securities with an investment grade rating by
Standard & Poor's Ratings Group or Moody's Investors Service, Inc. and that
mature within two years and one day after the date of acquisition.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, trust, unincorporated organization or
government or any agency or political subdivision thereof.
<PAGE>
17
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen Security shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Security.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred or preference stock whether now outstanding or issued
after the date of this Indenture, and includes, without limitation, all classes
and series of preferred or preference stock.
"Public Equity Offering" means an underwritten public offering (other
than the Stock Offering) by the Company after the Issuance Date of Common Stock
of the Company pursuant to a registration statement filed pursuant to the
Securities Act of 1933, as amended.
"Redemption Date," when used with respect to any Security to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price," when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registration Statement" means the registration statement on Form S-1,
File No. 333-3984, relating to the Securities and filed with the Commission on
April 24, 1996.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the [date] or [date] (whether or not a Business Day), as the case may
be, next preceding such Interest Payment Date.
"Reorganization" means all of the transactions that are described in
the Registration Statement under the caption "The Reorganization" as
constituting the "Reorganization" which are to be effected pursuant to the
Reorganization Agreement.
"Reorganization Agreement" means the Reorganization Agreement, dated
as of April 18, 1996, among the Company, TCI Communications, Inc., Cox
Communications, Inc., Comcast Corporation and Continental Cablevision, Inc.
"Responsible Officer," when used with respect to the Trustee, means
the chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any
<PAGE>
18
assistant treasurer, the cashier, any assistant cashier, any trust officer or
assistant trust officer, the controller or any assistant controller or any other
officer of the Trustee customarily performing functions similar to those
performed by any of the above-designated officers, and also means, with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred because of his knowledge of and familiarity with the particular
subject.
"Restricted Payment" means (a) any dividend or any distribution on any
Equity Interests (other than dividends or distributions in additional Equity
Interests (other than Disqualified Stock) of the Company or a Restricted
Subsidiary or dividends or distributions payable to the Company or any Wholly
Owned Restricted Subsidiary); (b) any purchase, redemption, acquisition or
retirement for value of any Equity Interests of the Company or any Restricted
Subsidiary or other Affiliate of the Company (other than any such Equity
Interests owned by the Company or any Wholly Owned Restricted Subsidiary) that
is not a Permitted Investment; (c) any defeasance, purchase, redemption,
acquisition or retirement for value prior to final maturity of any Indebtedness
that is subordinated in right of payment (whether pursuant to its terms or by
operation of law) to the Securities or the guarantees thereof by the Guarantors;
and (d) any Investment that is not a Permitted Investment.
"Restricted Subsidiary" means any Subsidiary of the Company which is
not an Unrestricted Subsidiary.
"Revolving Credit Agreement" means the Loan Agreement dated as of May
22, 1995, as amended, among TCG New York Inc., the Banks, as defined in the Loan
Agreement, Toronto Dominion (Texas), Inc. and Chemical Bank, as such agreement
may be amended, modified, supplemented, refunded, refinanced or replaced from
time to time.
"Sale-Leaseback Transaction" means any direct or indirect arrangement,
or series of related arrangements, with any Person (other than the Company or a
Restricted Subsidiary) or to which any Person (other than the Company or a
Restricted Subsidiary) is a party, providing for the leasing to the Company or
to a Restricted Subsidiary of any property for an aggregate term exceeding three
years, whether owned by the Company or by any Subsidiary of the Company at the
Issuance Date or later acquired, which has been or is to be sold or transferred
by the Company or such Restricted Subsidiary to such Person or to any other
Person from whom funds have been or are to be advanced by such Person on the
security of such property.
"Securities" has the meaning stated in the first recital of this
Indenture and more particularly means any Securities authenticated and delivered
under this Indenture.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
<PAGE>
19
"Significant Subsidiary" means any Restricted Subsidiary which is a
"significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the
Securities Act of 1933, as amended.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity," when used with respect to a Security or any
installment or interest thereon, means the date specified in such Security as
the final date on which the principal of such Security or such installment of
interest is due and payable.
"Stock Offering" means the offering by the Company of 23,500,000
shares of Class A Common Stock pursuant to the Registration Statement.
"Strategic Equity Investor" means a corporation or entity with an
equity market capitalization, a net asset value or annual revenues of at least
$2 billion that owns and operates businesses in the telecommunications,
information systems, entertainment, cable or similar or related industries.
"Subsidiary" means, with respect to a specified Person, any
corporation, association or other business entity of which 50% or more of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more of the other Subsidiaries of the Person or a
combination thereof.
"Telecommunications Assets" means, with respect to any Person, any
asset that is utilized by such Person, directly or indirectly, for the design,
development, construction, installation, integration, operation, management or
provision of telecommunications systems and/or services, including without
limitation, any businesses or services in which the Company is engaged at the
Issuance Date and including any computer systems used in a Telecommunications
Business. Telecommunications Assets shall include stock, joint venture or
partnership interests where substantially all of the assets of the entity being
acquired consist of Telecommunications Assets.
"Telecommunications Assets Indebtedness" means Indebtedness incurred
(including in the case of discount or paid in kind Indebtedness any accretion on
such Indebtedness or notes payable in respect of such Indebtedness) by the
Company or a Restricted Subsidiary to finance the construction, expansion,
development or acquisition of Telecommunications Assets or the acquisition of
the Capital Stock of a Restricted Subsidiary substantially all the assets of
which are Telecommunications Assets, provided that the net cash proceeds from
the issuance of such Indebtedness do not exceed, as of the date of
<PAGE>
20
incurrence of such Indebtedness, 100% of the lesser of cost or Fair Market Value
of such Telecommunications Assets so constructed or acquired; provided further,
however, that if an acquired Restricted Subsidiary has outstanding previously
incurred Indebtedness, such previously incurred Indebtedness shall also
constitute Telecommunications Assets Indebtedness if such previously incurred
Indebtedness was not incurred in contemplation of such acquisition and all such
Indebtedness is Non-Recourse Indebtedness, except to the acquired Restricted
Subsidiary.
"Telecommunications Business" means the design, development,
construction, acquisition, installation, integration, management or provision of
telecommunications systems and/or services, including, without limitation, any
business or services in which the Company or any of its Restricted Subsidiaries
is engaged at the Issuance Date.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
as in force at the date as of which this Indenture was executed, except as
provided in Section 905.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution, but, in each case, only to the extent that such Subsidiary (a)
has no Indebtedness other than Non-Recourse Indebtedness and (b) has not
guaranteed any Indebtedness of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors shall be evidenced
to the Trustee by filing with the Trustee a certified copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by Section 1012. If, at any time, any Unrestricted Subsidiary would
fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture
and any Indebtedness of such Subsidiary shall be deemed to be incurred as of
such date (and, if such Indebtedness is not permitted to be incurred as of such
date under Section 1011, the Company shall be in default of Section 1011). The
Board of Directors may at any time designate any Unrestricted Subsidiary as a
Restricted Subsidiary and such designation shall only be permitted if (i) the
incurrence of the Indebtedness of such Subsidiary is permitted under Section
1011, and (ii) no Default or Event of Default would be in existence following
such designation. For so long as any Subsidiary is an Unrestricted Subsidiary,
all Subsidiaries of such Unrestricted Subsidiary shall also be deemed to be
Unrestricted Subsidiaries.
<PAGE>
21
"Vice President," when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president."
"Voting Stock" means stock of the class or classes having general
voting power under ordinary circumstances to elect at least a majority of the
board of directors, managers or trustees of a corporation (irrespective of
whether or not at the time stock of any other class or classes shall have or
might have voting power by reason of the happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (y) the
number of years (calculated to the nearest one-twelfth) that shall elapse
between such date and the making of such payment, by (b) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means, at any time, a Restricted
Subsidiary all of the Capital Stock of which (except directors' qualifying
shares) is at the time owned directly or indirectly by the Company.
SECTION 102. Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Indenture (including any covenant compliance with
which constitutes a condition precedent) relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008(a)) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
<PAGE>
22
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders.
---------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise
<PAGE>
23
expressly provided, such action shall become effective when such instrument or
instruments are delivered to the Trustee and, where it is hereby expressly
required, to the Company. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"Act" of the Holders signing such instrument or instruments. Proof of execution
of any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Indenture and conclusive in favor of the
Trustee and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.
(c) The principal amount and serial numbers of Securities held by any
Person, and the date of holding the same, shall be proved by the Security
Register.
(d) If the Company shall solicit from the Holders of Securities any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a record date
is fixed, such request, demand, authorization, direction, notice, consent,
waiver or other Act may be given before or after such record date, but only the
Holders of record at the close of business on such record date shall be deemed
to be Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Securities have authorized or agreed or consented to
such request, demand, authorization, direction, notice, consent, waiver or other
Act, and for that purpose the Outstanding Securities shall be computed as of
such record date; provided that no such authorization, agreement or consent by
the Holders on such record date shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later than eleven
months after the record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same
<PAGE>
24
Security and the Holder of every Security issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof in respect of
anything done, omitted or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made upon such
Security.
SECTION 105. Notices, Etc., to Trustee, Company.
----------------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: Mr. Gerard
F. Ganey, Senior Vice President; or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this Indenture, or at any other address previously
furnished in writing to the Trustee by the Company.
SECTION 106. Notice to Holders; Waiver.
-------------------------
Where this Indenture provides for notice of any event to Holders by
the Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Security Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. In
any case where notice to Holders is given by mail, neither the failure to mail
such notice, nor any defect in any notice so mailed, to any particular Holder
shall affect the sufficiency of such notice with respect to other Holders. Any
notice mailed to a Holder in the manner herein prescribed shall be conclusively
deemed to have been received by such Holder, whether or not such Holder actually
receives such notice. Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture,
<PAGE>
25
then any manner of giving such notice as shall be satisfactory to the Trustee
shall be deemed to be a sufficient giving of such notice for every purpose
hereunder.
SECTION 107. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
SECTION 108. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 109. Separability Clause.
-------------------
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 110. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto, any Paying Agent, any
Securities Registrar and their successors hereunder and the Holders, any benefit
or any legal or equitable right, remedy or claim under this Indenture.
SECTION 111. Governing Law.
-------------
This Indenture and the Securities shall be governed by and construed
in accordance with the law of the State of New York. This Indenture is subject
to the provisions of the Trust Indenture Act that are required to be part of
this Indenture and shall, to the extent applicable, be governed by such
provisions.
SECTION 112. Legal Holidays.
--------------
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity or Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of principal (or premium, if any) or interest need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date or Redemption Date or at the
Stated Maturity or Maturity; provided that no interest shall accrue
<PAGE>
26
for the period from and after such Interest Payment Date, Redemption Date,
Stated Maturity or Maturity, as the case may be.
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.
---------------
The Securities and the Trustees certificate of authentication shall be
in substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution of the Securities. Any portion of the text of
any Security may be set forth on the reverse thereof, with an appropriate
reference thereto on the face of the Security.
The definitive Securities shall be printed, lithographed or engraved
on steel-engraved borders or may be produced in any other manner, all as
determined by the officers of the Company executing such Securities, as
evidenced by their execution of such Securities.
SECTION 202. Form of Face of Security.
------------------------
TELEPORT COMMUNICATIONS GROUP, INC.
Senior
Discount Note
due 2007
No._____ $__________
The following information is supplied for purposes of Sections 1273
and 1275 of the Internal Revenue Code:
Issuance Date: June __, 1996 Original issue discount under Section 1273
of the Internal Revenue Code (for each
$1,000 principal amount):
$__________
<PAGE>
27
Issue Price (for each $1,000 Yield to Maturity: _____%
principal amount): $__________
Method used to determine yield to maturity Original issue discount for [short]
for [short] accrual period of accrual period of June __, 1996 to
June __, 1996 to [date]: [date] (for each $1,000 principal
exact method amount):
$__________
Teleport Communications Group, Inc., a Delaware corporation (herein
called the "Company," which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to ____________________, or registered assigns, the principal sum of __________
Dollars on _____________, 2007, at the office or agency of the Company referred
to below, and to pay interest thereon on _______________, 2001, and semi-
annually thereafter, on [date] and [date] in each year (each an "Interest
Payment Date"), from ______________, 2001, or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, at the rate
of _____% per annum, until the principal hereof is paid or duly provided for,
and (to the extent lawful) to pay on demand interest on any overdue interest at
the rate of ____% per annum from the date on which such overdue interest becomes
payable to the date payment of such interest has been made or duly provided for,
provided, however, that at any time prior to ____________, 2001, the Company may
elect to commence the accrual of cash interest on an Interest Payment Date, in
which case the principal amount at Stated Maturity of this Note shall on such
Interest Payment Date be reduced to the Accreted Value of this Note as of such
Interest Payment Date and cash interest on such principal amount shall be
payable as provided above on each Interest Payment Date thereafter. The
principal on this Note shall not accrue interest until ________________, 2001,
except in the case of a default in payment of the amount due at Maturity, in
which case, the amount then due on this Note shall bear interest at the rate of
_____% per annum from the date of such default in payment, as provided in the
Indenture and except as provided in the proviso of the previous sentence. The
interest so payable, and punctually paid or duly provided for, on any Interest
Payment Date shall, as provided in such Indenture, be paid to the Person in
whose name this Note (or one or more Predecessor Notes) is registered at the
close of business on the Regular Record Date for such interest, which shall be
the [date] or [date] (whether or not a Business Day), as the case may be, next
preceding such Interest Payment Date. Any such interest not so punctually paid
or duly provided for shall forthwith cease to be payable to the holder on such
Regular Record Date, and such defaulted interest, and (to the extent lawful)
interest on such defaulted interest at _____% per annum, may be paid to the
Person in whose name this Note (or one or more Predecessor Notes) is registered
at the close of business on a Special Record Date for the payment of such
Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to
holders of Notes not less than 10 days prior to such Special Record Date, or may
be paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Notes may be listed, and
upon such notice as may be
<PAGE>
28
required by such exchange, all as more fully provided in said Indenture.
Payment of the principal of (and premium, if any) and interest on this Note
shall be made at the office or agency of the Company maintained for that purpose
in The City of New York, or at such other office or agency of the Company as may
be maintained for such purpose, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that payment of interest may be made at the
option of the Company by check mailed to the address of the Person entitled
thereto as such address shall appear on the Note Register.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: TELEPORT COMMUNICATIONS
GROUP INC.
By
------------------------
Attest: Title:
- -----------------------------
Authorized Signature
SECTION 203. Form of Reverse of Security.
---------------------------
This Note is one of a duly authorized issue of securities of the
Company designated as its ___% Senior Discount Notes due 2007 (herein called the
"Notes"), limited (except as otherwise provided in the Indenture referred to
below) in aggregate principal amount to $___________, which may be issued under
an indenture (herein called the "Indenture") dated as of June __, 1996, between
the Company and United States Trust Company of New York, trustee (herein called
the "Trustee," which term includes any successor trustee under the Indenture),
to which Indenture and all indentures supplemental thereto reference is hereby
made for a statement of the respective rights, limitations of rights, duties,
obligations and immunities thereunder of the Company, the Trustee and the
<PAGE>
29
holders of the Notes, and of the terms upon which the Notes are, and are to be,
authenticated and delivered.
The Notes are subject to redemption, upon not less than 30 nor more
than 60 days' notice, at any time after ________, 2001, as a whole or in part,
at the election of the Company, at a Redemption Price equal to the percentage of
the principal amount of the Notes (which shall be subject to possible reduction
as set forth on the face hereof) set forth below plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on ___________ of the years indicated below:
YEAR PERCENTAGE
- ---- ----------
2001......................................... %
2002......................................... %
2003......................................... %
2004......................................... %
2005 and thereafter.......................... 100%
In the event of the first to occur after the Issuance Date and prior
to _____________, 1999 of (a) a Public Equity Offering for gross proceeds of
$150,000,000 or more or (b) a sale or series of related sales by the Company of
its Capital Stock (other than Disqualified Stock) to one or more Strategic
Equity Investors for an aggregate purchase price of $150,000,000 or more, the
Company may, at its option, within 60 days thereof, use net proceeds of such
equity offering or sales to redeem up to one-third of the aggregate principal
amount of the Notes originally issued at a redemption price of ____% of the
Accreted Value as of the redemption date of the Notes so redeemed; provided that
at least one-half of the aggregate principal amount of the Notes originally
issued remains outstanding after such redemption. Any such redemption may be
effected only once and must be effected upon not less than 30 nor more than 60
days' notice given within 30 days following such Public Equity Offering or the
most recent sale to a Strategic Equity Investor, as the case may be.
Upon the occurrence of a Change of Control, each holder of Notes shall
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's Notes at a purchase
price equal to (i) 101% of the Accreted Value thereof on any Change of Control
Payment Date occurring prior to __________, 2001, plus any accrued and unpaid
interest not otherwise included in the Accreted Value on such Change of Control
Payment Date or (ii) 101% of the principal amount thereof (which shall be
subject to possible reduction as set forth on the face hereof) on any Change of
Control Payment Date occurring on or after ____________, 2001, plus
<PAGE>
30
accrued and unpaid interest, if any, to such Change of Control Payment Date, in
accordance with the procedures set forth in the Indenture.
In the case of any redemption of Notes, interest installments whose
Stated Maturity is on or prior to the Redemption Date shall be payable to the
holders of such Notes, or one or more Predecessor Notes, of record at the close
of business on the relevant Record Date referred to on the face hereof. Notes
(or portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
In the event of redemption of this Note in part only, a new Note or
Notes for the unredeemed portion hereof shall be issued in the name of the
holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal of
all the Notes may be declared to be due and payable in the manner and with the
effect provided in the Indenture and in an amount equal to (i) the Accreted
Value of the Notes as of the date on which the Notes first become due and
payable, if such date occurs prior to ____________, 2001, or (ii) the principal
amount of the Notes (which shall be subject to possible reduction as set forth
on the face hereof) as of the date on which the Notes first become due and
payable plus accrued and unpaid interest, if any, to such date, if such date
occurs on or after ______________, 2001.
The Indenture contains provisions for defeasance at any time of (a)
the entire indebtedness of the Company on this Note and (b) certain restrictive
covenants and the related Defaults and Events of Default, upon compliance by the
Company with certain conditions set forth therein, which provisions apply to
this Note.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the holders under the Indenture at any time by the
Company and the Trustee with the consent of the holders of a majority in
aggregate principal amount of the Notes at the time outstanding. The Indenture
also contains provisions permitting the holders of specified percentages in
aggregate principal amount of the Notes at the time outstanding, on behalf of
the holders of all the Notes, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by or on behalf of the holder of
this Note shall be conclusive and binding upon such holder and upon all future
holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note.
<PAGE>
31
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any, on)
and interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable on the Note Register
of the Company, upon surrender of this Note for registration of transfer at the
office or agency of the Company maintained for such purpose in The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Note Registrar duly executed by, the
holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Notes, of authorized denominations and for the same aggregate principal
amount, shall be issued to the designated transferee or transferee.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Notes are
exchangeable for a like aggregate principal amount of Notes of a different
authorized denomination, as requested by the holder surrendering the same.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to the time of due presentment of this Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Note is registered as the owner hereof
for all purposes, whether or not this Note be overdue, and neither the Company,
the Trustee nor any agent shall be affected by notice to the contrary.
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
SECTION 204. Form of Trustee's Certificate of Authentication.
-----------------------------------------------
The Trustee's certificate of authentication shall be in substantially
the following form:
<PAGE>
32
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
Dated: ____________________
This is one of the Notes referred to in the within-mentioned
Indenture.
UNITED STATES TRUST COMPANY
OF NEW YORK,
as Trustee
By:
--------------------------------
Name:
Title:
ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms.
---------------
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $___________,
except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Section 304,
305, 306, 906, 1010, 1017 or 1108.
The Securities shall be known and designated as the "___% Senior
Discount Notes due 2007" of the Company. Their Stated Maturity shall be
______________, 2007, and they shall bear interest at the rate of _____% per
annum from ______________, 2001 or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, payable on _____________,
2001 and semi-annually thereafter on [date] and [date] in each year (each an
"Interest Payment Date") and at said Stated Maturity, until the principal
thereof is paid or duly provided for; provided, however, that at any time prior
to ____________, 2001, the Company may, by notice to the Holders given no more
than 60 and not less than 30 days, elect to commence the accrual of cash
interest on an Interest Payment Date, in which case the principal amount at
Stated Maturity of each Security shall on such Interest Payment Date be reduced
to the Accreted Value of the Security as of such Interest Payment Date and cash
interest on such principal amount shall be payable with respect to such Security
on each Interest Payment Date thereafter. The principal of the Securities shall
not accrue interest until ______________, 2001, except in the case of a
<PAGE>
33
default in payment of the amount due at Maturity, in which case the amount due
on this Security shall bear interest at a rate of _____% per annum (to the
extent that the payment of such interest shall be legally enforceable), which
shall accrue from the date of such default to the date the payment of such
amount has been made or duly provided for and except as provided for in the
previous sentence. Interest on any overdue principal amount shall be payable on
demand.
The principal of (and premium, if any) and interest on the Securities
shall be payable at the office or agency of the Company maintained for such
purpose in The City of New York, or at such other office or agency of the
Company as may be maintained for such purpose; provided, however, that at the
option of the Company interest may be paid by check mailed to addresses of the
Persons entitled thereto as such addresses shall appear on the Security
Register.
The Securities shall be redeemable as provided in Article Eleven.
SECTION 302. Denominations.
-------------
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Securities shall be executed on behalf of the Company by its
Chairman, its President or a Vice President, under its corporate seal reproduced
thereon and attested by its Secretary or an Assistant Secretary. The signature
of any of these officers on the Securities may be manual or facsimile signatures
of the present or any future such authorized officer and may be imprinted or
otherwise reproduced on the Securities.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities.
Each Security shall be dated the date of its authentication.
<PAGE>
34
No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized officer, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be consolidated
or merged with or into any other Person or shall convey, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any Person, and the successor Person resulting from such consolidation, or
surviving such merger, or into which the Company shall have been merged, or the
Person which shall have received a conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article Eight, any of the Securities authenticated
or delivered prior to such consolidation, merger, conveyance, transfer, lease or
other disposition may, from time to time, at the request of the successor
Person, be exchanged for other Securities executed in the name of the successor
Person with such changes in phraseology and form as may be appropriate, but
otherwise in substance of like tenor as the Securities surrendered for such
exchange and of like principal amount; and the Trustee, upon Company Request of
the successor Person, shall authenticate and deliver Securities as specified in
such request for the purpose of such exchange. If Securities shall at any time
be authenticated and delivered in any new name of a successor Person pursuant to
this Section in exchange or substitution for or upon registration of transfer of
any Securities, such successor Person, at the option of the Holders but without
expense to them, shall provide for the exchange of all Securities at the time
Outstanding for Securities authenticated and delivered in such new name.
SECTION 304. Temporary Securities.
--------------------
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as conclusively evidenced
by their execution of such Securities.
If temporary Securities are issued, the Company shall cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 1002,
without charge to the Holder. Upon surrender for cancellation of any one or
more temporary Securities, the Company shall execute and the
<PAGE>
35
Trustee shall authenticate and deliver in exchange therefor a like principal
amount of definitive Securities of authorized denominations. Until so
exchanged, the temporary Securities shall in all respects be entitled to the
same benefits under this Indenture as definitive Securities.
SECTION 305. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Security Register shall be in
written form or any other form capable of being converted into written form
within a reasonable time. At all reasonable times, the Security Register shall
be open to inspection by the Trustee. The Trustee is hereby initially appointed
as security registrar (the "Security Registrar") for the purpose of registering
Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at the
office or agency of the Company designated pursuant to Section 1002, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Securities of any
authorized denomination or denominations of a like aggregate principal amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denomination and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Security Registrar)
be duly endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Security Registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing.
<PAGE>
36
No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 304, 906, 1010, 1017 or 1108 not involving
any transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Security during a period beginning at the opening of business
15 days before the selection of Securities to be redeemed under Section 1104 and
ending at the close of business on the day of such mailing of the relevant
notice of redemption, or (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
------------------------------------------------
If (i) any mutilated Security is surrendered to the Trustee, or (ii)
the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute and upon Company Order the Trustee shall authenticate and
deliver, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
<PAGE>
37
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name such Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest at the
office or agency of the Company maintained for such purpose pursuant to Section
1002; provided, however, that each installment of interest may at the Company's
option be paid by mailing a check for such interest, payable to or upon the
written order of the Person entitled thereto pursuant to Section 308, to the
address of such Person as it appears in the Security Register.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date shall forthwith cease to
be payable to the Holder on the Regular Record Date by virtue of having been
such Holder, and such defaulted interest and (to the extent lawful) interest on
such defaulted interest at the rate borne by the Securities (such defaulted
interest and interest thereon herein collectively called "Defaulted Interest")
may be paid by the Company, at its election in each case, as provided in clause
(1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Security and
the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date
of the proposed payment, such money when deposited to be held in trust for
the benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date, and in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor to be given in the manner provided for in
Section 106, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of
<PAGE>
38
such Defaulted Interest and the Special Record Date therefor having been so
given, such Defaulted Interest shall be paid to the Persons in whose names
the Securities (or their respective Predecessor Securities) are registered
at the close of business on such Special Record Date and shall no longer be
payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause,
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. Persons Deemed Owners.
---------------------
Prior to the due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the owner of
such Security for the purpose of receiving payment of principal of (and premium,
if any) and (subject to Sections 305 and 307) interest on such Security and for
all other purposes whatsoever, whether or not such Security be overdue, and none
of the Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 309. Cancellation.
------------
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and may deliver to the Trustee (or to any
other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly cancelled by the Trustee. If
the Company shall so acquire any of the Securities, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless and until the same are surrendered to the
Trustee for cancellation. No Securities shall be authenticated in lieu of or in
exchange for any Securities cancelled as provided in this Section, except as
expressly
<PAGE>
39
permitted by this Indenture. All cancelled Securities held by the Trustee shall
be disposed of by the Trustee in accordance with its customary procedures and
certification of their disposal delivered to the Company unless by Company Order
the Company shall direct that cancelled Securities be returned to it.
SECTION 310. Computation of Interest.
-----------------------
Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.
SECTION 311. No Personal Liability of Directors, Officers, Employees
-------------------------------------------------------
and Stockholders.
----------------
No director, officer, employee, agent, incorporator or stockholder of
the Company, as such, shall have any liability for any obligations of the
Company under the Notes or the Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each holder of the
Notes by accepting a Note irrevocably waives and releases all such liability.
The waiver and release are part of the consideration for the issuance of the
Notes.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall upon Company Request cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
Securities expressly provided for herein or pursuant hereto) and the Trustee, at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture when
(1) either
(a) all Securities theretofore authenticated and delivered (other
than (i) Securities which have been destroyed, lost or stolen and
which have been replaced or paid as provided in Section 306 and (ii)
Securities for whose payment money has theretofore been deposited in
trust with the Trustee or any Paying Agent or segregated and held in
trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 1003) have been
delivered to the Trustee for cancellation; or
<PAGE>
40
(b) all such Securities not theretofore delivered to the Trustee
for cancellation have become due and payable and the Company has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust for such purpose an amount sufficient to pay and
discharge the entire indebtedness on such Securities not theretofore
delivered to the Trustee for cancellation, for principal (and premium,
if any) and interest to the date of such deposit;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 606 and, if money shall
have been deposited with the Trustee pursuant to subclause (b) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
--------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
-----------------
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
<PAGE>
41
(1) default in the payment of any interest on any Security when it
becomes due and payable, and continuance of such default for a period of 30
days; or
(2) default in the payment of the principal of (or premium, if any)
any Security at its Maturity; or
(3) default in the performance or breach of the provisions of Section
1010 and Section 1017; or
(4) default in the performance, or breach, of any covenant or
agreement of the Company in this Indenture (other than a default in the
performance, or breach, of a covenant or agreement which is specifically
dealt with elsewhere in this Section), and continuance of such default or
breach for a period of 60 days after there has been given, by registered or
certified mail, to the Company by the Trustee or to the Company and the
Trustee by the Holders of at least 25% in principal amount of the
Outstanding Securities a written notice specifying such default or breach
and requiring it to be remedied and stating that such notice is a "Notice
of Default" hereunder; or
(5) default under any mortgage, indenture or instrument under which
there may be secured or evidenced any Indebtedness for money borrowed by
the Company or any of its Restricted Subsidiaries (or the payment of which
is guaranteed by the Company or any of its Restricted Subsidiaries),
whether such Indebtedness or guarantee now exists, or is created after the
Issuance Date, which default (a) is caused by a failure to pay when due at
stated maturity principal or interest on such Indebtedness within the grace
period (including any extension thereof granted by the holders of such
Indebtedness) provided in such Indebtedness (a "Payment Default") or (b)
results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $25 million or more; or
(6) failure by the Company or any Restricted Subsidiary to pay final
judgments aggregating in excess of $25 million (net of any amount as to
which a reputable insurance company has accepted liability), which
judgments are not stayed or bonded within 60 days after their entry; or
(7) any Guarantee by a Guarantor of the Securities being held in any
judicial proceeding to be unenforceable or invalid, provided any other
Guarantee by such Guarantor giving rise to such obligation to Guarantee the
Securities is not held enforceable, or failure of any Guarantee of the
Securities to be in full force and
<PAGE>
42
effect, or the assertion that such Guarantee is invalid or unenforceable by
any Guarantor; or
(8) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or any Significant Subsidiary a bankrupt
or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company or any Significant Subsidiary under the Federal Bankruptcy Code
or any other applicable federal or state law, or appointing a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of
the Company or any Significant Subsidiary or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order unstayed and in effect for a period
of 60 consecutive days; or
(9) the institution by the Company or any Significant Subsidiary of
proceedings to be adjudicated a bankrupt or insolvent, or the consent by it
to the institution of bankruptcy or insolvency proceedings against it, or
the filing by it of a petition or answer or consent seeking reorganization
or relief under the Federal Bankruptcy Code or any other applicable federal
or state law, or the consent by it to the filing of any such petition or to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of the Company or any Significant Subsidiary or
of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in writing
of its inability to pay its debts generally as they become due.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default (other than an Event of Default specified in
Section 501(8) or (9)) occurs and is continuing, then and in every such case the
Trustee or the Holders of not less than 25% in principal amount of the
Securities Outstanding may declare the principal of all the Securities to be due
and payable immediately in an amount equal to (i) the Accreted Value of the
Securities as of the date on which the Securities first become due and payable,
if such date occurs prior to _______, 2001, or (ii) the aggregate principal
amount of the Securities (which shall be subject to possible reduction should
the Company exercise its right to start to pay interest on the securities prior
to _________, 2001 as provided in Section 301) plus accrued and unpaid interest,
if any, to such date, if such date occurs on or after _______, 2001, by a notice
in writing to the Company (and to the Trustee if given by Holders), and upon any
such declaration such principal shall become immediately due and payable. If an
Event of Default specified in Section 501(8) or (9) occurs and is continuing,
then the principal of all the Securities shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder in an amount equal to (i) the Accreted Value of
Securities as of
<PAGE>
43
the date on which the Securities first become due and payable, if such date
occurs prior to ________, 2001, or (ii) the aggregate principal amount of the
Securities (which shall be subject to possible reduction should the Company
exercise its right to start to pay interest on the securities prior to
_________, 2001 as provided in Section 301) plus accrued and unpaid interest, if
any, to such date, if such date occurs on or after _______, 2001.
At any time after a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter provided in this Article, the Holders of a majority
in principal amount of the Securities Outstanding, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay,
(A) all overdue interest on all Outstanding Securities,
(B) all unpaid principal of (and premium, if any, on) any
Outstanding Securities which has become due otherwise than by such
declaration of acceleration, and interest on such unpaid principal at
the rate borne by the Securities,
(C) to the extent that payment of such interest is lawful,
interest on overdue interest at the rate borne by the Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default, other than the non-payment of amounts of
principal of (or premium, if any, on) or interest on Securities which have
become due solely by such declaration of acceleration, have been cured or
waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee
-------
The Company covenants that if
<PAGE>
44
(a) default is made in the payment of any installment of interest on
any Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or premium, if
any, on) any Security at the Maturity thereof,
the Company shall, upon demand of the Trustee, pay to the Trustee for the
benefit of the Holders of such Securities, the whole amount then due and payable
on such Securities for principal (and premium, if any) and interest, and
interest on any overdue principal (and premium, if any) and, to the extent that
payment of such interest shall be legally enforceable, upon any overdue
installment of interest, at the rate borne by the Securities, and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal, premium, if any, or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
<PAGE>
45
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Securities
and to file such other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of
------------------------------------------------
Securities.
----------
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
and as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
------------------------------
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, upon presentation of the Securities and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
<PAGE>
46
FIRST: To the payment of all amounts due the Trustee under Section
606;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Securities for principal (and premium, if
any) and interest, respectively; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
SECTION 507. Limitation on Suits.
-------------------
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority or
more in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
<PAGE>
47
SECTION 508. Unconditional Right of Holders to Receive Principal,
----------------------------------------------------
Premium and Interest.
--------------------
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment, as provided herein (including, if applicable, Article Thirteen)
and in such Security of the principal of (and premium, if any) and (subject to
Section 307) interest on such Security on the respective Stated Maturities
expressed in such Security (or, in the case of redemption, on the Redemption
Date) and to institute suit for the enforcement of any such payment, and such
rights shall not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in the last paragraph
of Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
<PAGE>
48
SECTION 512. Control by Holders.
------------------
The Holders of not less than a majority in principal amount of the
Outstanding Securities shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, provided that
--------
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve it in
personal liability or be unjustly prejudicial to the Holders not
consenting.
SECTION 513. Waiver of Past Defaults.
-----------------------
The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences (including consents obtained in
connection with a tender offer or exchange offer for the Notes), except that,
without the consent of each Holder affected, a waiver may not (with respect to
any Securities held by a non-consenting Holder of the Securities)
(1) waive a default in the payment of principal of (or premium, if
any) or interest on any Security (except a rescission of acceleration of
the Securities by the Holders of at least a majority in principal amount of
the Securities and a waiver of the payment default that resulted from such
acceleration), or
(2) waive a default in respect of a covenant or provision hereof which
under Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected, or
(3) waive a default under this Section or Section 902.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
<PAGE>
49
SECTION 514. Waiver of Stay or Extension Laws.
--------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it shall not hinder, delay or impede the execution of any
power herein granted to the Trustee, but shall suffer and permit the execution
of every such power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults.
------------------
Within 90 days after the occurrence of any Default hereunder, the
Trustee shall transmit in the manner and to the extent provided in TIA Section
313(c), notice of such Default hereunder known to the Trustee, unless such
Default shall have been cured or waived; provided, however, that, except in the
case of a Default in the payment of the principal of (or premium, if any) or
interest on any Security, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
trust committee of directors and/or Responsible Officers of the Trustee in good
faith determines that the withholding of such notice is in the interest of the
Holders; and provided further that in the case of any Default of the character
specified in Section 501(4) no such notice to Holders shall be given until at
least 60 days after the occurrence thereof.
SECTION 602. Certain Rights of Trustee.
-------------------------
Subject to the provisions of TIA Sections 315(a) through 315(d):
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
<PAGE>
50
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officers' Certificate;
(4) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security and indemnity against the
costs, losses, expenses and liabilities which might be incurred by it in
compliance with such request or direction;
(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder; and
(8) the Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Indenture.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
<PAGE>
51
In case an Event of Default shall occur (which shall not be cured),
the Trustee shall be required, in the exercise of its rights and powers under
this Indenture, to use the degree of care of a prudent man in the conduct of its
own affairs.
SECTION 603. Trustee Not Responsible for Recitals or Issuance of
---------------------------------------------------
Securities.
----------
The recitals contained herein and in the Securities, except for the
Trustees certificates of authentication, shall be taken as the statements of the
Company, and the Trustee assumes no responsibility for their correctness. The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities, except that the Trustee represents that it is
duly authorized to execute and deliver this Indenture, authenticate the
Securities and perform its obligations hereunder and that the statements made by
it in a Statement of Eligibility on Form T-1 supplied to the Company are true
and accurate, subject to the qualifications set forth therein. The Trustee
shall not be accountable for the use or application by the Company of Securities
or the proceeds thereof.
SECTION 604. May Hold Securities.
-------------------
The Trustee, any Paying Agent, any Security Registrar or any other
agent of the Company or of the Trustee, in its individual or any other capacity,
may become the owner or pledgee of Securities and, subject to TIA Sections
310(b) and 311, may otherwise deal with the Company with the same rights it
would have if it were not Trustee, Paying Agent, Security Registrar or such
other agent.
SECTION 605. Money Held in Trust.
-------------------
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
SECTION 606. Compensation and Reimbursement.
------------------------------
The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or
<PAGE>
52
made by the Trustee in accordance with any provision of this Indenture
(including the reasonable compensation and the expenses and disbursements
of its agents and counsel), except any such expense, disbursement or
advance as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration
of this trust, including the costs and expenses of defending itself against
any claim or liability in connection with the exercise or performance of
any of its powers or duties hereunder.
The obligations of the Company under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. As security for the performance of such
obligations of the Company, the Trustee shall have a claim prior to the
Securities upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the payment of principal of (and premium, if any)
or interest on particular Securities.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 501(8) or (9), the expenses
(including the reasonable charges and expenses of its counsel) of and the
compensation for such services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 607. Corporate Trustee Required; Eligibility.
---------------------------------------
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined
capital and surplus of at least $50,000,000. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of Federal, State, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
<PAGE>
53
SECTION 608. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 609.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If the instrument of acceptance by a successor Trustee
required by Section 609 shall not have been delivered to the Trustee within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of
not less than a majority in principal amount of the Outstanding Securities,
delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six
months, or
(2) the Trustee shall cease to be eligible under Section 607 and shall
fail to resign after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six
months, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee
<PAGE>
54
shall be appointed by Act of the Holders of a majority in principal amount of
the Outstanding Securities delivered to the Company and the retiring Trustee,
the successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner hereinafter
provided, any Holder who has been a bona fide Holder of a Security for at least
six months may, on behalf of himself and all others similarly situated, petition
any court of competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to the Holders of
Securities in the manner provided for in Section 106. Each notice shall include
the name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 609. Acceptance of Appointment by Successor.
--------------------------------------
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee,
the Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 610. Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business.
--------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any
<PAGE>
55
of the parties hereto. In case any Securities shall have been authenticated, but
not delivered, by the Trustee then in office, any successor by merger,
conversion or consolidation to such authenticating Trustee may adopt such
authentication and deliver the Securities so authenticated with the same effect
as if such successor Trustee had itself authenticated such Securities. In case
at that time any of the Securities shall not have been authenticated, any
successor Trustee may authenticate such Securities either in the name of any
predecessor hereunder or in the name of the successor Trustee. In all such cases
such certificates shall have the full force and effect which this Indenture
provides for the certificate of authentication of the Trustee shall have;
provided, however, that the right to adopt the certificate of authentication of
any predecessor Trustee or to authenticate Securities in the name of any
predecessor Trustee shall apply only to its successor or successors by merger,
conversion or consolidation.
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE
SECTION 701. Disclosure of Names and Addresses of Holders.
--------------------------------------------
Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that none of the Company or the Trustee or any
agent of either of them shall be held accountable by reason of the disclosure of
any such information as to the names and addresses of the Holders in accordance
with TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under TIA Section 312(b).
SECTION 702. Reports by Trustee.
------------------
Within 60 days after [May 15] of each year commencing with the first
[May 15] after the first issuance of Securities, the Trustee shall transmit to
the Holders, in the manner and to the extent provided in TIA Section 313(c), a
brief report dated as of such [May 15] if required by TIA Section 313(a).
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Limitation on Merger, Consolidation or Sale of Assets.
-----------------------------------------------------
<PAGE>
56
The Company shall not consolidate or merge with or into (whether or
not the Company is the surviving Person), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another Person unless:
(1) the Company is the surviving corporation or the Person formed by
or surviving any such consolidation or merger (if other than the Company)
or to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made is a corporation, partnership or limited
liability company organized or existing under the laws of the United
States, any state thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger
(if other than the Company) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company, pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee, under the Securities and this
Indenture and, in the case of such surviving Person that is a partnership,
at least one subsidiary of such Person which shall be a corporation
organized or existing under the laws of the United States, any state
thereof or the District of Columbia and which shall also assume the
Obligations of the Company under the Securities and this Indenture as a co-
obligor with such surviving Person;
(3) immediately before and after giving effect to such transaction or
series of transactions on a pro forma basis (including, without limitation,
any Indebtedness incurred or anticipated to be incurred in connection with
or in respect of such transaction or series of transactions), no Default or
Event of Default shall have occurred and be continuing or would result
therefrom;
(4) immediately after giving effect to any such transaction or series
of transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or
in respect of such transaction or series of transactions) as if such
transaction or series of transactions had occurred on the first day of the
determination period, the Company (or the surviving entity if the Company
is not continuing) would be permitted to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to Section 1011;
and
(5) the Company or such Person shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a supplemental
indenture is required in connection with such transaction, such
supplemental indenture, comply with this
<PAGE>
57
Article and that all conditions precedent herein provided for relating to
such transaction have been complied with.
SECTION 802. Successor Substituted.
---------------------
Upon any consolidation of the Company with or merger of the Company
with or into any other corporation or any conveyance, transfer or lease of the
properties and assets of the Company substantially as an entirety to any Person
in accordance with Section 801, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein,
and in the event of any such conveyance or transfer, the Company (which term
shall for this purpose mean the Person named as the "Company" in the first
paragraph of this Indenture or any successor Person which shall theretofore
become such in the manner described in Section 801), except in the case of a
lease, shall be discharged of all obligations and covenants under this Indenture
and the Securities and may be dissolved and liquidated.
SECTION 803. Securities to Be Secured in Certain Events.
------------------------------------------
If, upon any such consolidation of the Company with or merger of the
Company into any other corporation, or upon any conveyance, lease or transfer of
the property of the Company substantially as an entirety to any other Person,
any property or assets of the Company would thereupon become subject to any
Lien, then unless such Lien could be created pursuant to Section 1013 without
equally and ratably securing the Securities, the Company, prior to or
simultaneously with such consolidation, merger, conveyance, lease or transfer,
shall as to such property or assets, secure the Securities Outstanding (together
with, if the Company shall so determine, any other Indebtedness of the Company
now existing or hereinafter created which is not subordinate in right of payment
to the Securities) equally and ratably with (or prior to) the Indebtedness which
upon such consolidation, merger, conveyance, lease or transfer is to become
secured as to such property or assets by such Lien, or will cause such
Securities to be so secured; provided that, for the purpose of providing such
equal and ratable security, the principal amount of the Securities shall mean
that amount which would at the time of making such effective provision be due
and payable pursuant to Section 502 upon a declaration of acceleration of the
Maturity thereof, and the extent of such equal and ratable security shall be
adjusted, to the extent permitted by law, as and when said amount changes over
time as provided in Section 502.
<PAGE>
58
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
(1) to cure any ambiguity, defect or inconsistency; or
(2) to provide for uncertificated Securities in addition to or in
place of certificated Securities; or
(3) to provide for the assumption of the Company's obligations to
Holders of the Securities in the case of a merger or consolidation as
provided in Section 801; or
(4) to make any change that would provide any additional rights or
benefits to the Holders of the Securities or that does not materially and
adversely affect the legal rights under this Indenture of any such Holder;
or
(5) to comply with requirements of the Commission in order to maintain
the qualification of this Indenture under the Trust Indenture Act.
(6) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of Section
609; or
(7) to secure the Securities pursuant to the requirements of Section
803 or 1013 or otherwise.
SECTION 902. Supplemental Indentures with Consent of Holders.
-----------------------------------------------
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities (including consents obtained in
connection with a tender offer as exchange offer for the Securities), by Act of
said Holders delivered to the Company and the Trustee, the Company, when
authorized by a Board Resolution, and the Trustee may enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of modifying in any manner the rights of the Holders under this Indenture;
<PAGE>
59
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby (with
respect to any Securities held by a non-consenting Holder):
(1) change the Stated Maturity of the principal of or any installment
of interest on any Security, or reduce the principal amount thereof (or
premium, if any) or the rate of interest thereon or reduce the amount of
the principal of the Securities that would be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 502
or the amount thereof provable in bankruptcy pursuant to Section 504, or
change the coin or currency in which any Security or any premium or the
interest thereon is payable, or alter the provisions with respect to the
redemption of the Securities, or impair the right to institute suit for the
enforcement of any such payment after the Stated Maturity thereof (or, in
the case of redemption, on or after the Redemption Date), or
(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences provided for in this Indenture,
or
(3) modify any of the provisions of this Section or Sections 513 and
1019, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security affected thereby.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustees own rights, duties or
immunities under this Indenture or otherwise.
<PAGE>
60
SECTION 904. Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby (except as provided in Section 902).
SECTION 905. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to the Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Securities to Supplemental Indentures.
--------------------------------------------------
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
SECTION 907. Notice of Supplemental Indentures.
---------------------------------
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Company
shall give notice thereof to the Holders of each Outstanding Security affected,
in the manner provided for in Section 106, setting forth in general terms the
substance of such supplemental indenture.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and Interest.
---------------------------------------------------
The Company covenants and agrees for the benefit of the Holders that
it shall duly and punctually pay the principal of (and premium, if any) and
interest on the Securities in accordance with the terms of the Securities and
this Indenture.
<PAGE>
61
SECTION 1002. Maintenance of Office or Agency.
-------------------------------
The Company shall maintain in The City of New York, an office or
agency where Securities may be presented or surrendered for payment, where
Securities may be surrendered for registration of transfer or exchange and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Corporate Trust Office of the Trustee shall be
such office or agency of the Company, unless the Company shall designate and
maintain some other office or agency for one or more of such purposes. The
Company shall give prompt written notice to the Trustee of any change in the
location of any such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Securities
may be presented or surrendered for any or all such purposes and may from time
to time rescind any such designation; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York for such
purposes. The Company shall give prompt written notice to the Trustee of any
such designation or rescission and any change in the location of any such other
office or agency.
SECTION 1003. Money for Security Payments to Be Held in Trust.
-----------------------------------------------
If the Company shall at any time act as its own Paying Agent, it
shall, on or before each due date of the principal of (or premium, if any) or
interest on any of the Securities, segregate and hold in trust for the benefit
of the Persons entitled thereto a sum sufficient to pay the principal of (or
premium, if any) or interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and shall promptly
notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Securities, it shall, on or before each due date of the principal of (or
premium, if any) or interest on any Securities, deposit with a Paying Agent a
sum sufficient to pay the principal (and premium, if any) or interest so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal, premium or interest, and (unless such Paying Agent
is the Trustee) the Company shall promptly notify the Trustee of such action or
any failure so to act.
<PAGE>
62
The Company shall cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent shall:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (or premium, if
any) or interest on any Security and remaining unclaimed for two years after
such principal, premium or interest has become due and payable shall be paid to
the Company on Company Request, or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Security shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
shall be repaid to the Company.
<PAGE>
63
SECTION 1004. Corporate Existence.
-------------------
Subject to Article Eight, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company and each
Subsidiary; provided, however, that the Company shall not be required to
preserve any such right or franchise if the Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries as a whole and that the loss
thereof is not disadvantageous in any material respect to the Holders.
SECTION 1005. Payment of Taxes and Other Claims.
---------------------------------
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labor, materials and supplies, which, if unpaid, might by
law become a lien upon the property of the Company or any Subsidiary; provided,
however, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
SECTION 1006. Maintenance of Properties.
-------------------------
The Company shall cause all properties owned by the Company or any
Subsidiary or used or held for use in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and shall cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that nothing in this
Section shall prevent the Company from discontinuing the maintenance of any of
such properties if such discontinuance is, in the judgment of the Company,
desirable in the conduct of its business or the business of any Subsidiary and
not disadvantageous in any material respect to the Holders.
SECTION 1007. Insurance.
---------
The Company shall at all times keep all of its and its Subsidiaries
properties which are of an insurable nature insured with insurers, believed by
the Company to be responsible, against loss or damage to the extent that
property of similar character is usually so insured by corporations similarly
situated and owning like properties.
<PAGE>
64
SECTION 1008. Statement by Officers as to Default.
-----------------------------------
(a) The Company shall deliver to the Trustee, within 120 days after
the end of each fiscal year, a brief certificate from the principal executive
officer, principal financial officer or principal accounting officer as to his
or her knowledge of the Company's compliance with all conditions and covenants
under this Indenture. For purposes of this Section 1008(a), such compliance
shall be determined without regard to any period of grace or requirement of
notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or any Subsidiary gives any notice or takes any
other action with respect to a claimed default (other than with respect to
Indebtedness in the principal amount of less than $25 million, the Company shall
deliver to the Trustee by registered or certified mail or by telegram, telex or
facsimile transmission an officers certificate specifying such event, notice or
other action within five Business Days of its occurrence.
SECTION 1009. Reports to Holders.
------------------
The Company shall deliver to the Trustee and to the Holders, within 30
days after it files them with the Commission, copies of its annual and quarterly
reports which the Company is required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act. Notwithstanding that the Company may
not be required to remain subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act or otherwise report on an annual and quarterly basis
on forms provided for such annual and quarterly reporting pursuant to rules and
regulations promulgated by the Commission, the Company shall continue to file
with the Commission and provide to the Trustee and to the Holders annual audited
financial statements and quarterly unaudited financial statements, along in each
case with a "Management's Discussion and Analysis of Results of Operations and
Financial Condition," all in the form the Company would be required to file were
it subject to the Exchange Act reporting requirements. The Company shall not be
obligated to file any such reports with the Commission if the Commission does
not permit such filings.
SECTION 1010. Change of Control.
-----------------
(a) Upon the occurrence of a Change of Control, each Holder of
Securities shall have the right to require the Company to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's
Securities pursuant to the offer described below (the "Change of Control Offer")
at a purchase price (the "Purchase Price") equal to (i) 101% of the Accreted
Value thereof on any Change of Control Payment Date (as defined below) occurring
prior to __________, 2001, plus any accrued and unpaid interest not otherwise
included in the Accreted Value on such Change of Control Payment Date or (ii)
101% of the
<PAGE>
65
principal amount thereof (which shall be subject to possible reduction as set
forth in Section 301) on any Change of Control Payment Date occurring on or
after ____________, 2001, plus accrued and unpaid interest, if any, to such
Change of Control Payment Date, in accordance with the procedures set forth
below.
(b) Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder in the manner provided in Section 106 stating: (1)
that the Change of Control Offer is being made pursuant to the provisions of
Section 1010 of this Indenture and that all Securities duly and timely tendered
shall be accepted for payment; (2) the Purchase Price and the purchase date (the
"Change of Control Payment Date"), which date shall be no earlier than 30 days
nor later than 60 days from the date such notice is mailed; (3) that any
Securities not tendered shall continue to accrete and/or accrue interest, as the
case may be; (4) that, unless the Company defaults in the payment of the
Purchase Price, all Securities accepted for payment pursuant to the Change of
Control Offer shall cease to accrete and/or accrue interest, as the case may be,
after the Change of Control Payment Date; (5) that Holders electing to have any
Securities purchased pursuant to a Change of Control Offer shall be required to
surrender the Securities, with the form entitled "Option of Holder to Elect
Purchase Pursuant to a Change of Control Offer" on the reverse of the Securities
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third Business Day preceding the Change of Control
Payment Date; (6) that Holders shall be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the second
Business Day preceding the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of Securities delivered for purchase, and a statement that such
Holder is withdrawing his election to have such Securities purchased; (7) that
Holders whose Securities are being purchased only in part shall be issued new
Securities equal in principal amount to the unpurchased portion of the
Securities surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof; (8) the instructions that the
Holders of Securities must follow in order to tender their Securities; and (9)
the circumstances and relevant facts regarding such Change of Control
(including, but not limited to, information with respect to pro-forma historical
income, cash flow and capitalization after giving effect to such Change of
Control).
(a) The Company will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Securities in connection with a Change of Control.
SECTION 1011. Limitation on Incurrence of Indebtedness.
----------------------------------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become
<PAGE>
66
directly or indirectly liable with respect to (collectively, "incur") any
Indebtedness (including, without limitation, Acquired Indebtedness) other than
Permitted Indebtedness, unless, in the case of Indebtedness of the Company
exclusively, (a) no Default or Event of Default shall have occurred and be
continuing at the time of the proposed incurrence thereof or would occur as a
result of such proposed incurrence and (b) after giving effect to such
incurrence on a pro forma basis (i) with respect to such proposed incurrence of
Indebtedness on or prior to January 1, 2001, the Company's Indebtedness to
Adjusted Total Equity Ratio would not exceed 1.0 to 1.0, and (ii) with respect
to such proposed incurrence of Indebtedness thereafter, the Company's
Indebtedness to EBITDA Ratio would not equal or exceed 5.0 to 1.0.
SECTION 1012. Limitation on Restricted Payments.
---------------------------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, make any Restricted Payment unless, at
the time of such Restricted Payment and after giving pro forma effect thereto:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the aggregate amount of all Restricted Payments subsequent to the
Issuance Date would not exceed the greater of:
(1) the sum of
(w) cumulative EBITDA of the Company and its Restricted
Subsidiaries less 1.4 times cumulative Consolidated Interest
Expense, in each case for the period (treated as one accounting
period) beginning on the first day of the Company's fiscal
quarter in which the Issuance Date occurs, and ending on the last
day of the Company's fiscal quarter immediately preceding such
proposed Restricted Payment; plus
(x) 100% of the net cash proceeds received by the Company from
any Person from the issuance and sale subsequent to the Issuance
Date of Equity Interests of the Company or of debt securities of
the Company that have been converted into such Equity Interests
(other than Equity Interests (or convertible debt securities)
sold to a Restricted Subsidiary and other than Disqualified Stock
or debt securities that have been converted into Disqualified
Stock); minus
(y) 100% of all Investments made pursuant to clause (d) of the
definition of "Permitted Investments" less any such amounts
invested in
<PAGE>
67
Local Market Partnerships that become Restricted Subsidiaries
prior to the first anniversary of the Issuance Date; minus
(z) the amount of any Investments in Joint Ventures pursuant to
clause (e)(ii) of the definition of "Permitted Investments" less
the Fair Market Value of the Company's interest in any Joint
Ventures that become Restricted Subsidiaries but not in excess of
the amount of any such Investments in such Joint Ventures
pursuant to such clause (e)(ii); and
(2) $10 million; and
(c) the Company would have been permitted to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
test set forth in clause (b) of Section 1011.
The provisions of this Section shall not prohibit (i) the payment of
any dividend (or similar distribution with respect to Equity Interests) within
60 days after the date of declaration thereof, if at said date of declaration
such payment would have complied with the provisions of this Indenture; (ii) the
redemption, purchase, retirement or other acquisition of any Equity Interests of
the Company or any Restricted Subsidiary in exchange for, or out of the proceeds
of the substantially concurrent sale (other than to a Restricted Subsidiary) of,
other Equity Interests (other than Disqualified Stock) of the Company; (iii) the
redemption, purchase, retirement or other acquisition of any Equity Interests of
a Restricted Subsidiary in exchange for, or out of the proceeds of the
substantially concurrent sale (other than to another Restricted Subsidiary) of,
other Equity Interests (other than Disqualified Stock) of such Restricted
Subsidiary; (iv) the redemption, purchase, defeasance, acquisition or retirement
of Indebtedness that is subordinated to the Securities (including premium, if
any, and accrued and unpaid interest, fees and expenses) in exchange for, or out
of the proceeds of the substantially concurrent sale (other than to a Restricted
Subsidiary) of, (A) Equity Interests (other than Disqualified Stock) of the
Company or (B) Refinancing Indebtedness permitted to be incurred under Section
1011; (v) any purchase, redemption, retirement or acquisition, from minority
partners in one or more of the Local Market Partnerships listed in Schedule I
hereto, of any Capital Stock of such Local Market Partnership at the time or
after it becomes a Restricted Subsidiary; (vi) any distribution in respect of
partners' income tax liability and any other distribution that is required to be
made pursuant to the terms of any partnership agreement or similar operating
agreement in effect as of the Issuance Date governing any of the Local Market
Partnerships listed in Schedule I hereto or, to the extent that it is pro rata
or required under law, any distribution that is required to be made pursuant to
the terms of any other similar partnership or similar operating agreement
entered into after the Issuance Date; (vii) the purchase, redemption, retirement
or acquisition by the Company of shares of Capital Stock of the Company from
Continental Teleport, Inc. pursuant to the
<PAGE>
68
Reorganization Agreement; (viii) the purchase, redemption or other acquisition
or retirement for value of Capital Stock, or options, warrants or rights to
purchase or acquire shares of Capital Stock, of the Company or any Restricted
Subsidiary, or similar securities, held by officers or employees or former
officers or employees of the Company or its Restricted Subsidiaries (or their
estates or beneficiaries under their estates), upon death, disability,
retirement or termination of employment in an aggregate amount not to exceed $2
million per year; and (ix) Permitted Investments.
For purposes of this Section, if a particular Restricted Payment
involves a non-cash payment, including a distribution of assets, then the amount
of such Restricted Payment shall be deemed to be an amount equal to the sum of
the cash portion of such Restricted Payment, if any, plus an amount equal to the
Fair Market Value of the non-cash portion of such Restricted Payment.
Not later than the date of making any Restricted Payment (other than
those described under clauses (v), (vi), (vii) or (viii) of the second preceding
paragraph), the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by clause (b) of this Section, to the
extent applicable, were computed, which calculations may be based upon the
Company's latest available financial statements.
SECTION 1013. Limitation on Liens.
-------------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or otherwise
suffer to exist any Lien (other than Permitted Liens) on any property or asset
now owned or hereafter acquired, of the Company or any such Restricted
Subsidiary, unless (a) in the case of any Lien securing Indebtedness that is
expressly subordinated in right of payment to the Securities, the Securities are
secured by a Lien on such property or assets that is senior in priority to such
Lien for so long as such Indebtedness shall be so secured and (b) in the case of
any other Lien, the Securities are equally and ratably secured with the
obligation or liability secured by such Lien for so long as such obligation or
liability shall be so secured.
SECTION 1014. Limitation on Dividend and Other Payment Restrictions
-----------------------------------------------------
Affecting Restricted Subsidiaries.
---------------------------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make any
other distributions on its Capital Stock or with respect to any other interest
or participation in, or measured by, its profits owned by, or pay any
Indebtedness owed to, the Company or any of its Restricted Subsidiaries or (b)
make loans or
<PAGE>
69
advances to the Company or any of its Restricted Subsidiaries or (c) transfer
any of its properties or assets to the Company or any of its Restricted
Subsidiaries, except, in each case, for such encumbrances or restrictions
existing under or by reason of (i) the Revolving Credit Agreement, provided that
any such encumbrances or restrictions, taken as a whole, are no more restrictive
than those contained in the Revolving Credit Agreement as in effect on the
Issuance Date, (ii) applicable law, (iii) any instrument governing Indebtedness
or Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the extent
such Indebtedness was incurred in connection with such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, (iv) customary nonassignment provisions in leases, rights-
of-way agreements and other agreements entered into in the ordinary course of
business and consistent with past practices, (v) with respect to clause (c)
above, purchase money obligations for property acquired in the ordinary course
of business, (vi) Refinancing Indebtedness permitted to be incurred under
Section 1011, provided that the restrictions contained in the agreements
governing such Refinancing Indebtedness are no more restrictive than those
contained in the agreements governing the Indebtedness being refinanced, (vii)
any other Indebtedness permitted to be incurred by a Restricted Subsidiary under
Section 1011, provided that the restrictions contained in the agreements
governing such Indebtedness are similar to those contained in the Revolving
Credit Agreement as in effect on the Issuance Date, (viii) provisions of the
partnership agreement or other operating agreement in effect as of the Issuance
Date governing any of the Local Market Partnerships listed in Schedule I hereto,
and (ix) any agreement effecting the renewal, refunding, refinancing or
extension of any Indebtedness referred to in the preceding clause (iii),
provided that the restrictions contained in the agreements governing such new
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being extended, renewed, refinanced or replaced.
SECTION 1015. Limitation on Issuance and Sale of Capital
------------------------------------------
Stock of Restricted Subsidiaries.
--------------------------------
The Company (a) shall not permit any Restricted Subsidiary to issue
any Capital Stock (other than to the Company or a Wholly Owned Restricted
Subsidiary) and (b) shall not permit any Person (other than the Company or a
Restricted Subsidiary) to own any Capital Stock of any Restricted Subsidiary;
provided, however, that this Section shall not prohibit (i) the sale or other
disposition of all, but not less than all, of the issued and outstanding Capital
Stock of any Restricted Subsidiary owned by the Company or any Restricted
Subsidiary in compliance with the other provisions of this Indenture, (ii) the
ownership by directors of director's qualifying shares or the ownership by
foreign nationals of Capital Stock of any Restricted Subsidiary, to the extent
mandated by applicable law, (iii) the ownership of Capital Stock of a Restricted
Subsidiary issued and outstanding either (A) as of the Issuance Date (including
minority partnership interests in any of the Local
<PAGE>
70
Market Partnerships listed in Schedule I hereto) or (B) prior to the time that
such Person becomes a Restricted Subsidiary so long as such Capital Stock was
not issued in contemplation of such Person's becoming a Restricted Subsidiary of
the Company or otherwise being acquired by the Company or (iv) the issue or sale
of Capital Stock of a Restricted Subsidiary in a transaction not prohibited by
Section 1017, provided that such Restricted Subsidiary would remain a Restricted
Subsidiary after such transaction.
SECTION 1016. Limitation on Guarantees of Indebtedness by
-------------------------------------------
Restricted Subsidiaries.
-----------------------
The Company shall not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee, assume or in any other manner become liable for the
payment of any Indebtedness of the Company unless (i) (A) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to this
Indenture providing for a Guarantee of payment of the Securities by such
Restricted Subsidiary and (B) with respect to any Guarantee of subordinated
Indebtedness of the Company by a Restricted Subsidiary, any such Guarantee shall
be subordinated to such Restricted Subsidiary's Guarantee with respect to the
Securities at least to the same extent as such subordinated Indebtedness is
subordinated to the Securities and (ii) such Restricted Subsidiary shall waive
and shall not in any manner whatsoever claim or take the benefit or advantage
of, any rights of reimbursement, indemnity or subrogation or any other rights
against the Company or any other Restricted Subsidiary as a result of any
payment by such Restricted Subsidiary under its Guarantee until the Securities
have been paid in full. The incurrence by a Restricted Subsidiary as a primary
obligor of any Indebtedness that is guaranteed by the Company shall not be
deemed a Guarantee of the Company's Indebtedness for purposes of this Section.
Notwithstanding the foregoing, any Guarantee of the Securities or
waiver of rights created pursuant to the provisions described in the foregoing
paragraph shall provide by their terms that they shall be automatically and
unconditionally released and discharged upon the release by the holders of the
Indebtedness of the Company described in the preceding paragraph of their
Guarantee by such Restricted Subsidiary (including any deemed release upon
payment in full of all obligations under such Indebtedness, except by or as a
result of payment under such Guarantee), at a time when (A) no other
Indebtedness of the Company has been Guaranteed by such Restricted Subsidiary or
(B) the holders of all such other Indebtedness which is Guaranteed by such
Restricted Subsidiary also release their Guarantee by such Restricted Subsidiary
(including any deemed release upon payment in full of all obligations under such
Indebtedness, except by or as a result of payment under such Guarantee).
<PAGE>
71
SECTION 1017. Limitation on Asset Sales.
-------------------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, cause, make or suffer to exist any Asset Sale unless (a) the
Company (or the applicable Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the assets or property sold or otherwise disposed of and (b) at least
75% of the consideration therefor received by the Company or such Restricted
Subsidiary is in the form of Eligible Cash Equivalents (or, if less than 75%,
the remainder of such consideration consists of Telecommunications Assets).
Within 365 days after any Asset Sale, the Company (or the applicable
Restricted Subsidiary, as the case may be) may apply the Net Proceeds from such
Asset Sale (a) to permanently reduce outstanding Indebtedness of the Company
that is pari passu in right of payment with the Securities or Indebtedness of
any Restricted Subsidiary or (b) to invest or reinvest in properties and assets
that shall be used in the Telecommunications Business. Any Net Proceeds from
any Asset Sale that are not used, invested or reinvested at the end of such 365-
day period as provided in the preceding sentence shall constitute "Excess
Proceeds." Pending final application of any Net Proceeds of an Asset Sale, such
Net Proceeds may only be invested in Eligible Cash Equivalents or applied to pay
Obligations under the Revolving Credit Agreement. When the aggregate amount of
Excess Proceeds exceeds $10 million, the Company shall be required to make an
offer (an "Asset Sale Offer") to all Holders of the Securities to purchase the
maximum principal amount of Securities that may be purchased out of such Excess
Proceeds at an offer price in cash in an amount equal to 100% of the Accreted
Value on the date fixed for closing of such offer (if such date is prior to
__________, 2001) plus any accrued and unpaid interest not otherwise included in
the Accreted Value on such date, or 100% of the outstanding principal amount
thereof (which shall be subject to possible reduction as set forth in Section
301) plus accrued and unpaid interest, if any, to the date fixed for the closing
of such offer (if such date is on or after __________, 2001) in accordance with
the procedures set forth below (the "Asset Sale Purchase Price"). To the extent
that the aggregate Accreted Value or principal amount, as the case may be, of
the Securities tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds remaining after the consummation of any required Asset Sale Offer to
the Holders of the Securities, the Company may use any remaining Excess Proceeds
for general corporate purposes not otherwise prohibited by this Indenture. If
the aggregate Accreted Value or principal amount, as the case may be, of the
Securities surrendered by Holders thereof shall exceed the amount of Excess
Proceeds, then the Trustee shall select the Securities to be purchased on the
basis set forth in Section 1104. Upon completion of any required Asset Sale
Offer to the Holders of the Securities, the amount of Excess Proceeds shall be
reset at zero. The provisions of this Section shall not apply to any
transaction that is permitted under Article Eight.
<PAGE>
72
Within 30 days following the date on which the Company has to make an
Asset Sale Offer, the Company shall mail a notice to each Holder in the manner
provided in Section 106 stating: (1) that the Asset Sale Offer is being made
pursuant to the provisions of Section 1017 of this Indenture and that all
Securities duly and timely tendered shall be accepted for payment (except, as
provided above, if the aggregate Accreted Value or principal amount, as the case
may be, of the Securities surrendered exceeds the amount of Excess Proceeds);
(2) the Asset Sale Purchase Price and the purchase date (the "Asset Sale Payment
Date"), which date shall be no earlier than 30 days nor later than 60 days from
the date such notice is mailed; (3) that any Securities not tendered shall
continue to accrete and/or accrue interest, as the case may be; (4) that, unless
the Company defaults in the payment of the Asset Sale Purchase Price, all
Securities accepted for payment pursuant to the Asset Sale Offer shall cease to
accrete and/or accrue interest, as the case may be, after the Asset Sale Payment
Date; (5) that Holders electing to have any Securities purchased pursuant to a
Asset Sale Offer shall be required to surrender the Securities, with the form
entitled "Option of Holder to Elect Purchase Pursuant to an Asset Sale Offer" on
the reverse of the Securities completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the third Business Day
preceding the Asset Sale Payment Date; (6) that Holders shall be entitled to
withdraw their election if the Paying Agent receives, not later than the close
of business on the second Business Day preceding the Asset Sale Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of Securities delivered for purchase, and a
statement that such Holder is withdrawing his election to have such Securities
purchased; (7) that Holders whose Securities are being purchased only in part
shall be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered, which unpurchased portion must be equal
to $1,000 in principal amount or an integral multiple thereof; (8) the
instructions that the Holders of Securities must follow in order to tender their
Securities; and (9) the circumstances and relevant facts regarding such Asset
Sale (including, but not limited to, information with respect to pro-forma
historical income, cash flow and capitalization after giving effect to such
Asset Sale).
SECTION 1018. Limitation on Transactions with Stockholders
--------------------------------------------
and Affiliates.
--------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, render any services to or receive any
services from, conduct any business or enter into or permit to exist any
transaction or series of related transactions (including, but not limited to,
the purchase, sale, exchange, lease, transfer or other disposition of any of is
properties or assets) or enter into any contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Holder (or any
Affiliate of such Holder) of 5% or more of any class of Capital Stock of the
Company or with any Affiliate of the Company or any Restricted Subsidiary (each
of the foregoing, an "Affiliate Transaction"), unless (a) such Affiliate
Transaction is fair to the Company or the
<PAGE>
73
relevant Restricted Subsidiary and on terms that are no less favorable, taken as
a whole, to the Company or the relevant Restricted Subsidiary than those that
could have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person (or, in the event that there are
no comparable transactions involving unrelated Persons to apply for comparative
purposes, is otherwise on terms that, taken as a whole, the Company has
determined to be fair to the Company or the relevant Restricted Subsidiary) and
(b) the Company delivers to the Trustee with respect to any Affiliate
Transaction or any series of Affiliate Transactions involving an aggregate
consideration in excess of $15 million, either (i) a resolution to the Board of
Directors set forth in an Officers' Certificate certifying that each such
Affiliate Transaction complies with clause (a) above and which Board Resolution
shall have been approved by a majority of the directors on the Board of
Directors who are disinterested with respect to such transaction or (ii) a
written opinion from a nationally recognized investment banking firm that each
such Affiliate Transaction complies with clause (a) above.
Notwithstanding the foregoing provisions, the following shall not be
deemed to be Affiliate Transactions: (A) any transaction (1) in the ordinary
course of business between the Company or any Restricted Subsidiary and any
Affiliate thereof engaged in the Telecommunications Business or (2) with respect
to the lease or sharing or other use of cable or fiber lines, equipment,
transmission capacity, rights-of-way or other access rights, between the Company
or any Restricted Subsidiary and any other Person, provided, however, in either
case, that such transaction is on terms that are no less favorable, taken as a
whole, to the Company or the relevant Restricted Subsidiary than those that
could have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person (or, in the event that there are
no comparable transactions involving unrelated Persons to apply for comparative
purposes, is otherwise on terms that, taken as a whole, the Company had
determined to be fair to the Company or the relevant Restricted Subsidiary); (B)
any transaction between the Company and any Wholly Owned Restricted Subsidiary
or between any Wholly Owned Restricted Subsidiaries; (C) any employment
agreement entered into by the Company or any of its Restricted Subsidiaries in
the ordinary course of business and consistent with the past practice of the
Company or such Restricted Subsidiary (including ordinary course transactions
with officers or directors with respect to compensation, bonus, employee benefit
and severance arrangements, and payments under indemnification arrangements
existing as of the Issuance Date or as may be permitted by law with any officer
or director); (D) transactions permitted by Section 1012; (E) transactions
undertaken pursuant to contractual obligations in place as of the Issuance Date;
(F) purchases of goods and services, any service trials, market testing and new
product arrangements entered into in the ordinary course of business and on
terms consistent with past practice; and (G) all transactions necessary to
effect the Reorganization.
<PAGE>
74
SECTION 1019. Waiver of Certain Covenants.
---------------------------
The Company may omit in any particular instance to comply with any
term, provision or condition set forth in Section 803 or Sections 1007 through
1018, inclusive (other than Sections 1010 and 1017), if before or after the time
for such compliance the Holders of at least a majority in principal amount of
the Outstanding Securities, by Act of such Holders, waive such compliance in
such instance with such term, provision or condition, but no such waiver shall
extend to or affect such term, provision or condition except to the extent so
expressly waived, and, until such waiver shall become effective, the obligations
of the Company and the duties of the Trustee in respect of any such term,
provision or condition shall remain in full force and effect.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Right of Redemption.
-------------------
The Securities may be redeemed, (i) at the election of the Company, as
a whole or from time to time in part, at any time after ________, 2001 subject
to the conditions and at the Redemption Prices specified in the form of
Security, together with accrued interest to the Redemption Date or (ii) at the
election of the Company, upon the occurrence prior to ________1999, of the
events described in the form of Security, subject to the conditions and at the
Redemption Price specified in the form of Security, together with accrued
interest to the Redemption Date.
SECTION 1102. Applicability of Article.
------------------------
Redemption of Securities at the election of the Company or otherwise,
as permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
-------------------------------------
The election of the Company to redeem any Securities pursuant to
Section 1101 shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company, the Company shall, at least 60 days
prior to the Redemption Date fixed by the Company (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee of such Redemption Date and
of the principal amount of Securities to be redeemed and shall deliver to the
Trustee such documentation and records as shall enable the Trustee to select the
Securities to be redeemed pursuant to Section 1104.
<PAGE>
75
SECTION 1104. Selection by Trustee of Securities to Be Redeemed.
-------------------------------------------------
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, in compliance with the requirements of the principal
national securities exchange, if any, on which the Securities are listed, or, in
the absence of such requirements or if the Securities are not listed, by such
method as the Trustee shall deem fair and appropriate and which may provide for
the selection for redemption of portions of the principal of Securities;
provided, however, that no such partial redemption shall reduce the portion of
the principal amount of a Security not redeemed to less than $1,000.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Securities shall relate, in
the case of any Security redeemed or to be redeemed only in part, to the portion
of the principal amount of such Security which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
--------------------
Notice of redemption shall be given in the manner provided for in
Section 106 not less than 30 nor more than 60 days prior to the Redemption Date,
to each Holder of Securities to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to the
Redemption Date payable as provided in Section 1107, if any,
(3) if less than all Outstanding Securities are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amounts) of the particular Securities to be redeemed,
(4) in case any Security is to be redeemed in part only, the notice
which relates to such Security shall state that on and after the Redemption
Date, upon surrender of such Security, the Holder shall receive, without
charge, a new Security
<PAGE>
76
or Securities of authorized denominations for the principal amount thereof
remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and accrued
interest, if any, to the Redemption Date payable as provided in Section
1107) shall become due and payable upon each such Security, or the portion
thereof, to be redeemed, and that discount shall cease to accrete or
interest shall cease to accrue, as the case may be, on and after said date,
and
(6) the place or places where such Securities are to be surrendered
for payment of the Redemption Price and accrued interest, if any.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
---------------------------
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and accrued interest on, all
the Securities which are to be redeemed on that date.
SECTION 1107. Securities Payable on Redemption Date.
-------------------------------------
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such
Securities shall cease to bear interest. Upon surrender of any such Security
for redemption in accordance with said notice, such Security shall be paid by
the Company at the Redemption Price, together with accrued interest, if any, to
the Redemption Date; provided, however, that installments of interest whose
Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holders of such Securities, or one or more Predecessor Securities, registered as
such at the close of business on the relevant Record Dates according to their
terms and the provisions of Section 307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Securities.
<PAGE>
77
SECTION 1108. Securities Redeemed in Part.
---------------------------
Any Security which is to be redeemed only in part shall be surrendered
at the office or agency of the Company maintained for such purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or such Holders attorney duly
authorized in writing), and the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security without service charge,
a new Security or Securities, of any authorized denomination as requested by
such Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.
ARTICLE TWELVE
RESERVED
ARTICLE THIRTEEN
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Legal Defeasance or Covenant
-------------------------------------------------------
Defeasance.
----------
The Company may, at its option by Board Resolution, at any time, with
respect to the Securities, elect to have either Section 1302 or Section 1303 be
applied to all Outstanding Securities upon compliance with the conditions set
forth below in this Article Thirteen.
SECTION 1302. Legal Defeasance and Discharge.
------------------------------
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1302, the Company shall be deemed to have been
discharged from its obligations with respect to all Outstanding Securities on
the date the conditions set forth in Section 1304 are satisfied (hereinafter,
"legal defeasance"). For this purpose, such legal defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the Outstanding Securities, which shall thereafter be deemed to
be "Outstanding" only for the purposes of Section 1305 and the other Sections of
this Indenture referred to in (A) and (B) below, and to have satisfied all its
other obligations under such Securities and this Indenture insofar as such
Securities are concerned (and the Trustee, at the expense of the Company, shall
execute proper instruments acknowledging the same), except for the following
which shall survive until otherwise terminated or discharged hereunder: (A) the
rights of Holders of Outstanding Securities to receive, solely from the trust
fund
<PAGE>
78
described in Section 1304 and as more fully set forth in such Section, payments
in respect of the principal of (and premium, if any, on) and interest on such
Securities when such payments are due, (B) the Company's obligations with
respect to such Securities under Sections 304, 305, 306, 1002 and 1003, (C) the
rights, powers, trusts, duties and immunities of the Trustee hereunder and the
Company's obligations in connection therewith and (D) this Article Thirteen.
Subject to compliance with this Article Thirteen, the Company may exercise its
option under this Section 1302 notwithstanding the prior exercise of its option
under Section 1303 with respect to the Securities.
SECTION 1303. Covenant Defeasance.
-------------------
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1303, the Company shall be released from its
obligations under any covenant contained in Section 801(4) and Section 803 and
in Sections 1007 through 1018 with respect to the Outstanding Securities on and
after the date the conditions set forth below are satisfied (hereinafter,
"covenant defeasance"), and the Securities shall thereafter be deemed not to be
"Outstanding" for the purposes of any direction, waiver, consent or declaration
or Act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "Outstanding" for all other purposes
hereunder. For this purpose, such covenant defeasance means that, with respect
to the Outstanding Securities, the Company may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 501(3) and (4), but, except as specified above, the remainder of this
Indenture and such Securities shall be unaffected thereby.
SECTION 1304. Conditions to Legal Defeasance or Covenant Defeasance.
-----------------------------------------------------
The following shall be the conditions to application of either Section
1302 or Section 1303 to the Outstanding Securities:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 607 who shall agree to comply with the provisions of this
Article Thirteen applicable to it) as trust funds in trust for the purpose
of making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities, (A)
cash in U.S. dollars, or (B) U.S. Government Obligations which through the
scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before the
due date of any payment, money in an amount, or (C) a combination thereof,
<PAGE>
79
sufficient, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered
to the Trustee, to pay and discharge, and which shall be applied by the
Trustee (or other qualifying trustee) to pay and discharge, the principal
of (and premium, if any) and interest on the Outstanding Securities on the
Stated Maturity (or Redemption Date, if applicable) of such principal (and
premium, if any) or installment of interest on the day on which such
payments are due and payable in accordance with the terms of this Indenture
and of such Securities; provided that the Trustee shall have been
irrevocably instructed to apply such money or the proceeds of such U.S.
Government Obligations to said payments with respect to the Securities.
Before such a deposit, the Company may give to the Trustee, in accordance
with Section 1103 hereof, a notice of its election to redeem all of the
Outstanding Securities at a future date in accordance with Article Eleven
hereof, which notice shall be irrevocable. Such irrevocable redemption
notice, if given, shall be given effect in applying the foregoing. For
this purpose, "U.S. Government Obligations" means securities that are (x)
direct obligations of the United States of America for the timely payment
of which its full faith and credit is pledged or (y) obligations of a
Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the timely payment of which
is unconditionally guaranteed as a full faith and credit obligation by the
United States of America, which, in either case, are not callable or
redeemable at the option of the issuer thereof, and shall also include a
depository receipt issued by a bank (as defined in Section 3(a)(2) of the
Securities Act of 1933, as amended), as custodian with respect to any such
U.S. Government Obligation or a specific payment of principal of or
interest on any such U.S. Government Obligation held by such custodian for
the account of the holder of such depository receipt, provided that (except
as required by law) such custodian is not authorized to make any deduction
from the amount payable to the holder of such depository receipt from any
amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of principal of or interest on the U.S.
Government Obligation evidenced by such depository receipt.
(2) In the case of an election under Section 1302, the Company shall
have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee stating that (x) the Company has
received from, or there has been published by, the Internal Revenue Service
a ruling, or (y) since June __, 1996, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the Holders of
the Outstanding Securities shall not recognize income, gain or loss for
federal income tax purposes solely as a result of such legal defeasance and
shall be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such legal
defeasance had not occurred.
<PAGE>
80
(3) In the case of an election under Section 1303, the Company shall
have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee to the effect that the Holders of the
Outstanding Securities shall not recognize income, gain or loss for federal
income tax purposes solely as a result of such covenant defeasance and
shall be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such covenant
defeasance had not occurred.
(4) No Default or Event of Default with respect to the Securities
shall have occurred and be continuing on the date of such deposit or,
insofar as paragraphs (8) and (9) of Section 501 hereof are concerned, at
any time during the period ending on the 91st day after the date of such
deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period).
(5) Such legal defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or
any other material agreement or instrument to which the Company is a party
or by which it is bound.
(6) The Company shall have delivered to the Trustee an opinion of
counsel in the United States to the effect that after the 91st day
following the deposit, the trust funds shall not be subject to the effect
of any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditor's rights generally.
(7) The Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of Securities over the other creditors of
the Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others.
(8) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the legal defeasance under
Section 1302 or the covenant defeasance under Section 1303 (as the case may
be) have been complied with.
SECTION 1305. Deposited Money and U.S. Government Obligations to Be
-----------------------------------------------------
Held in Trust; Other Miscellaneous Provisions.
---------------------------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1305, the "Trustee") pursuant to Section 1304 in respect of the
Outstanding Securities shall be held in trust and
<PAGE>
81
applied by the Trustee, in accordance with the provisions of such Securities and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Holders of such Securities of all sums due and to become due
thereon in respect of principal (and premium, if any) and interest, but such
money need not be segregated from other funds except to the extent required by
law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Governmental Obligations
deposited pursuant to Section 1304 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Securities.
Anything in this Article Thirteen to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1304 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent legal defeasance or covenant
defeasance, as applicable, in accordance with this Article.
SECTION 1306. Reinstatement.
-------------
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1305 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 1302 or 1303, as the case may be, until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 1305; provided, however, that if the Company makes any payment of
principal of (or premium, if any) or interest on any Security following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the money held by
the Trustee or Paying Agent.
<PAGE>
82
ARTICLE FOURTEEN
RESERVED
<PAGE>
83
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
TELEPORT COMMUNICATIONS GROUP, INC.
[SEAL] By
--------------------------------
Name:
Title:
Attest:
-------------------
Title:
UNITED STATES TRUST COMPANY
OF NEW YORK
[SEAL] By
--------------------------------
Name:
Title:
Attest:
-------------------
Title:
<PAGE>
SCHEDULE I
to
Indenture
dated June __, 1996
Local Market Partnerships
TCG Chicago (a _______ partnership)
TCG Connecticut (a _______ partnership)
TCG Dallas (a _______ partnership)
TCG Detroit (a _______ partnership)
TCG Illinois (a _______ partnership)
TCG Los Angeles (a _______ partnership)
TCG Omaha (a _______ partnership)
TCG Phoenix (a _______ partnership)
TCG Pittsburgh (a _______ partnership)
TCG San Diego (a _______ partnership)
TCG San Francisco (a _______ partnership)
TCG Seattle (a _______ partnership)
TCG South Florida (a _______ partnership)
TCG St. Louis (a _______ partnership)
<PAGE>
EXHIBIT 4.4
================================================================================
TELEPORT COMMUNICATIONS GROUP INC.,
Issuer
AND
UINTED STATES TRUST COMPANY OF NEW YORK,
Trustee
____________________
INDENTURE
Dated as of June __, 1996
_____________________
$___________
_____% Senior Notes
due 2006
================================================================================
<PAGE>
TABLE OF CONTENTS/1/
PAGE
PARTIES..................................................... 1
RECITALS OF THE COMPANY
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
<TABLE>
<CAPTION>
<S> <C>
SECTION 101. Definitions.............................. 1
Accreted Value.................................... 2
Acquired Indebtedness............................. 2
Act............................................... 2
Affiliate......................................... 2
Asset Sale........................................ 3
Board of Directors................................ 3
Board Resolution.................................. 3
Business Day...................................... 3
Capital Lease Obligation.......................... 4
Capital Stock..................................... 4
Change of Control................................. 4
Class A Common Stock and Class B Common Stock..... 4
Commission........................................ 5
Common Stock...................................... 5
Company........................................... 5
Company Request or Company Order.................. 5
Consolidated Interest Expense..................... 5
Consolidated Net Income........................... 5
Corporate Trust Office............................ 6
Default........................................... 6
Defaulted Interest................................ 6
Disqualified Stock................................ 6
EBITDA............................................ 6
Eligible Cash Equivalents......................... 6
Equity Interests.................................. 7
</TABLE>
- ----------
/1/ Note: This table of contents shall not, for any purpose, be deemed to be a
part of this Indenture.
<PAGE>
ii
<TABLE>
<CAPTION>
PAGE
<S> <C>
Event of Default.................................. 7
Exchange Act...................................... 7
Exchange Rate Contract............................ 7
Existing Indebtedness............................. 7
Fair Market Value................................. 7
Federal Bankruptcy Code........................... 8
GAAP.............................................. 8
Guarantee......................................... 8
Guarantor......................................... 8
Holder............................................ 8
Indebtedness...................................... 8
Indebtedness to Adjusted Total Equity Ratio....... 9
Indebtedness to EBITDA Ratio...................... 9
Indenture......................................... 10
Interest Payment Date............................. 10
Interest Rate Agreement........................... 10
Investments....................................... 10
Issuance Date..................................... 11
Joint Venture..................................... 11
Lien.............................................. 11
Local Market Partnership.......................... 11
Maturity.......................................... 11
Net Proceeds...................................... 11
Non-Recourse Indebtedness......................... 12
Obligations....................................... 12
Officers' Certificate............................. 12
Opinion of Counsel................................ 12
Outstanding....................................... 12
Paying Agent...................................... 13
Permitted Holders................................. 13
Permitted Indebtedness............................ 13
Permitted Investments............................. 14
Permitted Liens................................... 15
Permitted Temporary Investments................... 16
Person............................................ 16
Predecessor Security.............................. 17
Preferred Stock................................... 17
Public Equity Offering............................ 17
Redemption Date................................... 17
Redemption Price.................................. 17
</TABLE>
<PAGE>
iii
<TABLE>
<CAPTION>
PAGE
<S> <C>
Registration Statement............................ 17
Regular Record Date............................... 17
Reorganization.................................... 17
Reorganization Agreement.......................... 17
Responsible Officer............................... 17
Restricted Payment................................ 18
Restricted Subsidiary............................. 18
Revolving Credit Agreement........................ 18
Sale-Leaseback Transaction........................ 18
Securities........................................ 18
Security Register and Security Registrar.......... 18
Significant Subsidiary............................ 19
Special Record Date............................... 19
Stated Maturity................................... 19
Stock Offering.................................... 19
Strategic Equity Investor......................... 19
Subsidiary........................................ 19
Telecommunications Assets......................... 19
Telecommunications Assets Indebtedness............ 19
Telecommunications Business....................... 20
Trust Indenture Act or TIA........................ 20
Trustee........................................... 20
Unrestricted Subsidiary........................... 20
Vice President.................................... 21
Voting Stock...................................... 21
Weighted Average Life to Maturity................. 21
Wholly Owned Restricted Subsidiary................ 21
SECTION 102. Compliance Certificates and Opinions..... 21
SECTION 103. Form of Documents Delivered to Trustee... 22
SECTION 104. Acts of Holders.......................... 22
SECTION 105. Notices, etc., to Trustee, Company....... 24
SECTION 106. Notice to Holders; Waiver................ 24
SECTION 107. Effect of Headings and Table of Contents. 25
SECTION 108. Successors and Assigns................... 25
SECTION 109. Separability Clause...................... 25
SECTION 110. Benefits of Indenture.................... 25
SECTION 111. Governing Law............................ 25
SECTION 112. Legal Holidays........................... 25
</TABLE>
<PAGE>
iv
ARTICLE TWO
SECURITY FORMS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 201. Forms Generally........................................... 26
SECTION 202. Form of Face of Security.................................. 26
SECTION 203. Form of Reverse of Security.............................. 28
SECTION 204. Form of Trustee's Certificate of Authentication........... 31
</TABLE>
ARTICLE THREE
THE SECURITIES
<TABLE>
<CAPTION>
<S> <C>
SECTION 301. Title and Terms........................................... 32
SECTION 302. Denominations............................................. 33
SECTION 303. Execution, Authentication, Delivery and Dating............ 33
SECTION 304. Temporary Securities...................................... 34
SECTION 305. Registration, Registration of Transfer and Exchange....... 35
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.......... 36
SECTION 307. Payment of Interest; Interest Rights Preserved............ 37
SECTION 308. Persons Deemed Owners..................................... 38
SECTION 309. Cancellation.............................................. 38
SECTION 310. Computation of Interest................................... 39
SECTION 311. No Personal Liability of Directors, Officers, Employees and
Stockholders............................................. 39
</TABLE>
ARTICLE FOUR
SATISFACTION AND DISCHARGE
<TABLE>
<S> <C>
SECTION 401. Satisfaction and Discharge of Indenture................... 39
SECTION 402. Application of Trust Money................................ 40
</TABLE>
ARTICLE FIVE
REMEDIES
<TABLE>
<CAPTION>
<S> <C>
SECTION 501. Events of Default......................................... 40
SECTION 502. Acceleration of Maturity; Rescission and Annulment........ 42
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.................................................. 43
</TABLE>
<PAGE>
v
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 504. Trustee May File Proofs of Claim.......................... 44
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities............................................... 45
SECTION 506. Application of Money Collected............................ 45
SECTION 507. Limitation on Suits....................................... 46
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest..................................... 47
SECTION 509. Restoration of Rights and Remedies........................ 47
SECTION 510. Rights and Remedies Cumulative............................ 47
SECTION 511. Delay or Omission Not Waiver.............................. 47
SECTION 512. Control by Holders........................................ 48
SECTION 513. Waiver of Past Defaults................................... 48
SECTION 514. Waiver of Stay or Extension Laws.......................... 49
</TABLE>
ARTICLE SIX
THE TRUSTEE
<TABLE>
<CAPTION>
<S> <C>
SECTION 601. Notice of Defaults........................................ 49
SECTION 602. Certain Rights of Trustee................................. 49
SECTION 603. Trustee Not Responsible for Recitals or Issuance of
Securities............................................... 51
SECTION 604. May Hold Securities....................................... 51
SECTION 605. Money Held in Trust....................................... 51
SECTION 606. Compensation and Reimbursement............................ 51
SECTION 607. Corporate Trustee Required; Eligibility................... 52
SECTION 608. Resignation and Removal; Appointment of Successor......... 53
SECTION 609. Acceptance of Appointment by Successor.................... 54
SECTION 610. Merger, Conversion, Consolidation or Succession to
Business................................................. 54
</TABLE>
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE
<TABLE>
<S> <C>
SECTION 701. Disclosure of Names and Addresses of Holders.............. 55
SECTION 702. Reports by Trustee........................................ 55
</TABLE>
<PAGE>
vi
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 801. Limitation on Merger, Consolidation or Sale of Assets..... 55
SECTION 802. Successor Substituted..................................... 57
SECTION 803. Securities to Be Secured in Certain Events................ 57
</TABLE>
ARTICLE NINE
SUPPLEMENTAL INDENTURES
<TABLE>
<CAPTION>
<S> <C>
SECTION 901. Supplemental Indentures Without Consent of Holders........ 58
SECTION 902. Supplemental Indentures with Consent of Holders........... 58
SECTION 903. Execution of Supplemental Indentures...................... 59
SECTION 904. Effect of Supplemental Indentures......................... 60
SECTION 905. Conformity with Trust Indenture Act....................... 60
SECTION 906. Reference in Securities to Supplemental Indentures........ 60
SECTION 907. Notice of Supplemental Indentures......................... 60
</TABLE>
ARTICLE TEN
COVENANTS
<TABLE>
<CAPTION>
<S> <C>
SECTION 1001. Payment of Principal, Premium, if any, and Interest...... 60
SECTION 1002. Maintenance of Office or Agency.......................... 61
SECTION 1003. Money for Security Payments to Be Held in Trust.......... 61
SECTION 1004. Corporate Existence...................................... 63
SECTION 1005. Payment of Taxes and Other Claims........................ 63
SECTION 1006. Maintenance of Properties................................ 63
SECTION 1007. Insurance................................................ 63
SECTION 1008. Statement by Officers as to Default...................... 64
SECTION 1009. Reports to Holders....................................... 64
SECTION 1010. Change of Control........................................ 64
SECTION 1011. Limitation on Incurrence of Indebtedness................. 65
SECTION 1012. Limitation on Restricted Payments........................ 66
SECTION 1013. Limitation on Liens...................................... 68
SECTION 1014. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries........................ 68
SECTION 1015. Limitation on Issuance and Sale of Capital
Stock of Restricted Subsidiaries......................... 69
SECTION 1016. Limitation on Guarantees of Indebtedness by
</TABLE>
<PAGE>
vii
<TABLE>
<CAPTION>
PAGE
<S> <C>
Restricted Subsidiaries.................................. 70
SECTION 1017. Limitation on Asset Sales................................ 71
SECTION 1018. Limitation on Transactions with Stockholders
and Affiliates........................................... 72
SECTION 1019. Waiver of Certain Covenants.............................. 74
</TABLE>
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
<TABLE>
<CAPTION>
<S> <C>
SECTION 1101. Right of Redemption...................................... 74
SECTION 1102. Applicability of Article................................. 74
SECTION 1103. Election to Redeem; Notice to Trustee.................... 74
SECTION 1104. Selection by Trustee of Securities to Be Redeemed........ 75
SECTION 1105. Notice of Redemption..................................... 75
SECTION 1106. Deposit of Redemption Price.............................. 76
SECTION 1107. Securities Payable on Redemption Date.................... 76
SECTION 1108. Securities Redeemed in Part.............................. 77
</TABLE>
ARTICLE TWELVE
RESERVED
ARTICLE THIRTEEN
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1301. Company's Option to Effect Legal Defeasance or
Covenant Defeasance......................................... 77
SECTION 1302. Legal Defeasance and Discharge................................ 77
SECTION 1303. Covenant Defeasance........................................... 78
SECTION 1304. Conditions to Legal Defeasance or
Covenant Defeasance......................................... 78
SECTION 1305. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions............... 80
SECTION 1306. Reinstatement................................................. 81
</TABLE>
<PAGE>
viii
PAGE
ARTICLE FOURTEEN
RESERVED
TESTIMONIUM.................................................
SIGNATURES AND SEALS........................................
<PAGE>
TELEPORT COMMUNICATIONS GROUP INC.
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND INDENTURE, DATED AS OF _______________
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
<TABLE>
<CAPTION>
<S> <C>
(S) 310(a)(1)...................... 607
(a)(2)...................... 607
(b)......................... 608
(S) 312(c)......................... 701
(S) 314(a)......................... 703
(a)(4)...................... 1008(a)
(c)(1)...................... 102
(c)(2)...................... 102
(e)......................... 102
(S) 315(b)......................... 601
(S) 316(a)(last
sentence)................... 101 ("Outstanding")
(a)(1)(A)................... 502, 512
(a)(1)(B)................... 513
(b)......................... 508
(c)......................... 104(d)
(S) 317(a)(1)...................... 503
(a)(2)...................... 504
(b)......................... 1003
(S) 318(a)......................... 111
</TABLE>
<PAGE>
INDENTURE, dated as of June __, 1996 between TELEPORT
COMMUNICATIONS GROUP, INC., a corporation duly organized and existing under the
laws of the State of Delaware (herein called the "Company"), having its
principal office at One Teleport Drive, Staten Island, New York 10311-1011, and
UNITED STATES TRUST COMPANY OF NEW YORK, a [corporation/trust company] duly
organized and existing under the laws of the State of New York, Trustee (herein
called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of ____% Senior
Securities due 2006 (herein called the "Securities"), of substantially the tenor
and amount hereinafter set forth, and to provide therefor the Company has duly
authorized the execution and delivery of this Indenture.
This Indenture is subject to the provisions of the Trust Indenture Act of
1939, as amended, that are required to be part of this Indenture and shall, to
the extent applicable, be governed by such provisions.
All things necessary have been done to make the Securities, when executed
by the Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company and to make this Indenture a valid
agreement of the Company, in accordance with their and its terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
-----------
For all purposes of this Indenture, except as otherwise expressly provided
or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
<PAGE>
2
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein, and the terms "cash transaction" and "self-
liquidating paper," as used in TIA Section 311, shall have the meanings
assigned to them in the rules of the Commission adopted under the Trust
Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles, and, except as otherwise herein expressly provided, the term
"generally accepted accounting principles" with respect to any computation
required or permitted hereunder shall mean such accounting principles as
are generally accepted at the date of such computation; and
(d) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
"Acquired Indebtedness" means (a) Indebtedness of any other Person
existing at the time such other Person merged with or into or became a
Restricted Subsidiary, including Indebtedness incurred in connection with or in
contemplation of such other Person merging with or into or becoming a Restricted
Subsidiary, (b) Indebtedness of any other Person assumed by the Company or a
Restricted Subsidiary in connection with the acquisition of assets from such
other Person, and (c) Indebtedness secured by a Lien encumbering any asset
acquired by the Company or a Restricted Subsidiary.
"Act," when used with respect to any Holder, has the meaning specified
in Section 104.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
"Asset Sale" means (a) any sale, lease, transfer, conveyance or other
disposition of any assets (including by way of a sale-leaseback) other than the
sale or transfer of inventory or goods (including equipment) held for sale in
the ordinary course of business (provided that the sale, lease, transfer,
conveyance or other disposition of all or substantially all of the assets of the
Company shall not be deemed to be an "Asset Sale" and shall be governed by the
provisions of Section 1010 or Article Eight) or (b) any issuance, sale, lease,
<PAGE>
3
transfer, conveyance or other disposition of any Equity Interests of any of the
Company's Restricted Subsidiaries (other than director's qualifying shares) to
any Person. Notwithstanding the foregoing, none of the following shall be
deemed to be an Asset Sale: (i) a swap or other exchange of cable, fiber line
or other equipment or transmission capacity or of networks or systems between
the Company or any Restricted Subsidiary and any other Person which is an
exchange at Fair Market Value, (ii) an issuance and sale of Equity Interests by
a Restricted Subsidiary to the Company or to another Restricted Subsidiary
including any such issuance in connection with the contribution to such
Restricted Subsidiary of Telecommunications Assets, (iii) an Asset Sale
involving assets with a Fair Market Value not in excess of $2 million, (iv) any
lease of cable, fiber optic or transmission capacity, any lease of equipment or
equipment space, any grant of indefeasible rights-of-use or rights-of-access or
similar rights and grants of nominal title to assets entered into in the
ordinary course and consistent with past practices, (v) any sale or other
disposition of any or all of the capital stock or assets of an Unrestricted
Subsidiary, and (vi) any sale, transfer or conveyance of Eligible Cash
Equivalents. Additionally, the contribution of Telecommunications Assets to an
Unrestricted Subsidiary whereby the Company or a Restricted Subsidiary receives
an equity interest in such Unrestricted Subsidiary shall be deemed not to be an
Asset Sale and shall be deemed to be a Restricted Payment and be governed by
Section 1012.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions in The City of New York
are authorized or obligated by law or executive order to close.
"Capital Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital lease
that would at such time be so required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means, with respect to any specified Person, any and
all shares, interests, participations, rights, or other equivalents (however
designated) of corporate stock, including, without limitation, partnership
interests of such Person.
"Change of Control" means (a) the sale, lease, transfer, conveyance or
other disposition of all or substantially all of the assets of the Company to
any "person" or "group"
<PAGE>
4
(within the meaning of Sections 13(d)(3) and 14(d)(2) of the Exchange Act or any
successor provision to either of the foregoing, including any group acting for
the purpose of acquiring, holding or disposing of securities within the meaning
of Rule 13d-5(b)(1) under the Exchange Act) other than Permitted Holders, (b)
the approval by the requisite stockholders of the Company of a plan of
liquidation or statutory dissolution (which shall not be construed to include a
plan of merger or consolidation) of the Company, unless Permitted Holders
"beneficially own" (as defined in Rule 13d-3 under the Exchange Act) at least
the same percentage of voting power after the consummation of such plan as
before or otherwise retain the right or ability, by voting power, to control the
Person that acquires the proceeds of such liquidation or dissolution, (c) any
"person" or "group" (within the meaning of Sections 13(d)(3) and 14(d)(2) of the
Exchange Act or any successor provision to either of the foregoing, including
any group acting for the purpose of acquiring, holding or disposing of
securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act), other
than Permitted Holders, becomes the "beneficial owner" (as so defined) of more
than 35% of the total voting power of all classes of the Voting Stock of the
Company and/or warrants or options to acquire such Voting Stock, calculated on a
fully diluted basis, provided that Permitted Holders "beneficially own" (as so
defined) a percentage of such Voting Stock or warrants having a lesser
percentage of voting power than such other "person" or "group" and do not have
the right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors, or (d) during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors (together with any new directors whose
election or appointment by such board or whose nomination for election by the
stockholders of the Company was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority of the Board of
Directors then in office.
"Class A Common Stock" and "Class B Common Stock" mean the two classes
of Common Stock of the Company authorized to be issued by the Company pursuant
to Article IV of the Amended and Restated Certificate of Incorporation of the
Company.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Common Stock" means, with respect to the Company, the Class A Common
Stock, the Class B Common Stock or any similar common stock of the Company.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
<PAGE>
5
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, its President, any Vice
President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Consolidated Interest Expense" means, with respect to the Company and
its Restricted Subsidiaries, for any period, the amount of interest in respect
of Indebtedness (including amortization of original issue discount, amortization
of debt issuance costs, and non-cash interest payments on any Indebtedness and
the interest portion of any deferred payment obligation and after taking into
account the effect of elections made under any Interest Rate Agreement, however
denominated, with respect to such Indebtedness), the net costs associated with
Interest Rate Agreements, Preferred Stock dividends of the Company (and of its
Restricted Subsidiaries if paid to a Person other than the Company or its
Restricted Subsidiaries) and the interest component of rentals in respect of any
Capital Lease Obligation paid, in each case whether accrued or scheduled to be
paid or accrued by the Company and its Restricted Subsidiaries during such
period to the extent such amounts were deducted in computing Consolidated Net
Income, determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to the Company for any
period, the aggregate net income of the Company and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the net income of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting shall be
included only to the extent of the amount of dividends or distributions paid to
the Company or a Restricted Subsidiary, (ii) the net income of any Person
acquired in a pooling of interests transactions for any period prior to the date
of such acquisition shall be excluded, (iii) the cumulative effect of a change
in accounting principles shall be excluded, (iv) all items classified as
extraordinary gains or losses of the Company or a Restricted Subsidiary for such
period shall be excluded, (v) the net income of any Restricted Subsidiary shall
be included only to the extent that the declaration or payment of dividends or
similar distributions by such Restricted Subsidiary of such net income is not at
the time prohibited by the operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to such Restricted Subsidiary, and (vi) with respect to a
non-Wholly Owned Restricted Subsidiary, any aggregate net income (or loss) in
excess of the Company's or such Restricted Subsidiary's pro rata share of such
non-Wholly Owned Restricted Subsidiary's net income (or loss) shall be excluded.
"Corporate Trust Office" means the principal corporate trust office of
the Trustee, at which at any particular time its corporate trust business shall
be administered, which office at the date of execution of this Indenture is
located at 114 West 47th Street, New York, NY 10036, except that with respect to
presentation of Securities for payment or
<PAGE>
6
for registration of transfer or exchange, such term shall mean the office or
agency of the Trustee at which, at any particular time, its corporate agency
business shall be conducted.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 307.
"Disqualified Stock" means any Capital Stock that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the date
on which the Securities mature.
"EBITDA" means, with respect to the Company and its Restricted
Subsidiaries, for any period, an amount equal to (A) the sum of (i) Consolidated
Net Income for such period (exclusive of any gain or loss realized in such
period upon an Asset Sale), plus (ii) the provision for taxes for such period
based on income or profits to the extent such income or profits were included in
computing Consolidated Net Income and any provision for taxes utilized in
computing net loss under clause (i) hereof, plus (iii) Consolidated Interest
Expense for such period, plus (iv) depreciation for such period on a
consolidated basis, plus (v) amortization of intangibles for such period on a
consolidated basis, plus (vi) any other non-cash item reducing Consolidated Net
Income for such period, plus (vii) any premium or penalty paid in connection
with repurchasing, redeeming, retiring, defeasing or acquiring any Indebtedness
prior to maturity, minus (B) all non-cash items increasing Consolidated Net
Income for such period, determined in accordance with GAAP consistently applied.
"Eligible Cash Equivalents" means (i) United States dollars, (ii)
securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof having maturities of
not more than one year and one day from the date of acquisition, (iii)
certificates of deposit and Eurodollar time deposits with maturities of one year
or less from the date of acquisition, bankers' acceptances with maturities not
exceeding six months and overnight bank deposits, in each case with any
commercial bank(s) domiciled in the United States or in any member of the OECD
having capital and surplus in excess of $500 million and a Keefe Bank Watch
Rating of "B" or better, (iv) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses (ii)
and (iii) entered into with any financial institution meeting the qualifications
specified in clause (iii) above, (v) commercial paper rated no lower than P-2 or
the equivalent thereof by Moody's Investors Service, Inc. or no lower than A-2
or the equivalent thereof by Standard & Poor's Ratings Group and in each case
maturing within one year and one day after the date of acquisition, (vi) direct
<PAGE>
7
obligations issued by any state of the United States or any political
subdivision of any such state or political instrumentality thereof maturing, or
subject to tender at the option of the holder thereof, within ninety (90) days
after the date of acquisition, having a rating of A from Standard & Poor's
Ratings Group or A-2 from Moody's Investors Service, Inc., and (vii) investments
in money market funds substantially all of whose assets comprise securities of
the types described in clauses (i) through (vi).
"Equity Interests" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any Indebtedness that is
convertible into, or exchangeable for, Capital Stock, except to the extent such
Indebtedness has been so converted or exchanged).
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Rate Contract" means, with respect to any Person, any
currency swap agreements, forward exchange rate agreements, foreign currency
futures or options, exchange rate collar agreements, exchange rate insurance and
other agreements or arrangements, or combinations thereof, the principal purpose
of which is to provide protection against fluctuations in currency exchange
rates. An Exchange Rate Contract may also include an Interest Rate Agreement.
"Existing Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries in existence on the Issuance Date, including
Indebtedness incurred under the Revolving Credit Agreement as in effect on the
Issuance Date, until such amounts are repaid.
"Fair Market Value" means, with respect to any asset or property, the
price which could be negotiated in an arm's-length transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under pressure
or compulsion to complete the transaction. Fair Market Value shall be
determined (i) for an amount not in excess of $15 million, by the Chief
Financial Officer of the Company, or (ii) for an amount of $15 million or more,
by the Board of Directors acting in good faith and shall be evidenced by a Board
Resolution, and in either case shall be set forth in an Officers' Certificate
delivered to the Trustee.
"Federal Bankruptcy Code" means the Bankruptcy Act of Title 11 of the
United States Code, as amended from time to time.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting
<PAGE>
8
Standards Board or in such other statements by such other entity as approved by
a significant segment of the accounting profession, which may be in effect from
time to time and are applied on a consistent basis.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantor" means any Restricted Subsidiary which is a guarantor of
the Securities, including any Person that is required after the Issuance Date to
execute a guarantee of the Securities pursuant to Section 1016 until a successor
replaces such party pursuant to the applicable provisions of this Indenture and,
thereafter shall mean such successor.
"Holder" means a Person in whose name a Security is registered in the
Security Register.
"Indebtedness" means, with respect to any Person, without duplication,
(i) any indebtedness of such Person, whether or not contingent, in respect of
borrowed money or evidenced by bonds, notes, debentures or similar instruments
or letters of credit (or reimbursement agreements in respect thereof) or
banker's acceptances or the balance deferred and unpaid of the purchase price of
any property (including pursuant to capital leases and Sale-Leaseback
Transactions) or representing any hedging obligations under an Exchange Rate
Contract or an Interest Rate Agreement, except any such balance that constitutes
an accrued expense or trade payable or customer deposit received in the ordinary
course of business, if and to the extent any of the foregoing indebtedness
(other than obligations under an Exchange Rate Contract or an Interest Rate
Agreement) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (ii) Indebtedness of others secured by a Lien
on any asset of such Person (whether or not such Indebtedness is assumed by such
Person), but, if such indebtedness is otherwise non-recourse to such Person,
only to the extent of the lesser of (x) the Fair Market Value of such asset at
the time of determination and (y) the amount of such Indebtedness, (iii) to the
extent not otherwise included, the Guarantee of items defined in clauses (i) and
(ii) above and (iv) the maximum fixed redemption or repurchase price of
Disqualified Stock of such Person at the time of determination. For purposes of
the preceding sentence, (1) the maximum fixed repurchase price of Disqualified
Stock that does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Disqualified Stock as if such Disqualified
Stock were repurchased on any date on which Indebtedness shall be required to be
determined pursuant to this Indenture; provided, however, that if such
Disqualified Stock is not then permitted to be repurchased, the repurchase price
shall be the book value of such Disqualified Stock, and
<PAGE>
9
(2) the amount outstanding at any time of any Indebtedness issued with original
issue discount is the accreted value of such Indebtedness.
"Indebtedness to Adjusted Total Equity Ratio" means as of the date of
determination the ratio of (i) the aggregate amount of Indebtedness of the
Company and its Restricted Subsidiaries on a consolidated basis as at the date
of determination to (ii) the sum of (a) the total equity investments in the
Company as of ________, 1996 adjusted to give effect to the Stock Offering and
the repurchase of 7,807,881 shares of Class B Common Stock from Continental
Cablevision, Inc. as described in the Registration Statement, provided that any
issuance of Equity Interests pursuant to the Reorganization shall be included
only to the extent actually issued and shall be treated as if issued on or prior
to the Issuance Date regardless of the date such Equity Interests were actually
issued, (b) two times the aggregate net proceeds to the Company from the
issuance of any Equity Interests (other than Disqualified Stock) subsequent to
the Issuance Date, (c) two times the net cash proceeds from the sales of
Disqualified Stock of the Company or debt securities of the Company convertible
into Disqualified Stock, in either case upon conversion thereof into Equity
Interests (other than Disqualified Stock) subsequent to the Issuance Date;
provided, however, that, for purposes of calculation of the Indebtedness to
Adjusted Total Equity Ratio the net cash proceeds from the sale of Capital Stock
of the Company, including Capital Stock issued upon the conversion of
convertible Indebtedness, described in clause (b) or (c) above, shall not be
included if such proceeds have been utilized to make a (x) Restricted Payment,
(y) a Permitted Investment under clause (d) of the definition of Permitted
Investment (provided that such amounts shall be included to the extent of such
amounts invested in Local Market Partnerships that become Restricted
Subsidiaries prior to the first anniversary of the Issuance Date) or (z) a
Permitted Investment pursuant to clause (e)(ii) of the definition of Permitted
Investments (provided that such amounts shall be included to the extent of the
Fair Market Value of the Company's interest in any Joint Ventures that become
Restricted Subsidiaries but not in excess of the amount of any such Investments
in such Joint Ventures pursuant to such clause (e)(ii)).
"Indebtedness to EBITDA Ratio" means, as at any date of determination,
the ratio of (i) the aggregate amount of Indebtedness of the Company and its
Restricted Subsidiaries on a consolidated basis as at the date of determination
to (ii) the aggregate amount of EBITDA of the Company and its Restricted
Subsidiaries for the four preceding fiscal quarters for which financial
information is available immediately prior to the date of determination;
provided that any Indebtedness incurred or retired by the Company or any of its
Restricted Subsidiaries during the fiscal quarter in which the determination
date occurs shall be calculated as if such Indebtedness was so incurred or
retired on the first day of such four fiscal quarter period; and provided
further that (x) if the transaction giving rise to the need to calculate the
Indebtedness to EBITDA Ratio would have the effect of increasing or decreasing
Indebtedness or EBITDA in the future, Indebtedness or EBITDA shall be calculated
on a pro forma basis as if such transaction had occurred on the first day of
such
<PAGE>
10
four fiscal quarter period preceding the date of determination, and (y) if
during such four fiscal quarter period, the Company or any of its Restricted
Subsidiaries shall have engaged in any Asset Sale, EBITDA for such period shall
be reduced by an amount equal to the EBITDA (if positive), or increased by an
amount equal to the EBITDA (if negative), directly attributable to the assets
which are the subject of such Asset Sale and any related retirement of
Indebtedness as if such Asset Sale and related retirement of Indebtedness had
occurred on the first day of such period and (z) if during such four fiscal
quarter period the Company or any of its Restricted Subsidiaries shall have
acquired any material assets out of the ordinary course of business, EBITDA
shall be calculated on a pro forma basis as if such asset acquisition and
related financing had occurred on the first day of such period.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Interest Rate Agreement" means, for any Person, any interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement or
other similar agreement the principal purpose of which is to protect the party
indicated therein against fluctuations in interest rates.
"Investments" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of loans
(including Guarantees, advances or capital contributions (excluding commission,
travel and similar advances and loans, in each case, made to officers and
employees) made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities and all other items that are or would be classified as investments on
a balance sheet prepared in accordance with GAAP. Investments shall exclude
accounts receivable and other extensions of trade credit on commercially
reasonable terms in accordance with the Company's normal trade practice. In
addition, the Fair Market Value of the net assets of any Restricted Subsidiary
at the time that such Restricted Subsidiary is designated an Unrestricted
Subsidiary shall be deemed to be an "Investment" made by the Company in such
Unrestricted Subsidiary at such time.
"Issuance Date" means the date on which the Securities are first
authenticated and issued.
"Joint Venture" means any Person engaged in the Telecommunications
Business in which the Company or any Restricted Subsidiary owns an Equity
Interest and which may be an Unrestricted Subsidiary.
<PAGE>
11
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Local Market Partnership" means the partnerships created among
Affiliates of the Company and of the Permitted Holders to develop and operate
local telecommunications networks across the United States including, on the
date hereof, the Local Market Partnerships listed in Schedule I hereto.
"Maturity," when used with respect to any Security, means the date on
which the principal of such Security or an installment of principal becomes due
and payable as herein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, notice of redemption or otherwise.
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale, net
of (a) the direct costs relating to such Asset Sale (including, without
limitation, legal, title, recording, accounting and investment banking fees, and
sales commissions) and any relocation expenses incurred as a result thereof, (b)
taxes paid or payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing arrangements), (c)
amounts required to be applied to the repayment of Indebtedness secured by a
Lien on the asset or assets that are the subject of such Asset Sale or in order
to obtain a consent necessary to effect such Asset Sale and (d) any reserve for
adjustment or indemnification in respect of the sale price of such asset or
assets (provided that any such reserves shall be added back to Net Proceeds upon
the release of such reserves) and required distributions to holders of minority
interests. Furthermore, the amount of (i) any liabilities (as shown on the
Company's or such Restricted Subsidiary's most recent balance sheet or in the
notes thereto) of the Company or any Restricted Subsidiary that are assumed by
the transferee of any assets sold in an Asset Sale and (ii) any notes or other
obligations received by the Company or any such Restricted Subsidiary from such
transferee that are immediately converted by the Company or such Restricted
Subsidiary into Eligible Cash Equivalents, shall be deemed to be Eligible Cash
Equivalents (to the extent of the Eligible Cash Equivalents received in such
conversion) for purposes of clause (b) of the first paragraph of Section 1017.
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness (a) as to which none of the Company or any Restricted Subsidiary:
(i) provides credit support (including any undertaking, agreement or instrument
which would constitute Indebtedness); (ii) is directly or indirectly liable; or
(iii) constitutes the lender, and (b) no default with respect to which
(including any rights which the holders thereof may have to
<PAGE>
12
take enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any Restricted Subsidiary to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Officers' Certificate" means a certificate signed by the Chairman,
the President or a Vice President, and by the Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary of the Company, and delivered to the
Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, including an employee of the Company, and who shall be
acceptable to the Trustee.
"Outstanding," when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(i) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Securities, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the
Trustee or any Paying Agent (other than the Company) in trust or set aside
and segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities; provided that, if such
Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor satisfactory to the
Trustee has been made;
(iii) Securities, except to the extent provided in Sections 1302 and
1303, with respect to which the Company has effected legal defeasance
and/or covenant defeasance as provided in Article Thirteen; and
(iv) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Securities are held by a bona fide purchaser
in whose hands the Securities are valid obligations of the Company;
<PAGE>
13
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in making such calculation or in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which the
Trustee knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or such other
obligor.
"Paying Agent" means any Person (including the Company acting as
Paying Agent) authorized by the Company to pay the principal of (and premium, if
any) or interest on any Securities on behalf of the Company.
"Permitted Holders" means Comcast Corporation, a Pennsylvania
corporation, Continental Cablevision Inc., a Delaware corporation, Cox
Communications, Inc., a Delaware corporation, Tele-Communications, Inc., a
Delaware corporation, US WEST Inc., a Delaware corporation, and any Person at
least 51% of the Capital Stock of which is owned, directly or indirectly, by one
or any group of the foregoing Permitted Holders.
"Permitted Indebtedness" means: (1) for Indebtedness of either the
Company or any Restricted Subsidiary (a) Telecommunications Assets Indebtedness;
(b) Indebtedness owed by the Company to any Restricted Subsidiary (but only so
long as such Indebtedness is held by such Restricted Subsidiary) and
Indebtedness owed by a Restricted Subsidiary to the Company or any other
Restricted Subsidiary (but only so long as such Indebtedness is held by the
Company or such other Restricted Subsidiary); (c) Indebtedness under any
Exchange Rate Contract or Interest Rate Agreements, provided that the
obligations under such agreements are related to payment obligations on Existing
Indebtedness or Refinancing Indebtedness of the Company or a Restricted
Subsidiary, as applicable, or Indebtedness permitted to be incurred pursuant to
Section 1011; (d) letters of credit or performance bonds or performance
guarantees incurred in the ordinary course of business and consistent with
industry practice; (e) Existing Indebtedness; (f) Indebtedness issued in
exchange for or the proceeds of which are used to extend, refinance, renew,
replace or refund outstanding Indebtedness that is incurred or outstanding
pursuant to clauses (a), (e), (h) or this clause (f) of this definition or
clause (b) of Section 1011 (the "Refinancing Indebtedness"); provided, however,
that (i) the principal amount of, and any premium payable in respect of, such
Refinancing Indebtedness shall not exceed the principal amount of Indebtedness
so extended, refinanced, renewed, replaced or refunded (plus the amount of
reasonable expenses incurred in connection therewith); (ii) the Refinancing
Indebtedness shall have a (A) Weighted
<PAGE>
14
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, and (B) a stated maturity no earlier than the stated maturity of,
the Indebtedness being extended, refinanced, renewed, replaced or refunded;
(iii) the Refinancing Indebtedness shall rank in right of payment to the
Securities on terms no less favorable to the Holders of Securities as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced or refunded; and (iv) the Company shall incur
Refinancing Indebtedness only to refinance Indebtedness of the Company or of a
Restricted Subsidiary and a Restricted Subsidiary shall incur Refinancing
Indebtedness only to refinance Indebtedness of such Restricted Subsidiary or any
other Restricted Subsidiary; (g) Indebtedness represented by performance bonds,
surety or appeal bonds, or similar obligations incurred in the ordinary course
of business; (h) Indebtedness incurred in connection with a prepayment or
redemption of the Securities pursuant to a Change of Control, provided that such
Indebtedness is Indebtedness of the Company and the principal amount of such
Indebtedness does not exceed 101% of the principal amount of the Securities
prepaid or redeemed (plus the amount of reasonable expenses incurred in
connection therewith) and that such Indebtedness has (A) a Weighted Average Life
to Maturity equal to or greater than the Weighted Average Life to Maturity of,
and (B) a stated maturity no earlier than the Stated Maturity of, the
Securities; (i) ordinary course Capital Lease Obligations or purchase money debt
for plant or equipment secured by a Lien on property acquired, constructed or
developed by the Company or any Restricted Subsidiary in an aggregate amount not
to exceed $20 million outstanding at any time; and (j) additional Indebtedness
in an aggregate principal amount not to exceed $50 million at any one time
outstanding; (2) for Indebtedness of the Company, Indebtedness evidenced by the
Securities; and (3) for Indebtedness of any Restricted Subsidiary, Indebtedness
or Guarantee of Indebtedness under the Revolving Credit Agreement in an
aggregate amount not to exceed $400 million outstanding at any time.
"Permitted Investments" means (a) any Investments in the Company or in
a Restricted Subsidiary (including through a purchase of Equity Interests in
such Restricted Subsidiary from another Person), provided that any purchase of
Equity Interests in a Restricted Subsidiary from any Person other than another
Restricted Subsidiary shall be a Permitted Investment only if such Restricted
Subsidiary in engaged in the Telecommunications Business; (b) any Investments in
Eligible Cash Equivalents; (c) Investments by the Company or any Restricted
Subsidiary in a Person (including through a purchase of Equity Interests in such
Person from another Person), if as a result of such Investment (i) such person
becomes a Restricted Subsidiary that is engaged in the Telecommunications
Business or (ii) such person is merged or consolidated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated into,
the Company or a Restricted Subsidiary that is engaged in the Telecommunications
Business; (d) Investments up to an aggregate of $150 million in one or more of
the Local Market Partnerships listed in Schedule I hereto, which Investments are
used to fund a Telecommunications Business; provided that no such Investment in
a Local Market Partnership pursuant to this clause d)
<PAGE>
15
may be made after the first anniversary of the Issuance Date; (e) Investments
after the Issuance Date in Joint Ventures in an aggregate amount not to exceed
the sum of (i) (l) for any Joint Venture, $200 million and (2) for Joint
Ventures in which the Company or any Restricted Subsidiary owns a 35% or greater
share of Equity Interests and is the managing partner, $200 million plus any
amount not invested pursuant to the preceding clause (1), plus (ii) for any
Joint Venture, the net cash proceeds received by the Company from any Person
from the issuance and sale subsequent to the Issuance Date of Equity Interests
of the Company or of debt securities of the Company that have been converted
into such Equity Interests (other than Equity Interests (or convertible debt
securities) sold to a Restricted Subsidiary and other than Disqualified Stock or
debt securities that have been converted into Disqualified Stock) subsequent to
the Issuance Date, plus (iii) for any Joint Venture, the Fair Market Value of
the Company's interest in any Joint Ventures that become Restricted Subsidiaries
but not excess of the amount of any such Investments in such Joint Ventures
pursuant to clause (e)(ii), provided that amounts added pursuant to this clause
(iii) out of Investments originally made pursuant to subclause (i)(2) of this
clause (e) shall not be used for Investments in Joint Ventures not described in
such subclause (i)(2); (f) loans and advances to employees made in the ordinary
course of business and consistent with past practice in an aggregate amount not
to exceed $1 million outstanding at any time; (g) bonds, notes, debentures,
partnership or joint venture interests, stock or other securities received as a
result of Asset Sales permitted under Section 1017; (h) any Investments in
Permitted Temporary Investments of the proceeds from the issuance of the
Securities and from the Stock Offering; (i) any Investments in prepaid expenses,
negotiable instruments held for collection and lease, utility and workers'
compensation, performance and other similar deposits; and (j) any Exchange Rate
Contract or Interest Rate Contract.
"Permitted Liens" means (a) Liens in favor of the Company; (b) Liens
on property of a Person existing at the time such Person is merged into or
consolidated with the Company or any Restricted Subsidiary; provided that such
Liens were not granted in contemplation of such merger or consolidation and do
not secure any property or assets of the Company or any of its Restricted
Subsidiaries other than the property or assets subject to the Liens prior to
such merger or consolidation; (c) liens imposed by law, including restrictions
on transfer of governmental licenses, permits and authorizations and carriers',
warehousemen's, landlords', and mechanics' liens and other similar liens arising
in the ordinary course of business which secure payment of obligations not more
than 60 days past due or are being contested in good faith and by appropriate
proceedings; (d) Liens existing on the Issuance Date; (e) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded; provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (f) easements, rights of way, restrictions and other similar
easements, licenses, restrictions on the use of properties or minor
imperfections of title, or other incidental Liens not incurred in connection
with the borrowing of money or the obtaining of advances or credit, that in the
<PAGE>
16
aggregate, are not material in amount, and do not in any case materially detract
from the properties subject thereto or interfere with the ordinary course of the
business of the Company or its Restricted Subsidiaries; (g) Liens securing
Indebtedness incurred under the Revolving Credit Agreement; (h) Liens securing
Telecommunications Assets Indebtedness; (i) Liens of utility companies and other
Persons pursuant to pole attachment agreements or other easement agreements, and
restrictions on the transfer of rights under franchises, pole attachment
agreements or other easements, and any encumbrances created in favor of
franchising authorities and customers by provisions or franchises on plant and
equipment located in the areas covered thereby; (j) Liens under capitalized
leases or purchase money security interests relating to Indebtedness permitted
to be incurred under Section 1011; (k) Liens incurred to secure the performance
of statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (l)
any Lien to secure obligations under workmen's compensation laws or similar
legislation including unemployment insurance or social security laws; (m) Liens
in the form of a pledge of Capital Stock of a Restricted Subsidiary to secure
Indebtedness of such Restricted Subsidiary that is otherwise permitted to be
incurred pursuant to Section 1011; (n) Liens arising as a result of any grant of
indefeasible rights-of-use or rights-of-access or similar rights and grants of
nominal title to assets entered into in the ordinary course and consistent with
past practice; and (o) Liens securing Refinancing Indebtedness, provided that
the Indebtedness being refinanced is secured and such Liens encumber no
additional assets than those pursuant to the Indebtedness being refinanced.
"Permitted Temporary Investments" means (a) all Eligible Cash
Equivalents, except that each use of the term "one year" in such definition is
changed to "two years" and (b) debt securities issued by any Person which has
outstanding pari passu debt securities with an investment grade rating by
Standard & Poor's Ratings Group or Moody's Investors Service, Inc. and that
mature within two years and one day after the date of acquisition.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen Security shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Security.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred
<PAGE>
17
or preference stock whether now outstanding or issued after the date of this
Indenture, and includes, without limitation, all classes and series of preferred
or preference stock.
"Public Equity Offering" means an underwritten public offering (other
than the Stock Offering) by the Company after the Issuance Date of Common Stock
of the Company pursuant to a registration statement filed pursuant to the
Securities Act of 1933, as amended.
"Redemption Date," when used with respect to any Security to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture.
"Redemption Price," when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registration Statement" means the registration statement on Form S-1,
File No. 333-3984, relating to the Securities and filed with the Commission on
April 24, 1996.
"Regular Record Date" for the interest payable on any Interest Payment
Date means the [date] or [date] (whether or not a Business Day), as the case may
be, next preceding such Interest Payment Date.
"Reorganization" means all of the transactions that are described in
the Registration Statement under the caption "The Reorganization" as
constituting the "Reorganization" which are to be effected pursuant to the
Reorganization Agreement.
"Reorganization Agreement" means the Reorganization Agreement, dated
as of April 18, 1996, among the Company, TCI Communications, Inc., Cox
Communications, Inc., Comcast Corporation and Continental Cablevision, Inc.
"Responsible Officer," when used with respect to the Trustee, means
the chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any trust officer or assistant trust officer, the controller
or any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above-designated
officers, and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"Restricted Payment" means (a) any dividend or any distribution on any
Equity Interests (other than dividends or distributions in additional Equity
Interests (other than
<PAGE>
18
Disqualified Stock) of the Company or a Restricted Subsidiary or dividends or
distributions payable to the Company or any Wholly Owned Restricted Subsidiary);
(b) any purchase, redemption, acquisition or retirement for value of any Equity
Interests of the Company or any Restricted Subsidiary or other Affiliate of the
Company (other than any such Equity Interests owned by the Company or any Wholly
Owned Restricted Subsidiary) that is not a Permitted Investment; (c) any
defeasance, purchase, redemption, acquisition or retirement for value prior to
final maturity of any Indebtedness that is subordinated in right of payment
(whether pursuant to its terms or by operation of law) to the Securities or the
guarantees thereof by the Guarantors; and (d) any Investment that is not a
Permitted Investment.
"Restricted Subsidiary" means any Subsidiary of the Company which is
not an Unrestricted Subsidiary.
"Revolving Credit Agreement" means the Loan Agreement dated as of May
22, 1995, as amended, among TCG New York Inc., the Banks, as defined in the Loan
Agreement, Toronto Dominion (Texas), Inc. and Chemical Bank, as such agreement
may be amended, modified, supplemented, refunded, refinanced or replaced from
time to time.
"Sale-Leaseback Transaction" means any direct or indirect arrangement,
or series of related arrangements, with any Person (other than the Company or a
Restricted Subsidiary) or to which any Person (other than the Company or a
Restricted Subsidiary) is a party, providing for the leasing to the Company or
to a Restricted Subsidiary of any property for an aggregate term exceeding three
years, whether owned by the Company or by any Subsidiary of the Company at the
Issuance Date or later acquired, which has been or is to be sold or transferred
by the Company or such Restricted Subsidiary to such Person or to any other
Person from whom funds have been or are to be advanced by such Person on the
security of such property.
"Securities" has the meaning stated in the first recital of this
Indenture and more particularly means any Securities authenticated and delivered
under this Indenture.
"Security Register" and "Security Registrar" have the respective
meanings specified in Section 305.
"Significant Subsidiary" means any Restricted Subsidiary which is a
"significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the
Securities Act of 1933, as amended.
"Special Record Date" for the payment of any Defaulted Interest means
a date fixed by the Trustee pursuant to Section 307.
<PAGE>
19
"Stated Maturity," when used with respect to a Security or any
installment or interest thereon, means the date specified in such Security as
the final date on which the principal of such Security or such installment of
interest is due and payable.
"Stock Offering" means the offering by the Company of 23,500,000
shares of Class A Common Stock pursuant to the Registration Statement.
"Strategic Equity Investor" means a corporation or entity with an
equity market capitalization, a net asset value or annual revenues of at least
$2 billion that owns and operates businesses in the telecommunications,
information systems, entertainment, cable or similar or related industries.
"Subsidiary" means, with respect to a specified Person, any
corporation, association or other business entity of which 50% or more of the
total voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more of the other Subsidiaries of the Person or a
combination thereof.
"Telecommunications Assets" means, with respect to any Person, any
asset that is utilized by such Person, directly or indirectly, for the design,
development, construction, installation, integration, operation, management or
provision of telecommunications systems and/or services, including without
limitation, any businesses or services in which the Company is engaged at the
Issuance Date and including any computer systems used in a Telecommunications
Business. Telecommunications Assets shall include stock, joint venture or
partnership interests where substantially all of the assets of the entity being
acquired consist of Telecommunications Assets.
"Telecommunications Assets Indebtedness" means Indebtedness incurred
(including in the case of discount or paid in kind Indebtedness any accretion on
such Indebtedness or notes payable in respect of such Indebtedness) by the
Company or a Restricted Subsidiary to finance the construction, expansion,
development or acquisition of Telecommunications Assets or the acquisition of
the Capital Stock of a Restricted Subsidiary substantially all the assets of
which are Telecommunications Assets, provided that the net cash proceeds from
the issuance of such Indebtedness do not exceed, as of the date of incurrence of
such Indebtedness, 100% of the lesser of cost or Fair Market Value of such
Telecommunications Assets so constructed or acquired; provided further, however,
that if an acquired Restricted Subsidiary has outstanding previously incurred
Indebtedness, such previously incurred Indebtedness shall also constitute
Telecommunications Assets Indebtedness if such previously incurred Indebtedness
was not incurred in contemplation of such acquisition and all such Indebtedness
is Non-Recourse Indebtedness, except to the acquired Restricted Subsidiary.
<PAGE>
20
"Telecommunications Business" means the design, development,
construction, acquisition, installation, integration, management or provision of
telecommunications systems and/or services, including, without limitation, any
business or services in which the Company or any of its Restricted Subsidiaries
is engaged at the Issuance Date.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939
as in force at the date as of which this Indenture was executed, except as
provided in Section 905.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution, but, in each case, only to the extent that such Subsidiary (a)
has no Indebtedness other than Non-Recourse Indebtedness and (b) has not
guaranteed any Indebtedness of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors shall be evidenced
to the Trustee by filing with the Trustee a certified copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by Section 1012. If, at any time, any Unrestricted Subsidiary would
fail to meet the foregoing requirements as an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture
and any Indebtedness of such Subsidiary shall be deemed to be incurred as of
such date (and, if such Indebtedness is not permitted to be incurred as of such
date under Section 1011, the Company shall be in default of Section 1011). The
Board of Directors may at any time designate any Unrestricted Subsidiary as a
Restricted Subsidiary and such designation shall only be permitted if (i) the
incurrence of the Indebtedness of such Subsidiary is permitted under Section
1011, and (ii) no Default or Event of Default would be in existence following
such designation. For so long as any Subsidiary is an Unrestricted Subsidiary,
all Subsidiaries of such Unrestricted Subsidiary shall also be deemed to be
Unrestricted Subsidiaries.
"Vice President," when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president."
"Voting Stock" means stock of the class or classes having general
voting power under ordinary circumstances to elect at least a majority of the
board of directors, managers or trustees of a corporation (irrespective of
whether or not at the time stock of any other class or classes shall have or
might have voting power by reason of the happening of any contingency).
<PAGE>
21
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (y) the
number of years (calculated to the nearest one-twelfth) that shall elapse
between such date and the making of such payment, by (b) the then outstanding
principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means, at any time, a Restricted
Subsidiary all of the Capital Stock of which (except directors' qualifying
shares) is at the time owned directly or indirectly by the Company.
SECTION 102. Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company to the Trustee to take
any action under any provision of this Indenture, the Company shall furnish to
the Trustee an Officers' Certificate stating that all conditions precedent, if
any, provided for in this Indenture (including any covenant compliance with
which constitutes a condition precedent) relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the opinion of such
counsel all such conditions precedent, if any, have been complied with, except
that in the case of any such application or request as to which the furnishing
of such documents is specifically required by any provision of this Indenture
relating to such particular application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008(a)) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
<PAGE>
22
SECTION 103. Form of Documents Delivered to Trustee.
--------------------------------------
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or Opinion of Counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders.
---------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him
<PAGE>
23
the execution thereof. Where such execution is by a signer acting in a capacity
other than his individual capacity, such certificate or affidavit shall also
constitute sufficient proof of authority. The fact and date of the execution of
any such instrument or writing, or the authority of the Person executing the
same, may also be proved in any other manner that the Trustee deems sufficient.
(c) The principal amount and serial numbers of Securities held by any
Person, and the date of holding the same, shall be proved by the Security
Register.
(d) If the Company shall solicit from the Holders of Securities any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a record date
is fixed, such request, demand, authorization, direction, notice, consent,
waiver or other Act may be given before or after such record date, but only the
Holders of record at the close of business on such record date shall be deemed
to be Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Securities have authorized or agreed or consented to
such request, demand, authorization, direction, notice, consent, waiver or other
Act, and for that purpose the Outstanding Securities shall be computed as of
such record date; provided that no such authorization, agreement or consent by
the Holders on such record date shall be deemed effective unless it shall become
effective pursuant to the provisions of this Indenture not later than eleven
months after the record date.
(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
SECTION 105. Notices, Etc., to Trustee, Company.
----------------------------------
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
<PAGE>
24
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: Mr. Gerard
F. Ganey, Senior Vice President; or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company
addressed to it at the address of its principal office specified in the
first paragraph of this Indenture, or at any other address previously
furnished in writing to the Trustee by the Company.
SECTION 106. Notice to Holders; Waiver.
-------------------------
Where this Indenture provides for notice of any event to Holders by
the Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Security Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. In
any case where notice to Holders is given by mail, neither the failure to mail
such notice, nor any defect in any notice so mailed, to any particular Holder
shall affect the sufficiency of such notice with respect to other Holders. Any
notice mailed to a Holder in the manner herein prescribed shall be conclusively
deemed to have been received by such Holder, whether or not such Holder actually
receives such notice. Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
SECTION 107. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
<PAGE>
25
SECTION 108. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.
SECTION 109. Separability Clause.
-------------------
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 110. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto, any Paying Agent, any
Securities Registrar and their successors hereunder and the Holders, any benefit
or any legal or equitable right, remedy or claim under this Indenture.
SECTION 111. Governing Law.
-------------
This Indenture and the Securities shall be governed by and construed
in accordance with the law of the State of New York. This Indenture is subject
to the provisions of the Trust Indenture Act that are required to be part of
this Indenture and shall, to the extent applicable, be governed by such
provisions.
SECTION 112. Legal Holidays.
--------------
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity or Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of principal (or premium, if any) or interest need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date or Redemption Date or at the
Stated Maturity or Maturity; provided that no interest shall accrue for the
period from and after such Interest Payment Date, Redemption Date, Stated
Maturity or Maturity, as the case may be.
<PAGE>
26
ARTICLE TWO
SECURITY FORMS
SECTION 201. Forms Generally.
---------------
The Securities and the Trustees certificate of authentication shall be
in substantially the forms set forth in this Article, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution of the Securities. Any portion of the text of
any Security may be set forth on the reverse thereof, with an appropriate
reference thereto on the face of the Security.
The definitive Securities shall be printed, lithographed or engraved
on steel-engraved borders or may be produced in any other manner, all as
determined by the officers of the Company executing such Securities, as
evidenced by their execution of such Securities.
SECTION 202. Form of Face of Security.
------------------------
TELEPORT COMMUNICATIONS GROUP, INC.
Senior Note
due 2006
No._________ $__________
Issuance Date: June __, 1996
Issue Price (for each $1,000 Yield to Maturity: _____%
principal amount): $__________
Method used to determine yield to maturity
for [short] accrual period of June __,
1996 to [date]:
exact method
Teleport Communications Group, Inc., a Delaware corporation (herein
called the "Company," which term includes any successor Person under the
Indenture hereinafter
<PAGE>
27
referred to), for value received, hereby promises to pay to __________________,
or registered assigns, the principal sum of __________ Dollars on ____________,
2006, at the office or agency of the Company referred to below, and to pay
interest thereon on ____________, 1996, and semi-annually thereafter, on [date]
and [date] in each year (each an "Interest Payment Date"), from ____________,
1996, or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, at the rate of _____% per annum, until the principal
hereof is paid or duly provided for, and (to the extent lawful) to pay on demand
interest on any overdue interest at the rate of ____% per annum from the date on
which such overdue interest becomes payable to the date payment of such interest
has been made or duly provided for. The principal on this Note shall not accrue
interest until ____________, 1996, except in the case of a default in payment of
the amount due at Maturity, in which case, the amount then due on this Note
shall bear interest at the rate of _____% per annum from the date of such
default in payment, as provided in the Indenture. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date shall, as
provided in such Indenture, be paid to the Person in whose name this Note (or
one or more Predecessor Notes) is registered at the close of business on the
Regular Record Date for such interest, which shall be the [date] or [date]
(whether or not a Business Day), as the case may be, next preceding such
Interest Payment Date. Any such interest not so punctually paid or duly
provided for shall forthwith cease to be payable to the holder on such Regular
Record Date, and such defaulted interest, and (to the extent lawful) interest on
such defaulted interest at _____% per annum, may be paid to the Person in whose
name this Note (or one or more Predecessor Notes) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to holders of Notes not
less than 10 days prior to such Special Record Date, or may be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such notice as
may be required by such exchange, all as more fully provided in said Indenture.
Payment of the principal of (and premium, if any) and interest on this Note
shall be made at the office or agency of the Company maintained for that purpose
in The City of New York, or at such other office or agency of the Company as may
be maintained for such purpose, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that payment of interest may be made at the
option of the Company by check mailed to the address of the Person entitled
thereto as such address shall appear on the Note Register.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly executed
by the Trustee referred to on the reverse hereof by manual signature, this Note
shall not be entitled to any benefit under the Indenture, or be valid or
obligatory for any purpose.
<PAGE>
28
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated: TELEPORT COMMUNICATIONS
GROUP INC.
By
-------------------------------
Attest: Title:
- -------------------------------
Authorized Signature
SECTION 203. Form of Reverse of Security.
---------------------------
This Note is one of a duly authorized issue of securities of the
Company designated as its ___% Senior Notes due 2006 (herein called the
"Notes"), limited (except as otherwise provided in the Indenture referred to
below) in aggregate principal amount to $___________, which may be issued under
an indenture (herein called the "Indenture") dated as of June __, 1996, between
the Company and United States Trust Company of New York, trustee (herein called
the "Trustee," which term includes any successor trustee under the Indenture),
to which Indenture and all indentures supplemental thereto reference is hereby
made for a statement of the respective rights, limitations of rights, duties,
obligations and immunities thereunder of the Company, the Trustee and the
holders of the Notes, and of the terms upon which the Notes are, and are to be,
authenticated and delivered.
The Notes are subject to redemption, upon not less than 30 nor more
than 60 days' notice, at any time after ________, 2001, as a whole or in part,
at the election of the Company, at a Redemption Price equal to the percentage of
the principal amount of the Notes set forth below plus accrued and unpaid
interest thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on ___________ of the years indicated below:
YEAR PERCENTAGE
- ---- ----------
2001.................................... %
2002.................................... %
2003.................................... %
2004 and thereafter..................... 100%
<PAGE>
29
In the event of the first to occur after the Issuance Date and prior
to _____________, 1999 of (a) a Public Equity Offering for gross proceeds of
$150,000,000 or more or (b) a sale or series of related sales by the Company of
its Capital Stock (other than Disqualified Stock) to one or more Strategic
Equity Investors for an aggregate purchase price of $150,000,000 or more, the
Company may, at its option, within 60 days thereof, use net proceeds of such
equity offering or sales to redeem up to one-third of the aggregate principal
amount of the Notes originally issued at a redemption price of ____% of the
principal amount of the Notes so redeemed; provided that at least one-half of
the aggregate principal amount of the Notes originally issued remains
outstanding after such redemption. Any such redemption may be effected only
once and must be effected upon not less than 30 nor more than 60 days' notice
given within 30 days following such Public Equity Offering or the most recent
sale to a Strategic Equity Investor, as the case may be.
Upon the occurrence of a Change of Control, each holder of Notes shall
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's Notes at a purchase
price equal to 101% of the principal amount thereof on any Change of Control
Payment Date, plus accrued and unpaid interest, if any, to such Change of
Control Payment Date, in accordance with the procedures set forth in the
Indenture.
In the case of any redemption of Notes, interest installments whose
Stated Maturity is on or prior to the Redemption Date shall be payable to the
holders of such Notes, or one or more Predecessor Notes, of record at the close
of business on the relevant Record Date referred to on the face hereof. Notes
(or portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
In the event of redemption of this Note in part only, a new Note or
Notes for the unredeemed portion hereof shall be issued in the name of the
holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal of
all the Notes may be declared to be due and payable in the manner and with the
effect provided in the Indenture and in an amount equal to the principal amount
of the Notes as of the date on which the Notes first become due and payable plus
accrued and unpaid interest, if any, to such date.
The Indenture contains provisions for defeasance at any time of (a)
the entire indebtedness of the Company on this Note and (b) certain restrictive
covenants and the related Defaults and Events of Default, upon compliance by the
Company with certain conditions set forth therein, which provisions apply to
this Note.
<PAGE>
30
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the holders under the Indenture at any time by the
Company and the Trustee with the consent of the holders of a majority in
aggregate principal amount of the Notes at the time outstanding. The Indenture
also contains provisions permitting the holders of specified percentages in
aggregate principal amount of the Notes at the time outstanding, on behalf of
the holders of all the Notes, to waive compliance by the Company with certain
provisions of the Indenture and certain past defaults under the Indenture and
their consequences. Any such consent or waiver by or on behalf of the holder of
this Note shall be conclusive and binding upon such holder and upon all future
holders of this Note and of any Note issued upon the registration of transfer
hereof or in exchange herefor or in lieu hereof whether or not notation of such
consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this Note or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of (and premium, if any, on)
and interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Note is registrable on the Note Register
of the Company, upon surrender of this Note for registration of transfer at the
office or agency of the Company maintained for such purpose in The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Note Registrar duly executed by, the
holder hereof or his attorney duly authorized in writing, and thereupon one or
more new Notes, of authorized denominations and for the same aggregate principal
amount, shall be issued to the designated transferee or transferee.
The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Notes are
exchangeable for a like aggregate principal amount of Notes of a different
authorized denomination, as requested by the holder surrendering the same.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Prior to the time of due presentment of this Note for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Note is registered as the owner hereof
for all purposes, whether or not this Note be overdue, and neither the Company,
the Trustee nor any agent shall be affected by notice to the contrary.
<PAGE>
31
All terms used in this Note which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
SECTION 204. Form of Trustee's Certificate of Authentication.
-----------------------------------------------
The Trustee's certificate of authentication shall be in substantially
the following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
Dated: ____________________
This is one of the Notes referred to in the within-mentioned
Indenture.
UNITED STATES TRUST COMPANY
OF NEW YORK,
as Trustee
By:
--------------------------------------
Name:
Title:
ARTICLE THREE
THE SECURITIES
SECTION 301. Title and Terms.
---------------
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $___________,
except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Section 304,
305, 306, 906, 1010, 1017 or 1108.
The Securities shall be known and designated as the "___% Senior Notes
due 2006" of the Company. Their Stated Maturity shall be ____________, 2006,
and they shall bear interest at the rate of _____% per annum from ____________,
1996 or from the most recent Interest Payment Date to which interest has been
paid or duly provided for, payable on _____________, 1996 and semi-annually
thereafter on [date] and [date] in each year (each an "Interest Payment Date")
and at said Stated Maturity, until the principal thereof is paid or
<PAGE>
32
duly provided for. The principal of the Securities shall not accrue interest
until ____________, 1996, except in the case of a default in payment of the
amount due at Maturity, in which case the amount due on this Security shall bear
interest at a rate of _____% per annum (to the extent that the payment of such
interest shall be legally enforceable), which shall accrue from the date of such
default to the date the payment of such amount has been made or duly provided
for and except as provided for in the previous sentence. Interest on any
overdue principal amount shall be payable on demand.
The principal of (and premium, if any) and interest on the Securities
shall be payable at the office or agency of the Company maintained for such
purpose in The City of New York, or at such other office or agency of the
Company as may be maintained for such purpose; provided, however, that at the
option of the Company interest may be paid by check mailed to addresses of the
Persons entitled thereto as such addresses shall appear on the Security
Register.
The Securities shall be redeemable as provided in Article Eleven.
SECTION 302. Denominations.
-------------
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
----------------------------------------------
The Securities shall be executed on behalf of the Company by its
Chairman, its President or a Vice President, under its corporate seal reproduced
thereon and attested by its Secretary or an Assistant Secretary. The signature
of any of these officers on the Securities may be manual or facsimile signatures
of the present or any future such authorized officer and may be imprinted or
otherwise reproduced on the Securities.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities, and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities.
Each Security shall be dated the date of its authentication.
<PAGE>
33
No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized officer, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be consolidated
or merged with or into any other Person or shall convey, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any Person, and the successor Person resulting from such consolidation, or
surviving such merger, or into which the Company shall have been merged, or the
Person which shall have received a conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article Eight, any of the Securities authenticated
or delivered prior to such consolidation, merger, conveyance, transfer, lease or
other disposition may, from time to time, at the request of the successor
Person, be exchanged for other Securities executed in the name of the successor
Person with such changes in phraseology and form as may be appropriate, but
otherwise in substance of like tenor as the Securities surrendered for such
exchange and of like principal amount; and the Trustee, upon Company Request of
the successor Person, shall authenticate and deliver Securities as specified in
such request for the purpose of such exchange. If Securities shall at any time
be authenticated and delivered in any new name of a successor Person pursuant to
this Section in exchange or substitution for or upon registration of transfer of
any Securities, such successor Person, at the option of the Holders but without
expense to them, shall provide for the exchange of all Securities at the time
Outstanding for Securities authenticated and delivered in such new name.
SECTION 304. Temporary Securities.
--------------------
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as conclusively evidenced
by their execution of such Securities.
If temporary Securities are issued, the Company shall cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 1002,
without charge to the Holder. Upon surrender for cancellation of any one or
more temporary Securities, the Company shall execute and the
<PAGE>
34
Trustee shall authenticate and deliver in exchange therefor a like principal
amount of definitive Securities of authorized denominations. Until so
exchanged, the temporary Securities shall in all respects be entitled to the
same benefits under this Indenture as definitive Securities.
SECTION 305. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers of Securities. The Security Register shall be in
written form or any other form capable of being converted into written form
within a reasonable time. At all reasonable times, the Security Register shall
be open to inspection by the Trustee. The Trustee is hereby initially appointed
as security registrar (the "Security Registrar") for the purpose of registering
Securities and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any Security at the
office or agency of the Company designated pursuant to Section 1002, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Securities of any
authorized denomination or denominations of a like aggregate principal amount.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denomination and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Security Registrar)
be duly endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Security Registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing.
<PAGE>
35
No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 304, 906, 1010, 1017 or 1108 not involving
any transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Security during a period beginning at the opening of business
15 days before the selection of Securities to be redeemed under Section 1104 and
ending at the close of business on the day of such mailing of the relevant
notice of redemption, or (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.
------------------------------------------------
If (i) any mutilated Security is surrendered to the Trustee, or (ii)
the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company and the Trustee such security or indemnity as may be required by them to
save each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide purchaser, the
Company shall execute and upon Company Order the Trustee shall authenticate and
deliver, in exchange for any such mutilated Security or in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
<PAGE>
36
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name such Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest at the
office or agency of the Company maintained for such purpose pursuant to Section
1002; provided, however, that each installment of interest may at the Company's
option be paid by mailing a check for such interest, payable to or upon the
written order of the Person entitled thereto pursuant to Section 308, to the
address of such Person as it appears in the Security Register.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date shall forthwith cease to
be payable to the Holder on the Regular Record Date by virtue of having been
such Holder, and such defaulted interest and (to the extent lawful) interest on
such defaulted interest at the rate borne by the Securities (such defaulted
interest and interest thereon herein collectively called "Defaulted Interest")
may be paid by the Company, at its election in each case, as provided in clause
(1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Security and
the date of the proposed payment, and at the same time the Company shall
deposit with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit prior to the date
of the proposed payment, such money when deposited to be held in trust for
the benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company of such
Special Record Date, and in the name and at the expense of the Company,
shall cause notice of the proposed payment of such Defaulted Interest and
the Special Record Date therefor to be given in the manner provided for in
Section 106, not less than 10 days prior to such Special Record Date.
Notice of the proposed payment of
<PAGE>
37
such Defaulted Interest and the Special Record Date therefor having been so
given, such Defaulted Interest shall be paid to the Persons in whose names
the Securities (or their respective Predecessor Securities) are registered
at the close of business on such Special Record Date and shall no longer be
payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, if, after notice given by the
Company to the Trustee of the proposed payment pursuant to this clause,
such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
SECTION 308. Persons Deemed Owners.
---------------------
Prior to the due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the owner of
such Security for the purpose of receiving payment of principal of (and premium,
if any) and (subject to Sections 305 and 307) interest on such Security and for
all other purposes whatsoever, whether or not such Security be overdue, and none
of the Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 309. Cancellation.
------------
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever, and may deliver to the Trustee (or to any
other Person for delivery to the Trustee) for cancellation any Securities
previously authenticated hereunder which the Company has not issued and sold,
and all Securities so delivered shall be promptly cancelled by the Trustee. If
the Company shall so acquire any of the Securities, however, such acquisition
shall not operate as a redemption or satisfaction of the indebtedness
represented by such Securities unless and until the same are surrendered to the
Trustee for cancellation. No Securities shall be authenticated in lieu of or in
exchange for any Securities cancelled as provided in this Section, except as
expressly
<PAGE>
38
permitted by this Indenture. All cancelled Securities held by the Trustee shall
be disposed of by the Trustee in accordance with its customary procedures and
certification of their disposal delivered to the Company unless by Company Order
the Company shall direct that cancelled Securities be returned to it.
SECTION 310. Computation of Interest.
-----------------------
Interest on the Securities shall be computed on the basis of a 360-day
year of twelve 30-day months.
SECTION 311. No Personal Liability of Directors, Officers, Employees
-------------------------------------------------------
and Stockholders.
----------------
No director, officer, employee, agent, incorporator or stockholder of
the Company, as such, shall have any liability for any obligations of the
Company under the Notes or the Indenture or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each holder of the
Notes by accepting a Note irrevocably waives and releases all such liability.
The waiver and release are part of the consideration for the issuance of the
Notes.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
---------------------------------------
This Indenture shall upon Company Request cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
Securities expressly provided for herein or pursuant hereto) and the Trustee, at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture when
(1) either
(a) all Securities theretofore authenticated and delivered (other
than (i) Securities which have been destroyed, lost or stolen and
which have been replaced or paid as provided in Section 306 and (ii)
Securities for whose payment money has theretofore been deposited in
trust with the Trustee or any Paying Agent or segregated and held in
trust by the Company and thereafter repaid to the Company or
discharged from such trust, as provided in Section 1003) have been
delivered to the Trustee for cancellation; or
<PAGE>
39
(b) all such Securities not theretofore delivered to the Trustee
for cancellation have become due and payable and the Company has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust for such purpose an amount sufficient to pay and
discharge the entire indebtedness on such Securities not theretofore
delivered to the Trustee for cancellation, for principal (and premium,
if any) and interest to the date of such deposit;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 606 and, if money shall
have been deposited with the Trustee pursuant to subclause (b) of clause (1) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
--------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401 shall be held in trust
and applied by it, in accordance with the provisions of the Securities and this
Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
-----------------
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
<PAGE>
40
(1) default in the payment of any interest on any Security when it
becomes due and payable, and continuance of such default for a period of 30
days; or
(2) default in the payment of the principal of (or premium, if any)
any Security at its Maturity; or
(3) default in the performance or breach of the provisions of Section
1010 and Section 1017; or
(4) default in the performance, or breach, of any covenant or
agreement of the Company in this Indenture (other than a default in the
performance, or breach, of a covenant or agreement which is specifically
dealt with elsewhere in this Section), and continuance of such default or
breach for a period of 60 days after there has been given, by registered or
certified mail, to the Company by the Trustee or to the Company and the
Trustee by the Holders of at least 25% in principal amount of the
Outstanding Securities a written notice specifying such default or breach
and requiring it to be remedied and stating that such notice is a "Notice
of Default" hereunder; or
(5) default under any mortgage, indenture or instrument under which
there may be secured or evidenced any Indebtedness for money borrowed by
the Company or any of its Restricted Subsidiaries (or the payment of which
is guaranteed by the Company or any of its Restricted Subsidiaries),
whether such Indebtedness or guarantee now exists, or is created after the
Issuance Date, which default (a) is caused by a failure to pay when due at
stated maturity principal or interest on such Indebtedness within the grace
period (including any extension thereof granted by the holders of such
Indebtedness) provided in such Indebtedness (a "Payment Default") or (b)
results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been so
accelerated, aggregates $25 million or more; or
(6) failure by the Company or any Restricted Subsidiary to pay final
judgments aggregating in excess of $25 million (net of any amount as to
which a reputable insurance company has accepted liability), which
judgments are not stayed or bonded within 60 days after their entry; or
(7) any Guarantee by a Guarantor of the Securities being held in any
judicial proceeding to be unenforceable or invalid, provided any other
Guarantee by such Guarantor giving rise to such obligation to Guarantee the
Securities is not held enforceable, or failure of any Guarantee of the
Securities to be in full force and
<PAGE>
41
effect, or the assertion that such Guarantee is invalid or unenforceable by
any Guarantor; or
(8) the entry of a decree or order by a court having jurisdiction in
the premises adjudging the Company or any Significant Subsidiary a bankrupt
or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company or any Significant Subsidiary under the Federal Bankruptcy Code
or any other applicable federal or state law, or appointing a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of
the Company or any Significant Subsidiary or of any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and the
continuance of any such decree or order unstayed and in effect for a period
of 60 consecutive days; or
(9) the institution by the Company or any Significant Subsidiary of
proceedings to be adjudicated a bankrupt or insolvent, or the consent by it
to the institution of bankruptcy or insolvency proceedings against it, or
the filing by it of a petition or answer or consent seeking reorganization
or relief under the Federal Bankruptcy Code or any other applicable federal
or state law, or the consent by it to the filing of any such petition or to
the appointment of a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of the Company or any Significant Subsidiary or
of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in writing
of its inability to pay its debts generally as they become due.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
--------------------------------------------------
If an Event of Default (other than an Event of Default specified in
Section 501(8) or (9)) occurs and is continuing, then and in every such case the
Trustee or the Holders of not less than 25% in principal amount of the
Securities Outstanding may declare the principal of all the Securities to be due
and payable immediately in an amount equal to the aggregate principal amount of
the Securities plus accrued and unpaid interest, if any, to such date, by a
notice in writing to the Company (and to the Trustee if given by Holders), and
upon any such declaration such principal shall become immediately due and
payable. If an Event of Default specified in Section 501(8) or (9) occurs and
is continuing, then the principal of all the Securities shall ipso facto become
and be immediately due and payable without any declaration or other act on the
part of the Trustee or any Holder in an amount equal to the aggregate principal
amount of the Securities plus accrued and unpaid interest, if any, to such date.
At any time after a declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as
<PAGE>
42
hereinafter provided in this Article, the Holders of a majority in principal
amount of the Securities Outstanding, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay,
(A) all overdue interest on all Outstanding Securities,
(B) all unpaid principal of (and premium, if any, on) any
Outstanding Securities which has become due otherwise than by such
declaration of acceleration, and interest on such unpaid principal at
the rate borne by the Securities,
(C) to the extent that payment of such interest is lawful,
interest on overdue interest at the rate borne by the Securities, and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel; and
(2) all Events of Default, other than the non-payment of amounts of
principal of (or premium, if any, on) or interest on Securities which have
become due solely by such declaration of acceleration, have been cured or
waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee
-------
The Company covenants that if
(a) default is made in the payment of any installment of interest on
any Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
(b) default is made in the payment of the principal of (or premium, if
any, on) any Security at the Maturity thereof,
<PAGE>
43
the Company shall, upon demand of the Trustee, pay to the Trustee for the
benefit of the Holders of such Securities, the whole amount then due and payable
on such Securities for principal (and premium, if any) and interest, and
interest on any overdue principal (and premium, if any) and, to the extent that
payment of such interest shall be legally enforceable, upon any overdue
installment of interest, at the rate borne by the Securities, and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
--------------------------------
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal, premium, if any, or interest)
shall be entitled and empowered, by intervention in such proceeding or
otherwise,
(i) to file and prove a claim for the whole amount of principal (and
premium, if any) and interest owing and unpaid in respect of the Securities
and to file such other papers or documents as may be necessary or advisable
in order to have the claims of the Trustee (including any claim for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel) and of the Holders allowed in such
judicial proceeding, and
<PAGE>
44
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of
------------------------------------------------
Securities.
----------
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
and as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
SECTION 506. Application of Money Collected.
------------------------------
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal (or premium,
if any) or interest, upon presentation of the Securities and the notation
thereon of the payment if only partially paid and upon surrender thereof if
fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
606;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Securities in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or
<PAGE>
45
priority of any kind, according to the amounts due and payable on such
Securities for principal (and premium, if any) and interest, respectively;
and
THIRD: The balance, if any, to the Person or Persons entitled
thereto.
SECTION 507. Limitation on Suits.
-------------------
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given
to the Trustee during such 60-day period by the Holders of a majority or
more in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive Principal,
----------------------------------------------------
Premium and Interest.
--------------------
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment, as provided herein (including, if applicable, Article Thirteen)
and in such Security of the
<PAGE>
46
principal of (and premium, if any) and (subject to Section 307) interest on such
Security on the respective Stated Maturities expressed in such Security (or, in
the case of redemption, on the Redemption Date) and to institute suit for the
enforcement of any such payment, and such rights shall not be impaired without
the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
----------------------------------
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
------------------------------
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities in the last paragraph
of Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
----------------------------
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
SECTION 512. Control by Holders.
------------------
The Holders of not less than a majority in principal amount of the
Outstanding Securities shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, provided that
<PAGE>
47
(1) such direction shall not be in conflict with any rule of law or
with this Indenture,
(2) the Trustee may take any other action deemed proper by the Trustee
which is not inconsistent with such direction, and
(3) the Trustee need not take any action which might involve it in
personal liability or be unjustly prejudicial to the Holders not
consenting.
SECTION 513. Waiver of Past Defaults.
-----------------------
The Holders of not less than a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences (including consents obtained in
connection with a tender offer or exchange offer for the Notes), except that,
without the consent of each Holder affected, a waiver may not (with respect to
any Securities held by a non-consenting Holder of the Securities)
(1) waive a default in the payment of principal of (or premium, if
any) or interest on any Security (except a rescission of acceleration of
the Securities by the Holders of at least a majority in principal amount of
the Securities and a waiver of the payment default that resulted from such
acceleration), or
(2) waive a default in respect of a covenant or provision hereof which
under Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected, or
(3) waive a default under this Section or Section 902.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
SECTION 514. Waiver of Stay or Extension Laws.
--------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it shall not hinder, delay or impede the
<PAGE>
48
execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law had been enacted.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults.
------------------
Within 90 days after the occurrence of any Default hereunder, the
Trustee shall transmit in the manner and to the extent provided in TIA Section
313(c), notice of such Default hereunder known to the Trustee, unless such
Default shall have been cured or waived; provided, however, that, except in the
case of a Default in the payment of the principal of (or premium, if any) or
interest on any Security, the Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee or a
trust committee of directors and/or Responsible Officers of the Trustee in good
faith determines that the withholding of such notice is in the interest of the
Holders; and provided further that in the case of any Default of the character
specified in Section 501(4) no such notice to Holders shall be given until at
least 60 days after the occurrence thereof.
SECTION 602. Certain Rights of Trustee.
-------------------------
Subject to the provisions of TIA Sections 315(a) through 315(d):
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(2) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(3) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officers' Certificate;
<PAGE>
49
(4) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(5) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee reasonable security and indemnity against the
costs, losses, expenses and liabilities which might be incurred by it in
compliance with such request or direction;
(6) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall be entitled to examine the books, records and premises of the
Company, personally or by agent or attorney;
(7) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder; and
(8) the Trustee shall not be liable for any action taken, suffered or
omitted by it in good faith and believed by it to be authorized or within
the discretion or rights or powers conferred upon it by this Indenture.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
In case an Event of Default shall occur (which shall not be cured),
the Trustee shall be required, in the exercise of its rights and powers under
this Indenture, to use the degree of care of a prudent man in the conduct of its
own affairs.
<PAGE>
50
SECTION 603. Trustee Not Responsible for Recitals or Issuance of
---------------------------------------------------
Securities.
----------
The recitals contained herein and in the Securities, except for the
Trustees certificates of authentication, shall be taken as the statements of the
Company, and the Trustee assumes no responsibility for their correctness. The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Securities, except that the Trustee represents that it is
duly authorized to execute and deliver this Indenture, authenticate the
Securities and perform its obligations hereunder and that the statements made by
it in a Statement of Eligibility on Form T-1 supplied to the Company are true
and accurate, subject to the qualifications set forth therein. The Trustee
shall not be accountable for the use or application by the Company of Securities
or the proceeds thereof.
SECTION 604. May Hold Securities.
-------------------
The Trustee, any Paying Agent, any Security Registrar or any other
agent of the Company or of the Trustee, in its individual or any other capacity,
may become the owner or pledgee of Securities and, subject to TIA Sections
310(b) and 311, may otherwise deal with the Company with the same rights it
would have if it were not Trustee, Paying Agent, Security Registrar or such
other agent.
SECTION 605. Money Held in Trust.
-------------------
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
SECTION 606. Compensation and Reimbursement.
------------------------------
The Company agrees:
(1) to pay to the Trustee from time to time reasonable compensation
for all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee
of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with any provision
of this Indenture (including the reasonable compensation and the expenses
and disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or bad
faith; and
<PAGE>
51
(3) to indemnify the Trustee for, and to hold it harmless against, any
loss, liability or expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or administration
of this trust, including the costs and expenses of defending itself against
any claim or liability in connection with the exercise or performance of
any of its powers or duties hereunder.
The obligations of the Company under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture. As security for the performance of such
obligations of the Company, the Trustee shall have a claim prior to the
Securities upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the payment of principal of (and premium, if any)
or interest on particular Securities.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 501(8) or (9), the expenses
(including the reasonable charges and expenses of its counsel) of and the
compensation for such services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 607. Corporate Trustee Required; Eligibility.
---------------------------------------
There shall be at all times a Trustee hereunder which shall be
eligible to act as Trustee under TIA Section 310(a)(1) and shall have a combined
capital and surplus of at least $50,000,000. If such corporation publishes
reports of condition at least annually, pursuant to law or to the requirements
of Federal, State, territorial or District of Columbia supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 608. Resignation and Removal; Appointment of Successor.
-------------------------------------------------
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 609.
<PAGE>
52
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If the instrument of acceptance by a successor Trustee
required by Section 609 shall not have been delivered to the Trustee within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of
not less than a majority in principal amount of the Outstanding Securities,
delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of TIA
Section 310(b) after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six
months, or
(2) the Trustee shall cease to be eligible under Section 607 and shall
fail to resign after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six
months, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bankrupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee. If,
within one year after such resignation, removal or incapability, or the
occurrence of such vacancy, a successor Trustee shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
delivered to the Company and the retiring Trustee, the successor Trustee so
appointed shall, forthwith upon its acceptance of such appointment, become the
successor Trustee and supersede the successor Trustee appointed by the Company.
If no successor Trustee shall have been so appointed by the Company or the
Holders and accepted appointment in the manner hereinafter provided, any Holder
who has been a bona fide Holder of a Security for at least six months may, on
behalf of himself and all others
<PAGE>
53
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to the Holders of
Securities in the manner provided for in Section 106. Each notice shall include
the name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 609. Acceptance of Appointment by Successor.
--------------------------------------
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee,
the Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article.
SECTION 610. Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business.
--------
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
In case at that time any of the Securities shall not have been authenticated,
any successor Trustee may authenticate such Securities either in the name of any
predecessor hereunder or in the name of the successor Trustee. In all such
cases such certificates shall
<PAGE>
54
have the full force and effect which this Indenture provides for the certificate
of authentication of the Trustee shall have; provided, however, that the right
to adopt the certificate of authentication of any predecessor Trustee or to
authenticate Securities in the name of any predecessor Trustee shall apply only
to its successor or successors by merger, conversion or consolidation.
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE
SECTION 701. Disclosure of Names and Addresses of Holders.
--------------------------------------------
Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that none of the Company or the Trustee or any
agent of either of them shall be held accountable by reason of the disclosure of
any such information as to the names and addresses of the Holders in accordance
with TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under TIA Section 312(b).
SECTION 702. Reports by Trustee.
------------------
Within 60 days after [May 15] of each year commencing with the first
[May 15] after the first issuance of Securities, the Trustee shall transmit to
the Holders, in the manner and to the extent provided in TIA Section 313(c), a
brief report dated as of such [May 15] if required by TIA Section 313(a).
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Limitation on Merger, Consolidation or Sale of Assets.
-----------------------------------------------------
The Company shall not consolidate or merge with or into (whether or
not the Company is the surviving Person), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another Person unless:
(1) the Company is the surviving corporation or the Person formed by
or surviving any such consolidation or merger (if other than the Company)
or to which
<PAGE>
55
such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation, partnership or limited liability
company organized or existing under the laws of the United States, any
state thereof or the District of Columbia;
(2) the Person formed by or surviving any such consolidation or merger
(if other than the Company) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company, pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee, under the Securities and this
Indenture and, in the case of such surviving Person that is a partnership,
at least one subsidiary of such Person which shall be a corporation
organized or existing under the laws of the United States, any state
thereof or the District of Columbia and which shall also assume the
Obligations of the Company under the Securities and this Indenture as a co-
obligor with such surviving Person;
(3) immediately before and after giving effect to such transaction or
series of transactions on a pro forma basis (including, without limitation,
any Indebtedness incurred or anticipated to be incurred in connection with
or in respect of such transaction or series of transactions), no Default or
Event of Default shall have occurred and be continuing or would result
therefrom;
(4) immediately after giving effect to any such transaction or series
of transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or
in respect of such transaction or series of transactions) as if such
transaction or series of transactions had occurred on the first day of the
determination period, the Company (or the surviving entity if the Company
is not continuing) would be permitted to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to Section 1011;
and
(5) the Company or such Person shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, transfer or lease and, if a supplemental
indenture is required in connection with such transaction, such
supplemental indenture, comply with this Article and that all conditions
precedent herein provided for relating to such transaction have been
complied with.
SECTION 802. Successor Substituted.
---------------------
Upon any consolidation of the Company with or merger of the Company
with or into any other corporation or any conveyance, transfer or lease of the
properties and assets of the Company substantially as an entirety to any Person
in accordance with Section 801,
<PAGE>
56
the successor Person formed by such consolidation or into which the Company is
merged or to which such conveyance, transfer or lease is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
under this Indenture with the same effect as if such successor Person had been
named as the Company herein, and in the event of any such conveyance or
transfer, the Company (which term shall for this purpose mean the Person named
as the "Company" in the first paragraph of this Indenture or any successor
Person which shall theretofore become such in the manner described in Section
801), except in the case of a lease, shall be discharged of all obligations and
covenants under this Indenture and the Securities and may be dissolved and
liquidated.
SECTION 803. Securities to Be Secured in Certain Events.
------------------------------------------
If, upon any such consolidation of the Company with or merger of the
Company into any other corporation, or upon any conveyance, lease or transfer of
the property of the Company substantially as an entirety to any other Person,
any property or assets of the Company would thereupon become subject to any
Lien, then unless such Lien could be created pursuant to Section 1013 without
equally and ratably securing the Securities, the Company, prior to or
simultaneously with such consolidation, merger, conveyance, lease or transfer,
shall as to such property or assets, secure the Securities Outstanding (together
with, if the Company shall so determine, any other Indebtedness of the Company
now existing or hereinafter created which is not subordinate in right of payment
to the Securities) equally and ratably with (or prior to) the Indebtedness which
upon such consolidation, merger, conveyance, lease or transfer is to become
secured as to such property or assets by such Lien, or will cause such
Securities to be so secured; provided that, for the purpose of providing such
equal and ratable security, the principal amount of the Securities shall mean
that amount which would at the time of making such effective provision be due
and payable pursuant to Section 502 upon a declaration of acceleration of the
Maturity thereof, and the extent of such equal and ratable security shall be
adjusted, to the extent permitted by law, as and when said amount changes over
time as provided in Section 502.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holders, the Company, when authorized by a
Board Resolution, and the Trustee, at any time and from time to time, may enter
into one or more indentures supplemental hereto, in form satisfactory to the
Trustee, for any of the following purposes:
<PAGE>
57
(1) to cure any ambiguity, defect or inconsistency; or
(2) to provide for uncertificated Securities in addition to or in
place of certificated Securities; or
(3) to provide for the assumption of the Company's obligations to
Holders of the Securities in the case of a merger or consolidation as
provided in Section 801; or
(4) to make any change that would provide any additional rights or
benefits to the Holders of the Securities or that does not materially and
adversely affect the legal rights under this Indenture of any such Holder;
or
(5) to comply with requirements of the Commission in order to maintain
the qualification of this Indenture under the Trust Indenture Act; or
(6) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of Section
609; or
(7) to secure the Securities pursuant to the requirements of Section
803 or 1013 or otherwise.
SECTION 902. Supplemental Indentures with Consent of Holders.
-----------------------------------------------
With the consent of the Holders of not less than a majority in
principal amount of the Outstanding Securities (including consents obtained in
connection with a tender offer as exchange offer for the Securities), by Act of
said Holders delivered to the Company and the Trustee, the Company, when
authorized by a Board Resolution, and the Trustee may enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent of the Holder of each Outstanding Security affected thereby (with
respect to any Securities held by a non-consenting Holder):
(1) change the Stated Maturity of the principal of or any installment
of interest on any Security, or reduce the principal amount thereof (or
premium, if any) or the rate of interest thereon or reduce the amount of
the principal of the Securities that would be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 502
or the amount thereof provable in bankruptcy pursuant to Section 504, or
change the coin or currency in which any Security or any premium or the
interest thereon is payable, or alter the provisions with respect to the
<PAGE>
58
redemption of the Securities, or impair the right to institute suit for the
enforcement of any such payment after the Stated Maturity thereof (or, in
the case of redemption, on or after the Redemption Date), or
(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences provided for in this Indenture,
or
(3) modify any of the provisions of this Section or Sections 513 and
1019, except to increase any such percentage or to provide that certain
other provisions of this Indenture cannot be modified or waived without the
consent of the Holder of each Outstanding Security affected thereby.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
------------------------------------
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of such supplemental indenture is authorized or permitted by this
Indenture. The Trustee may, but shall not be obligated to, enter into any such
supplemental indenture which affects the Trustees own rights, duties or
immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
---------------------------------
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby (except as provided in Section 902).
SECTION 905. Conformity with Trust Indenture Act.
-----------------------------------
Every supplemental indenture executed pursuant to the Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
<PAGE>
59
SECTION 906. Reference in Securities to Supplemental Indentures.
--------------------------------------------------
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
SECTION 907. Notice of Supplemental Indentures.
---------------------------------
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of Section 902, the Company
shall give notice thereof to the Holders of each Outstanding Security affected,
in the manner provided for in Section 106, setting forth in general terms the
substance of such supplemental indenture.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and Interest.
---------------------------------------------------
The Company covenants and agrees for the benefit of the Holders that
it shall duly and punctually pay the principal of (and premium, if any) and
interest on the Securities in accordance with the terms of the Securities and
this Indenture.
SECTION 1002. Maintenance of Office or Agency.
-------------------------------
The Company shall maintain in The City of New York, an office or
agency where Securities may be presented or surrendered for payment, where
Securities may be surrendered for registration of transfer or exchange and where
notices and demands to or upon the Company in respect of the Securities and this
Indenture may be served. The Corporate Trust Office of the Trustee shall be
such office or agency of the Company, unless the Company shall designate and
maintain some other office or agency for one or more of such purposes. The
Company shall give prompt written notice to the Trustee of any change in the
location of any such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served
<PAGE>
60
at the Corporate Trust Office of the Trustee, and the Company hereby appoints
the Trustee as its agent to receive all such presentations, surrenders, notices
and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Securities
may be presented or surrendered for any or all such purposes and may from time
to time rescind any such designation; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York for such
purposes. The Company shall give prompt written notice to the Trustee of any
such designation or rescission and any change in the location of any such other
office or agency.
SECTION 1003. Money for Security Payments to Be Held in Trust.
-----------------------------------------------
If the Company shall at any time act as its own Paying Agent, it
shall, on or before each due date of the principal of (or premium, if any) or
interest on any of the Securities, segregate and hold in trust for the benefit
of the Persons entitled thereto a sum sufficient to pay the principal of (or
premium, if any) or interest so becoming due until such sums shall be paid to
such Persons or otherwise disposed of as herein provided and shall promptly
notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Securities, it shall, on or before each due date of the principal of (or
premium, if any) or interest on any Securities, deposit with a Paying Agent a
sum sufficient to pay the principal (and premium, if any) or interest so
becoming due, such sum to be held in trust for the benefit of the Persons
entitled to such principal, premium or interest, and (unless such Paying Agent
is the Trustee) the Company shall promptly notify the Trustee of such action or
any failure so to act.
The Company shall cause each Paying Agent (other than the Trustee) to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent shall:
(1) hold all sums held by it for the payment of the principal of (and
premium, if any) or interest on Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest; and
<PAGE>
61
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of (or premium, if
any) or interest on any Security and remaining unclaimed for two years after
such principal, premium or interest has become due and payable shall be paid to
the Company on Company Request, or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Security shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
shall be repaid to the Company.
SECTION 1004. Corporate Existence.
-------------------
Subject to Article Eight, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence, rights (charter and statutory) and franchises of the Company and each
Subsidiary; provided, however, that the Company shall not be required to
preserve any such right or franchise if the Board of Directors shall determine
that the preservation thereof is no longer desirable in the conduct of the
business of the Company and its Subsidiaries as a whole and that the loss
thereof is not disadvantageous in any material respect to the Holders.
<PAGE>
62
SECTION 1005. Payment of Taxes and Other Claims.
---------------------------------
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
all lawful claims for labor, materials and supplies, which, if unpaid, might by
law become a lien upon the property of the Company or any Subsidiary; provided,
however, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
SECTION 1006. Maintenance of Properties.
-------------------------
The Company shall cause all properties owned by the Company or any
Subsidiary or used or held for use in the conduct of its business or the
business of any Subsidiary to be maintained and kept in good condition, repair
and working order and supplied with all necessary equipment and shall cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Company may be necessary so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that nothing in this
Section shall prevent the Company from discontinuing the maintenance of any of
such properties if such discontinuance is, in the judgment of the Company,
desirable in the conduct of its business or the business of any Subsidiary and
not disadvantageous in any material respect to the Holders.
SECTION 1007. Insurance.
---------
The Company shall at all times keep all of its and its Subsidiaries
properties which are of an insurable nature insured with insurers, believed by
the Company to be responsible, against loss or damage to the extent that
property of similar character is usually so insured by corporations similarly
situated and owning like properties.
SECTION 1008. Statement by Officers as to Default.
-----------------------------------
(a) The Company shall deliver to the Trustee, within 120 days after
the end of each fiscal year, a brief certificate from the principal executive
officer, principal financial officer or principal accounting officer as to his
or her knowledge of the Company's compliance with all conditions and covenants
under this Indenture. For purposes of this Section 1008(a), such compliance
shall be determined without regard to any period of grace or requirement of
notice under this Indenture.
<PAGE>
63
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of
Indebtedness of the Company or any Subsidiary gives any notice or takes any
other action with respect to a claimed default (other than with respect to
Indebtedness in the principal amount of less than $25 million, the Company shall
deliver to the Trustee by registered or certified mail or by telegram, telex or
facsimile transmission an officers certificate specifying such event, notice or
other action within five Business Days of its occurrence.
SECTION 1009. Reports to Holders.
------------------
The Company shall deliver to the Trustee and to the Holders, within 30
days after it files them with the Commission, copies of its annual and quarterly
reports which the Company is required to file with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act. Notwithstanding that the Company may
not be required to remain subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act or otherwise report on an annual and quarterly basis
on forms provided for such annual and quarterly reporting pursuant to rules and
regulations promulgated by the Commission, the Company shall continue to file
with the Commission and provide to the Trustee and to the Holders annual audited
financial statements and quarterly unaudited financial statements, along in each
case with a "Management's Discussion and Analysis of Results of Operations and
Financial Condition," all in the form the Company would be required to file were
it subject to the Exchange Act reporting requirements. The Company shall not be
obligated to file any such reports with the Commission if the Commission does
not permit such filings.
SECTION 1010. Change of Control.
-----------------
(a) Upon the occurrence of a Change of Control, each Holder of
Securities shall have the right to require the Company to repurchase all or any
part (equal to $1,000 or an integral multiple thereof) of such Holder's
Securities pursuant to the offer described below (the "Change of Control Offer")
at a purchase price (the "Purchase Price") equal to 101% of the principal amount
thereof on any Change of Control Payment Date, plus accrued and unpaid interest,
if any, to such Change of Control Payment Date, in accordance with the
procedures set forth below.
(b) Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder in the manner provided in Section 106 stating: (1)
that the Change of Control Offer is being made pursuant to the provisions of
Section 1010 of this Indenture and that all Securities duly and timely tendered
shall be accepted for payment; (2) the Purchase Price and the purchase date (the
"Change of Control Payment Date"), which date shall be no earlier than 30 days
nor later than 60 days from the date such notice is mailed; (3) that any
Securities not tendered shall continue to accrue interest; (4) that, unless the
Company defaults in the payment of the Purchase Price, all Securities accepted
for
<PAGE>
64
payment pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Payment Date; (5) that Holders electing to have any
Securities purchased pursuant to a Change of Control Offer shall be required to
surrender the Securities, with the form entitled "Option of Holder to Elect
Purchase Pursuant to a Change of Control Offer" on the reverse of the Securities
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third Business Day preceding the Change of Control
Payment Date; (6) that Holders shall be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the second
Business Day preceding the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of Securities delivered for purchase, and a statement that such
Holder is withdrawing his election to have such Securities purchased; (7) that
Holders whose Securities are being purchased only in part shall be issued new
Securities equal in principal amount to the unpurchased portion of the
Securities surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof; (8) the instructions that the
Holders of Securities must follow in order to tender their Securities; and (9)
the circumstances and relevant facts regarding such Change of Control
(including, but not limited to, information with respect to pro-forma historical
income, cash flow and capitalization after giving effect to such Change of
Control).
(a) The Company will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Securities in connection with a Change of Control.
SECTION 1011. Limitation on Incurrence of Indebtedness.
----------------------------------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee
or otherwise become directly or indirectly liable with respect to (collectively,
"incur") any Indebtedness (including, without limitation, Acquired Indebtedness)
other than Permitted Indebtedness, unless, in the case of Indebtedness of the
Company exclusively, (a) no Default or Event of Default shall have occurred and
be continuing at the time of the proposed incurrence thereof or would occur as a
result of such proposed incurrence and (b) after giving effect to such
incurrence on a pro forma basis (i) with respect to such proposed incurrence of
Indebtedness on or prior to January 1, 2001, the Company's Indebtedness to
Adjusted Total Equity Ratio would not exceed 1.0 to 1.0, and (ii) with respect
to such proposed incurrence of Indebtedness thereafter, the Company's
Indebtedness to EBITDA Ratio would not equal or exceed 5.0 to 1.0.
<PAGE>
65
SECTION 1012. Limitation on Restricted Payments.
---------------------------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, make any Restricted Payment unless, at
the time of such Restricted Payment and after giving pro forma effect thereto:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the aggregate amount of all Restricted Payments subsequent to the
Issuance Date would not exceed the greater of:
(1) the sum of
(w) cumulative EBITDA of the Company and its Restricted
Subsidiaries less 1.4 times cumulative Consolidated Interest
Expense, in each case for the period (treated as one accounting
period) beginning on the first day of the Company's fiscal
quarter in which the Issuance Date occurs, and ending on the last
day of the Company's fiscal quarter immediately preceding such
proposed Restricted Payment; plus
(x) 100% of the net cash proceeds received by the Company
from any Person from the issuance and sale subsequent to the
Issuance Date of Equity Interests of the Company or of debt
securities of the Company that have been converted into such
Equity Interests (other than Equity Interests (or convertible
debt securities) sold to a Restricted Subsidiary and other than
Disqualified Stock or debt securities that have been converted
into Disqualified Stock); minus
(y) 100% of all Investments made pursuant to clause (d) of
the definition of "Permitted Investments" less any such amounts
invested in Local Market Partnerships that become Restricted
Subsidiaries prior to the first anniversary of the Issuance Date;
minus
(z) the amount of any Investments in Joint Ventures pursuant
to clause (e)(ii) of the definition of "Permitted Investments"
less the Fair Market Value of the Company's interest in any Joint
Ventures that become Restricted Subsidiaries but not in excess of
the amount of any such Investments in such Joint Ventures
pursuant to such clause (e)(ii); and
<PAGE>
66
(2) $10 million; and
(c) the Company would have been permitted to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
test set forth in clause (b) of Section 1011.
The provisions of this Section shall not prohibit (i) the payment of
any dividend (or similar distribution with respect to Equity Interests) within
60 days after the date of declaration thereof, if at said date of declaration
such payment would have complied with the provisions of this Indenture; (ii) the
redemption, purchase, retirement or other acquisition of any Equity Interests of
the Company or any Restricted Subsidiary in exchange for, or out of the proceeds
of the substantially concurrent sale (other than to a Restricted Subsidiary) of,
other Equity Interests (other than Disqualified Stock) of the Company; (iii) the
redemption, purchase, retirement or other acquisition of any Equity Interests of
a Restricted Subsidiary in exchange for, or out of the proceeds of the
substantially concurrent sale (other than to another Restricted Subsidiary) of,
other Equity Interests (other than Disqualified Stock) of such Restricted
Subsidiary; (iv) the redemption, purchase, defeasance, acquisition or retirement
of Indebtedness that is subordinated to the Securities (including premium, if
any, and accrued and unpaid interest, fees and expenses) in exchange for, or out
of the proceeds of the substantially concurrent sale (other than to a Restricted
Subsidiary) of, (A) Equity Interests (other than Disqualified Stock) of the
Company or (B) Refinancing Indebtedness permitted to be incurred under Section
1011; (v) any purchase, redemption, retirement or acquisition, from minority
partners in one or more of the Local Market Partnerships listed in Schedule I
hereto, of any Capital Stock of such Local Market Partnership at the time or
after it becomes a Restricted Subsidiary; (vi) any distribution in respect of
partners' income tax liability and any other distribution that is required to be
made pursuant to the terms of any partnership agreement or similar operating
agreement in effect as of the Issuance Date governing any of the Local Market
Partnerships listed in Schedule I hereto or, to the extent that it is pro rata
or required under law, any distribution that is required to be made pursuant to
the terms of any other similar partnership or similar operating agreement
entered into after the Issuance Date; (vii) the purchase, redemption, retirement
or acquisition by the Company of shares of Capital Stock of the Company from
Continental Teleport, Inc. pursuant to the Reorganization Agreement; (viii) the
purchase, redemption or other acquisition or retirement for value of Capital
Stock, or options, warrants or rights to purchase or acquire shares of Capital
Stock, of the Company or any Restricted Subsidiary, or similar securities, held
by officers or employees or former officers or employees of the Company or its
Restricted Subsidiaries (or their estates or beneficiaries under their estates),
upon death, disability, retirement or termination of employment in an aggregate
amount not to exceed $2 million per year; and (ix) Permitted Investments.
For purposes of this Section, if a particular Restricted Payment
involves a non-cash payment, including a distribution of assets, then the amount
of such Restricted
<PAGE>
67
Payment shall be deemed to be an amount equal to the sum of the cash portion of
such Restricted Payment, if any, plus an amount equal to the Fair Market Value
of the non-cash portion of such Restricted Payment.
Not later than the date of making any Restricted Payment (other than
those described under clauses (v), (vi), (vii) or (viii) of the second preceding
paragraph), the Company shall deliver to the Trustee an Officers' Certificate
stating that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by clause (b) of this Section, to the
extent applicable, were computed, which calculations may be based upon the
Company's latest available financial statements.
SECTION 1013. Limitation on Liens.
-------------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or otherwise
suffer to exist any Lien (other than Permitted Liens) on any property or asset
now owned or hereafter acquired, of the Company or any such Restricted
Subsidiary, unless (a) in the case of any Lien securing Indebtedness that is
expressly subordinated in right of payment to the Securities, the Securities are
secured by a Lien on such property or assets that is senior in priority to such
Lien for so long as such Indebtedness shall be so secured and (b) in the case of
any other Lien, the Securities are equally and ratably secured with the
obligation or liability secured by such Lien for so long as such obligation or
liability shall be so secured.
SECTION 1014. Limitation on Dividend and Other Payment Restrictions
-----------------------------------------------------
Affecting Restricted Subsidiaries.
---------------------------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make any
other distributions on its Capital Stock or with respect to any other interest
or participation in, or measured by, its profits owned by, or pay any
Indebtedness owed to, the Company or any of its Restricted Subsidiaries or (b)
make loans or advances to the Company or any of its Restricted Subsidiaries or
(c) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries, except, in each case, for such encumbrances or
restrictions existing under or by reason of (i) the Revolving Credit Agreement,
provided that any such encumbrances or restrictions, taken as a whole, are no
more restrictive than those contained in the Revolving Credit Agreement as in
effect on the Issuance Date, (ii) applicable law, (iii) any instrument governing
Indebtedness or Capital Stock of a Person acquired by the Company or any of its
Restricted Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was incurred in connection with such acquisition),
which encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the property or
<PAGE>
68
assets of the Person, so acquired, (iv) customary nonassignment provisions in
leases, rights-of-way agreements and other agreements entered into in the
ordinary course of business and consistent with past practices, (v) with respect
to clause (c) above, purchase money obligations for property acquired in the
ordinary course of business, (vi) Refinancing Indebtedness permitted to be
incurred under Section 1011, provided that the restrictions contained in the
agreements governing such Refinancing Indebtedness are no more restrictive than
those contained in the agreements governing the Indebtedness being refinanced,
(vii) any other Indebtedness permitted to be incurred by a Restricted Subsidiary
under Section 1011, provided that the restrictions contained in the agreements
governing such Indebtedness are similar to those contained in the Revolving
Credit Agreement as in effect on the Issuance Date, (viii) provisions of the
partnership agreement or other operating agreement in effect as of the Issuance
Date governing any of the Local Market Partnerships listed in Schedule I hereto,
and (ix) any agreement effecting the renewal, refunding, refinancing or
extension of any Indebtedness referred to in the preceding clause (iii),
provided that the restrictions contained in the agreements governing such new
Indebtedness are no more restrictive than those contained in the agreements
governing the Indebtedness being extended, renewed, refinanced or replaced.
SECTION 1015. Limitation on Issuance and Sale of Capital
------------------------------------------
Stock of Restricted Subsidiaries.
--------------------------------
The Company (a) shall not permit any Restricted Subsidiary to issue
any Capital Stock (other than to the Company or a Wholly Owned Restricted
Subsidiary) and (b) shall not permit any Person (other than the Company or a
Restricted Subsidiary) to own any Capital Stock of any Restricted Subsidiary;
provided, however, that this Section shall not prohibit (i) the sale or other
disposition of all, but not less than all, of the issued and outstanding Capital
Stock of any Restricted Subsidiary owned by the Company or any Restricted
Subsidiary in compliance with the other provisions of this Indenture, (ii) the
ownership by directors of director's qualifying shares or the ownership by
foreign nationals of Capital Stock of any Restricted Subsidiary, to the extent
mandated by applicable law, (iii) the ownership of Capital Stock of a Restricted
Subsidiary issued and outstanding either (A) as of the Issuance Date (including
minority partnership interests in any of the Local Market Partnerships listed in
Schedule I hereto) or (B) prior to the time that such Person becomes a
Restricted Subsidiary so long as such Capital Stock was not issued in
contemplation of such Person's becoming a Restricted Subsidiary of the Company
or otherwise being acquired by the Company or (iv) the issue or sale of Capital
Stock of a Restricted Subsidiary in a transaction not prohibited by Section
1017, provided that such Restricted Subsidiary would remain a Restricted
Subsidiary after such transaction.
<PAGE>
69
SECTION 1016. Limitation on Guarantees of Indebtedness by
-------------------------------------------
Restricted Subsidiaries.
-----------------------
The Company shall not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee, assume or in any other manner become liable for the
payment of any Indebtedness of the Company unless (i) (A) such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to this
Indenture providing for a Guarantee of payment of the Securities by such
Restricted Subsidiary and (B) with respect to any Guarantee of subordinated
Indebtedness of the Company by a Restricted Subsidiary, any such Guarantee shall
be subordinated to such Restricted Subsidiary's Guarantee with respect to the
Securities at least to the same extent as such subordinated Indebtedness is
subordinated to the Securities and (ii) such Restricted Subsidiary shall waive
and shall not in any manner whatsoever claim or take the benefit or advantage
of, any rights of reimbursement, indemnity or subrogation or any other rights
against the Company or any other Restricted Subsidiary as a result of any
payment by such Restricted Subsidiary under its Guarantee until the Securities
have been paid in full. The incurrence by a Restricted Subsidiary as a primary
obligor of any Indebtedness that is guaranteed by the Company shall not be
deemed a Guarantee of the Company's Indebtedness for purposes of this Section.
Notwithstanding the foregoing, any Guarantee of the Securities or
waiver of rights created pursuant to the provisions described in the foregoing
paragraph shall provide by their terms that they shall be automatically and
unconditionally released and discharged upon the release by the holders of the
Indebtedness of the Company described in the preceding paragraph of their
Guarantee by such Restricted Subsidiary (including any deemed release upon
payment in full of all obligations under such Indebtedness, except by or as a
result of payment under such Guarantee), at a time when (A) no other
Indebtedness of the Company has been Guaranteed by such Restricted Subsidiary or
(B) the holders of all such other Indebtedness which is Guaranteed by such
Restricted Subsidiary also release their Guarantee by such Restricted Subsidiary
(including any deemed release upon payment in full of all obligations under such
Indebtedness, except by or as a result of payment under such Guarantee).
SECTION 1017. Limitation on Asset Sales.
-------------------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, cause, make or suffer to exist any Asset Sale unless (a) the
Company (or the applicable Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the assets or property sold or otherwise disposed of and (b) at least
75% of the consideration therefor received by the Company or such Restricted
Subsidiary is in the form of Eligible Cash Equivalents (or, if less than 75%,
the remainder of such consideration consists of Telecommunications Assets).
<PAGE>
70
Within 365 days after any Asset Sale, the Company (or the applicable
Restricted Subsidiary, as the case may be) may apply the Net Proceeds from such
Asset Sale (a) to permanently reduce outstanding Indebtedness of the Company
that is pari passu in right of payment with the Securities or Indebtedness of
any Restricted Subsidiary or (b) to invest or reinvest in properties and assets
that shall be used in the Telecommunications Business. Any Net Proceeds from
any Asset Sale that are not used, invested or reinvested at the end of such 365-
day period as provided in the preceding sentence shall constitute "Excess
Proceeds." Pending final application of any Net Proceeds of an Asset Sale, such
Net Proceeds may only be invested in Eligible Cash Equivalents or applied to pay
Obligations under the Revolving Credit Agreement. When the aggregate amount of
Excess Proceeds exceeds $10 million, the Company shall be required to make an
offer (an "Asset Sale Offer") to all Holders of the Securities to purchase the
maximum principal amount of Securities that may be purchased out of such Excess
Proceeds at an offer price in cash in an amount equal to 100% of the outstanding
principal amount thereof plus accrued and unpaid interest, if any, to the date
fixed for the closing of such offer in accordance with the procedures set forth
below (the "Asset Sale Purchase Price"). To the extent that the aggregate
principal amount of the Securities tendered pursuant to an Asset Sale Offer is
less than the Excess Proceeds remaining after the consummation of any required
Asset Sale Offer to the Holders of the Securities, the Company may use any
remaining Excess Proceeds for general corporate purposes not otherwise
prohibited by this Indenture. If the aggregate principal amount of the
Securities surrendered by Holders thereof shall exceed the amount of Excess
Proceeds, then the Trustee shall select the Securities to be purchased on the
basis set forth in Section 1104. Upon completion of any required Asset Sale
Offer to the Holders of the Securities, the amount of Excess Proceeds shall be
reset at zero. The provisions of this Section shall not apply to any
transaction that is permitted under Article Eight.
Within 30 days following the date on which the Company has to make an
Asset Sale Offer, the Company shall mail a notice to each Holder in the manner
provided in Section 106 stating: (1) that the Asset Sale Offer is being made
pursuant to the provisions of Section 1017 of this Indenture and that all
Securities duly and timely tendered shall be accepted for payment (except, as
provided above, if the aggregate principal amount of the Securities surrendered
exceeds the amount of Excess Proceeds); (2) the Asset Sale Purchase Price and
the purchase date (the "Asset Sale Payment Date"), which date shall be no
earlier than 30 days nor later than 60 days from the date such notice is mailed;
(3) that any Securities not tendered shall continue to accrue interest; (4)
that, unless the Company defaults in the payment of the Asset Sale Purchase
Price, all Securities accepted for payment pursuant to the Asset Sale Offer
shall cease to accrue interest after the Asset Sale Payment Date; (5) that
Holders electing to have any Securities purchased pursuant to a Asset Sale Offer
shall be required to surrender the Securities, with the form entitled "Option of
Holder to Elect Purchase Pursuant to an Asset Sale Offer" on the reverse of the
Securities completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the third Business Day preceding the Asset
Sale Payment Date; (6) that Holders
<PAGE>
71
shall be entitled to withdraw their election if the Paying Agent receives, not
later than the close of business on the second Business Day preceding the Asset
Sale Payment Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of Securities delivered for
purchase, and a statement that such Holder is withdrawing his election to have
such Securities purchased; (7) that Holders whose Securities are being purchased
only in part shall be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered, which unpurchased portion
must be equal to $1,000 in principal amount or an integral multiple thereof; (8)
the instructions that the Holders of Securities must follow in order to tender
their Securities; and (9) the circumstances and relevant facts regarding such
Asset Sale (including, but not limited to, information with respect to pro-forma
historical income, cash flow and capitalization after giving effect to such
Asset Sale).
SECTION 1018. Limitation on Transactions with Stockholders
--------------------------------------------
and Affiliates.
--------------
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, directly or indirectly, render any services to or receive any
services from, conduct any business or enter into or permit to exist any
transaction or series of related transactions (including, but not limited to,
the purchase, sale, exchange, lease, transfer or other disposition of any of is
properties or assets) or enter into any contract, agreement, understanding,
loan, advance or guarantee with, or for the benefit of, any Holder (or any
Affiliate of such Holder) of 5% or more of any class of Capital Stock of the
Company or with any Affiliate of the Company or any Restricted Subsidiary (each
of the foregoing, an "Affiliate Transaction"), unless (a) such Affiliate
Transaction is fair to the Company or the relevant Restricted Subsidiary and on
terms that are no less favorable, taken as a whole, to the Company or the
relevant Restricted Subsidiary than those that could have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person (or, in the event that there are no comparable transactions
involving unrelated Persons to apply for comparative purposes, is otherwise on
terms that, taken as a whole, the Company has determined to be fair to the
Company or the relevant Restricted Subsidiary) and (b) the Company delivers to
the Trustee with respect to any Affiliate Transaction or any series of Affiliate
Transactions involving an aggregate consideration in excess of $15 million,
either (i) a resolution to the Board of Directors set forth in an Officers'
Certificate certifying that each such Affiliate Transaction complies with clause
(a) above and which Board Resolution shall have been approved by a majority of
the directors on the Board of Directors who are disinterested with respect to
such transaction or (ii) a written opinion from a nationally recognized
investment banking firm that each such Affiliate Transaction complies with
clause (a) above.
Notwithstanding the foregoing provisions, the following shall not be
deemed to be Affiliate Transactions: (A) any transaction (1) in the ordinary
course of business between
<PAGE>
72
the Company or any Restricted Subsidiary and any Affiliate thereof engaged in
the Telecommunications Business or (2) with respect to the lease or sharing or
other use of cable or fiber lines, equipment, transmission capacity, rights-of-
way or other access rights, between the Company or any Restricted Subsidiary and
any other Person, provided, however, in either case, that such transaction is on
terms that are no less favorable, taken as a whole, to the Company or the
relevant Restricted Subsidiary than those that could have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person (or, in the event that there are no comparable transactions
involving unrelated Persons to apply for comparative purposes, is otherwise on
terms that, taken as a whole, the Company had determined to be fair to the
Company or the relevant Restricted Subsidiary); (B) any transaction between the
Company and any Wholly Owned Restricted Subsidiary or between any Wholly Owned
Restricted Subsidiaries; (C) any employment agreement entered into by the
Company or any of its Restricted Subsidiaries in the ordinary course of business
and consistent with the past practice of the Company or such Restricted
Subsidiary (including ordinary course transactions with officers or directors
with respect to compensation, bonus, employee benefit and severance
arrangements, and payments under indemnification arrangements existing as of the
Issuance Date or as may be permitted by law with any officer or director); (D)
transactions permitted by Section 1012; (E) transactions undertaken pursuant to
contractual obligations in place as of the Issuance Date; (F) purchases of goods
and services, any service trials, market testing and new product arrangements
entered into in the ordinary course of business and on terms consistent with
past practice; and (G) all transactions necessary to effect the Reorganization.
SECTION 1019. Waiver of Certain Covenants.
---------------------------
The Company may omit in any particular instance to comply with any
term, provision or condition set forth in Section 803 or Sections 1007 through
1018, inclusive (other than Sections 1010 and 1017), if before or after the time
for such compliance the Holders of at least a majority in principal amount of
the Outstanding Securities, by Act of such Holders, waive such compliance in
such instance with such term, provision or condition, but no such waiver shall
extend to or affect such term, provision or condition except to the extent so
expressly waived, and, until such waiver shall become effective, the obligations
of the Company and the duties of the Trustee in respect of any such term,
provision or condition shall remain in full force and effect.
ARTICLE ELEVEN
REDEMPTION OF SECURITIES
SECTION 1101. Right of Redemption.
-------------------
<PAGE>
73
The Securities may be redeemed, (i) at the election of the Company, as
a whole or from time to time in part, at any time after ________, 2001 subject
to the conditions and at the Redemption Prices specified in the form of
Security, together with accrued interest to the Redemption Date or (ii) at the
election of the Company, upon the occurrence prior to ________1999, of the
events described in the form of Security, subject to the conditions and at the
Redemption Price specified in the form of Security, together with accrued
interest to the Redemption Date.
SECTION 1102. Applicability of Article.
------------------------
Redemption of Securities at the election of the Company or otherwise,
as permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
-------------------------------------
The election of the Company to redeem any Securities pursuant to
Section 1101 shall be evidenced by a Board Resolution. In case of any
redemption at the election of the Company, the Company shall, at least 60 days
prior to the Redemption Date fixed by the Company (unless a shorter notice shall
be satisfactory to the Trustee), notify the Trustee of such Redemption Date and
of the principal amount of Securities to be redeemed and shall deliver to the
Trustee such documentation and records as shall enable the Trustee to select the
Securities to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of Securities to Be Redeemed.
-------------------------------------------------
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, in compliance with the requirements of the principal
national securities exchange, if any, on which the Securities are listed, or, in
the absence of such requirements or if the Securities are not listed, by such
method as the Trustee shall deem fair and appropriate and which may provide for
the selection for redemption of portions of the principal of Securities;
provided, however, that no such partial redemption shall reduce the portion of
the principal amount of a Security not redeemed to less than $1,000.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Securities shall relate, in
the case of any Security
<PAGE>
74
redeemed or to be redeemed only in part, to the portion of the principal amount
of such Security which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
--------------------
Notice of redemption shall be given in the manner provided for in
Section 106 not less than 30 nor more than 60 days prior to the Redemption Date,
to each Holder of Securities to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to the
Redemption Date payable as provided in Section 1107, if any,
(3) if less than all Outstanding Securities are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amounts) of the particular Securities to be redeemed,
(4) in case any Security is to be redeemed in part only, the notice
which relates to such Security shall state that on and after the Redemption
Date, upon surrender of such Security, the Holder shall receive, without
charge, a new Security or Securities of authorized denominations for the
principal amount thereof remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and accrued
interest, if any, to the Redemption Date payable as provided in Section
1107) shall become due and payable upon each such Security, or the portion
thereof, to be redeemed, and that interest shall cease to accrue on and
after said date, and
(6) the place or places where such Securities are to be surrendered
for payment of the Redemption Price and accrued interest, if any.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
<PAGE>
75
SECTION 1106. Deposit of Redemption Price.
---------------------------
Prior to any Redemption Date, the Company shall deposit with the
Trustee or with a Paying Agent (or, if the Company is acting as its own Paying
Agent, segregate and hold in trust as provided in Section 1003) an amount of
money sufficient to pay the Redemption Price of, and accrued interest on, all
the Securities which are to be redeemed on that date.
SECTION 1107. Securities Payable on Redemption Date.
-------------------------------------
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such
Securities shall cease to bear interest. Upon surrender of any such Security
for redemption in accordance with said notice, such Security shall be paid by
the Company at the Redemption Price, together with accrued interest, if any, to
the Redemption Date; provided, however, that installments of interest whose
Stated Maturity is on or prior to the Redemption Date shall be payable to the
Holders of such Securities, or one or more Predecessor Securities, registered as
such at the close of business on the relevant Record Dates according to their
terms and the provisions of Section 307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Securities.
SECTION 1108. Securities Redeemed in Part.
---------------------------
Any Security which is to be redeemed only in part shall be surrendered
at the office or agency of the Company maintained for such purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires, due endorsement
by, or a written instrument of transfer in form satisfactory to the Company and
the Trustee duly executed by, the Holder thereof or such Holders attorney duly
authorized in writing), and the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security without service charge,
a new Security or Securities, of any authorized denomination as requested by
such Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.
ARTICLE TWELVE
RESERVED
<PAGE>
76
ARTICLE THIRTEEN
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Legal Defeasance or Covenant
-------------------------------------------------------
Defeasance.
----------
The Company may, at its option by Board Resolution, at any time, with
respect to the Securities, elect to have either Section 1302 or Section 1303 be
applied to all Outstanding Securities upon compliance with the conditions set
forth below in this Article Thirteen.
SECTION 1302. Legal Defeasance and Discharge.
------------------------------
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1302, the Company shall be deemed to have been
discharged from its obligations with respect to all Outstanding Securities on
the date the conditions set forth in Section 1304 are satisfied (hereinafter,
"legal defeasance"). For this purpose, such legal defeasance means that the
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the Outstanding Securities, which shall thereafter be deemed to
be "Outstanding" only for the purposes of Section 1305 and the other Sections of
this Indenture referred to in (A) and (B) below, and to have satisfied all its
other obligations under such Securities and this Indenture insofar as such
Securities are concerned (and the Trustee, at the expense of the Company, shall
execute proper instruments acknowledging the same), except for the following
which shall survive until otherwise terminated or discharged hereunder: (A) the
rights of Holders of Outstanding Securities to receive, solely from the trust
fund described in Section 1304 and as more fully set forth in such Section,
payments in respect of the principal of (and premium, if any, on) and interest
on such Securities when such payments are due, (B) the Company's obligations
with respect to such Securities under Sections 304, 305, 306, 1002 and 1003, (C)
the rights, powers, trusts, duties and immunities of the Trustee hereunder and
the Company's obligations in connection therewith and (D) this Article Thirteen.
Subject to compliance with this Article Thirteen, the Company may exercise its
option under this Section 1302 notwithstanding the prior exercise of its option
under Section 1303 with respect to the Securities.
SECTION 1303. Covenant Defeasance.
-------------------
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1303, the Company shall be released from its
obligations under any covenant contained in Section 801(4) and Section 803 and
in Sections 1007 through 1018 with respect to the Outstanding Securities on and
after the date the conditions set forth below are satisfied (hereinafter,
"covenant defeasance"), and the Securities shall thereafter be deemed not to be
"Outstanding" for the purposes of any direction, waiver, consent or declaration
or Act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall
<PAGE>
77
continue to be deemed "Outstanding" for all other purposes hereunder. For this
purpose, such covenant defeasance means that, with respect to the Outstanding
Securities, the Company may omit to comply with and shall have no liability in
respect of any term, condition or limitation set forth in any such covenant,
whether directly or indirectly, by reason of any reference elsewhere herein to
any such covenant or by reason of any reference in any such covenant to any
other provision herein or in any other document and such omission to comply
shall not constitute a Default or an Event of Default under Section 501(3) and
(4), but, except as specified above, the remainder of this Indenture and such
Securities shall be unaffected thereby.
SECTION 1304. Conditions to Legal Defeasance or Covenant Defeasance.
-----------------------------------------------------
The following shall be the conditions to application of either Section
1302 or Section 1303 to the Outstanding Securities:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 607 who shall agree to comply with the provisions of this
Article Thirteen applicable to it) as trust funds in trust for the purpose
of making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities, (A)
cash in U.S. dollars, or (B) U.S. Government Obligations which through the
scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before the
due date of any payment, money in an amount, or (C) a combination thereof,
sufficient, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written certification thereof delivered
to the Trustee, to pay and discharge, and which shall be applied by the
Trustee (or other qualifying trustee) to pay and discharge, the principal
of (and premium, if any) and interest on the Outstanding Securities on the
Stated Maturity (or Redemption Date, if applicable) of such principal (and
premium, if any) or installment of interest on the day on which such
payments are due and payable in accordance with the terms of this Indenture
and of such Securities; provided that the Trustee shall have been
irrevocably instructed to apply such money or the proceeds of such U.S.
Government Obligations to said payments with respect to the Securities.
Before such a deposit, the Company may give to the Trustee, in accordance
with Section 1103 hereof, a notice of its election to redeem all of the
Outstanding Securities at a future date in accordance with Article Eleven
hereof, which notice shall be irrevocable. Such irrevocable redemption
notice, if given, shall be given effect in applying the foregoing. For
this purpose, "U.S. Government Obligations" means securities that are (x)
direct obligations of the United States of America for the timely payment
of which its full faith and credit is pledged or (y) obligations of a
Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the timely payment of which
is unconditionally guaranteed as a full faith and credit obligation by the
United States of America, which, in either case, are not callable or
redeemable at
<PAGE>
78
the option of the issuer thereof, and shall also include a depository
receipt issued by a bank (as defined in Section 3(a)(2) of the Securities
Act of 1933, as amended), as custodian with respect to any such U.S.
Government Obligation or a specific payment of principal of or interest on
any such U.S. Government Obligation held by such custodian for the account
of the holder of such depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from any amount
received by the custodian in respect of the U.S. Government Obligation or
the specific payment of principal of or interest on the U.S. Government
Obligation evidenced by such depository receipt.
(2) In the case of an election under Section 1302, the Company shall
have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee stating that (x) the Company has
received from, or there has been published by, the Internal Revenue Service
a ruling, or (y) since June __, 1996, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the Holders of
the Outstanding Securities shall not recognize income, gain or loss for
federal income tax purposes solely as a result of such legal defeasance and
shall be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such legal
defeasance had not occurred.
(3) In the case of an election under Section 1303, the Company shall
have delivered to the Trustee an Opinion of Counsel in the United States
reasonably acceptable to the Trustee to the effect that the Holders of the
Outstanding Securities shall not recognize income, gain or loss for federal
income tax purposes solely as a result of such covenant defeasance and
shall be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such covenant
defeasance had not occurred.
(4) No Default or Event of Default with respect to the Securities
shall have occurred and be continuing on the date of such deposit or,
insofar as paragraphs (8) and (9) of Section 501 hereof are concerned, at
any time during the period ending on the 91st day after the date of such
deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period).
(5) Such legal defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, this Indenture or
any other material agreement or instrument to which the Company is a party
or by which it is bound.
(6) The Company shall have delivered to the Trustee an opinion of
counsel in the United States to the effect that after the 91st day
following the deposit, the trust
<PAGE>
79
funds shall not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditor's rights
generally.
(7) The Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of Securities over the other creditors of
the Company with the intent of defeating, hindering, delaying or defrauding
creditors of the Company or others.
(8) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the legal defeasance under
Section 1302 or the covenant defeasance under Section 1303 (as the case may
be) have been complied with.
SECTION 1305. Deposited Money and U.S. Government Obligations to Be
-----------------------------------------------------
Held in Trust; Other Miscellaneous Provisions.
---------------------------------------------
Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1305, the "Trustee") pursuant to Section 1304 in respect of the
Outstanding Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Securities of all sums due and to become due thereon in respect of
principal (and premium, if any) and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Governmental Obligations
deposited pursuant to Section 1304 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Securities.
Anything in this Article Thirteen to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1304 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent legal defeasance or covenant
defeasance, as applicable, in accordance with this Article.
<PAGE>
80
SECTION 1306. Reinstatement.
-------------
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1305 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 1302 or 1303, as the case may be, until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 1305; provided, however, that if the Company makes any payment of
principal of (or premium, if any) or interest on any Security following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the money held by
the Trustee or Paying Agent.
ARTICLE FOURTEEN
RESERVED
<PAGE>
81
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
TELEPORT COMMUNICATIONS
GROUP, INC.
[SEAL] By
-----------------------------
Name:
Title:
Attest:
------------------------
Title:
UNITED STATES TRUST COMPANY
OF NEW YORK
[SEAL] By
-----------------------------
Name:
Title:
Attest:
------------------------
Title:
<PAGE>
SCHEDULE I
to
Indenture
dated June __, 1996
Local Market Partnerships
TCG Chicago (a _______ partnership)
TCG Connecticut (a _______ partnership)
TCG Dallas (a _______ partnership)
TCG Detroit (a _______ partnership)
TCG Illinois (a _______ partnership)
TCG Los Angeles (a _______ partnership)
TCG Omaha (a _______ partnership)
TCG Phoenix (a _______ partnership)
TCG Pittsburgh (a _______ partnership)
TCG San Diego (a _______ partnership)
TCG San Francisco (a _______ partnership)
TCG Seattle (a _______ partnership)
TCG South Florida (a _______ partnership)
TCG St. Louis (a _______ partnership)
<PAGE>
Exhibit 5.1
June 3, 1996
Teleport Communications Group Inc.
One Teleport Drive
Staten Island, New York 10311-1011
Gentlemen:
We are acting as counsel to Teleport Communications Group Inc., a Delaware
corporation (the "Company"), in connection with its Registration Statement on
Form S-1 (File No. 333-3984), as amended (the "Registration Statement"), filed
with the Securities and Exchange Commission relating to the proposed public
offering of (i) __% Senior Notes due 2006 (the "Senior Notes") and (ii) ___%
Senior Discount Notes due 2007 (the "Senior Discount Notes" and, together with
the Senior Notes, the "Notes"), all of which Notes are to be sold by the
Company. This opinion letter is furnished to you at your request to enable you
to fulfill the requirements of Item 601(b)(8) of Regulation S-K, 17 C.F.R.
Section 229.601(b)(8), in connection with the Registration Statement.
For purposes of this opinion letter, we have examined an executed copy of
the Registration Statement. In such examination, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity, accuracy and completeness of all documents submitted to us, and
the conformity with the original documents of all documents submitted to us as
certified, telecopied, photostatic, or reproduced copies. This opinion letter
is given, and all statements herein are made, in the context of the foregoing.
This opinion letter is based as to matters of law solely on the Internal
Revenue Code of 1986, as amended, existing and proposed regulations thereunder,
including regulations concerning the treatment of debt instruments issued with
original issue discount, published rulings and court decisions, all as in effect
and existing on the date hereof (collectively, "federal tax laws"), and all of
which are subject to change at any time, which change may be retroactive. We
express no opinion herein as to any other laws, statutes, regulations, or
ordinances.
Based upon, and subject to and limited by the foregoing, we are of the
opinion that the information in the prospectus constituting a part of the
Registration Statement under the caption "Certain Federal Income Tax
Considerations," to the extent that such information
<PAGE>
Teleport Communications Group, Inc.
June 3, 1996
Page 2
constitutes matters of law or legal conclusions or purports to describe certain
provisions of the federal tax laws, has been reviewed by us and is a correct
summary in all material respects of the matters discussed therein.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has been
prepared solely for your use in connection with the filing of the Registration
Statement on the date of this opinion letter and should not be quoted in whole
or in part or otherwise be referred to, nor filed with or furnished to any
governmental agency or other person or entity, without the prior written consent
of this firm.
We hereby consent to the filing of this opinion letter as Exhibit 5.1 to
the Registration Statement. In giving this consent, we do not thereby admit
that we are an "expert" within the meaning of the Securities Act of 1933, as
amended.
Very truly yours,
DOW, LOHNES & ALBERTSON
<PAGE>
EXHIBIT 10.25
PARTNERSHIP AGREEMENT
OF
TCG DETROIT
Dated as of November 1, 1993
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1: DEFINITIONS.................................................... 1
ARTICLE 2: FORMATION...................................................... 8
2.1 Formation. .............................................. 8
2.2 Name...................................................... 8
2.3 Principal Offices......................................... 8
2.4 Term...................................................... 8
2.5 Property.................................................. 8
ARTICLE 3: PURPOSE, AUTHORITY AND MANAGEMENT OF THE
PARTNERSHIP.................................................... 9
3.1 Purpose and Authority..................................... 9
3.2 Managing Partner.......................................... 9
3.3 Meetings of the Partners; Authorized
Representatives........................................... 10
3.4 Actions Requiring a Majority Vote......................... 12
3.5 Actions Requiring a Supermajority Vote.................... 13
3.6 Special Voting Provisions................................. 15
3.7 Scope of Partners' Authority.............................. 15
3.8 Indemnification of Partners; Allocation
of Liabilities............................................ 16
3.9 Contribution.............................................. 17
3.10 Insurance and Bonds....................................... 18
ARTICLE 4: CAPITALIZATION; ALLOCATION; DISTRIBUTIONS...................... 18
4.1 Initial Capital Contributions............................. 18
4.2 Additional Capital Contributions.......................... 19
4.3 Failure to Make Capital Contributions..................... 20
4.4 Loans..................................................... 25
4.5 Calculations and Adjustments.............................. 26
4.6 Capital Accounts.......................................... 26
4.7 Distribution of Partnership Funds......................... 27
4.8 Allocation of Net Profits and Losses...................... 27
4.9 Tax Appendix.............................................. 27
ARTICLE 5: TRANSFERS OF PARTNERSHIP INTERESTS; RIGHT OF
FIRST REFUSAL.................................................. 28
5.1 Restrictions on Transfer.................................. 28
5.2 Exceptions to Restrictions on Transfers................... 28
5.3 Rollup Provisions......................................... 31
5.4 Right of First Refusal.................................... 32
5.5 Purchases by the Partnership or its
Assignee.................................................. 36
5.6 Put Rights Upon Merger or Consolidation
of the Partnership........................................ 37
5.7 Prohibited Transfers...................................... 38
5.8 Appraisal Process......................................... 38
5.9 Closing of any Permitted Transfer......................... 39
5.10 Remedies.................................................. 40
<PAGE>
ARTICLE 6: BOOKS AND RECORDS; ACCOUNTING; FISCAL YEAR..................... 41
6.1 Books and Records......................................... 41
6.2 Financial Statements...................................... 41
6.3 Bank Accounts............................................. 42
6.4 Fiscal Year............................................... 42
ARTICLE 7: OTHER BUSINESS ACTIVITIES...................................... 42
7.1 Conduct of Exclusive Business in
Business Area............................................. 42
7.2 Exceptions for Certain Transactions....................... 45
7.3 Existing Activities....................................... 45
7.4 Prohibited Transactions................................... 45
7.5 Controlled Affiliates..................................... 46
7.6 Services Offered by the Partnership....................... 46
7.7 Retail Switching Business................................. 47
ARTICLE 8: DISSOLUTION.................................................... 47
8.1 Causes of Dissolution..................................... 47
8.2 Winding Up and Liquidation................................ 47
8.3 Continuation of the Partnership........................... 48
8.4 No Withdrawal............................................. 48
ARTICLE 9: EVENTS OF DEFAULT AND REMEDIES................................. 48
9.1 Events of Default......................................... 48
9.2 Remedies.................................................. 49
9.3 Purchase of Defaulting Partner's
Partnership Interest...................................... 51
ARTICLE 10: REPRESENTATIONS AND WARRANTIES OF THE
PARTNERS....................................................... 52
ARTICLE 11: MISCELLANEOUS.................................................. 53
11.1 Acknowledgements......................................... 53
11.2 Bill for Partition....................................... 53
11.3 Notices.................................................. 53
11.4 Amendments............................................... 53
11.5 Indebtedness for Borrowed Money.......................... 54
11.6 Waivers and Further Agreements; Entire
Agreement................................................ 54
11.7 Severability............................................. 54
11.8 Specific Enforcement; Attorneys Fees..................... 54
11.9 Counterparts............................................. 55
11.10 Captions; Gender......................................... 55
11.11 Governing Law and Binding Effect......................... 55
11.12 Expenses................................................. 55
11.13 Third Parties............................................ 55
11.14 Confidentiality.......................................... 55
11.15 Appendices............................................... 56
<PAGE>
Exhibits and Appendices
Exhibit A Form of Management Services Agreement
Exhibit B Undertaking of Parent
Tax Appendix
Information Appendix
<PAGE>
PARTNERSHIP AGREEMENT
THIS PARTNERSHIP AGREEMENT is made as of November 1, 1993, by and
among TCG Partners, a New York partnership ("TCP"), and the other parties listed
on the signature pages hereof.
RECITALS
The parties desire to establish a partnership for the purposes
hereinafter set forth, subject to the terms and conditions hereof.
AGREEMENTS
In consideration of the foregoing, and of the promises and covenants
contained in this Agreement, the parties agree as follows:
ARTICLE 1: DEFINITIONS
Capitalized terms used in this Agreement shall have the meanings set
forth below or in the Sections of this Agreement referred to below. Terms used
solely in the Tax Appendix are defined in the Tax Appendix.
"Act" means the Uniform Partnership Act, as from time to time in
effect in the State of New York.
"Additional Capital Contribution" has the meaning set
forth in Section 4.2 hereof.
"Affiliate" means, with respect to any Entity, any other Entity
that, directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with the first specified Entity. For
purposes of this Agreement, neither the Partnership, nor any Entity controlled
by the Partnership, shall be deemed to be an Affiliate of a Partner or of any
Affiliate of a Partner, and no Partner or any Affiliate thereof shall be deemed
to be an Affiliate of any other Partner or any Affiliate thereof solely by
virtue of its Partnership Interest.
"Agreement" means this Partnership Agreement, as it may be amended,
modified or supplemented from time to time in accordance with its terms.
<PAGE>
"Authorized Representative" means the representative of a Partner
who, pursuant to Section 3.3(e) hereof, is authorized to execute any document
and take any action under this Agreement on behalf of such Partner. The name of
the initial Authorized Representative of each Partner is set forth on the
Information Appendix.
"Budget" for any Fiscal Year means the operating and capital budget
for the Partnership for such Fiscal Year prepared by the Managing Partner and
adopted by the Partners in accordance with Section 3.4 hereof.
"Business Area" means the counties listed on the Information
Appendix.
"Business Day" means any day (other than a day which is a Saturday
or Sunday) on which banks are permitted to be open for business in the City of
New York.
"Capital Account" has the meaning set forth in Section 4.6 hereof.
"Capital Contribution" means, for any Partner, the amount of cash
that such Partner has contributed to the capital of the Partnership plus, if
such Partner contributes property other than cash, "Capital Contribution" shall
include the fair market value of such property determined without regard to Code
Section 7701(g) and net of any liabilities secured by such contributed property
that the Partnership is considered to assume or take subject to under Code
Section 752.
"Change in Control", with respect to a Partner, means any
transaction as a result of which such Partner ceases to be a Subsidiary of the
Entity which was its Parent immediately prior to such transaction.
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, and any subsequent federal law of similar import.
"Control" means, as to any Entity, the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Entity, whether through the ownership of equity interests or
voting securities, by contract or otherwise.
"Controlled Affiliate", with respect to any Partner as of any
relevant date, means (i) the Parent of such Partner and (ii) each Affiliate of
such Partner with respect to which such Parent, directly or indirectly through
one or more Controlled Affiliates, exercises or is entitled to exercise by
ownership of
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equity interests or voting securities, contract or otherwise affirmative or
negative control with respect to decisions to Engage in, or to acquire interests
in Entities Engaged in, activities encompassed in the Exclusive Business. For
purposes of this Agreement, (x) the Partnership shall not be deemed to be a
Controlled Affiliate of any Partner or any Affiliate of any Partner and (y) TCGI
and each of its Subsidiaries shall be deemed to be Controlled Affiliates of TCP.
"Defaulting Partner" has the meaning set forth in Section 9.1
hereof.
"Distribution" means a distribution of cash or property in kind
pursuant to Article 4 or 8 hereof.
"Engage" or "Engaging" means, with respect to an activity, venture
or business, directly or indirectly owning, investing in, managing, operating or
controlling either individually, jointly, in partnership or in conjunction with
any other person, or as a shareholder or providing or leasing in any material
respect any goods or services to such activity, venture or business.
"Entity" means any individual, general partnership, limited
partnership, corporation, limited-liability company, joint venture, trust,
business trust, cooperative or association, and the heirs, executors,
administrators, legal representatives, successors, and assigns of such Entity
where the context so admits.
"Exclusive Business" means the provision of the
following local telecommunications services:
(a) Digital Private Line Services, including but not limited to:
DSO (56 or 64 kilobits)
DS1 (1.544 megabits)
Fractional DS1 (in multiples of 56 or 64 kilobits)
DS2 (6.312 megabits)
DS3 (45 megabits)
European-standard E1 (2.048 megabits)
PBX Access Service
SONET Services;
(b) Voice Grade Private Line Services, including but not limited to:
Two and Four Wire Analog Service
Analog Data Service
Tie Lines from Centrex to PBX;
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(c) Switched Services, including but not limited to:
Payphones and associated interexchange carrier
switched access
Retail Switching Business;
(d) IXC POP to IXC POP Connections;
(e) Provision of the services listed in clauses (a) through (c) above
to IXCs for the purpose of IXC branding or resale;
(f) Provision of Dark Fiber to Third Parties;
(g) Provision of fiber video services to the extent provided on the
Information Appendix; and
(h) Provision of coaxial terminations within buildings and building
complexes on private property or resale of coaxial services
provided by a local exchange carrier, in each case in connection
with the provision of any service listed in (a) through (g)
above;
provided, however, that the provision of any of the following services shall not
be included in the definition of "Exclusive Business"
(i) Video Services, including but not limited to the following (but
excluding services specified in clause (g) above):
Short Haul Video
Long Haul Video
Multipoint Video
Switched Video
Wireless Video
Any Other Video Service;
(ii) Wireless Services, including but not limited to:
Cellular Telephone Service
Personal Communications Service
Wireless Data Service
Special Mobile Radio
Enhanced Special Mobile Radio
Paging
Any Other Wireless Service;
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<PAGE>
(iii) Coaxial Services, including but not limited to the following
(but excluding services specified in clause (h) above):
Video over Coax Services
Data over Coax Services
Voice over Coax Services
Any other Coaxial Service; and
(iv) Any residential services.
"Fair Market Value" of a Partner's Partnership Interest means the
product of (i) the Percentage Interest of such Partner as of the date of
determination of Fair Market Value times (ii) the price at which a willing
seller (being under no compulsion to sell) would sell, and a willing buyer
(having full knowledge of the facts and being under no compulsion to buy) would
buy, all of the business and assets of the Partnership as a going concern (or
all of the outstanding Partnership Interests, if that would yield a higher
price), in a single arm's-length transaction without time constraints. The price
so determined for the business and assets of the Partnership shall, without
duplication or deduction, be reduced by the amount of all liabilities of the
Partnership.
"Fiscal Year" means the calendar year.
"Indirect Transfer" has the meaning set forth in Section 5.1(a)
hereof.
"Information Appendix" means the information appendix attached
hereto and made a part of this Agreement.
"Initial Capital Contribution" means the aggregate initial Capital
Contribution of each Partner to the capital of the Partnership set forth in the
Information Appendix. If an Initial Capital Contribution is made in property
other than cash, then such Initial Capital Contribution shall include the fair
market value of such property determined without regard to Code Section 7701(g)
and net of liabilities secured by such contributed property that the Partnership
is considered to take subject to or assume under Code Section 752.
"Majority Vote", with respect to any matter to be voted on by the
Partners, means the affirmative vote of a Partner or Partners whose Percentage
Interests are in excess of 50% of the sum of the Percentage Interests of all
Partners entitled to vote on such matter.
"Management Services Agreement" means the Management Services
Agreement between the Partnership and the Manager in
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<PAGE>
substantially the form attached hereto as Exhibit A, as the same may be amended,
modified or supplemented from time to time in accordance with the provisions
hereof and thereof.
"Manager" means TCGI in its capacity as manager under the Management
Services Agreement, and any successor appointed in accordance with this
Agreement or the Management Services Agreement.
"Managing Partner" means TCP in its capacity as managing partner of
the Partnership, or any successor managing partner of the Partnership appointed
in accordance with Section 3.2(d) hereof.
"Net Profit" and "Net Loss" have the meanings set forth in the Tax
Appendix. "Net Profit" and "Net Loss" mean, generally, for each Fiscal Year or
other period, an amount equal to the Partnership taxable income or loss for such
year or period, with certain adjustments set forth in the Tax Appendix.
"Parent" with respect to any Entity as of any relevant date means
the ultimate corporate or partnership parent entity (within the meaning of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder, as in effect on the date hereof) of such
Entity.
"Parent Undertaking" means the form of Undertaking of Parent
attached hereto as Exhibit B.
"Partner Services Agreement" means, collectively, any fiber lease
agreement, any other agreement for the use of fiber optic telecommunications
facilities and any other agreement (other than the Management Services
Agreement) for services to be provided by a Partner or an Affiliate of a Partner
to the Partnership in connection with the maintenance or operation of the
business of the Partnership, such as, but not limited to, a construction
agreement, fiber maintenance agreement, electronics maintenance agreement or
other similar agreement.
"Partners" means TCP and the other signatories to this Agreement,
any Entity which becomes a party to this Agreement after the date hereof, and
their respective successors and permitted assigns, and "Partner" means any of
such Partners.
"Partnership" means the general partnership created pursuant to this
Agreement.
"Partnership Interest" means, as to each Partner, all of the
interest of such Partner in the Partnership, including such Partner's (i) right
to a distributive share of the income,
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<PAGE>
gain, losses and deductions of the Partnership in accordance herewith, (ii)
right to a distributive share of Partnership assets, (iii) obligations as a
Partner, and (iv) rights with respect to the management of the business and
affairs of the Partnership, as provided herein or by law.
"Percentage Interest" means, as to each Partner, the percentage set
forth opposite its name on the Information Appendix, as such percentage may be
revised in accordance with the provisions hereof; provided, however, that except
as expressly provided in this Agreement, the Percentage Interest of a Partner
shall not be subject to increase or decrease without such Partner's prior
consent.
"Prime Rate" means the interest rate announced by Citibank, N.A.,
New York, New York, from time to time as its prime lending rate.
"Pro Rata" means the proportion which the respective Percentage
Interest immediately prior to an action of any Partner entitled to participate
in such action bears to the sum of the Percentage Interests immediately prior to
such action of all Partners entitled to participate in such action.
"Regulations" means the Income Tax Regulations, including Temporary
Regulations, promulgated under the Code, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).
"Remedies Partner" means the Managing Partner, so long as at the
time of determination the Managing Partner is not a Defaulting Partner;
otherwise, "Remedies Partner" means the non-Defaulting Partner which has the
largest Percentage Interest of all non-Defaulting Partners.
"Retail Switching Business" means the provision of the following
local telecommunications services and associated interexchange carrier switched
access:
Primary Centrex
PBX Dialtone Trunks
Auxiliary Centrex
ISDN - Basic Rate Service or Primary Rate Service
POTS (i.e., Basic telephone service, supplying telephone lines and
access to a switched network).
"Subsidiary" of any Parent means an Entity (i) more than fifty
percent of whose outstanding shares or securities (representing the right to
vote for the election of directors or other managing authority) are owned or
controlled, directly or indirectly through one or more Subsidiaries, by such
Parent or
- 7 -
<PAGE>
(ii) which does not have outstanding shares or securities, but more than fifty
percent of whose ownership interests representing the right to make the
decisions for such Entity is owned or controlled, directly or indirectly through
one or more Subsidiaries, by such Parent; provided, however, that in each case,
such Entity shall be deemed to be a Subsidiary only so long as such ownership or
control exists.
"Supermajority Vote", with respect to any matter to be voted on by
the Partners, means the affirmative vote of a Partner or Partners whose
Percentage Interests are at least eighty percent of the sum of the Percentage
Interests of all Partners entitled to vote on such matter.
"Tax Appendix" means the tax appendix attached hereto and made a
part of this Agreement.
"TCGI" means Teleport Communications Group Inc., a Delaware
corporation, and any Entity into which it may be merged or with which it may be
consolidated or to which it may transfer all or substantially all of its assets.
ARTICLE 2: FORMATION
2.1 Formation. The Partners hereby form the Partnership as a general
partnership under and pursuant to the Act, for the purposes and on the terms set
forth herein.
2.2 Name. The Partnership's name shall be as set forth in the
Information Appendix or such other name as the Partners may determine by
Supermajority Vote.
2.3 Principal Offices. The principal office of the Partnership shall
be in the Business Area or at such other location as the Managing Partner may
from time to time determine, and the Partnership may have an additional office
or offices at such other place or places as the Managing Partner may from time
to time determine.
2.4 Term. The term of the Partnership shall commence as of the
effective date hereof and shall continue for approximately ninety-nine years
thereafter, terminating on the date specified on the Information Appendix,
unless the Partnership is dissolved and liquidated prior thereto pursuant to
Article 8 below.
2.5 Property. All assets and property, whether real, personal or
mixed, tangible or intangible, including contractual rights, owned or possessed
by the Partnership shall be held or possessed in the name of the Partnership.
All such assets,
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<PAGE>
property and rights shall be deemed to be owned or possessed by the Partnership
as an entity. No Partner shall have any separate ownership interest in such
assets, property or rights. Each Partner's interest in the Partnership is
personal property for all purposes.
ARTICLE 3: PURPOSE, AUTHORITY AND MANAGEMENT OF THE PARTNERSHIP
3.1 Purpose and Authority. The purpose of the Partnership shall be
to invest in, engage in, operate, manage, develop, finance, expand and to sell
and otherwise dispose of, and otherwise exercise all rights, powers, privileges
and other incidents of ownership with respect to, any activity encompassed in
the Exclusive Business in the Business Area. The Partnership shall have all
powers which may be exercised by a partnership under the Act. The Partnership
shall not be permitted to Engage in any business other than the Exclusive
Businesses without the unanimous consent of the Partners.
3.2 Managing Partner.
(a) Subject to the provisions of Sections 3.4, 3.5 and 3.6
hereof, the Managing Partner shall be responsible for the management and
operations of the Partnership and shall have all powers necessary to manage and
control the Partnership, to conduct its business and to implement any decision
of the Partners adopted pursuant to this Agreement. Without limiting the
generality of the foregoing, the Managing Partner shall have the authority (i)
to appoint and remove officers of the Partnership pursuant to Section 3.2(c)
below, and to authorize such officers to perform such acts and services as the
Managing Partner may approve, (ii) to seek such municipal and regulatory
consents, approvals and authorizations in the name of the Partnership as the
Managing Partner in its reasonable discretion determines to be in the best
interests of the Partnership or otherwise to be necessary under applicable law,
including, without limitation, those set forth on the Information Appendix, and
(iii) to take any action on behalf of the Partnership which does not expressly
require a vote of the Partners pursuant to Sections 3.4, 3.5 or 3.6 hereof. The
Partners acknowledge that the Managing Partner may delegate certain of its
responsibilities hereunder to the Manager pursuant to the Management Services
Agreement and to the officers appointed pursuant to Section 3.2(c) below. The
Manager shall report to the Managing Partner.
(b) At any time after the termination by the Partnership of
the Management Services Agreement pursuant to the terms hereof and thereof, any
action to be taken or document to be provided or executed by the Manager
hereunder shall thereafter
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<PAGE>
be taken, provided or executed by the Managing Partner; provided, however, that
after such termination, the Managing Partner shall promptly seek a successor
Manager to provide substantially similar services to the services provided
pursuant to the Management Services Agreement and, upon the affirmative vote of
the Partners pursuant to Section 3.4(f), shall enter into a management agreement
with such successor Manager.
(c) The Managing Partner shall appoint a chief executive
officer, a chief financial officer and one or more chief operating officers for
the Partnership who shall be responsible for the day-to-day management of the
operations and business of the Partnership. The Partnership shall have such
additional officers as the Managing Partner may determine to appoint. Such
officers shall be deemed agents and employees of the Partnership, shall serve at
the pleasure of the Managing Partner, shall act in accordance with the Budget,
the decisions of the Managing Partner and the decisions of the Partners adopted
by a vote of the Partners pursuant to Section 3.4, 3.5 or 3.6 hereof, and shall
have no authority to take any action which the Managing Partner would not itself
have the authority to take as provided herein. Except as provided above or as
otherwise determined by the Managing Partner, such officers shall (i) have such
powers as are usually exercised by comparably designated officers of a Delaware
corporation and (ii) have the power to bind the Partnership through the exercise
of such powers to the extent consistent with the terms of this Agreement.
(d) If the Management Services Agreement is terminated
pursuant to the terms hereof and thereof, or if the Managing Partner fails in
any material respect to perform its obligations under this Agreement in
accordance with the terms hereof and customary and reasonable standards of
management in the telecommunications industry, and such failure in performance
continues unremedied for a period of ninety days after a majority in Percentage
Interests of the Partners (other than the Managing Partner) has given written
notice to the Managing Partner specifying such failure in reasonable detail, the
Partners, by a Majority Vote of the Partners other than the Managing Partner,
shall have the right, by delivery of notice to the Managing Partner, to remove
the Managing Partner as the Managing Partner and replace it with a successor
Managing Partner. Upon delivery of such notice, the new Managing Partner shall
succeed to all of the powers of the removed Managing Partner hereunder and shall
possess and have all such powers.
3.3 Meetings of the Partners; Authorized Representatives.
(a) Annual meetings of the Partners shall be held at such place and
time as may be determined from time to time by
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the Managing Partner, subject to postponement by a Supermajority Vote of the
Partners. Special meetings of the Partners shall be called by the Managing
Partner at the request of any Partner. Each Partner shall be represented at an
annual or special meeting by its Authorized Representative. The Managing Partner
shall give the Authorized Representative of each Partner at least ten Business
Days notice of the time and place of any annual or special meeting of the
Partners. Any such notice shall include, in reasonable detail, an agenda that
sets forth the matters to be considered at such annual or special meeting. In
addition to any matter set forth in such agenda, any Partner, by ten days prior
notice to each other Partner, may propose for a vote of the Partners at any
meeting any matter which pursuant to Sections 3.4, 3.5 or 3.6 hereof or any
other Section of this Agreement may be decided by the Partners pursuant to a
Majority Vote or a Supermajority Vote. A Partner may waive notice of any meeting
in writing before, at or after such meeting. The attendance of an Authorized
Representative of a Partner at a meeting shall constitute a waiver by such
Partner of notice of such meeting, except when its Authorized Representative
attends such meeting for the express purpose of objecting to the transaction of
any business because the meeting was not properly called. Voting at any annual
or special meeting of the Partners shall be according to Percentage Interests.
(b) At all meetings of the Partners, the Manager shall be present
and prepared to discuss with the Authorized Representatives and other
representatives of the Partners the business of the Partnership and any other
matters regarding the Partnership that any Partner may reasonably request.
(c) Any action required or permitted to be taken by the Partners at
an annual or special meeting may be taken without a meeting if a written consent
to such action is signed on behalf of each Partner by its Authorized
Representative, and such written consent is filed with the records of the
Partnership. Any or all Authorized Representatives may participate in a meeting
by means of conference telephone or similar communications equipment by means of
which all Authorized Representatives participating in the meeting can hear each
other, and participation in such a meeting shall constitute presence in person
by any such Authorized Representative at such meeting.
(d) Minutes of each meeting of the Partners shall be prepared by the
Managing Partner or an officer of the Partnership and circulated to the
Partners.
(e) The Authorized Representative of each Partner shall have the
authority to execute any document and take any action on behalf of such Partner
pursuant to the terms of this Agreement. In the absence of prior written notice
to the
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contrary, any action taken or document executed by an Authorized Representative
shall be binding upon the Partner of which he is the Authorized Representative,
and neither the Partnership, nor any other Partner nor any other Entity shall be
obligated to inquire as to the authority of the Authorized Representative to
take any action or execute any document on behalf of such Partner.
(f) Each Partner shall have the right at any time and from time to
time to replace its Authorized Representative (or any alternate Authorized
Representative) with another individual by written notice to the Partnership and
each other Partner. Each Partner shall be entitled to name an alternate
Authorized Representative to serve in the place of the Authorized Representative
appointed by such Partner should such appointed Authorized Representative not be
able to attend a meeting or meetings. In the event an Authorized Representative
appointed by a Partner dies or is unwilling or unable to serve as such, such
Partner shall promptly appoint a successor to such Authorized Representative.
3.4 Actions Requiring a Majority Vote. Subject to the provisions of
Sections 3.5 and 3.6 hereof, neither the Managing Partner, nor any other Partner
nor any officer of the Partnership shall take any action, expend any sum, make
any decision or incur any obligation on behalf of the Partnership with respect
to any of the following matters, without a Majority Vote:
(a) the sale, pledge, assignment, lease or other disposition or
mortgaging or other encumbering of Partnership assets with an original
acquisition cost of more than $150,000 but less than $1,000,000;
(b) the adoption of the Budget for each Fiscal Year, which the
Manager shall present to the Partners, together with a business plan as revised
for such period as the Managing Partner determines, for their review no later
than November 1 of the prior Fiscal Year;
(c) requesting any Partner to make an Additional Capital
Contribution;
(d) making capital expenditures or commitments for capital
expenditures in amounts which exceed, taken together with all other such
commitments and expenditures, by 10% the amounts budgeted for such commitments
and expenditures in the Budget for the relevant Fiscal Year;
(e) settling or initiating any claim or litigation involving the
Partnership and arising in the ordinary course of the Partnership's business,
except for minor employee
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grievances or proceedings and matters involving less than $100,000;
(f) any decision to terminate the Management Services Agreement in
accordance with its terms or to enter into a replacement or successor management
agreement; provided, however, that the Managing Partner shall not be entitled to
vote on the termination of the Management Services Agreement; and
(g) the merger or consolidation of the Partnership with any other
Entity, where the Partnership is the surviving Entity, provided, however, that
no Partner's Partnership Interest may be diluted by such merger or consolidation
hereunder unless the diluted Partner affirmatively agrees;
(h) making Distributions pursuant to the first sentence of Section
4.7(a) hereof;
provided, however, that in no event shall (i) any Budget be adopted pursuant to
Section 3.4(b) above, (ii) any Additional Capital Contribution be requested from
any Partner pursuant to Section 3.4(c) above, (iii) any capital expenditure or
commitment for capital expenditure in connection with a proposed acquisition be
made by the Partnership pursuant to Section 3.4(d) above, (iv) any claim or
litigation be settled or initiated by the Partnership, pursuant to Section
3.4(e) above, or (v) any merger or consolidation be consummated, pursuant to
Section 3.4(g) above, without in any such case the consent of the Managing
Partner.
3.5 Actions Requiring a Supermajority Vote. Subject to the
provisions of Section 3.6 hereof, neither the Managing Partner, nor any other
Partner nor any officer of the Partnership shall take any action, expend any
sum, make any decision or incur any obligation on behalf of the Partnership with
respect to any of the following matters, without a Supermajority Vote:
(a) the admission of an additional Partner (other than pursuant to
Section 5.2(d) hereof and than a transferee or successor Partner pursuant to
Article 5) or, except as provided in Section 9.2(a)(i) hereof, the redemption or
purchase by the Partnership of any Partnership Interest; provided, however, that
no Partner's Partnership Interest may be diluted by the addition of an
additional Partner hereunder unless the diluted Partner affirmatively agrees;
and further provided that TCP shall not be diluted below a Partnership Interest
of 35%;
(b) the merger or consolidation of the Partnership with any other
Entity, where the Partnership is not the surviving Entity, or the incorporation
of the Partnership;
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(c) the sale, pledge, assignment, lease or other disposition or
mortgaging or other encumbering of Partnership assets with an aggregate original
acquisition cost of $1,000,000 or more;
(d) subject to the provisions of Section 4.3(b) hereof, the
incurrence of any indebtedness for borrowed money (or the making of any guaranty
of any indebtedness for borrowed money of any other Entity) in excess of
$100,000 in the aggregate at any time during the term hereof other than loans
pursuant to Section 4.4 hereof and indebtedness arising under any fiber lease
agreement between the Partnership and a Partner or an Affiliate of a Partner;
(e) any decision relating to Federal Communications Commission or
other federal, state or local regulatory matters which has a material adverse
effect upon the Partnership or any Partner or any Affiliate of any Partner in
the Business Area;
(f) the assignment, transfer, pledge, compromise or release of any
claims of, or debts due, the Partnership, except upon payment in full, or the
arbitration or consent to the arbitration of any disputes or controversies
involving the Partnership, except for matters arising in the ordinary course of
the Partnership's business that involve an amount not in excess of $75,000
(which shall be in the discretion of the Managing Partner);
(g) settling or initiating any tax audit or any other claim or
litigation involving the Partnership and not arising in the ordinary course of
the Partnership's business;
(h) any general assignment for the benefit of creditors or the
commencement of any proceedings pursuant to any federal or state bankruptcy or
insolvency statutes;
(i) the dissolution or winding up of the Partnership (except as
specifically provided in Article 8) and the decision to continue the business of
the Partnership after dissolution pursuant to Section 8.3 hereof;
(j) filing any protest, petition or pleading with regard to any
Partnership tax return; and
(k) subject to Section 3.6(c) hereof, entering into any agreement or
obtaining any license or franchise which restricts the transfer of Partnership
Interests or subjects the Partnership Interests to any security interests,
liens, claims, pledges, options, rights of first refusal, agreements,
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limitations on voting rights, charges or other encumbrances of any nature
whatsoever.
3.6 Special Voting Provisions. Notwithstanding any other provision
of this Agreement,
(a) if the Partnership desires to enter into a transaction or
agreement with a Partner or an Affiliate of a Partner on terms which are less
favorable to the Partnership than could be obtained in an arms-length
transaction with an unaffiliated third party, or amend or waive any provision of
any such agreement, and if there are Partners who are not involved, by
themselves or through any Affiliate, in such transaction or agreement, the
Partnership shall not enter into such transaction or agreement, or agree to such
amendment or waiver, without the consent of all of disinterested Partners;
(b) each Partner, by execution of this Agreement, hereby consents to
the execution and delivery, and the performance by the Partnership of its
obligations under, the Management Services Agreement;
(c) the approval of all of the Partners shall be required to enter
into any agreement or to obtain any license or franchise which restricts the
transfer of Partnership Interests or subjects the Partnership Interests to any
security interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on voting rights, charges or other encumbrances of any
nature whatsoever, in each case in a manner that discriminates among Partners;
and
(d) the approval of a majority in Percentage Interests of all of the
disinterested Partners shall be required to decline or approve the conduct of a
business activity proposed to be Engaged in, or an acquisition proposed to be
made, by the Partnership pursuant to Section 7.1 hereof.
3.7 Scope of Partners' Authority. The Managing Partner shall have
exclusive authority to act for and to assume any obligation or responsibility on
behalf of the Partnership, except as expressly restricted hereby, and no other
Partner shall have any authority to act for, or assume any obligation or
responsibility on behalf of, the Partnership or another Partner except as
otherwise expressly provided herein or as expressly approved by a vote of the
Partners pursuant to Section 3.4, 3.5 or 3.6 hereof.
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3.8 Indemnification of Partners; Allocation of Liabilities.
(a) The Partnership shall indemnify and save harmless the officers
and employees of the Partnership, the Managing Partner and the Authorized
Representatives of the Partners from any loss, damage or expense incurred by any
of them by reason of any act or omission to act on behalf of the Partnership,
performed by any of them in good faith and without gross negligence, willful
misconduct or breach of this Agreement. Any reasonable expenses incurred by any
indemnified person pursuant to this Section 3.8(a) in defending any civil or
criminal action, suit or proceeding (or the threat thereof), other than a claim,
action, suit or proceeding brought by the Partnership, which is based, in whole
or in part, upon any alleged act or omission to act on behalf of the Partnership
shall be borne and paid by the Partnership in advance of the final disposition
of such action, suit or proceeding (or the threat thereof) upon receipt of an
undertaking by or on behalf of the indemnified person to repay to the
Partnership the amount of such expenses if it shall ultimately be determined
that such person is not entitled to the indemnification provided for under this
Section 3.8(a). Any indemnity under this Section 3.8(a) shall be provided out of
and to the extent of Partnership assets only.
(b) Each Partner shall indemnify and save harmless the Partnership
and each other Partner and former Partner, the partners or shareholders of each
other Partner and former Partner, and any of their respective officers,
directors, shareholders, partners, employees, agents and Affiliates, from any
loss, damage or expense incurred by any of them by reason of or resulting from
(i) any misrepresentation or breach of warranty of such Partner set forth in
this Agreement or (ii) any unauthorized act taken by such Partner in the name of
the Partnership or any other Partner. Any reasonable expenses incurred by any
Entity entitled to indemnification pursuant to this Section 3.8(b) in defending
any civil or criminal action, suit or proceeding (or the threat thereof) by
reason of or resulting from any such indemnified matter shall be borne and paid
by the indemnifying Partner in advance of the final disposition of such action,
suit or proceeding (or the threat thereof) upon receipt of an undertaking by or
on behalf of the indemnified Entity to repay to the indemnifying Partner the
amount of such expenses if it shall ultimately be determined that such Entity is
not entitled to the indemnification provided for under this Section 3.8(b). Any
indemnity under this Section 3.8(b) shall be provided out of and to the extent
of the assets of the indemnifying Partner only.
(c) With respect to the indemnities provided above in this Section
3.8, an indemnified party shall, with
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respect to any claim made against such indemnified party for which
indemnification is available, notify the indemnifying party in writing of the
nature of the claim as soon as practicable but not more than ten days after the
indemnified party shall have received notice of the assertion thereof before any
court or governmental authority. The failure by an indemnified party to give
notice as provided in the foregoing sentence shall not relieve the indemnifying
party of its obligations under this Section except to the extent that the
failure results in the failure of actual notice to the indemnifying party and
the indemnifying party is damaged solely as a result of the failure to give
notice. Upon receipt of notice by an indemnifying party from an indemnified
party of the assertion of any such claim, the indemnifying party shall employ
counsel acceptable to the indemnified party and shall assume the defense of such
claim. The indemnified party shall have the right to employ separate counsel and
to participate in (but not control) any such action, but the fees and expenses
of such counsel shall be the expense of such indemnified party unless (i) the
employment of counsel by such indemnified party has been authorized by the
indemnifying party, (ii) the indemnified party shall have been advised by its
counsel in writing that there is a conflict of interest between the indemnifying
party and the indemnified party in the conduct of the defense of such action (in
which case the indemnifying party shall not have the right to direct the defense
of such action on behalf of the indemnified party) or (iii) the indemnifying
party shall not in fact have employed counsel to assume the defense of such
action, in each of which cases the fees and expenses of such counsel shall be at
the expense of the indemnifying party. An indemnifying party shall not be liable
for any settlement of an action effected without its written consent (which
consent shall not be unreasonably withheld). No indemnifying party will consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such action.
Whether or not the Partnership chooses to defend or prosecute a claim, each
Partner shall, to the extent requested by the Partnership and at the
Partnership's expense, cooperate in the prosecution or defense of such claim and
shall furnish such records, information and testimony and attend such
conferences, discovery proceedings, hearings, trials and appeals as may
reasonably be requested in connection therewith.
(d) The provisions of this Section 3.8 shall survive the withdrawal
of any Partner from the Partnership and the dissolution of the Partnership.
3.9 Contribution. All liabilities, obligations or commitments
incurred or assumed by the Partnership (or to which it or its property or assets
are subject) ("Partnership
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Obligations") shall be payable first out of the assets of the Partnership.
Subject to the provisions of Section 3.8 hereof, if the assets of the
Partnership (determined without regard to any Capital Contributions by the
Partners pursuant to Section 8.2(b) hereof) are not sufficient at any time to
pay or discharge when due and payable any and all Partnership Obligations (any
such deficiency being referred to herein as a "Deficiency"), a Partner or former
Partner who pays all or any portion of such Deficiency (whether directly or, in
the case of a Partner, by making a contribution to the capital of the
Partnership pursuant to Section 8.2(b)) (a "Paying Partner") shall be entitled
to contribution from those Partners and former Partners that were Partners at
the time of the Partnership's incurrence or assumption of such Partnership
Obligation pursuant to this Section 3.9. Specifically, if any Paying Partner
pays (whether by direct payment or, in the case of a Partner, by making a
Capital Contribution to the Partnership pursuant to Section 8.2(b) hereof) a
portion of any Partnership Obligation included in such Deficiency that is in
excess of such Paying Partner's Pro Rata share of the unpaid portion of such
Partnership Obligation, based on its Percentage Interest at the time of
incurrence or assumption of such Partnership Obligation, then each other Partner
or former Partner which has not paid any portion of such Partnership Obligation,
or which has paid a portion which is less than its Pro Rata share thereof (based
on its Percentage Interest as of the date of incurrence or assumption), shall
contribute ratably to the Paying Partner so that each Partner and former Partner
shall have paid or contributed its Pro Rata share of such Partnership Obligation
based on its Percentage Interest as of the date of incurrence or assumption. The
payment by a Partner of any portion of a Deficiency hereunder shall be treated
as a Capital Contribution and shall be applied against any obligation of the
Paying Partner under Section 8.2(b) hereof. The provisions of this Section 3.9
shall survive the withdrawal of any Partner from the Partnership and the
dissolution of the Partnership.
3.10 Insurance and Bonds. Each Partner shall assist the Partnership
to the extent requested by the Manager or the Managing Partner in procuring
satisfactory insurance coverage, bonds and letters of credit for the Partnership
at the expense of the Partnership; provided, however, that in no event shall any
Partner be obligated pursuant to this Section 3.10 to assume any actual or
contingent liability, financial risk or reimbursement obligation.
ARTICLE 4: CAPITALIZATION; ALLOCATION; DISTRIBUTIONS
4.1 Initial Capital Contributions.
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(a) Each Partner shall be obligated to make Initial Capital
Contributions to the Partnership in the aggregate amount indicated for it on the
Information Appendix. Except as otherwise expressly provided in an asset
contribution agreement between the Partnership and a Partner, such contributions
shall be made by the Partners Pro Rata, in one or more installments at such
times and in such amounts as may be determined by the Managing Partner. Each
installment of an Initial Capital Contribution of a Partner shall be due and
payable within twenty Business Days of receipt by such Partner of a request from
the Managing Partner for such installment (an "Initial Capital Payment Date"). A
Partner which fails to make all or any portion of an installment of its Initial
Capital Contribution on or before the related Initial Capital Payment Date is
referred to herein as a "Delinquent Partner", and the unpaid amount of the
installment of its Initial Capital Contribution is referred to herein as the
"Initial Capital Unpaid Amount" or as the "Unpaid Amount". All Initial Capital
Contributions shall be in cash unless otherwise determined by the Managing
Partner.
(b) The Initial Capital Contributions have been set by the Managing
Partner based on its current expectations as to the cost of implementing the
initial phase of the construction and operation of the Partnership's business in
the Business Area. Although such costs of implementing the initial phase may be
more or less than currently anticipated, the amount of the Initial Capital
Contributions shall be neither increased nor decreased without the consent of
all Partners.
4.2 Additional Capital Contributions. The Partners may decide, by a
Majority Vote of the Partners pursuant to Section 3.4(c) hereof, that additional
Capital Contributions in excess of the Initial Capital Contributions
("Additional Capital Contributions") are required for the conduct of the
business of the Partnership. Such Additional Capital Contributions shall be made
by the Partners Pro Rata, in one or more installments at such times and in such
amounts as may be determined by the Managing Partner. Each Additional Capital
Contribution of a Partner shall be due and payable within twenty Business Days
of receipt by such Partner of a request from the Managing Partner for such
Additional Capital Contribution (an "Additional Capital Payment Date"). A
Partner which fails to make all or any portion of an Additional Capital
Contribution on or before the related Additional Capital Payment Date is
referred to herein as a "Declining Partner", and the unpaid amount of the
Additional Capital Contribution is referred to herein as the "Additional Capital
Unpaid Amount" or as the "Unpaid Amount". All Additional Capital Contributions
shall be in cash unless otherwise determined by the Managing Partner.
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4.3 Failure to Make Capital Contributions.
(a) (i) Interest shall accrue on any Initial Capital Unpaid Amount
in respect of an Initial Capital Contribution which is not rescinded pursuant to
Section 4.3(b) below at the Prime Rate plus 6% per annum from and including the
Initial Capital Payment Date until such Unpaid Amount and all interest accrued
thereon are paid as provided in this Section 4.3 hereof. The failure of the
Delinquent Partner to pay to the Partnership the Initial Capital Unpaid Amount
together with accrued interest on or before the tenth Business Day following the
related Initial Capital Payment Date (such failure being referred to herein as
an "Initial Capital Payment Default") shall be deemed an Event of Default for
purposes of Article 9.
(ii) Interest shall accrue on any Additional Capital Unpaid Amount
in respect of an Additional Capital Contribution which is not rescinded pursuant
to Section 4.3(b) below at the Prime Rate plus 2% per annum from and including
the Additional Capital Payment Date until such Unpaid Amount and all interest
accrued thereon are paid to the Partnership; provided, however, that no
Additional Capital Contribution may be paid by a Declining Partner to the
Partnership more than twenty Business Days after the related Additional Capital
Payment Date; and provided, further, that no interest shall be payable in the
event the Declining Partner elects not to make the Additional Capital
Contribution. No Partner shall be required to make any Additional Capital
Contribution to the Partnership, and the failure by a Partner to make an
Additional Capital Contribution by the end of such twenty Business Day period
(such failure being referred to herein as an "Additional Capital Refusal") shall
not be deemed an Event of Default for purposes of Article 9.
(b) If an Initial Capital Payment Default or an Additional Capital
Refusal occurs, the other Partners that have timely made the installments of
their Initial Capital Contributions or the Additional Capital Contributions with
respect to which such Initial Capital Payment Default or Additional Capital
Refusal occurred, as the case may be (the "Complying Partners"), may, with the
affirmative vote of Complying Partners (which must include the affirmative vote
of the Managing Partner if it is a Complying Partner) with an aggregate
Percentage Interest constituting not less than two-thirds of the sum of the
Percentage Interests of all Complying Partners, by notice given to each
Delinquent Partner or Declining Partner, as the case may be, and each other
Partner within ten Business Days after the occurrence of the Initial Capital
Payment Default or the Additional Capital Refusal:
(i) elect to cause the call of such installment of the Initial
Capital Contribution or such
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Additional Capital Contribution to be rescinded (in which case no
Initial Capital Payment Default or Additional Capital Refusal shall be
deemed to have occurred for purposes of this Article 4 and no Event of
Default in respect of an Initial Capital Payment Default shall be
deemed to have occurred for purposes of Article 9 hereof);
(ii) elect to have such installment of the Initial Capital
Contribution or such Additional Capital Contribution made by the
Complying Partners to be deemed loans to the Partnership, rather than
as Capital Contributions, and to make additional loans to the
Partnership in an aggregate amount equal to the related Unpaid Amount;
(iii) elect to make loans to the Partnership in an aggregate
amount equal to the related Unpaid Amount; or
(iv) elect to make additional Capital Contributions ("Excess
Capital Contributions") to the Partnership in an aggregate amount
equal to the related Unpaid Amount;
provided, however, that the same election, if any, shall be made with respect to
each Delinquent Partner and Declining Partner in respect of any request for an
Initial Capital Contribution or Additional Capital Contribution, as the case may
be.
The Complying Partners shall not be obligated to make any election under this
Section 4.3(b). Neither the existence nor the exercise of any right of election
available to the Complying Partners under this Section 4.3(b) shall affect the
Remedies Partner's right to treat Delinquent Partners' Initial Capital Payment
Defaults as an Event of Default and to make any election and pursue at any time
any remedy then available pursuant to Article 9 hereof.
(c) If an election is made pursuant to clause (i) of Section 4.3(b)
hereof, the Partnership shall promptly return to each Partner the amount of the
installment of the Initial Capital Contribution or the Additional Capital
Contribution contributed by it in respect of which the related Initial Capital
Payment Default or the Additional Capital Refusal occurred, together with
interest, if any, actually earned on such amount by the Partnership from and
including the Initial Capital Payment Date or the Additional Capital Payment
Date to the date such amount is returned to such Partner.
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(d) If an election is made pursuant to clause (ii) or (iii) of
Section 4.3(b) hereof, the indebtedness of the Partnership for the amount loaned
(or deemed loaned pursuant to clause (ii)) (each a "Capital Loan") shall be
evidenced by a promissory note of the Partnership in form and substance
reasonably satisfactory to the Complying Partners making such loans, shall be
unsecured, shall be subordinate to any senior debt of the Partnership, shall
bear interest at a rate per annum equal to the Prime Rate plus 2% per annum and
shall otherwise be on terms and conditions that are no less favorable to the
Partnership than it could obtain in connection with a loan from a bank or other
financial institution not an Affiliate of a Partner. Only those Complying
Partners that voted in favor of making the election pursuant to clause (ii) or
(iii) (each a "Capital Lending Partner") shall be required to make Capital Loans
to the Partnership (in excess of any amount deemed a loan pursuant to clause
(ii)). The amount of the Capital Loan made by each Capital Lending Partner shall
be in proportion to its respective Percentage Interest relative to the sum of
the Percentage Interests of all Capital Lending Partners (in each case as in
effect immediately prior to the related Initial Capital Payment Default or
Additional Capital Refusal), or in such other proportion as the Capital Lending
Partners may agree upon among themselves.
(e) If an election is made pursuant to clause (iv) of Section 4.3(b)
hereof, only those Complying Partners that voted in favor of making such
election (each an "Excess Capital Contributing Partner") shall be required to
make Excess Capital Contributions. The amount of the Excess Capital Contribution
to be made by each Excess Capital Contributing Partner shall be in proportion to
its respective Percentage Interest relative to the sum of the Percentage
Interests of all Excess Capital Contributing Partners (in each case as in effect
immediately prior to the related Initial Capital Payment Default or Additional
Capital Refusal), or in such other proportion as such Excess Capital
Contributing Partners may agree upon among themselves. Excess Capital
Contributions shall be in addition to, and not credited against, Initial Capital
Contributions or Additional Capital Contributions otherwise payable by the
Partners.
(f) (i) Whenever an Initial Capital Payment Default occurs, the
Percentage Interest of each Partner shall be adjusted (unless the Complying
Partners make an election pursuant to clause (i) or (ii) of Section 4.3(b)
hereof with respect to such Initial Capital Payment Default), with effect from
the related Initial Capital Payment Date, to equal the percentage determined by
dividing (A) the aggregate amount of Initial Capital Contributions and Excess
Capital Contributions actually made by such Partner to the date of determination
divided by (B)
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the sum of all Initial Capital Contributions and Excess Capital Contributions
actually made by all Partners to the date of determination. In addition to the
adjustment provided in this Section 4.3(f)(i), and subject to Section 4.3(g)
hereof, the Delinquent Partner shall have no right to participate in any
subsequent call for Initial Capital Contributions or Additional Capital
Contributions, and each Partner's Percentage Interest shall be adjusted as of
each subsequent Initial Capital Payment Date and Additional Capital Payment Date
in accordance with this Section 4.3(f) and Section 4.3(g) hereof as though such
Delinquent Partner committed an Initial Capital Payment Default or Additional
Capital Refusal with respect to each such subsequent call for Initial Capital
Contributions or Additional Capital Contributions, respectively.
(ii) Whenever an Additional Capital Refusal occurs, the Percentage
Interest of each Partner shall be adjusted (unless the Complying Partners make
an election pursuant to clause (i) or (ii) of Section 4.3(b) hereof with respect
to such Additional Capital Refusal), with effect from the related Additional
Capital Payment Date, to equal:
(A), prior to such time as the aggregate amount of Capital
Contributions requested to be made by the Partners exceeds an amount
equal to two times the sum of all of the Initial Capital Contributions
of the Partners shown on the Information Appendix (the "Threshold
Amount"), the percentage determined by dividing (I) the aggregate
amount of Initial Capital Contributions, Additional Capital
Contributions and Excess Capital Contributions actually made by such
Partner to the date of determination by (II) the sum of all Initial
Capital Contributions, Additional Capital Contributions and Excess
Capital Contributions actually made by all Partners to the date of
determination, or
(B), from and after such time as the aggregate amount of Capital
Contributions requested to be made by the Partners exceeds the
Threshold Amount, the percentage determined by dividing (I) the Fair
Market Value of the Partnership Interest of such Partner immediately
prior to such Additional Capital Refusal, plus any Additional Capital
Contribution and Excess Capital Contribution made by such Partner at
the time of or following such Additional Capital Refusal, by (II) the
sum of the Fair Market Values of the Partnership Interests of all of
the Partners immediately prior to such Additional Capital
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Refusal, plus the sum of all Additional Capital Contributions and
Excess Capital Contributions made by all of the Partners at the time
of or following such Additional Capital Refusal.
Notwithstanding the adjustment provided in this Section 4.3(f)(ii), the
Declining Partner shall have the right to participate in any subsequent call for
Additional Capital Contributions without being required to make any missed
Additional Capital Contribution. For purposes of this clause 4.3(f)(ii) only,
the Fair Market Value of the Partnership Interests of all of the Partners shall
be determined by the Managing Partner, based on its good faith estimate of such
value, in connection with each proposed call for Additional Capital
Contributions. The Managing Partner's determination of such Fair Market Value
shall then be submitted to a vote of the Partners at the time the vote required
by Section 3.4(c) hereof to approve a call for Additional Capital Contributions
is taken. If such determination is approved by a Majority Vote of the Partners,
such determination shall be final and binding on the Partners for purposes of
any adjustment to the Percentage Interests of the Partners pursuant to this
clause 4.3(f)(ii) which requires a determination of such Fair Market Value.
(g) A Delinquent Partner may, with the consent of the Managing
Partner (or, if the Delinquent Partner is the Managing Partner, with the consent
of Complying Partners with an aggregate Percentage Interest constituting not
less than two-thirds of the sum of the Percentage Interests of all Complying
Partners) and prior to the receipt by the Delinquent Partner of the notice
contemplated by Section 9.2 hereof, cure its Initial Capital Payment Default by
paying to the Partnership an amount (the "Make-up Amount") equal to the Initial
Capital Unpaid Amount plus accrued interest thereon calculated pursuant to
Section 4.3(a)(i) hereof. If an election was made pursuant to clause (ii) of
Section 4.3(b) hereof with respect to such Initial Capital Payment Default, each
Capital Lending Partner shall contribute to the Partnership an amount equal to
the related installment of its Initial Capital Contribution that was deemed a
loan, pursuant to clause (ii) of Section 4.3(b) hereof, by the contribution to
the Partnership of the outstanding principal amount of all Capital Loans made by
such Capital Lending Partner in connection with such Initial Capital Payment
Default together with an outstanding principal amount of other Capital Loans
made by such Capital Lending Partner such that the aggregate amount of such
contributed Capital Loans is equal to the amount of such installment (and, if
the balance of the Capital Loans made by such Capital Lending Partner is less
than the amount of such installment, such Capital Lending Partner shall
contribute the difference in cash). The proceeds of the Make-up Amount shall
first be promptly applied by the Partnership to the payment of
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any accrued but unpaid interest on the Capital Loans contributed to the
Partnership and thereafter to the repayment of the principal amount of any
Capital Lending Partner's Capital Loan which is in excess of the amount
contributed by such Partner in accordance with the immediately preceding
sentence. If an election was made pursuant to clause (iii) of Section 4.3(b)
hereof, the proceeds of the Make-up Amount shall first be applied by the
Partnership to the repayment of the principal of, and accrued but unpaid
interest on, all Capital Loans made with respect to such Initial Capital Payment
Default, and thereafter to the repayment of principal of, and unpaid interest
on, any other outstanding Capital Loans. If an election was made pursuant to
clause (iv) of Section 4.3(b) hereof, the proceeds of the Make-up Amount shall
first be promptly applied to the distribution to each Excess Capital
Contributing Partner an amount equal to its Excess Capital Contribution plus
interest thereon at the Prime Rate plus 2% per annum from and including the date
of such contribution to the date of such distribution. If the Percentage
Interests of the Partners were adjusted pursuant to Section 4.3(f) hereof as a
result of the Initial Capital Payment Default, then upon payment by the
Delinquent Partner of the Make-up Amount in full in accordance with the
foregoing provisions of this Section 4.3(g), the Percentage Interests of the
Partners shall be readjusted so as to restore to the Delinquent Partner and the
Complying Partners, for periods subsequent to the payment of the Make-Up Amount,
the respective Percentage Interests they would have had but for such Initial
Capital Payment Default.
4.4 Loans. If the Partners do not in the aggregate make all of the
Capital Contributions requested pursuant to Sections 4.1 or 4.2 above and an
election is not made pursuant to Section 4.3(b) above to make up the shortfall,
the Remedies Partner may, without a vote of the Partners, arrange for a loan to
the Partnership from a Partner, an Affiliate of a Partner or from any other
commercially reasonable source in an amount equal to the shortfall, which loan
shall bear interest at an annual rate no higher than the Prime Rate plus 2% per
annum and be on such other terms and conditions which the Remedies Partner, in
its good faith judgment, determines to be no less favorable to the Partnership
than could be obtained in connection with a loan from a bank or financial
institution not an Affiliate of a Partner. Subject to the applicable terms of
the Partnership's credit agreements, the proceeds, if any, of subsequent Capital
Contributions or any proposed Distribution shall be applied first to such loans
until such loans, together with accrued interest and any related fees, are paid
in full, before any such proceeds are used for any other Partnership purpose or
any such proposed Distribution is made to the Partners.
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4.5 Calculations and Adjustments. The calculations of the Percentage
Interests provided in Section 4.3 hereof shall be made by the Remedies Partner,
and shall, in the absence of manifest error, be conclusive and binding on the
Partners. The Partnership shall use its best efforts to obtain any regulatory or
other consents or approvals required by any adjustment to the Percentage
Interests of the Partners pursuant to this Section prior to such adjustment, and
if such approval is not obtained, neither such adjustment nor the Capital
Contributions which would require such adjustment shall be made, or, if already
made, such Capital Contributions shall be returned to the Partners.
4.6 Capital Accounts. The term "Capital Account" shall mean with
respect to each Partner, the aggregate amount of such Partner's Initial Capital
Contribution, increased by:
(a) the amount of each Additional Capital Contribution and Excess
Capital Contribution made by it pursuant to Section 4.2 or 4.3 hereof
to the Partnership in cash, if any;
(b) the fair market value without regard to Code Section 7701(g)
of property if any, contributed by it as an Additional Capital
Contribution or Excess Capital Contribution pursuant to Section 4.2 or
4.3 hereof to the Partnership (net of liabilities secured by such
contributed property that the Partnership is considered to assume or
take subject to under Code Section 752);
(c) allocations to it of Net Profit and other items of income and
gain pursuant to Section 4.8 hereof and the Tax Appendix; and
(d) other additions made in accordance with the Code and
Regulations;
and decreased by:
(i) the amount of cash distributed to it by the Partnership;
(ii) allocations to it of Net Loss and other items of loss and
deduction pursuant to Section 4.8 hereof and the Tax Appendix;
(iii) the fair market value without regard to Code Section
7701(g) of property distributed to it by the Partnership (net of
liabilities secured by such distributed property that such Partner is
considered to assume or take subject to under Code Section 752); and
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(iv) other deductions made in accordance with the Code and
Regulations.
The Capital Accounts shall be determined and maintained at all times in
accordance with all of the provisions of Regulations Section 1.704-1(b)(2)(iv).
An individual account shall be established and maintained on the books of the
Partnership for each Partner in accordance with the Code. In the event any
Partnership Interest is transferred in accordance with the provisions of Article
5 hereof, the transferee of such Partnership Interest shall succeed to the
portion of the transferor's Capital Account attributable to such interest.
4.7 Distribution of Partnership Funds.
(a) The Managing Partner may, after the establishment of such
reserves as it deems appropriate, upon a Majority Vote of the Partners and
subject to restrictions imposed by the Partnership's lenders, if any, and
subject to Section 4.4 hereof, make Distributions to the Partners at any time
and from time to time during the term of the Partnership. In addition, at the
end of each Fiscal Year after the third full Fiscal Year of the Partnership, the
Managing Partner shall distribute, subject to restrictions imposed by the
Partnership's lenders and subject to Section 4.4 hereof, that amount of cash in
the accounts of the Partnership which exceeds two times the sum of, without
duplication, (i) all reserves or other working capital items relating to any
previous Fiscal Year and (ii) the aggregate amount allocated in the Budget for
the next Fiscal Year for reserves, losses, capital expenditures and debt
repayment and working capital, if any. All such Distributions (other than
Distributions pursuant to Section 8.2 hereof) will be made to the Partners Pro
Rata.
(b) No Partner shall have the right to withdraw any amount from its
Capital Account, or to receive any Distribution, except as provided in Sections
4.7(a) and 8.2 hereof. Notwithstanding the foregoing, the Partnership shall pay
in full all loans extended by Partners to the Partnership prior to making any
Distributions to the Partners.
4.8 Allocation of Net Profits and Losses. As of the end of each
Fiscal Year of the Partnership, the Net Profit or Net Loss of the Partnership
shall be allocated to the Partners in accordance with their Percentage
Interests, except as otherwise provided in the Tax Appendix.
4.9 Tax Appendix. The provisions of this Article 4 shall be subject
to the provisions of the Tax Appendix.
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ARTICLE 5: TRANSFERS OF PARTNERSHIP INTERESTS; RIGHT OF FIRST
REFUSAL
5.1 Restrictions on Transfer.
(a) A Partner shall, directly or indirectly, offer, sell, transfer,
assign, grant a participation in, pledge or otherwise dispose of any of its
Partnership Interest only in a transaction that (i) is expressly permitted by
this Agreement, (ii) is in accordance with agreements entered into by the
Partnership with third parties to which transfers of interests in the
Partnership are subject (unless the breach of such agreements, other than this
Agreement, would not have a material adverse effect on the Partnership), and
(iii) in which the transferee becomes a party to this Agreement. A Change in
Control of a Partner shall constitute a transfer by such Partner subject to the
provisions of this Article 5 (an "Indirect Transfer").
(b) Except as expressly permitted by this Agreement, each Partner
shall (i) be the owner of the Partnership Interest indicated in the
Partnership's records as being owned by such Partner, in each case free and
clear of any pledge, lien, security interest, charge, claim, equity, option or
encumbrance of any kind, and (ii) have sole voting power with respect to such
Partner's Partnership Interest and will not grant any proxy with respect to such
Partnership Interest, enter into any voting trust or other voting agreement or
arrangement with respect to such Partnership Interest or grant any other rights
to vote such Partnership Interest; provided, however, that the foregoing shall
not be construed to limit the ability of a Partner to enter into agreements with
respect to sales permitted by this Agreement or to enter into agreements not
inconsistent with this Agreement that restrict such Partner's ability to
transfer its Partnership Interest.
(c) After any sale, assignment, transfer or other conveyance of a
Partnership Interest in accordance with the provisions of this Agreement, the
transferred Partnership Interest shall continue to be subject to all of the
provisions of this Agreement, including the provisions of this Article 5.
5.2 Exceptions to Restrictions on Transfers. The restrictions
contained in the other Sections of this Article 5 (other than Section 5.7
hereof) shall not apply to the transactions set forth in this Section 5.2.
(a) A Partner may transfer to any Controlled Affiliate which is a
Subsidiary of its Parent, all, but not less than all, of its Partnership
Interest, and TCP may transfer to TCGI or any Subsidiary of TCGI all or any part
of its Partnership
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Interest, provided that, in each such case, the transferee assumes the
obligations of the transferor under this Agreement with respect to such
Partnership Interest and becomes a party to this Agreement.
(b) A Partner may permit an Indirect Transfer that results from the
sale or other disposition of all or substantially all of the stock or assets of
the Parent of such Partner, provided that the Parent of the transferee agrees to
execute a Parent Undertaking.
(c) If a Partner conducts, or has a Controlled Affiliate which
conducts, a business in the Business Area and in connection with such business
such Partner or Controlled Affiliate has entered into a fiber lease agreement or
other agreement for the use of fiber optic telecommunications facilities, then
such Partner shall have the right, but shall not be obligated, to sell its
Partnership Interest to the buyer (the "Acquirer") of all or substantially all
of the assets of such business or of all or substantially all of the outstanding
stock of such Partner or Controlled Affiliate, on any terms and conditions
acceptable to it, so long as, in the case of a sale of the assets of such
business of such Partner or Controlled Affiliate, the Acquirer becomes a party
to this Agreement and assumes the obligations of the selling Partner or
Controlled Affiliate under such fiber lease agreement or other agreement for the
use of facilities and that in any case the Parent of the Acquirer executes a
Parent Undertaking; provided, however, that if the Acquirer or any Affiliate of
the Acquirer is Engaged in the Exclusive Business in the Business Area, such
Partner shall not have the right to sell its Partnership Interest to the
Acquirer unless such sale is approved by a Supermajority Vote.
(d) (i) The Managing Partner shall have the right, but shall not be
obligated, at any time prior to the date specified on the Information Appendix
(the "Offer Expiration Date"), to sell that portion of its Partnership Interest
set forth on the Information Appendix (the "Excess Interest") to the Entities
(or Subsidiaries of such Entities) listed on the Information Appendix (the
"Potential Partners"), subject to the following conditions:
(A) The Percentage Interest of each Potential Partner which
purchases a portion of the Excess Interest shall be as set forth on
the Information Appendix for such Potential Partner and the Percentage
Interest of the Managing Partner shall be correspondingly reduced;
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(B) The Deemed Initial Capital Contribution of a Potential
Partner shall be as set forth on the Information Appendix for such
Potential Partner;
(C) The purchase price for each sale to a Potential Partner shall
be payable in cash and shall be the product of the Deemed Initial
Capital Contribution of such Potential Partner (as set forth on the
Information Appendix) times the percentage of the Initial Capital
Contributions of all existing Partners which have been contributed by
the existing Partners as of the date of the sale to the Potential
Partner;
(D) A Potential Partner which purchases a Percentage Interest
shall succeed to the obligation of the Managing Partner to make its
Initial Capital Contribution to the extent of the Deemed Initial
Capital Contribution less the purchase price paid to the Managing
Partner pursuant to paragraph (C) above, and the Initial Capital
Contribution of the Managing Partner shall be correspondingly reduced;
and
(E) Each Potential Partner shall become a Partner by delivering
to the Partnership (which shall promptly send notice thereof to the
other Partners) a counterpart signature page to this Agreement and
shall deliver to the Partnership a Parent Undertaking by its Parent
(if any). No further action by the Partnership or the Partners shall
be required for such Potential Partner to become a party to this
Agreement.
(ii) If any portion of the Excess Interest remains unsold to the
Potential Partners after the Offer Expiration Date, the Managing Partner shall,
within ten Business Days after the Offer Expiration Date, offer to sell the
unsold portion of the Excess Interest to the other Partners. The purchase price
for any portion of the Excess Interest shall be the same as the purchase price
which would have been payable by the Potential Partners pursuant to clause (i)
(C) above for such portion of the Excess Interest, but, in addition, the
Purchasing Partners (as that term is defined below) shall pay interest on such
purchase price at the rate of 10% per annum from the date of this Agreement to
the date such purchase price is paid. If a Partner desires to accept such offer
as to at least its Pro Rata portion of the unsold Excess Interest, such Partner
(a "Purchasing Partner") shall, within fourteen days of receipt of such offer,
notify the Managing Partner and each other Partner of its intention to acquire
its full Pro Rata portion of the unsold portion of the Excess Interest. If a
Partner does not elect to acquire its Pro Rata portion of the unsold portion of
the Excess Interest, the Managing Partner shall notify the Purchasing
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Partners of the portion of the Excess Interest remaining, and each Purchasing
Partner shall then have ten days after the later of receipt of such notice and
the expiration of the fourteen day period described above to notify the Managing
Partner of its intention to acquire such unacquired portion of the Excess
Interest (the "Unpurchased Portion") (and, if more than one Purchasing Partner
notifies the Managing Partner of its willingness to purchase the Unpurchased
Portion then, unless otherwise agreed by such Purchasing Partners, the
Unpurchased Portion shall be allocated among the Purchasing Partners who have so
notified the Managing Partner Pro Rata). The closing of the sale of the unsold
portion of the Excess Interest to the Purchasing Partners shall occur and be
conducted in accordance with the provisions of Section 5.9 hereof. The Managing
Partner shall, subject to the provisions of this Agreement, retain that portion
of the Excess Interest which is not sold to Potential Partners or to Purchasing
Partners.
5.3 Rollup Provisions.
(a) Subject to Section 5.3(b) below, but notwithstanding any other
provision herein, at any time after the third anniversary of the date hereof,
any Partner (the "Rollup Partner"), with the consent of TCGI, which may be
withheld in TCGI's sole discretion, may transfer (or permit an Indirect Transfer
of) all or any part of its Partnership Interest to TCGI for stock of TCGI or
cash. The terms and conditions of such transfer, including the amount of stock
of TCGI or cash to be received by the transferring Partner, shall be determined
between the transferring Partner and TCGI; provided, however, that TCGI shall
not be obligated to accept any such transfer, and TCGI shall have no liability
with respect to such negotiations or for failure to reach agreement with respect
thereto for any reason whatsoever.
(b) No Partner may transfer (or permit an Indirect Transfer of) all
or any part of its Partnership Interest to TCGI, unless TCGI shall first have
delivered a written offer (the "Rollup Offer") to each other Partner to purchase
(directly or by an Indirect Transfer) all or part of such Partner's Partnership
Interest on the same terms and in the same proportion as TCGI has agreed to
purchase the Rollup Partner's Partnership Interest (based on the respective
Percentage Interests, immediately prior to such rollup, of all Partners
(including the Rollup Partner) who desire to participate in such rollup). Each
Partner that desires to participate in such rollup shall give notice to TCGI
(and deliver a copy thereof to each other Partner) of its election (a "Rollup
Election") to sell to TCGI the portion of its Partnership Interest to be
determined as described above on the terms and conditions applicable to the
proposed sale by the Rollup Partner (including the per Percentage Interest
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consideration proposed to be paid to the Rollup Partner). The right to make a
Rollup Election shall terminate if notice thereof has not been given to TCGI and
each other Partner by the twentieth Business Day after receipt of the Rollup
Offer.
(c) Any transfer pursuant to this Section 5.3 shall be exempt from
the restrictions contained in the other Sections of this Article 5.
(d) If subsequent to any Rollup pursuant to this Article, TCGI
offers to redeem all or a part of the stock of any Rollup Partner, TCGI shall
offer to redeem all or part of each other Rollup Partner's stock on the same
terms and in the same proportion.
5.4 Right of First Refusal.
(a) If, other than pursuant to Section 5.2, 5.3 or 5.5 hereof, any
Partner (the "Selling Partner"), at any time after the third anniversary of the
date hereof, desires to sell all, but not less than all, of its Partnership
Interest, whether by sale of such Partnership Interest, sale of all of the
equity interests of such Selling Partner, or the sale of equity interests of an
Entity that would result in a Change in Control of the Selling Partner (in each
such case, the portion thereof consisting of the Partnership Interest only being
the "Offered Interest"), to an unaffiliated third party offeror who has made a
bona fide written offer to purchase the Offered Interest (or assets of which the
Partnership Interest forms a part) and who is financially capable of
consummating such purchase (the "Offeror"), it shall deliver to the other
Partners a notice (a "Notice of Sale") of its intention to sell the Offered
Interest to the Offeror. The Notice of Sale shall include the economic terms and
conditions of such sale, including the name of the Offeror and controlling
owners, principal officers and directors (subject to any legal or contractual
restrictions on the disclosure of such identity) and the price for the Offered
Interest and shall contain the Selling Partner's offer to sell the Offered
Interest to the other Partners on such terms and conditions. If the offer from
the Offeror is given or received in connection with a transaction pursuant to
which assets or ownership interests in addition to the Offered Interest are
proposed to be disposed of (including, without limitation, pursuant to an
Indirect Transfer), the Notice of Sale shall also contain the Selling Partner's
good faith estimate, based on reasonable allocation and attribution methods, of
the portion of the aggregate consideration for the assets or ownership interests
to be disposed of which is reasonably allocated to the Offered Interest, which
shall be the purchase price for the Offered Interest (which price shall, unless
otherwise agreed by the Electing Partners (as defined below), be payable in
cash). The
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non-Selling Partners shall enter into appropriate confidentiality agreements as
reasonably requested by the Selling Partner in connection with the offer from
the Offeror and the information contained in the Notice of Sale. If a
non-Selling Partner desires to accept such offer as to at least its Pro Rata
portion of the Offered Interest, such Partner (an "Electing Partner") shall,
within fourteen days of receipt of such Notice of Sale, notify the Selling
Partner of its intention to acquire its full Pro Rata portion of the Offered
Interest and deliver a copy of such notice to each other non-Selling Partner. If
a non-Selling Partner does not elect to acquire its Pro Rata portion of the
Offered Interest, the Selling Partner shall notify the Electing Partners of the
portion of the Offered Interest remaining, and each Electing Partner shall then
have ten days after the later of receipt of such notice and the expiration of
the fourteen day period described above to notify the Selling Partner of its
intention to acquire such unacquired portion of the Offered Interest (the
"Uncommitted Portion") (and, if more than one Electing Partner notifies the
Selling Partner of its willingness to purchase the Uncommitted Portion then,
unless otherwise agreed by such Electing Partners, the Uncommitted Portion shall
be allocated among the Electing Partners who have so notified the Selling
Partner Pro Rata). The Electing Partners shall have ninety days after the
termination of the foregoing procedure to enter into a binding agreement with
the Selling Partner to acquire all of the Offered Interest on the economic terms
and conditions set forth in the Notice of Sale; provided, however, that if the
purchase price set forth in the Notice of Sale is not all cash, the Selling
Partner and the Electing Partners shall negotiate in good faith as to the value
of the non-cash consideration, and the Electing Partners shall have the right to
pay the purchase price for the Offered Interest all in cash. The Selling Partner
and the Electing Partners shall negotiate in good faith to enter into a binding
agreement with respect to the sale of the Offered Interest, which binding
agreement shall contain:
(i) the representation and warranty of the Selling Partner that the
Electing Partners will receive good and valid title to the Offered
Interest, free and clear of all security interests, liens, claims,
pledges, options, rights of first refusal, agreements, limitations on
voting rights, charges and other encumbrances of any nature whatsoever
except as set forth in this Agreement or otherwise applicable to all
of the Partnership Interests and except for governmental, regulatory
and other third party consents and approvals required for transfers of
partnership interests generally;
(ii) the following conditions to the closing of such sale:
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(A) all applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder, shall have expired or been
terminated;
(B) all governmental approvals and other third party consents
expressly required with respect to the transactions to be
consummated at such closing shall have been obtained, to the
extent the failure to obtain such approvals or consents would
prevent the Selling Partner from performing any of its material
obligations under the transaction documents or would result in
any materially adverse change in, or materially adverse effect
on, the business, assets, results of operations, financial
condition or prospects of the Partnership and the Entities
controlled by the Partnership taken as a whole;
(C) there shall be no preliminary or permanent injunction or
other order by any court of competent jurisdiction restricting,
preventing or prohibiting the consummation of the transactions to
be consummated at such closing; and
(D) the representation and warranty of the Selling Partner
contemplated by clause (i) of this sentence shall be true and
correct at the closing of such sale with the same force and
effect as if then made; and
(iii) such other representations, warranties, conditions and
indemnifications as may be agreed upon by the Selling Partner and the
Electing Partners.
(b) If non-Selling Partners do not notify the Selling Partner of
their intention to acquire, in the aggregate, all the Offered Interest within
the period set forth in Section 5.4(a) hereof or if a binding agreement to
purchase all of the Offered Interest covered by the Notice of Sale is not
entered into within the ninety day period set forth in Section 5.4(a) hereof for
any reason other than a violation of this Section 5.4 or wrongful acts or
willful bad faith on the part of the Selling Partner, or if a purchase covered
by such a binding agreement is not consummated within the period provided in
Section 5.9 hereof, for any reason other than a breach by the Selling Partner of
any of its covenants, representations or warranties in such binding agreement
that are a condition to consummation of such purchase, the Selling Partner shall
have the right, at any time during the six month period after the expiration of
the relevant period, to
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close on a sale of all of the Offered Interest to the Offeror on economic terms
and conditions no less favorable in the aggregate to the Selling Partner than
those set forth in the Notice of Sale. The Selling Partner shall, as promptly as
practicable and prior to the closing of such sale, provide to the other Partners
a copy of the agreement for the sale of the Offered Interest so as to permit the
non-Selling Partners to confirm for themselves that the economic terms and
conditions of such sale are not less favorable in the aggregate to the Selling
Partner than those set forth in the Notice of Sale. If the Selling Partner does
not close the sale of the Offered Interest to the Offeror during such six month
period, the procedure set forth above with respect to the Notice of Sale shall
be repeated with respect to any subsequent proposed sale of the Partnership
Interest of the Selling Partner (whether by sale of such Partnership Interest,
sale of all of the equity interests of such Selling Partner, or the sale of
equity interests of an Entity that would result in a Change in Control of the
Selling Partner).
(c) In furtherance of the rights set forth in this Section, each
Partner and the Partnership agree that, following receipt of notice that a
Selling Partner desires to sell an Offered Interest to a potential Offeror and
upon execution by such potential Offeror of a letter of intent and a
confidentiality agreement in form and substance reasonably satisfactory to the
Managing Partner, at reasonable times and without interfering with the business
or operations of the Partnership, the Managing Partner will take all necessary
action to:
(i) provide to such potential Offeror and its employees and
agents reasonable access to all books and records of the Partnership
and any and all reports, budgets, proposals or other written material
prepared by or on behalf of the Partnership;
(ii) make the officers and employees of the Partnership available
for meetings with such potential Offeror and its employees and agents;
(iii) permit on-site visits to the Partnership's facilities by
such potential Offeror and its employees and agents;
(iv) provide full and free access to a data room to such
potential Offeror and its employees and agents;
(v) assist the Selling Partner in obtaining all necessary
consents to any disposition of the Offered Interest; and
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(vi) assist in the preparation of any descriptive memoranda or
other sales materials relating to the Partnership and give the Selling
Partner the right to share such information with such potential
Offeror and its employees and agents;
provided that in each case, the Selling Partner agrees to reimburse the
Partnership and the other Partners for any out of pocket expenses incurred by
them in connection with the foregoing actions. Notwithstanding the foregoing, if
non-Selling Partners have timely notified the Selling Partner pursuant to
Section 5.4(a) hereof of their intention to acquire all of the Offered Interest,
then the Partnership and the Partners shall not be obligated to comply with the
covenants contained in this Section 5.4(c) during the period that a binding
agreement for such acquisition is being negotiated or thereafter (subject to
such binding agreement being executed and the closing thereunder occurring
within the applicable time limitations set forth in Sections 5.4(a) and 5.9
hereof).
5.5 Purchases by the Partnership or its Assignee.
(a) If, after the consummation of any rollup transaction pursuant to
the provisions of Section 5.3(a) and (b) above, Partners (the "Minority
Partners") other than TCP, TCGI and their Controlled Affiliates hold in the
aggregate no more than 10% of the outstanding Percentage Interests, then the
Partnership (or any Entity to which the Partnership assigns such right) shall
have the right at any time thereafter to purchase all, but not less than all, of
the Partnership Interests of the Minority Partners for a purchase price equal to
the Fair Market Value of such Partnership Interests determined in accordance
with the appraisal process provided in Section 5.8 hereof.
(b) The Partnership shall have the right at any time to purchase
all, but not less than all, of the Partnership Interest of any Partner the
Percentage Interest of which is 3% or less of the outstanding Percentage
Interests for a purchase price equal to the Fair Market Value of such
Partnership Interest determined in accordance with the appraisal process
provided in Section 5.8 hereof.
(c) If a Partner, which had the right pursuant to Section 5.2(c)
above to sell its Partnership Interest (or would have had such right except that
the Acquirer (as that term is defined in Section 5.2(c) hereof) is Engaged in
the Exclusive Business in the Business Area), elects not to do so or is
prevented from doing so pursuant to the proviso to the first sentence of Section
5.2(c) hereof, and as a result thereof neither such Partner nor any Affiliate of
such Partner is a party to a fiber lease agreement or other agreement for the
use of
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fiber optic telecommunications facilities with the Partnership, then the
Partnership shall have the right, at any time after the date which is ninety
days after the consummation of the sale described in Section 5.2(c) hereof, to
purchase all, but not less than all, of the Partnership Interest of such Partner
for a purchase price equal to the greater of (i) 90% of the Fair Market Value of
such Partnership Interest determined in accordance with the appraisal process
provided in Section 5.8 hereof; or (ii) 100% of the Fair Market Value of such
Partnership Interest determined in accordance with the appraisal process
provided in Section 5.8 hereof, if the Acquirer is prohibited by law from
acquiring the Partner's Partnership Interest; provided, however, that if the
acquisition by the Acquirer described in Section 5.2(c) occurs after the third
anniversary of the date hereof and if prior to the end of such ninety day
period, such Partner receives an offer from an Offeror (as described in Section
5.4(a)) other than the Acquirer, then the provisions of Section 5.4 shall apply
and the provisions of this Section 5.5(c) shall only apply to that portion of
the Offered Interest, if any, which remains after completion of the application
of Section 5.4.
5.6 Put Rights
(a) If the Partners decide pursuant to Section 3.5(b) to merge or
consolidate with another Entity and the Partnership is not the surviving Entity,
each Partner which voted against such merger or consolidation shall have the
right for thirty days after such vote to require that the Partnership (or its
designee) purchase all of such Partner's Partnership Interest on the terms set
forth in this Section. Such put shall be exercisable by delivery within such
thirty day period to the Partnership of notice of exercise by such Partner. The
purchase price to be paid to such Partner for its Partnership Interest pursuant
to this Section shall be paid in cash and shall equal the Fair Market Value of
such Partner's Partnership Interest as determined in accordance with the
provisions of Section 5.8 hereof. The closing of the purchase and sale of such
Partner's Partnership Interest shall occur and be conducted in accordance with
the provisions of Section 5.9 hereof.
(b) Beginning on the fourth anniversary of the date hereof, and
annually thereafter, if there is no more than one Partner other than TCP, TCGI
and their Parents and Controlled Affiliates (the "Minority Partner"), the
Minority Partner may, by giving written notice within ten business days of such
anniversary date, require the Partnership to purchase all, but not less than
all, of such Minority Partner's Partnership Interest for a purchase price equal
to the Fair Market Value of such Partnership Interest determined in accordance
with the appraisal process provided in Section 5.8 hereof. The closing of the
purchase and sale of such Minority Partner's Partnership
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Interest shall occur and be conducted in accordance with the provisions of
Article 5.9 hereof; provided, however, that in no event shall the closing take
place prior to ninety days after the date of the notice.
5.7 Prohibited Transfers. Notwithstanding any provision to the
contrary in this Article 5, except pursuant to a transaction contemplated by
Section 5.3, no Partner may transfer any Partnership Interest if the interest
sought to be transferred, when added to the total of all other Partnership
Interests transferred within a period of twelve consecutive months prior
thereto, equals or exceeds 50% of the aggregate of all Partnership Interests,
except with the prior written consent of all of the other Partners. A transfer
of the equity interests in a Partner which is a corporation or in an Entity of
which such Partner is a direct or indirect corporate Subsidiary shall not
constitute a transfer prohibited by, or taken into consideration in determining
the applicability of, this Section.
5.8 Appraisal Process. The Fair Market Value of a Partner's
Partnership Interest for purposes of this Agreement shall be determined as
follows:
(a) The Partners shall endeavor to agree upon such Fair Market
Value.
(b) If the Partners fail to agree within thirty Business Days
after the date of the occurrence of the event necessitating
valuation of the Partner's Partnership Interest, then the Fair
Market Value of such Partnership Interest shall be determined by
independent appraisal, such appraisal to be made by a qualified
appraiser selected by the Partner whose Partnership Interest is
being appraised (the "Appraisal Partner") and the Partners
holding a majority in Percentage Interests (excluding the
Percentage Interest of the Appraisal Partner). If the Partners
have not agreed on the selection of an appraiser within five
Business Days after the expiration of such thirty Business Day
period, then the Appraisal Partner shall select one appraiser and
the Partners holding a majority in Percentage Interests
(excluding the Percentage Interest of the Appraisal Partner)
shall select a second appraiser, such selections to be made
promptly and in any event within ten Business Days after the
expiration of the foregoing five Business Day period. (If only
one appraiser is timely selected within such ten Business Day
period, the appraisal shall be made solely by such
timely-selected
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appraiser.) The appraiser, or each appraiser in the event of more
than one appraiser, shall submit its determination of the Fair
Market Value of the Appraisal Partner's Partnership Interest
within forty-five Business Days of the date of its selection. If
there are two appraisers and their respective determinations of
such Fair Market Value vary by 10% or less of the higher of such
determinations, the Fair Market Value of the Appraisal Partner's
Partnership Interest shall be the average of the two
determinations. If such determinations vary by more than 10% of
the higher of such determinations, the determination of the Fair
Market Value of the Appraisal Partner's Partnership Interest
shall be decided by arbitration by the office of the American
Arbitration Association located in or nearest to the Business
Area in accordance with the Commercial Arbitration Rules of the
American Arbitration Association.
(c) Any determination of Fair Market Value pursuant to this
Section 5.8 shall be final and binding on the Partners. No
appraiser selected pursuant to Section 5.8(b) shall be affiliated
with any Partner and each shall be an investment banker or other
qualified person with prior experience in appraising businesses
comparable to the business of the Partnership. The fees and
expenses of any appraisers or arbitrators shall be paid by the
Partnership.
5.9 Closing of any Permitted Transfer. Unless otherwise agreed
between the buyer and seller, the closing of a purchase and sale of a
Partnership Interest permitted by this Agreement (other than pursuant to Section
5.4(b) or Section 5.2(c)) shall take place at the offices of the Partnership on
or before the thirtieth day after the later of:
(a) the completion of the appraisal process, if applicable;
(b) the expiration or termination of all applicable governmental
waiting periods;
(c) the receipt of all necessary governmental consents needed to
approve the transactions contemplated herein, which consents have not
been reversed, stayed, enjoined, set aside, annulled or suspended, and
with respect to which no requests are pending for administrative or
judicial review,
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reconsideration, appeal or stay, and the time for filing any such
requests and the time for the issuer of such consent to set aside the
action on its own motion have expired;
(d) the receipt of all material third party consents needed to
approve the transactions contemplated herein; and
(e) the termination of any applicable preliminary or permanent
injunction or other order by any court of competent jurisdiction
restricting, preventing or prohibiting the consummation of such
purchase and sale.
At said closing, the purchaser shall pay the total purchase price against the
seller's delivery to the purchaser of instruments representing or evidencing the
Partnership Interest purchased, all duly endorsed and accompanied by assignments
as are sufficient to effect due transfer of the ownership of such interest to
the purchaser.
5.10 Remedies. No actual or purported disposition of any Partnership
Interest (or any portion thereof), nor any right thereto, whether voluntary or
involuntary, direct or indirect, in violation of any provision of this Agreement
shall be valid or effective to grant any Entity any right, title or interest in
or to such Partnership Interest (or portion thereof). The transferor of any
Partnership Interest (or portion thereof) disposed of in violation of any
provision of this Agreement, until such disposition or purported disposition
shall have been rescinded, shall not be entitled to exercise any of the rights
of a Partner or to receive any Distributions from the Partnership from and after
the date of such disposition or purported disposition or failure to comply, as
the case may be. Notwithstanding the foregoing, to the extent that a Partner
would have been entitled to Partnership Distributions but for the preceding
provisions of this Section, if and when such disposition or purported
disposition shall be rescinded or such failure to comply shall be cured, such
Partner shall be entitled to receive all such Partnership Distributions (but no
interest shall be paid thereon with respect to the period between the date on
which such Partnership Distributions would have been made but for this Section
and the date they are actually made).
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ARTICLE 6: BOOKS AND RECORDS; ACCOUNTING; FISCAL YEAR
6.1 Books and Records. The Managing Partner shall keep, or cause to
be kept by the Manager pursuant to the Management Services Agreement, current
and complete records and books of account in which shall be entered fully and
accurately all transactions of the Partnership. The books of the Partnership
shall be kept on an accrual basis of accounting and in accordance with generally
accepted accounting principles consistently applied. The Partnership's books and
records shall be maintained at the principal offices of the Managing Partner and
shall be available for inspection and copying by the Partners or their duly
authorized representatives during normal business hours.
6.2 Financial Statements. The Managing Partner shall cause to be
delivered to each Partner the following financial statements prepared, in each
case, in accordance with generally accepted accounting principles consistently
applied (and, if required by any Partner for purposes of reporting under the
Securities Exchange Act of 1934, Regulation S-X):
(a) Promptly upon availability, but in any event within thirty days
of the end of each month, (i) a balance sheet as of the end of such month; and
(ii) the related statements of income or loss, Partner's capital (deficiency),
and cash flows for the interim period through the end of such month and for the
month then ended, and setting forth in each case in comparative form the figures
for such previous fiscal periods as any Partner may reasonably request and
comparisons to budget;
(b) Promptly upon availability but in any event within forty days of
the end of each quarter, (i) a balance sheet as of the end of such quarter; and
(ii) the related statements of income or loss, Partner's capital (deficiency),
and of cash flows for the interim period through the end of such quarter and for
the quarter then ended, and setting forth in each in comparative form the
figures for such previous fiscal periods as any Partner may reasonably request
and comparisons to budget;
(c) Promptly upon availability, but in any event within eighty-five
days of the end of each Fiscal Year, a balance sheet of the Partnership as of
the end of such Fiscal Year, and the related statements of income or loss,
Partner's capital (deficiency) and cash flows for such Fiscal Year, all in
reasonable detail with appropriate notes to such financial statements and
supporting schedules, setting forth in each case in comparative form the figures
for the previous year, which financial statements may, at the option of the
Managing Partner, be certified by a nationally recognized accounting firm;
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(d) Together with the annual statements required pursuant to Section
6.2(c) above, a report of the Net Profit or Net Loss and Distributions, if any,
for such Fiscal Year, a schedule setting forth each Partner's Capital Account as
at the end of the period covered by such statements and a Schedule K-1 for each
Partner, a copy of the Partnership's federal and state tax returns and other
information required by applicable tax regulations or necessary for each Partner
to prepare its federal, state and local tax returns; and
(e) With reasonable promptness, such other financial information or
reports as any Partner may reasonably request from time to time.
6.3 Bank Accounts. The Partnership shall maintain bank accounts in
such banks or institutions as the Managing Partner from time to time shall
select, and such accounts shall be drawn upon by check signed by such person or
persons, and in such manner, as may be designated by the Managing Partner. All
moneys of the Partnership shall be deposited in the bank or other financial
institution account or accounts of the Partnership. Partnership funds shall not
be commingled with those of any other Entity without the consent of all
Partners.
6.4 Fiscal Year. The Partnership's fiscal year for income tax
purposes and for financial and partnership accounting purposes shall be the
Fiscal Year.
ARTICLE 7: OTHER BUSINESS ACTIVITIES
7.1 Conduct of Exclusive Business in Business Area.
(a) Except as expressly permitted in this Article 7 or in the
Information Appendix, for so long as it is a Partner and, and unless it ceases
to be a Partner as a result of a purchase of its Partnership Interest pursuant
to Section 5.5 hereof, for three years after it ceases to be a Partner (but in
no event beyond the expiration or earlier termination of this Agreement), no
Partner shall Engage, or permit its Controlled Affiliates to Engage, in the
Business Area in an activity encompassed in the Exclusive Business without
having first offered to the Partnership (outside of the Budget process) the
opportunity to Engage, in lieu of such Partner or Controlled Affiliate, in such
activity (the "Offer"), which offer shall set forth in reasonable detail the
nature and scope of the activity proposed to be Engaged in. The Partnership
shall have thirty days from its receipt of the Offer to accept or reject it. If
the Partnership fails to accept the Offer within such thirty day period, it
shall be deemed to have rejected the Offer, and the offering Partner or its
Controlled Affiliate shall be permitted
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to Engage in such activity in the Business Area. If the Partnership accepts the
Offer, the offering Partner and its Controlled Affiliates shall not Engage in
such activity in the Business Area; provided, however, that if the Partnership
accepts the Offer but does not within a reasonable period of time after such
acceptance take reasonable steps to commence such activity, other than as a
result of a violation of this Agreement or wrongful acts or willful bad faith on
the part of the offering Partner, or any of its Controlled Affiliates, the
offering Partner or its Controlled Affiliate, as the case may be, shall be
permitted to Engage in such activity. If the offering Partner or Controlled
Affiliate does not take reasonable steps to commence such activity within a
reasonable period of time after acquiring the right to do so, it shall lose its
right to Engage in such activity, and, thereafter, be required to reoffer the
opportunity to do so to the Partnership in accordance with, and shall otherwise
comply with, the foregoing provisions of this Section 7.1. The foregoing to the
contrary notwithstanding, TCP shall not be subject to the restrictions set forth
in this Section 7.1(a) after it ceases to be a Partner if it has sold its
Partnership Interest after being removed as the Managing Partner pursuant to
Section 3.2(d) hereof. It is the Partners' good faith intent that the
Partnership shall be the primary vehicle for the conduct of the Exclusive
Business in the Business Area, and it is contemplated that this provision will
be utilized by a Partner or its Controlled Affiliates only under unusual or
exceptional circumstances and not for the purpose of avoiding or subverting the
purposes and intent of this Agreement. If the Partnership determines not to
accept an Offer, the Partner making the Offer shall use its best efforts to
negotiate, or, if the Offer was made by a Controlled Affiliate of a Partner,
such Partner shall use its best efforts to cause such Controlled Affiliate to
negotiate, agreements with the Partnership, which are reasonable in the
independent judgment of both parties, pursuant to which the Partnership, alone
or jointly with such Partner or its Controlled Affiliates, would provide
appropriate service to customers in the locations in which the activity
described in the Offer is conducted.
(b) If the Partnership does not accept an Offer pursuant to Section
7.1(a) above, it shall have the right, by notice given to the Partner or its
Controlled Affiliate on the third anniversary of its rejection of such Offer or
within thirty days thereafter, to require that such Partner or Controlled
Affiliate negotiate in good faith with the Partnership for the sale to the
Partnership at the greater of fair market value or cost of the assets and
business comprising such activity or, at the option of such Partner or
Controlled Affiliate, of the stock or other equity interests in the Entity
Engaged exclusively in such activity (and may concurrently suggest, without any
obligation on the part of the Partnership, alternative
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transaction structures such as joint ventures and management contracts). If such
negotiations are not successful, the parties to such negotiations shall, at the
request of the Partnership, use their best efforts to negotiate agreements with
the Partnership, which are reasonable in the independent judgment of both
parties, pursuant to which the Partnership, alone or jointly with such Partner
or its Controlled Affiliates, would provide appropriate service to customers in
the locations in which such activity is conducted. The parties shall not,
however, be obligated to negotiate pursuant to this Section 7.1(b) for more than
ninety days in any twelve month period. Neither the Partner nor its Controlled
Affiliate shall enter into any agreement or arrangement in connection with such
activity, other than rights of first refusal, rights of first negotiation and
similar arrangements, which would prevent it from selling the assets and
business Engaged in such activity or the stock or other equity interests of the
Entity Engaged exclusively in such activity pursuant to this Section 7.1(b).
(c) Notwithstanding the foregoing, a Partner and its Controlled
Affiliates shall be permitted, directly or indirectly, now or in the future, to
do any of the following without being required to follow the procedures set
forth in Section 7.1(a) above:
(i) to conduct any activity included in the Exclusive Business in
the Business Area which is a necessary component of the conduct of, incidental
to, or encompasses the provision of transport for any business other than an
Exclusive Business by the Partner or its Controlled Affiliates in the Business
Area, or to enter into an arrangement with an independent third party for the
provision of any services included in such Exclusive Business in the Business
Area which is a necessary component of the conduct of, incidental to, or
encompasses the provision of transport for such business other than an Exclusive
Business, so long as, in each case, the Partner or such Controlled Affiliate
shall first use its best efforts to negotiate agreements with the Partnership,
which are reasonable in the independent judgment of both parties, pursuant to
which the Partnership would provide such services included in such Exclusive
Business in the Business Area on terms no less favorable to the Partner or such
Controlled Affiliate as the Partner or such Controlled Affiliate could obtain
from an independent third party or could provide for itself; and
(ii) to provide internal communications and internal telephone
services, including, without limitation, owning and operating telephone
switching equipment, to a Partner and its Affiliates and to tenants of buildings
for which a Partner or an Affiliate acts as the landlord in the Business Area.
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7.2 Exceptions for Certain Transactions. Each Partner and its
Controlled Affiliates shall be permitted to do any of the following without
being obligated to make an Offer to the Partnership pursuant to 7.1:
(a) invest in companies that are Engaged in the Exclusive Business
in the Business Area where such investments are incidental to investments in
public companies and constitute less than 10% of the outstanding securities and
voting interest of such companies;
(b) acquire companies an incidental portion of the business of which
(such portion being deemed to be incidental if the assets, revenues and income
relating to the Exclusive Business are less than 10% of the assets, revenues and
income, respectively, of the company being acquired and if the assets relating
to such Exclusive Business have a fair market value of less than $5,000,000) is
encompassed in the Exclusive Business in the Business Area; and
(c) sell, transfer or otherwise dispose of any investment made
pursuant to clause 7.2(a) above or the stock, assets or business of any company
acquired pursuant to clause 7.2(b) above.
7.3 Existing Activities. Notwithstanding anything to the contrary in
this Article 7, a Partner and/or its Controlled Affiliate which are listed in
the Information Appendix as being Engaged in a specified activity or activities
encompassed in the Exclusive Business in the Business Area on the effective date
hereof (or, if later, on the date such Partner becomes a Partner) shall be
permitted to continue to Engage in such activity or activities; provided,
however, that such Partner or its Controlled Affiliate, as the case may be,
shall not materially expand or increase such activity or activities from that
described in the Information Appendix; and provided, further, that such Partner
shall use its best efforts to negotiate, or cause such Controlled Affiliates to
negotiate, agreements with the Partnership, which are reasonable in the
independent judgment of both parties, pursuant to which the Partnership would
conduct such activity or activities on terms no less favorable to the Partner or
such Controlled Affiliate as the Partner or such Controlled Affiliate could
obtain from an independent third party or could provide for itself.
7.4 Prohibited Transactions. Notwithstanding any provision to the
contrary in this Agreement, no Partner shall, nor shall any Partner permit its
Controlled Affiliates to, Engage in the Exclusive Business in the Business Area
with any Entity which is not a Controlled Affiliate of such Partner or of any
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Controlled Affiliate of such Partner, except as expressly permitted in Section
7.1(c)(i).
7.5 Controlled Affiliates. Any breach by a Controlled Affiliate of a
Partner of the provisions of this Article 7 shall be deemed to be a breach by
such Partner.
7.6 Services Offered by the Partnership. If the Partnership provides
any services to a Partner or an Affiliate of a Partner, the Partnership shall
offer the same services on the same terms and conditions to each other Partner
and its Affiliates.
7.7 Retail Switching Business. A Partner and its Controlled
Affiliates, other than TCP and its Controlled Affiliates for as long as TCP is
the Manager, shall be permitted to Engage in the Retail Switching Business, and
any other Switching Business not specifically set forth in clauses (c) and (e)
of the definition of Exclusive Business, without being required to follow the
procedures set forth in Section 7.1 above. However, prior to Engaging in the
Retail Switching Business, such Partner shall, or shall cause its Controlled
Affiliate to, enter into a Reciprocal Resale Agreement which shall contain,
among other terms reasonably acceptable to the Partnership and such Partner or
Controlled Affiliate, the following provisions:
(a) As soon as a customer, which is not already a Partner Customer
(as that term is defined in paragraph (b) below), obtains any service from the
Partnership (including, without limitation, any Partnership service resold by an
interexchange carrier) and for so long as such customer continues to obtain
service from the Partnership, such customer shall be deemed to be a "TCG
Customer" for the purpose of the sales representation provisions of the
Reciprocal Resale Agreement.
(b) As soon as a customer, which is not already a TCG Customer (as
that term is defined in paragraph (a) above), obtains any Retail Switching
Business, video telephony or wireless telephony services (collectively, "Special
Services") from the Partner or its Controlled Affiliate in the Business Area and
for so long as such customer continues to obtain such services from the Partner
or its Controlled Affiliate, such customer shall be deemed to be a "Partner
Customer" for the purpose of the sales representation provisions of the
Reciprocal Resale Agreement.
(c) The Partnership shall be the exclusive sales representative for
selling the Partner's or its Controlled Affiliate's Special Services to TCG
Customers, and the Partner or its Controlled Affiliate shall be the exclusive
sales representative for selling the Partnership's services to Partner
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Customers; provided, however, that, notwithstanding the exclusivity provisions
of the Reciprocal Resale Agreement, the Partnership, the Partner or the
Controlled Affiliate shall be permitted to enter into reseller arrangements
(whether exclusive or non-exclusive) with interexchange carriers which
arrangements permit the interexchange carriers to resell the services of the
Partnership, the Partner or the Controlled Affiliate, as the case may be.
ARTICLE 8: DISSOLUTION
8.1 Causes of Dissolution. To the extent permitted by the Act, the
dissolution of the Partnership shall occur only upon the occurrence of any of
the following events:
(a) The sale, or taking by eminent domain, of all or substantially
all of the assets of the Partnership;
(b) A legal or regulatory determination, or the revocation or
non-renewal of any franchise or license held by the Partnership which revocation
or non-renewal is not subject to further governmental or judicial review and
which, in any such case, renders it unlawful or impossible for the Partnership
to conduct all or substantially all of the Exclusive Business in the Business
Area;
(c) The expiration of the term of this Agreement;
or
(d) The agreement of the Partners in accordance with Section 3.5 to
dissolve the Partnership.
Upon a dissolution, unless the Partners agree to continue the business of the
Partnership pursuant to Section 8.3, no further business shall be done in the
Partnership's name, except for the taking of such action as shall be necessary
for the performance and discharge of the Partnership's obligations, the
winding-up of its affairs and the liquidation and distribution of its assets in
accordance with the provisions hereof.
8.2 Winding Up and Liquidation.
(a) Upon dissolution, subject to Section 8.3, the Partnership's
affairs shall be wound up by the Managing Partner and its property liquidated as
rapidly as business circumstances will permit, and the Partners shall, subject
to any provisions of law or of any other applicable agreement, make
Distributions in the following manner and order:
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(i) To payment and discharge of the claims of all creditors of the
Partnership who are not Partners or Affiliates of Partners;
(ii) To payment and discharge of the claims of all creditors of the
Partnership who are Partners or Affiliates of Partners pro rata in accordance
with the amounts of such claims;
(iii) To creation of reasonable cash reserves for the payment of any
taxes, expenses or liabilities, contingent or otherwise; and
(iv) To the Partners in accordance with their Capital Accounts;
provided, however, that Distributions made pursuant to this Section 8.2(a)(iv)
shall be made in accordance with the time requirements set forth in Regulations
Section 1.704-1(b)(2)(ii)(b)(2).
(b) Upon liquidation of the Partnership, if any Partner's Capital
Account has a deficit balance (after giving effect to all contributions,
Distributions and allocations for all taxable years, including the year during
which such liquidation occurs), such Partner shall contribute to the capital of
the Partnership the amount necessary to restore such deficit balance to zero in
compliance with Regulations Section 1.704- 1(b)(2)(ii)(b)(3).
8.3 Continuation of the Partnership. Upon the dissolution of the
Partnership, the Partners, by a Supermajority Vote, may decide to continue the
business of the Partnership pursuant to this Agreement.
8.4 No Withdrawal. Except as otherwise expressly provided in this
Agreement, no Partner may withdraw from the Partnership without the consent of
all of the other Partners.
ARTICLE 9: EVENTS OF DEFAULT AND REMEDIES
9.1 Events of Default. An "Event of Default" shall be considered to
have occurred with respect to a Partner (a "Defaulting Partner") if:
(a) such Partner sells, assigns, transfers, grants a
participation in, pledges, encumbers or otherwise conveys all or any
part of its Partnership Interest, except as permitted by this
Agreement; provided, however, that no Event of Default shall be
considered to have occurred for thirty days following the involuntary
encumbrance of all or any part of such
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Partnership Interest if during such thirty day period such Partner
acts diligently to, and does, remove any such encumbrance, including,
but not limited to, effecting the posting of a bond to prevent
foreclosure where necessary;
(b) an Initial Capital Payment Default (as that term is defined
in Section 4.3(a)(i)) occurs with respect to such Partner and the
related call of the installment of the Initial Capital Contribution in
respect of which the Initial Capital Payment Default occurred is not
rescinded pursuant to Section 4.3(b)(i);
(c) such Partner fails to perform or violates any other material
term or condition of this Agreement and such failure or violation
continues for thirty days after written notice thereof has been given
to such Partner by the Remedies Partner;
(d) such Partner institutes proceedings of any nature under the
Federal Bankruptcy Code, or any similar state or Federal law for the
relief of debtors (a "Bankruptcy Law"), wherein such Partner seeks
relief as a debtor; such Partner makes a general assignment for the
benefit of creditors; or such Partner has instituted against it
proceedings under any section of any Bankruptcy Law, which proceedings
are not dismissed, stayed or discharged within sixty days after the
filing thereof or if stayed, which stay is thereafter lifted without a
contemporaneous discharge or dismissal of such proceedings (such
Partner may be referred to hereinafter as a "Bankrupt Partner"); or
(e) such Partner otherwise causes the dissolution of the
Partnership in contravention of this Agreement.
9.2 Remedies.
(a) Upon the occurrence and during the continuance of an Event of
Default with respect to a Defaulting Partner, the Remedies Partner may elect:
(i) with the approval of those Partners who are not Defaulting
Partners ("non-Defaulting Partners") with an aggregate Percentage
Interest constituting not less than a majority of the sum of the
Percentage Interests of all non-Defaulting Partners, to cause the
Partnership, or its designee(s), to purchase the Partnership Interest
of such Defaulting Partner pursuant to Section 9.3; or
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(ii) to seek to enjoin such default or to obtain specific
performance of a Defaulting Partner's (or the applicable Controlled
Affiliate's) obligations or to seek Damages (as defined and subject to
the limitations specified below) or both.
provided, however, that, with respect to an Event of Default arising under
Section 9.1(b) above, if there is more than one Defaulting Partner, the Remedies
Partner shall make the same election with respect to each such Defaulting
Partner.
(b) The election of a remedy specified in clause 9.2(a)(i) or (ii)
above may be exercised by notice given to the Defaulting Partner (x), in the
case of an Event of Default specified in clause (b) of Section 9.1, at any time,
or (y), in the case of any other Event of Default, within ninety days after the
Remedies Partner obtains actual knowledge of the Event of Default; provided
that, if an election pursuant to clause 9.2(a)(ii) above is made to seek an
injunction, specific performance or other equitable relief and a final judgment
in such action is rendered denying such equitable remedy, then, within ninety
days thereafter, the Remedies Partner may elect to pursue the remedy specified
in clause 9.2(a)(i) above (subject to the prior approval of the non-Defaulting
Partners contemplated by Section 9.2(a)(i) above) unless, prior to the giving of
such notice, the Defaulting Partner has cured (or caused to be cured) the Event
of Default in full or the final judgment denying equitable relief specifically
held that there was no Event of Default, and no other Event of Default with
respect to such Defaulting Partner has occurred and is continuing.
(c) The remedies set forth in Section 9.2(a) above shall not be
deemed mutually exclusive, and selection or resort to any thereof shall not
preclude selection or resort to the others; provided that, if the Remedies
Partner makes an election pursuant to clause 9.2(a)(i) above in respect of any
Event of Default, then it may not pursue any other remedy in respect of that
Event of Default. Except for the resort to the remedy set forth in clause
9.2(a)(i) above, the resort to any remedy pursuant to this Section 9.2 shall not
for any purpose be deemed to be a waiver of any other remedy available under
this Agreement or under applicable law.
(d) Unless an Event of Default shall have been waived in writing or
cured, the Partnership or the non-Defaulting Partners shall be entitled to
recover from the Defaulting Partner (or its Parent pursuant to the applicable
Parent Undertaking) in an appropriate proceeding any and all damages, losses and
expenses (including reasonable attorneys' fees and disbursements) (collectively
"Damages") suffered or incurred by the Partnership or the non-Defaulting
Partners as a result of such Event of
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Default; provided, that neither the Partnership nor the non-Defaulting Partners
shall have or assert any claim against the Defaulting Partner or any of its
Affiliates for punitive Damages or for indirect, special or consequential
Damages suffered as a result of such Event of Default.
(e) Upon the occurrence and during the continuance of the related
Event of Default, and except as required by applicable law, a Defaulting Partner
shall not be entitled to vote on any matter submitted to a vote of the Partners
and its Percentage Interest shall not be included in calculating the Percentage
Interests required to approve or disapprove any such matter, and such Defaulting
Partner shall not be entitled to exercise any rights under Section 5.4 (or,
without the consent of the Remedies Partner, any rights under Section 5.2 or
Section 5.5 of this Agreement). In all other respects a Defaulting Partner shall
continue to have all of the rights and obligations of a Partner under this
Agreement and applicable law.
9.3 Purchase of Defaulting Partner's Partnership Interest.
(a) If an election is made pursuant to clause 9.2(a)(i), the closing
of the purchase of the Defaulting Partner's Percentage Interest shall take place
at the time and at the place determined in accordance with the provisions of
Section 5.9. The Partnership (or its designee) shall pay a purchase price for
the Defaulting Partner's Percentage Interest (which shall be payable in cash)
equal to 50% of the Fair Market Value of such Partnership Interest. Upon payment
of the purchase price to the Defaulting Partner, the Defaulting Partner shall
deliver to the Partnership (or its designee(s)) all documents necessary to
transfer to the Partnership (or its designee(s)) good title to its Partnership
Interest.
(b) Notwithstanding Section 9.3(a), if an election is made pursuant
to clause 9.2(a)(i) and the only Event of Default that has occurred and is
continuing is that the Defaulting Partner is a Bankrupt Partner, then the time,
place and manner of the purchase of such Defaulting Partner's Partnership
Interest shall be as provided in Section 9.3(a), except that the Partnership (or
its designee(s)) shall pay a purchase price for such Partnership Interest (which
shall be payable in cash) equal to 90% of the Fair Market Value of such
Partnership Interest.
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ARTICLE 10: REPRESENTATIONS AND WARRANTIES OF THE PARTNERS
Each Partner makes the following representations and warranties to
each other, each with respect to itself only:
(a) It is duly incorporated or organized, validly existing and in
good standing under the laws of its state of incorporation or organization and
duly qualified or registered to do business in each state or jurisdiction in
which failure to so qualify or register would have a material adverse effect
upon such Partner or the Partnership.
(b) It and each of its Controlled Affiliates has the full power and
authority to take all actions contemplated by this Agreement and any of the
Management Services Agreement, Partner Services Agreement and Parent Undertaking
to which it or any of its Controlled Affiliates is a party.
(c) The execution, delivery and performance of this Agreement and
each of the Management Services Agreement, Partner Services Agreement and Parent
Undertaking to which it or any of its Controlled Affiliates is a party, have
been, or at the appropriate time shall be, duly authorized by all necessary
action on its part or the part of any such Controlled Affiliate, as the case may
be.
(d) This Agreement and each of the Management Services Agreement,
Partner Services Agreement and Parent Undertaking to which it or one of its
Controlled Affiliates is a party, constitutes a valid and binding obligation of
it enforceable in accordance with the terms hereof and thereof, subject as to
enforceability to limits imposed by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and the availability of equitable
remedies.
(e) The execution, delivery and performance of this Agreement and of
each of the Management Services Agreement, Partner Services Agreement and Parent
Undertaking to which it or one of its Controlled Affiliate is a party, do not
violate any provision of law or of its or of its Controlled Affiliates'
organizational documents.
(f) The execution, delivery and performance of this Agreement and of
each of the Management Services Agreement, Partner Services Agreement and Parent
Undertaking to which it or one of its Controlled Affiliate is a party, are not
inconsistent with, and do not violate or cause a breach or default under, any
agreement or obligation to which it or any of its Controlled Affiliates is a
party or is otherwise subject.
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ARTICLE 11: MISCELLANEOUS
11.1 Acknowledgements.
(a) Each Partner affirms and acknowledges that no representations,
warranties or statements have been made to it by any party hereto other than
those expressly set forth in this Agreement and that, in entering into this
Agreement, it has not relied upon anything done or said with respect to this
Agreement or with respect to the relationship between the parties, other than as
expressly set forth in this Agreement.
(b) Each Partner affirms and acknowledges that neither the
Partnership nor the Managing Partner has made any representation or warranty
regarding any financial statements, business plans, projections or other
information provided to such Partner except as expressly provided herein. Any
projections and business plans provided to the Partners reflect the Managing
Partner's current estimate and projections as to the manner and cost of the
development of the Partnership's business in the Business Area. Such estimate
and projections are subject to change.
11.2 Bill for Partition. Each of the Partners covenants that neither
it nor any person or persons claiming through or under it, will file a bill for
partition of the Partnership property.
11.3 Notices. All notices and other communications hereunder shall
be (a) in writing (except to the extent otherwise expressly provided hereunder);
(b) delivered by telecopy, by commercial overnight or same-day delivery service
with all delivery costs paid by sender, or by registered or certified mail with
postage prepaid, return receipt requested; (c) deemed given on the date and at
the time shown on the telecopy confirmation of receipt (if delivered by
telecopy), on the date and at the time (if recorded) of delivery by the
commercial delivery service, as shown in the records thereof (if delivered by
commercial overnight or same-day delivery service), or on the date shown on the
return receipt (if delivered by registered or certified mail); and (d) addressed
to the parties at their addresses specified on the signature pages hereof (or at
such other address for a party as shall be specified by like notice).
11.4 Amendments. This Agreement may not be amended nor shall any
waiver, change, modification, consent, or discharge be effected, except by an
instrument in writing adopted by each Partner; provided, however, that an
amendment to increase the dollar values set forth in any of Sections 3.4(a),
3.4(e), 3.5(c), 3.5(d), or 3.5(f) may be adopted by a Supermajority Vote; and
provided, further, that any changes in this Agreement required solely by the
admission of an additional Partner may be
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<PAGE>
adopted by the same Percentage Interest as is required to approve the admission
of such Partner.
11.5 Indebtedness for Borrowed Money. The Partnership shall not
incur any indebtedness for borrowed money the terms of which permit the creditor
under such indebtedness to have recourse against a Partner without the express
written consent of that Partner.
11.6 Waivers and Further Agreements; Entire Agreement. Any waiver of
any terms or conditions of this Agreement shall be in writing and shall not
operate as a waiver of any other breach of such terms or conditions or any other
term or condition, nor shall any failure to enforce any provision hereof operate
as a waiver of such provision or of any other provision hereof. Each of the
Partners agrees to execute all such further instruments and documents and to
take all such further action as any other Partner may reasonably require in
order to effectuate the terms and purposes of this Agreement. The Partners agree
that this Agreement, including the Exhibits and Appendices hereto, constitutes
the entire agreement among them with respect to the subject matter of the
Partnership and supersedes all prior agreements and understandings among them as
to such subject matter, and there are no restrictions, agreements, arrangements
or undertakings, oral or written, among the Partners relating to the Partnership
which are not fully expressed or referred to herein.
11.7 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the greatest extent possible.
11.8 Specific Enforcement; Attorneys Fees. The parties hereto agree
that the remedy at law for damages upon violation of the terms of this Agreement
would be inadequate because the Partnership Interests and the business of the
Partnership are deemed unique. Therefore, the parties agree that the provisions
of this Agreement may be specifically enforced by any court of competent
jurisdiction, and each Partner and its respective transferees agree to submit to
the jurisdiction of the court where any such action for specific performance is
brought. If any Partner defaults in its performance of any of the terms
- 54 -
<PAGE>
and conditions of this Agreement and if, as a result of such default, a lawsuit
seeking damages, specific performance or any other remedy is filed by any other
Partner, then, in that event, the prevailing party in such a lawsuit shall be
entitled to obtain attorney's fees from the losing party in such amount as shall
be determined by the court to be reasonable under the circumstances.
11.9 Counterparts. This Agreement may be executed in counterparts
each of which shall be deemed an original and all of which together shall
constitute one and the same instrument, and in pleading or proving any provision
of this Agreement, it shall not be necessary to produce more than one complete
set of such counterparts.
11.10 Captions; Gender. Article and section headings contained in
this Agreement are for reference purposes only and shall not in any way affect
the meaning or interpretation of this Agreement. Whenever used herein the
singular number shall include the plural, the plural shall include the singular,
and the use of any gender shall include all genders.
11.11 Governing Law and Binding Effect. This Agreement shall be
governed by and construed and enforced in accordance with the law (other than
the law governing conflicts of law questions) and decisions of the State of New
York applicable to contracts made and to be performed entirely therein. This
Agreement shall bind and inure to the benefit of each of the Partners and their
successors and permitted assigns.
11.12 Expenses. Each of the Partners shall bear its own expenses,
including legal and other professional fees, incurred by it in the negotiation
and preparation of this Agreement; provided, however, that the Partnership shall
reimburse Partners for the pre-organization operating expenses they incurred
prior to the date hereof to the extent listed on the Information Appendix.
11.13 Third Parties. None of the provisions of this Agreement shall
be for the benefit of, or enforceable by, any creditor of the Partnership or
other third parties.
11.14 Confidentiality. Each Partner agrees that it shall not,
directly or indirectly, without the prior written consent of each other Partner,
disclose the terms of this Agreement or the identity of the Partners or use for
its own benefit (except as a Partner of the Partnership) or disclose to any
Entity any information, trade secrets, confidential customer information,
patents, patent rights, technical data or know-how relating to the products,
processes, methods, equipment or business practices of the Partnership, except
(a) to the extent any of the foregoing is or becomes available to the public
other
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<PAGE>
than as a result of disclosure by such Partner or any of its Affiliates or the
directors, officers, employees, agents, advisors and controlling persons of it
or any of its Affiliates, (b), subject to the terms of an appropriate
confidentiality agreement, as necessary to effect a transaction under Article 5,
(c) as may be required by law and (d) as any Partner may disclose to its
lenders, rating agencies and business and financial advisors. In the event any
Partner is required by applicable law or regulation or by legal process to
disclose any of the foregoing, it will provide the other Partners with prompt
notice thereof to enable them to seek an appropriate protective order.
11.15 Appendices. The Tax Appendix and the Information Appendix are
hereby incorporated by reference and made a part of this Agreement as if they
were set forth herein in their entirety.
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<PAGE>
TAX APPENDIX
BOOK AND TAX ACCOUNTING PROVISIONS
All capitalized terms which are not defined in this Tax Appendix but
which are defined in the Agreement shall have the meanings set forth in the
Agreement.
1. Gross Asset Value; Net Profit and Net Loss
1.1 Gross Asset Value. "Gross Asset Value" means, with respect to any
asset, the asset's adjusted basis for federal income tax purposes, modified as
follows:
(a) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of such asset,
as determined by the contributing Partner and the Managing Partner (unless the
Managing Partner is the contributing Partner, in which case the gross fair
market value will be determined in accordance with Section 3.6 of the
Agreement).
(b) The Gross Asset Values of all Partnership assets shall be
adjusted to equal their respective gross fair market values, as determined by
the Managing Partner, in the circumstances described in Regulations Section
1.704-1(b)(2)(iv)(f)(5), but in the case of adjustments other than upon the
liquidation of the Partnership within the meaning of Regulations Section 1.704-
1(b)(2)(ii)(g), only if the Managing Partner reasonably determines that such
adjustments are necessary or appropriate to reflect the relative economic
interests of the Partners in the Partnership.
(c) The Gross Asset Value of any Partnership asset distributed to a
Partner shall be the gross fair market value of such asset on the date of
distribution.
(d) The Gross Asset Value of Partnership assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or 743(b), but only to the extent that such
adjustments are taken into account in determining Capital Accounts pursuant to
Regulations Section 1.704-1(b)(2)(iv)(m) and Section 2.1(e) below.
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to clause (a), (b) or (d) above, such Gross Asset Value shall
thereafter be adjusted by the amount determined in accordance with Regulations
Section 1.704-1(b)(2)(iv)(g)(2) and (3).
1.2 Net Profit and Net Loss. "Net Profit" and "Net Loss" means, for each
Fiscal Year or other period, an amount equal to the Partnership taxable income
or loss for such year or period,
<PAGE>
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(a) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing such Net Profit or Net
Loss shall be added to such taxable income or loss.
(b) Code Section 705(a)(2)(B) expenditures of the Partnership, which
are not otherwise taken into account in computing such Net Profit or Net Loss,
shall be subtracted from such taxable income or loss.
(c) In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to clause (b) or (c) of the definition of "Gross Asset Value,"
the amount of such adjustment shall be taken into account as gain or loss from
the disposition of such asset for purposes of computing Net Profit or Net Loss.
(d) Gain or loss resulting from any disposition of Partnership
property with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Gross Asset Value of the property
disposed of, notwithstanding that the adjusted tax basis of such property
differs from its Gross Asset Value.
(e) If the Gross Asset Value of an asset differs from its adjusted
basis for federal income tax purposes at the beginning of such year or other
period, then in lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account the amount determined in accordance with Regulations
Section 1.704-1(b)(2)(iv)(g)(2) and (3).
(f) Any items that are specially allocated pursuant to Article 2 of
this Tax Appendix shall not be taken into account in computing such Net Profit
or Net Loss.
(g) Any deduction for a loss on a sale or exchange of Partnership
property that is disallowed to the Partnership under Code Section 267(a)(1) or
707(b) shall be treated as a Code Section 705(a)(2)(B) expenditure.
-2-
<PAGE>
2. Special Allocation Provisions.
Sections 2.1, 2.2, and 2.3(a) and (b) shall apply with respect to any
Nonrecourse Liabilities or Partner Nonrecourse Debt (as defined below) of the
Partnership if the Managing Partner determines that there is a reasonable basis
to conclude that the Partnership Interests of the Partners under the Agreement
are not the same as the overall interests of the Partners in the Partnership
determined under Regulations Section 1.704-1(b)(3). Sections 2.1(e) and 2.2(a)
shall apply if the Partnership has made an election under Code Section 754 and
there is an adjustment to the adjusted tax basis of any Partnership asset
pursuant to Code Section 734(b) or 743(b). Section 2.4 shall apply if the Gross
Asset Value of Partnership property differs from its adjusted basis for federal
income tax purposes.
2.1 Special Allocations.
(a) Minimum Gain Chargeback. Notwithstanding any other provision of
the Agreement (including this Tax Appendix), if for any Partnership Fiscal Year
there is a net decrease in Partnership Minimum Gain (as defined in Regulations
Section 1.704-2(b)(2)), each Partner shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, for succeeding
years) in an amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain, determined in accordance with Regulations Section
1.704-2(g), except as otherwise provided in Regulations Section 1.704-2(f)(2),
1.704-2(f)(3), 1.704-2(f)(4), and 1.704-2(f)(5). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts required
to be allocated to each Partner pursuant thereto. The items to be so allocated
shall be determined in accordance with Regulations Section 1.704-2(f)(6). The
amount of Partnership Minimum Gain shall be determined in accordance with
Regulations Section 1.704- 2(d). This Section 2.1(a) is intended to comply with
the minimum gain chargeback requirement of Regulations Section 1.704-2(f) and
shall be interpreted consistently therewith.
(b) Partner Minimum Gain Chargeback. Notwithstanding any other
provision of the Agreement (including this Tax Appendix) except Section 2.1(a),
if during a Partnership Fiscal Year there is a net decrease in Partner
Nonrecourse Debt Minimum Gain (as defined in Regulations Section 1.704-2(i)(2)),
each Partner who has a share of that Partner Nonrecourse Debt Minimum Gain
(determined in accordance with Regulations Section 1.704-2(i)(5)) as of the
beginning of such year shall be specially allocated items of Partnership income
and gain for such year (and, if necessary, for succeeding years) in an amount
equal to such Partner's share of the net decrease in Partner Nonrecourse Debt
Minimum Gain, determined in accordance with Regulations Section 1.704-2(i)(4)
(and taking into account the exceptions provided therein). Allocations
-3-
<PAGE>
pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Partner pursuant thereto. The items to
be so allocated shall be determined in accordance with Regulations Section
1.704-2(i)(4). The amount of Partner Nonrecourse Debt Minimum Gain shall be
determined in accordance with Regulations Section 1.704-2(i)(3). This Section
2.1(b) is intended to comply with the minimum gain chargeback requirement in
Regulations Section 1.704-2(i)(4) and shall be interpreted consistently
therewith.
(c) Nonrecourse Deductions. Nonrecourse Deductions (as defined in
Regulations Section 1.704-2(b)(1)) for any Fiscal Year or other period shall be
specially allocated as Net Loss pursuant to Section 4.6 of the Agreement. The
amount of Nonrecourse Deductions shall be determined in accordance with
Regulations Section 1.704-2(c).
(d) Partner Nonrecourse Deductions. Any Partner Nonrecourse
Deductions (as defined in Regulations Section 1.704-2(i)(1)) for any Fiscal Year
or other period shall be specially allocated to the Partner who bears the
economic risk of loss with respect to the Partner Nonrecourse Debt to which such
Partner Nonrecourse Deductions are attributable in accordance with Regulations
Section 1.704-2(i). The amount of Partner Nonrecourse Deductions shall be
determined in accordance with Regulations Section 1.704-2(i)(2).
(e) Section 754 Adjustment. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Code Section 734(b) or
743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m), to be
taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis), and such gain or loss shall be specially allocated to the
Partners in a manner consistent with the manner in which their Capital Accounts
are required to be adjusted pursuant to such Section of the Regulations.
2.2 Curative Allocations.
(a) Notwithstanding any other provision of the Agreement (including
this Tax Appendix), other than allocations pursuant to Section 2.1 (the
"Regulatory Allocations"), allocations pursuant to Section 2.1(e) above (the
"Basic Regulatory Allocations") shall be taken into account in allocating items
of income, gain, loss, and deduction among the Partners so that, to the extent
possible, the net amount of such allocations of other items and the Basic
Regulatory Allocations to each Partner shall be equal to the net amount that
would have been allocated to each such Partner if the Basic Regulatory
Allocations had not occurred. For purposes of
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<PAGE>
applying the foregoing sentence, allocations pursuant to this Section 2.2(a)
shall only be made with respect to Basic Regulatory Allocations to the extent
the Managing Partner reasonably determines that such Basic Regulatory
Allocations would otherwise be inconsistent with the economic agreement among
the Partners.
(b) Notwithstanding any other provision of this Agreement, other
than the Regulatory Allocations, allocations pursuant to Sections 2.1(a) and
2.1(c) above (the "Nonrecourse Regulatory Allocations") shall be taken into
account in allocating items of income, gain, loss, and deduction among the
Partners so that, to the extent possible, the net amount of such allocations of
other items and the Nonrecourse Regulatory Allocations to each Partner shall be
equal to the net amount that would have been allocated to each such Partner if
the Nonrecourse Regulatory Allocations had not occurred. For purposes of
applying the foregoing sentence (i) no allocations pursuant to this Section
2.2(b) shall be made prior to the Partnership Fiscal Year during which there is
a net decrease in Partnership Minimum Gain, and then only to the extent
necessary to avoid any potential economic distortions caused by such net
decrease in Partnership Minimum Gain; and (ii) allocations pursuant to this
Section 2.2(b) shall be deferred with respect to allocations pursuant to Section
2.1(c) to the extent the Managing Partner reasonably determines that such
allocations are likely to be offset by subsequent allocations pursuant to
Section 2.1(a).
(c) Notwithstanding any other provision of the Agreement (including
this Tax Appendix), other than the Regulatory Allocations, allocations pursuant
to Sections 2.1(b) and 2.1(d) (the "Partner Nonrecourse Regulatory Allocations")
shall be taken into account in allocating items of income, gain, loss, and
deduction among the Partners so that, to the extent possible, the net amount of
such allocations of other items and the Partner Nonrecourse Regulatory
Allocations to each Partner shall be equal to the net amount that would have
been allocated to each such Partner if the Partner Nonrecourse Regulatory
Allocations had not occurred. For purposes of applying the foregoing sentence
(i) no allocations pursuant to this Section 2.2(c) shall be made with respect to
allocations pursuant to Section 2.1(d) relating to a particular Partner
Nonrecourse Debt prior to the Partnership Fiscal Year during which there is a
net decrease in Partner Nonrecourse Debt Minimum Gain attributable to such
Partner Nonrecourse Debt, and then only to the extent necessary to avoid any
potential economic distortions caused by such net decrease in Partner
Nonrecourse Debt Minimum Gain; and (ii) allocations pursuant to this Section
2.2(c) shall be deferred with respect to allocations pursuant to Section 2.1(d)
to the extent the Managing Partner reasonably determines that such allocations
are likely to be offset by subsequent allocations pursuant to Section 2.1(b).
-5-
<PAGE>
(d) The Managing Partner shall have reasonable discretion, with
respect to each Partnership Fiscal Year, to (i) apply the provisions of Sections
2.2(a), 2.2(b) and 2.2(c) in whatever order is likely to minimize the economic
distortions that might otherwise result from the Regulatory Allocations; and
(ii) divide all allocations pursuant to Sections 2.2(a), 2.2(b) and 2.2(c) among
the Partners in a manner that is likely to minimize such economic distortions.
(e) Notwithstanding any other provision of the Agreement (including
this Tax Appendix), except the Regulatory Allocations, in the Fiscal Year in
which there is a sale, exchange or other disposition of all or substantially all
of the assets of the Partnership or a dissolution or liquidation of the
Partnership, after allocating items of income, gain, loss and deduction in
accordance with the Regulatory Allocations and the curative allocations under
Sections 2.2(a), 2.2(b), 2.2(c) and 2.2(d), each Partner shall be allocated
remaining items of income, gain, deduction, and loss to the extent necessary to
cause the balance in each Partner's Capital Account to equal the Distributions
that would be made to each such Partner if such distributions were made to the
Partners in accordance with their Partnership Interests (after payment of the
debts and obligations of the Partnership).
2.3 Other Allocation Rules.
(a) To the extent permitted by Regulations Sections 1.704-2(h) and
1.704-2(i)(6), the Managing Partner shall endeavor to treat Distributions as not
having been made from the proceeds of a Nonrecourse Liability (as defined in
Regulations Section 1.704-2(b)(3) (and Regulations Section 1.752-1(a)(2))) or a
Partner Nonrecourse Debt.
(b) Solely for purposes of determining a Partner's proportionate
share of the "excess nonrecourse liabilities" of the Partnership within the
meaning of Regulations Section 1.752-3(a)(3), the Partners' interests in
Partnership profits are equal to their respective Partnership Interests. The
allocation of such "excess nonrecourse liabilities" shall be adjusted to reflect
any subsequent adjustment of the Partnership Interests of the Partners pursuant
to the Agreement.
(c) If any fees or other payments deducted for federal income tax
purposes by the Partnership are recharacterized by a final determination of the
Internal Revenue Service as nondeductible distributions to any Partner, then,
notwithstanding all other allocation provisions (other than the Regulatory
Allocations), gross income shall be allocated to such Partner in an amount equal
to the fees or payments so recharacterized.
(d) If any Partner makes a payment of interest to the
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<PAGE>
Partnership in respect of the late payment of any Capital Contribution pursuant
to Article 4 of the Agreement, the amount of such interest shall be included in
the income of the Partnership and allocated among the Partners in the same
manner as if such interest had been paid by a person which is not a Partner, and
the amount of such interest shall not be included in the Capital Contributions
credited to such Partner's Capital Account.
(e) All items of Partnership income, gain, loss, deduction, and any
other allocations not otherwise provided for shall be allocated among the
Partners in the same proportion as they share Net Profit or Net Loss, as the
case may be, for the year.
2.4 Contributed Property: Code Section 704(c).
(a) In accordance with Code Section 704(c) and the Regulations
thereunder, income, gain, loss, and deduction with respect to any property
contributed to the capital of the Partnership shall, solely for tax purposes, be
allocated among the Partners so as to take account of any variation between the
adjusted basis of such property to the Partnership for Federal income tax
purposes and its initial Gross Asset Value. To the extent permitted by the Code
and applicable Regulations, such allocations shall be made in accordance with
Proposed Regulations Section 1.704-3(b).
(b) If the Gross Asset Value of a Partnership asset is adjusted
pursuant to Section 1.1(b) above, subsequent allocations of income, gain, loss,
and deduction with respect to such asset for tax purposes shall take account of
any variation between the adjusted basis of such asset for federal income tax
purposes and its Gross Asset Value in the same manner as under Code Section
704(c) and the Regulations thereunder. To the extent permitted by the Code and
applicable Regulations, such allocations shall be made in accordance with
Proposed Regulations Section 1.704-3(b).
(c) Any elections or other decisions relating to such allocations
shall be made by the Managing Partner in any manner that reasonably reflects the
purpose and intention of this Agreement. Allocations pursuant to this Section
2.4 are solely for purposes of federal, state, and local taxes and shall not
affect, or in any way be taken into account in computing, any Entity's Capital
Account or share of Net Profits, Net Losses, other items, or Distributions
pursuant to any provision of this Agreement.
3. Allocation in Event of Transfer. If an interest in the Partnership is
transferred in accordance with Article 5 of the Agreement, the Net Profit and
Net Loss of the Partnership allocable to the transferor and transferee, and the
Capital Account of the transferee, shall be determined as follows:
-7-
<PAGE>
(a) If such transfer is effected on or prior to the fifteenth day of
the month, then such transfer shall be deemed to have occurred on the last day
of the month immediately prior to the month in which such transfer occurs. If
such transfer is effected after the fifteenth day of such month, such transfer
shall be deemed to have occurred on the last day of the month in which such
transfer occurs.
(b) The transferor Partner shall be allocated an amount of Net
Profit or Net Loss equal to the product of (x) a fraction whose numerator
consists of the Partnership Interest transferred and whose denominator consists
of the Partnership Interests held by all Partners, times (y) the Net Profit or
Net Loss of the Partnership for the period ending on the date (or deemed date)
of the transfer. The substitute Partner shall be allocated an amount equal to
the product of (x) a fraction whose numerator consists of the Partnership
Interest transferred and whose denominator consists of the Partnership Interest
held by all Partners, times (y) the Net Profit or Net Loss of the Partnership
for the remainder of the calendar year. The Capital Account of the transferee as
of the date of such transfer shall be determined in accordance with Regulations
Section 1.704-1(b)(2)(iv)(l).
4. Adjustment to Allocations in the Event of Issuance or
Redemption of Partnership Interests.
In the event additional partners acquire interests in the Partnership from
the Partnership, or if the interest of any Partner in the Partnership is
increased through liquidating Distributions to other Partners or decreased
through additional Capital Contributions by other Partners, appropriate
adjustments shall be made to the Distributions and allocations of Net Profit and
Net Loss for periods after such event.
5. Elections Pursuant to Section 754.
In the event of a transfer of an interest in the Partnership permitted
under this Agreement, the Partnership shall, at the request of the transferee
and upon the approval of the Managing Partner, make the election provided by
Code Section 754 to make the adjustment to the basis of Partnership property
provided by Section 743 (if such election is not then in effect), provided that
the transferee agrees to bear the additional accounting expense to the
Partnership resulting from the election (and all subsequent transferees shall
likewise bear a Pro Rata portion of such additional expense). In the event of a
distribution of property by the Partnership, upon the approval of the Managing
Partner, the Partnership shall make the election provided by Section 754 to make
the adjustment to the basis of Partnership property provided by Section 734 (if
such election is not then in effect), in which case any additional accounting
expense to the Partnership resulting from
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<PAGE>
the election shall be borne by the Partnership.
6. Interpretation of Provisions.
It is the intention of the Partners that all allocations pursuant to the
Agreement (including this Tax Appendix) shall comply with the provisions of Code
Section 704 and the Regulations promulgated thereunder. Accordingly, the
provisions of the Agreement (including this Tax Appendix) shall be interpreted
and applied in a manner that is consistent with the provisions of Code Section
704 and the Regulations promulgated thereunder.
7. Tax Matters Partner.
The Managing Partner shall be the Tax Matters Partner of the Partnership.
The Tax Matters Partner shall not take any action which will have a materially
adverse impact on any Partner unless such action shall have been approved by a
Majority Vote of the Partners. The Managing Partner shall have the right to
resign as Tax Matters Partner at any time, upon written notice to all other
Partners, in which event the Partners shall appoint a new Tax Matters Partner.
This provision shall survive any termination of the Agreement. For purposes of
the foregoing, "Tax Matters Partner" shall mean the "tax matters partner" of the
Partnership within the meaning of Section 6231(a)(7) of the Code.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Partnership Agreement as of the date first above written.
TCG PARTNERS
By: /s/ Robert Annunziata
------------------------------
Robert Annunziata
Chief Executive Officer
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-1011
Attention: Robert Annunziata, Chairman
and Chief Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
CONTINENTAL TELECOMMUNICATIONS CORP. OF MICHIGAN
By: /s/ Richard S. Weigand
------------------------------
Richard S. Weigand
Senior Vice President
Address: 1111 Michigan Ave. Ste. 200
East Lansing, MI 48823
Attention: Richard Weigand
Senior Vice President
Fax: (517) 351-2222
Copies to: Patrick Miehe, Esq.
Sullivan and Worcester
One Post Office Square
Boston, Massachusetts 02109
Fax: (617) 338-2880
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Partnership Agreement as of the date first above written.
TCG PARTNERS
By: /s/ Robert Annunziata
------------------------------
Robert Annunziata
Chief Executive Officer
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-1011
Attention: Robert Annunziata, Chairman
and Chief Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
COMCAST NETWORK COMMUNICATIONS OF
SOUTHEASTERN MICHIGAN, INC.
By: /s/
------------------------------
Address: Comcast Corporation
1234 Market Street
Philadelphia, Pennsylvania 19107
Attention: William G. Kingsley, Director
Telecommunications Businesses
and
Stanley L. Wang, Senior Vice
President, General Counsel and
Secretary
Fax: (215) 981-7622
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Partnership Agreement as of the date first above written.
TCG PARTNERS
By: /s/ Robert Annunziata
------------------------------
Robert Annunziata
Chief Executive Officer
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-1011
Attention: Robert Annunziata, Chairman
and Chief Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
METROVISION TELECOMMUNICATIONS OF MICHIGAN, INC.
By: /s/ Henry Harris
------------------------------
Henry Harris
President
Address: 115 Perimeter Place
Suite 550
Atlanta, GA 30346
Attention: Henry Harris
President
Fax: (404) 698-0228
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Partnership Agreement as of the date first above written.
TCG PARTNERS
By: /s/ Robert Annunziata
------------------------------
Robert Annunziata
Chief Executive Officer
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-1011
Attention: Robert Annunziata, Chairman
and Chief Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
TCI TELEPORT OF DETROIT, INC.
By: /s/ Bruce W. Ravenel
------------------------------
Address:
------------------------
------------------------
Attention:
------------------------
Fax:
------------------------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Partnership Agreement as of the date first above written.
TCG PARTNERS
By: /s/
------------------------------
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-1011
Attention: Robert Annunziata, Chairman
and Chief Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
BOOTH TELECABLE, INC.
By: /s/
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Address: 333 West Fort Street,
Suite 1230
Detroit, MI 48226
Attention: Ralph H. Booth II
President and CFO
Fax: (313) 965-1160
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EXHIBIT A
Form of Management Services Agreement
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MANAGEMENT SERVICES AGREEMENT
This MANAGEMENT SERVICES AGREEMENT is made as of November 1, 1993, by and
between TELEPORT COMMUNICATIONS GROUP INC., a Delaware corporation having its
principal office at One Teleport Drive, Suite 301, Staten Island, New York 10311
("TCGI"), and TCG DETROIT, a New York general partnership having its principal
office at 1000 Town Center, Suite 150, Southfield, MI 48075-0100 ("Operator").
RECITALS
Operator has been created by a Partnership Agreement of even date herewith
(the "Partnership Agreement") between TCG Partners ("TCP"), an affiliate of
TCGI, and others. The Partnership Agreement contemplates that Operator will
construct and operate a local telecommunications transmission system (the
"Project") in Detroit and vicinity. In connection therewith, Operator desires to
obtain certain services from TCGI and TCGI desires to offer such services. In
addition, Operator is willing to participate in various national programs
provided by TCGI and to obtain certain quality standards and proprietary rights,
and Operator is willing to pay TCGI a quarterly fee in recognition of the value
of such programs, standards and rights. Capitalized terms used herein and not
otherwise defined shall have the respective meanings ascribed thereto in the
Partnership Agreement.
AGREEMENTS
In consideration of the foregoing and of the promises and covenants
contained in this Agreement, the parties agree as follows:
1. Management Services.
(a) Generally. Reference is made to Addendum A attached hereto,
which Addendum is incorporated into this Agreement to the same extent as if set
forth herein in full. Addendum A describes certain services (the "Services").
TCGI hereby agrees to provide the Services described in Section I of Addendum A
and, to the extent requested by Operator from time to time, the additional
Services described in Section II of Addendum A, and Operator hereby agrees to
use the Services described in Section I of Addendum A and accepts the option to
use the additional Services described in Section II of Addendum A. The Services
will be provided by TCGI and its affiliates and by the employees, consultants,
agents and contractors of TCGI and its affiliates.
(b) Exclusivity. During the term of this Agreement, Operator agrees
not to obtain any of the Services described in Section I of Addendum A from any
Entity other than TCGI and its
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affiliates (and their respective employees, consultants, agents and contractors)
pursuant to this Agreement. Operator may obtain Services described in Section II
of Addendum A from any Entity.
(c) Quality. TCGI shall perform all of the Services that are of a
professional nature in a professional manner in accordance with all applicable
professional standards and all applicable laws. TCGI shall perform all of the
Services that are of a nonprofessional nature in a workmanlike manner in
accordance with all applicable industry standards and all applicable laws.
2. National Programs. In connection with TCGI's provision and Operator's
use of those Services designated in Addendum A as the "National Programs," TCGI
and Operator agree as follows:
(a) Name. Subject to the provisions of Section 2.2 of the
Partnership Agreement, Operator shall use its best efforts to include the words
"TCG" or "Teleport Communications" in all of its trade names regardless of the
legal form of Operator from time to time. Upon the termination or expiration of
this Agreement, Operator agrees that it will immediately cease using any of
"TCG," "Teleport," "Teleport Communications" or "TC," or any name or initials
similar thereto, as part or all of its trade names.
(b) Quality Standards. TCGI will provide Operator with regularly
updated written quality standards relating to the installation, provisioning,
engineering and maintenance of telecommunications services, which standards
shall be those employed generally by TCGI, its subsidiaries and those entities
managed by TCGI pursuant to agreements similar to this Agreement in providing
telecommunications services. Operator shall implement and comply with such
standards.
3. Term. This Agreement shall have an initial term of fifteen years from
the date hereof and shall be renewed automatically for successive five-year
terms after the initial term unless, at least six months prior to the expiration
of the current term, either party notifies the other party in writing of its
desire to terminate this Agreement as of the end of the current term. The
initial term and any subsequent renewal term shall be subject to early
termination pursuant to Section 6. Notwithstanding the termination or expiration
of this Agreement:
(a) After the termination or expiration of this Agreement, TCGI
shall continue to provide, for a reasonable additional period not to exceed
three months, any of the Services that are required by Operator during such
period to permit an orderly transition to a successor service provider or
providers, and Operator agrees to pay the charges for such Services set forth in
Addendum A, as adjusted from time to time in accordance with Section 4(b), in
the manner provided in this Agreement;
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(b) The provisions of Section 9 and Section 10 shall survive the
termination or expiration of this Agreement indefinitely; and
(c) The provisions of Section 2(b) and Section 4(a)(ii), and those
provisions of this Agreement relating to the payment of the fee specified in
Section 4(a)(ii), shall survive the termination or expiration of this Agreement
until the expiration of all agreements under which Operator provides
telecommunications services to national accounts through TCGI's National
Programs; provided, however, that the fee payable pursuant to Section 4(a)(ii)
after the termination or expiration of this Agreement shall be limited to 3% of
those Project Gross Revenues that are attributable to such national accounts.
4. Fees and Charges.
(a) Fees. In return for the Services to be provided to Operator
under this Agreement, Operator shall pay to TCGI the following amounts:
(i) The charges set forth in Addendum A, as adjusted from time
to time in accordance with Section 4(b) and Addendum A; and
(ii) With respect to (A) the period commencing on the date
hereof and ending on the last day of the second full calendar quarter after the
date hereof and (B) each subsequent calendar quarter during the term of this
Agreement (each such period hereinafter called an "Applicable Period"), a
payment equal to the greater of (1) 3% of Project Gross Revenues (as hereinafter
defined) with respect to the Applicable Period, or (2) an amount equal to the
product of $278.00 times the number of days in the first Applicable Period and
an amount equal to $25,000 for each subsequent Applicable Period. The term
"Project Gross Revenues" means, with respect to any Applicable Period, all
revenues derived by Operator from the conduct of the Business (as that term is
defined in the Partnership Agreement) during the Applicable Period, determined
on an accrual basis, with adjustment for bad debt and otherwise in accordance
with generally accepted accounting principles consistently applied.
(b) Adjustments. The charges stated on Addendum A are based on
TCGI's best estimate as of the date hereof of its cost of providing the Services
to Operator and to all of the other entities with which TCGI has entered into
agreements similar to this Agreement. TCGI shall periodically, but not less
often than quarterly, calculate the actual cost of providing the Services and
determine whether the amounts paid by Operator for such period are less than or
exceed Operator's pro rata share of TCGI's actual costs in providing the
Services in such period. The expenses attributable to the provision by TCGI of
any Service
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to Operator shall be calculated by allocating the expenses incurred by TCGI in
providing such Service to all telecommunications transmission systems managed by
TCGI (including Operator) among all such systems on the basis of an equitably
weighted average of each system's direct hours billed, annual budgeted revenue
and budgeted capitalization. The weighting of each variable shall be determined
from time to time by TCGI. The initial weighting system is set forth in Section
IV of Addendum A. TCGI may adjust any of the fees and monthly rates set forth on
Addendum A as a result of such calculation to provide that the amounts paid by
Operator pursuant hereto more closely approximate TCGI's actual costs of
providing the Services. In addition, if as a result of TCGI's calculation of its
cost of providing the Services it determines that Operator has paid more or less
than its pro rata share of TCGI's cost of providing the Services in any period,
TCGI shall send a statement to Operator with the next monthly bill provided
pursuant to Section 4(c) below setting forth the amount of such overpayment or
underpayment. If Operator has overpaid, it shall be entitled to a credit in the
amount of such overpayment against subsequent payments. If Operator has
underpaid, it shall pay to TCGI the amount of such underpayment. TCGI shall
provide Operator within ninety days of the end of each of its fiscal years with
a certificate from its independent accountants certifying Operator's pro rata
share of TCGI's costs in providing the Services. Operator shall receive a credit
in the amount of, or shall pay an amount equal to, any overpayment or
underpayment reflected in such certificate as provided above. In no event,
however, shall the charges to Operator pursuant to this Section 4(b) or Addendum
A resulting from the cost of providing the Services to Operator, when taken as a
whole, exceed the cost at which Operator could obtain like services from
qualified, unaffiliated third parties.
(c) Payments and Billing.
(i) TCGI shall provide Operator with itemized monthly bills
with respect to all charges specified in Addendum A and any adjustments made
pursuant to Section 4(b) above. Billing for items charged on a unit fee basis or
a fixed fee basis shall be in advance and billing for items charged on an actual
time and materials basis shall be in arrears. Each such bill shall be payable
within thirty days from the date of Operators's receipt thereof.
(ii) The fee specified in Section 4(a)(ii) shall
be paid as follows:
(A) With respect to the first Applicable
Period, Operator shall pay the product of $278.00 times the number of days in
the first Applicable Period prior to the last day of the first Applicable Period
and shall pay the amount, if any, by which the fee specified in Section 4(a)(ii)
for the first
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Applicable Period exceeds the product of $278.00 times the number of days in the
first Applicable Period within sixty days after the end of the first Applicable
Period.
(B) With respect to each Applicable Period
after the first Applicable Period, Operator shall pay $25,000 toward the fee
specified in Section 4(a)(ii) on or before the first day of such Applicable
Period and shall pay the amount, if any, by which the fee specified in Section
4(a)(ii) for such Applicable Period exceeds $25,000 within sixty days after the
end of such Applicable Period.
(iii) Within sixty days after the end of each Applicable
Period, Operator shall provide TCGI with a statement, certified as correct by
Operator's General Manager or chief financial officer, as to the amount of
Project Gross Revenues for the Applicable Period. Operator will permit any
authorized TCGI employees or certified public accountants retained by TCGI to
examine Operator's books of account, records, reports and other papers relating
to the determination of Project Gross Revenues, to make copies and extracts
therefrom (except with respect to that containing proprietary information), and
to discuss such items with Operator's officers and accountants (and by this
provision Operator authorizes the accountants to discuss such items), all at
such reasonable times and as often as may reasonably be requested. Any such
examination shall be performed at TCGI's sole cost and expense unless such
examination reveals a material understatement in any quarterly statement of
Project Gross Revenues, in which event the cost of such examination shall be
borne by Operator.
(iv) Operator shall inform TCGI of any discrepancies, claims
for credits or other problems with any bill within thirty days after Operator's
receipt thereof. If TCGI is so notified, Operator and TCGI shall meet promptly
and shall negotiate in good faith a resolution of the dispute. TCGI agrees to
maintain detailed records relating to its provision of the Services. TCGI will
permit Operator at any time upon reasonable notice to examine all of such
records, to make copies and extracts therefrom and to discuss such records and
other matters relating to the Services with the respective officers, employees
and independent public accountants of TCGI (and by this provision TCGI
authorizes the accountants to discuss such items).
(v) Any amount not received when due will be subject to a late
charge at a rate equal to the lesser of 1 1/2% per month or the maximum amount
permitted by law (if any).
(vi) Operator will be permitted to offset any amounts due to
Operator from TCGI or its wholly-owned subsidiaries against any amounts payable
to TCGI hereunder.
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5. Taxes. Operator agrees to pay any sales, use, gross receipts, excise or
other local, state or Federal taxes or charges, however designated (excluding
taxes on TCGI's net income), imposed on or based upon the provision, sale or use
of the Services provided under this Agreement or otherwise related to the
transactions contemplated hereby. Any taxes imposed on TCGI that are required to
be paid by Operator under this Section 5 shall be separately stated on each
monthly bill to Operator.
6. Termination.
(a) Pursuant to Article 3.4 of the Partnership Agreement, Operator
may terminate this Agreement by written notice to TCGI if TCGI (i) fails in any
material respect to perform its obligations under this Agreement in accordance
with the terms hereof and customary and reasonable standards of management in
the telecommunications industry, or (ii) materially fails to meet the
performance goals established in Operator's annual budget for two consecutive
years, and such failure in performance continues unremedied for a period of
ninety days after Operator has given written notice to TCGI specifying such
failure in reasonable detail. Operator agrees that TCGI may remedy any failure
in performance by performing again in a satisfactory manner any Services that
Operator maintains were originally performed in an unsatisfactory manner or by
giving Operator a credit against any future payments due under this Agreement
equal to the amount of any charges paid by Operator for any Services that
Operator maintains were originally performed in an unsatisfactory manner.
(b) TCGI may terminate this Agreement by written notice to Operator
if Operator fails in any material respect to perform its obligations under this
Agreement (other than those described in Section 6(c)) in accordance with the
terms hereof and customary and reasonable standards of management in the
telecommunications industry, and such failure continues unremedied for a period
of one hundred eighty days after TCGI has given written notice to Operator
specifying such failure in reasonable detail.
(c) TCGI may terminate this Agreement by written notice to Operator
if Operator fails to make any payment due to TCGI under this Agreement within
thirty days of the date when such payment was due unless such failure is due to
a good faith dispute between TCGI and Operator regarding such payment.
(d) Either party may terminate this Agreement by giving written
notice to the other party if the other party:
(i) files a voluntary petition in bankruptcy or is adjudicated
a bankrupt or insolvent or files any petition or answer seeking arrangement,
composition, readjustment, or similar relief under the present or any future
bankruptcy act or any
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other present or future applicable federal or state law relating to bankruptcy,
insolvency or other relief for debtors; or
(ii) has an involuntary petition filed against it seeking
arrangement, composition, readjustment, liquidation or similar relief under the
present of any future federal bankruptcy act or any other federal or state law
relating to bankruptcy, insolvency or other relief for debtors which is not
vacated within sixty days from the date of entry thereof; or
(iii) makes an assignment for the benefit of creditors or
takes any other similar action for the protection or benefit of creditors; or
(iv) in connection with the ownership, operation or management
of the Project or the performance of its obligations under this Agreement,
commits any felony or any other criminal act that materially threatens to result
in suspension, revocation, or adverse modification of any governmental
franchise, license, authorization or permit required for the conduct of the
terminating party's business; or
(v) misappropriates or converts any assets of the terminating
party.
(e) Neither party may terminate this Agreement pursuant to this
Section 6 for any failure of performance by the other party due to causes beyond
the other party's control, including but not limited to: acts of God, fire,
flood or other catastrophes; any law, order, regulation, direction, action or
request of the United States Government, or of any other government, including
state and local governments having or claiming jurisdiction over such party, or
of any department, agency, commission, bureau, corporation or other
instrumentality of any one or more of these federal, state or local governments,
or of any civil or military authority; national emergencies; unavailability of
materials or rights-of-way; insurrections; riots; wars; or strikes, lock-outs,
work stoppages or other labor difficulties (collectively, "force majeure
events").
7. Other Remedies. In addition to the termination rights set forth in
Section 6, each party may exercise any other remedy available at law or equity
in the event of a default by the other party in the performance of its
obligations under this Agreement.
8. Limitation on Liability. TCGI shall in no event (i) have any liability
to Operator for any damages, expenses, costs or losses resulting from its
performance or nonperformance of the Services, except as may be caused by TCGI's
willful misconduct or gross negligence; (ii) HAVE ANY LIABILITY WHATSOEVER FOR
SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES AS A RESULT OF ITS
PERFORMANCE OR NONPERFORMANCE OF THE SERVICES; or (iii) have any
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liability for any failure of performance hereunder due to causes beyond its
control, including but not limited to acts of God, fire, flood or other
catastrophes; any law, order, regulation, direction or action of the United
States Government, or of any other government, including state and local
governments having or claiming jurisdiction over TCGI or Operator, or of any
department, agency, commission, bureau, corporation or other instrumentality of
any one or more of these federal, state or local governments, or of any civil or
military authority; national emergencies; unavailability of material or
rights-of-way; insurrections; riots; wars; or strikes, lock-outs, work stoppages
or other labor difficulties. TCGI makes no representation or warranty with
respect to the operations or results, financial or otherwise, of the Project,
and shall have no liability therefor.
9. Proprietary Information. Each party acknowledges that, in the course of
the performance of this Agreement, it may have access to privileged and
proprietary information claimed to be unique, secret and confidential, and which
constitutes the exclusive property or trade secrets of the other, and the
parties acknowledge that they are in a confidential relationship with each
other. This information may be presented in documents marked with a restrictive
notice or otherwise tangibly designated as proprietary or during oral
discussions, at which time representatives of the disclosing party will specify
that the information is proprietary. Each party agrees to maintain the
confidentiality of the proprietary information and to use the same degree of
care as it uses with regard to its own proprietary information to prevent the
disclosure, publication or unauthorized use of the proprietary information.
Neither party may duplicate or copy proprietary information of the other party
other than to the extent necessary for legitimate business uses in connection
with this Agreement. A party shall be excused from these nondisclosure
provisions if the proprietary information has been, or is subsequently, made
public by the other party or is independently developed by such party or if the
other party gives its express, prior written consent to the disclosure of the
proprietary information or if the disclosure is required by law or regulation.
Operator hereby acknowledges that certain deliverables to be included in the
Services, such as software, data processing systems and manuals, are the
proprietary property of TCGI or of third parties. Operator agrees that upon
TCGI's request it will execute, and comply with, license or sublicense
agreements in reasonable and customary form with respect to such deliverables.
10. Indemnification.
(a) Indemnification by Operator. Operator will indemnify and hold
harmless TCGI, its affiliates (other than Operator), and all officers,
directors, employees, stockholders, partners and agents of TCGI and its
affiliates (individually, a "TCGI Indemnitee") from and against any and all
claims, demands,
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costs, damages, losses, liabilities, joint and/or several, expenses of any
nature (including reasonable attorneys', accountants' and experts' fees and
disbursements), judgments, fines, settlements and other amounts (collectively,
"Damages") arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative (collectively
"Claims") in which the TCGI Indemnitee may be involved or is threatened to be
involved, as a party or otherwise, arising out of TCGI's acts or omissions under
this Agreement or the ownership or operation of Operator's business or assets,
regardless of whether this Agreement continues to be in effect or the TCGI
Indemnitee continues to be an affiliate, or an officer, director, employee,
stockholder, partner or agent of TCGI or its affiliate, at the time any such
Claims are made or Damages incurred, provided (i) the TCGI Indemnitee acted in
good faith and in a manner it reasonably believed to be in the best interest of
Operator and, with respect to any criminal proceeding, had no reasonable cause
to believe its conduct was unlawful, and (ii) the TCGI Indemnitee's conduct did
not constitute gross negligence, willful misconduct or a breach of this
Agreement. Any indemnification hereunder will be satisfied solely out of the
assets of Operator.
(b) Indemnification by TCGI. TCGI will indemnify and hold harmless
Operator, its affiliates, and all officers, directors, employees, stockholders,
partners and agents of TCGI and its affiliates (individually, an "Operator
Indemnitee") from and against any and all Damages arising from any and all
Claims in which the Operator Indemnitee may be involved or is threatened to be
involved, as a party or otherwise, arising out of Operator's acts or omissions
under this Agreement or the ownership or operation of TCGI's business or assets,
regardless of whether this Agreement continues to be in effect or the Operator
Indemnitee continues to be an affiliate, or an officer, director, employee,
stockholder, partner or agent of Operator, at the time any such Claims are made
or Damages incurred, provided (i) the Operator Indemnitee acted in good faith
and in a manner it reasonably believed to be in the best interest of TCGI and,
with respect to any criminal proceeding, had no reasonable cause to believe its
conduct was unlawful, and (ii) the Operator Indemnitee's conduct did not
constitute gross negligence, willful misconduct or a breach of this Agreement.
Any indemnification hereunder will be satisfied solely out of the assets of
TCGI.
(c) Procedure. No claims for indemnification shall be made by either
party against the other unless the aggregate amount of such claim, together with
any other indemnifiable claims of such party, exceeds the amount of $5,000. Any
reasonable expenses incurred by any indemnified person pursuant to this Section
10 in defending any civil or criminal action, suit or proceeding (or the threat
thereof), other than a claim, action, suit or proceeding brought by the
indemnifying party,
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shall be borne and paid by the indemnifying party in advance of the final
disposition of such action, suit or proceeding (or the threat thereof) upon
receipt of an undertaking by or on behalf of the indemnified person to repay to
the indemnifying party the amount of such expenses if it shall ultimately be
determined that such person is not entitled to the indemnification provided for
under this Section 10. Any person asserting a right to indemnification under
this Section 10 shall so notify the indemnifying party in writing. If the facts
giving rise to such indemnification involve any actual or threatened claim or
demand by or against a third party, the indemnifying party shall be entitled to
control the defense or prosecution of such claim or demand in the name of the
indemnified person, if the indemnifying party notifies the indemnified person in
writing of its intention to do so within twenty days of the receipt of such
notice by the indemnified person. The indemnified person shall have the right,
however, to participate in such proceeding through counsel of its own choosing,
which participation shall be at its sole expense. Whether or not the
indemnifying party chooses to defend or prosecute such claim, each indemnified
person and Lessor or Lessee, whichever is not the indemnifying party, shall, to
the extent requested by the indemnifying party and at the indemnifying party's
expense, cooperate in the prosecution or defense of such claim and shall furnish
such records, information and testimony and attend such conferences, discovery
proceedings, hearings, trials and appeals as may reasonably be requested in
connection therewith.
11. Independent Contractor. TCGI shall serve as an independent contractor
in connection with the matters set forth herein and its employees shall not be
employees of Operator, provided, however, that TCGI may provide Operator with
contract employees as part of the Services and be reimbursed therefor as more
fully provided on Addendum A. TCGI shall take no action, nor omit to take any
action, that would create the appearance, or lead a reasonable person to
believe, that TCGI (including its employees other than contract employees) in
acting hereunder has any relationship to Operator other than that of an agent to
its principal.
12. Obligations Unimpaired. Subject to the provisions of Section 6, the
obligations to be performed by Operator under this Agreement shall not be
affected or impaired by reason of the happening from time to time of any of the
following:
(a) any assignment or purported assignment of all or any part of the
interest of TCP in the Partnership Agreement or of TCGI in this Agreement;
(b) the modification or amendment (whether material or otherwise) of
any obligation, undertaking or condition to be performed by TCP under the
Partnership Agreement or the
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expiration or termination of the Partnership Agreement, whether caused by TC's
default or otherwise;
(c) the voluntary or involuntary liquidation or dissolution of TCGI
or the sale or other disposition of all or substantially all the assets of TCGI;
(d) the merger, reorganization or consolidation of Operator or the
sale, divestiture or other disposition of TCP's interest in Operator pursuant to
the provisions of the Partnership Agreement;
(e) the termination or expiration of the Partnership Agreement; or
(f) any other cause, whether similar or dissimilar to the foregoing;
it being the intention of Operator that, except as otherwise required by the
provisions hereof, this Agreement be absolute and unconditional in any and all
circumstances.
13. Miscellaneous. This Agreement constitutes the entire Agreement between
TCGI and Operator with respect to the subject matter hereof, and all prior
agreements, representations, statements, negotiations and undertakings are
superseded by this Agreement. THERE ARE NO AGREEMENTS, WARRANTIES OR
REPRESENTATIONS, EXPRESS OR IMPLIED EITHER IN FACT OR BY OPERATION OF LAW,
STATUTORY OR OTHERWISE, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
A PARTICULAR PURPOSE OR USE, EXCEPT THOSE EXPRESSLY SET FORTH HEREIN. This
Agreement may not be amended or waived except by a writing signed by the party
against which enforcement hereof is sought. The provisions of this Agreement
shall be governed by and construed in accordance with the laws of the State of
New York. This Agreement may be executed in two counterparts, each of which
shall be deemed to be an original.
14. Successors and Assigns; Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties' respective successors and
permitted assigns. Neither party shall assign, transfer, or in any other manner
dispose of, any of its rights, privileges or obligations under this Agreement
except in connection with a transaction specifically permitted by and in
accordance with the applicable provisions of Article 5 of the Partnership
Agreement and any attempt to make such an assignment, transfer or disposition
without consent shall be null and void. This provision shall not limit TCGI's
discretion to delegate duties and responsibilities to employees or agents of
TCGI or its affiliates in accordance with normal and customary management
practices.
15. Compliance With Law. Operator shall be the franchisee, licensee and
permittee of all governmental franchises, licenses,
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authorizations and permits required for its business, and shall retain ultimate
control over the Project and its assets. Operator shall also retain ultimate
responsibility for compliance with the rules, regulations and policies of the
Federal Communications Commission (the "FCC") and each applicable state
regulatory authority having jurisdiction over the Project or Operator
(collectively, the "Regulatory Authorities") and the terms of the Communications
Act of 1934, as amended (the "Act"). TCGI agrees to cooperate in all reasonable
respects with Operator to the extent necessary to remain in compliance with
respect to the Act and the rules, regulations and policies of the FCC and of all
applicable Regulatory Authorities.
IN WITNESS WHEREOF, the parties hereto have executed this Management
Services Agreement as of the date first above written.
TELEPORT COMMUNICATIONS GROUP INC.
By /s/ Alf T. Hansen
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Alf T. Hansen
Senior Vice President
TCG DETROIT
By /s/ Alf T. Hansen
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Alf T. Hansen
Senior Vice President
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ADDENDUM A
DESCRIPTION OF SERVICES AND CHARGES
I. TCGI Provided Services. TCGI shall provide the following Services on a
regular basis, in accordance with the level of the Operator's business activity,
at the rates listed.
1. Management - Senior Management Supervision. TCGI will provide
management supervision to Operator in support of Operator's business plan and
the objectives of its partners. The supervisory and general management functions
to be performed include:
o Review of business plans
o Review of annual budget and five-year plan prepared by
Operator's General Manager
o Financial reviews and controls
Operator will pay for these services on an actual time and materials basis (see
Section III).
2. Engineering - Circuit Order Layout Record, Training and
Operations. TCGI will maintain a database of the Network layout down to
individual circuit level. All circuit order layout record (COLR) information
should be reviewed by Operator for accuracy. TCGI will provide operational
performance (capital and expense) reviews and assist in network expansion. TCGI
will train employees assigned to Operator, as required. Operator will pay for
these services on an actual time and materials basis (see Section III).
3. Finance - Accounting Administration. TCGI will provide all
billing, collections, accounts payable, bookkeeping and financial reporting
services as listed below. In addition, TCGI will order supplies, materials and
services required by Operator, process invoices submitted by Operator and
purchase orders generated by or on behalf of Operator in accordance with
approved capital budgets and budgeted expenditures.
<TABLE>
<CAPTION>
SERVICE DESCRIPTION
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<S> <C>
Billing Monthly billing of customers.
Collections Ongoing collection and processing of customer
payments.
Credit review Credit check to determine creditworthiness of new
customers.
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Bookkeeping Functions General ledger, accounts receivable, accounts
payable, liabilities and fixed asset property
records.
Cash Control Cash management, reconciliation of bank statements
and cash forecasting requirements.
Accounting for Fixed Accounting for all capital accounts, as to
Assets accumulated depreciation and book and tax
depreciation calculations.
Tax Compliance Compliance with tax codes, including annual
preparation of partnership federal, state and
local tax returns and K-1 tax reporting schedules.
Financial Reports and A monthly summary including balance sheet, profit
Analysis and loss, budget vs. actual, fixed asset summary,
cash and investments, statement of changes in
financial position.
Capital Accounts Ongoing accounting for partner capital accounts,
capital contributions and withdrawals.
Other Reports Other reports, including regulatory reports,
required by or pursuant to the Partnership
Agreement or as directed by Operator.
</TABLE>
Operator will pay for these services on an actual time and materials basis (see
Section III).
4. Information Systems - Management Information Systems. TCGI will
provide centralized MIS/Data Processing hardware and software to Operator by
remote access from TCGI's corporate location. TCGI will manage centralized MIS
operations and will provide general systems support and guidance to Operator.
Operator will be responsible for the purchasing and operation of local MIS
hardware and software such as personal computers, remote terminals, printers,
plotters and other peripherals, and required telecommunications lines or local
area network interfaces necessary to access the centralized MIS resources of
TCGI.
Addendum A - Page 2
<PAGE>
<TABLE>
<CAPTION>
SERVICE DESCRIPTION
------- -----------
<S> <C>
Capital budget Tracks capital expenditures and purchase orders.
tracking and P.O.
invoice tracking
Inventory tracking Tracks electronics and cable and other
inside/outside plant inventory.
Technician labor Tracks manpower time of technical employees.
tracking
Internal labor Tracks TCG employee time and allocates to expense
tracking or capital projects.
Circuit tracking Tracks all circuits current work in progress and
billable installed base, due dates, turn up dates
and billing dates.
Order input processing Tracks orders through to implementation.
Property records Tracks fixed assets for required reporting.
Engineering & Maintains databases of COLRs and existing plant.
operations design Creates work orders and lists of all electronics
and work required to install a new circuit.
General ledger Drives accounting and budgeting process.
Fixed asset Tracks depreciation expenses by account.
Payroll Payroll contracted with Automatic Data Processing.
Billing/accounts Drives billing and accounts receivable.
receivable
Financial reporting Drives financial analysis process budget tracking.
and expense
Business planning Models/forecasts business for planning purposes.
Addendum A - Page 3
</TABLE>
<PAGE>
Operator will pay for MIS processing costs at the following rates per month
based on actual annual sales for the immediately preceding fiscal year:
<TABLE>
<CAPTION>
=========================================================
Monthly
Prior Year Annual Sales Rate
=========================================================
<S> <C>
Up to $250,000 $5,000
---------------------------------------------------------
Greater than $250,000 up to and 7,000
including $15,000,000
---------------------------------------------------------
Greater than $15,000,000 up to 20,000
and including $25,000,000
---------------------------------------------------------
Greater than $25,000,000 90,000
=========================================================
</TABLE>
5. Legal/Regulatory - Contract Reviews & Local Counsel Supervision.
TCGI will review all contracts, consulting agreements and other legally binding
arrangements. TCGI will provide standard contract forms. To provide Operator
with the benefits of TCGI's legal experience and expertise in the area of
telecommunications, metropolitan area networks and alternate local transmission
services, and in particular, to ensure consistency in regulatory stance, TCGI
will be available as needed for supervision and guidance of Operator's local
counsel and/or local regulatory counsel. Operator will pay for these services on
an actual time and materials basis (see Section III).
6. National Marketing and Pricing - Product Planning and Pricing;
National Advertising & Marketing. TCGI shall provide the following additional
marketing and pricing services:
o Develop, publish and update a standard pricing guide.
o Create market data and analysis for network expansion plans.
o Develop new applications including service descriptions,
pricing and sales strategy.
o Plan and implement national advertising campaign and
strategic accounts programs.
o Conduct competitive service analysis and ongoing tariff
review to assess potential impact on TCGI.
o Place general image advertising in national communications
media.
Addendum A - Page 4
<PAGE>
o Assist Operator in local promotional and public relations
efforts.
o Trade show planning and implementation for national and
regional exhibits; distribute qualified sales leads to each
city resulting from trade shows.
o Design and develop sales brochures and premiums.
o Update and maintain mailing lists, and develop and implement
direct mail campaigns.
o Distribute press releases, Teleport Report, trade show
invitations, etc.
Operator will pay for these services at the following rates per month based on
budgeted sales for the relevant fiscal year:
<TABLE>
<CAPTION>
==============================================================
Budgeted Annual Sales for Such Monthly Rate
Year
==============================================================
<S> <C>
Up to $3,000,000 $3,900
--------------------------------------------------------------
Greater than $3,000,000 up to 5,850
and including $6,000,000
--------------------------------------------------------------
Greater than $6,000,000 up to 7,800
and including $9,000,000
--------------------------------------------------------------
Greater than $9,000,000 up to 9,750
and including $12,000,000
--------------------------------------------------------------
Greater than $12,000,000 up to 11,700
and including $15,000,000
--------------------------------------------------------------
Greater than $15,000,000 up to 13,650
and including $18,000,000
--------------------------------------------------------------
Greater than $18,000,000 up to 15,600
and including $21,000,000
--------------------------------------------------------------
Greater than $21,000,000 up to 17,550
and including $24,000,000
--------------------------------------------------------------
Greater than $24,000,000 up to 19,500
and including $27,000,000
--------------------------------------------------------------
Greater than $27,000,000 up to 21,450
and including $30,000,000
--------------------------------------------------------------
Greater than $30,000,000 up to 23,400
and including $33,000,000
</TABLE>
Addendum A - Page 5
<PAGE>
<TABLE>
<CAPTION>
==============================================================
Budgeted Annual Sales for Such Monthly Rate
Year
--------------------------------------------------------------
<S> <C>
Greater than $33,000,000 up to 25,350
and including $36,000,000
--------------------------------------------------------------
Greater than $36,000,000 up to 27,300
and including $39,000,000
--------------------------------------------------------------
Greater than $39,000,000 up to 29,250
and including $42,000,000
--------------------------------------------------------------
Greater than $42,000,000 up to 31,200
and including $45,000,000
--------------------------------------------------------------
Greater than $45,000,000 up to 33,150
and including $48,000,000
--------------------------------------------------------------
Greater than $48,000,000 up to 35,100
and including $51,000,000
--------------------------------------------------------------
Greater than $51,000,000 up to 37,050
and including $54,000,000
--------------------------------------------------------------
Greater than $54,000,000 up to 39,000
and including $57,000,000
--------------------------------------------------------------
Greater than $57,000,000 up to 40,950
and including $60,000,000
--------------------------------------------------------------
Greater than $60,000,000 up to 42,900
and including $63,000,000
--------------------------------------------------------------
Greater than $63,000,000 up to 44,850
and including $66,000,000
--------------------------------------------------------------
Greater than $66,000,000 46,800
==============================================================
</TABLE>
7. Operations - 24-Hour Remote Systems Monitoring. TCGI shall
provide 24-hour monitoring of the installed network in accordance with its
standard monitoring practices with respect to network systems in the New York
metropolitan area. Operator will provide necessary long distance tie-lines.
Operator will pay a unit fee for 24-hour remote systems monitoring for private
lines at a rate of $300.00 per Network Monitoring Unit per year, set at the
beginning of each year based on the average number of Network Monitoring Units
budgeted for the year, payable in twelve equal monthly installments. Operator
will pay a unit fee for remote monitoring for switching at a rate of $75,000 per
year plus $1,000 per switch module per year, set at the beginning of each year
based on the number of budgeted switch modules for the year, payable in twelve
equal monthly installments. Operator will pay for any trouble management
requiring additional man hours on an actual time and materials basis (see
Section III).
Addendum A - Page 6
<PAGE>
8. Personnel Administration - Payroll & Benefits. TCGI will provide
all benefit & employee administration with respect to payroll, 401(k), medical,
dental, retirement, vacation, disability, and sick leave. Operator shall pay a
unit fee for these services of $230.00 per month per budgeted year-end Assigned
Employee (as that term is defined in paragraph I.12. below).
9. Quality - Training and Course Documentation. TCGI's ongoing
commitment to employee education and training will be maintained by providing
in-house training and documentation on TCGI procedures and operational
guidelines. TCGI shall notify Operator from time to time of its training
programs. Guidance on policy and outside education/training will also be
available as needed. Operator will pay for training and course documentation at
TCGI's standard rates.
10. Sales - National Sales Representation. TCGI's National Sales
Group and senior executives will actively seek to sell Operator services on a
national level to organizations such as interexchange carriers, large financial
institutions and other corporations with a nationwide presence. These services
will be provided to meet mutually agreed national sales quota targets which will
be set by Operator and TCGI. This program is supplemental to Operator's local
sales effort, which may include national accounts contacted on a local basis.
Operator will pay for these services at the following rate per month based on
budgeted revenues for the current fiscal year:
<TABLE>
<CAPTION>
==============================================================
Current Year Budgeted Annual Monthly Rate
Sales
==============================================================
<S> <C>
Up to $500,000 $5,000
--------------------------------------------------------------
Greater than $500,000 up to and 8,000
including $1,000,000
--------------------------------------------------------------
Greater than $1,000,000 up to 10,000
and including $3,000,000
--------------------------------------------------------------
Greater than $3,000,000 up to 15,000
and including $5,000,000
--------------------------------------------------------------
Greater than $5,000,000 up to 20,000
and including $10,000,000
--------------------------------------------------------------
Greater than $10,000,000 up to 30,000
and including $20,000,000
</TABLE>
Addendum A - Page 7
<PAGE>
<TABLE>
<CAPTION>
==============================================================
Current Year Budgeted Annual Monthly Rate
Sales
--------------------------------------------------------------
<S> <C>
Greater than $20,000,000 up to 40,000
and including $30,000,000
--------------------------------------------------------------
Greater than $30,000,000 up to 50,000
and including $40,000,000
--------------------------------------------------------------
Greater than $40,000,000 up to 60,000
and including $50,000,000
--------------------------------------------------------------
Greater than $50,000,000 up to 70,000
and including $60,000,000
--------------------------------------------------------------
Greater than $60,000,000 up to 80,000
and including $70,000,000
--------------------------------------------------------------
Greater than $70,000,000 up to 90,000
and including $80,000,000
--------------------------------------------------------------
Greater than $80,000,000 100,000
==============================================================
</TABLE>
11. National Programs. TCGI will provide National Program services
as follows:
National Program Description
---------------- -----------
Corporate Quality and TCGI will monitor conformance with TCGI's national
Engineering Standards quality and engineering standards, as described in
TCGI's Quality and Engineering Standards Volume,
as in effect from time to time.
National Service Order TCGI will make available to Operator its National
Management Service Order management system which allows
orders from interexchange carriers and other
national accounts to be transmitted directly to
Operator. Operator will be responsible for
providing hardware, telephone tielines and
personnel for access to TCGI's system.
National Regulatory TCGI will supervise and manage the representation
Initiatives and of Operator in national regulatory initiatives and
Representation issues which affect Operator. For representation
of Operator at the FCC concerning matters
affecting only Operator, TCGI's
Addendum A - Page 8
<PAGE>
representation will be subject to Operator's
approval.
The cost to Operator of the National Programs is included in the fees payable
pursuant to Section 4(a)(ii) of the Management Services Agreement.
12. Assigned Employees. TCGI will hire all local Operator personnel
as TCGI employees and will provide all salary and benefits plans, as
appropriate, to such employees. Such employees shall become agents of Operator
as contract employees under the Management Services Agreement. Additional TCGI
employees who are not local to Operator but are working for Operator on a
full-time basis will be assigned to Operator as contract employees. For all
employees assigned by TCGI to Operator, whether temporary, part-time or contract
employees ("Assigned Employees"), Operator shall pay monthly in advance the sum
of (i) all cash compensation payable to such employees, plus (ii) a reasonable
allocation of TCGI's costs for all employee benefit plans and fringe benefits
with respect to such employees, plus (iii), without duplication to the
allocation provided in paragraph I.8. above, a reasonable allocation of general
administrative overhead costs applicable to such employees.
II. Additional Services Available from TCGI. TCGI will provide the
following Services at the request of Operator.
1. Special engineering studies and analyses.
2. Special financial studies and analyses.
3. MIS network configuration analyses, design and implementation,
and custom MIS reports.
4. General legal assistance.
5. Office space acquisition and negotiations assistance.
6. Right-of-way acquisition and negotiation assistance.
7. State and local regulatory assistance.
8. Manpower search and screening.
9. Assist Operator in developing individual case basis pricing for
special applications.
10. Access to Affiliate Services, including information from TCGI's
National Tariff Database, engineering inquiries, customer
inquiries,
Addendum A - Page 9
<PAGE>
national clearinghouse for National Account inquiries, and
advisory services to Operator.
11. Insurance assistance.
Operator will pay for all Additional Services on an actual time and materials
basis.
III. Actual Time and Materials Charges. Charges for services to be billed
on an actual time and materials basis (Sections I.1, I.2, I.3, I.5, I.7 and II)
will be determined in accordance with the following:
1. Materials, Services and Out-Of-Pocket Expenses. Actual expenses
for materials used, purchased services from outside suppliers, advisors or
consultants, and travel will be passed through to Operator as incurred at cost.
2. TCGI Employees Not Assigned to Operator. In keeping with the TCGI
manpower and salary grade structure, billing rates have been established for all
TCGI employee grade levels. Time will be billed to Operator at the hourly labor
rates listed below per Grade Level for TCGI employees who are not Assigned
Employees but who perform services for Operator, based on hours actually spent
on Operator work:
<TABLE>
<CAPTION>
====================================
Grade Level Hourly Rate
====================================
<S> <C>
A $125.00
------------------------------------
B 75.00
------------------------------------
C 50.00
------------------------------------
D 30.00
====================================
</TABLE>
IV. Adjustment to Fee Schedules; Payment of Allocated Expenses. All fees
and monthly rates stated herein are subject to change in accordance with the
terms of Section 4(b) of the Management Services Agreement. Operator may be
required to pay TCGI the expenses attributable to the provision of Services by
TCGI in accordance with Section 4(b) of the Management Services Agreement. The
initial weighting system for allocating to Operator its pro rata share of TCGI's
costs in providing Services shall be as follows: direct hours billed shall be
weighted at 50%, annual budgeted revenue shall be weighted at 30% and budgeted
capitalization shall be weighted at 20%.
Addendum A - Page 10
<PAGE>
EXHIBIT B
Undertaking of Parent
The undersigned, which is a Parent of a Partner to the foregoing
Partnership Agreement, hereby covenants and confirms, to and for the benefit of
each other Partner and the Partnership, that it will not, and will not permit
any of its affiliates to, violate or circumvent the provisions of Article 7 of
the Partnership Agreement which are applicable to the Partner of which it is the
Parent. Capitalized terms used in this Undertaking shall have the meanings
assigned to them in the Partnership Agreement dated as of Dec. 15, 1993, between
Metrovision Telecommunications of Michigan, Inc. and TCG Partners.
Dated: Dec. 15, 1993
---------------
Metrovision Inc.
- -----------------------------------
By: /s/ Henry W. Harris
--------------------------------
Name: Henry W. Harris
------------------------------
Title: Pres.
------------------------------
<PAGE>
EXHIBIT B
Undertaking of Parent
The undersigned, which is a Parent of a Partner to the foregoing
Partnership Agreement, hereby covenants and confirms, to and for the benefit of
each other Partner and the Partnership, that it will not, and will not permit
any of its affiliates to, violate or circumvent the provisions of Article 7 of
the Partnership Agreement which are applicable to the Partner of which it is the
Parent. Capitalized terms used in this Undertaking shall have the meanings
assigned to them in the Partnership Agreement dated as of November 1,1993,
between Comcast Network Communications of Southeastern Michigan, Inc. and TCG
Partners.
Dated: 11/17/93
---------------
Comcast Corporation
- -----------------------------------
By: /s/ Lawrence S. Smith
--------------------------------
Name: Lawrence S. Smith
------------------------------
Title: Senior Vice President
------------------------------
Accounting & Administration
<PAGE>
EXHIBIT B
Undertaking of Parent
The undersigned, which is a Parent of a Partner to the foregoing
Partnership Agreement, hereby covenants and confirms, to and for the benefit of
each other Partner and the Partnership, that it will not, and will not permit
any of its affiliates to, violate or circumvent the provisions of Article 7 of
the Partnership Agreement which are applicable to the Partner of which it is the
Parent. Capitalized terms used in this Undertaking shall have the meanings
assigned to them in the Partnership Agreement dated as of November 1, 1993,
between Continental Telecommunications Corp. of Michigan and TCG Partners.
Dated: December 8, 1993
----------------
CONTINENTAL CABLEVISION, INC.
- -----------------------------------
By: /s/ Michael J. Ritter
--------------------------------
Name: Michael J. Ritter
------------------------------
Title: President
------------------------------
<PAGE>
EXHIBIT B
Undertaking of Parent
The undersigned, which is a Parent of a Partner to the foregoing
Partnership Agreement, hereby covenants and confirms, to and for the benefit of
each other Partner and the Partnership, that it will not, and will not permit
any of its affiliates to, violate or circumvent the provisions of Article 7 of
the Partnership Agreement which are applicable to the Partner of which it is the
Parent. Capitalized terms used in this Undertaking shall have the meanings
assigned to them in the Partnership Agreement dated as of March 11, 1994,
between Booth Telecable, Inc. and TCG Partners.
- -----------------------------------
By: /s/ Ralph H. Booth II
--------------------------------
Name: Ralph H. Booth II
------------------------------
Title: President & CFO
------------------------------
<PAGE>
INFORMATION APPENDIX
1. Authorized Representatives:
<TABLE>
<CAPTION>
<S> <C>
COMCAST: William G. Kingsley
CONTINENTAL: Rich Weigand
TCI: Robert J. Lemming
METROVISION: Henry Harris
BOOTH: Ralph H. Booth
TCP: George Tronsrue
</TABLE>
2. Business Area:
The Detroit Local Access Transport Area (LATA Number 340)
3. Partnership Interests and Initial Capital Contributions:
<TABLE>
<CAPTION>
Interest Contribution
-------- ------------
<S> <C> <C>
COMCAST: 17.9% $ 8,055,000
CONTINENTAL: 16.0% $ 7,200,000
TCI: 9.1% $ 4,095,000
METROVISION: 6.1% $ 2,745,000
BOOTH: 6.0 $ 2,700,000
TCP: 44.9% $20,205,000
------ -----------
100.0% $45,000,000
</TABLE>
4. Name:
TCG DETROIT
5. Termination Date:
December 31, 2092
6. Municipal Franchises and Regulatory Authorizations for which
the Partnership currently contemplates that it may apply:
None.
7. Additional Agreements relating to the operation of the
Exclusive Business in the Business Area:
None.
8. Exclusive Business Activities conducted by Partners as of
the date of this Agreement:
None.
<PAGE>
9. Pre-Organization Operating Expenses and Capital Expenditures
Which the Partnership Shall Reimburse to the Partners:
<TABLE>
<CAPTION>
<S> <C>
COMCAST: None.
CONTINENTAL: None.
TCI: None.
METROVISION: None.
BOOTH: None.
TCP: $1,294,428 (as of 10/93)
</TABLE>
10. First Installment of Initial Capital Contribution due at
Closing:
<TABLE>
<CAPTION>
<S> <C>
COMCAST: $1,396,200
CONTINENTAL: $1,248,000
TCI: $ 709,800
METROVISION: $ 475,800
BOOTH: $ 468,000
TCP: $3,502,200
</TABLE>
Payable upon request of the Managing Partner in accordance with Section
4.1 of the Partnership Agreement.
11. Potential Partners:
Offer Expiration Date: March 21, 1994
Managing Partner's Excess Interest: 9.9%
<TABLE>
<CAPTION>
Name: Percentage Deemed Initial
----- Interest: Capital
---------- Contribution:
--------------
<S> <C> <C>
CABLEVISION INDUSTRIES: 9.9% $4,455,000
</TABLE>
12. Video Services to be included in definition of Exclusive
Business:
None.
<PAGE>
DETROIT
<TABLE>
<CAPTION>
TCG COMCAST CONTL TCI METROVISION TOTAL
--- ------- ----- --- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
48.1% 19.1% 17.0% 9.7% 8.1% 100.0%
- ---------------------------------------------------------------------------------------------------------------
1993 Funding
Beginning Cash 0 0 0 0 0 0
Additional Funding 3,500,494 1,390,009 1,237,181 705,921 443,930 7,277,534
--------------------------------------------------------------------------------
Total Funding 3,500,494 1,390,009 1,237,181 705,921 443,930 7,277,534
Repayment of Loan (1,294,428) - - - (1,294,428)
--------------------------------------------------------------------------------
Total Cash Flow Net of Loan 2,206,066 1,390,009 1,237,181 705,921 443,930 5,983,106
Budget 11/93 - 12/93 5,983,106
Excess/Deficit 0
==========
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Reconciliation
Funding (Loan) to 10/93 1,294,428
Budget 11/93-12/93 5,983,106
Total Loan + Budget 7,277,534
==========
- ---------------------------------------------------------------------------------------------------------------
Capital Accounts 3,500,494 1,390,009 1,237,181 705,921 443,930 7,277,534
</TABLE>
<PAGE>
EXHIBIT 10.26
AMENDED AND RESTATED PARTNERSHIP AGREEMENT
OF
TCG LOS ANGELES
Dated as of March 1, 1994
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1: DEFINITIONS................................................................................... 1
ARTICLE 2: FORMATION..................................................................................... 8
2.1 Formation and Continuation. ............................................................ 8
2.2 Name..................................................................................... 8
2.3 Principal Offices........................................................................ 8
2.4 Term..................................................................................... 9
2.5 Property................................................................................. 9
ARTICLE 3: PURPOSE, AUTHORITY AND MANAGEMENT OF THE
PARTNERSHIP................................................................................... 9
3.1 Purpose and Authority.................................................................... 9
3.2 Managing Partner......................................................................... 9
3.3 Meetings of the Partners; Authorized
Representatives........................................................................ 11
3.4 Actions Requiring a Majority Vote........................................................ 12
3.5 Actions Requiring a Supermajority Vote................................................... 13
3.6 Special Voting Provisions................................................................ 15
3.7 Scope of Partners' Authority............................................................. 16
3.8 Indemnification of Partners; Allocation
of Liabilities......................................................................... 16
3.9 Contribution............................................................................. 18
3.10 Insurance and Bonds...................................................................... 19
ARTICLE 4: CAPITALIZATION; ALLOCATION; DISTRIBUTIONS..................................................... 19
4.1 Initial Capital Contributions............................................................ 19
4.2 Additional Capital Contributions......................................................... 20
4.3 Failure to Make Capital Contributions.................................................... 21
4.4 Loans.................................................................................... 27
4.5 Calculations and Adjustments............................................................. 27
4.6 Capital Accounts......................................................................... 27
4.7 Distribution of Partnership Funds........................................................ 28
4.8 Allocation of Net Profits and Losses..................................................... 29
4.9 Tax Appendix............................................................................. 29
ARTICLE 5: TRANSFERS OF PARTNERSHIP INTERESTS; RIGHT OF
FIRST REFUSAL................................................................................. 29
5.1 Restrictions on Transfer................................................................. 29
5.2 Exceptions to Restrictions on Transfers.................................................. 30
5.3 Rollup Provisions........................................................................ 31
5.4 Right of First Refusal................................................................... 31
5.5 Purchases by the Partnership or its
Assignee............................................................................... 36
5.6 Put Rights............................................................................... 37
5.7 Prohibited Transfers..................................................................... 39
5.8 Appraisal Process........................................................................ 39
5.9 Closing of any Permitted Transfer........................................................ 40
5.10 Remedies................................................................................. 41
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 6: BOOKS AND RECORDS; ACCOUNTING; FISCAL YEAR.................................................... 41
6.1 Books and Records........................................................................ 41
6.2 Financial Statements..................................................................... 42
6.3 Bank Accounts............................................................................ 43
6.4 Fiscal Year.............................................................................. 43
ARTICLE 7: OTHER BUSINESS ACTIVITIES..................................................................... 43
7.1 Conduct of Exclusive Business in
Business Area.......................................................................... 43
7.2 Exceptions for Certain Transactions...................................................... 45
7.3 Existing Activities...................................................................... 46
7.4 Prohibited Transactions.................................................................. 46
7.5 Controlled Affiliates.................................................................... 46
7.6 Retail Switching Business................................................................ 47
7.7 Services Offered by the Partnership...................................................... 48
ARTICLE 8: DISSOLUTION................................................................................... 48
8.1 Causes of Dissolution.................................................................... 48
8.2 Winding Up and Liquidation............................................................... 48
8.3 Continuation of the Partnership.......................................................... 49
8.4 No Withdrawal............................................................................ 49
ARTICLE 9: EVENTS OF DEFAULT AND REMEDIES................................................................ 49
9.1 Events of Default........................................................................ 49
9.2 Remedies................................................................................. 50
9.3 Purchase of Defaulting Partner's
Partnership Interest................................................................... 52
ARTICLE 10: REPRESENTATIONS AND WARRANTIES OF THE
PARTNERS...................................................................................... 53
ARTICLE 11: MISCELLANEOUS................................................................................. 54
11.1 Acknowledgements........................................................................ 54
11.2 Bill for Partition...................................................................... 54
11.3 Notices................................................................................. 54
11.4 Amendments.............................................................................. 55
11.5 Indebtedness for Borrowed Money......................................................... 55
11.6 Waivers and Further Agreements; Entire
Agreement............................................................................. 55
11.7 Severability............................................................................ 55
11.8 Specific Enforcement; Attorneys Fees.................................................... 56
11.9 Counterparts............................................................................ 56
11.10 Most Favored Nations.................................................................... 56
11.11 Captions; Gender........................................................................ 56
11.12 Governing Law and Binding Effect........................................................ 56
11.13 Expenses................................................................................ 57
11.14 Third Parties........................................................................... 57
11.15 Confidentiality......................................................................... 57
11.16 Appendices.............................................................................. 57
</TABLE>
<PAGE>
Exhibits and Appendices
-----------------------
Exhibit A Form of Management Services Agreement
Exhibit B Undertaking of Parent
Tax Appendix
Information Appendix
<PAGE>
AMENDED AND RESTATED PARTNERSHIP AGREEMENT
------------------------------------------
THIS AMENDED AND RESTATED PARTNERSHIP AGREEMENT is made and entered into
effective as of March 1, 1994, by and among TCG Partners, a New York general
partnership ("TCP"), Teleport Communications Los Angeles, Inc., a Delaware
corporation ("TCGLA"), and the other parties listed on the signature pages
hereof.
RECITALS
--------
The parties entered into a Partnership Agreement dated as of March 1, 1994
(the "Original Agreement"), pursuant to which they created a New York general
partnership to engage in certain activities in the Los Angeles, California area,
as more fully set forth therein. The parties desire to amend and restate such
Partnership Agreement.
AGREEMENTS
----------
In consideration of the foregoing, and of the promises and covenants
contained in this Agreement, the parties agree as follows:
ARTICLE 1: DEFINITIONS
Capitalized terms used in this Agreement shall have the meanings set forth
below or in the Sections of this Agreement referred to below. Terms used solely
in the Tax Appendix are defined in the Tax Appendix.
"Act" means the Uniform Partnership Act, as from time to time in effect in
---
the State of New York.
"Additional Capital Contribution" has the meaning set forth in Section 4.2
-------------------------------
hereof.
"Affiliate" means, with respect to any Entity, any other Entity that,
---------
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with the first specified Entity. For
purposes of this Agreement, neither the Partnership, nor any Entity controlled
by the Partnership, shall be deemed to be an Affiliate of a Partner or of any
Affiliate of a Partner, and no Partner or any Affiliate thereof shall be deemed
to be an Affiliate of any other Partner or any Affiliate thereof solely by
virtue of its Partnership Interest.
<PAGE>
"Agreement" means this Amended and Restated Partnership Agreement, as it
---------
may be amended, modified or supplemented from time to time in accordance with
its terms.
"Authorized Representative" means the representative of a Partner who,
-------------------------
pursuant to Section 3.3(e) hereof, is authorized to execute any document and
take any action under this Agreement on behalf of such Partner. The name of the
initial Authorized Representative of each Partner is set forth on the
Information Appendix.
"Budget" for any Fiscal Year means the operating and capital budget for the
------
Partnership for such Fiscal Year prepared by the Managing Partner and adopted by
the Partners in accordance with Section 3.4 hereof.
"Business Area" means the area listed on the Information Appendix.
-------------
"Business Day" means any day (other than a day which is a Saturday or
------------
Sunday) on which banks are permitted to be open for business in the City of New
York.
"Capital Account" has the meaning set forth in Section 4.6 hereof.
---------------
"Capital Contribution" means, for any Partner, the amount of cash that such
--------------------
Partner has contributed to the capital of the Partnership plus, if such Partner
contributes property other than cash, "Capital Contribution" shall include the
fair market value of such property determined without regard to Code Section
7701(g) and net of any liabilities secured by such contributed property that the
Partnership is considered to assume or take subject to under Code Section 752.
"Change in Control", with respect to a Partner, means any transaction as a
-----------------
result of which such Partner ceases to be a Subsidiary of the Entity which was
its Parent immediately prior to such transaction.
"Code" means the Internal Revenue Code of 1986, as amended from time to
----
time, and any subsequent federal law of similar import.
"Control" means, as to any Entity, the possession, directly or indirectly,
-------
of the power to direct or cause the direction of the management and policies of
such Entity, whether through the ownership of equity interests or voting
securities, by contract or otherwise.
- 2 -
<PAGE>
"Controlled Affiliate", with respect to any Partner as of any relevant
--------------------
date, means (i) the Parent of such Partner and (ii) each Affiliate of such
Partner with respect to which such Parent, directly or indirectly through one or
more Controlled Affiliates, exercises or is entitled to exercise affirmative or
negative Control with respect to decisions to Engage in, or to acquire interests
in Entities Engaged in, activities encompassed in the Exclusive Business. For
purposes of this Agreement, (x) the Partnership shall not be deemed to be a
Controlled Affiliate of any Partner or any Affiliate of any Partner and (y) TCGI
and each of its Subsidiaries shall be deemed to be Controlled Affiliates of TCP
and TCGLA.
"Defaulting Partner" has the meaning set forth in Section 9.1 hereof.
------------------
"Distribution" means a distribution of cash or property in kind pursuant to
------------
Article 4 or 8 hereof.
"Engage" or "Engaging" means, with respect to an activity, venture or
------ --------
business, directly or indirectly owning, investing in, managing, operating or
controlling either individually, jointly, in partnership or in conjunction with
any other person, or as a shareholder or providing or leasing in any material
respect any goods or services to such activity, venture or business.
"Entity" means any individual, general partnership, limited partnership,
------
corporation, limited-liability company, joint venture, trust, business trust,
cooperative or association, and the heirs, executors, administrators, legal
representatives, successors, and assigns of such Entity where the context so
admits.
"Exclusive Business" means the provision of the following local
------------------
telecommunications services:
(a) Digital Private Line Services, including but not limited to:
DSO (56 or 64 kilobits)
DS1 (1.544 megabits)
Fractional DS1 (in multiples of 56 or 64 kilobits)
DS2 (6.312 megabits)
DS3 (45 megabits)
European-standard E1 (2.048 megabits)
PBX Access Service
SONET Services;
- 3 -
<PAGE>
(b) Voice Grade Private Line Services, including but not limited to:
Two and Four Wire Analog Service
Analog Data Service
Tie Lines from Centrex to PBX;
(c) Switched Services, including but not limited to:
Payphones and associated interexchange carrier
switched access
Retail Switching Business;
(d) IXC POP To IXC POP Connections;
(e) Provision of the services listed in clauses (a) through (c) above to
IXCs for the purpose of IXC branding or resale;
(f) Provision of Dark Fiber to Third Parties;
(g) Provision of fiber video services to the extent provided on the
Information Appendix; and
(h) Provision of coaxial terminations within commercial buildings and
building complexes on private property or resale of coaxial services
provided by a local exchange carrier, in each case in connection with
the provision of any service listed in (a) through (g) above;
Provided, however, that the provision of any of the following services shall not
- -------- -------
be included in the definition of "Exclusive Business":
(i) Video Services, including but not limited to the following (but
excluding services specified in clause (g) above):
Short Haul Video
Long Haul Video
Multipoint Video
Switched Video
Wireless Video
Any Other Video Service;
(ii) Wireless Services, including but not limited to:
Cellular Telephone Service
Personal Communications Service
Wireless Data Service
- 4 -
<PAGE>
Special Mobile Radio
Enhanced Special Mobile Radio
Paging
Any Other Wireless Service;
(iii) Services, any portion of which is provided using Coaxial Cable,
including but not limited to the following (but excluding services
specified in clause (h) above):
Video Services
Data Services
Voice Services
Multimedia Services
Wide Area Networking Services
Any other Service;
(iv) Any residential services; and
(v) Transport of residential video programming.
"Fair Market Value" of a Partner's Partnership Interest means the product
-----------------
of (i) the Percentage Interest of such Partner as of the date of determination
of Fair Market Value times (ii) the price at which a willing seller (being under
no compulsion to sell) would sell, and a willing buyer (having full knowledge of
the facts and being under no compulsion to buy) would buy, all of the business
and assets of the Partnership as a going concern (or all of the outstanding
Partnership Interests, if that would yield a higher price), in a single
arm's-length transaction without time constraints. The price so determined for
the business and assets of the Partnership shall, without duplication or
deduction, be reduced by the amount of all liabilities of the Partnership.
"Fiscal Year" means the calendar year.
-----------
"Indirect Transfer" has the meaning set forth in Section 5.1(a) hereof.
-----------------
"Information Appendix" means the information appendix attached hereto and
made a part of this Agreement.
"Initial Capital Contribution" means the aggregate initial Capital
----------------------------
Contribution of each Partner to the capital of the Partnership set forth in the
Information Appendix. If an Initial Capital Contribution is made in property
other than cash, then such Initial Capital Contribution shall include the fair
market value of such property determined without regard to Code Section 7701(g)
and net of liabilities secured by such
- 5 -
<PAGE>
contributed property that the Partnership is considered to take subject to or
assume under Code Section 752.
"Majority Vote", with respect to any matter to be voted on by the Partners,
-------------
means the affirmative vote of a Partner or Partners whose Percentage Interests
are in excess of 50% of the sum of the Percentage Interests of all Partners
entitled to vote on such matter.
"Management Services Agreement" means the Management Services Agreement
-----------------------------
between the Partnership and the Manager in substantially the form attached
hereto as Exhibit A, as the same may be amended, modified or supplemented from
time to time in accordance with the provisions hereof and thereof.
"Manager" means TCGI in its capacity as manager under the Management
-------
Services Agreement, and any successor appointed in accordance with this
Agreement or the Management Services Agreement.
"Managing Partner" means TCGLA in its capacity as managing partner of the
----------------
Partnership, or any successor managing partner of the Partnership appointed in
accordance with Section 3.2(d) hereof.
"Net Profit" and "Net Loss" have the meanings set forth in the Tax
-------------------------
Appendix. "Net Profit" and "Net Loss" mean, generally, for each Fiscal Year or
other period, an amount equal to the Partnership taxable income or loss for such
year or period, with certain adjustments set forth in the Tax Appendix.
"Parent" with respect to any Entity as of any relevant date means the
------
ultimate corporate or partnership parent entity (within the meaning of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder, as in effect on the date hereof) of such
Entity.
"Parent Undertaking" means the form of Undertaking of Parent attached
------------------
hereto as Exhibit B.
"Partner Services Agreement" means, collectively, any fiber lease
--------------------------
agreement, any other agreement for the use of fiber optic telecommunications
facilities and any other agreement (other than the Management Services
Agreement) for services or facilities to be provided by a Partner or an
Affiliate of a Partner to the Partnership in connection with the maintenance or
operation of the business of the Partnership, such as, but not limited to, a
construction agreement, fiber maintenance agreement, electronics maintenance
agreement or other similar agreement.
- 6 -
<PAGE>
"Partners" means TCP, TCGLA and the other signatories to this Agreement,
--------
any Entity which becomes a party to this Agreement after the date hereof, and
their respective successors and permitted assigns, and "Partner" means any of
such Partners.
"Partnership" means the general partnership created pursuant to this
-----------
Agreement.
"Partnership Interest" means, as to each Partner, all of the interest of
--------------------
such Partner in the Partnership, including such Partner's (i) right to a
distributive share of the income, gain, losses and deductions of the Partnership
in accordance herewith, (ii) right to a distributive share of Partnership
assets, (iii) obligations as a Partner, and (iv) rights with respect to the
management of the business and affairs of the Partnership, as provided herein or
by law.
"Percentage Interest" means, as to each Partner, the percentage set forth
-------------------
opposite its name on the Information Appendix, as such percentage may be revised
in accordance with the provisions hereof; provided, however, that except as
expressly provided in this Agreement, the Percentage Interest of a Partner shall
not be subject to increase or decrease without such Partner's prior consent.
"Prime Rate" means the interest rate announced by Citibank, N.A., New York,
----------
New York, from time to time as its prime lending rate.
"Pro Rata" means the proportion which the respective Percentage Interest
--------
immediately prior to an action of any Partner entitled to participate in such
action bears to the sum of the Percentage Interests immediately prior to such
action of all Partners entitled to participate in such action.
"Regulations" means the Income Tax Regulations, including Temporary
-----------
Regulations, promulgated under the Code, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).
"Remedies Partner" means the Managing Partner, so long as at the time of
----------------
determination the Managing Partner is not a Defaulting Partner; otherwise,
"Remedies Partner" means the non- Defaulting Partner which has the largest
Percentage Interest of all non-Defaulting Partners.
"Retail Switching Business" means the provision of the following local
-------------------------
telecommunications services and associated interexchange carrier switched
access:
- 7 -
<PAGE>
Primary Centrex
PBX Dialtone Trunks
Auxiliary Centrex
ISDN - Basic Rate Service or Primary Rate Service POTS (i.e., Basic
telephone service, supplying telephone lines and access to a switched
network).
"Subsidiary" of any Parent means an Entity (i) more than fifty percent of
----------
whose outstanding shares or securities (representing the right to vote for the
election of directors or other managing authority) are owned or controlled,
directly or indirectly through one or more Subsidiaries, by such Parent or (ii)
which does not have outstanding shares or securities, but more than fifty
percent of whose ownership interests representing the right to make the
decisions for such Entity is owned or controlled, directly or indirectly through
one or more Subsidiaries, by such Parent; provided, however, that in each case,
such Entity shall be deemed to be a Subsidiary only so long as such ownership or
control exists.
"Supermajority Vote", with respect to any matter to be voted on by the
------------------
Partners, means the affirmative vote of a Partner or Partners whose Percentage
Interests are at least eighty percent of the sum of the Percentage Interests of
all Partners entitled to vote on such matter.
"Tax Appendix" means the tax appendix attached hereto and made a part of
------------
this Agreement.
"TCGI" means Teleport Communications Group Inc., a Delaware corporation,
----
and any Entity into which it may be merged or with which it may be consolidated
or to which it may transfer all or substantially all of its assets.
ARTICLE 2: FORMATION
2.1 Formation and Continuation. The Partnership, which was formed under and
--------------------------
pursuant to the Act and the laws of the State of New York, pursuant to the
Original Agreement (as that term is defined in the Recitals), is hereby
continued, for the purposes and on the terms set forth herein.
2.2 Name. The Partnership's name shall be as set forth in the Information
----
Appendix or such other name as the Partners may determine by Supermajority Vote.
2.3 Principal Offices. The principal office of the Partnership shall be in
-----------------
the Business Area or at such other location as the Managing Partner may from
time to time determine, and the Partnership may have an additional office or
offices at
- 8 -
<PAGE>
such other place or places as the Managing Partner may from time to time
determine.
2.4 Term. The term of the Partnership shall commence as of the effective
----
date hereof and shall continue for approximately ninety-nine years thereafter,
terminating on the date specified on the Information Appendix, unless the
Partnership is dissolved and liquidated prior thereto pursuant to Article 8
below.
2.5 Property. All assets and property, whether real, personal or mixed,
--------
tangible or intangible, including contractual rights, owned or possessed by the
Partnership shall be held or possessed in the name of the Partnership. All such
assets, property and rights shall be deemed to be owned or possessed by the
Partnership as an entity. No Partner shall have any separate ownership interest
in such assets, property or rights. Each Partner's interest in the Partnership
is personal property for all purposes.
ARTICLE 3: PURPOSE, AUTHORITY AND MANAGEMENT OF THE
PARTNERSHIP
3.1 Purpose and Authority. The exclusive purpose of the Partnership shall
---------------------
be to invest in, engage in, operate, manage, develop, finance, expand and to
sell and otherwise dispose of, and otherwise exercise all rights, powers,
privileges and other incidents of ownership with respect to, any activity
encompassed in the Exclusive Business in the Business Area. The Partnership
shall have all powers which may be exercised by a partnership under the Act.
3.2 Managing Partner.
----------------
(a) Subject to the provisions of Sections 3.4, 3.5 and 3.6 hereof, the
Managing Partner shall be responsible for the management and operations of the
Partnership and shall have all powers necessary to manage and control the
Partnership, to conduct its business and to implement any decision of the
Partners adopted pursuant to this Agreement. Without limiting the generality of
the foregoing, the Managing Partner shall have the authority (i) to appoint and
remove officers of the Partnership pursuant to Section 3.2(c) below, and to
authorize such officers to perform such acts and services as the Managing
Partner may approve, (ii) to seek such municipal and regulatory consents,
approvals and authorizations in the name of the Partnership as the Managing
Partner in its reasonable discretion determines to be in the best interests of
the Partnership or otherwise to be necessary under applicable law, including,
without limitation, those set forth on the Information Appendix,
- 9 -
<PAGE>
and (iii) to take any action on behalf of the Partnership which does not
expressly require a vote of the Partners pursuant to Sections 3.4, 3.5 or 3.6
hereof. The Partners acknowledge that the Managing Partner may delegate certain
of its responsibilities hereunder to the Manager pursuant to the Management
Services Agreement and to the officers appointed pursuant to Section 3.2(c)
below. The Manager shall report to the Managing Partner.
(b) At any time after the termination by the Partnership of the
Management Services Agreement pursuant to the terms hereof and thereof, any
action to be taken or document to be provided or executed by the Manager
hereunder shall thereafter be taken, provided or executed by the Managing
Partner; provided, however, that after such termination, the Managing Partner
-------- -------
shall promptly seek a successor Manager to provide substantially similar
services to the services provided pursuant to the Management Services Agreement
and, upon the affirmative vote of the Partners pursuant to Section 3.4(f), shall
enter into a management agreement with such successor Manager.
(c) The Managing Partner shall appoint a chief executive officer, a
chief financial officer and one or more chief operating officers for the
Partnership who shall be responsible for the day-to-day management of the
operations and business of the Partnership. The Partnership shall have such
additional officers as the Managing Partner may determine to appoint. Such
officers shall be deemed agents and employees of the Partnership, shall serve at
the pleasure of the Managing Partner, shall act in accordance with the Budget,
the decisions of the Managing Partner and the decisions of the Partners adopted
by a vote of the Partners pursuant to Section 3.4, 3.5 or 3.6 hereof, and shall
have no authority to take any action which the Managing Partner would not itself
have the authority to take as provided herein. Except as provided above or as
otherwise determined by the Managing Partner, such officers shall (i) have such
powers as are usually exercised by comparably designated officers of a Delaware
corporation and (ii) have the power to bind the Partnership through the exercise
of such powers to the extent consistent with the terms of this Agreement.
(d) If the Management Services Agreement is terminated pursuant to the
terms hereof and thereof, or if the Managing Partner fails in any material
respect to perform its obligations under this Agreement in accordance with the
terms hereof and customary and reasonable standards of management in the
telecommunications industry, and such failure in performance continues
unremedied for a period of sixty days after a majority in Percentage Interests
of the Partners (other than the Managing Partner and, if TCGLA is the Managing
Partner, TCP) has given written notice to the Managing Partner specifying such
failure in reasonable detail, the Partners, by a Majority Vote of the
- 10 -
<PAGE>
Partners other than the Managing Partner and, if TCGLA is the Managing Partner,
TCP, shall have the right, by delivery of notice to the Managing Partner, to
remove the Managing Partner as the Managing Partner and replace it with a
successor Managing Partner. Upon delivery of such notice, the new Managing
Partner shall succeed to all of the powers of the removed Managing Partner
hereunder and shall possess and have all such powers.
3.3 Meetings of the Partners; Authorized Representatives.
----------------------------------------------------
(a) Annual meetings of the Partners shall be held at such place and
time as may be determined from time to time by the Managing Partner, subject to
postponement by a Supermajority Vote of the Partners. Special meetings of the
Partners shall be called by the Managing Partner at the request of any Partner.
Each Partner shall be represented at an annual or special meeting by its
Authorized Representative. The Managing Partner shall give the Authorized
Representative of each Partner at least ten Business Days notice of the time and
place of any annual or special meeting of the Partners. Any such notice shall
include, in reasonable detail, an agenda that sets forth the matters to be
considered at such annual or special meeting. In addition to any matter set
forth in such agenda, any Partner, by ten days prior notice to each other
Partner, may propose for a vote of the Partners at any meeting any matter which
pursuant to Sections 3.4, 3.5 or 3.6 hereof or any other Section of this
Agreement may be decided by the Partners pursuant to a Majority Vote or a
Supermajority Vote. A Partner may waive notice of any meeting in writing before,
at or after such meeting. The attendance of an Authorized Representative of a
Partner at a meeting shall constitute a waiver by such Partner of notice of such
meeting, except when its Authorized Representative attends such meeting for the
express purpose of objecting to the transaction of any business because the
meeting was not properly called. Voting at any annual or special meeting of the
Partners shall be according to Percentage Interests.
(b) At all meetings of the Partners, the Manager shall be present and
prepared to discuss with the Authorized Representatives and other
representatives of the Partners the business of the Partnership and any other
matters regarding the Partnership that any Partner may reasonably request.
(c) Any action required or permitted to be taken by the Partners at an
annual or special meeting may be taken without a meeting if a written consent to
such action is signed on behalf of each Partner by its Authorized
Representative, and such written consent is filed with the records of the
Partnership. Any or all Authorized Representatives may participate in a meeting
by means of conference telephone or
- 11 -
<PAGE>
similar communications equipment by means of which all Authorized
Representatives participating in the meeting can hear each other, and
participation in such a meeting shall constitute presence in person by any such
Authorized Representative at such meeting.
(d) Minutes of each meeting of the Partners shall be prepared by the
Managing Partner or an officer of the Partnership and circulated to the
Partners.
(e) The Authorized Representative of each Partner shall have the
authority to execute any document and take any action on behalf of such Partner
pursuant to the terms of this Agreement. In the absence of prior written notice
to the contrary, any action taken or document executed by an Authorized
Representative shall be binding upon the Partner of which he is the Authorized
Representative, and neither the Partnership, nor any other Partner nor any other
Entity shall be obligated to inquire as to the authority of the Authorized
Representative to take any action or execute any document on behalf of such
Partner.
(f) Each Partner shall have the right at any time and from time to
time to replace its Authorized Representative (or any alternate Authorized
Representative) with another individual by written notice to the Partnership and
each other Partner. Each Partner shall be entitled to name an alternate
Authorized Representative to serve in the place of the Authorized Representative
appointed by such Partner should such appointed Authorized Representative not be
able to attend a meeting or meetings. In the event an Authorized Representative
appointed by a Partner dies or is unwilling or unable to serve as such, such
Partner shall promptly appoint a successor to such Authorized Representative.
3.4 Actions Requiring a Majority Vote. Subject to the provisions of
---------------------------------
Sections 3.5 and 3.6 hereof, neither the Managing Partner, nor any other Partner
nor any officer of the Partnership shall take any action, expend any sum, make
any decision or incur any obligation on behalf of the Partnership with respect
to any of the following matters, without a Majority Vote:
(a) the sale, pledge, assignment, lease or other disposition or
mortgaging or other encumbering of Partnership assets with an original
acquisition cost of more than $250,000 but less than $1,000,000;
(b) the adoption of the Budget for each Fiscal Year, which the Manager
shall present to the Partners, together with a business plan as revised for such
period as the Managing Partner determines, for their review no later than
November 1 of the prior Fiscal Year;
- 12 -
<PAGE>
(c) requesting any Partner to make an Additional Capital Contribution;
(d) making capital expenditures or commitments for capital
expenditures in amounts which exceed, taken together with all other such
commitments and expenditures, by 10% the amounts budgeted for such commitments
and expenditures in the Budget for the relevant Fiscal Year;
(e) settling or initiating any claim or litigation involving the
Partnership and arising in the ordinary course of the Partnership's business,
except for minor employee grievances or proceedings and matters involving less
than $100,000;
(f) any decision to terminate the Management Services Agreement in
accordance with its terms or to enter into a replacement or successor management
agreement; provided, however, that neither the Managing Partner nor TCP (if
TCGLA is the Managing Partner) shall be entitled to vote on the termination of
the Management Services Agreement;
(g) the merger or consolidation of the Partnership with any other
Entity, where the Partnership is the surviving Entity;
(h) making Distributions pursuant to the first sentence of Section
4.7(a) hereof;
provided, however, that in no event shall (i) any Budget be adopted pursuant to
- -------- -------
Section 3.4(b) above, (ii) any Additional Capital Contribution be requested from
any Partner pursuant to Section 3.4(c) above, (iii) any capital expenditure or
commitment for capital expenditure in connection with a proposed acquisition be
made by the Partnership pursuant to Section 3.4(d) above, (iv) any claim or
litigation be settled or initiated by the Partnership, pursuant to Section
3.4(e) above, or (v) any merger or consolidation be consummated, pursuant to
Section 3.4(g) above, without in any such case the consent of the Managing
Partner.
3.5 Actions Requiring a Supermajority Vote. Subject to the provisions of
--------------------------------------
Section 3.6 hereof, neither the Managing Partner, nor any other Partner nor any
officer of the Partnership shall take any action, expend any sum, make any
decision or incur any obligation on behalf of the Partnership with respect to
any of the following matters, without a Supermajority Vote:
(a) the admission of an additional Partner (other than a transferee or
successor Partner pursuant to Article 5) or, except as provided in Section
9.2(a)(i) hereof, the redemption or
- 13 -
<PAGE>
purchase by the Partnership of any Partnership Interest other than purchases
pursuant to Article 5; provided, however, that no Partner's Partnership Interest
may be diluted by the addition of an additional Partner hereunder unless the
diluted Partner affirmatively agrees;
(b) the merger or consolidation of the Partnership with any other
Entity, where the Partnership is not the surviving Entity, or the incorporation
of the Partnership;
(c) the sale, pledge, assignment, lease or other disposition or
mortgaging or other encumbering of Partnership assets with an aggregate original
acquisition cost of $1,000,000 or more;
(d) subject to the provisions of Section 4.3(b) hereof, the incurrence
of any indebtedness for borrowed money (or the making of any guaranty of any
indebtedness for borrowed money of any other Entity) in excess of $100,000 in
the aggregate at any time during the term hereof other than loans pursuant to
Section 4.4 hereof and indebtedness arising under any fiber lease agreement
between the Partnership and a Partner or an Affiliate of a Partner;
(e) any decision relating to Federal Communications Commission or
other federal, state or local regulatory matters which has a material adverse
effect upon the Partnership or any Partner or any Affiliate of any Partner in
the Business Area; provided, however, that if the decision has a material
adverse effect upon a Partner or any Affiliate of any Partner in the Business
Area, the affected Partner must consent to the decision;
(f) the assignment, transfer, pledge, compromise or release of any
claims of, or debts due, the Partnership, except upon payment in full, or the
arbitration or consent to the arbitration of any disputes or controversies
involving the Partnership, except for matters arising in the ordinary course of
the Partnership's business that involve an amount not in excess of $75,000
(which shall be in the discretion of the Managing Partner);
(g) settling or initiating any tax audit or any other claim or
litigation involving the Partnership and not arising in the ordinary course of
the Partnership's business;
(h) any general assignment for the benefit of creditors or the
commencement of any proceedings pursuant to any federal or state bankruptcy or
insolvency statutes;
- 14 -
<PAGE>
(i) the dissolution or winding up of the Partnership (except as
specifically provided in Article 8) and the decision to continue the business of
the Partnership after dissolution pursuant to Section 8.3 hereof;
(j) filing any protest, petition or pleading with regard to any
Partnership tax return; and
(k) subject to Section 3.6(c) hereof, entering into any agreement or
obtaining any license or franchise which restricts the transfer of Partnership
Interests or subjects the Partnership Interests to any security interests,
liens, claims, pledges, options, rights of first refusal, agreements,
limitations on voting rights, charges or other encumbrances of any nature
whatsoever.
3.6 Special Voting Provisions. Notwithstanding any other provision of this
-------------------------
Agreement,
(a) if the Partnership desires to enter into a transaction or
agreement with a Partner or an Affiliate of a Partner on terms which are
less favorable to the Partnership than could be obtained in an arms-length
transaction with an unaffiliated third party, or amend or waive any
provision of any such agreement, and if there are Partners who are not
involved, by themselves or through any Affiliate, in such transaction or
agreement, the Partnership shall not enter into such transaction or
agreement, or agree to such amendment or waiver, without (i) the consent of
a majority in Percentage Interests of all of such disinterested Partners
and (ii) first having offered to enter into a similar transaction or
agreement with each such disinterested Partner or Affiliate on
substantially identical terms;
(b) each Partner, by execution of this Agreement, hereby consents to
the execution and delivery, and the performance by the Partnership of its
obligations under, the Management Services Agreement;
(c) the approval of all of the Partners shall be required to enter
into any agreement or to obtain any license or franchise which restricts
the transfer of Partnership Interests or subjects the Partnership Interests
to any security interests, liens, claims, pledges, options, rights of first
refusal, agreements, limitations on voting rights, charges or other
encumbrances of any nature whatsoever, in each case in a manner that
discriminates among Partners; and
- 15 -
<PAGE>
(d) the approval of a majority in Percentage Interests of all of the
disinterested Partners shall be required to decline or approve the conduct
of an Exclusive Business activity proposed to be Engaged in, or an
acquisition proposed to be made, by the Partnership pursuant to Section 7.1
hereof.
3.7 Scope of Partners' Authority. The Managing Partner shall have exclusive
----------------------------
authority to act for and to assume any obligation or responsibility on behalf of
the Partnership, except as expressly restricted hereby, and no other Partner
shall have any authority to act for, or assume any obligation or responsibility
on behalf of, the Partnership or another Partner except as otherwise expressly
provided herein or as expressly approved by a vote of the Partners pursuant to
Section 3.4, 3.5 or 3.6 hereof.
3.8 Indemnification of Partners; Allocation of Liabilities.
------------------------------------------------------
(a) The Partnership shall indemnify and save harmless the officers and
employees of the Partnership, the Managing Partner and the Authorized
Representatives of the Partners from any loss, damage or expense incurred by any
of them by reason of any act or omission to act on behalf of the Partnership,
performed by any of them in good faith and without gross negligence, willful
misconduct or breach of this Agreement. Any reasonable expenses incurred by any
indemnified person pursuant to this Section 3.8(a) in defending any civil or
criminal action, suit or proceeding (or the threat thereof), other than a claim,
action, suit or proceeding brought by the Partnership, which is based, in whole
or in part, upon any alleged act or omission to act on behalf of the Partnership
shall be borne and paid by the Partnership in advance of the final disposition
of such action, suit or proceeding (or the threat thereof) upon receipt of an
undertaking by or on behalf of the indemnified person to repay to the
Partnership the amount of such expenses if it shall ultimately be determined
that such person is not entitled to the indemnification provided for under this
Section 3.8(a). Any indemnity under this Section 3.8(a) shall be provided out of
and to the extent of Partnership assets only.
(b) Each Partner shall indemnify and save harmless the Partnership and
each other Partner and former Partner, the partners or shareholders of each
other Partner and former Partner, and any of their respective officers,
directors, shareholders, partners, employees, agents and Affiliates, from any
loss, damage or expense incurred by any of them by reason of or resulting from
(i) any misrepresentation or breach of warranty of such Partner set forth in
this Agreement or (ii) any unauthorized act taken by such Partner in the name of
the
- 16 -
<PAGE>
Partnership or any other Partner. Any reasonable expenses incurred by any Entity
entitled to indemnification pursuant to this Section 3.8(b) in defending any
civil or criminal action, suit or proceeding (or the threat thereof) by reason
of or resulting from any such indemnified matter shall be borne and paid by the
indemnifying Partner in advance of the final disposition of such action, suit or
proceeding (or the threat thereof) upon receipt of an undertaking by or on
behalf of the indemnified Entity to repay to the indemnifying Partner the amount
of such expenses if it shall ultimately be determined that such Entity is not
entitled to the indemnification provided for under this Section 3.8(b). Any
indemnity under this Section 3.8(b) shall be provided out of and to the extent
of the assets of the indemnifying Partner only.
(c) With respect to the indemnities provided above in this Section
3.8, an indemnified party shall, with respect to any claim made against such
indemnified party for which indemnification is available, notify the
indemnifying party in writing of the nature of the claim as soon as practicable
but not more than twenty days after the indemnified party shall have received
notice of the assertion thereof before any court or governmental authority. The
failure by an indemnified party to give notice as provided in the foregoing
sentence shall not relieve the indemnifying party of its obligations under this
Section except to the extent that the failure results in the failure of actual
notice to the indemnifying party and the indemnifying party is damaged solely as
a result of the failure to give notice, provided that the indemnifying party
shall be released of its obligations under this Section only to the extent of
such damage. Upon receipt of notice by an indemnifying party from an indemnified
party of the assertion of any such claim, the indemnifying party shall employ
counsel acceptable to the indemnified party and shall assume the defense of such
claim. The indemnified party shall have the right to employ separate counsel and
to participate in (but not control) any such action, but the fees and expenses
of such counsel shall be the expense of such indemnified party unless (i) the
employment of counsel by such indemnified party has been authorized by the
indemnifying party, (ii) the indemnified party shall have been advised by its
counsel in writing that there is a conflict of interest between the indemnifying
party and the indemnified party in the conduct of the defense of such action (in
which case the indemnifying party shall not have the right to direct the defense
of such action on behalf of the indemnified party) or (iii) the indemnifying
party shall not in fact have employed counsel to assume the defense of such
action, in each of which cases the fees and expenses of such counsel shall be at
the expense of the indemnifying party. An indemnifying party shall not be liable
for any settlement of an action effected without its written consent (which
consent shall not be unreasonably withheld). No
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<PAGE>
indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such action. Whether or not the Partnership chooses to
defend or prosecute a claim, each Partner shall, to the extent requested by the
Partnership and at the Partnership's expense, cooperate in the prosecution or
defense of such claim and shall furnish such records, information and testimony
and attend such conferences, discovery proceedings, hearings, trials and appeals
as may reasonably be requested in connection therewith.
(d) The provisions of this Section 3.8 shall survive the withdrawal of
any Partner from the Partnership and the dissolution of the Partnership.
3.9 Contribution. All liabilities, obligations or commitments incurred or
------------
assumed by the Partnership (or to which it or its property or assets are
subject) ("Partnership Obligations") shall be payable first out of the assets of
-----------------------
the Partnership. Subject to the provisions of Section 3.8 hereof, if the assets
of the Partnership (determined without regard to any Capital Contributions by
the Partners pursuant to Section 8.2(b) hereof) are not sufficient at any time
to pay or discharge when due and payable any and all Partnership Obligations
(any such deficiency being referred to herein as a "Deficiency"), a Partner or
----------
former Partner who pays all or any portion of such Deficiency (whether directly
or, in the case of a Partner, by making a contribution to the capital of the
Partnership pursuant to Section 8.2(b)) (a "Paying Partner") shall be entitled
--------------
to contribution from those Partners and former Partners that were Partners at
the time of the Partnership's incurrence or assumption of such Partnership
Obligation pursuant to this Section 3.9. Specifically, if any Paying Partner
pays (whether by direct payment or, in the case of a Partner, by making a
Capital Contribution to the Partnership pursuant to Section 8.2(b) hereof) a
portion of any Partnership Obligation included in such Deficiency that is in
excess of such Paying Partner's Pro Rata share of the unpaid portion of such
Partnership Obligation, based on its Percentage Interest at the time of
incurrence or assumption of such Partnership Obligation, then each other Partner
or former Partner which has not paid any portion of such Partnership Obligation,
or which has paid a portion which is less than its Pro Rata share thereof (based
on its Percentage Interest as of the date of incurrence or assumption), shall
contribute ratably to the Paying Partner so that each Partner and former Partner
shall have paid or contributed its Pro Rata share of such Partnership Obligation
based on its Percentage Interest as of the date of incurrence or assumption. The
payment by a Partner of any portion of a Deficiency hereunder shall be treated
as a Capital Contribution and shall be applied against any obligation
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<PAGE>
of the Paying Partner under Section 8.2(b) hereof. The provisions of this
Section 3.9 shall survive the withdrawal of any Partner from the Partnership and
the dissolution of the Partnership.
3.10 Insurance and Bonds. Each Partner shall assist the
-------------------
Partnership to the extent requested by the Manager or the Managing Partner in
procuring satisfactory insurance coverage, bonds and letters of credit for the
Partnership at the expense of the Partnership; provided, however, that in no
event shall any Partner be obligated pursuant to this Section 3.10 to assume any
actual or contingent liability, financial risk or reimbursement obligation.
ARTICLE 4: CAPITALIZATION; ALLOCATION; DISTRIBUTIONS
4.1 Initial Capital Contributions.
-----------------------------
(a) Each Partner shall be obligated to make Initial Capital
Contributions to the Partnership in the aggregate amount indicated for it on the
Information Appendix. Except as otherwise expressly provided in the Information
Appendix or in an asset contribution agreement between the Partnership and a
Partner, such contributions shall be made by the Partners Pro Rata, in one or
more installments at such times and in such amounts as may be determined by the
Managing Partner; provided, however, that TCGLA shall make its entire Initial
-------- -------
Capital Contribution in one installment at such time as all regulatory and other
third party consents required for the transfer to the Partnership of the assets
comprising its Initial Capital Contribution, as shown on the Information
Appendix, have been obtained. Each installment of an Initial Capital
Contribution of a Partner shall be due and payable within twenty Business Days
of receipt by such Partner of a request from the Managing Partner for such
installment (an "Initial Capital Payment Date"). A Partner which fails to make
----------------------------
all or any portion of an installment of its Initial Capital Contribution on or
before the related Initial Capital Payment Date is referred to herein as a
"Delinquent Partner", and the unpaid amount of the installment of its Initial
------------------
Capital Contribution is referred to herein as the "Initial Capital Unpaid
----------------------
Amount" or as the "Unpaid Amount". Except as otherwise expressly provided in the
- ------ -------------
Information Appendix or in an asset contribution agreement between the
Partnership and a Partner, all Initial Capital Contributions shall be in cash
unless otherwise determined by the Managing Partner.
(b) The Initial Capital Contributions have been set by the Managing
Partner based on its current expectations as to the cost of implementing the
initial phase of the construction
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<PAGE>
and operation of the Partnership's business in the Business Area. Although such
costs of implementing the initial phase may be more or less than currently
anticipated, the amount of the Initial Capital Contributions shall be neither
increased nor decreased without the consent of all Partners.
(c) If under Section 4.1(a) the Initial Capital Contribution of TCP or
TCGLA is to be made in whole or in part by the contribution of assets (which
assets shall be specified in the Information Appendix), then upon the
contribution of such assets to the Partnership, the Partnership shall assume,
and shall undertake to pay, satisfy and discharge, the liabilities set forth in
the Information Appendix, which liabilities represent funding of the operating
expenses related to such assets and incurred by such Partner for the period
January 1, 1993, through the date of this Agreement, plus certain capital
expenditures incurred by such Partner during such period in connection with the
acquisition, maintenance and improvement of such assets. If assets are to be
contributed by TCP or TCGLA after the date of this Agreement, then concurrently
with the execution of this Agreement such Partner and the Partnership shall
execute an Interim Management Agreement which provides for the management of the
business associated with such assets by the Partnership during the period from
the date of this Agreement to the date such assets are contributed to the
Partnership (and payment of expenses associated with such assets during such
period shall be governed by the Interim Management Agreement). If assets are to
be contributed to the Partnership by TCP or TCGLA after the date of this
Agreement, and if the Partnership has sufficient funds, then at the request of
such Partner the Partnership shall advance to such Partner the amount payable
under the first sentence of this Section 4.1(c) (or such portion of such amount
as such Partner shall request); provided, however, that if the assets to which
-------- -------
such amount is related are not contributed to the Partnership on or prior to
December 31, 1994 (or such later date as may be agreed upon by the Partnership
and such Partner), for any reason, then on such date (or on such earlier date as
it is known that the assets will not be contributed) the Partner shall return
all such advances to the Partnership.
4.2 Additional Capital Contributions. The Partners may decide, by a
--------------------------------
Majority Vote of the Partners pursuant to Section 3.4(c) hereof, that additional
Capital Contributions in excess of the Initial Capital Contributions
("Additional Capital Contributions") are required for the conduct of the
--------------------------------
business of the Partnership. Such Additional Capital Contributions shall be made
by the Partners Pro Rata, in one or more installments at such times and in such
amounts as may be determined by the Managing Partner; provided, however, that
-------- -------
TCP and TCGLA may allocate between themselves in any proportion their respective
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<PAGE>
shares of any such Additional Capital Contribution, and if either TCP or TCGLA
does not make its full Pro Rata portion of any Additional Capital Contribution,
then the other shall have the right to contribute the shortfall, and following
completion of the procedures set forth in Section 4.3 (but prior to any
adjustments to the Percentage Interests of the Partners under Section 4.3(f)),
the Percentage Interests of TCP and TCGLA shall be adjusted in accordance with
the procedures set forth in Section 4.3(f)(ii)(A) below as if the failure of TCP
or TCGLA to pay its full Pro Rata share were an Additional Capital Refusal. Each
Additional Capital Contribution of a Partner shall be due and payable within
twenty Business Days of receipt by such Partner of a request from the Managing
Partner for such Additional Capital Contribution (an "Additional Capital Payment
--------------------------
Date"). A Partner (other than TCGLA) which fails to make all or any portion of
- ----
an Additional Capital Contribution on or before the related Additional Capital
Payment Date is referred to herein as a "Declining Partner", and the unpaid
-----------------
amount of the Additional Capital Contribution is referred to herein as the
"Additional Capital Unpaid Amount" or as the "Unpaid Amount". All Additional
-------------------------------- -------------
Capital Contributions shall be in cash unless otherwise determined by the
Managing Partner.
4.3 Failure to Make Capital Contributions.
-------------------------------------
(a) (i) Interest shall accrue on any Initial Capital Unpaid Amount in
respect of an Initial Capital Contribution which is not rescinded pursuant to
Section 4.3(b) below at the Prime Rate plus 6% per annum from and including the
Initial Capital Payment Date until such Unpaid Amount and all interest accrued
thereon are paid as provided in this Section 4.3 hereof. The failure of the
Delinquent Partner to pay to the Partnership the Initial Capital Unpaid Amount
together with accrued interest on or before the tenth Business Day following the
related Initial Capital Payment Date (such failure being referred to herein as
an "Initial Capital Payment Default") shall be deemed an Event of Default for
-------------------------------
purposes of Article 9.
(ii) Interest shall accrue on any Additional Capital Unpaid
Amount in respect of an Additional Capital Contribution which is not rescinded
pursuant to Section 4.3(b) below at the Prime Rate plus 2% per annum from and
including the Additional Capital Payment Date until such Unpaid Amount and all
interest accrued thereon are paid to the Partnership; provided, however, that no
Additional Capital Contribution may be paid by a Declining Partner to the
Partnership more than twenty Business Days after the related Additional Capital
Payment Date; and provided, further, that no interest shall be payable in the
-------- -------
event the Declining Partner elects not to make the Additional Capital
Contribution. No Partner shall be required to make any Additional Capital
Contribution to the Partnership, and the
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<PAGE>
failure by a Partner to make an Additional Capital Contribution by the end of
such twenty Business Day period (such failure being referred to herein as an
"Additional Capital Refusal") shall not be deemed an Event of Default for
--------------------------
purposes of Article 9.
(b) If an Initial Capital Payment Default or an Additional Capital
Refusal occurs, the other Partners that have timely made the installments of
their Initial Capital Contributions or the Additional Capital Contributions with
respect to which such Initial Capital Payment Default or Additional Capital
Refusal occurred, as the case may be (the "Complying Partners"), may, with the
------------------
affirmative vote of Complying Partners (which must include the affirmative vote
of the Managing Partner if it is a Complying Partner) with an aggregate
Percentage Interest constituting not less than two-thirds of the sum of the
Percentage Interests of all Complying Partners, by notice given to each
Delinquent Partner or Declining Partner, as the case may be, and each other
Partner within ten Business Days after the occurrence of the Initial Capital
Payment Default or the Additional Capital Refusal:
(i) elect to cause the call of such installment of the Initial Capital
Contribution or such Additional Capital Contribution to be rescinded (in
which case no Initial Capital Payment Default or Additional Capital Refusal
shall be deemed to have occurred for purposes of this Article 4 and no
Event of Default in respect of an Initial Capital Payment Default shall be
deemed to have occurred for purposes of Article 9 hereof);
(ii) elect to have such installment of the Initial Capital
Contribution or such Additional Capital Contribution made by the Complying
Partners to be deemed loans to the Partnership, rather than as Capital
Contributions, and to make additional loans to the Partnership in an
aggregate amount equal to the related Unpaid Amount;
(iii) elect to make loans to the Partnership in an aggregate amount
equal to the related Unpaid Amount; or
(iv) elect to make additional Capital Contributions ("Excess Capital
--------------
Contributions") to the Partnership in an aggregate amount equal to the
-------------
related Unpaid Amount;
provided, however, that the same election, if any, shall be made with respect to
- -------- -------
each Delinquent Partner and Declining Partner in
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<PAGE>
respect of any request for an Initial Capital Contribution or Additional Capital
Contribution, as the case may be.
The Complying Partners shall not be obligated to make any election under this
Section 4.3(b). Neither the existence nor the exercise of any right of election
available to the Complying Partners under this Section 4.3(b) shall affect the
Remedies Partner's right to treat Delinquent Partners' Initial Capital Payment
Defaults as an Event of Default and to make any election and pursue at any time
any remedy then available pursuant to Article 9 hereof.
(c) If an election is made pursuant to clause (i) of Section 4.3(b)
hereof, the Partnership shall promptly return to each Partner the amount of the
installment of the Initial Capital Contribution or the Additional Capital
Contribution contributed by it in respect of which the related Initial Capital
Payment Default or the Additional Capital Refusal occurred, together with
interest, if any, actually earned on such amount by the Partnership from and
including the Initial Capital Payment Date or the Additional Capital Payment
Date to the date such amount is returned to such Partner.
(d) If an election is made pursuant to clause (ii) or (iii) of Section
4.3(b) hereof, the indebtedness of the Partnership for the amount loaned (or
deemed loaned pursuant to clause (ii)) (each a "Capital Loan") shall be
------------
evidenced by a promissory note of the Partnership in form and substance
reasonably satisfactory to the Complying Partners making such loans, shall be
unsecured, shall be subordinate to any senior debt of the Partnership, shall
bear interest at a rate per annum equal to the Prime Rate plus 2% per annum and
shall otherwise be on terms and conditions that are no less favorable to the
Partnership than it could obtain in connection with a loan from a bank or other
financial institution not an Affiliate of a Partner. Only those Complying
Partners that voted in favor of making the election pursuant to clause (ii) or
(iii) (each a "Capital Lending Partner") shall be required to make Capital Loans
-----------------------
to the Partnership (in excess of any amount deemed a loan pursuant to clause
(ii)). The amount of the Capital Loan made by each Capital Lending Partner shall
be in proportion to its respective Percentage Interest relative to the sum of
the Percentage Interests of all Capital Lending Partners (in each case as in
effect immediately prior to the related Initial Capital Payment Default or
Additional Capital Refusal), or in such other proportion as the Capital Lending
Partners may agree upon among themselves.
(e) If an election is made pursuant to clause (iv) of Section 4.3(b)
hereof, only those Complying Partners that voted in favor of making such
election (each an "Excess Capital
--------------
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<PAGE>
Contributing Partner") shall be required to make Excess Capital Contributions.
- --------------------
The amount of the Excess Capital Contribution to be made by each Excess Capital
Contributing Partner shall be in proportion to its respective Percentage
Interest relative to the sum of the Percentage Interests of all Excess Capital
Contributing Partners (in each case as in effect immediately prior to the
related Initial Capital Payment Default or Additional Capital Refusal), or in
such other proportion as such Excess Capital Contributing Partners may agree
upon among themselves. Excess Capital Contributions shall be in addition to, and
not credited against, Initial Capital Contributions or Additional Capital
Contributions otherwise payable by the Partners.
(f) (i) Whenever an Initial Capital Payment Default occurs, the
Percentage Interest of each Partner shall be adjusted (unless the Complying
Partners make an election pursuant to clause (i) or (ii) of Section 4.3(b)
hereof with respect to such Initial Capital Payment Default), with effect from
the related Initial Capital Payment Date, to equal the percentage determined by
dividing (A) the aggregate amount of Initial Capital Contributions and Excess
Capital Contributions actually made by such Partner to the date of determination
divided by (B) the sum of all Initial Capital Contributions and Excess Capital
Contributions actually made by all Partners to the date of determination. In
addition to the adjustment provided in this Section 4.3(f)(i), and subject to
Section 4.3(g) hereof, the Delinquent Partner shall have no right to participate
in any subsequent call for Initial Capital Contributions or Additional Capital
Contributions, and each Partner's Percentage Interest shall be adjusted as of
each subsequent Initial Capital Payment Date and Additional Capital Payment Date
in accordance with this Section 4.3(f) and Section 4.3(g) hereof as though such
Delinquent Partner committed an Initial Capital Payment Default or Additional
Capital Refusal with respect to each such subsequent call for Initial Capital
Contributions or Additional Capital Contributions, respectively.
(ii) Whenever an Additional Capital Refusal occurs, the
Percentage Interest of each Partner shall be adjusted (unless the Complying
Partners make an election pursuant to clause (i) or (ii) of Section 4.3(b)
hereof with respect to such Additional Capital Refusal), with effect from the
related Additional Capital Payment Date, to equal:
(A), prior to such time as the aggregate amount of Capital
Contributions requested to be made by the Partners exceeds an
amount equal to two times the sum of all of the Initial Capital
Contributions of the Partners shown on the Information Appendix
(the "Threshold Amount"), the
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<PAGE>
percentage determined by dividing (I) the aggregate amount of
Initial Capital Contributions, Additional Capital Contributions
and Excess Capital Contributions actually made by such Partner to
the date of determination by (II) the sum of all Initial Capital
Contributions, Additional Capital Contributions and Excess
Capital Contributions actually made by all Partners to the date
of determination, or
(B), from and after such time as the aggregate amount of
Capital Contributions requested to be made by the Partners
exceeds the Threshold Amount, the percentage determined by
dividing (I) the Fair Market Value of the Partnership Interest of
such Partner immediately prior to such Additional Capital
Refusal, plus any Additional Capital Contribution and Excess
Capital Contribution made by such Partner at the time of or
following such Additional Capital Refusal, by (II) the sum of the
Fair Market Values of the Partnership Interests of all of the
Partners immediately prior to such Additional Capital Refusal,
plus the sum of all Additional Capital Contributions and Excess
Capital Contributions made by all of the Partners at the time of
or following such Additional Capital Refusal.
Notwithstanding the adjustment provided in this Section 4.3(f)(ii), the
Declining Partner shall have the right to participate in any subsequent call for
Additional Capital Contributions without being required to make any missed
Additional Capital Contribution. For purposes of this clause 4.3(f)(ii) only,
the Fair Market Value of the Partnership Interests of all of the Partners shall
be determined by the Managing Partner, based on its good faith estimate of such
value, in connection with each proposed call for Additional Capital
Contributions. The Managing Partner's determination of such Fair Market Value
shall then be submitted to a vote of the Partners at the time the vote required
by Section 3.4(c) hereof to approve a call for Additional Capital Contributions
is taken. If such determination is approved by a Majority Vote of the Partners,
such determination shall be final and binding on the Partners for purposes of
any adjustment to the Percentage Interests of the Partners pursuant to this
clause 4.3(f)(ii) which requires a determination of such Fair Market Value.
(g) A Delinquent Partner may, with the consent of the Managing Partner
(or, if the Delinquent Partner is the Managing Partner, with the consent of
Complying Partners with an aggregate Percentage Interest constituting not less
than two-
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<PAGE>
thirds of the sum of the Percentage Interests of all Complying Partners) and
prior to the receipt by the Delinquent Partner of the notice contemplated by
Section 9.2 hereof, cure its Initial Capital Payment Default by paying to the
Partnership an amount (the "Make-up Amount") equal to the Initial Capital Unpaid
--------------
Amount plus accrued interest thereon calculated pursuant to Section 4.3(a)(i)
hereof. If an election was made pursuant to clause (ii) of Section 4.3(b) hereof
with respect to such Initial Capital Payment Default, each Capital Lending
Partner shall contribute to the Partnership an amount equal to the related
installment of its Initial Capital Contribution that was deemed a loan, pursuant
to clause (ii) of Section 4.3(b) hereof, by the contribution to the Partnership
of the outstanding principal amount of all Capital Loans made by such Capital
Lending Partner in connection with such Initial Capital Payment Default together
with an outstanding principal amount of other Capital Loans made by such Capital
Lending Partner such that the aggregate amount of such contributed Capital Loans
is equal to the amount of such installment (and, if the balance of the Capital
Loans made by such Capital Lending Partner is less than the amount of such
installment, such Capital Lending Partner shall contribute the difference in
cash). The proceeds of the Make-up Amount shall first be promptly applied by the
Partnership to the payment of any accrued but unpaid interest on the Capital
Loans contributed to the Partnership and thereafter to the repayment of the
principal amount of any Capital Lending Partner's Capital Loan which is in
excess of the amount contributed by such Partner in accordance with the
immediately preceding sentence. If an election was made pursuant to clause (iii)
of Section 4.3(b) hereof, the proceeds of the Make-up Amount shall first be
applied by the Partnership to the repayment of the principal of, and accrued but
unpaid interest on, all Capital Loans made with respect to such Initial Capital
Payment Default, and thereafter to the repayment of principal of, and unpaid
interest on, any other outstanding Capital Loans. If an election was made
pursuant to clause (iv) of Section 4.3(b) hereof, the proceeds of the Make-up
Amount shall first be promptly applied to the distribution to each Excess
Capital Contributing Partner an amount equal to its Excess Capital Contribution
plus interest thereon at the Prime Rate plus 2% per annum from and including the
date of such contribution to the date of such distribution. If the Percentage
Interests of the Partners were adjusted pursuant to Section 4.3(f) hereof as a
result of the Initial Capital Payment Default, then upon payment by the
Delinquent Partner of the Make-up Amount in full in accordance with the
foregoing provisions of this Section 4.3(g), the Percentage Interests of the
Partners shall be readjusted so as to restore to the Delinquent Partner and the
Complying Partners, for periods subsequent to the payment of the Make-Up Amount,
the respective Percentage Interests they would have had but for such Initial
Capital Payment Default.
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<PAGE>
4.4 Loans. If the Partners do not in the aggregate make all of the Capital
-----
Contributions requested pursuant to Sections 4.1 or 4.2 above and an election is
not made pursuant to Section 4.3(b) above to make up the shortfall, the Remedies
Partner may, without a vote of the Partners, arrange for a loan to the
Partnership from a Partner, an Affiliate of a Partner or from any other
commercially reasonable source in an amount equal to the shortfall, which loan
shall bear interest at an annual rate no higher than the Prime Rate plus 2% per
annum and be on such other terms and conditions which the Remedies Partner, in
its good faith judgment, determines to be no less favorable to the Partnership
than could be obtained in connection with a loan from a bank or financial
institution not an Affiliate of a Partner. Subject to the applicable terms of
the Partnership's credit agreements, the proceeds, if any, of subsequent Capital
Contributions or any proposed Distribution shall be applied first to such loans
until such loans, together with accrued interest and any related fees, are paid
in full, before any such proceeds are used for any other Partnership purpose or
any such proposed Distribution is made to the Partners.
4.5 Calculations and Adjustments. The calculations of the Percentage
----------------------------
Interests provided in Section 4.3 hereof shall be made by the Remedies Partner,
and shall, in the absence of manifest error, be conclusive and binding on the
Partners. The Partnership shall use its best efforts to obtain any regulatory or
other consents or approvals required by any adjustment to the Percentage
Interests of the Partners pursuant to this Section prior to such adjustment, and
if such approval is not obtained, neither such adjustment nor the Capital
Contributions which would require such adjustment shall be made, or, if already
made, such Capital Contributions shall be returned to the Partners.
4.6 Capital Accounts. The term "Capital Account" shall mean with respect to
---------------- ---------------
each Partner, the aggregate amount of such Partner's Initial Capital
Contribution, increased by:
(a) the amount of each Additional Capital Contribution and Excess
Capital Contribution made by it pursuant to Section 4.2 or 4.3 hereof to
the Partnership in cash, if any;
(b) the fair market value without regard to Code Section 7701(g) of
property if any, contributed by it as an Additional Capital Contribution or
Excess Capital Contribution pursuant to Section 4.2 or 4.3 hereof to the
Partnership (net of liabilities secured by such contributed property that
the Partnership is considered to assume or take subject to under Code
Section 752);
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<PAGE>
(c) allocations to it of Net Profit and other items of income and gain
pursuant to Section 4.8 hereof and the Tax Appendix; and
(d) other additions made in accordance with the Code and Regulations;
and decreased by:
- ----------------
(i) the amount of cash distributed to it by the Partnership;
(ii) allocations to it of Net Loss and other items of loss and
deduction pursuant to Section 4.8 hereof and the Tax Appendix;
(iii) the fair market value without regard to Code Section 7701(g) of
property distributed to it by the Partnership (net of liabilities secured
by such distributed property that such Partner is considered to assume or
take subject to under Code Section 752); and
(iv) other deductions made in accordance with the Code and
Regulations.
The Capital Accounts shall be determined and maintained at all times in
accordance with all of the provisions of Regulations Section 1.704-1(b)(2)(iv).
An individual account shall be established and maintained on the books of the
Partnership for each Partner in accordance with the Code. In the event any
Partnership Interest is transferred in accordance with the provisions of Article
5 hereof, the transferee of such Partnership Interest shall succeed to the
portion of the transferor's Capital Account attributable to such interest.
4.7 Distribution of Partnership Funds.
---------------------------------
(a) The Managing Partner may, after the establishment of such reserves
as it deems appropriate, upon a Majority Vote of the Partners and subject to
restrictions imposed by the Partnership's lenders, if any, and subject to
Section 4.4 hereof, make Distributions to the Partners at any time and from time
to time during the term of the Partnership. In addition, at the end of each
Fiscal Year after the third full Fiscal Year of the Partnership, the Managing
Partner shall distribute, subject to restrictions imposed by the Partnership's
lenders and subject to Section 4.4 hereof, that amount of cash in the accounts
of the Partnership which exceeds two times the sum of, without duplication, (i)
all reserves or other working capital items relating to any previous Fiscal Year
and (ii) the aggregate amount allocated in the Budget for the next Fiscal Year
for
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<PAGE>
reserves, losses, capital expenditures and debt repayment and working capital,
if any. All such Distributions (other than Distributions pursuant to Section 8.2
hereof) will be made to the Partners Pro Rata.
(b) No Partner shall have the right to withdraw any amount from its
Capital Account, or to receive any Distribution, except as provided in Sections
4.7(a) and 8.2 hereof. Notwithstanding the foregoing, the Partnership shall pay
in full all loans extended by Partners to the Partnership prior to making any
Distributions to the Partners.
4.8 Allocation of Net Profits and Losses. As of the end of each Fiscal Year
------------------------------------
of the Partnership, the Net Profit or Net Loss of the Partnership shall be
allocated to the Partners Pro Rata, except as otherwise provided in the Tax
Appendix.
4.9 Tax Appendix. The provisions of this Article 4 shall be subject to the
------------
provisions of the Tax Appendix.
ARTICLE 5: TRANSFERS OF PARTNERSHIP INTERESTS; RIGHT OF FIRST
REFUSAL
5.1 Restrictions on Transfer.
------------------------
(a) A Partner shall, directly or indirectly, offer, sell, transfer,
assign, grant a participation in, pledge or otherwise dispose of any of its
Partnership Interest only in a transaction that (i) is expressly permitted by
this Agreement, (ii) is in accordance with agreements entered into by the
Partnership with third parties to which transfers of interests in the
Partnership are subject (unless the breach of such agreements, other than this
Agreement, would not have a material adverse effect on the Partnership), and
(iii) in which the transferee becomes a party to this Agreement. A Change in
Control of a Partner shall constitute a transfer by such Partner subject to the
provisions of this Article 5 (an "Indirect Transfer").
(b) Except as expressly permitted by this Agreement, each Partner
shall (i) be the owner of the Partnership Interest indicated in the
Partnership's records as being owned by such Partner, in each case free and
clear of any pledge, lien, security interest, charge, claim, equity, option or
encumbrance of any kind, and (ii) have sole voting power with respect to such
Partner's Partnership Interest and will not grant any proxy with respect to such
Partnership Interest, enter into any voting trust or other voting agreement or
arrangement with respect to such Partnership Interest or grant any other rights
to vote such Partnership Interest; provided, however, that the foregoing shall
-------- -------
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<PAGE>
not be construed to limit the ability of a Partner to enter into agreements with
respect to sales permitted by this Agreement or to enter into agreements not
inconsistent with this Agreement that restrict such Partner's ability to
transfer its Partnership Interest.
(c) After any sale, assignment, transfer or other conveyance of a
Partnership Interest in accordance with the provisions of this Agreement, the
transferred Partnership Interest shall continue to be subject to all of the
provisions of this Agreement, including the provisions of this Article 5.
5.2 Exceptions to Restrictions on Transfers. The restrictions contained in
---------------------------------------
the other Sections of this Article 5 (other than Section 5.7 hereof) shall not
apply to the transactions set forth in this Section 5.2.
(a) A Partner may transfer to any Controlled Affiliate which is a
Subsidiary of its Parent, all, but not less than all, of its Partnership
Interest, and TCP and TCGLA may transfer to TCGI or any Subsidiary of TCGI all
or any part of their Partnership Interests, provided that, in each such case,
the transferee assumes the obligations of the transferor under this Agreement
with respect to such Partnership Interest and becomes a party to this Agreement.
(b) A Partner may permit an Indirect Transfer that results from the
sale or other disposition of all or substantially all of the stock or assets of
the Parent of such Partner, provided that the Parent of the transferee agrees to
execute a Parent Undertaking.
(c) If a Partner conducts, or has a Controlled Affiliate which
conducts, a business in the Business Area and in connection with such business
such Partner or Controlled Affiliate has entered into a fiber lease agreement or
other agreement for the use of fiber optic telecommunications facilities, then
such Partner shall have the right, but shall not be obligated, to sell its
Partnership Interest to the buyer (the "Acquirer") of all or substantially all
of the assets of such business or of all or substantially all of the outstanding
stock of such Partner or Controlled Affiliate, on any terms and conditions
acceptable to it, so long as, in the case of a sale of the assets of such
business of such Partner or Controlled Affiliate, the Acquirer becomes a party
to this Agreement and assumes the obligations of the selling Partner or
Controlled Affiliate under such fiber lease agreement or other agreement for the
use of facilities and that in any case the Parent of the Acquirer executes a
Parent Undertaking; provided, however, that if the Acquirer or any Affiliate of
the Acquirer is Engaged in the Exclusive Business in the Business Area, such
Partner shall
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<PAGE>
not have the right to sell its Partnership Interest to the Acquirer unless such
sale is approved by a Supermajority Vote.
5.3 Rollup Provisions.
-----------------
(a) Subject to Section 5.3(b) below, but notwithstanding any other
provision herein, at any time after the third anniversary of the date hereof,
any Partner (the "Rollup Partner"), with the consent of TCGI, which may be
withheld in TCGI's sole discretion, may transfer (or permit an Indirect Transfer
of) all or any part of its Partnership Interest to TCGI for stock of TCGI. The
terms and conditions of such transfer, including the amount of stock of TCGI to
be received by the transferring Partner, shall be determined between the
transferring Partner and TCGI; provided, however, that TCGI shall not be
obligated to accept any such transfer, and TCGI shall have no liability with
respect to such negotiations or for failure to reach agreement with respect
thereto for any reason whatsoever.
(b) No Partner may transfer (or permit an Indirect Transfer of) all or
any part of its Partnership Interest to TCGI, unless TCGI shall first have
delivered a written offer (the "Rollup Offer") to each other Partner to purchase
------------
(directly or by an Indirect Transfer) all or part of such Partner's Partnership
Interest on the same terms and in the same proportion as TCGI has agreed to
purchase the Rollup Partner's Partnership Interest (based on the respective
Percentage Interests, immediately prior to such rollup, of all Partners
(including the Rollup Partner) who desire to participate in such rollup). Each
Partner that desires to participate in such rollup shall give notice to TCGI
(and deliver a copy thereof to each other Partner) of its election (a "Rollup
------
Election") to sell to TCGI the portion of its Partnership Interest to be
- --------
determined as described above on the terms and conditions applicable to the
proposed sale by the Rollup Partner (including the per Percentage Interest
consideration proposed to be paid to the Rollup Partner). The right to make a
Rollup Election shall terminate if notice thereof has not been given to TCGI and
each other Partner by the twentieth Business Day after receipt of the Rollup
Offer.
(c) Any transfer pursuant to this Section 5.3 shall be exempt from the
restrictions contained in the other Sections of this Article 5.
5.4 Right of First Refusal.
----------------------
(a) If, other than pursuant to Section 5.2, 5.3 or 5.5 hereof, any
Partner (the "Selling Partner"), at any time after the third anniversary of the
---------------
date hereof, desires to sell all, but not less than all, of its Partnership
Interest, whether by sale of such Partnership Interest, sale of all of the
equity
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<PAGE>
interests of such Selling Partner, or the sale of equity interests of an Entity
that would result in a Change in Control of the Selling Partner (in each such
case, the portion thereof consisting of the Partnership Interest only being the
"Offered Interest"), to an unaffiliated third party offeror who has made a bona
----------------
fide written offer to purchase the Offered Interest (or assets of which the
Partnership Interest forms a part) and who is financially capable of
consummating such purchase (the "Offeror"), it shall deliver to the other
-------
Partners a notice (a "Notice of Sale") of its intention to sell the Offered
--------------
Interest to the Offeror. The Notice of Sale shall include the economic terms and
conditions of such sale, including the name of the Offeror and controlling
owners, principal officers and directors (subject to any legal or contractual
restrictions on the disclosure of such identity) and the price for the Offered
Interest and shall contain the Selling Partner's offer to sell the Offered
Interest to the other Partners on such terms and conditions. If the offer from
the Offeror is given or received in connection with a transaction pursuant to
which assets or ownership interests in addition to the Offered Interest are
proposed to be disposed of (including, without limitation, pursuant to an
Indirect Transfer), the Notice of Sale shall also contain the Selling Partner's
good faith estimate, based on reasonable allocation and attribution methods, of
the portion of the aggregate consideration for the assets or ownership interests
to be disposed of which is reasonably allocated to the Offered Interest, which
shall be the purchase price for the Offered Interest (which price shall, unless
otherwise agreed by the Electing Partners (as defined below), be payable in
cash). The non-Selling Partners shall enter into appropriate confidentiality
agreements as reasonably requested by the Selling Partner in connection with the
offer from the Offeror and the information contained in the Notice of Sale. If a
non-Selling Partner desires to accept such offer as to at least its Pro Rata
portion of the Offered Interest, such Partner (an "Electing Partner") shall,
----------------
within fourteen days of receipt of such Notice of Sale, notify the Selling
Partner of its intention to acquire its full Pro Rata portion of the Offered
Interest and deliver a copy of such notice to each other non-Selling Partner. If
a non-Selling Partner does not elect to acquire its Pro Rata portion of the
Offered Interest, the Selling Partner shall notify the Electing Partners of the
portion of the Offered Interest remaining, and each Electing Partner shall then
have ten days after the later of receipt of such notice and the expiration of
the fourteen day period described above to notify the Selling Partner of its
intention to acquire such unacquired portion of the Offered Interest (the
"Uncommitted Portion") (and, if more than one Electing Partner notifies the
-------------------
Selling Partner of its willingness to purchase the Uncommitted Portion then,
unless otherwise agreed by such Electing Partners, the Uncommitted Portion shall
be allocated among the Electing Partners who have so notified the
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<PAGE>
Selling Partner Pro Rata). The Electing Partners shall have thirty days after
the termination of the foregoing procedure to enter into a binding agreement
with the Selling Partner to acquire all of the Offered Interest on the economic
terms and conditions set forth in the Notice of Sale; provided, however, that if
-------- -------
the purchase price set forth in the Notice of Sale is not all cash, the Selling
Partner and the Electing Partners shall negotiate in good faith as to the value
of the non-cash consideration, and the Electing Partners shall have the right to
pay the purchase price for the Offered Interest all in cash. The Selling Partner
and the Electing Partners shall negotiate in good faith to enter into a binding
agreement with respect to the sale of the Offered Interest, which binding
agreement shall contain:
(i) the representation and warranty of the Selling Partner that the
Electing Partners will receive good and valid title to the Offered
Interest, free and clear of all security interests, liens, claims, pledges,
options, rights of first refusal, agreements, limitations on voting rights,
charges and other encumbrances of any nature whatsoever except as set forth
in this Agreement or otherwise applicable to all of the Partnership
Interests and except for governmental, regulatory and other third party
consents and approvals required for transfers of partnership interests
generally;
(ii) the following conditions to the closing of such sale:
(A) all applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder, shall have expired or been
terminated;
(B) all governmental approvals and other third party consents
expressly required with respect to the transactions to be consummated
at such closing shall have been obtained, to the extent the failure to
obtain such approvals or consents would prevent the Selling Partner
from performing any of its material obligations under the transaction
documents or would result in any materially adverse change in, or
materially adverse effect on, the business, assets, results of
operations, financial condition or prospects of the Partnership and
the Entities controlled by the Partnership taken as a whole;
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<PAGE>
(C) there shall be no preliminary or permanent injunction or other
order by any court of competent jurisdiction restricting, preventing
or prohibiting the consummation of the transactions to be consummated
at such closing; and
(D) the representation and warranty of the Selling Partner
contemplated by clause (i) of this sentence shall be true and correct
at the closing of such sale with the same force and effect as if then
made; and
(iii) such other representations, warranties, conditions and
indemnifications as may be agreed upon by the Selling Partner and the
Electing Partners.
(b) If non-Selling Partners do not notify the Selling Partner of their
intention to acquire, in the aggregate, all the Offered Interest within the
period set forth in Section 5.4(a) hereof or if a binding agreement to purchase
all of the Offered Interest covered by the Notice of Sale is not entered into
within the thirty day period set forth in Section 5.4(a) hereof for any reason
other than a violation of this Section 5.4 or wrongful acts or willful bad faith
on the part of the Selling Partner, or if a purchase covered by such a binding
agreement is not consummated within the period provided in Section 5.9 hereof,
or if the non-Selling Partners are prohibited by law from acquiring the Offered
Interest, for any reason other than a breach by the Selling Partner of any of
its covenants, representations or warranties in such binding agreement that are
a condition to consummation of such purchase, the Selling Partner shall have the
right, at any time during the one year period after the expiration of the
relevant period, to close on a sale of all of the Offered Interest to the
Offeror on economic terms and conditions no less favorable in the aggregate to
the Selling Partner than those set forth in the Notice of Sale. The Selling
Partner shall, as promptly as practicable and prior to the closing of such sale,
provide to the other Partners a copy of the agreement for the sale of the
Offered Interest so as to permit the non-Selling Partners to confirm for
themselves that the economic terms and conditions of such sale are not less
favorable in the aggregate to the Selling Partner than those set forth in the
Notice of Sale. If the Selling Partner does not close the sale of the Offered
Interest to the Offeror during such one year period, the procedure set forth
above with respect to the Notice of Sale shall be repeated with respect to any
subsequent proposed sale of the Partnership Interest of the Selling Partner
(whether by sale of such Partnership Interest, sale of all of the equity
interests of such Selling Partner, or the sale of equity interests of an Entity
that would result in a Change in Control of the Selling Partner).
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<PAGE>
(c) In furtherance of the rights set forth in this Section, each
Partner and the Partnership agree that, following receipt of notice that a
Selling Partner desires to sell an Offered Interest to a potential Offeror and
upon execution by such potential Offeror of a letter of intent and a
confidentiality agreement in form and substance reasonably satisfactory to the
Managing Partner, at reasonable times and without interfering with the business
or operations of the Partnership, the Managing Partner will take all necessary
action to:
(i) provide to such potential Offeror and its employees and
agents reasonable access to all books and records of the Partnership
and any and all reports, budgets, proposals or other written material
prepared by or on behalf of the Partnership;
(ii) make the officers and employees of the Partnership available
for meetings with such potential Offeror and its employees and agents;
(iii) permit on-site visits to the Partnership's facilities by
such potential Offeror and its employees and agents;
(iv) provide full and free access to a data room to such
potential Offeror and its employees and agents;
(v) assist the Selling Partner in obtaining all necessary
consents to any disposition of the Offered Interest; and
(vi) assist in the preparation of any descriptive memoranda or
other sales materials relating to the Partnership and give the Selling
Partner the right to share such information with such potential
Offeror and its employees and agents;
provided that in each case, the Selling Partner agrees to reimburse the
Partnership and the other Partners for any out of pocket expenses incurred by
them in connection with the foregoing actions. Notwithstanding the foregoing, if
non-Selling Partners have timely notified the Selling Partner pursuant to
Section 5.4(a) hereof of their intention to acquire all of the Offered Interest,
then the Partnership and the Partners shall not be obligated to comply with the
covenants contained in this Section 5.4(c) during the period that a binding
agreement for such acquisition is being negotiated or thereafter (subject to
such binding agreement being executed and the closing thereunder
- 35 -
<PAGE>
occurring within the applicable time limitations set forth in Sections 5.4(a)
and 5.9 hereof).
5.5 Purchases by the Partnership or its Assignee.
--------------------------------------------
(a) If, after the consummation of any rollup transaction pursuant to
the provisions of Section 5.3(a) and (b) above, Partners (the "Minority
--------
Partners") other than TCP, TCGLA, TCGI and their Controlled Affiliates hold in
- --------
the aggregate no more than 10% of the outstanding Percentage Interests, then the
Partnership (or any Entity to which the Partnership assigns such right) shall
have the right at any time thereafter to purchase all, but not less than all, of
the Partnership Interests of the Minority Partners for a purchase price equal to
the Fair Market Value of such Partnership Interests determined in accordance
with the appraisal process provided in Section 5.8 hereof.
(b) The Partnership shall have the right at any time to purchase all,
but not less than all, of the Partnership Interest of any Partner the Percentage
Interest of which is 3% or less of the outstanding Percentage Interests for a
purchase price equal to the Fair Market Value of such Partnership Interest
determined in accordance with the appraisal process provided in Section 5.8
hereof.
(c) If a Partner, which had the right pursuant to Section 5.2(c) above
to sell its Partnership Interest (or would have had such right except that the
Acquirer (as that term is defined in Section 5.2(c) hereof) is Engaged in the
Exclusive Business in the Business Area), elects not to do so or is prevented
from doing so pursuant to the proviso to the first sentence of Section 5.2(c)
hereof, and as a result thereof neither such Partner nor any Affiliate of such
Partner is a party to a fiber lease agreement or other agreement for the use of
fiber optic telecommunications facilities with the Partnership, then the
Partnership shall have the right, at any time after the date which is ninety
days after the consummation of the sale described in Section 5.2(c) hereof, to
purchase all, but not less than all, of the Partnership Interest of such Partner
for a purchase price equal to the greater of (i) 90% of the Fair Market Value of
such Partnership Interest determined in accordance with the appraisal process
provided in Section 5.8 hereof; or (ii) 100% of the Fair Market Value of such
Partnership Interest determined in accordance with the appraisal process
provided in Section 5.8 hereof, if the Acquirer is prohibited by law from
acquiring the Partner's Partnership Interest or if the sale to the Acquirer is
not approved by Supermajority Vote as required in Section 5.2(c); provided,
--------
however, that if the acquisition by the Acquirer described in Section 5.2(c)
- -------
occurs after the third anniversary of the date hereof and if prior to the end of
such ninety day period, such Partner receives an offer from an Offeror
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<PAGE>
(as described in Section 5.4(a)) other than the Acquirer, then the provisions of
Section 5.4 shall apply and the provisions of this Section 5.5(c) shall only
apply to that portion of the Offered Interest, if any, which remains after
completion of the application of Section 5.4.
5.6 Put Rights.
----------
(a) If the Partners decide pursuant to Section 3.5(b) to merge or
consolidate with another Entity and the Partnership is not the surviving Entity,
each Partner which voted against such merger or consolidation shall have the
right for thirty days after such vote to require that the Partnership (or its
designee) purchase all of such Partner's Partnership Interest on the terms set
forth in this Section. Such put shall be exercisable by delivery within such
thirty day period to the Partnership of notice of exercise by such Partner. The
purchase price to be paid to such Partner for its Partnership Interest pursuant
to this Section shall be paid in cash and shall equal the Fair Market Value of
such Partner's Partnership Interest as determined in accordance with the
provisions of Section 5.8 hereof. The closing of the purchase and sale of such
Partner's Partnership Interest shall occur and be conducted in accordance with
the provisions of Section 5.9 hereof.
(b) Notwithstanding the provisions of Section 4.3(a)(ii), if at any
time after the third anniversary of the date hereof, a Partner (i) has made
Initial Capital Contributions in the aggregate amount indicated on the
Information Appendix; (ii) votes against requesting the Partners to make an
Additional Capital Contribution but such request is otherwise affirmatively
approved; and (iii) fails to make the requested Additional Capital Contribution
within the time period provided in Section 4.3(a)(ii) (an "Objecting Partner");
-----------------
and the Complying Partners do not make an election under Section 4.3(b)(i) to
rescind the call, the Objecting Partner may within ten Business Days of such
election call for a determination of the Fair Market Value of the Partnership in
accordance with Section 5.8. If the Fair Market Value as determined is less than
ninety percent of the sum of all Capital Contributions made by the Partners,
minus the sum of all cash distributions to the Partners and minus the fair
market value of any property distributed to the Partners by the Partnership, the
Objecting Partner may require the Partnership to purchase in cash all of such
Objecting Partner's Partnership Interest for the Fair Market Value of such
Objecting Partner's Partnership Interest; provided, however, that the Complying
-------- -------
Partners may rescind the request for an Additional Capital Contribution within
ten Business Days after the determination of Fair Market Value, and the
Objecting Partner may not require the Partnership to purchase such Objecting
Partner's Partnership Interest. The closing of the purchase and sale of such
Objecting
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<PAGE>
Partner's Partnership Interest shall occur and be conducted in accordance with
the provisions of Section 5.9 hereof.
(c) (i) Any Partner which, together with its Controlled Affiliates,
holds in the aggregate less than 10% of the outstanding Percentage Interests,
shall have the right to require the Partnership to purchase for cash all of such
Partner's Partnership Interest for a purchase price as determined below, (A)
annually on each anniversary of the effective date of this Agreement, beginning
on the third anniversary of the date hereof, (B) at any time, in the event that
such Partner enters into a Control Put Transaction. For purposes of this
Section, a "Control Put Transaction" shall consist of any transaction or series
-----------------------
of transactions pursuant to which (X) the Partner enters into a definitive
agreement with a dominant Local Exchange Carrier that is not engaged in the
Exclusive Business in the Business Area, which definitive agreement provides for
the pursuit by the Partner of the Exclusive Business in the Business Area with
such dominant Local Exchange Carrier other than through the Partnership; (Y) any
Entity other than the Partner's Parent or a Controlled Affiliate of the
Partner's Parent becomes the beneficial owner directly or indirectly of more
than twenty-five percent of the outstanding common stock of, or otherwise
becomes entitled to vote more than twenty-five percent of the voting power
entitled to vote at elections for directors of, the Partner, its Parent, or an
intervening Subsidiary of its Parent; or (Z) upon the initial issuance and sale
of securities by the Partner, its Parent, or an intervening Subsidiary of its
Parent, in an underwritten public offering pursuant to a Registration Statement
filed with the Securities and Exchange Commission in accordance with the
Securities Act of 1933, as amended, pursuant to which Entities other than the
Partner's Parent or a Controlled Affiliate of the Partner's Parent becomes the
beneficial owner directly or indirectly of more than twenty-five percent of the
outstanding common stock of the Partner, its Parent or an intervening Subsidiary
of its Parent.
(ii) In the case of a Control Put Transaction as set forth in Section
(c)(i)(X), above, the purchase price for any such Partnership Interest shall be
equal to the sum of all Capital Contributions made by the Partner minus the sum
of all cash distributions to the Partner and the fair market value of any
property distributions to the Partner. In the case of any other event set forth
in Section (c)(i) above, pursuant to which a Partner shall have the right to
require the Partnership to purchase such Partner's Partnership Interest, the
purchase price for any such Partnership Interest shall be equal to 80% of the
Fair Market Value of such Partnership Interest, as determined in accordance with
Section 5.8 hereof at the expense of such Partner. The closing of the purchase
and sale of such Partner's
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<PAGE>
Partnership Interest shall occur and be conducted in accordance with the
provisions of Section 5.9 hereof.
5.7 Prohibited Transfers. Notwithstanding any provision to the contrary in
--------------------
this Article 5, except pursuant to a transaction contemplated by Section 5.3, no
Partner may transfer any Partnership Interest if the interest sought to be
transferred, when added to the total of all other Partnership Interests
transferred within a period of twelve consecutive months prior thereto, equals
or exceeds 50% of the aggregate of all Partnership Interests, except with the
prior written consent of all of the other Partners. A transfer of the equity
interests in a Partner which is a corporation or in an Entity of which such
Partner is a direct or indirect corporate Subsidiary shall not constitute a
transfer prohibited by, or taken into consideration in determining the
applicability of, this Section.
5.8 Appraisal Process. The Fair Market Value of a Partner's Partnership
-----------------
Interest for purposes of this Agreement shall be determined as follows:
(a) The Partners shall endeavor to agree upon such Fair Market Value.
(b) If the Partners fail to agree within thirty Business Days after
the date of the occurrence of the event necessitating valuation of the
Partner's Partnership Interest, then the Fair Market Value of such
Partnership Interest shall be determined by independent appraisal,
such appraisal to be made by a qualified appraiser selected by the
Partner whose Partnership Interest is being appraised (the "Appraisal
---------
Partner") and the Partners holding a majority in Percentage Interests
-------
(excluding the Percentage Interest of the Appraisal Partner). If the
Partners have not agreed on the selection of an appraiser within five
Business Days after the expiration of such thirty Business Day period,
then the Appraisal Partner shall select one appraiser and the Partners
holding a majority in Percentage Interests (excluding the Percentage
Interest of the Appraisal Partner) shall select a second appraiser,
such selections to be made promptly and in any event within ten
Business Days after the expiration of the foregoing five Business Day
period. (If only one appraiser is timely selected within such ten
Business Day period, the appraisal shall be made solely by such
timely-selected appraiser.) The appraiser, or each appraiser in the
event of more than one appraiser, shall submit
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<PAGE>
its determination of the Fair Market Value of the Appraisal Partner's
Partnership Interest within forty-five Business Days of the date of
its selection. If there are two appraisers and their respective
determinations of such Fair Market Value vary by 10% or less of the
higher of such determinations, the Fair Market Value of the Appraisal
Partner's Partnership Interest shall be the average of the two
determinations. If such determinations vary by more than 10% of the
higher of such determinations, the determination of the Fair Market
Value of the Appraisal Partner's Partnership Interest shall be decided
by arbitration by the office of the American Arbitration Association
located in or nearest to the Business Area in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.
(c) Any determination of Fair Market Value pursuant to this Section
5.8 shall be final and binding on the Partners. No appraiser selected
pursuant to Section 5.8(b) shall be affiliated with any Partner and
each shall be an investment banker or other qualified person with
prior experience in appraising businesses comparable to the business
of the Partnership. The fees and expenses of any appraisers or
arbitrators shall be paid by the Partnership.
5.9 Closing of any Permitted Transfer. Unless otherwise agreed between the
---------------------------------
buyer and seller, the closing of a purchase and sale of a Partnership Interest
permitted by this Agreement (other than pursuant to Section 5.4(b) or Section
5.2(c)) shall take place at the offices of the Partnership on or before the
thirtieth day after the later of:
(a) the completion of the appraisal process, if applicable;
(b) the expiration or termination of all applicable governmental
waiting periods;
(c) the receipt of all necessary governmental consents needed to
approve the transactions contemplated herein, which consents have not been
reversed, stayed, enjoined, set aside, annulled or suspended, and with
respect to which no requests are pending for administrative or judicial
review, reconsideration, appeal or stay, and the time for filing any such
requests and the time for the issuer of
- 40 -
<PAGE>
such consent to set aside the action on its own motion have expired;
(d) the receipt of all material third party consents needed to approve
the transactions contemplated herein; and
(e) the termination of any applicable preliminary or permanent
injunction or other order by any court of competent jurisdiction
restricting, preventing or prohibiting the consummation of such purchase
and sale.
At said closing, the purchaser shall pay the total purchase price against the
seller's delivery to the purchaser of instruments representing or evidencing the
Partnership Interest purchased, all duly endorsed and accompanied by assignments
as are sufficient to effect due transfer of the ownership of such interest to
the purchaser.
5.10 Remedies. No actual or purported disposition of any Partnership
--------
Interest (or any portion thereof), nor any right thereto, whether voluntary or
involuntary, direct or indirect, in violation of any provision of this Agreement
shall be valid or effective to grant any Entity any right, title or interest in
or to such Partnership Interest (or portion thereof). The transferor of any
Partnership Interest (or portion thereof) disposed of in violation of any
provision of this Agreement, until such disposition or purported disposition
shall have been rescinded, shall not be entitled to exercise any of the rights
of a Partner or to receive any Distributions from the Partnership from and after
the date of such disposition or purported disposition or failure to comply, as
the case may be. Notwithstanding the foregoing, to the extent that a Partner
would have been entitled to Partnership Distributions but for the preceding
provisions of this Section, if and when such disposition or purported
disposition shall be rescinded or such failure to comply shall be cured, such
Partner shall be entitled to receive all such Partnership Distributions (but no
interest shall be paid thereon with respect to the period between the date on
which such Partnership Distributions would have been made but for this Section
and the date they are actually made).
ARTICLE 6: BOOKS AND RECORDS; ACCOUNTING; FISCAL YEAR
6.1 Books and Records. The Managing Partner shall keep, or cause to be kept
-----------------
by the Manager pursuant to the Management Services Agreement, current and
complete records and books of account in which shall be entered fully and
accurately all transactions of the Partnership. The books of the Partnership
shall be kept on an accrual basis of accounting and
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<PAGE>
in accordance with generally accepted accounting principles consistently
applied. The Partnership's books and records shall be maintained at the
principal offices of the Managing Partner and shall be available for inspection
and copying by the Partners or their duly authorized representatives during
normal business hours.
6.2 Financial Statements. The Managing Partner shall cause to be delivered
--------------------
to each Partner the following financial statements prepared, in each case, in
accordance with generally accepted accounting principles consistently applied
(and, if required by any Partner for purposes of reporting under the Securities
Exchange Act of 1934, Regulation S-X):
(a) Promptly upon availability, but in any event within thirty days of
the end of each month, (i) a balance sheet as of the end of such month; and (ii)
the related statements of income or loss, Partner's capital (deficiency), and
cash flows for the interim period through the end of such month and for the
month then ended, and setting forth in each case in comparative form the figures
for such previous fiscal periods as any Partner may reasonably request and
comparisons to budget;
(b) Promptly upon availability but in any event within forty days of
the end of each quarter, (i) a balance sheet as of the end of such quarter; and
(ii) the related statements of income or loss, Partner's capital (deficiency),
and of cash flows for the interim period through the end of such quarter and for
the quarter then ended, and setting forth in each in comparative form the
figures for such previous fiscal periods as any Partner may reasonably request
and comparisons to budget;
(c) Promptly upon availability, but in any event within eighty-five
days of the end of each Fiscal Year, a balance sheet of the Partnership as of
the end of such Fiscal Year, and the related statements of income or loss,
Partner's capital (deficiency) and cash flows for such Fiscal Year, all in
reasonable detail with appropriate notes to such financial statements and
supporting schedules, setting forth in each case in comparative form the figures
for the previous year, which financial statements may, at the option of the
Managing Partner, be certified by a nationally recognized accounting firm;
(d) Together with the annual statements required pursuant to Section
6.2(c) above, a report of the Net Profit or Net Loss and Distributions, if any,
for such Fiscal Year, a schedule setting forth each Partner's Capital Account as
at the end of the period covered by such statements and a Schedule K-1 for each
Partner, a copy of the Partnership's federal and state tax returns and other
information required by applicable tax
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<PAGE>
regulations or necessary for each Partner to prepare its federal, state and
local tax returns; and
(e) With reasonable promptness, such other financial information or
reports as any Partner may reasonably request from time to time.
6.3 Bank Accounts. The Partnership shall maintain bank accounts in such
-------------
banks or institutions as the Managing Partner from time to time shall select,
and such accounts shall be drawn upon by check signed by such person or persons,
and in such manner, as may be designated by the Managing Partner. All moneys of
the Partnership shall be deposited in the bank or other financial institution
account or accounts of the Partnership. Partnership funds shall not be
commingled with those of any other Entity without the consent of all Partners.
6.4 Fiscal Year. The Partnership's fiscal year for income tax purposes and
-----------
for financial and partnership accounting purposes shall be the Fiscal Year.
ARTICLE 7: OTHER BUSINESS ACTIVITIES
7.1 Conduct of Exclusive Business in Business Area.
----------------------------------------------
(a) Except as expressly permitted in this Article 7 or in the
Information Appendix, for so long as it is a Partner, and unless it ceases to be
a Partner as a result of (i) a Permitted Transfer pursuant to Section 5.2, (ii)
a purchase of its Partnership Interest pursuant to Section 5.4, (iii) a purchase
of its Partnership Interest pursuant to Section 5.5, (iv) a purchase of its
Partnership Interest pursuant to Section 5.6(b) or 5.6(c), or (v) dissolution of
the Partnership, for three years after it ceases to be a Partner (but in no
event beyond the expiration or earlier termination of this Agreement), no
Partner shall Engage, or permit its Controlled Affiliates to Engage, in the
Business Area in an activity encompassed in the Exclusive Business without
having first offered to the Partnership (outside of the Budget process) the
opportunity to Engage, in lieu of such Partner or Controlled Affiliate, in such
activity (the "Offer"), which offer shall set forth in reasonable detail the
nature and scope of the activity proposed to be Engaged in. The Partnership
shall have thirty days from its receipt of the Offer to accept or reject it. If
the Partnership fails to accept the Offer within such thirty day period, it
shall be deemed to have rejected the Offer, and the offering Partner or its
Controlled Affiliate shall be permitted to Engage in such activity in the
Business Area. If the Partnership accepts the Offer, the offering Partner and
its Controlled Affiliates shall not Engage in such activity in the Business
Area; provided,
--------
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<PAGE>
however, that if the Partnership accepts the Offer but does not take reasonable
- -------
steps to commence such activity, other than as a result of a violation of this
Agreement or wrongful acts or willful bad faith on the part of the offering
Partner, or any of its Controlled Affiliates, the offering Partner or its
Controlled Affiliate, as the case may be, shall be permitted to Engage in such
activity. If the offering Partner or Controlled Affiliate does not take
reasonable steps to commence such activity within a reasonable period of time
after acquiring the right to do so, it shall lose its right to Engage in such
activity, and, thereafter, be required to reoffer the opportunity to do so to
the Partnership in accordance with, and shall otherwise comply with, the
foregoing provisions of this Section 7.1. The foregoing to the contrary
notwithstanding, neither TCP nor TCGLA shall be subject to the restrictions set
forth in this Section 7.1(a) after it ceases to be a Partner if it has sold its
Partnership Interest after TCGLA has been removed as the Managing Partner
pursuant to Section 3.2(d) hereof. It is the Partners' good faith intent that
the Partnership shall be the primary vehicle for the conduct of the Exclusive
Business in the Business Area. If the Partnership determines not to accept an
Offer, the Partner making the Offer shall use its best efforts to negotiate, or,
if the Offer was made by a Controlled Affiliate of a Partner, such Partner shall
use its best efforts to cause such Controlled Affiliate to negotiate, agreements
with the Partnership, which are reasonable in the independent judgment of both
parties, pursuant to which the Partnership, alone or jointly with such Partner
or its Controlled Affiliates, would provide appropriate service to customers in
the locations in which the activity described in the Offer is conducted.
(b) If the Partnership does not accept an Offer pursuant to Section
7.1(a) above, it shall have the right, by notice given to the Partner or its
Controlled Affiliate on the third anniversary of its rejection of such Offer or
within thirty days thereafter, to require that such Partner or Controlled
Affiliate negotiate in good faith with the Partnership for the sale to the
Partnership at the greater of fair market value or cost of the assets and
business comprising such activity or, at the option of such Partner or
Controlled Affiliate, of the stock or other equity interests in the Entity
Engaged exclusively in such activity (and may concurrently suggest, without any
obligation on the part of the Partnership, alternative transaction structures
such as joint ventures and management contracts). If such negotiations are not
successful, the parties to such negotiations shall, at the request of the
Partnership, use their best efforts to negotiate agreements with the
Partnership, which are reasonable in the independent judgment of both parties,
pursuant to which the Partnership, alone or jointly with such Partner or its
Controlled Affiliates, would provide appropriate service to customers in the
locations in which such
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<PAGE>
activity is conducted. The parties shall not, however, be obligated to negotiate
pursuant to this Section 7.1(b) for more than ninety days in any twelve month
period. Neither the Partner nor its Controlled Affiliate shall enter into any
agreement or arrangement in connection with such activity, other than rights of
first refusal, rights of first negotiation and similar arrangements, which would
prevent it from selling the assets and business Engaged in such activity or the
stock or other equity interests of the Entity Engaged exclusively in such
activity pursuant to this Section 7.1(b).
(c) Notwithstanding the foregoing, a Partner and its Controlled
Affiliates shall be permitted, directly or indirectly, now or in the future, to
do any of the following without being required to follow the procedures set
forth in Section 7.1(a) above:
(i) to conduct any activity included in the Exclusive Business in
the Business Area which is a necessary component of the conduct of, incidental
to, or encompasses the provision of transport for any business (other than an
Exclusive Business) by the Partner or its Controlled Affiliates in the Business
Area, or to enter into an arrangement with an independent third party for the
provision of any services included in such Exclusive Business in the Business
Area which is a necessary component of the conduct of, incidental to, or
encompasses the provision of transport for such business (other than an
Exclusive Business), so long as, in each case, the Partner or such Controlled
Affiliate shall first use its best efforts to negotiate agreements with the
Partnership, which are reasonable in the independent judgment of both parties,
pursuant to which the Partnership would provide such services included in such
Exclusive Business in the Business Area on terms no less favorable to the
Partner or such Controlled Affiliate as the Partner or such Controlled Affiliate
could obtain from an independent third party or could provide for itself; and
(ii) to provide internal communications and internal telephone
services, including, without limitation, owning and operating telephone
switching equipment, to a Partner and its Affiliates and to tenants of buildings
for which a Partner or an Affiliate acts as the landlord in the Business Area.
7.2 Exceptions for Certain Transactions. Each Partner and its Controlled
-----------------------------------
Affiliates shall be permitted to do any of the following without being obligated
to make an Offer to the Partnership pursuant to 7.1:
(a) invest in companies that are Engaged in the Exclusive Business in
the Business Area where such investments
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<PAGE>
are incidental to investments in public companies and constitute less than 10%
of the outstanding securities and voting interest of such companies;
(b) acquire companies an incidental portion of the business of which
(such portion being deemed to be incidental if the assets, revenues and income
relating to the Exclusive Business are less than 10% of the assets, revenues and
income, respectively, of the company being acquired and if the assets relating
to such Exclusive Business have a fair market value of less than $5,000,000) is
encompassed in the Exclusive Business in the Business Area; and
(c) sell, transfer or otherwise dispose of any investment made
pursuant to clause 7.2(a) above or the stock, assets or business of any company
acquired pursuant to clause 7.2(b) above.
7.3 Existing Activities. Notwithstanding anything to the contrary in this
-------------------
Article 7, a Partner and/or its Controlled Affiliate which are listed in the
Information Appendix as being Engaged in a specified activity or activities
encompassed in the Exclusive Business in the Business Area on the effective date
hereof (or, if later, on the date such Partner becomes a Partner) shall be
permitted to continue to Engage in such activity or activities; provided,
--------
however, that such Partner or its Controlled Affiliate, as the case may be,
- -------
shall not materially expand or increase such activity or activities from that
described in the Information Appendix; and provided, further, that such Partner
-------- -------
shall use its best efforts to negotiate, or cause such Controlled Affiliates to
negotiate, agreements with the Partnership, which are reasonable in the
independent judgment of both parties, pursuant to which the Partnership would
conduct such activity or activities on terms no less favorable to the Partner or
such Controlled Affiliate as the Partner or such Controlled Affiliate could
obtain from an independent third party or could provide for itself.
7.4 Prohibited Transactions. Notwithstanding any provision to the contrary
-----------------------
in this Agreement, no Partner shall, nor shall any Partner permit its Controlled
Affiliates to, Engage in the Exclusive Business in the Business Area with any
Entity which is not a Controlled Affiliate of such Partner or of any Controlled
Affiliate of such Partner, except as expressly permitted in Section 7.1(c)(i).
7.5 Controlled Affiliates. Any breach by a Controlled Affiliate of a
---------------------
Partner of the provisions of this Article 7 shall be deemed to be a breach by
such Partner.
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<PAGE>
7.6 Retail Switching Business. A Partner and its Controlled Affiliates,
-------------------------
other than TCGI and its Controlled Affiliates for as long as TCGI is the
Manager, shall be permitted to Engage in the Retail Switching Business, and any
other switching business not specifically set forth in clauses (c) and (e) of
the definition of Exclusive Business, without being required to follow the
procedures set forth in Section 7.1 above. However, prior to Engaging in the
Retail Switching Business (other than solely in connection with the provision or
transport of any of the services listed in clauses (i) through (iv) of the
definition of "Exclusive Business" in Article I hereof), such Partner shall, or
shall cause its Controlled Affiliate to, enter into a Reciprocal Resale
Agreement on terms and conditions comparable to those available in similar arms
length commercial transactions which shall contain, among other terms reasonably
acceptable to the Partnership and such Partner or Controlled Affiliate, the
following provisions:
(a) As soon as a customer, which is not already a Partner Customer (as
that term is defined in paragraph (b) below), obtains any service from the
Partnership (including, without limitation, any Partnership service resold by an
interexchange carrier) and for so long as such customer continues to obtain
service from the Partnership, such customer shall be deemed to be a "TCG
Customer" for the purpose of the sales representation provisions of the
Reciprocal Resale Agreement.
(b) As soon as a customer, which is not already a TCG Customer (as
that term is defined in paragraph (a) above), obtains any Retail Switching
Business from the Partner or its Controlled Affiliate in the Business Area and
for so long as such customer continues to obtain such services from the Partner
or its Controlled Affiliate, such customer shall be deemed to be a "Partner
Customer" for the purpose of the sales representation provisions of the
Reciprocal Resale Agreement.
(c) The Partnership shall be the exclusive sales representative for
selling the Partner's or its Controlled Affiliate's Retail Switching Business to
TCG Customers, and the Partner or its Controlled Affiliate shall be the
exclusive sales representative for selling the Partnership's services to Partner
Customers; provided, however, that, notwithstanding the exclusivity provisions
-------- -------
of the Reciprocal Resale Agreement, the Partnership, the Partner or the
Controlled Affiliate shall be permitted to enter into reseller arrangements
(whether exclusive or non-exclusive) with interexchange carriers which
arrangements permit the interexchange carriers to resell the services of the
Partnership, the Partner or the Controlled Affiliate, as the case may be.
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<PAGE>
7.7 Services Offered by the Partnership. If the Partnership provides any
-----------------------------------
services to a Partner or an Affiliate of a Partner, the Partnership shall offer
the same services on the same terms and conditions to each other Partner and its
Affiliates.
ARTICLE 8: DISSOLUTION
8.1 Causes of Dissolution. To the extent permitted by the Act, the
---------------------
dissolution of the Partnership shall occur only upon the occurrence of any of
the following events:
(a) The sale, or taking by eminent domain, of all or substantially all
of the assets of the Partnership;
(b) A legal or regulatory determination, or the revocation or
non-renewal of any franchise or license held by the Partnership which revocation
or non-renewal is not subject to further governmental or judicial review and
which, in any such case, renders it unlawful or impossible for the Partnership
to conduct all or substantially all of the Exclusive Business in the Business
Area;
(c) The expiration of the term of this Agreement; or
(d) The agreement of the Partners in accordance with Section 3.5 to
dissolve the Partnership.
Upon a dissolution, unless the Partners agree to continue the business of the
Partnership pursuant to Section 8.3, no further business shall be done in the
Partnership's name, except for the taking of such action as shall be necessary
for the performance and discharge of the Partnership's obligations, the
winding-up of its affairs and the liquidation and distribution of its assets in
accordance with the provisions hereof.
8.2 Winding Up and Liquidation.
--------------------------
(a) Upon dissolution, subject to Section 8.3, the Partnership's
affairs shall be wound up by the Managing Partner and its property liquidated as
rapidly as business circumstances will permit, and the Partners shall, subject
to any provisions of law or of any other applicable agreement, make
Distributions in the following manner and order:
(i) To payment and discharge of the claims of all creditors of
the Partnership who are not Partners or Affiliates of Partners;
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<PAGE>
(ii) To payment and discharge of the claims of all creditors of
the Partnership who are Partners or Affiliates of Partners pro rata in
accordance with the amounts of such claims;
(iii) To creation of reasonable cash reserves for the payment of
any taxes, expenses or liabilities, contingent or otherwise; and
(iv) To the Partners in accordance with their Capital Accounts;
provided, however, that Distributions made pursuant to this Section 8.2(a)(iv)
- -------- -------
shall be made in accordance with the time requirements set forth in Regulations
Section 1.704-1(b)(2)(ii)(b)(2).
(b) Upon liquidation of the Partnership, if any Partner's Capital
Account has a deficit balance (after giving effect to all contributions,
Distributions and allocations for all taxable years, including the year during
which such liquidation occurs), such Partner shall contribute to the capital of
the Partnership the amount necessary to restore such deficit balance to zero in
compliance with Regulations Section 1.704- 1(b)(2)(ii)(b)(3).
8.3 Continuation of the Partnership. Upon the dissolution of the
-------------------------------
Partnership, the Partners, by a Majority Vote, may decide to continue the
business of the Partnership pursuant to this Agreement.
8.4 No Withdrawal. Except as otherwise expressly provided in this
-------------
Agreement, no Partner may withdraw from the Partnership without the consent of
all of the other Partners.
ARTICLE 9: EVENTS OF DEFAULT AND REMEDIES
9.1 Events of Default. An "Event of Default" shall be considered to have
-----------------
occurred with respect to a Partner (a "Defaulting Partner") if:
------------------
(a) such Partner sells, assigns, transfers, grants a participation in,
pledges, encumbers or otherwise conveys all or any part of its Partnership
Interest, except as permitted by this Agreement; provided, however, that no
-------- -------
Event of Default shall be considered to have occurred for thirty days
following the involuntary encumbrance of all or any part of such
Partnership Interest if during such thirty day period such Partner acts
diligently to, and does, remove any such encumbrance, including, but not
limited to,
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<PAGE>
effecting the posting of a bond to prevent foreclosure where necessary;
(b) an Initial Capital Payment Default (as that term is defined in
Section 4.3(a)(i)) occurs with respect to such Partner and the related call
of the installment of the Initial Capital Contribution in respect of which
the Initial Capital Payment Default occurred is not rescinded pursuant to
Section 4.3(b)(i);
(c) such Partner fails to perform or violates any other material term
or condition of this Agreement and such failure or violation continues for
thirty days after written notice thereof has been given to such Partner by
the Remedies Partner;
(d) such Partner institutes proceedings of any nature under the
Federal Bankruptcy Code, or any similar state or Federal law for the relief
of debtors (a "Bankruptcy Law"), wherein such Partner seeks relief as a
--------------
debtor; such Partner makes a general assignment for the benefit of
creditors; or such Partner has instituted against it proceedings under any
section of any Bankruptcy Law, which proceedings are not dismissed, stayed
or discharged within sixty days after the filing thereof or if stayed,
which stay is thereafter lifted without a contemporaneous discharge or
dismissal of such proceedings (such Partner may be referred to hereinafter
as a "Bankrupt Partner"); or
----------------
(e) such Partner otherwise causes the dissolution of the Partnership
in contravention of this Agreement.
9.2 Remedies.
--------
(a) Upon the occurrence and during the continuance of an Event of
Default with respect to a Defaulting Partner, the Remedies Partner may elect:
(i) with the approval of those Partners who are not Defaulting
Partners ("non-Defaulting Partners") with an aggregate Percentage
-----------------------
Interest constituting not less than a majority of the sum of the
Percentage Interests of all non-Defaulting Partners, to cause the
Partnership, or its designee(s), to purchase the Partnership Interest
of such Defaulting Partner pursuant to Section 9.3; or
(ii) to seek to enjoin such default or to obtain specific
performance of a Defaulting Partner's
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<PAGE>
(or the applicable Controlled Affiliate's) obligations or to seek
Damages (as defined and subject to the limitations specified below) or
both.
provided, however, that, with respect to an Event of Default arising under
- -------- -------
Section 9.1(b) above, if there is more than one Defaulting Partner (as that term
is defined in Section 4.1(a) hereof) in connection with any call of an
installment of the Partners' Initial Capital Contributions, the Remedies Partner
shall make the same election with respect to each such Defaulting Partner; and
provided further that with respect to an Event of Default arising under Section
9.1(c) above, the Remedies Partner may not elect to purchase the Partnership
Interest of the Defaulting Partner pursuant to Section 9.3.
(b) The election of a remedy specified in clause 9.2(a)(i) or (ii)
above may be exercised by notice given to the Defaulting Partner (x), in the
case of an Event of Default specified in clause (b) of Section 9.1, at any time,
or (y), in the case of any other Event of Default, within ninety days after the
Remedies Partner obtains actual knowledge of the Event of Default; provided
that, if an election pursuant to clause 9.2(a)(ii) above is made to seek an
injunction, specific performance or other equitable relief and a final judgment
in such action is rendered denying such equitable remedy, then, within ninety
days thereafter, the Remedies Partner may elect to pursue the remedy specified
in clause 9.2(a)(i) above (subject to the prior approval of the non-Defaulting
Partners contemplated by Section 9.2(a)(i) above) unless, prior to the giving of
such notice, the Defaulting Partner has cured (or caused to be cured) the Event
of Default in full or the final judgment denying equitable relief specifically
held that there was no Event of Default, and no other Event of Default with
respect to such Defaulting Partner has occurred and is continuing.
(c) The remedies set forth in Section 9.2(a) above shall not be deemed
mutually exclusive, and selection or resort to any thereof shall not preclude
selection or resort to the others; provided that, if the Remedies Partner makes
an election pursuant to clause 9.2(a)(i) above in respect of any Event of
Default, then it may not pursue any other remedy in respect of that Event of
Default. Except for the resort to the remedy set forth in clause 9.2(a)(i)
above, the resort to any remedy pursuant to this Section 9.2 shall not for any
purpose be deemed to be a waiver of any other remedy available under this
Agreement or under applicable law.
(d) Except as provided in Section 9.2(c), unless an Event of Default
shall have been waived in writing or cured, the Partnership or the
non-Defaulting Partners shall be entitled to recover from the Defaulting Partner
(or its Parent pursuant to
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<PAGE>
the applicable Parent Undertaking) in an appropriate proceeding any and all
damages, losses and expenses (including reasonable attorneys' fees and
disbursements) (collectively "Damages") suffered or incurred by the Partnership
or the non-Defaulting Partners as a result of such Event of Default; provided,
that neither the Partnership nor the non-Defaulting Partners shall have or
assert any claim against the Defaulting Partner or any of its Affiliates for
punitive Damages or for indirect, special or consequential Damages suffered as a
result of such Event of Default.
(e) Upon the occurrence and during the continuance of the related
Event of Default, and except as required by applicable law, a Defaulting Partner
shall not be entitled to vote on any matter submitted to a vote of the Partners
and its Percentage Interest shall not be included in calculating the Percentage
Interests required to approve or disapprove any such matter, and such Defaulting
Partner shall not be entitled to exercise any rights under Section 5.4 (or,
without the consent of the Remedies Partner, any rights under Section 5.2 or
Section 5.5 of this Agreement). In all other respects a Defaulting Partner shall
continue to have all of the rights and obligations of a Partner under this
Agreement and applicable law.
9.3 Purchase of Defaulting Partner's Partnership Interest.
-----------------------------------------------------
(a) If an election is made pursuant to clause 9.2(a)(i), the closing
of the purchase of the Defaulting Partner's Percentage Interest shall take place
at the time and at the place determined in accordance with the provisions of
Section 5.9. The Partnership (or its designee) shall pay a purchase price for
the Defaulting Partner's Percentage Interest (which shall be payable in cash)
equal to 50% of the Fair Market Value of such Partnership Interest. Upon payment
of the purchase price to the Defaulting Partner, the Defaulting Partner shall
deliver to the Partnership (or its designee(s)) all documents necessary to
transfer to the Partnership (or its designee(s)) good title to its Partnership
Interest.
(b) Notwithstanding Section 9.3(a), if an election is made pursuant to
clause 9.2(a)(i) and the only Event of Default that has occurred and is
continuing is that the Defaulting Partner is a Bankrupt Partner, then the time,
place and manner of the purchase of such Defaulting Partner's Partnership
Interest shall be as provided in Section 9.3(a), except that the Partnership (or
its designee(s)) shall pay a purchase price for such Partnership Interest (which
shall be payable in cash) equal to 90% of the Fair Market Value of such
Partnership Interest.
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<PAGE>
ARTICLE 10: REPRESENTATIONS AND WARRANTIES OF THE PARTNERS
Each Partner makes the following representations and warranties to each
other, each with respect to itself only:
(a) It is duly incorporated or organized, validly existing and in good
standing under the laws of its state of incorporation or organization and duly
qualified or registered to do business in each state or jurisdiction in which
failure to so qualify or register would have a material adverse effect upon such
Partner or the Partnership.
(b) It and each of its Controlled Affiliates has the full power and
authority to take all actions contemplated by this Agreement and any of the
Management Services Agreement, Partner Services Agreement and Parent Undertaking
to which it or any of its Controlled Affiliates is a party.
(c) The execution, delivery and performance of this Agreement and each
of the Management Services Agreement, Partner Services Agreement and Parent
Undertaking to which it or any of its Controlled Affiliates is a party, have
been, or at the appropriate time shall be, duly authorized by all necessary
action on its part or the part of any such Controlled Affiliate, as the case may
be.
(d) This Agreement and each of the Management Services Agreement,
Partner Services Agreement and Parent Undertaking to which it or one of its
Controlled Affiliates is a party, constitutes a valid and binding obligation of
it enforceable in accordance with the terms hereof and thereof, subject as to
enforceability to limits imposed by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and the availability of equitable
remedies.
(e) To the best of its knowledge, the execution, delivery and
performance of this Agreement and of each of the Management Services Agreement,
Partner Services Agreement and Parent Undertaking to which it or one of its
Controlled Affiliates is a party, do not violate any provision of law other than
possible violations arising from breaches or defaults under any governmental or
municipal approval, franchise or authorization, right-of-way agreement, pole
attachment agreement or conduit agreement.
(f) The execution, delivery and performance of this Agreement and of
each of the Management Services Agreement, Partner Services Agreement and Parent
Undertaking to which it or one of its Controlled Affiliates is a party, do not
violate any provision of its or of its Controlled Affiliates' organizational
documents.
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<PAGE>
(g) The execution, delivery and performance of this Agreement and of
each of the Management Services Agreement, Partner Services Agreement and Parent
Undertaking to which it or one of its Controlled Affiliates is a party, are not
inconsistent with, and do not violate or cause a breach or default under, any
agreement or obligation to which it or any of its Controlled Affiliates is a
party or is otherwise subject, other than any governmental or municipal
approval, franchise or authorization, right-of-way agreement, pole attachment
agreement or conduit agreement.
(h) It is aware of no pending challenges to any governmental or
municipal approval, franchise and authorization, right-of-way agreement, pole
attachment agreement or conduit agreement to which it or one of its Controlled
Affiliates is a party that, if successful, would prohibit it from consummating
the transactions and performing the obligations provided for in this Agreement.
ARTICLE 11: MISCELLANEOUS
11.1 Acknowledgements.
----------------
(a) Each Partner affirms and acknowledges that no representations,
warranties or statements have been made to it by any party hereto other than
those expressly set forth in this Agreement and that, in entering into this
Agreement, it has not relied upon anything done or said with respect to this
Agreement or with respect to the relationship between the parties, other than as
expressly set forth in this Agreement.
(b) Each Partner affirms and acknowledges that neither the Partnership
nor the Managing Partner has made any representation or warranty regarding any
financial statements, business plans, projections or other information provided
to such Partner except as expressly provided herein. Any projections and
business plans provided to the Partners reflect the Managing Partner's current
estimate and projections as to the manner and cost of the development of the
Partnership's business in the Business Area. Such estimate and projections are
subject to change.
11.2 Bill for Partition. Each of the Partners covenants that neither it nor
------------------
any person or persons claiming through or under it, will file a bill for
partition of the Partnership property.
11.3 Notices. All notices and other communications hereunder shall be (a)
-------
in writing (except to the extent otherwise expressly provided hereunder); (b)
delivered by telecopy, by commercial overnight or same-day delivery service with
all
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<PAGE>
delivery costs paid by sender, or by registered or certified mail with postage
prepaid, return receipt requested; (c) deemed given on the date and at the time
shown on the telecopy confirmation of receipt (if delivered by telecopy), on the
date and at the time (if recorded) of delivery by the commercial delivery
service, as shown in the records thereof (if delivered by commercial overnight
or same-day delivery service), or on the date shown on the return receipt (if
delivered by registered or certified mail); and (d) addressed to the parties at
their addresses specified on the signature pages hereof (or at such other
address for a party as shall be specified by like notice).
11.4 Amendments. This Agreement may not be amended nor shall any waiver,
----------
change, modification, consent, or discharge be effected, including, without
limitation, any change in the definition of Exclusive Business, except by an
instrument in writing adopted by each Partner; provided, however, that an
-------- -------
amendment to increase the dollar values set forth in any of Sections 3.4(a),
3.4(e), 3.5(c), 3.5(d), or 3.5(f) may be adopted by a Supermajority Vote; and
provided, further, that any changes in this Agreement required solely by the
- -------- -------
admission of an additional Partner may be adopted by the same Percentage
Interest as is required to approve the admission of such Partner.
11.5 Indebtedness for Borrowed Money. The Partnership shall not incur any
-------------------------------
indebtedness for borrowed money the terms of which permit the creditor under
such indebtedness to have recourse against a Partner without the express written
consent of that Partner.
11.6 Waivers and Further Agreements; Entire Agreement. Any waiver of any
------------------------------------------------
terms or conditions of this Agreement shall be in writing and shall not operate
as a waiver of any other breach of such terms or conditions or any other term or
condition, nor shall any failure to enforce any provision hereof operate as a
waiver of such provision or of any other provision hereof. Each of the Partners
agrees to execute all such further instruments and documents and to take all
such further action as any other Partner may reasonably require in order to
effectuate the terms and purposes of this Agreement. The Partners agree that
this Agreement, including the Exhibits and Appendices hereto, constitutes the
entire agreement among them with respect to the subject matter of the
Partnership and supersedes all prior agreements and understandings among them as
to such subject matter, and there are no restrictions, agreements, arrangements
or undertakings, oral or written, among the Partners relating to the Partnership
which are not fully expressed or referred to herein.
11.7 Severability. If any term or other provision of this Agreement is
------------
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and
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<PAGE>
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that transactions contemplated
hereby are fulfilled to the greatest extent possible.
11.8 Specific Enforcement; Attorneys Fees. The parties hereto agree that
------------------------------------
the remedy at law for damages upon violation of the terms of this Agreement
would be inadequate because the Partnership Interests and the business of the
Partnership are deemed unique. Therefore, the parties agree that the provisions
of this Agreement may be specifically enforced by any court of competent
jurisdiction, and each Partner and its respective transferees agree to submit to
the jurisdiction of the court where any such action for specific performance is
brought. If any Partner defaults in its performance of any of the terms and
conditions of this Agreement and if, as a result of such default, a lawsuit
seeking damages, specific performance or any other remedy is filed by any other
Partner, then, in that event, the prevailing party in such a lawsuit shall be
entitled to obtain attorney's fees from the losing party in such amount as shall
be determined by the court to be reasonable under the circumstances.
11.9 Counterparts. This Agreement may be executed in counterparts each of
------------
which shall be deemed an original and all of which together shall constitute one
and the same instrument, and in pleading or proving any provision of this
Agreement, it shall not be necessary to produce more than one complete set of
such counterparts.
11.10 Most Favored Nations. If the Partnership enters into a Partner
--------------------
Services Agreement with a Partner or an Affiliate of a Partner, the Partnership
shall offer the same terms and conditions to each other Partner or its
Affiliate.
11.11 Captions; Gender. Article and section headings contained in this
----------------
Agreement are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement. Whenever used herein the singular
number shall include the plural, the plural shall include the singular, and the
use of any gender shall include all genders.
11.12 Governing Law and Binding Effect. This Agreement shall be governed by
--------------------------------
and construed and enforced in accordance with the law (other than the law
governing conflicts of law questions) and decisions of the State of New York
- 56 -
<PAGE>
applicable to contracts made and to be performed entirely therein. This
Agreement shall bind and inure to the benefit of each of the Partners and their
successors and permitted assigns.
11.13 Expenses. Each of the Partners shall bear its own expenses, including
--------
legal and other professional fees, incurred by it in the negotiation and
preparation of this Agreement; provided, however, that the Partnership shall
reimburse Partners for the pre-organization operating expenses they incurred
prior to the date hereof to the extent listed on the Information Appendix.
11.14 Third Parties. None of the provisions of this Agreement shall be for
-------------
the benefit of, or enforceable by, any creditor of the Partnership or other
third parties.
11.15 Confidentiality. Each Partner agrees that it shall not, directly or
---------------
indirectly, without the prior written consent of each other Partner, disclose
the terms of this Agreement or the identity of the Partners or use for its own
benefit (except as a Partner of the Partnership) or disclose to any Entity any
information, trade secrets, confidential customer information, patents, patent
rights, technical data or know-how relating to the products, processes, methods,
equipment or business practices of the Partnership, except (a) to the extent any
of the foregoing is or becomes available to the public other than as a result of
disclosure by such Partner or any of its Affiliates or the directors, officers,
employees, agents, advisors and controlling persons of it or any of its
Affiliates, (b), subject to the terms of an appropriate confidentiality
agreement, as necessary to effect a transaction under Article 5, (c) as may be
required by law and (d) as any Partner may disclose to its lenders, rating
agencies and business and financial advisors. In the event any Partner is
required by applicable law or regulation or by legal process to disclose any of
the foregoing, it will provide the other Partners with prompt notice thereof to
enable them to seek an appropriate protective order.
11.16 Appendices. The Tax Appendix and the Information Appendix are hereby
----------
incorporated by reference and made a part of this Agreement as if they were set
forth herein in their entirety.
- 57 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Partnership Agreement this 15th day of July, 1994, such Amendment to be
effective as of March 1, 1994.
TCG PARTNERS
By: /s/
Name: ______________________________
Title: ______________________________
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-1011
Attention: Robert Annunziata, Chairman
and Chief Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
TELEPORT COMMUNICATIONS LOS ANGELES, INC.
By: /s/ A.T. HANSEN
__________________________
Name: A.T. Hansen
Title: Sr. Vice President
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-
1011
Attention: Robert Annunziata, Chairman
and Chief Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
TIMES MIRROR ACCESS, INC.
By: /s/ MICHAEL G. ROSE
__________________________
Name: Michael G. Rose
Title: Vice President
Address: 2381-91 Morse Ave.
Irvine, CA. 92714
Attention: Michael G. Rose, Vice President
Fax: (714) 660-0501
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Partnership Agreement this 15th day of July, 1994, such Amendment to be
effective as of March 1, 1994.
TCG PARTNERS
By: /s/
Name: ______________________________
Title: ______________________________
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-1011
Attention: Robert Annunziata, Chairman
and Chief Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
TELEPORT COMMUNICATIONS LOS ANGELES, INC.
By: /s/ A.T. HANSEN
__________________________
Name: A.T. Hansen
Title: Sr. Vice President
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-1011
Attention: Robert Annunziata, Chairman
and Chief Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
COMCAST NETWORK COMMUNICATIONS OF SOUTHERN
CALIFORNIA, INC.
By: /s/ LAWRENCE S. SMITH
__________________________
Name: Lawrence S. Smith
Title: Senior Vice President Accounting
and Administration
Address: 1500 Market Street
Philadelphia, Pennsylvania
19107
Attention: William G. Kingsley, Director
Telecommunications Businesses
and
Stanley L. Wang, Senior Vice
President, General Counsel and
Secretary
Fax: (215) 981-7622
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Partnership Agreement this 15th day of July, 1994, such Amendment to be
effective as of March 1, 1994.
TCG PARTNERS
By: /s/ J. Curt Hockemeier
Name: ______________________________
Title: ______________________________
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-1011
Attention: Robert Annunziata, Chairman
and Chief Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
TELEPORT COMMUNICATIONS LOS ANGELES, INC.
By: /s/ A.T. HANSEN
__________________________
Name: A.T. Hansen
Title: Sr. Vice President
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-1011
Attention: Robert Annunziata, Chairman
and Chief Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
CONTINENTAL TELECOMMUNICATIONS CORP. OF LOS
ANGELES
By: /s/ RON COOPER
__________________________
Name: Ron Cooper
Title: Senior Vice President
Address: c/o Continental Cablevision
550 N. Continental Blvd.,
Suite 250
El Segundo, Ca. 90245
Attention: Ron Cooper
Senior Vice President
and
John Gibbs
Vice President and Counsel
Fax: (310) 647-3079
With copy to: Sullivan & Worcester
One Post Office Square
Boston, MA. 02101
Attention: Patrick Miehe
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Partnership Agreement this 15th day of July, 1994, such Amendment to be
effective as of March 1, 1994.
TCG PARTNERS
By: /s/ J. Curt Hockemeier
Name: ______________________________
Title: ______________________________
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-1011
Attention: Robert Annunziata, Chairman
and Chief Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
TELEPORT COMMUNICATIONS LOS ANGELES, INC.
By: /s/ A.T. HANSEN
__________________________
Name: A.T. Hansen
Title: Sr. Vice President
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-1011
Attention: Robert Annunziata, Chairman
and Chief Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
TCI TELEPORT OF LOS ANGELES, INC.
By: /s/ BRUCE W. RAVENEL
__________________________
Name: Bruce W. Ravenel
Title: Vice President
Address: 5619 DTC Parkway
Englewood, Colorado 80111
Attention: Robert J. Lemming
Executive Vice President
Fax: (303) 488-3215
and
Peter J. Stapp, Esq.
Counsel
Fax: (303) 488-3207
<PAGE>
EXHIBIT A
Form of Management Services Agreement
<PAGE>
Undertaking of Parent
The undersigned, which is a Parent of a Partner to the foregoing Amended
and Restated Partnership Agreement, hereby covenants and confirms, to and for
the benefit of each other Partner and the Partnership, that it will not, and
will not permit any of its affiliates to, violate or circumvent the provisions
of Article 7 of the Amended and Restated Partnership Agreement which are
applicable to the Partner of which it is the Parent. Capitalized terms used in
this Undertaking shall have the meanings assigned to them in the Amended and
Restated Partnership Agreement dated as of ______________, 1994, among TCG
Partners, Teleport Communications Los Angeles, Inc., Times Mirror Access, Inc.,
TCI Teleport of Los Angeles, Inc., Continental Telecommunications Corp. of Los
Angeles and Comcast Network Communications of Southern California, Inc.
Dated: __________
By: /s/ MICHAEL J. RITTER
__________________________
Name: Michael J. Ritter
Title: President
<PAGE>
EXHIBIT B
Undertaking of Parent
The undersigned, which is a Parent of a Partner to the foregoing Amended
and Restated Partnership Agreement, hereby covenants and confirms, to and for
the benefit of each other Partner and the Partnership, that it will not, and
will not permit any of its affiliates to, violate or circumvent the provisions
of Article 7 of the Amended and Restated Partnership Agreement which are
applicable to the Partner of which it is the Parent. Capitalized terms used in
this Undertaking shall have the meanings assigned to them in the Amended and
Restated Partnership Agreement dated as of July 15, 1994, among TCG Partners,
Teleport Communications Los Angeles, Inc., Times Mirror Access, Inc., TCI
Teleport of Los Angeles, Inc., Continental Telecommunications Corp. of Los
Angeles and Comcast Network Communications of Southern California, Inc.
Dated: 11-11-94
By: /s/ LAWRENCE S. SMITH
__________________________
Name: Lawrence S. Smith
Title: Senior Vice President Accounting
and Administration
<PAGE>
TAX APPENDIX
------------
BOOK AND TAX ACCOUNTING PROVISIONS
----------------------------------
All capitalized terms which are not defined in this Tax Appendix but which
are defined in the Agreement shall have the meanings set forth in the Agreement.
1. Gross Asset Value; Net Profit and Net Loss
------------------------------------------
1.1 Gross Asset Value. "Gross Asset Value" means, with respect to any
-----------------
asset, the asset's adjusted basis for federal income tax purposes, modified as
follows:
(a) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of such
asset, as determined by the contributing Partner and the Managing Partner
(unless the Managing Partner is the contributing Partner, in which case the
gross fair market value will be determined in accordance with Section 3.6
of the Agreement).
(b) The Gross Asset Values of all Partnership assets shall be adjusted
to equal their respective gross fair market values, as determined by the
Managing Partner, in the circumstances described in Regulations Section
1.704-1(b)(2)(iv)(f)(5), but in the case of adjustments other than upon the
liquidation of the Partnership within the meaning of Regulations Section
1.704- 1(b)(2)(ii)(g), only if the Managing Partner reasonably determines
that such adjustments are necessary or appropriate to reflect the relative
economic interests of the Partners in the Partnership.
(c) The Gross Asset Value of any Partnership asset distributed to a
Partner shall be the gross fair market value of such asset on the date of
distribution.
(d) The Gross Asset Value of Partnership assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or 743(b), but only to the extent that such
adjustments are taken into account in determining Capital Accounts pursuant
to Regulations Section 1.704-1(b)(2)(iv)(m) and Section 2.1(e) below.
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to clause (a), (b) or (d) above, such Gross Asset Value shall
thereafter be adjusted by the amount determined in accordance with Regulations
Section 1.704-1(b)(2)(iv)(g)(2) and (3).
1.2 Net Profit and Net Loss. "Net Profit" and "Net Loss" means, for each
-----------------------
Fiscal Year or other period, an amount equal to the Partnership taxable income
or loss for such year or period,
<PAGE>
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(a) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing such Net Profit or
Net Loss shall be added to such taxable income or loss.
(b) Code Section 705(a)(2)(B) expenditures of the Partnership, which
are not otherwise taken into account in computing such Net Profit or Net
Loss, shall be subtracted from such taxable income or loss.
(c) In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to clause (b) or (c) of the definition of "Gross Asset
-----------
Value," the amount of such adjustment shall be taken into account as gain
-----
or loss from the disposition of such asset for purposes of computing Net
Profit or Net Loss.
(d) Gain or loss resulting from any disposition of Partnership
property with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross Asset Value
of the property disposed of, notwithstanding that the adjusted tax basis of
such property differs from its Gross Asset Value.
(e) If the Gross Asset Value of an asset differs from its adjusted
basis for federal income tax purposes at the beginning of such year or
other period, then in lieu of the depreciation, amortization, and other
cost recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account the amount determined in
accordance with Regulations Section 1.704-1(b)(2)(iv)(g)(2) and (3).
(f) Any items that are specially allocated pursuant to Article 2 of
this Tax Appendix shall not be taken into account in computing such Net
Profit or Net Loss.
(g) Any deduction for a loss on a sale or exchange of Partnership
property that is disallowed to the Partnership under Code Section 267(a)(1)
or 707(b) shall be treated as a Code Section 705(a)(2)(B) expenditure.
-2-
<PAGE>
2. Special Allocation Provisions.
-----------------------------
Sections 2.1, 2.2, and 2.3(a) and (b) shall apply with respect to any
Nonrecourse Liabilities or Partner Nonrecourse Debt (as defined below) of the
Partnership if the Managing Partner determines that there is a reasonable basis
to conclude that the Partnership Interests of the Partners under the Agreement
are not the same as the overall interests of the Partners in the Partnership
determined under Regulations Section 1.704-1(b)(3). Sections 2.1(e) and 2.2(a)
shall apply if the Partnership has made an election under Code Section 754 and
there is an adjustment to the adjusted tax basis of any Partnership asset
pursuant to Code Section 734(b) or 743(b). Section 2.4 shall apply if the Gross
Asset Value of Partnership property differs from its adjusted basis for federal
income tax purposes.
2.1 Special Allocations.
-------------------
(a) Minimum Gain Chargeback. Notwithstanding any other provision of
-----------------------
the Agreement (including this Tax Appendix), if for any Partnership Fiscal
Year there is a net decrease in Partnership Minimum Gain (as defined in
Regulations Section 1.704-2(b)(2)), each Partner shall be specially
allocated items of Partnership income and gain for such year (and, if
necessary, for succeeding years) in an amount equal to such Partner's share
of the net decrease in Partnership Minimum Gain, determined in accordance
with Regulations Section 1.704-2(g), except as otherwise provided in
Regulations Section 1.704-2(f)(2), 1.704-2(f)(3), 1.704-2(f)(4), and
1.704-2(f)(5). Allocations pursuant to the previous sentence shall be made
in proportion to the respective amounts required to be allocated to each
Partner pursuant thereto. The items to be so allocated shall be determined
in accordance with Regulations Section 1.704-2(f)(6). The amount of
Partnership Minimum Gain shall be determined in accordance with Regulations
Section 1.704- 2(d). This Section 2.1(a) is intended to comply with the
minimum gain chargeback requirement of Regulations Section 1.704-2(f) and
shall be interpreted consistently therewith.
(b) Partner Minimum Gain Chargeback. Notwithstanding any other
-------------------------------
provision of the Agreement (including this Tax Appendix) except Section
2.1(a), if during a Partnership Fiscal Year there is a net decrease in
Partner Nonrecourse Debt Minimum Gain (as defined in Regulations Section
1.704-2(i)(2)), each Partner who has a share of that Partner Nonrecourse
Debt Minimum Gain (determined in accordance with Regulations Section
1.704-2(i)(5)) as of the beginning of such year shall be specially
allocated items of Partnership income and gain for such year (and, if
necessary, for succeeding years) in an amount equal to such Partner's share
of the net decrease in Partner Nonrecourse Debt Minimum Gain, determined in
accordance with Regulations Section 1.704-2(i)(4) (and taking into account
the exceptions provided therein). Allocations
-3-
<PAGE>
pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Partner pursuant
thereto. The items to be so allocated shall be determined in accordance
with Regulations Section 1.704-2(i)(4). The amount of Partner Nonrecourse
Debt Minimum Gain shall be determined in accordance with Regulations
Section 1.704-2(i)(3). This Section 2.1(b) is intended to comply with the
minimum gain chargeback requirement in Regulations Section 1.704-2(i)(4)
and shall be interpreted consistently therewith.
(c) Nonrecourse Deductions. Nonrecourse Deductions (as defined in
----------------------
Regulations Section 1.704-2(b)(1)) for any Fiscal Year or other period
shall be specially allocated as Net Loss pursuant to Section 4.6 of the
Agreement. The amount of Nonrecourse Deductions shall be determined in
accordance with Regulations Section 1.704-2(c).
(d) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions
------------------------------
(as defined in Regulations Section 1.704-2(i)(1)) for any Fiscal Year or
other period shall be specially allocated to the Partner who bears the
economic risk of loss with respect to the Partner Nonrecourse Debt to which
such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Section 1.704-2(i). The amount of Partner Nonrecourse
Deductions shall be determined in accordance with Regulations Section
1.704-2(i)(2).
(e) Section 754 Adjustment. To the extent an adjustment to the
----------------------
adjusted tax basis of any Partnership asset pursuant to Code Section 734(b)
or 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the
asset) or loss (if the adjustment decreases such basis), and such gain or
loss shall be specially allocated to the Partners in a manner consistent
with the manner in which their Capital Accounts are required to be adjusted
pursuant to such Section of the Regulations.
2.2 Curative Allocations.
--------------------
(a) Notwithstanding any other provision of the Agreement (including
this Tax Appendix), other than allocations pursuant to Section 2.1 (the
"Regulatory Allocations"), allocations pursuant to Section 2.1(e) above
----------------------
(the "Basic Regulatory Allocations") shall be taken into account in
----------------------------
allocating items of income, gain, loss, and deduction among the Partners so
that, to the extent possible, the net amount of such allocations of other
items and the Basic Regulatory Allocations to each Partner shall be equal
to the net amount that would have been allocated to each such Partner if
the Basic Regulatory Allocations had not occurred. For purposes of
-4-
<PAGE>
applying the foregoing sentence, allocations pursuant to this Section
2.2(a) shall only be made with respect to Basic Regulatory Allocations to
the extent the Managing Partner reasonably determines that such Basic
Regulatory Allocations would otherwise be inconsistent with the economic
agreement among the Partners.
(b) Notwithstanding any other provision of this Agreement, other than
the Regulatory Allocations, allocations pursuant to Sections 2.1(a) and
2.1(c) above (the "Nonrecourse Regulatory Allocations") shall be taken into
----------------------------------
account in allocating items of income, gain, loss, and deduction among the
Partners so that, to the extent possible, the net amount of such
allocations of other items and the Nonrecourse Regulatory Allocations to
each Partner shall be equal to the net amount that would have been
allocated to each such Partner if the Nonrecourse Regulatory Allocations
had not occurred. For purposes of applying the foregoing sentence (i) no
allocations pursuant to this Section 2.2(b) shall be made prior to the
Partnership Fiscal Year during which there is a net decrease in Partnership
Minimum Gain, and then only to the extent necessary to avoid any potential
economic distortions caused by such net decrease in Partnership Minimum
Gain; and (ii) allocations pursuant to this Section 2.2(b) shall be
deferred with respect to allocations pursuant to Section 2.1(c) to the
extent the Managing Partner reasonably determines that such allocations are
likely to be offset by subsequent allocations pursuant to Section 2.1(a).
(c) Notwithstanding any other provision of the Agreement (including
this Tax Appendix), other than the Regulatory Allocations, allocations
pursuant to Sections 2.1(b) and 2.1(d) (the "Partner Nonrecourse Regulatory
------------------------------
Allocations") shall be taken into account in allocating items of income,
-----------
gain, loss, and deduction among the Partners so that, to the extent
possible, the net amount of such allocations of other items and the Partner
Nonrecourse Regulatory Allocations to each Partner shall be equal to the
net amount that would have been allocated to each such Partner if the
Partner Nonrecourse Regulatory Allocations had not occurred. For purposes
of applying the foregoing sentence (i) no allocations pursuant to this
Section 2.2(c) shall be made with respect to allocations pursuant to
Section 2.1(d) relating to a particular Partner Nonrecourse Debt prior to
the Partnership Fiscal Year during which there is a net decrease in Partner
Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse
Debt, and then only to the extent necessary to avoid any potential economic
distortions caused by such net decrease in Partner Nonrecourse Debt Minimum
Gain; and (ii) allocations pursuant to this Section 2.2(c) shall be
deferred with respect to allocations pursuant to Section 2.1(d) to the
extent the Managing Partner reasonably determines that such allocations are
likely to be offset by subsequent allocations pursuant to Section 2.1(b).
-5-
<PAGE>
(d) The Managing Partner shall have reasonable discretion, with
respect to each Partnership Fiscal Year, to (i) apply the provisions of
Sections 2.2(a), 2.2(b) and 2.2(c) in whatever order is likely to minimize
the economic distortions that might otherwise result from the Regulatory
Allocations; and (ii) divide all allocations pursuant to Sections 2.2(a),
2.2(b) and 2.2(c) among the Partners in a manner that is likely to minimize
such economic distortions.
(e) Notwithstanding any other provision of the Agreement (including
this Tax Appendix), except the Regulatory Allocations, in the Fiscal Year
in which there is a sale, exchange or other disposition of all or
substantially all of the assets of the Partnership or a dissolution or
liquidation of the Partnership, after allocating items of income, gain,
loss and deduction in accordance with the Regulatory Allocations and the
curative allocations under Sections 2.2(a), 2.2(b), 2.2(c) and 2.2(d), each
Partner shall be allocated remaining items of income, gain, deduction, and
loss to the extent necessary to cause the balance in each Partner's Capital
Account to equal the Distributions that would be made to each such Partner
if such distributions were made to the Partners in accordance with their
Partnership Interests (after payment of the debts and obligations of the
Partnership).
2.3 Other Allocation Rules.
----------------------
(a) To the extent permitted by Regulations Sections 1.704-2(h) and
1.704-2(i)(6), the Managing Partner shall endeavor to treat Distributions
as not having been made from the proceeds of a Nonrecourse Liability (as
defined in Regulations Section 1.704-2(b)(3) (and Regulations Section
1.752-1(a)(2))) or a Partner Nonrecourse Debt.
(b) Solely for purposes of determining a Partner's proportionate share
of the "excess nonrecourse liabilities" of the Partnership within the
meaning of Regulations Section 1.752-3(a)(3), the Partners' interests in
Partnership profits are equal to their respective Partnership Interests.
The allocation of such "excess nonrecourse liabilities" shall be adjusted
to reflect any subsequent adjustment of the Partnership Interests of the
Partners pursuant to the Agreement.
(c) If any fees or other payments deducted for federal income tax
purposes by the Partnership are recharacterized by a final determination of
the Internal Revenue Service as nondeductible distributions to any Partner,
then, notwithstanding all other allocation provisions (other than the
Regulatory Allocations), gross income shall be allocated to such Partner in
an amount equal to the fees or payments so recharacterized.
(d) If any Partner makes a payment of interest to the
-6-
<PAGE>
Partnership in respect of the late payment of any Capital Contribution
pursuant to Article 4 of the Agreement, the amount of such interest shall
be included in the income of the Partnership and allocated among the
Partners in the same manner as if such interest had been paid by a person
which is not a Partner, and the amount of such interest shall not be
included in the Capital Contributions credited to such Partner's Capital
Account.
(e) All items of Partnership income, gain, loss, deduction, and any
other allocations not otherwise provided for shall be allocated among the
Partners in the same proportion as they share Net Profit or Net Loss, as
the case may be, for the year.
2.4 Contributed Property: Code Section 704(c).
-----------------------------------------
(a) In accordance with Code Section 704(c) and the Regulations
thereunder, income, gain, loss, and deduction with respect to any property
contributed to the capital of the Partnership shall, solely for tax
purposes, be allocated among the Partners so as to take account of any
variation between the adjusted basis of such property to the Partnership
for Federal income tax purposes and its initial Gross Asset Value. To the
extent permitted by the Code and applicable Regulations, such allocations
shall be made in accordance with Proposed Regulations Section 1.704-3(b).
(b) If the Gross Asset Value of a Partnership asset is adjusted
pursuant to Section 1.1(b) above, subsequent allocations of income, gain,
loss, and deduction with respect to such asset for tax purposes shall take
account of any variation between the adjusted basis of such asset for
federal income tax purposes and its Gross Asset Value in the same manner as
under Code Section 704(c) and the Regulations thereunder. To the extent
permitted by the Code and applicable Regulations, such allocations shall be
made in accordance with Proposed Regulations Section 1.704-3(b).
(c) Any elections or other decisions relating to such allocations
shall be made by the Managing Partner in any manner that reasonably
reflects the purpose and intention of this Agreement. Allocations pursuant
to this Section 2.4 are solely for purposes of federal, state, and local
taxes and shall not affect, or in any way be taken into account in
computing, any Entity's Capital Account or share of Net Profits, Net
Losses, other items, or Distributions pursuant to any provision of this
Agreement.
3. Allocation in Event of Transfer. If an interest in the Partnership is
-------------------------------
transferred in accordance with Article 5 of the Agreement, the Net Profit and
Net Loss of the Partnership allocable to the transferor and transferee, and the
Capital Account of the transferee, shall be determined as follows:
-7-
<PAGE>
(a) If such transfer is effected on or prior to the fifteenth day of
the month, then such transfer shall be deemed to have occurred on the last
day of the month immediately prior to the month in which such transfer
occurs. If such transfer is effected after the fifteenth day of such month,
such transfer shall be deemed to have occurred on the last day of the month
in which such transfer occurs.
(b) The transferor Partner shall be allocated an amount of Net Profit
or Net Loss equal to the product of (x) a fraction whose numerator consists
of the Partnership Interest transferred and whose denominator consists of
the Partnership Interests held by all Partners, times (y) the Net Profit or
Net Loss of the Partnership for the period ending on the date (or deemed
date) of the transfer. The substitute Partner shall be allocated an amount
equal to the product of (x) a fraction whose numerator consists of the
Partnership Interest transferred and whose denominator consists of the
Partnership Interest held by all Partners, times (y) the Net Profit or Net
Loss of the Partnership for the remainder of the calendar year. The Capital
Account of the transferee as of the date of such transfer shall be
determined in accordance with Regulations Section 1.704-1(b)(2)(iv)(l).
4. Adjustment to Allocations in the Event of Issuance or
Redemption of Partnership Interests.
-----------------------------------
In the event additional partners acquire interests in the Partnership from
the Partnership, or if the interest of any Partner in the Partnership is
increased through liquidating Distributions to other Partners or decreased
through additional Capital Contributions by other Partners, appropriate
adjustments shall be made to the Distributions and allocations of Net Profit and
Net Loss for periods after such event.
5. Elections Pursuant to Section 754.
---------------------------------
In the event of a transfer of an interest in the Partnership permitted
under this Agreement, the Partnership shall, at the request of the transferee
and upon the approval of the Managing Partner, make the election provided by
Code Section 754 to make the adjustment to the basis of Partnership property
provided by Section 743 (if such election is not then in effect), provided that
the transferee agrees to bear the additional accounting expense to the
Partnership resulting from the election (and all subsequent transferees shall
likewise bear a Pro Rata portion of such additional expense). In the event of a
distribution of property by the Partnership, upon the approval of the Managing
Partner, the Partnership shall make the election provided by Section 754 to make
the adjustment to the basis of Partnership property provided by Section 734 (if
such election is not then in effect), in which case any additional accounting
expense to the Partnership resulting from
-8-
<PAGE>
the election shall be borne by the Partnership.
6. Interpretation of Provisions.
----------------------------
It is the intention of the Partners that all allocations pursuant to the
Agreement (including this Tax Appendix) shall comply with the provisions of Code
Section 704 and the Regulations promulgated thereunder. Accordingly, the
provisions of the Agreement (including this Tax Appendix) shall be interpreted
and applied in a manner that is consistent with the provisions of Code Section
704 and the Regulations promulgated thereunder.
7. Tax Matters Partner.
-------------------
The Managing Partner shall be the Tax Matters Partner of the Partnership.
The Tax Matters Partner shall not take any action which will have a materially
adverse impact on any Partner unless such action shall have been approved by a
Majority Vote of the Partners. The Managing Partner shall have the right to
resign as Tax Matters Partner at any time, upon written notice to all other
Partners, in which event the Partners shall appoint a new Tax Matters Partner.
This provision shall survive any termination of the Agreement. For purposes of
the foregoing, "Tax Matters Partner" shall mean the "tax matters partner" of the
-------------------
Partnership within the meaning of Section 6231(a)(7) of the Code.
-9-
<PAGE>
INFORMATION APPENDIX
--------------------
1. Authorized Representatives:
CONTINENTAL: Ron Cooper
TCI: Robert J. Lemming
COMCAST: William G. Kingsley
TIMES MIRROR: Michael G. Rose
TCG LOS ANGELES: Al Hansen
TCG PARTNERS: Al Hansen
2. Business Area:
-------------
The Los Angeles Local Access Transport Area (LATA Number 730)
3. Partnership Interests and Initial Capital Contributions:
-------------------------------------------------------
Interest Contribution
-------- ------------
CONTINENTAL: 30.4% $19,547,200
TCI: 12.6% $ 8,101,800
COMCAST: 12.4% $ 7,973,200
TIMES MIRROR: 9.6% $ 6,172,800
TCG LOS ANGELES: 13.5% $ 8,700,000
TCG PARTNERS: 21.5% $13,805,000
------ -----------
100.0% $64,300,000
4. Name:
----
TCG LOS ANGELES
5. Termination Date:
----------------
December 31, 2092
6. Municipal Franchises and Regulatory Authorizations for which the
----------------------------------------------------------------
Partnership currently contemplates that it may apply:
----------------------------------------------------
None.
7. Additional Agreements relating to the operation of the Exclusive Business
-------------------------------------------------------------------------
in the Business Area:
--------------------
None.
8. Exclusive Business Activities conducted by Partners as of the date of this
--------------------------------------------------------------------------
Agreement:
---------
None.
<PAGE>
9. Pre-Organization Operating Expenses and Capital Expenditures Which the
----------------------------------------------------------------------
Partnership Shall Reimburse to the Partners:
-------------------------------------------
CONTINENTAL: None.
TCI: None.
COMCAST: None.
TIMES MIRROR: None.
TCG LOS ANGELES, INC: $12,827,671 (as of 2/94)
TCG PARTNERS: $ 1,814,494
10. First Installment of Initial Capital Contribution due at Closing:
----------------------------------------------------------------
CONTINENTAL: $10,784,650
TCI: $ 4,469,953
COMCAST: $ 4,399,002
TIMES MIRROR: $ 3,405,679
TCG LOS ANGELES: $ 8,700,000 (value of contributed
assets)
TCG PARTNERS: $ 3,716,538
Payable upon request of the Managing Partner in accordance with Section 4.1
of the Partnership Agreement.
11. Potential Partners:
------------------
None
12. Video Services to be included in definition of Exclusive Business:
-----------------------------------------------------------------
Seven circuits (3 in one direction and 4 in the reverse direction) sold to
IDB connecting their location at 10525 Washington Blvd., Culver City to
their location at 12312 Olympic Blvd., Santa Monica.
<PAGE>
EXHIBIT 10.27
PARTNERSHIP AGREEMENT
OF
TCG PITTSBURGH
Dated as of March 1, 1994
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
ARTICLE 1: DEFINITIONS.......................................................................... 1
ARTICLE 2: FORMATION............................................................................ 8
2.1 Formation. .................................................................... 8
2.2 Name............................................................................ 8
2.3 Principal Offices............................................................... 8
2.4 Term............................................................................ 8
2.5 Property........................................................................ 8
ARTICLE 3: PURPOSE, AUTHORITY AND MANAGEMENT OF THE
PARTNERSHIP.......................................................................... 9
3.1 Purpose and Authority........................................................... 9
3.2 Managing Partner................................................................ 9
3.3 Meetings of the Partners; Authorized
Representatives............................................................. 10
3.4 Actions Requiring a Majority Vote............................................... 12
3.5 Actions Requiring a Supermajority Vote.......................................... 13
3.6 Special Voting Provisions....................................................... 15
3.7 Scope of Partners' Authority.................................................... 15
3.8 Indemnification of Partners; Allocation
of Liabilities.............................................................. 16
3.9 Contribution.................................................................... 18
3.10 Insurance and Bonds............................................................ 18
ARTICLE 4: CAPITALIZATION; ALLOCATION; DISTRIBUTIONS............................................ 19
4.1 Initial Capital Contributions................................................... 19
4.2 Additional Capital Contributions................................................ 19
4.3 Failure to Make Capital Contributions........................................... 20
4.4 Loans........................................................................... 25
4.5 Calculations and Adjustments.................................................... 26
4.6 Capital Accounts................................................................ 26
4.7 Distribution of Partnership Funds............................................... 27
4.8 Allocation of Net Profits and Losses............................................ 28
4.9 Tax Appendix.................................................................... 28
ARTICLE 5: TRANSFERS OF PARTNERSHIP INTERESTS; RIGHT OF
FIRST REFUSAL........................................................................ 28
5.1 Restrictions on Transfer........................................................ 28
5.2 Exceptions to Restrictions on Transfers......................................... 29
5.3 Rollup Provisions............................................................... 29
5.4 Right of First Refusal.......................................................... 30
5.5 Purchases by the Partnership or its
Assignee.................................................................... 34
5.6 Put Rights Upon Merger or Consolidation
of the Partnership.......................................................... 35
5.7 Prohibited Transfers............................................................ 36
5.8 Appraisal Process............................................................... 36
5.9 Closing of any Permitted Transfer............................................... 37
5.10 Remedies....................................................................... 38
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 6: BOOKS AND RECORDS; ACCOUNTING; FISCAL YEAR........................................... 39
6.1 Books and Records............................................................... 39
6.2 Financial Statements............................................................ 39
6.3 Bank Accounts................................................................... 40
6.4 Fiscal Year..................................................................... 40
ARTICLE 7: OTHER BUSINESS ACTIVITIES............................................................ 40
7.1 Conduct of Exclusive Business in
Business Area............................................................... 40
7.2 Exceptions for Certain Transactions............................................. 43
7.3 Existing Activities............................................................. 43
7.4 Prohibited Transactions......................................................... 44
7.5 Controlled Affiliates........................................................... 44
7.6 Services Offered by the Partnership............................................. 44
7.7 Retail Switching Business ...................................................... 44
ARTICLE 8: DISSOLUTION.......................................................................... 45
8.1 Causes of Dissolution........................................................... 45
8.2 Winding Up and Liquidation...................................................... 46
8.3 Continuation of the Partnership................................................. 46
8.4 No Withdrawal................................................................... 46
ARTICLE 9: EVENTS OF DEFAULT AND REMEDIES....................................................... 47
9.1 Events of Default............................................................... 47
9.2 Remedies........................................................................ 48
9.3 Purchase of Defaulting Partner's
Partnership Interest........................................................ 49
ARTICLE 10: REPRESENTATIONS AND WARRANTIES OF THE
PARTNERS............................................................................. 50
ARTICLE 11: MISCELLANEOUS........................................................................ 51
11.1 Acknowledgements............................................................... 51
11.2 Bill for Partition............................................................. 51
11.3 Notices........................................................................ 51
11.4 Amendments..................................................................... 52
11.5 Indebtedness for Borrowed Money................................................ 52
11.6 Waivers and Further Agreements; Entire
Agreement................................................................... 52
11.7 Severability................................................................... 52
11.8 Specific Enforcement; Attorneys Fees........................................... 53
11.9 Counterparts................................................................... 53
11.10 Captions; Gender.............................................................. 53
11.11 Governing Law and Binding Effect.............................................. 53
11.12 Expenses...................................................................... 53
11.13 Third Parties................................................................. 54
11.14 Confidentiality............................................................... 54
11.15 Appendices.................................................................... 54
</TABLE>
<PAGE>
Exhibits and Appendices
Exhibit A Form of Management Services Agreement
Exhibit B Undertaking of Parent
Tax Appendix
Information Appendix
<PAGE>
PARTNERSHIP AGREEMENT
THIS PARTNERSHIP AGREEMENT is made as of March 1, 1994, by and among TCG
Partners, a New York general partnership ("TCP"), and the other parties listed
on the signature pages hereof.
RECITALS
The parties desire to establish a partnership for the purposes hereinafter
set forth, subject to the terms and conditions hereof.
AGREEMENTS
In consideration of the foregoing, and of the promises and covenants
contained in this Agreement, the parties agree as follows:
ARTICLE 1: DEFINITIONS
Capitalized terms used in this Agreement shall have the meanings set forth
below or in the Sections of this Agreement referred to below. Terms used solely
in the Tax Appendix are defined in the Tax Appendix.
"Act" means the Uniform Partnership Act, as from time to time in effect in
the State of New York.
"Additional Capital Contribution" has the meaning set forth in Section 4.2
hereof.
"Affiliate" means, with respect to any Entity, any other Entity that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with the first specified Entity. For
purposes of this Agreement, neither the Partnership, nor any Entity controlled
by the Partnership, shall be deemed to be an Affiliate of a Partner or of any
Affiliate of a Partner, and no Partner or any Affiliate thereof shall be deemed
to be an Affiliate of any other Partner or any Affiliate thereof solely by
virtue of its Partnership Interest.
"Agreement" means this Partnership Agreement, as it may be amended,
modified or supplemented from time to time in accordance with its terms.
<PAGE>
"Authorized Representative" means the representative of a Partner who,
pursuant to Section 3.3(e) hereof, is authorized to execute any document and
take any action under this Agreement on behalf of such Partner. The name of the
initial Authorized Representative of each Partner is set forth on the
Information Appendix.
"Budget" for any Fiscal Year means the operating and capital budget for the
Partnership for such Fiscal Year prepared by the Managing Partner and adopted by
the Partners in accordance with Section 3.4 hereof.
"Business Area" means the counties listed on the Information Appendix.
"Business Day" means any day (other than a day which is a Saturday or
Sunday) on which banks are permitted to be open for business in the City of New
York.
"Capital Account" has the meaning set forth in Section 4.6 hereof.
"Capital Contribution" means, for any Partner, the amount of cash that such
Partner has contributed to the capital of the Partnership plus, if such Partner
contributes property other than cash, "Capital Contribution" shall include the
fair market value of such property determined without regard to Code Section
7701(g) and net of any liabilities secured by such contributed property that the
Partnership is considered to assume or take subject to under Code Section 752.
"Change in Control", with respect to a Partner, means any transaction as a
result of which such Partner ceases to be a Subsidiary of the Entity which was
its Parent immediately prior to such transaction.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any subsequent federal law of similar import.
"Control" means, as to any Entity, the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such Entity, whether through the ownership of equity interests or voting
securities, by contract or otherwise.
"Controlled Affiliate", with respect to any Partner as of any relevant
date, means (i) the Parent of such Partner and (ii) each Affiliate of such
Partner with respect to which such Parent, directly or indirectly through one or
more Controlled Affiliates, exercises or is entitled to exercise by ownership of
- 2 -
<PAGE>
equity interests or voting securities, contract or otherwise affirmative or
negative control with respect to decisions to Engage in, or to acquire interests
in Entities Engaged in, activities encompassed in the Exclusive Business. For
purposes of this Agreement, (x) the Partnership shall not be deemed to be a
Controlled Affiliate of any Partner or any Affiliate of any Partner.
"Defaulting Partner" has the meaning set forth in Section 9.1 hereof.
"Distribution" means a distribution of cash or property in kind pursuant to
Article 4 or 8 hereof.
"Engage" or "Engaging" means, with respect to an activity, venture or
business, directly or indirectly owning, investing in, managing, operating or
controlling either individually, jointly, in partnership or in conjunction with
any other person, or as a shareholder or providing or leasing in any material
respect any goods or services to such activity, venture or business.
"Entity" means any individual, general partnership, limited partnership,
corporation, limited-liability company, joint venture, trust, business trust,
cooperative or association, and the heirs, executors, administrators, legal
representatives, successors, and assigns of such Entity where the context so
admits.
"Exclusive Business" means the provision of the following local
telecommunications services:
(a) Digital Private Line Services, including but not
limited to:
DSO (56 or 64 kilobits)
DS1 (1.544 megabits)
Fractional DS1 (in multiples of 56 or 64 kilobits)
DS2 (6.312 megabits) DS3 (45 megabits)
European-standard E1 (2.048 megabits) PBX Access
Service SONET Services;
(b) Voice Grade Private Line Services, including but
not limited to:
Two and Four Wire Analog Service
Analog Data Service
Tie Lines from Centrex to PBX;
- 3 -
<PAGE>
(c) Switched Services, including but not limited to:
Payphones and associated interexchange carrier
switched access
Retail Switching Business;
(d) IXC POP to IXC POP Connections;
(e) Provision of the services listed in clauses (a)
through (c) above to IXCs for the purpose of IXC
branding or resale;
(f) Provision of Dark Fiber to Third Parties;
(g) Provision of fiber video services to the extent
provided on the Information Appendix; and
(h) Provision of coaxial terminations within buildings
and building complexes on private property or resale
of coaxial services provided by a local exchange
carrier, in each case in connection with the
provision of any service listed in (a) through (g)
above;
provided, however, that the provision of any of the following services shall not
be included in the definition of "Exclusive Business"
(i) Video Services, including but not limited to the
following (but excluding services specified in
clause (g) above):
Short Haul Video
Long Haul Video
Multipoint Video
Switched Video
Wireless Video
Any Other Video Service;
(ii) Wireless Services, including but not limited to:
Cellular Telephone Service
Personal Communications Service
Wireless Data Service
Special Mobile Radio
Enhanced Special Mobile Radio
Paging
Any Other Wireless Service;
- 4 -
<PAGE>
(iii) Coaxial Services, including but not limited to the
following (but excluding services specified in clause (h)
above):
Video over Coax Services
Data over Coax Services
Voice over Coax Services
Any other Coaxial Service; and
(iv) Any residential services.
"Fair Market Value" of a Partner's Partnership Interest means the product
of (i) the Percentage Interest of such Partner as of the date of determination
of Fair Market Value times (ii) the price at which a willing seller (being under
no compulsion to sell) would sell, and a willing buyer (having full knowledge of
the facts and being under no compulsion to buy) would buy, all of the business
and assets of the Partnership as a going concern (or all of the outstanding
Partnership Interests, if that would yield a higher price), in a single
arm's-length transaction without time constraints. The price so determined for
the business and assets of the Partnership shall, without duplication or
deduction, be reduced by the amount of all liabilities of the Partnership.
"Fiscal Year" means the calendar year.
"Indirect Transfer" has the meaning set forth in Section 5.1(a) hereof.
"Information Appendix" means the information appendix attached hereto and
made a part of this Agreement.
"Initial Capital Contribution" means the aggregate initial Capital
Contribution of each Partner to the capital of the Partnership set forth in the
Information Appendix. If an Initial Capital Contribution is made in property
other than cash, then such Initial Capital Contribution shall include the fair
market value of such property determined without regard to Code Section 7701(g)
and net of liabilities secured by such contributed property that the Partnership
is considered to take subject to or assume under Code Section 752.
"Majority Vote", with respect to any matter to be voted on by the Partners,
means the affirmative vote of a Partner or Partners whose Percentage Interests
are in excess of 50% of the sum of the Percentage Interests of all Partners
entitled to vote on such matter.
"Management Services Agreement" means the Management Services Agreement
between the Partnership and the Manager in
- 5 -
<PAGE>
substantially the form attached hereto as Exhibit A, as the same may be amended,
modified or supplemented from time to time in accordance with the provisions
hereof and thereof.
"Manager" means TCGI in its capacity as manager under the Management
Services Agreement, and any successor appointed in accordance with this
Agreement or the Management Services Agreement.
"Managing Partner" means TCP in its capacity as managing partner of the
Partnership, or any successor managing partner of the Partnership appointed in
accordance with Section 3.2(d) hereof.
"Net Profit" and "Net Loss" have the meanings set forth in the Tax
Appendix. "Net Profit" and "Net Loss" mean, generally, for each Fiscal Year or
other period, an amount equal to the Partnership taxable income or loss for such
year or period, with certain adjustments set forth in the Tax Appendix.
"Parent" with respect to any Entity as of any relevant date means the
ultimate corporate or partnership parent entity (within the meaning of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder, as in effect on the date hereof) of such
Entity.
"Parent Undertaking" means the form of Undertaking of Parent attached
hereto as Exhibit B.
"Partner Services Agreement" means, collectively, any fiber lease
agreement, any other agreement for the use of fiber optic telecommunications
facilities and any other agreement (other than the Management Services
Agreement) for services to be provided by a Partner or an Affiliate of a Partner
to the Partnership in connection with the maintenance or operation of the
business of the Partnership, such as, but not limited to, a construction
agreement, fiber maintenance agreement, electronics maintenance agreement or
other similar agreement.
"Partners" means TCP and the other signatories to this Agreement, any
Entity which becomes a party to this Agreement after the date hereof, and their
respective successors and permitted assigns, and "Partner" means any of such
Partners.
"Partnership" means the general partnership created pursuant to this
Agreement.
"Partnership Interest" means, as to each Partner, all of the interest of
such Partner in the Partnership, including such Partner's (i) right to a
distributive share of the income,
- 6 -
<PAGE>
gain, losses and deductions of the Partnership in accordance herewith, (ii)
right to a distributive share of Partnership assets, (iii) obligations as a
Partner, and (iv) rights with respect to the management of the business and
affairs of the Partnership, as provided herein or by law.
"Percentage Interest" means, as to each Partner, the percentage set forth
opposite its name on the Information Appendix, as such percentage may be revised
in accordance with the provisions hereof; provided, however, that except as
expressly provided in this Agreement, the Percentage Interest of a Partner shall
not be subject to increase or decrease without such Partner's prior consent.
"Prime Rate" means the interest rate announced by Citibank, N.A., New York,
New York, from time to time as its prime lending rate.
"Pro Rata" means the proportion which the respective Percentage Interest
immediately prior to an action of any Partner entitled to participate in such
action bears to the sum of the Percentage Interests immediately prior to such
action of all Partners entitled to participate in such action.
"Regulations" means the Income Tax Regulations, including Temporary
Regulations, promulgated under the Code, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).
"Remedies Partner" means the Managing Partner, so long as at the time of
determination the Managing Partner is not a Defaulting Partner; otherwise,
"Remedies Partner" means the non- Defaulting Partner which has the largest
Percentage Interest of all non-Defaulting Partners.
"Retail Switching Business" means the provision of the following local
telecommunications services and associated interexchange carrier switched
access:
Primary Centrex
PBX Dialtone Trunks
Auxiliary Centrex
ISDN - Basic Rate Service or Primary Rate Service POTS (i.e.,
Basic telephone service, supplying telephone lines and access
to a switched network).
"Subsidiary" of any Parent means an Entity (i) more than fifty percent of
whose outstanding shares or securities (representing the right to vote for the
election of directors or other managing authority) are owned or controlled,
directly or indirectly through one or more Subsidiaries, by such Parent or
- 7 -
<PAGE>
(ii) which does not have outstanding shares or securities, but more than fifty
percent of whose ownership interests representing the right to make the
decisions for such Entity is owned or controlled, directly or indirectly through
one or more Subsidiaries, by such Parent; provided, however, that in each case,
such Entity shall be deemed to be a Subsidiary only so long as such ownership or
control exists.
"Supermajority Vote", with respect to any matter to be voted on by the
Partners, means the affirmative vote of a Partner or Partners whose Percentage
Interests are at least eighty percent of the sum of the Percentage Interests of
all Partners entitled to vote on such matter.
"Tax Appendix" means the tax appendix attached hereto and made a part of
this Agreement.
"TCGI" means Teleport Communications Group Inc., a Delaware corporation,
and any Entity into which it may be merged or with which it may be consolidated
or to which it may transfer all or substantially all of its assets.
ARTICLE 2: FORMATION
2.1 Formation. The Partners hereby form the Partnership as a general
partnership under and pursuant to the Act, for the purposes and on the terms set
forth herein.
2.2 Name. The Partnership's name shall be as set forth in the Information
Appendix or such other name as the Partners may determine by Supermajority Vote.
2.3 Principal Offices. The principal office of the Partnership shall be in
the Business Area or at such other location as the Managing Partner may from
time to time determine, and the Partnership may have an additional office or
offices at such other place or places as the Managing Partner may from time to
time determine.
2.4 Term. The term of the Partnership shall commence as of the effective
date hereof and shall continue for approximately ninety-nine years thereafter,
terminating on the date specified on the Information Appendix, unless the
Partnership is dissolved and liquidated prior thereto pursuant to Article 8
below.
2.5 Property. All assets and property, whether real, personal or mixed,
tangible or intangible, including contractual rights, owned or possessed by the
Partnership shall be held or possessed in the name of the Partnership. All such
assets,
- 8 -
<PAGE>
property and rights shall be deemed to be owned or possessed by the Partnership
as an entity. No Partner shall have any separate ownership interest in such
assets, property or rights. Each Partner's interest in the Partnership is
personal property for all purposes.
ARTICLE 3: PURPOSE, AUTHORITY AND MANAGEMENT OF THE PARTNERSHIP
3.1 Purpose and Authority. The purpose of the Partnership shall be to
invest in, engage in, operate, manage, develop, finance, expand and to sell and
otherwise dispose of, and otherwise exercise all rights, powers, privileges and
other incidents of ownership with respect to, any activity encompassed in the
Exclusive Business in the Business Area. The Partnership shall have all powers
which may be exercised by a partnership under the Act. The Partnership shall not
be permitted to Engage in any business other than the Exclusive Businesses
without the unanimous consent of the Partners.
3.2 Managing Partner.
(a) Subject to the provisions of Sections 3.4, 3.5 and 3.6 hereof, the
Managing Partner shall be responsible for the management and operations of
the Partnership and shall have all powers necessary to manage and control
the Partnership, to conduct its business and to implement any decision of
the Partners adopted pursuant to this Agreement. Without limiting the
generality of the foregoing, the Managing Partner shall have the authority
(i) to appoint and remove officers of the Partnership pursuant to Section
3.2(c) below, and to authorize such officers to perform such acts and
services as the Managing Partner may approve, (ii) to seek such municipal
and regulatory consents, approvals and authorizations in the name of the
Partnership as the Managing Partner in its reasonable discretion determines
to be in the best interests of the Partnership or otherwise to be necessary
under applicable law, including, without limitation, those set forth on the
Information Appendix, and (iii) to take any action on behalf of the
Partnership which does not expressly require a vote of the Partners
pursuant to Sections 3.4, 3.5 or 3.6 hereof. The Partners acknowledge that
the Managing Partner may delegate certain of its responsibilities hereunder
to the Manager pursuant to the Management Services Agreement and to the
officers appointed pursuant to Section 3.2(c) below. The Manager shall
report to the Managing Partner.
(b) At any time after the termination by the Partnership of the
Management Services Agreement pursuant to the terms hereof and thereof, any
action to be taken or document to be provided or executed by the Manager
hereunder shall thereafter
- 9 -
<PAGE>
be taken, provided or executed by the Managing Partner; provided, however,
that after such termination, the Managing Partner shall within one-hundred
twenty days of termination propose to the Partners a successor Manager to
provide substantially similar services to the services provided pursuant to
the Management Services Agreement and, upon the affirmative vote of the
Partners pursuant to Section 3.4(f), shall enter into a management
agreement with such successor Manager.
(c) The Managing Partner shall appoint a chief executive officer, a
chief financial officer and one or more chief operating officers for the
Partnership who shall be responsible for the day-to-day management of the
operations and business of the Partnership. The Partnership shall have such
additional officers as the Managing Partner may determine to appoint. Such
officers shall be deemed agents and employees of the Partnership, shall
serve at the pleasure of the Managing Partner, shall act in accordance with
the Budget, the decisions of the Managing Partner and the decisions of the
Partners adopted by a vote of the Partners pursuant to Section 3.4, 3.5 or
3.6 hereof, and shall have no authority to take any action which the
Managing Partner would not itself have the authority to take as provided
herein. Except as provided above or as otherwise determined by the Managing
Partner, such officers shall (i) have such powers as are usually exercised
by comparably designated officers of a Delaware corporation and (ii) have
the power to bind the Partnership through the exercise of such powers to
the extent consistent with the terms of this Agreement.
(d) If the Management Services Agreement is terminated pursuant to the
terms hereof and thereof, or if the Managing Partner fails in any material
respect to perform its obligations under this Agreement in accordance with
the terms hereof and customary and reasonable standards of management in
the telecommunications industry, and such failure in performance continues
unremedied for a period of one hundred eighty days after a majority in
Percentage Interests of the Partners (other than the Managing Partner) has
given written notice to the Managing Partner specifying such failure in
reasonable detail, the Partners, by a Majority Vote of the Partners other
than the Managing Partner, shall have the right, by delivery of notice to
the Managing Partner, to remove the Managing Partner as the Managing
Partner and replace it with a successor Managing Partner. Upon delivery of
such notice, the new Managing Partner shall succeed to all of the powers of
the removed Managing Partner hereunder and shall possess and have all such
powers.
3.3 Meetings of the Partners; Authorized Representatives.
- 10 -
<PAGE>
(a) Annual meetings of the Partners shall be held at such place and
time as may be determined from time to time by the Managing Partner,
subject to postponement by a Supermajority Vote of the Partners. Special
meetings of the Partners shall be called by the Managing Partner at the
request of any Partner. Each Partner shall be represented at an annual or
special meeting by its Authorized Representative. The Managing Partner
shall give the Authorized Representative of each Partner at least ten
Business Days notice of the time and place of any annual or special meeting
of the Partners. Any such notice shall include, in reasonable detail, an
agenda that sets forth the matters to be considered at such annual or
special meeting. In addition to any matter set forth in such agenda, any
Partner, by ten days prior notice to each other Partner, may propose for a
vote of the Partners at any meeting any matter which pursuant to Sections
3.4, 3.5 or 3.6 hereof or any other Section of this Agreement may be
decided by the Partners pursuant to a Majority Vote or a Supermajority
Vote. A Partner may waive notice of any meeting in writing before, at or
after such meeting. The attendance of an Authorized Representative of a
Partner at a meeting shall constitute a waiver by such Partner of notice of
such meeting, except when its Authorized Representative attends such
meeting for the express purpose of objecting to the transaction of any
business because the meeting was not properly called. Voting at any annual
or special meeting of the Partners shall be according to Percentage
Interests.
(b) At all meetings of the Partners, the Manager shall be present and
prepared to discuss with the Authorized Representatives and other
representatives of the Partners the business of the Partnership and any
other matters regarding the Partnership that any Partner may reasonably
request.
(c) Any action required or permitted to be taken by the Partners at an
annual or special meeting may be taken without a meeting if a written
consent to such action is signed on behalf of each Partner by its
Authorized Representative, and such written consent is filed with the
records of the Partnership. Any or all Authorized Representatives may
participate in a meeting by means of conference telephone or similar
communications equipment by means of which all Authorized Representatives
participating in the meeting can hear each other, and participation in such
a meeting shall constitute presence in person by any such Authorized
Representative at such meeting.
(d) Minutes of each meeting of the Partners shall be prepared by the
Managing Partner or an officer of the Partnership and circulated to the
Partners.
(e) The Authorized Representative of each Partner shall have the
authority to execute any document and take any
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action on behalf of such Partner pursuant to the terms of this Agreement.
In the absence of prior written notice to the contrary, any action taken or
document executed by an Authorized Representative shall be binding upon the
Partner of which he is the Authorized Representative, and neither the
Partnership, nor any other Partner nor any other Entity shall be obligated
to inquire as to the authority of the Authorized Representative to take any
action or execute any document on behalf of such Partner.
(f) Each Partner shall have the right at any time and from time to
time to replace its Authorized Representative (or any alternate Authorized
Representative) with another individual by written notice to the
Partnership and each other Partner. Each Partner shall be entitled to name
an alternate Authorized Representative to serve in the place of the
Authorized Representative appointed by such Partner should such appointed
Authorized Representative not be able to attend a meeting or meetings. In
the event an Authorized Representative appointed by a Partner dies or is
unwilling or unable to serve as such, such Partner shall promptly appoint a
successor to such Authorized Representative.
3.4 Actions Requiring a Majority Vote. Subject to the provisions of
Sections 3.5 and 3.6 hereof, neither the Managing Partner, nor any other Partner
nor any officer of the Partnership shall take any action, expend any sum, make
any decision or incur any obligation on behalf of the Partnership with respect
to any of the following matters, without a Majority Vote:
(a) the sale, pledge, assignment, lease or other disposition or
mortgaging or other encumbering of Partnership assets with an original
acquisition cost of more than $250,000 but less than $1,000,000;
(b) the adoption of the Budget for each Fiscal Year, which the Manager
shall present to the Partners, together with a business plan as revised for
such period as the Managing Partner determines, for their review no later
than November 1 of the prior Fiscal Year;
(c) requesting all Partners to make an Additional Capital
Contribution;
(d) making capital expenditures or commitments for capital
expenditures in amounts which exceed, taken together with all other such
commitments and expenditures, by 10% the amounts budgeted for such
commitments and expenditures in the Budget for the relevant Fiscal Year;
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(e) settling or initiating any claim or litigation involving the
Partnership and arising in the ordinary course of the Partnership's
business, except for minor employee grievances or proceedings and matters
involving less than $100,000;
(f) any decision to terminate the Management Services Agreement in
accordance with its terms or to enter into a replacement or successor
management agreement; provided, however, that the Managing Partner shall
not be entitled to vote on the termination of the Management Services
Agreement; and
(g) the merger or consolidation of the Partnership with any other
Entity, where the Partnership is the surviving Entity, provided, however,
that no Partner's Partnership Interest may be diluted by such merger or
consolidation hereunder unless the diluted Partner affirmatively agrees;
(h) making Distributions pursuant to the first sentence of Section
4.7(a) hereof; and
(i) requiring audited financial statements for the Partnership;
provided, however, that in no event shall (i) any Budget be adopted pursuant to
Section 3.4(b) above, (ii) any Additional Capital Contribution be requested from
any Partner pursuant to Section 3.4(c) above, (iii) any capital expenditure or
commitment for capital expenditure in connection with a proposed acquisition be
made by the Partnership pursuant to Section 3.4(d) above, (iv) any claim or
litigation be settled or initiated by the Partnership, pursuant to Section
3.4(e) above, or (v) any merger or consolidation be consummated, pursuant to
Section 3.4(g) above, without in any such case the consent of the Managing
Partner.
3.5 Actions Requiring a Supermajority Vote. Subject to the provisions of
Section 3.6 hereof, neither the Managing Partner, nor any other Partner nor any
officer of the Partnership shall take any action, expend any sum, make any
decision or incur any obligation on behalf of the Partnership with respect to
any of the following matters, without a Supermajority Vote:
(a) the admission of an additional Partner (other than pursuant to
Section 3.2(e) hereof and than a transferee or successor Partner pursuant
to Article 5) or, except as provided in Section 9.2(a)(i) hereof, the
redemption or purchase by the Partnership of any Partnership Interest;
provided, however, that no Partner's Partnership Interest may be diluted by
the addition of an additional Partner hereunder unless the diluted Partner
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affirmatively agrees; and further provided that TCP shall not be diluted
below a Partnership Interest of 35%;
(b) the merger or consolidation of the Partnership with any other
Entity, where the Partnership is not the surviving Entity, or the
incorporation of the Partnership;
(c) the sale, pledge, assignment, lease or other disposition or
mortgaging or other encumbering of Partnership assets with an aggregate
original acquisition cost of $1,000,000 or more;
(d) subject to the provisions of Section 4.3(b) hereof, the incurrence
of any indebtedness for borrowed money (or the making of any guaranty of
any indebtedness for borrowed money of any other Entity) in excess of
$100,000 in the aggregate at any time during the term hereof other than
loans pursuant to Section 4.4 hereof and indebtedness arising under any
fiber lease agreement between the Partnership and a Partner or an Affiliate
of a Partner;
(e) any decision relating to Federal Communications Commission or
other federal, state or local regulatory matters which has a material
adverse effect upon the Partnership or any Partner or any Affiliate of any
Partner in the Business Area;
(f) the assignment, transfer, pledge, compromise or release of any
claims of, or debts due, the Partnership, except upon payment in full, or
the arbitration or consent to the arbitration of any disputes or
controversies involving the Partnership, except for matters arising in the
ordinary course of the Partnership's business that involve an amount not in
excess of $75,000 (which shall be in the discretion of the Managing
Partner);
(g) settling or initiating any tax audit or any other claim or
litigation involving the Partnership and not arising in the ordinary course
of the Partnership's business;
(h) any general assignment for the benefit of creditors or the
commencement of any proceedings pursuant to any federal or state bankruptcy
or insolvency statutes;
(i) the dissolution or winding up of the Partnership (except as
specifically provided in Article 8) and the decision to continue the
business of the Partnership after dissolution pursuant to Section 8.3
hereof;
(j) filing any protest, petition or pleading with regard to any
Partnership tax return; and
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(k) subject to Section 3.6(c) hereof, entering into any agreement or
obtaining any license or franchise which restricts the transfer of
Partnership Interests or subjects the Partnership Interests to any security
interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on voting rights, charges or other encumbrances of
any nature whatsoever.
3.6 Special Voting Provisions. Notwithstanding any other provision of this
Agreement,
(a) if the Partnership desires to enter into a
transaction or agreement with a Partner or an Affiliate of a
Partner on terms which are less favorable to the Partnership
than could be obtained in an arms-length transaction with an
unaffiliated third party, or amend or waive any provision of
any such agreement, and if there are Partners who are not
involved, by themselves or through any Affiliate, in such
transaction or agreement, the Partnership shall not enter into
such transaction or agreement, or agree to such amendment or
waiver, without the unanimous consent of all disinterested
Partners;
(b) each Partner, by execution of this Agreement,
hereby consents to the execution and delivery, and the
performance by the Partnership of its obligations under, the
Management Services Agreement;
(c) the approval of all of the Partners shall be
required to enter into any agreement or to obtain any license
or franchise which restricts the transfer of Partnership
Interests or subjects the Partnership Interests to any
security interests, liens, claims, pledges, options, rights of
first refusal, agreements, limitations on voting rights,
charges or other encumbrances of any nature whatsoever, in
each case in a manner that discriminates among Partners; and
(d) the approval of a majority in Percentage
Interests of all of the disinterested Partners shall be
required to decline or approve the conduct of a business
activity proposed to be Engaged in, or an acquisition proposed
to be made, by the Partnership pursuant to Section 7.1 hereof.
3.7 Scope of Partners' Authority. The Managing Partner shall have exclusive
authority to act for and to assume any obligation or responsibility on behalf of
the Partnership, except as expressly restricted hereby, and no other Partner
shall have any authority to act for, or assume any obligation or
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responsibility on behalf of, the Partnership or another Partner except as
otherwise expressly provided herein or as expressly approved by a vote of the
Partners pursuant to Section 3.4, 3.5 or 3.6 hereof.
3.8 Indemnification of Partners; Allocation of Liabilities.
(a) The Partnership shall indemnify and save harmless the officers and
employees of the Partnership, the Managing Partner and the Authorized
Representatives of the Partners from any loss, damage or expense incurred
by any of them by reason of any act or omission to act on behalf of the
Partnership, performed by any of them in good faith and without gross
negligence, willful misconduct or breach of this Agreement. Any reasonable
expenses incurred by any indemnified person pursuant to this Section 3.8(a)
in defending any civil or criminal action, suit or proceeding (or the
threat thereof), other than a claim, action, suit or proceeding brought by
the Partnership, which is based, in whole or in part, upon any alleged act
or omission to act on behalf of the Partnership shall be borne and paid by
the Partnership in advance of the final disposition of such action, suit or
proceeding (or the threat thereof) upon receipt of an undertaking by or on
behalf of the indemnified person to repay to the Partnership the amount of
such expenses if it shall ultimately be determined that such person is not
entitled to the indemnification provided for under this Section 3.8(a). Any
indemnity under this Section 3.8(a) shall be provided out of and to the
extent of Partnership assets only.
(b) Each Partner shall indemnify and save harmless the Partnership and
each other Partner and former Partner, the partners or shareholders of each
other Partner and former Partner, and any of their respective officers,
directors, shareholders, partners, employees, agents and Affiliates, from
any loss, damage or expense incurred by any of them by reason of or
resulting from (i) any misrepresentation or breach of warranty of such
Partner set forth in this Agreement or (ii) any unauthorized act taken by
such Partner in the name of the Partnership or any other Partner. Any
reasonable expenses incurred by any Entity entitled to indemnification
pursuant to this Section 3.8(b) in defending any civil or criminal action,
suit or proceeding (or the threat thereof) by reason of or resulting from
any such indemnified matter shall be borne and paid by the indemnifying
Partner in advance of the final disposition of such action, suit or
proceeding (or the threat thereof) upon receipt of an undertaking by or on
behalf of the indemnified Entity to repay to the indemnifying Partner the
amount of such expenses if it shall ultimately be determined that such
Entity is not entitled to the indemnification provided for under this
Section 3.8(b). Any indemnity under this Section
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3.8(b) shall be provided out of and to the extent of the assets of the
indemnifying Partner only.
(c) With respect to the indemnities provided above in this Section
3.8, an indemnified party shall, with respect to any claim made against
such indemnified party for which indemnification is available, notify the
indemnifying party in writing of the nature of the claim as soon as
practicable but not more than ten days after the indemnified party shall
have received notice of the assertion thereof before any court or
governmental authority. The failure by an indemnified party to give notice
as provided in the foregoing sentence shall not relieve the indemnifying
party of its obligations under this Section except to the extent that the
failure results in the failure of actual notice to the indemnifying party
and the indemnifying party is damaged solely as a result of the failure to
give notice. Upon receipt of notice by an indemnifying party from an
indemnified party of the assertion of any such claim, the indemnifying
party shall employ counsel acceptable to the indemnified party and shall
assume the defense of such claim. The indemnified party shall have the
right to employ separate counsel and to participate in (but not control)
any such action, but the fees and expenses of such counsel shall be the
expense of such indemnified party unless (i) the employment of counsel by
such indemnified party has been authorized by the indemnifying party, (ii)
the indemnified party shall have been advised by its counsel in writing
that there is a conflict of interest between the indemnifying party and the
indemnified party in the conduct of the defense of such action (in which
case the indemnifying party shall not have the right to direct the defense
of such action on behalf of the indemnified party) or (iii) the
indemnifying party shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of
such counsel shall be at the expense of the indemnifying party. An
indemnifying party shall not be liable for any settlement of an action
effected without its written consent (which consent shall not be
unreasonably withheld). No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such
action. Whether or not the Partnership chooses to defend or prosecute a
claim, each Partner shall, to the extent requested by the Partnership and
at the Partnership's expense, cooperate in the prosecution or defense of
such claim and shall furnish such records, information and testimony and
attend such conferences, discovery proceedings, hearings, trials and
appeals as may reasonably be requested in connection therewith.
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(d) The provisions of this Section 3.8 shall survive the withdrawal of
any Partner from the Partnership and the dissolution of the Partnership.
3.9 Contribution. All liabilities, obligations or commitments incurred or
assumed by the Partnership (or to which it or its property or assets are
subject) ("Partnership Obligations") shall be payable first out of the assets of
the Partnership. Subject to the provisions of Section 3.8 hereof, if the assets
of the Partnership (determined without regard to any Capital Contributions by
the Partners pursuant to Section 8.2(b) hereof) are not sufficient at any time
to pay or discharge when due and payable any and all Partnership Obligations
(any such deficiency being referred to herein as a "Deficiency"), a Partner or
former Partner who pays all or any portion of such Deficiency (whether directly
or, in the case of a Partner, by making a contribution to the capital of the
Partnership pursuant to Section 8.2(b)) (a "Paying Partner") shall be entitled
to contribution from those Partners and former Partners that were Partners at
the time of the Partnership's incurrence or assumption of such Partnership
Obligation pursuant to this Section 3.9. Specifically, if any Paying Partner
pays (whether by direct payment or, in the case of a Partner, by making a
Capital Contribution to the Partnership pursuant to Section 8.2(b) hereof) a
portion of any Partnership Obligation included in such Deficiency that is in
excess of such Paying Partner's Pro Rata share of the unpaid portion of such
Partnership Obligation, based on its Percentage Interest at the time of
incurrence or assumption of such Partnership Obligation, then each other Partner
or former Partner which has not paid any portion of such Partnership Obligation,
or which has paid a portion which is less than its Pro Rata share thereof (based
on its Percentage Interest as of the date of incurrence or assumption), shall
contribute ratably to the Paying Partner so that each Partner and former Partner
shall have paid or contributed its Pro Rata share of such Partnership Obligation
based on its Percentage Interest as of the date of incurrence or assumption. The
payment by a Partner of any portion of a Deficiency hereunder shall be treated
as a Capital Contribution and shall be applied against any obligation of the
Paying Partner under Section 8.2(b) hereof. The provisions of this Section 3.9
shall survive the withdrawal of any Partner from the Partnership and the
dissolution of the Partnership.
3.10 Insurance and Bonds. Each Partner shall assist the Partnership to the
extent requested by the Manager or the Managing Partner in procuring
satisfactory insurance coverage, bonds and letters of credit for the Partnership
at the expense of the Partnership; provided, however, that in no event shall any
Partner be obligated pursuant to this Section 3.10 to assume any
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actual or contingent liability, financial risk or reimbursement obligation.
ARTICLE 4: CAPITALIZATION; ALLOCATION; DISTRIBUTIONS
4.1 Initial Capital Contributions.
(a) Each Partner shall be obligated to make Initial Capital
Contributions to the Partnership in the aggregate amount indicated for it
on the Information Appendix. Except as otherwise expressly provided in an
asset contribution agreement between the Partnership and a Partner, such
contributions shall be made by the Partners Pro Rata, in one or more
installments at such times and in such amounts as may be determined by the
Managing Partner. Each installment of an Initial Capital Contribution of a
Partner shall be due and payable within twenty Business Days of receipt by
such Partner of a request from the Managing Partner for such installment
(an "Initial Capital Payment Date"). A Partner which fails to make all or
any portion of an installment of its Initial Capital Contribution on or
before the related Initial Capital Payment Date is referred to herein as a
"Delinquent Partner", and the unpaid amount of the installment of its
Initial Capital Contribution is referred to herein as the "Initial Capital
Unpaid Amount" or as the "Unpaid Amount". Except as otherwise expressly
provided in an asset contribution agreement between the Partnership and a
Partner, all Initial Capital Contributions shall be in cash unless
otherwise determined by the Managing Partner.
(b) The Initial Capital Contributions have been set by the Managing
Partner based on its current expectations as to the cost of implementing
the initial phase of the construction and operation of the Partnership's
business in the Business Area. Although such costs of implementing the
initial phase may be more or less than currently anticipated, the amount of
the Initial Capital Contributions shall be neither increased nor decreased
without the consent of all Partners.
4.2 Additional Capital Contributions. The Partners may decide, by a
Majority Vote of the Partners pursuant to Section 3.4(c) hereof, that additional
Capital Contributions in excess of the Initial Capital Contributions
("Additional Capital Contributions") are required for the conduct of the
business of the Partnership. Such Additional Capital Contributions shall be made
by the Partners Pro Rata, in one or more installments at such times and in such
amounts as may be determined by the Managing Partner. Each Additional Capital
Contribution of a Partner shall be due and payable within thirty Business Days
of receipt by such Partner of a request from the Managing Partner for such
Additional Capital Contribution (an "Additional Capital
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Payment Date"). A Partner which fails to make all or any portion of an
Additional Capital Contribution on or before the related Additional Capital
Payment Date is referred to herein as a "Declining Partner", and the unpaid
amount of the Additional Capital Contribution is referred to herein as the
"Additional Capital Unpaid Amount" or as the "Unpaid Amount". All Additional
Capital Contributions shall be in cash unless otherwise determined by the
Managing Partner.
4.3 Failure to Make Capital Contributions.
(a) (i) Interest shall accrue on any Initial Capital Unpaid Amount in
respect of an Initial Capital Contribution which is not rescinded pursuant
to Section 4.3(b) below at the Prime Rate plus 6% per annum from and
including the Initial Capital Payment Date until such Unpaid Amount and all
interest accrued thereon are paid as provided in this Section 4.3 hereof.
The failure of the Delinquent Partner to pay to the Partnership the Initial
Capital Unpaid Amount together with accrued interest on or before the tenth
Business Day following the related Initial Capital Payment Date (such
failure being referred to herein as an "Initial Capital Payment Default")
shall be deemed an Event of Default for purposes of Article 9.
(ii) Interest shall accrue on any Additional Capital Unpaid Amount in
respect of an Additional Capital Contribution which is not rescinded
pursuant to Section 4.3(b) below at the Prime Rate plus 2% per annum from
and including the Additional Capital Payment Date until such Unpaid Amount
and all interest accrued thereon are paid to the Partnership; provided,
however, that no Additional Capital Contribution may be paid by a Declining
Partner to the Partnership more than twenty Business Days after the related
Additional Capital Payment Date; and provided, further, that no interest
shall be payable in the event the Declining Partner elects not to make the
Additional Capital Contribution. No Partner shall be required to make any
Additional Capital Contribution to the Partnership, and the failure by a
Partner to make an Additional Capital Contribution by the end of such
twenty Business Day period (such failure being referred to herein as an
"Additional Capital Refusal") shall not be deemed an Event of Default for
purposes of Article 9.
(b) If an Initial Capital Payment Default or an Additional Capital
Refusal occurs, the other Partners that have timely made the installments
of their Initial Capital Contributions or the Additional Capital
Contributions with respect to which such Initial Capital Payment Default or
Additional Capital Refusal occurred, as the case may be (the "Complying
Partners"), may, with the affirmative vote of Complying Partners (which
must include the affirmative vote of the Managing Partner if it is a
Complying Partner) with an
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aggregate Percentage Interest constituting not less than two-thirds of the
sum of the Percentage Interests of all Complying Partners, by notice given
to each Delinquent Partner or Declining Partner, as the case may be, and
each other Partner within ten Business Days after the occurrence of the
Initial Capital Payment Default or the Additional Capital Refusal:
(i) elect to cause the call of such installment of the Initial
Capital Contribution or such Additional Capital Contribution to be
rescinded (in which case no Initial Capital Payment Default or
Additional Capital Refusal shall be deemed to have occurred for
purposes of this Article 4 and no Event of Default in respect of an
Initial Capital Payment Default shall be deemed to have occurred for
purposes of Article 9 hereof);
(ii) elect to have such installment of the Initial Capital
Contribution or such Additional Capital Contribution made by the
Complying Partners to be deemed loans to the Partnership, rather than
as Capital Contributions, and to make additional loans to the
Partnership in an aggregate amount equal to the related Unpaid Amount;
(iii) elect to make loans to the Partnership in an aggregate
amount equal to the related Unpaid Amount; or
(iv) elect to make additional Capital Contributions ("Excess
Capital Contributions") to the Partnership in an aggregate amount
equal to the related Unpaid Amount;
provided, however, that the same election, if any, shall be made with
respect to each Delinquent Partner and Declining Partner in respect of any
request for an Initial Capital Contribution or Additional Capital
Contribution, as the case may be.
The Complying Partners shall not be obligated to make any election under
this Section 4.3(b). Neither the existence nor the exercise of any right of
election available to the Complying Partners under this Section 4.3(b)
shall affect the Remedies Partner's right to treat Delinquent Partners'
Initial Capital Payment Defaults as an Event of Default and to make any
election and pursue at any time any remedy then available pursuant to
Article 9 hereof.
(c) If an election is made pursuant to clause (i) of Section 4.3(b)
hereof, the Partnership shall promptly return to each Partner the amount of
the installment of the Initial
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Capital Contribution or the Additional Capital Contribution contributed by
it in respect of which the related Initial Capital Payment Default or the
Additional Capital Refusal occurred, together with interest, if any,
actually earned on such amount by the Partnership from and including the
Initial Capital Payment Date or the Additional Capital Payment Date to the
date such amount is returned to such Partner.
(d) If an election is made pursuant to clause (ii) or (iii) of Section
4.3(b) hereof, the indebtedness of the Partnership for the amount loaned
(or deemed loaned pursuant to clause (ii)) (each a "Capital Loan") shall be
evidenced by a promissory note of the Partnership in form and substance
reasonably satisfactory to the Complying Partners making such loans, shall
be unsecured, shall be subordinate to any senior debt of the Partnership,
shall bear interest at a rate per annum equal to the Prime Rate plus 2% per
annum and shall otherwise be on terms and conditions that are no less
favorable to the Partnership than it could obtain in connection with a loan
from a bank or other financial institution not an Affiliate of a Partner.
Only those Complying Partners that voted in favor of making the election
pursuant to clause (ii) or (iii) (each a "Capital Lending Partner") shall
be required to make Capital Loans to the Partnership (in excess of any
amount deemed a loan pursuant to clause (ii)). The amount of the Capital
Loan made by each Capital Lending Partner shall be in proportion to its
respective Percentage Interest relative to the sum of the Percentage
Interests of all Capital Lending Partners (in each case as in effect
immediately prior to the related Initial Capital Payment Default or
Additional Capital Refusal), or in such other proportion as the Capital
Lending Partners may agree upon among themselves.
(e) If an election is made pursuant to clause (iv) of Section 4.3(b)
hereof, only those Complying Partners that voted in favor of making such
election (each an "Excess Capital Contributing Partner") shall be required
to make Excess Capital Contributions. The amount of the Excess Capital
Contribution to be made by each Excess Capital Contributing Partner shall
be in proportion to its respective Percentage Interest relative to the sum
of the Percentage Interests of all Excess Capital Contributing Partners (in
each case as in effect immediately prior to the related Initial Capital
Payment Default or Additional Capital Refusal), or in such other proportion
as such Excess Capital Contributing Partners may agree upon among
themselves. Excess Capital Contributions shall be in addition to, and not
credited against, Initial Capital Contributions or Additional Capital
Contributions otherwise payable by the Partners.
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(f) (i) Whenever an Initial Capital Payment Default occurs, the
Percentage Interest of each Partner shall be adjusted (unless the Complying
Partners make an election pursuant to clause (i) or (ii) of Section 4.3(b)
hereof with respect to such Initial Capital Payment Default), with effect
from the related Initial Capital Payment Date, to equal the percentage
determined by dividing (A) the aggregate amount of Initial Capital
Contributions and Excess Capital Contributions actually made by such
Partner to the date of determination divided by (B) the sum of all Initial
Capital Contributions and Excess Capital Contributions actually made by all
Partners to the date of determination. In addition to the adjustment
provided in this Section 4.3(f)(i), and subject to Section 4.3(g) hereof,
the Delinquent Partner shall have no right to participate in any subsequent
call for Initial Capital Contributions or Additional Capital Contributions,
and each Partner's Percentage Interest shall be adjusted as of each
subsequent Initial Capital Payment Date and Additional Capital Payment Date
in accordance with this Section 4.3(f) and Section 4.3(g) hereof as though
such Delinquent Partner committed an Initial Capital Payment Default or
Additional Capital Refusal with respect to each such subsequent call for
Initial Capital Contributions or Additional Capital Contributions,
respectively.
(ii) Whenever an Additional Capital Refusal occurs, the Percentage
Interest of each Partner shall be adjusted (unless the Complying Partners
make an election pursuant to clause (i) or (ii) of Section 4.3(b) hereof
with respect to such Additional Capital Refusal), with effect from the
related Additional Capital Payment Date, to equal:
(A), prior to such time as the aggregate amount of Capital
Contributions requested to be made by the Partners exceeds an amount
equal to two times the sum of all of the Initial Capital Contributions
of the Partners shown on the Information Appendix (the "Threshold
Amount"), the percentage determined by dividing (I) the aggregate
amount of Initial Capital Contributions, Additional Capital
Contributions and Excess Capital Contributions actually made by such
Partner to the date of determination by (II) the sum of all Initial
Capital Contributions, Additional Capital Contributions and Excess
Capital Contributions actually made by all Partners to the date of
determination, or
(B), from and after such time as the aggregate amount of
Capital Contributions requested to be made by the Partners exceeds the
Threshold Amount, the percentage determined by
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dividing (I) the Fair Market Value of the Partnership Interest of such
Partner immediately prior to such Additional Capital Refusal, plus any
Additional Capital Contribution and Excess Capital Contribution made
by such Partner at the time of or following such Additional Capital
Refusal, by (II) the sum of the Fair Market Values of the Partnership
Interests of all of the Partners immediately prior to such Additional
Capital Refusal, plus the sum of all Additional Capital Contributions
and Excess Capital Contributions made by all of the Partners at the
time of or following such Additional Capital Refusal.
Notwithstanding the adjustment provided in this Section 4.3(f)(ii), the
Declining Partner shall have the right to participate in any subsequent
call for Additional Capital Contributions without being required to make
any missed Additional Capital Contribution. For purposes of this clause
4.3(f)(ii) only, the Fair Market Value of the Partnership Interests of all
of the Partners shall be determined by the Managing Partner, based on its
good faith estimate of such value, in connection with each proposed call
for Additional Capital Contributions. The Managing Partner's determination
of such Fair Market Value shall then be submitted to a vote of the Partners
at the time the vote required by Section 3.4(c) hereof to approve a call
for Additional Capital Contributions is taken. If such determination is
approved by a Majority Vote of the Partners, such determination shall be
final and binding on the Partners for purposes of any adjustment to the
Percentage Interests of the Partners pursuant to this clause 4.3(f)(ii)
which requires a determination of such Fair Market Value.
(g) A Delinquent Partner may, with the consent of the Managing Partner
(or, if the Delinquent Partner is the Managing Partner, with the consent of
Complying Partners with an aggregate Percentage Interest constituting not
less than two-thirds of the sum of the Percentage Interests of all
Complying Partners) and prior to the receipt by the Delinquent Partner of
the notice contemplated by Section 9.2 hereof, cure its Initial Capital
Payment Default by paying to the Partnership an amount (the "Make-up
Amount") equal to the Initial Capital Unpaid Amount plus accrued interest
thereon calculated pursuant to Section 4.3(a)(i) hereof. If an election was
made pursuant to clause (ii) of Section 4.3(b) hereof with respect to such
Initial Capital Payment Default, each Capital Lending Partner shall
contribute to the Partnership an amount equal to the related installment of
its Initial Capital Contribution that was deemed a loan, pursuant to clause
(ii) of Section 4.3(b) hereof, by the contribution to the Partnership of
the outstanding principal amount of all Capital Loans made by such Capital
Lending Partner
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in connection with such Initial Capital Payment Default together with an
outstanding principal amount of other Capital Loans made by such Capital
Lending Partner such that the aggregate amount of such contributed Capital
Loans is equal to the amount of such installment (and, if the balance of
the Capital Loans made by such Capital Lending Partner is less than the
amount of such installment, such Capital Lending Partner shall contribute
the difference in cash). The proceeds of the Make-up Amount shall first be
promptly applied by the Partnership to the payment of any accrued but
unpaid interest on the Capital Loans contributed to the Partnership and
thereafter to the repayment of the principal amount of any Capital Lending
Partner's Capital Loan which is in excess of the amount contributed by such
Partner in accordance with the immediately preceding sentence. If an
election was made pursuant to clause (iii) of Section 4.3(b) hereof, the
proceeds of the Make-up Amount shall first be applied by the Partnership to
the repayment of the principal of, and accrued but unpaid interest on, all
Capital Loans made with respect to such Initial Capital Payment Default,
and thereafter to the repayment of principal of, and unpaid interest on,
any other outstanding Capital Loans. If an election was made pursuant to
clause (iv) of Section 4.3(b) hereof, the proceeds of the Make-up Amount
shall first be promptly applied to the distribution to each Excess Capital
Contributing Partner an amount equal to its Excess Capital Contribution
plus interest thereon at the Prime Rate plus 2% per annum from and
including the date of such contribution to the date of such distribution.
If the Percentage Interests of the Partners were adjusted pursuant to
Section 4.3(f) hereof as a result of the Initial Capital Payment Default,
then upon payment by the Delinquent Partner of the Make-up Amount in full
in accordance with the foregoing provisions of this Section 4.3(g), the
Percentage Interests of the Partners shall be readjusted so as to restore
to the Delinquent Partner and the Complying Partners, for periods
subsequent to the payment of the Make-Up Amount, the respective Percentage
Interests they would have had but for such Initial Capital Payment Default.
4.4 Loans. If the Partners do not in the aggregate make all of the Capital
Contributions requested pursuant to Sections 4.1 or 4.2 above and an election is
not made pursuant to Section 4.3(b) above to make up the shortfall, the Remedies
Partner may, without a vote of the Partners, arrange for a loan to the
Partnership from a Partner, an Affiliate of a Partner or from any other
commercially reasonable source in an amount equal to the shortfall, which loan
shall bear interest at an annual rate no higher than the Prime Rate plus 2% per
annum and be on such other terms and conditions which the Remedies Partner, in
its good faith judgment, determines to be no less favorable to the Partnership
than could be obtained in connection with a loan from a bank or financial
institution not an Affiliate of a
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Partner. Subject to the applicable terms of the Partnership's credit agreements,
the proceeds, if any, of subsequent Capital Contributions or any proposed
Distribution shall be applied first to such loans until such loans, together
with accrued interest and any related fees, are paid in full, before any such
proceeds are used for any other Partnership purpose or any such proposed
Distribution is made to the Partners.
4.5 Calculations and Adjustments. The calculations of the Percentage
Interests provided in Section 4.3 hereof shall be made by the Remedies Partner,
and shall, in the absence of manifest error, be conclusive and binding on the
Partners. The Partnership shall use its best efforts to obtain any regulatory or
other consents or approvals required by any adjustment to the Percentage
Interests of the Partners pursuant to this Section prior to such adjustment, and
if such approval is not obtained, neither such adjustment nor the Capital
Contributions which would require such adjustment shall be made, or, if already
made, such Capital Contributions shall be returned to the Partners.
4.6 Capital Accounts. The term "Capital Account" shall mean with respect to
each Partner, the aggregate amount of such Partner's Initial Capital
Contribution, increased by:
(a) the amount of each Additional Capital
Contribution and Excess Capital Contribution made by it
pursuant to Section 4.2 or 4.3 hereof to the Partnership in
cash, if any;
(b) the fair market value without regard to Code
Section 7701(g) of property if any, contributed by it as an
Additional Capital Contribution or Excess Capital Contribution
pursuant to Section 4.2 or 4.3 hereof to the Partnership (net
of liabilities secured by such contributed property that the
Partnership is considered to assume or take subject to under
Code Section 752);
(c) allocations to it of Net Profit and other
items of income and gain pursuant to Section 4.8 hereof
and the Tax Appendix; and
(d) other additions made in accordance with the
Code and Regulations;
and decreased by:
(i) the amount of cash distributed to it by the
Partnership;
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(ii) allocations to it of Net Loss and other items of
loss and deduction pursuant to Section 4.8 hereof and the Tax
Appendix;
(iii) the fair market value without regard to Code
Section 7701(g) of property distributed to it by the
Partnership (net of liabilities secured by such distributed
property that such Partner is considered to assume or take
subject to under Code Section 752); and
(iv) other deductions made in accordance with the
Code and Regulations.
The Capital Accounts shall be determined and maintained at all times in
accordance with all of the provisions of Regulations Section 1.704-1(b)(2)(iv).
An individual account shall be established and maintained on the books of the
Partnership for each Partner in accordance with the Code. In the event any
Partnership Interest is transferred in accordance with the provisions of Article
5 hereof, the transferee of such Partnership Interest shall succeed to the
portion of the transferor's Capital Account attributable to such interest.
4.7 Distribution of Partnership Funds.
(a) The Managing Partner may, after the establishment of such reserves
as it deems appropriate, upon a Majority Vote of the Partners and subject
to restrictions imposed by the Partnership's lenders, if any, and subject
to Section 4.4 hereof, make Distributions to the Partners at any time and
from time to time during the term of the Partnership. In addition, at the
end of each Fiscal Year after the third full Fiscal Year of the
Partnership, the Managing Partner shall distribute, subject to restrictions
imposed by the Partnership's lenders and subject to Section 4.4 hereof,
that amount of cash in the accounts of the Partnership which exceeds two
times the sum of, without duplication, (i) all reserves or other working
capital items relating to any previous Fiscal Year and (ii) the aggregate
amount allocated in the Budget for the next Fiscal Year for reserves,
losses, capital expenditures and debt repayment and working capital, if
any. All such Distributions (other than Distributions pursuant to Section
8.2 hereof) will be made to the Partners Pro Rata.
(b) No Partner shall have the right to withdraw any amount from its
Capital Account, or to receive any Distribution, except as provided in
Sections 4.7(a) and 8.2 hereof. Notwithstanding the foregoing, the
Partnership shall pay in full all loans extended by Partners to the
Partnership prior to making any Distributions to the Partners.
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4.8 Allocation of Net Profits and Losses. As of the end of each Fiscal Year
of the Partnership, the Net Profit or Net Loss of the Partnership shall be
allocated to the Partners in accordance with their Percentage Interests, except
as otherwise provided in the Tax Appendix.
4.9 Tax Appendix. The provisions of this Article 4 shall be subject to the
provisions of the Tax Appendix.
ARTICLE 5: TRANSFERS OF PARTNERSHIP INTERESTS; RIGHT OF FIRST REFUSAL
5.1 Restrictions on Transfer.
(a) A Partner shall, directly or indirectly, offer, sell, transfer,
assign, grant a participation in, pledge or otherwise dispose of any of its
Partnership Interest only in a transaction that (i) is expressly permitted
by this Agreement, (ii) is in accordance with agreements entered into by
the Partnership with third parties to which transfers of interests in the
Partnership are subject (unless the breach of such agreements, other than
this Agreement, would not have a material adverse effect on the
Partnership), and (iii) in which the transferee becomes a party to this
Agreement. A Change in Control of a Partner shall constitute a transfer by
such Partner subject to the provisions of this Article 5 (an "Indirect
Transfer").
(b) Except as expressly permitted by this Agreement, each Partner
shall (i) be the owner of the Partnership Interest indicated in the
Partnership's records as being owned by such Partner, in each case free and
clear of any pledge, lien, security interest, charge, claim, equity, option
or encumbrance of any kind, and (ii) have sole voting power with respect to
such Partner's Partnership Interest and will not grant any proxy with
respect to such Partnership Interest, enter into any voting trust or other
voting agreement or arrangement with respect to such Partnership Interest
or grant any other rights to vote such Partnership Interest; provided,
however, that the foregoing shall not be construed to limit the ability of
a Partner to enter into agreements with respect to sales permitted by this
Agreement or to enter into agreements not inconsistent with this Agreement
that restrict such Partner's ability to transfer its Partnership Interest.
(c) After any sale, assignment, transfer or other conveyance of a
Partnership Interest in accordance with the provisions of this Agreement,
the transferred Partnership Interest shall continue to be subject to all of
the provisions of this Agreement, including the provisions of this Article
5.
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<PAGE>
5.2 Exceptions to Restrictions on Transfers. The restrictions contained in
the other Sections of this Article 5 (other than Section 5.7 hereof) shall not
apply to the transactions set forth in this Section 5.2.
(a) A Partner may transfer to any Controlled Affiliate which is a
Subsidiary of its Parent, all, but not less than all, of its Partnership
Interest, and TCP may transfer to TCGI or any Subsidiary of TCGI all or any
part of its Partnership Interest, provided that, in each such case, the
transferee assumes the obligations of the transferor under this Agreement
with respect to such Partnership Interest and becomes a party to this
Agreement.
(b) A Partner may permit an Indirect Transfer that results from the
sale or other disposition of all or substantially all of the stock or
assets of the Parent of such Partner, provided that the Parent of the
transferee agrees to execute a Parent Undertaking.
(c) If a Partner conducts, or has a Controlled Affiliate which
conducts, a business in the Business Area and in connection with such
business such Partner or Controlled Affiliate has entered into a fiber
lease agreement or other agreement for the use of fiber optic
telecommunications facilities, then such Partner shall have the right, but
shall not be obligated, to sell its Partnership Interest to the buyer (the
"Acquirer") of all or substantially all of the assets of such business or
of all or substantially all of the outstanding stock of such Partner or
Controlled Affiliate, on any terms and conditions acceptable to it, so long
as, in the case of a sale of the assets of such business of such Partner or
Controlled Affiliate, the Acquirer becomes a party to this Agreement and
assumes the obligations of the selling Partner or Controlled Affiliate
under such fiber lease agreement or other agreement for the use of
facilities and that in any case the Parent of the Acquirer executes a
Parent Undertaking; provided, however, that if the Acquirer or any
Affiliate of the Acquirer is Engaged in the Exclusive Business in the
Business Area, such Partner shall not have the right to sell its
Partnership Interest to the Acquirer unless such sale is approved by a
Supermajority Vote.
5.3 Rollup Provisions.
(a) Subject to Section 5.3(b) below, but notwithstanding any other
provision herein, at any time after the third anniversary of the date
hereof, any Partner (the "Rollup Partner"), with the consent of TCGI, which
may be withheld in TCGI's sole discretion, may transfer (or permit an
Indirect Transfer of) all or any part of its Partnership Interest to TCGI
for stock of TCGI. The terms and conditions of such transfer,
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including the amount of stock of TCGI to be received by the transferring
Partner, shall be determined between the transferring Partner and TCGI;
provided, however, that TCGI shall not be obligated to accept any such
transfer, and TCGI shall have no liability with respect to such
negotiations or for failure to reach agreement with respect thereto for any
reason whatsoever.
(b) No Partner may transfer (or permit an Indirect Transfer of) all or
any part of its Partnership Interest to TCGI, unless TCGI shall first have
delivered a written offer (the "Rollup Offer") to each other Partner to
purchase (directly or by an Indirect Transfer) all or part of such
Partner's Partnership Interest on the same terms and in the same proportion
as TCGI has agreed to purchase the Rollup Partner's Partnership Interest
(based on the respective Percentage Interests, immediately prior to such
rollup, of all Partners (including the Rollup Partner) who desire to
participate in such rollup). Each Partner that desires to participate in
such rollup shall give notice to TCGI (and deliver a copy thereof to each
other Partner) of its election (a "Rollup Election") to sell to TCGI the
portion of its Partnership Interest to be determined as described above on
the terms and conditions applicable to the proposed sale by the Rollup
Partner (including the per Percentage Interest consideration proposed to be
paid to the Rollup Partner). The right to make a Rollup Election shall
terminate if notice thereof has not been given to TCGI and each other
Partner by the twentieth Business Day after receipt of the Rollup Offer.
(c) Any transfer pursuant to this Section 5.3 shall be exempt from the
restrictions contained in the other Sections of this Article 5.
5.4 Right of First Refusal.
(a) If, other than pursuant to Section 5.2, 5.3 or 5.5 hereof, any
Partner (the "Selling Partner"), at any time after the third anniversary of
the date hereof, desires to sell all, but not less than all, of its
Partnership Interest, whether by sale of such Partnership Interest, sale of
all of the equity interests of such Selling Partner, or the sale of equity
interests of an Entity that would result in a Change in Control of the
Selling Partner (in each such case, the portion thereof consisting of the
Partnership Interest only being the "Offered Interest"), to an unaffiliated
third party offeror who has made a bona fide written offer to purchase the
Offered Interest (or assets of which the Partnership Interest forms a part)
and who is financially capable of consummating such purchase (the
"Offeror"), it shall deliver to the other Partners a notice (a "Notice of
Sale") of its intention to sell the Offered Interest to the Offeror. The
Notice of Sale shall include the economic terms and conditions of such
sale, including the name of the
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Offeror and controlling owners, principal officers and directors (subject
to any legal or contractual restrictions on the disclosure of such
identity) and the price for the Offered Interest and shall contain the
Selling Partner's offer to sell the Offered Interest to the other Partners
on such terms and conditions. If the offer from the Offeror is given or
received in connection with a transaction pursuant to which assets or
ownership interests in addition to the Offered Interest are proposed to be
disposed of (including, without limitation, pursuant to an Indirect
Transfer), the Notice of Sale shall also contain the Selling Partner's good
faith estimate, based on reasonable allocation and attribution methods, of
the portion of the aggregate consideration for the assets or ownership
interests to be disposed of which is reasonably allocated to the Offered
Interest, which shall be the purchase price for the Offered Interest (which
price shall, unless otherwise agreed by the Electing Partners (as defined
below), be payable in cash). The non-Selling Partners shall enter into
appropriate confidentiality agreements as reasonably requested by the
Selling Partner in connection with the offer from the Offeror and the
information contained in the Notice of Sale. If a non-Selling Partner
desires to accept such offer as to at least its Pro Rata portion of the
Offered Interest, such Partner (an "Electing Partner") shall, within
fourteen days of receipt of such Notice of Sale, notify the Selling Partner
of its intention to acquire its full Pro Rata portion of the Offered
Interest and deliver a copy of such notice to each other non-Selling
Partner. If a non-Selling Partner does not elect to acquire its Pro Rata
portion of the Offered Interest, the Selling Partner shall notify the
Electing Partners of the portion of the Offered Interest remaining, and
each Electing Partner shall then have ten days after the later of receipt
of such notice and the expiration of the fourteen day period described
above to notify the Selling Partner of its intention to acquire such
unacquired portion of the Offered Interest (the "Uncommitted Portion")
(and, if more than one Electing Partner notifies the Selling Partner of its
willingness to purchase the Uncommitted Portion then, unless otherwise
agreed by such Electing Partners, the Uncommitted Portion shall be
allocated among the Electing Partners who have so notified the Selling
Partner Pro Rata). The Electing Partners shall have ninety days after the
termination of the foregoing procedure to enter into a binding agreement
with the Selling Partner to acquire all of the Offered Interest on the
economic terms and conditions set forth in the Notice of Sale; provided,
however, that if the purchase price set forth in the Notice of Sale is not
all cash, the Selling Partner and the Electing Partners shall negotiate in
good faith as to the value of the non-cash consideration, and the Electing
Partners shall have the right to pay the purchase price for the Offered
Interest all in cash. The Selling Partner and the Electing Partners shall
negotiate in good
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faith to enter into a binding agreement with respect to the sale of the
Offered Interest, which binding agreement shall contain:
(i) the representation and warranty of the Selling Partner
that the Electing Partners will receive good and valid title
to the Offered Interest, free and clear of all security
interests, liens, claims, pledges, options, rights of first
refusal, agreements, limitations on voting rights, charges and
other encumbrances of any nature whatsoever except as set
forth in this Agreement or otherwise applicable to all of the
Partnership Interests and except for governmental, regulatory
and other third party consents and approvals required for
transfers of partnership interests generally;
(ii) the following conditions to the closing of such
sale:
(A) all applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated
thereunder, shall have expired or been terminated;
(B) all governmental approvals and other third party
consents expressly required with respect to the
transactions to be consummated at such closing shall
have been obtained, to the extent the failure to
obtain such approvals or consents would prevent the
Selling Partner from performing any of its material
obligations under the transaction documents or would
result in any materially adverse change in, or
materially adverse effect on, the business, assets,
results of operations, financial condition or
prospects of the Partnership and the Entities
controlled by the Partnership taken as a whole;
(C) there shall be no preliminary or permanent
injunction or other order by any court of competent
jurisdiction restricting, preventing or prohibiting
the consummation of the transactions to be
consummated at such closing; and
(D) the representation and warranty of the Selling
Partner contemplated by clause (i) of this sentence
shall be true and correct at the closing of such sale
with the same force and effect as if then made; and
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(iii) such other representations, warranties, conditions and
indemnifications as may be agreed upon by the Selling Partner
and the Electing Partners.
(b) If non-Selling Partners do not notify the Selling Partner of their
intention to acquire, in the aggregate, all the Offered Interest within the
period set forth in Section 5.4(a) hereof or if a binding agreement to
purchase all of the Offered Interest covered by the Notice of Sale is not
entered into within the ninety day period set forth in Section 5.4(a)
hereof for any reason other than a violation of this Section 5.4 or
wrongful acts or willful bad faith on the part of the Selling Partner, or
if a purchase covered by such a binding agreement is not consummated within
the period provided in Section 5.9 hereof, for any reason other than a
breach by the Selling Partner of any of its covenants, representations or
warranties in such binding agreement that are a condition to consummation
of such purchase, the Selling Partner shall have the right, at any time
during the one year period after the expiration of the relevant period, to
close on a sale of all of the Offered Interest to the Offeror on economic
terms and conditions no less favorable in the aggregate to the Selling
Partner than those set forth in the Notice of Sale. The Selling Partner
shall, as promptly as practicable and prior to the closing of such sale,
provide to the other Partners a copy of the agreement for the sale of the
Offered Interest so as to permit the non-Selling Partners to confirm for
themselves that the economic terms and conditions of such sale are not less
favorable in the aggregate to the Selling Partner than those set forth in
the Notice of Sale. If the Selling Partner does not close the sale of the
Offered Interest to the Offeror during such one year period, the procedure
set forth above with respect to the Notice of Sale shall be repeated with
respect to any subsequent proposed sale of the Partnership Interest of the
Selling Partner (whether by sale of such Partnership Interest, sale of all
of the equity interests of such Selling Partner, or the sale of equity
interests of an Entity that would result in a Change in Control of the
Selling Partner).
(c) In furtherance of the rights set forth in this Section, each
Partner and the Partnership agree that, following receipt of notice that a
Selling Partner desires to sell an Offered Interest to a potential Offeror
and upon execution by such potential Offeror of a letter of intent and a
confidentiality agreement in form and substance reasonably satisfactory to
the Managing Partner, at reasonable times and without interfering with the
business or operations of the Partnership, the Managing Partner will take
all necessary action to:
(i) provide to such potential Offeror and its employees and
agents reasonable access to all books
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and records of the Partnership and any and all reports, budgets,
proposals or other written material prepared by or on behalf of the
Partnership;
(ii) make the officers and employees of the Partnership available
for meetings with such potential Offeror and its employees and agents;
(iii) permit on-site visits to the Partnership's facilities by
such potential Offeror and its employees and agents;
(iv) provide full and free access to a data room to such
potential Offeror and its employees and agents;
(v) assist the Selling Partner in obtaining all necessary
consents to any disposition of the Offered Interest; and
(vi) assist in the preparation of any descriptive memoranda or
other sales materials relating to the Partnership and give the Selling
Partner the right to share such information with such potential
Offeror and its employees and agents;
provided that in each case, the Selling Partner agrees to reimburse the
Partnership and the other Partners for any out of pocket expenses incurred
by them in connection with the foregoing actions. Notwithstanding the
foregoing, if non-Selling Partners have timely notified the Selling Partner
pursuant to Section 5.4(a) hereof of their intention to acquire all of the
Offered Interest, then the Partnership and the Partners shall not be
obligated to comply with the covenants contained in this Section 5.4(c)
during the period that a binding agreement for such acquisition is being
negotiated or thereafter (subject to such binding agreement being executed
and the closing thereunder occurring within the applicable time limitations
set forth in Sections 5.4(a) and 5.9 hereof).
5.5 Purchases by the Partnership or its Assignee.
(a) If, after the consummation of any rollup transaction pursuant to
the provisions of Section 5.3(a) and (b) above, Partners (the "Minority
Partners") other than TCP, TCGI and their Controlled Affiliates hold in the
aggregate no more than 10% of the outstanding Percentage Interests, then
the Partnership (or any Entity to which the Partnership assigns such right)
shall have the right at any time thereafter to purchase all, but not less
than all, of the Partnership Interests of the Minority Partners for a
purchase price equal to the Fair Market
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Value of such Partnership Interests determined in accordance with the
appraisal process provided in Section 5.8 hereof.
(b) The Partnership shall have the right at any time to purchase all,
but not less than all, of the Partnership Interest of any Partner the
Percentage Interest of which is 3% or less of the outstanding Percentage
Interests for a purchase price equal to the Fair Market Value of such
Partnership Interest determined in accordance with the appraisal process
provided in Section 5.8 hereof.
(c) If a Partner, which had the right pursuant to Section 5.2(c) above
to sell its Partnership Interest (or would have had such right except that
the Acquirer (as that term is defined in Section 5.2(c) hereof) is Engaged
in the Exclusive Business in the Business Area), elects not to do so or is
prevented from doing so pursuant to the proviso to the first sentence of
Section 5.2(c) hereof, and as a result thereof neither such Partner nor any
Affiliate of such Partner is a party to a fiber lease agreement or other
agreement for the use of fiber optic telecommunications facilities with the
Partnership, then the Partnership shall have the right, at any time after
the date which is ninety days after the consummation of the sale described
in Section 5.2(c) hereof, to purchase all, but not less than all, of the
Partnership Interest of such Partner for a purchase price equal to the
greater of (i) 90% of the Fair Market Value of such Partnership Interest
determined in accordance with the appraisal process provided in Section 5.8
hereof; or (ii) 100% of the Fair Market Value of such Partnership Interest
determined in accordance with the appraisal process provided in Section 5.8
hereof, if the Acquirer is prohibited by law from acquiring the Partner's
Partnership Interest; provided, however, that if the acquisition by the
Acquirer described in Section 5.2(c) occurs after the third anniversary of
the date hereof and if prior to the end of such ninety day period, such
Partner receives an offer from an Offeror (as described in Section 5.4(a))
other than the Acquirer, then the provisions of Section 5.4 shall apply and
the provisions of this Section 5.5(c) shall only apply to that portion of
the Offered Interest, if any, which remains after completion of the
application of Section 5.4.
5.6 Put Rights Upon Merger or Consolidation of the Partnership. If the
Partners decide pursuant to Section 3.5(c) to merge or consolidate with another
Entity and the Partnership is not the surviving Entity, each Partner which voted
against such merger or consolidation shall have the right for thirty days after
such vote to require that the Partnership (or its designee) purchase all of such
Partner's Partnership Interest on the terms set forth in this Section. Such put
shall be exercisable by delivery within such thirty day period to the
Partnership of notice of exercise by such Partner. The purchase price to be
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paid to such Partner for its Partnership Interest pursuant to this Section shall
be paid in cash and shall be the greater of (i) the Fair Market Value of such
Partner's Partnership Interest prior to the merger or consolidation, as
determined in accordance with the provisions of Section 5.8 hereof, or (ii) the
Fair Market Value of such Partner's Partnership Interest after the merger or
consolidation, as determined in accordance with the provisions of Section 5.8
hereof. The closing of the purchase and sale of such Partner's Partnership
Interest shall occur and be conducted in accordance with the provisions of
Section 5.9 hereof.
5.7 Prohibited Transfers. Notwithstanding any provision to the contrary in
this Article 5, except pursuant to a transaction contemplated by Section 5.3, no
Partner may transfer any Partnership Interest if the interest sought to be
transferred, when added to the total of all other Partnership Interests
transferred within a period of twelve consecutive months prior thereto, equals
or exceeds 50% of the aggregate of all Partnership Interests, except with the
prior written consent of all of the other Partners. A transfer of the equity
interests in a Partner which is a corporation or in an Entity of which such
Partner is a direct or indirect corporate Subsidiary shall not constitute a
transfer prohibited by, or taken into consideration in determining the
applicability of, this Section.
5.8 Appraisal Process. The Fair Market Value of a Partner's Partnership
Interest for purposes of this Agreement shall be determined as follows:
(a) The Partners shall endeavor to agree upon such
Fair Market Value.
(b) If the Partners fail to agree within thirty
Business Days after the date of the occurrence of the
event necessitating valuation of the Partner's
Partnership Interest, then the Fair Market Value of
such Partnership Interest shall be determined by
independent appraisal, such appraisal to be made by a
qualified appraiser selected by the Partner whose
Partnership Interest is being appraised (the
"Appraisal Partner") and the Partners holding a
majority in Percentage Interests (excluding the
Percentage Interest of the Appraisal Partner). If the
Partners have not agreed on the selection of an
appraiser within five Business Days after the
expiration of such thirty Business Day period, then
the Appraisal Partner shall select one appraiser and
the Partners holding a majority in Percentage
Interests (excluding the Percentage Interest of
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the Appraisal Partner) shall select a second
appraiser, such selections to be made promptly and in
any event within ten Business Days after the
expiration of the foregoing five Business Day period.
(If only one appraiser is timely selected within such
ten Business Day period, the appraisal shall be made
solely by such timely-selected appraiser.) The
appraiser, or each appraiser in the event of more
than one appraiser, shall submit its determination of
the Fair Market Value of the Appraisal Partner's
Partnership Interest within forty-five Business Days
of the date of its selection. If there are two
appraisers and their respective determinations of
such Fair Market Value vary by 10% or less of the
higher of such determinations, the Fair Market Value
of the Appraisal Partner's Partnership Interest shall
be the average of the two determinations. If such
determinations vary by more than 10% of the higher of
such determinations, the determination of the Fair
Market Value of the Appraisal Partner's Partnership
Interest shall be decided by arbitration by the
office of the American Arbitration Association
located in or nearest to the Business Area in
accordance with the Commercial Arbitration Rules of
the American Arbitration Association.
(c) Any determination of Fair Market Value pursuant
to this Section 5.8 shall be final and binding on the
Partners. No appraiser selected pursuant to Section
5.8(b) shall be affiliated with any Partner and each
shall be an investment banker or other qualified
person with prior experience in appraising businesses
comparable to the business of the Partnership. The
fees and expenses of any appraisers or arbitrators
shall be paid by the Partnership.
5.9 Closing of any Permitted Transfer. Unless otherwise agreed between the
buyer and seller, the closing of a purchase and sale of a Partnership Interest
permitted by this Agreement (other than pursuant to Section 5.4(b) or Section
5.2(c)) shall take place at the offices of the Partnership on or before the
thirtieth day after the later of:
(a) the completion of the appraisal process, if
applicable;
(b) the expiration or termination of all
applicable governmental waiting periods;
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(c) the receipt of all necessary governmental
consents needed to approve the transactions contemplated
herein, which consents have not been reversed, stayed,
enjoined, set aside, annulled or suspended, and with respect
to which no requests are pending for administrative or
judicial review, reconsideration, appeal or stay, and the time
for filing any such requests and the time for the issuer of
such consent to set aside the action on its own motion have
expired;
(d) the receipt of all material third party
consents needed to approve the transactions
contemplated herein; and
(e) the termination of any applicable preliminary or
permanent injunction or other order by any court of competent
jurisdiction restricting, preventing or prohibiting the
consummation of such purchase and sale.
At said closing, the purchaser shall pay the total purchase price against the
seller's delivery to the purchaser of instruments representing or evidencing the
Partnership Interest purchased, all duly endorsed and accompanied by assignments
as are sufficient to effect due transfer of the ownership of such interest to
the purchaser.
5.10 Remedies. No actual or purported disposition of any Partnership
Interest (or any portion thereof), nor any right thereto, whether voluntary or
involuntary, direct or indirect, in violation of any provision of this Agreement
shall be valid or effective to grant any Entity any right, title or interest in
or to such Partnership Interest (or portion thereof). The transferor of any
Partnership Interest (or portion thereof) disposed of in violation of any
provision of this Agreement, until such disposition or purported disposition
shall have been rescinded, shall not be entitled to exercise any of the rights
of a Partner or to receive any Distributions from the Partnership from and after
the date of such disposition or purported disposition or failure to comply, as
the case may be. Notwithstanding the foregoing, to the extent that a Partner
would have been entitled to Partnership Distributions but for the preceding
provisions of this Section, if and when such disposition or purported
disposition shall be rescinded or such failure to comply shall be cured, such
Partner shall be entitled to receive all such Partnership Distributions (but no
interest shall be paid thereon with respect to the period between the date on
which such Partnership Distributions would have been made but for this Section
and the date they are actually made).
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ARTICLE 6: BOOKS AND RECORDS; ACCOUNTING; FISCAL YEAR
6.1 Books and Records. The Managing Partner shall keep, or cause to be kept
by the Manager pursuant to the Management Services Agreement, current and
complete records and books of account in which shall be entered fully and
accurately all transactions of the Partnership. The books of the Partnership
shall be kept on an accrual basis of accounting and in accordance with generally
accepted accounting principles consistently applied. The Partnership's books and
records shall be maintained at the principal offices of the Managing Partner and
shall be available for inspection and copying by the Partners or their duly
authorized representatives during normal business hours.
6.2 Financial Statements. The Managing Partner shall cause to be delivered
to each Partner the following financial statements prepared, in each case, in
accordance with generally accepted accounting principles consistently applied
(and, if required by any Partner for purposes of reporting under the Securities
Exchange Act of 1934, Regulation S-X):
(a) Promptly upon availability, but in any event within thirty days of
the end of each month, (i) a balance sheet as of the end of such month; and
(ii) the related statements of income or loss, Partner's capital
(deficiency), and cash flows for the interim period through the end of such
month and for the month then ended, and setting forth in each case in
comparative form the figures for such previous fiscal periods as any
Partner may reasonably request and comparisons to budget;
(b) Promptly upon availability but in any event within forty days of
the end of each quarter, (i) a balance sheet as of the end of such quarter;
and (ii) the related statements of income or loss, Partner's capital
(deficiency), and of cash flows for the interim period through the end of
such quarter and for the quarter then ended, and setting forth in each in
comparative form the figures for such previous fiscal periods as any
Partner may reasonably request and comparisons to budget;
(c) Promptly upon availability, but in any event within eighty-five
days of the end of each Fiscal Year, a balance sheet of the Partnership as
of the end of such Fiscal Year, and the related statements of income or
loss, Partner's capital (deficiency) and cash flows for such Fiscal Year,
all in reasonable detail with appropriate notes to such financial
statements and supporting schedules, setting forth in each case in
comparative form the figures for the previous year, which financial
statements may, at the option of the Managing Partner, be certified by a
nationally recognized accounting firm;
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(d) Together with the annual statements required pursuant to Section
6.2(c) above, a report of the Net Profit or Net Loss and Distributions, if
any, for such Fiscal Year, a schedule setting forth each Partner's Capital
Account as at the end of the period covered by such statements and a
Schedule K-1 for each Partner, a copy of the Partnership's federal and
state tax returns and other information required by applicable tax
regulations or necessary for each Partner to prepare its federal, state and
local tax returns; and
(e) With reasonable promptness, such other financial information or
reports as any Partner may reasonably request from time to time.
6.3 Bank Accounts. The Partnership shall maintain bank accounts in such
banks or institutions as the Managing Partner from time to time shall select,
and such accounts shall be drawn upon by check signed by such person or persons,
and in such manner, as may be designated by the Managing Partner. All moneys of
the Partnership shall be deposited in the bank or other financial institution
account or accounts of the Partnership. Partnership funds shall not be
commingled with those of any other Entity without the consent of all Partners.
6.4 Fiscal Year. The Partnership's fiscal year for income tax purposes and
for financial and partnership accounting purposes shall be the Fiscal Year.
ARTICLE 7: OTHER BUSINESS ACTIVITIES
7.1 Conduct of Exclusive Business in Business Area.
(a) Except as expressly permitted in this Article 7 or in the
Information Appendix, for so long as it is a Partner and, and unless it
ceases to be a Partner as a result of a purchase of its Partnership
Interest pursuant to Section 5.5 hereof, for three years after it ceases to
be a Partner (but in no event beyond the expiration or earlier termination
of this Agreement), no Partner shall Engage, or permit its Controlled
Affiliates to Engage, in the Business Area in an activity encompassed in
the Exclusive Business without having first offered to the Partnership
(outside of the Budget process) the opportunity to Engage, in lieu of such
Partner or Controlled Affiliate, in such activity (the "Offer"), which
offer shall set forth in reasonable detail the nature and scope of the
activity proposed to be Engaged in. The Partnership shall have thirty days
from its receipt of the Offer to accept or reject it. If the Partnership
fails to accept the Offer within such thirty day period, it shall be deemed
to have rejected the Offer, and the offering Partner or its Controlled
Affiliate shall be permitted
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to Engage in such activity in the Business Area. If the Partnership accepts
the Offer, the offering Partner and its Controlled Affiliates shall not
Engage in such activity in the Business Area; provided, however, that if
the Partnership accepts the Offer but does not within a reasonable period
of time after such acceptance take reasonable steps to commence such
activity, other than as a result of a violation of this Agreement or
wrongful acts or willful bad faith on the part of the offering Partner, or
any of its Controlled Affiliates, the offering Partner or its Controlled
Affiliate, as the case may be, shall be permitted to Engage in such
activity. If the offering Partner or Controlled Affiliate does not take
reasonable steps to commence such activity within a reasonable period of
time after acquiring the right to do so, it shall lose its right to Engage
in such activity, and, thereafter, be required to reoffer the opportunity
to do so to the Partnership in accordance with, and shall otherwise comply
with, the foregoing provisions of this Section 7.1. The foregoing to the
contrary notwithstanding, TCP shall not be subject to the restrictions set
forth in this Section 7.1(a) after it ceases to be a Partner if it has sold
its Partnership Interest after being removed as the Managing Partner
pursuant to Section 3.2(d) hereof. It is the Partners' good faith intent
that the Partnership shall be the primary vehicle for the conduct of the
Exclusive Business in the Business Area, and it is contemplated that this
provision will be utilized by a Partner or its Controlled Affiliates only
under unusual or exceptional circumstances and not for the purpose of
avoiding or subverting the purposes and intent of this Agreement. If the
Partnership determines not to accept an Offer, the Partner making the Offer
shall use its best efforts to negotiate, or, if the Offer was made by a
Controlled Affiliate of a Partner, such Partner shall use its best efforts
to cause such Controlled Affiliate to negotiate, agreements with the
Partnership, which are reasonable in the independent judgment of both
parties, pursuant to which the Partnership, alone or jointly with such
Partner or its Controlled Affiliates, would provide appropriate service to
customers in the locations in which the activity described in the Offer is
conducted.
(b) If the Partnership does not accept an Offer pursuant to Section
7.1(a) above, it shall have the right, by notice given to the Partner or
its Controlled Affiliate on the third anniversary of its rejection of such
Offer or within thirty days thereafter, to require that such Partner or
Controlled Affiliate negotiate in good faith with the Partnership for the
sale to the Partnership at the greater of fair market value or cost of the
assets and business comprising such activity or, at the option of such
Partner or Controlled Affiliate, of the stock or other equity interests in
the Entity Engaged exclusively in such activity (and may concurrently
suggest, without any obligation on the part of the Partnership, alternative
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transaction structures such as joint ventures and management contracts). If
such negotiations are not successful, the parties to such negotiations
shall, at the request of the Partnership, use their best efforts to
negotiate agreements with the Partnership, which are reasonable in the
independent judgment of both parties, pursuant to which the Partnership,
alone or jointly with such Partner or its Controlled Affiliates, would
provide appropriate service to customers in the locations in which such
activity is conducted. The parties shall not, however, be obligated to
negotiate pursuant to this Section 7.1(b) for more than ninety days in any
twelve month period. Neither the Partner nor its Controlled Affiliate shall
enter into any agreement or arrangement in connection with such activity,
other than rights of first refusal, rights of first negotiation and similar
arrangements, which would prevent it from selling the assets and business
Engaged in such activity or the stock or other equity interests of the
Entity Engaged exclusively in such activity pursuant to this Section
7.1(b).
(c) Notwithstanding the foregoing, a Partner and its Controlled
Affiliates shall be permitted, directly or indirectly, now or in the
future, to do any of the following without being required to follow the
procedures set forth in Section 7.1(a) above:
(i) to conduct any activity included in the Exclusive Business in
the Business Area which is a necessary component of the conduct of,
incidental to, or encompasses the provision of transport for any
business other than an Exclusive Business by the Partner or its
Controlled Affiliates in the Business Area, or to enter into an
arrangement with an independent third party for the provision of any
services included in such Exclusive Business in the Business Area
which is a necessary component of the conduct of, incidental to, or
encompasses the provision of transport for such business other than an
Exclusive Business, so long as, in each case, the Partner or such
Controlled Affiliate shall first use its best efforts to negotiate
agreements with the Partnership, which are reasonable in the
independent judgment of both parties, pursuant to which the
Partnership would provide such services included in such Exclusive
Business in the Business Area on terms no less favorable to the
Partner or such Controlled Affiliate as the Partner or such Controlled
Affiliate could obtain from an independent third party or could
provide for itself; and
(ii) to provide internal communications and internal telephone
services, including, without limitation, owning and operating
telephone switching equipment, to a Partner and its Affiliates and to
tenants of buildings for which a Partner or an Affiliate acts as the
landlord in the Business Area.
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7.2 Exceptions for Certain Transactions. Each Partner and its Controlled
Affiliates shall be permitted to do any of the following without being obligated
to make an Offer to the Partnership pursuant to 7.1:
(a) invest in companies that are Engaged in the Exclusive Business in
the Business Area where such investments are incidental to investments in
public companies and constitute less than 10% of the outstanding securities
and voting interest of such companies;
(b) acquire companies an incidental portion of the business of which
(such portion being deemed to be incidental if the assets, revenues and
income relating to the Exclusive Business are less than 10% of the assets,
revenues and income, respectively, of the company being acquired and if the
assets relating to such Exclusive Business have a fair market value of less
than $5,000,000) is encompassed in the Exclusive Business in the Business
Area; provided, however, that the Partnership may require the acquiring
Partner or its Controlled Affiliate to negotiate in good faith with the
Partnership for the sale to the Partnership of the acquired Exclusive
Business in the Business Area at the greater of fair market value or cost
of the assets and business comprising such Exclusive Business (and may
concurrently suggest, without any obligation on the part of the
Partnership, alternative transaction structures such as joint ventures and
management contracts); and
(c) sell, transfer or otherwise dispose of any investment made
pursuant to clause 7.2(a) above or the stock, assets or business of any
company acquired pursuant to clause 7.2(b) above.
7.3 Existing Activities. Notwithstanding anything to the contrary in this
Article 7, a Partner and/or its Controlled Affiliate which are listed in the
Information Appendix as being Engaged in a specified activity or activities
encompassed in the Exclusive Business in the Business Area on the effective date
hereof (or, if later, on the date such Partner becomes a Partner) shall be
permitted to continue to Engage in such activity or activities; provided,
however, that such Partner or its Controlled Affiliate, as the case may be,
shall not materially expand or increase such activity or activities from that
described in the Information Appendix; and provided, further, that such Partner
shall use its best efforts to negotiate, or cause such Controlled Affiliates to
negotiate, agreements with the Partnership, which are reasonable in the
independent judgment of both parties, pursuant to which the Partnership would
conduct such activity or activities on terms no less favorable to the Partner or
such Controlled Affiliate as the Partner or such
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Controlled Affiliate could obtain from an independent third party or could
provide for itself.
7.4 Prohibited Transactions. Notwithstanding any provision to the contrary
in this Agreement, no Partner shall, nor shall any Partner permit its Controlled
Affiliates to, Engage in the Exclusive Business in the Business Area with any
Entity which is not a Controlled Affiliate of such Partner or of any Controlled
Affiliate of such Partner, except as expressly permitted in Section 7.1(c)(i).
7.5 Controlled Affiliates. Any breach by a Controlled Affiliate of a
Partner of the provisions of this Article 7 shall be deemed to be a breach by
such Partner.
7.6 Services Offered by the Partnership. If the Partnership provides any
services to a Partner or an Affiliate of a Partner, the Partnership shall offer
the same services on the same terms and conditions to each other Partner and its
Affiliates.
7.7 Retail Switching Business. A Partner and its Controlled Affiliates
shall be permitted to Engage in the Retail Switching Business without being
required to follow the procedures set forth in Section 7.1 above. However, prior
to Engaging in the Retail Switching Business, such Partner shall, or shall cause
its Controlled Affiliate to, enter into a Reciprocal Resale Agreement which
shall contain, among other terms reasonably acceptable to the Partnership and
such Partner or Controlled Affiliate, the following provisions:
(a) As soon as a customer, which is not already a Partner Customer (as
that term is defined in paragraph (b) below), obtains any service from the
Partnership (including, without limitation, any Partnership service resold
by an interexchange carrier) and for so long as such customer continues to
obtain service from the Partnership, such customer shall be deemed to be a
"TCG Customer" for the purpose of the sales representation provisions of
the Reciprocal Resale Agreement.
(b) As soon as a customer, which is not already a TCG Customer (as
that term is defined in paragraph (a) above), obtains any Retail Switching
Business, video telephony or wireless telephony services (collectively,
"Special Services") from the Partner or its Controlled Affiliate in the
Business Area and for so long as such customer continues to obtain such
services from the Partner or its Controlled Affiliate, such customer shall
be deemed to be a "Partner Customer" for the purpose of the sales
representation provisions of the Reciprocal Resale Agreement.
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(c) The Partnership shall be the exclusive sales representative for
selling the Partner's or its Controlled Affiliate's Special Services to TCG
Customers, and the Partner or its Controlled Affiliate shall be the
exclusive sales representative for selling the Partnership's services to
Partner Customers; provided, however, that, notwithstanding the exclusivity
provisions of the Reciprocal Resale Agreement, the Partnership, the Partner
or the Controlled Affiliate shall be permitted to enter into reseller
arrangements (whether exclusive or non-exclusive) with interexchange
carriers which arrangements permit the interexchange carriers to resell the
services of the Partnership, the Partner or the Controlled Affiliate, as
the case may be.
ARTICLE 8: DISSOLUTION
8.1 Causes of Dissolution. To the extent permitted by the Act, the
dissolution of the Partnership shall occur only upon the occurrence of any of
the following events:
(a) The sale, or taking by eminent domain, of all or substantially all
of the assets of the Partnership;
(b) A legal or regulatory determination, or the revocation or
non-renewal of any franchise or license held by the Partnership which
revocation or non-renewal is not subject to further governmental or
judicial review and which, in any such case, renders it unlawful or
impossible for the Partnership to conduct all or substantially all of the
Exclusive Business in the Business Area;
(c) The expiration of the term of this Agreement; or
(d) The agreement of the Partners in accordance with Section 3.5 to
dissolve the Partnership.
Upon a dissolution, unless the Partners agree to continue the business of the
Partnership pursuant to Section 8.3, no further business shall be done in the
Partnership's name, except for the taking of such action as shall be necessary
for the performance and discharge of the Partnership's obligations, the
winding-up of its affairs and the liquidation and distribution of its assets in
accordance with the provisions hereof.
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8.2 Winding Up and Liquidation.
(a) Upon dissolution, subject to Section 8.3, the Partnership's
affairs shall be wound up by the Managing Partner and its property
liquidated as rapidly as business circumstances will permit, and the
Partners shall, subject to any provisions of law or of any other applicable
agreement, make Distributions in the following manner and order:
(i) To payment and discharge of the claims of all creditors of
the Partnership who are not Partners or Affiliates of Partners;
(ii) To payment and discharge of the claims of all creditors of
the Partnership who are Partners or Affiliates of Partners pro rata in
accordance with the amounts of such claims;
(iii) To creation of reasonable cash reserves for the payment of
any taxes, expenses or liabilities, contingent or otherwise; and
(iv) To the Partners in accordance with their Capital Accounts;
provided, however, that Distributions made pursuant to this Section
8.2(a)(iv) shall be made in accordance with the time requirements set
forth in Regulations Section 1.704-1(b)(2)(ii)(b)(2).
(b) Upon liquidation of the Partnership, if any Partner's Capital
Account has a deficit balance (after giving effect to all contributions,
Distributions and allocations for all taxable years, including the year
during which such liquidation occurs), such Partner shall contribute to the
capital of the Partnership the amount necessary to restore such deficit
balance to zero in compliance with Regulations Section 1.704-
1(b)(2)(ii)(b)(3).
8.3 Continuation of the Partnership. Upon the dissolution of the
Partnership, the Partners, by a Supermajority Vote, may decide to continue the
business of the Partnership pursuant to this Agreement.
8.4 No Withdrawal. Except as otherwise expressly provided in this
Agreement, no Partner may withdraw from the Partnership without the consent of
all of the other Partners.
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ARTICLE 9: EVENTS OF DEFAULT AND REMEDIES
9.1 Events of Default. An "Event of Default" shall be considered to have
occurred with respect to a Partner (a "Defaulting Partner") if:
(a) such Partner sells, assigns, transfers, grants a
participation in, pledges, encumbers or otherwise conveys all
or any part of its Partnership Interest, except as permitted
by this Agreement; provided, however, that no Event of Default
shall be considered to have occurred for thirty days following
the involuntary encumbrance of all or any part of such
Partnership Interest if during such thirty day period such
Partner acts diligently to, and does, remove any such
encumbrance, including, but not limited to, effecting the
posting of a bond to prevent foreclosure where necessary;
(b) an Initial Capital Payment Default (as that term
is defined in Section 4.3(a)(i)) occurs with respect to such
Partner and the related call of the installment of the Initial
Capital Contribution in respect of which the Initial Capital
Payment Default occurred is not rescinded pursuant to Section
4.3(b)(i);
(c) such Partner fails to perform or violates any
other material term or condition of this Agreement and such
failure or violation continues for thirty days after written
notice thereof has been given to such Partner by the Remedies
Partner;
(d) such Partner institutes proceedings of any nature
under the Federal Bankruptcy Code, or any similar state or
Federal law for the relief of debtors (a "Bankruptcy Law"),
wherein such Partner seeks relief as a debtor; such Partner
makes a general assignment for the benefit of creditors; or
such Partner has instituted against it proceedings under any
section of any Bankruptcy Law, which proceedings are not
dismissed, stayed or discharged within sixty days after the
filing thereof or if stayed, which stay is thereafter lifted
without a contemporaneous discharge or dismissal of such
proceedings (such Partner may be referred to hereinafter as a
"Bankrupt Partner"); or
(e) such Partner otherwise causes the dissolution
of the Partnership in contravention of this Agreement.
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9.2 Remedies.
(a) Upon the occurrence and during the continuance of an Event of
Default with respect to a Defaulting Partner, the Remedies Partner may
elect:
(i) with the approval of those Partners who
are not Defaulting Partners ("non-Defaulting Partners") with
an aggregate Percentage Interest constituting not less than a
majority of the sum of the Percentage Interests of all
non-Defaulting Partners, to cause the Partnership, or its
designee(s), to purchase the Partnership Interest of such
Defaulting Partner pursuant to Section 9.3; or
(ii) to seek to enjoin such default or to
obtain specific performance of a Defaulting Partner's (or the
applicable Controlled Affiliate's) obligations or to seek
Damages (as defined and subject to the limitations specified
below) or both.
provided, however, that, with respect to an Event of Default arising under
Section 9.1 above, if there is more than one Defaulting Partner, the
Remedies Partner shall make the same election with respect to each such
Defaulting Partner.
(b) The election of a remedy specified in clause 9.2(a)(i) or (ii)
above may be exercised by notice given to the Defaulting Partner (x), in
the case of an Event of Default specified in clause (b) of Section 9.1, at
any time, or (y), in the case of any other Event of Default, within ninety
days after the Remedies Partner obtains actual knowledge of the Event of
Default; provided that, if an election pursuant to clause 9.2(a)(ii) above
is made to seek an injunction, specific performance or other equitable
relief and a final judgment in such action is rendered denying such
equitable remedy, then, within ninety days thereafter, the Remedies Partner
may elect to pursue the remedy specified in clause 9.2(a)(i) above (subject
to the prior approval of the non-Defaulting Partners contemplated by
Section 9.2(a)(i) above) unless, prior to the giving of such notice, the
Defaulting Partner has cured (or caused to be cured) the Event of Default
in full or the final judgment denying equitable relief specifically held
that there was no Event of Default, and no other Event of Default with
respect to such Defaulting Partner has occurred and is continuing.
(c) The remedies set forth in Section 9.2(a) above shall not be deemed
mutually exclusive, and selection or resort to any thereof shall not
preclude selection or resort to the others; provided that, if the Remedies
Partner makes an election pursuant to clause 9.2(a)(i) above in respect of
any
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Event of Default, then it may not pursue any other remedy in respect of
that Event of Default. Except for the resort to the remedy set forth in
clause 9.2(a)(i) above, the resort to any remedy pursuant to this Section
9.2 shall not for any purpose be deemed to be a waiver of any other remedy
available under this Agreement or under applicable law.
(d) Unless an Event of Default shall have been waived in writing or
cured, the Partnership or the non-Defaulting Partners shall be entitled to
recover from the Defaulting Partner (or its Parent pursuant to the
applicable Parent Undertaking) in an appropriate proceeding any and all
damages, losses and expenses (including reasonable attorneys' fees and
disbursements) (collectively "Damages") suffered or incurred by the
Partnership or the non-Defaulting Partners as a result of such Event of
Default; provided, that neither the Partnership nor the non- Defaulting
Partners shall have or assert any claim against the Defaulting Partner or
any of its Affiliates for punitive Damages or for indirect, special or
consequential Damages suffered as a result of such Event of Default.
(e) Upon the occurrence and during the continuance of the related
Event of Default, and except as required by applicable law, a Defaulting
Partner shall not be entitled to vote on any matter submitted to a vote of
the Partners and its Percentage Interest shall not be included in
calculating the Percentage Interests required to approve or disapprove any
such matter, and such Defaulting Partner shall not be entitled to exercise
any rights under Section 5.4 (or, without the consent of the Remedies
Partner, any rights under Section 5.2 or Section 5.5 of this Agreement). In
all other respects a Defaulting Partner shall continue to have all of the
rights and obligations of a Partner under this Agreement and applicable
law.
9.3 Purchase of Defaulting Partner's Partnership Interest.
(a) If an election is made pursuant to clause 9.2(a)(i), the closing
of the purchase of the Defaulting Partner's Percentage Interest shall take
place at the time and at the place determined in accordance with the
provisions of Section 5.9. The Partnership (or its designee) shall pay a
purchase price for the Defaulting Partner's Percentage Interest (which
shall be payable in cash) equal to 50% of the Fair Market Value of such
Partnership Interest. Upon payment of the purchase price to the Defaulting
Partner, the Defaulting Partner shall deliver to the Partnership (or its
designee(s)) all documents necessary to transfer to the Partnership (or its
designee(s)) good title to its Partnership Interest.
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(b) Notwithstanding Section 9.3(a), if an election is made pursuant to
clause 9.2(a)(i) and the only Event of Default that has occurred and is
continuing is that the Defaulting Partner is a Bankrupt Partner, then the
time, place and manner of the purchase of such Defaulting Partner's
Partnership Interest shall be as provided in Section 9.3(a), except that
the Partnership (or its designee(s)) shall pay a purchase price for such
Partnership Interest (which shall be payable in cash) equal to 90% of the
Fair Market Value of such Partnership Interest.
ARTICLE 10: REPRESENTATIONS AND WARRANTIES OF THE PARTNERS
Each Partner makes the following representations and warranties to each
other, each with respect to itself only:
(a) It is duly incorporated or organized, validly existing and in good
standing under the laws of its state of incorporation or organization and
duly qualified or registered to do business in each state or jurisdiction
in which failure to so qualify or register would have a material adverse
effect upon such Partner or the Partnership.
(b) It and each of its Controlled Affiliates has the full power and
authority to take all actions contemplated by this Agreement and any of the
Management Services Agreement, Partner Services Agreement and Parent
Undertaking to which it or any of its Controlled Affiliates is a party.
(c) The execution, delivery and performance of this Agreement and each
of the Management Services Agreement, Partner Services Agreement and Parent
Undertaking to which it or any of its Controlled Affiliates is a party,
have been, or at the appropriate time shall be, duly authorized by all
necessary action on its part or the part of any such Controlled Affiliate,
as the case may be.
(d) This Agreement and each of the Management Services Agreement,
Partner Services Agreement and Parent Undertaking to which it or one of its
Controlled Affiliates is a party, constitutes a valid and binding
obligation of it enforceable in accordance with the terms hereof and
thereof, subject as to enforceability to limits imposed by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and the
availability of equitable remedies.
(e) The execution, delivery and performance of this Agreement and of
each of the Management Services Agreement, Partner Services Agreement and
Parent Undertaking to which it or
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one of its Controlled Affiliate is a party, do not violate any provision of
law or of its or of its Controlled Affiliates' organizational documents.
(f) The execution, delivery and performance of this Agreement and of
each of the Management Services Agreement, Partner Services Agreement and
Parent Undertaking to which it or one of its Controlled Affiliate is a
party, are not inconsistent with, and do not violate or cause a breach or
default under, any agreement or obligation to which it or any of its
Controlled Affiliates is a party or is otherwise subject.
ARTICLE 11: MISCELLANEOUS
11.1 Acknowledgements.
(a) Each Partner affirms and acknowledges that no representations,
warranties or statements have been made to it by any party hereto other
than those expressly set forth in this Agreement and that, in entering into
this Agreement, it has not relied upon anything done or said with respect
to this Agreement or with respect to the relationship between the parties,
other than as expressly set forth in this Agreement.
(b) Each Partner affirms and acknowledges that neither the Partnership
nor the Managing Partner has made any representation or warranty regarding
any financial statements, business plans, projections or other information
provided to such Partner except as expressly provided herein. Any
projections and business plans provided to the Partners reflect the
Managing Partner's current estimate and projections as to the manner and
cost of the development of the Partnership's business in the Business Area.
Such estimate and projections are subject to change.
11.2 Bill for Partition. Each of the Partners covenants that neither it nor
any person or persons claiming through or under it, will file a bill for
partition of the Partnership property.
11.3 Notices. All notices and other communications hereunder shall be (a)
in writing (except to the extent otherwise expressly provided hereunder); (b)
delivered by telecopy, by commercial overnight or same-day delivery service with
all delivery costs paid by sender, or by registered or certified mail with
postage prepaid, return receipt requested; (c) deemed given on the date and at
the time shown on the telecopy confirmation of receipt (if delivered by
telecopy), on the date and at the time (if recorded) of delivery by the
commercial delivery service, as shown in the records thereof (if delivered by
commercial
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<PAGE>
overnight or same-day delivery service), or on the date shown on the return
receipt (if delivered by registered or certified mail); and (d) addressed to the
parties at their addresses specified on the signature pages hereof (or at such
other address for a party as shall be specified by like notice).
11.4 Amendments. This Agreement may not be amended nor shall any waiver,
change, modification, consent, or discharge be effected, except by an instrument
in writing adopted by each Partner; provided, however, that an amendment to
increase the dollar values set forth in any of Sections 3.4(a), 3.4(e), 3.5(c),
3.5(d), or 3.5(f) may be adopted by a Supermajority Vote; and provided, further,
that any changes in this Agreement required solely by the admission of an
additional Partner may be adopted by the same Percentage Interest as is required
to approve the admission of such Partner.
11.5 Indebtedness for Borrowed Money. The Partnership shall not incur any
indebtedness for borrowed money the terms of which permit the creditor under
such indebtedness to have recourse against a Partner without the express written
consent of that Partner.
11.6 Waivers and Further Agreements; Entire Agreement. Any waiver of any
terms or conditions of this Agreement shall be in writing and shall not operate
as a waiver of any other breach of such terms or conditions or any other term or
condition, nor shall any failure to enforce any provision hereof operate as a
waiver of such provision or of any other provision hereof. Each of the Partners
agrees to execute all such further instruments and documents and to take all
such further action as any other Partner may reasonably require in order to
effectuate the terms and purposes of this Agreement. The Partners agree that
this Agreement, including the Exhibits and Appendices hereto, constitutes the
entire agreement among them with respect to the subject matter of the
Partnership and supersedes all prior agreements and understandings among them as
to such subject matter, and there are no restrictions, agreements, arrangements
or undertakings, oral or written, among the Partners relating to the Partnership
which are not fully expressed or referred to herein.
11.7 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
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<PAGE>
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the greatest extent possible.
11.8 Specific Enforcement; Attorneys Fees. The parties hereto agree that
the remedy at law for damages upon violation of the terms of this Agreement
would be inadequate because the Partnership Interests and the business of the
Partnership are deemed unique. Therefore, the parties agree that the provisions
of this Agreement may be specifically enforced by any court of competent
jurisdiction, and each Partner and its respective transferees agree to submit to
the jurisdiction of the court where any such action for specific performance is
brought. If any Partner defaults in its performance of any of the terms and
conditions of this Agreement and if, as a result of such default, a lawsuit
seeking damages, specific performance or any other remedy is filed by any other
Partner, then, in that event, the prevailing party in such a lawsuit shall be
entitled to obtain attorney's fees from the losing party in such amount as shall
be determined by the court to be reasonable under the circumstances.
11.9 Counterparts. This Agreement may be executed in counterparts each of
which shall be deemed an original and all of which together shall constitute one
and the same instrument, and in pleading or proving any provision of this
Agreement, it shall not be necessary to produce more than one complete set of
such counterparts.
11.10 Captions; Gender. Article and section headings contained in this
Agreement are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement. Whenever used herein the singular
number shall include the plural, the plural shall include the singular, and the
use of any gender shall include all genders.
11.11 Governing Law and Binding Effect. This Agreement shall be governed by
and construed and enforced in accordance with the law (other than the law
governing conflicts of law questions) and decisions of the State of New York
applicable to contracts made and to be performed entirely therein. This
Agreement shall bind and inure to the benefit of each of the Partners and their
successors and permitted assigns.
11.12 Expenses. Each of the Partners shall bear its own expenses, including
legal and other professional fees, incurred by it in the negotiation and
preparation of this Agreement; provided, however, that the Partnership shall
reimburse Partners for the pre-organization operating expenses they incurred
prior to the date hereof to the extent listed on the Information Appendix.
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<PAGE>
11.13 Third Parties. None of the provisions of this Agreement shall be for
the benefit of, or enforceable by, any creditor of the Partnership or other
third parties.
11.14 Confidentiality. Each Partner agrees that it shall not, directly or
indirectly, without the prior written consent of each other Partner, disclose
the terms of this Agreement or the identity of the Partners or use for its own
benefit (except as a Partner of the Partnership) or disclose to any Entity any
information, trade secrets, confidential customer information, patents, patent
rights, technical data or know-how relating to the products, processes, methods,
equipment or business practices of the Partnership, except (a) to the extent any
of the foregoing is or becomes available to the public other than as a result of
disclosure by such Partner or any of its Affiliates or the directors, officers,
employees, agents, advisors and controlling persons of it or any of its
Affiliates, (b), subject to the terms of an appropriate confidentiality
agreement, as necessary to effect a transaction under Article 5, (c) as may be
required by law and (d) as any Partner may disclose to its lenders, rating
agencies and business and financial advisors. In the event any Partner is
required by applicable law or regulation or by legal process to disclose any of
the foregoing, it will provide the other Partners with prompt notice thereof to
enable them to seek an appropriate protective order.
11.15 Appendices. The Tax Appendix and the Information Appendix are hereby
incorporated by reference and made a part of this Agreement as if they were set
forth herein in their entirety.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Partnership
Agreement as of the date first above written.
TCG PARTNERS
By: /S/ J. Curt Hockemeier
-----------------------------
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-1011
Attention: Robert Annunziata, Chairman and
Chief Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
HYPERION TELECOMMUNICATIONS OF PENNSYLVANIA, INC.
By: /S/ Daniel R. Milliard
-----------------------------
Daniel R. Milliard
Address: Hyperion Telecommunications, Inc.
5 West 3rd Street
Coudersport, PA 16915
Attention: Dan Milliard, President
and
James Rigas, Vice President of
Strategic Planning
Fax: (814) 274-8631
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Partnership
Agreement as of the date first above written.
TCG PARTNERS
By: /S/ J. Curt Hockemeier
-----------------------------
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-1011
Attention: Robert Annunziata, Chairman and
Chief Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
DIGITAL DIRECT OF PITTSBURGH, INC.
By: /S/ Bruce W. Ravenel
-----------------------------
Bruce W. Ravenel
Vice President
Address: 5619 DTC Parkway
Englewood, Colorado 80111
Attention: Robert J. Lemming
Executive Vice President
Fax: (303) 488-3215
and
Peter J. Stapp, Esq.
Counsel
Fax: (303) 488-3207
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Partnership
Agreement as of the date first above written.
TCG PARTNERS
By: ______________________________
Robert Annunziata
Chief Executive Officer
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-1011
Attention: Robert Annunziata, Chairman and
Chief Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
TCI TELEPORT OF PITTSBURGH, INC.
By: ______________________________
Address: 5619 DTC Parkway
Englewood, Colorado 80111
Attention: Robert J. Lemming
Executive Vice President
Fax: (303) 488-3215
and
Peter J. Stapp, Esq.
Counsel
Fax: (303) 488-3207
<PAGE>
EXHIBIT A
Form of Management Services Agreement
<PAGE>
MANAGEMENT SERVICES AGREEMENT
This MANAGEMENT SERVICES AGREEMENT is made as of March 1, 1994, by and
between TELEPORT COMMUNICATIONS GROUP INC., a Delaware corporation having its
principal office at One Teleport Drive, Suite 301, Staten Island, New York 10311
("TCGI"), and TCG PITTSBURGH, a New York general partnership having its
principal office at 650 Smithfield Street Pittsburgh, PA 15222 ("Operator").
RECITALS
Operator has been created by a Partnership Agreement of even date herewith
(the "Partnership Agreement") between TCG Partners ("TCP"), an affiliate of
TCGI, and others. The Partnership Agreement contemplates that Operator will
construct and operate a local telecommunications transmission system (the
"Project") in Pittsburgh. In connection therewith, Operator desires to obtain
certain services from TCGI and TCGI desires to offer such services. In addition,
Operator is willing to participate in various national programs provided by TCGI
and to obtain certain quality standards and proprietary rights, and Operator is
willing to pay TCGI a quarterly fee in recognition of the value of such
programs, standards and rights. Capitalized terms used herein and not otherwise
defined shall have the respective meanings ascribed thereto in the Partnership
Agreement.
AGREEMENTS
In consideration of the foregoing and of the promises and covenants
contained in this Agreement, the parties agree as follows:
1. Management Services.
(a) Generally. Reference is made to Addendum A attached hereto, which
Addendum is incorporated into this Agreement to the same extent as if set
forth herein in full. Addendum A describes certain services (the
"Services"). TCGI hereby agrees to provide the Services described in
Section I of Addendum A and, to the extent requested by Operator from time
to time, the additional Services described in Section II of Addendum A, and
Operator hereby agrees to use the Services described in Section I of
Addendum A and accepts the option to use the additional Services described
in Section II of Addendum A. The Services will be provided by TCGI and its
affiliates and by the employees, consultants, agents and contractors of
TCGI and its affiliates.
(b) Exclusivity. During the term of this Agreement, Operator agrees
not to obtain any of the Services described in Section I of Addendum A from
any Entity other than TCGI and its affiliates (and their respective
employees, consultants, agents
<PAGE>
and contractors) pursuant to this Agreement. Operator may obtain Services
described in Section II of Addendum A from any Entity.
(c) Quality. TCGI shall perform all of the Services that are of a
professional nature in a professional manner in accordance with all
applicable professional standards and all applicable laws. TCGI shall
perform all of the Services that are of a nonprofessional nature in a
workmanlike manner in accordance with all applicable industry standards and
all applicable laws.
2. National Programs. In connection with TCGI's provision and Operator's
use of those Services designated in Addendum A as the "National Programs," TCGI
and Operator agree as follows:
(a) Name. Subject to the provisions of Section 2.2 of the Partnership
Agreement, Operator shall use its best efforts to include the words "TCG"
or "Teleport Communications" in all of its trade names regardless of the
legal form of Operator from time to time. Upon the termination or
expiration of this Agreement, Operator agrees that it will immediately
cease using any of "TCG," "Teleport," "Teleport Communications" or "TC," or
any name or initials similar thereto, as part or all of its trade names.
(b) Quality Standards. TCGI will provide Operator with regularly
updated written quality standards relating to the installation,
provisioning, engineering and maintenance of telecommunications services,
which standards shall be those employed generally by TCGI, its subsidiaries
and those entities managed by TCGI pursuant to agreements similar to this
Agreement in providing telecommunications services. Operator shall
implement and comply with such standards.
3. Term. This Agreement shall have an initial term of fifteen years from
the date hereof and shall be renewed automatically for successive five-year
terms after the initial term unless, at least six months prior to the expiration
of the current term, either party notifies the other party in writing of its
desire to terminate this Agreement as of the end of the current term. The
initial term and any subsequent renewal term shall be subject to early
termination pursuant to Section 6. Notwithstanding the termination or expiration
of this Agreement:
(a) After the termination or expiration of this Agreement, TCGI shall
continue to provide, for a reasonable additional period not to exceed three
months, any of the Services that are required by Operator during such
period to permit an orderly transition to a successor service provider or
providers, and Operator agrees to pay the charges for such Services set
forth in Addendum A, as adjusted from time to time in accordance with
Section 4(b), in the manner provided in this Agreement;
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<PAGE>
(b) The provisions of Section 9 and Section 10 shall survive the
termination or expiration of this Agreement indefinitely; and
(c) The provisions of Section 2(b) and Section 4(a)(ii), and those
provisions of this Agreement relating to the payment of the fee specified
in Section 4(a)(ii), shall survive the termination or expiration of this
Agreement until the expiration of all agreements under which Operator
provides telecommunications services to national accounts through TCGI's
National Programs; provided, however, that the fee payable pursuant to
Section 4(a)(ii) after the termination or expiration of this Agreement
shall be limited to 3% of those Project Gross Revenues that are
attributable to such national accounts.
4. Fees and Charges.
(a) Fees. In return for the Services to be provided to Operator under
this Agreement, Operator shall pay to TCGI the following amounts:
(i) The charges set forth in Addendum A, as adjusted from time to
time in accordance with Section 4(b) and Addendum A; and
(ii) With respect to (A) the period commencing on the date hereof
and ending on the last day of the second full calendar quarter after
the date hereof and (B) each subsequent calendar quarter during the
term of this Agreement (each such period hereinafter called an
"Applicable Period"), a payment equal to the greater of (1) 3% of
Project Gross Revenues (as hereinafter defined) with respect to the
Applicable Period, or (2) an amount equal to the product of $278.00
times the number of days in the first Applicable Period and an amount
equal to $25,000 for each subsequent Applicable Period. The term
"Project Gross Revenues" means, with respect to any Applicable Period,
all revenues derived by Operator from the conduct of the Business (as
that term is defined in the Partnership Agreement) during the
Applicable Period, determined on an accrual basis, with adjustment for
bad debt and otherwise in accordance with generally accepted
accounting principles consistently applied.
(b) Adjustments. The charges stated on Addendum A are based on TCGI's
best estimate as of the date hereof of its cost of providing the Services
to Operator and to all of the other entities with which TCGI has entered
into agreements similar to this Agreement. TCGI shall periodically, but not
less often than quarterly, calculate the actual cost of providing the
Services and determine whether the amounts paid by Operator for such period
are less than or exceed Operator's pro rata share of TCGI's actual costs in
providing the Services in such period. The expenses attributable to the
provision by TCGI of any Service
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<PAGE>
to Operator shall be calculated by allocating the expenses incurred by TCGI
in providing such Service to all telecommunications transmission systems
managed by TCGI (including Operator) among all such systems on the basis of
an equitably weighted average of each system's direct hours billed, annual
budgeted revenue and budgeted capitalization. The weighting of each
variable shall be determined from time to time by TCGI. The initial
weighting system is set forth in Section IV of Addendum A. TCGI may adjust
any of the fees and monthly rates set forth on Addendum A as a result of
such calculation to provide that the amounts paid by Operator pursuant
hereto more closely approximate TCGI's actual costs of providing the
Services. In addition, if as a result of TCGI's calculation of its cost of
providing the Services it determines that Operator has paid more or less
than its pro rata share of TCGI's cost of providing the Services in any
period, TCGI shall send a statement to Operator with the next monthly bill
provided pursuant to Section 4(c) below setting forth the amount of such
overpayment or underpayment. If Operator has overpaid, it shall be entitled
to a credit in the amount of such overpayment against subsequent payments.
If Operator has underpaid, it shall pay to TCGI the amount of such
underpayment. TCGI shall provide Operator within ninety days of the end of
each of its fiscal years with a certificate from its independent
accountants certifying Operator's pro rata share of TCGI's costs in
providing the Services. Operator shall receive a credit in the amount of,
or shall pay an amount equal to, any overpayment or underpayment reflected
in such certificate as provided above. In no event, however, shall the
charges to Operator pursuant to this Section 4(b) or Addendum A resulting
from the cost of providing the Services to Operator, when taken as a whole,
exceed the cost at which Operator could obtain like services from
qualified, unaffiliated third parties.
(c) Payments and Billing.
(i) TCGI shall provide Operator with itemized monthly bills with
respect to all charges specified in Addendum A and any adjustments
made pursuant to Section 4(b) above. Billing for items charged on a
unit fee basis or a fixed fee basis shall be in advance and billing
for items charged on an actual time and materials basis shall be in
arrears. Each such bill shall be payable within thirty days from the
date of Operators's receipt thereof.
(ii) The fee specified in Section 4(a)(ii) shall be paid as
follows:
(A) With respect to the first Applicable Period, Operator
shall pay the product of $278.00 times the number of days in the
first Applicable Period prior to the last day of the first
Applicable Period and shall pay the amount, if any, by which the
fee specified in Section 4(a)(ii) for the first
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<PAGE>
Applicable Period exceeds the product of $278.00 times the number of
days in the first Applicable Period within sixty days after the end of
the first Applicable Period.
(B) With respect to each Applicable Period after the first
Applicable Period, Operator shall pay $25,000 toward the fee
specified in Section 4(a)(ii) on or before the first day of such
Applicable Period and shall pay the amount, if any, by which the
fee specified in Section 4(a)(ii) for such Applicable Period
exceeds $25,000 within sixty days after the end of such
Applicable Period.
(iii) Within sixty days after the end of each Applicable Period,
Operator shall provide TCGI with a statement, certified as correct by
Operator's General Manager or chief financial officer, as to the
amount of Project Gross Revenues for the Applicable Period. Operator
will permit any authorized TCGI employees or certified public
accountants retained by TCGI to examine Operator's books of account,
records, reports and other papers relating to the determination of
Project Gross Revenues, to make copies and extracts therefrom (except
with respect to that containing proprietary information), and to
discuss such items with Operator's officers and accountants (and by
this provision Operator authorizes the accountants to discuss such
items), all at such reasonable times and as often as may reasonably be
requested. Any such examination shall be performed at TCGI's sole cost
and expense unless such examination reveals a material understatement
in any quarterly statement of Project Gross Revenues, in which event
the cost of such examination shall be borne by Operator.
(iv) Operator shall inform TCGI of any discre- pancies, claims
for credits or other problems with any bill within thirty days after
Operator's receipt thereof. If TCGI is so notified, Operator and TCGI
shall meet promptly and shall negotiate in good faith a resolution of
the dispute. TCGI agrees to maintain detailed records relating to its
provision of the Services. TCGI will permit Operator at any time upon
reasonable notice to examine all of such records, to make copies and
extracts therefrom and to discuss such records and other matters
relating to the Services with the respective officers, employees and
independent public accountants of TCGI (and by this provision TCGI
authorizes the accountants to discuss such items).
(v) Any amount not received when due will be subject to a late
charge at a rate equal to the lesser of 1 1/2% per month or the
maximum amount permitted by law (if any).
(vi) Operator will be permitted to offset any amounts due to
Operator from TCGI or its wholly-owned subsidiaries against any
amounts payable to TCGI hereunder.
- 5 -
<PAGE>
5. Taxes. Operator agrees to pay any sales, use, gross receipts, excise or
other local, state or Federal taxes or charges, however designated (excluding
taxes on TCGI's net income), imposed on or based upon the provision, sale or use
of the Services provided under this Agreement or otherwise related to the
transactions contemplated hereby. Any taxes imposed on TCGI that are required to
be paid by Operator under this Section 5 shall be separately stated on each
monthly bill to Operator.
6. Termination.
(a) Operator may terminate this Agreement by written notice to TCGI if
TCGI fails in any material respect to perform its obligations under this
Agreement in accordance with the terms hereof and customary and reasonable
standards of management in the telecommunications industry, and such
failure in performance continues unremedied for a period of one hundred
eighty days after Operator has given written notice to TCGI specifying such
failure in reasonable detail. In no event shall the financial performance
of Operator or any failure by Operator to meet its budget for any period be
deemed a failure of performance by TCGI. Operator agrees that TCGI may
remedy any failure in performance by performing again in a satisfactory
manner any Services that Operator maintains were originally performed in an
unsatisfactory manner or by giving Operator a credit against any future
payments due under this Agreement equal to the amount of any charges paid
by Operator for any Services that Operator maintains were originally
performed in an unsatisfactory manner.
(b) TCGI may terminate this Agreement by written notice to Operator if
Operator fails in any material respect to perform its obligations under
this Agreement (other than those described in Section 6(c)) in accordance
with the terms hereof and customary and reasonable standards of management
in the telecommunications industry, and such failure continues unremedied
for a period of one hundred eighty days after TCGI has given written notice
to Operator specifying such failure in reasonable detail.
(c) TCGI may terminate this Agreement by written notice to Operator if
Operator fails to make any payment due to TCGI under this Agreement within
thirty days of the date when such payment was due unless such failure is
due to a good faith dispute between TCGI and Operator regarding such
payment.
(d) Either party may terminate this Agreement by giving written notice
to the other party if the other party:
(i) files a voluntary petition in bankruptcy or is adjudicated a
bankrupt or insolvent or files any petition or answer seeking
arrangement, composition, readjustment, or similar relief under the
present or any future bankruptcy act or any
- 6 -
<PAGE>
other present or future applicable federal or state law relating to
bankruptcy, insolvency or other relief for debtors; or
(ii) has an involuntary petition filed against it seeking
arrangement, composition, readjustment, liquidation or similar relief
under the present of any future federal bankruptcy act or any other
federal or state law relating to bankruptcy, insolvency or other
relief for debtors which is not vacated within sixty days from the
date of entry thereof; or
(iii) makes an assignment for the benefit of creditors or takes
any other similar action for the protection or benefit of creditors;
or
(iv) in connection with the ownership, operation or management of
the Project or the performance of its obligations under this
Agreement, commits any felony or any other criminal act that
materially threatens to result in suspension, revocation, or adverse
modification of any governmental franchise, license, authorization or
permit required for the conduct of the terminating party's business;
or
(v) misappropriates or converts any assets of the terminating
party.
7. Other Remedies. In addition to the termination rights set forth in
Section 6, each party may exercise any other remedy available at law or equity
in the event of a default by the other party in the performance of its
obligations under this Agreement.
8. Limitation on Liability. TCGI shall in no event (i) have any liability
to Operator for any damages, expenses, costs or losses resulting from its
performance or nonperformance of the Services, except as may be caused by TCGI's
willful misconduct or gross negligence; (ii) HAVE ANY LIABILITY WHATSOEVER FOR
SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES AS A RESULT OF ITS
PERFORMANCE OR NONPERFORMANCE OF THE SERVICES; or (iii) have any liability for
any failure of performance hereunder due to causes beyond its control, including
but not limited to acts of God, fire, flood or other catastrophes; any law,
order, regulation, direction or action of the United States Government, or of
any other government, including state and local governments having or claiming
jurisdiction over TCGI or Operator, or of any department, agency, commission,
bureau, corporation or other instrumentality of any one or more of these
federal, state or local governments, or of any civil or military authority;
national emergencies; unavailability of material or rights-of-way;
insurrections; riots; wars; or strikes, lock-outs, work stoppages or other labor
difficulties. TCGI makes no representation or warranty with respect to the
operations or results, financial or otherwise, of the Project, and shall have no
liability therefor.
- 7 -
<PAGE>
9. Proprietary Information. Each party acknowledges that, in the course of
the performance of this Agreement, it may have access to privileged and
proprietary information claimed to be unique, secret and confidential, and which
constitutes the exclusive property or trade secrets of the other, and the
parties acknowledge that they are in a confidential relationship with each
other. This information may be presented in documents marked with a restrictive
notice or otherwise tangibly designated as proprietary or during oral
discussions, at which time representatives of the disclosing party will specify
that the information is proprietary. Each party agrees to maintain the
confidentiality of the proprietary information and to use the same degree of
care as it uses with regard to its own proprietary information to prevent the
disclosure, publication or unauthorized use of the proprietary information.
Neither party may duplicate or copy proprietary information of the other party
other than to the extent necessary for legitimate business uses in connection
with this Agreement. A party shall be excused from these nondisclosure
provisions if the proprietary information has been, or is subsequently, made
public by the other party or is independently developed by such party or if the
other party gives its express, prior written consent to the disclosure of the
proprietary information or if the disclosure is required by law or regulation.
Operator hereby acknowledges that certain deliverables to be included in the
Services, such as software, data processing systems and manuals, are the
proprietary property of TCGI or of third parties. Operator agrees that upon
TCGI's request it will execute, and comply with, license or sublicense
agreements in reasonable and customary form with respect to such deliverables.
10. Indemnification.
(a) Indemnification by Operator. Operator will indemnify and hold
harmless TCGI, its affiliates (other than Operator), and all officers,
directors, employees, stockholders, partners and agents of TCGI and its
affiliates (individually, a "TCGI Indemnitee") from and against any and all
claims, demands, costs, damages, losses, liabilities, joint and/or several,
expenses of any nature (including reasonable attorneys', accountants' and
experts' fees and disbursements), judgments, fines, settlements and other
amounts (collectively, "Damages") arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or
investigative (collectively "Claims") in which the TCGI Indemnitee may be
involved or is threatened to be involved, as a party or otherwise, arising
out of TCGI's acts or omissions under this Agreement or the ownership or
operation of Operator's business or assets, regardless of whether this
Agreement continues to be in effect or the TCGI Indemnitee continues to be
an affiliate, or an officer, director, employee, stockholder, partner or
agent of TCGI or its affiliate, at the time any such Claims are made or
Damages incurred, provided (i) the TCGI Indemnitee acted in good
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<PAGE>
faith and in a manner it reasonably believed to be in the best interest of
Operator and, with respect to any criminal proceeding, had no reasonable
cause to believe its conduct was unlawful, and (ii) the TCGI Indemnitee's
conduct did not constitute gross negligence, willful misconduct or a breach
of this Agreement. Any indemnification hereunder will be satisfied solely
out of the assets of Operator.
(b) Indemnification by TCGI. TCGI will indemnify and hold harmless
Operator, its affiliates, and all officers, directors, employees,
stockholders, partners and agents of TCGI and its affiliates (individually,
an "Operator Indemnitee") from and against any and all Damages arising from
any and all Claims in which the Operator Indemnitee may be involved or is
threatened to be involved, as a party or otherwise, arising out of
Operator's acts or omissions under this Agreement or the ownership or
operation of TCGI's business or assets, regardless of whether this
Agreement continues to be in effect or the Operator Indemnitee continues to
be an affiliate, or an officer, director, employee, stockholder, partner or
agent of Operator, at the time any such Claims are made or Damages
incurred, provided (i) the Operator Indemnitee acted in good faith and in a
manner it reasonably believed to be in the best interest of TCGI and, with
respect to any criminal proceeding, had no reasonable cause to believe its
conduct was unlawful, and (ii) the Operator Indemnitee's conduct did not
constitute gross negligence, willful misconduct or a breach of this
Agreement. Any indemnification hereunder will be satisfied solely out of
the assets of TCGI.
(c) Procedure. No claims for indemnification shall be made by either
party against the other unless the aggregate amount of such claim, together
with any other indemnifiable claims of such party, exceeds the amount of
$5,000. Any reasonable expenses incurred by any indemnified person pursuant
to this Section 10 in defending any civil or criminal action, suit or
proceeding (or the threat thereof), other than a claim, action, suit or
proceeding brought by the indemnifying party, shall be borne and paid by
the indemnifying party in advance of the final disposition of such action,
suit or proceeding (or the threat thereof) upon receipt of an undertaking
by or on behalf of the indemnified person to repay to the indemnifying
party the amount of such expenses if it shall ultimately be determined that
such person is not entitled to the indemnification provided for under this
Section 10. Any person asserting a right to indemnification under this
Section 10 shall so notify the indemnifying party in writing. If the facts
giving rise to such indemnification involve any actual or threatened claim
or demand by or against a third party, the indemnifying party shall be
entitled to control the defense or prosecution of such claim or demand in
the name of the indemnified person, if the indemnifying party notifies the
indemnified person in writing of its intention to do so within twenty days
of the receipt of such notice by the
- 9 -
<PAGE>
indemnified person. The indemnified person shall have the right, however,
to participate in such proceeding through counsel of its own choosing,
which participation shall be at its sole expense. Whether or not the
indemnifying party chooses to defend or prosecute such claim, each
indemnified person and Lessor or Lessee, whichever is not the indemnifying
party, shall, to the extent requested by the indemnifying party and at the
indemnifying party's expense, cooperate in the prosecution or defense of
such claim and shall furnish such records, information and testimony and
attend such conferences, discovery proceedings, hearings, trials and
appeals as may reasonably be requested in connection therewith.
11. Independent Contractor. TCGI shall serve as an independent contractor
in connection with the matters set forth herein and its employees shall not be
employees of Operator, provided, however, that TCGI may provide Operator with
contract employees as part of the Services and be reimbursed therefor as more
fully provided on Addendum A. TCGI shall take no action, nor omit to take any
action, that would create the appearance, or lead a reasonable person to
believe, that TCGI (including its employees other than contract employees) in
acting hereunder has any relationship to Operator other than that of an agent to
its principal.
12. Obligations Unimpaired. Subject to the provisions of Section 6, the
obligations to be performed by Operator under this Agreement shall not be
affected or impaired by reason of the happening from time to time of any of the
following:
(a) any assignment or purported assignment of all or any part of the
interest of TCP in the Partnership Agreement or of TCGI in this Agreement;
(b) the modification or amendment (whether material or otherwise) of
any obligation, undertaking or condition to be performed by TCP under the
Partnership Agreement or the expiration or termination of the Partnership
Agreement, whether caused by TCP's default or otherwise;
(c) the voluntary or involuntary liquidation or dissolution of TCGI or
the sale or other disposition of all or substantially all the assets of
TCGI;
(d) the merger, reorganization or consolidation of Operator or the
sale, divestiture or other disposition of TCP's interest in Operator
pursuant to the provisions of the Partnership Agreement;
(e) the termination or expiration of the Partnership Agreement; or
- 10 -
<PAGE>
(f) any other cause, whether similar or dissimilar to the foregoing;
it being the intention of Operator that, except as otherwise required by
the provisions hereof, this Agreement be absolute and unconditional in any
and all circumstances.
13. Miscellaneous. This Agreement constitutes the entire Agreement between
TCGI and Operator with respect to the subject matter hereof, and all prior
agreements, representations, statements, negotiations and undertakings are
superseded by this Agreement. THERE ARE NO AGREEMENTS, WARRANTIES OR
REPRESENTATIONS, EXPRESS OR IMPLIED EITHER IN FACT OR BY OPERATION OF LAW,
STATUTORY OR OTHERWISE, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
A PARTICULAR PURPOSE OR USE, EXCEPT THOSE EXPRESSLY SET FORTH HEREIN. This
Agreement may not be amended or waived except by a writing signed by the party
against which enforcement hereof is sought. The provisions of this Agreement
shall be governed by and construed in accordance with the laws of the State of
New York. This Agreement may be executed in two counterparts, each of which
shall be deemed to be an original.
14. Successors and Assigns; Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties' respective successors and
permitted assigns. Neither party shall assign, transfer, or in any other manner
dispose of, any of its rights, privileges or obligations under this Agreement
except in connection with a transaction specifically permitted by and in
accordance with the applicable provisions of Article 5 of the Partnership
Agreement and any attempt to make such an assignment, transfer or disposition
without consent shall be null and void. This provision shall not limit TCGI's
discretion to delegate duties and responsibilities to employees or agents of
TCGI or its affiliates in accordance with normal and customary management
practices.
15. Compliance With Law. Operator shall be the franchisee, licensee and
permittee of all governmental franchises, licenses, authorizations and permits
required for its business, and shall retain ultimate control over the Project
and its assets. Operator shall also retain ultimate responsibility for
compliance with the rules, regulations and policies of the Federal
Communications Commission (the "FCC") and each applicable state regulatory
authority having jurisdiction over the Project or Operator (collectively, the
"Regulatory Authorities") and the terms of the Communications Act of 1934, as
amended (the "Act"). TCGI agrees to cooperate in all reasonable respects with
Operator to the extent necessary to remain in compliance with respect to the Act
and the rules, regulations and policies of the FCC and of all applicable
Regulatory Authorities.
- 11 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Management
Services Agreement as of the date first above written.
TELEPORT COMMUNICATIONS GROUP INC.
By /s/ Alf T. Hansen
-----------------------------------
Alf T. Hansen
Senior Vice President
TCG PITTSBURGH
By /s/ Alf T. Hansen
-----------------------------------
Alf T. Hansen
Senior Vice President
- 12 -
<PAGE>
ADDENDUM A
DESCRIPTION OF SERVICES AND CHARGES
I. TCGI Provided Services. TCGI shall provide the following Services on a
regular basis, in accordance with the level of the Operator's business activity,
at the rates listed.
1. Management - Senior Management Supervision. TCGI will provide management
supervision to Operator in support of Operator's business plan and the
objectives of its partners. The supervisory and general management functions to
be performed include:
o Review of business plans
o Review of annual budget and five-year plan
prepared by Operator's General Manager
o Financial reviews and controls
Operator will pay for these services on an actual time and materials basis (see
Section III).
2. Engineering - Circuit Order Layout Record, Training and Operations. TCGI
will maintain a database of the Network layout down to individual circuit level.
All circuit order layout record (COLR) information should be reviewed by
Operator for accuracy. TCGI will provide operational performance (capital and
expense) reviews and assist in network expansion. TCGI will train employees
assigned to Operator, as required. Operator will pay for these services on an
actual time and materials basis (see Section III).
3. Finance - Accounting Administration. TCGI will provide all billing,
collections, accounts payable, bookkeeping and financial reporting services as
listed below. In addition, TCGI will order supplies, materials and services
required by Operator, process invoices submitted by Operator and purchase orders
generated by or on behalf of Operator in accordance with approved capital
budgets and budgeted expenditures.
SERVICE DESCRIPTION
- ------- -----------
Billing Monthly billing of customers.
Collections Ongoing collection and processing of customer
payments.
Credit review Credit check to determine creditworthiness of
new customers.
<PAGE>
Bookkeeping Functions General ledger, accounts
receivable, accounts payable, liabilities and
fixed asset property records.
Cash Control Cash management, reconciliation of bank
statements and cash forecasting requirements.
Accounting for Fixed Accounting for all capital accounts, as to
Assets accumulated depreciation and book and tax
depreciation calculations.
Tax Compliance Compliance with tax codes, including annual
preparation of partnership federal, state and
local tax returns and K-1 tax reporting
schedules.
Financial Reports and A monthly summary including balance sheet,
Analysis profit and loss, budget vs. actual, fixed
asset summary, cash and investments,
statement of changes in financial position.
Capital Accounts Ongoing accounting for partner capital
accounts, capital contributions and
withdrawals.
Other Reports Other reports, including regulatory reports,
required by or pursuant to the Partnership
Agreement or as directed by Operator.
Operator will pay for these services on an actual time and materials basis (see
Section III).
4. Information Systems - Management Information Systems. TCGI will provide
centralized MIS/Data Processing hardware and software to Operator by remote
access from TCGI's corporate location. TCGI will manage centralized MIS
operations and will provide general systems support and guidance to Operator.
Operator will be responsible for the purchasing and operation of local MIS
hardware and software such as personal computers, remote terminals, printers,
plotters and other peripherals, and required telecommunications lines or local
area network interfaces necessary to access the centralized MIS resources of
TCGI.
Addendum A - Page 2
<PAGE>
SYSTEM DESCRIPTION
- ------ -----------
Capital budget Tracks capital expenditures and purchase
tracking and P.O. orders.
invoice tracking
Inventory tracking Tracks electronics and cable and other
inside/outside plant inventory.
Technician labor Tracks manpower time of technical employees.
tracking
Internal labor Tracks TCG employee time and allocates to
tracking expense or capital projects.
Circuit tracking Tracks all circuits current work in progress
and billable installed base, due dates, turn
up dates and billing dates.
Order input processing Tracks orders through to implementation.
Property records Tracks fixed assets for required reporting.
Engineering &
operations design Maintains databases of COLRs and existing
plant. Creates work orders and lists of all
electronics and work required to install a
new circuit.
General ledger Drives accounting and budgeting process.
Fixed asset Tracks depreciation expenses by account.
Payroll Payroll contracted with Automatic Data
Processing.
Billing/accounts Drives billing and accounts receivable.
receivable
Financial reporting Drives financial analysis process budget
and expense tracking.
Business planning Models/forecasts business for planning
purposes.
Addendum A - Page 3
<PAGE>
Operator will pay for MIS processing costs at the following rates per month
based on actual annual sales for the immediately preceding fiscal year:
<TABLE>
<CAPTION>
===============================================================================
Monthly
Prior Year Annual Sales Rate
===============================================================================
<S> <C>
Up to $250,000 $5,000
- -------------------------------------------------------------------------------
Greater than $250,000 up to and 7,000
including $15,000,000
- -------------------------------------------------------------------------------
Greater than $15,000,000 up to 20,000
and including $25,000,000
- -------------------------------------------------------------------------------
Greater than $25,000,000 90,000
===============================================================================
</TABLE>
5. Legal/Regulatory - Contract Reviews & Local Counsel Supervision. TCGI
will review all contracts, consulting agreements and other legally binding
arrangements. TCGI will provide standard contract forms. To provide Operator
with the benefits of TCGI's legal experience and expertise in the area of
telecommunications, metropolitan area networks and alternate local transmission
services, and in particular, to ensure consistency in regulatory stance, TCGI
will be available as needed for supervision and guidance of Operator's local
counsel and/or local regulatory counsel. Operator will pay for these services on
an actual time and materials basis (see Section III).
6. National Marketing and Pricing - Product Planning and Pricing; National
Advertising & Marketing. TCGI shall provide the following additional marketing
and pricing services:
o Develop, publish and update a standard pricing guide.
o Create market data and analysis for network expansion plans.
o Develop new applications including service descriptions,
pricing and sales strategy.
o Plan and implement national advertising campaign and
strategic accounts programs.
o Conduct competitive service analysis and ongoing tariff
review to assess potential impact on TCGI.
o Place general image advertising in national communications
media.
Addendum A - Page 4
<PAGE>
o Assist Operator in local promotional and public relations
efforts.
o Trade show planning and implementation for national and
regional exhibits; distribute qualified sales leads to each
city resulting from trade shows.
o Design and develop sales brochures and premiums.
o Update and maintain mailing lists, and develop and implement
direct mail campaigns.
o Distribute press releases, Teleport Report, trade show
invitations, etc.
Operator will pay for these services at the following rates per month based on
budgeted sales for the relevant fiscal year:
<TABLE>
<CAPTION>
===============================================================================
Budgeted Annual Sales for Such Monthly Rate
Year
===============================================================================
<S> <C>
Up to $3,000,000 $3,900
- -------------------------------------------------------------------------------
Greater than $3,000,000 up to 5,850
and including $6,000,000
- -------------------------------------------------------------------------------
Greater than $6,000,000 up to 7,800
and including $9,000,000
- -------------------------------------------------------------------------------
Greater than $9,000,000 up to 9,750
and including $12,000,000
- -------------------------------------------------------------------------------
Greater than $12,000,000 up to 11,700
and including $15,000,000
- -------------------------------------------------------------------------------
Greater than $15,000,000 up to 13,650
and including $18,000,000
- -------------------------------------------------------------------------------
Greater than $18,000,000 up to 15,600
and including $21,000,000
- -------------------------------------------------------------------------------
Greater than $21,000,000 up to 17,550
and including $24,000,000
- -------------------------------------------------------------------------------
Greater than $24,000,000 up to 19,500
and including $27,000,000
- -------------------------------------------------------------------------------
Greater than $27,000,000 up to 21,450
and including $30,000,000
- -------------------------------------------------------------------------------
Greater than $30,000,000 up to 23,400
and including $33,000,000
- -------------------------------------------------------------------------------
</TABLE>
Addendum A - Page 5
<PAGE>
<TABLE>
<CAPTION>
===============================================================================
Budgeted Annual Sales for Such Monthly Rate
Year
===============================================================================
<S> <C>
Greater than $33,000,000 up to 25,350
and including $36,000,000
- -------------------------------------------------------------------------------
Greater than $36,000,000 up to 27,300
and including $39,000,000
- -------------------------------------------------------------------------------
Greater than $39,000,000 up to 29,250
and including $42,000,000
- -------------------------------------------------------------------------------
Greater than $42,000,000 up to 31,200
and including $45,000,000
- -------------------------------------------------------------------------------
Greater than $45,000,000 up to 33,150
and including $48,000,000
- -------------------------------------------------------------------------------
Greater than $48,000,000 up to 35,100
and including $51,000,000
- -------------------------------------------------------------------------------
Greater than $51,000,000 up to 37,050
and including $54,000,000
- -------------------------------------------------------------------------------
Greater than $54,000,000 up to 39,000
and including $57,000,000
- -------------------------------------------------------------------------------
Greater than $57,000,000 up to 40,950
and including $60,000,000
- -------------------------------------------------------------------------------
Greater than $60,000,000 up to 42,900
and including $63,000,000
- -------------------------------------------------------------------------------
Greater than $63,000,000 up to 44,850
and including $66,000,000
- -------------------------------------------------------------------------------
Greater than $66,000,000 46,800
===============================================================================
</TABLE>
7. Operations - 24-Hour Remote Systems Monitoring. TCGI shall provide
24-hour monitoring of the installed network in accordance with its standard
monitoring practices with respect to network systems in the New York
metropolitan area. Operator will provide necessary long distance tie-lines.
Operator will pay a unit fee for 24-hour remote systems monitoring for private
lines at a rate of $300.00 per Network Monitoring Unit per year, set at the
beginning of each year based on the average number of Network Monitoring Units
budgeted for the year, payable in twelve equal monthly installments. Operator
will pay a unit fee for remote monitoring for switching at a rate of $75,000 per
year plus $1,000 per switch module per year, set at the beginning of each year
based on the number of budgeted switch modules for the year, payable in twelve
equal monthly installments. Operator will pay for any trouble management
requiring additional man hours on an actual time and materials basis (see
Section III).
Addendum A - Page 6
<PAGE>
8. Personnel Administration - Payroll & Benefits. TCGI will provide all
benefit & employee administration with respect to payroll, 401(k), medical,
dental, retirement, vacation, disability, and sick leave. Operator shall pay a
unit fee for these services of $230.00 per month per budgeted year-end Assigned
Employee (as that term is defined in paragraph I.12.
below).
9. Quality - Training and Course Documentation. TCGI's ongoing commitment
to employee education and training will be maintained by providing in-house
training and documentation on TCGI procedures and operational guidelines. TCGI
shall notify Operator from time to time of its training programs. Guidance on
policy and outside education/training will also be available as needed. Operator
will pay for training and course documentation at TCGI's standard rates.
10. Sales - National Sales Representation. TCGI's National Sales Group and
senior executives will actively seek to sell Operator services on a national
level to organizations such as interexchange carriers, large financial
institutions and other corporations with a nationwide presence. These services
will be provided to meet mutually agreed national sales quota targets which will
be set by Operator and TCGI. This program is supplemental to Operator's local
sales effort, which may include national accounts contacted on a local basis.
Operator will pay for these services at the following rate per month based on
budgeted revenues for the current fiscal year:
<TABLE>
<CAPTION>
================================================================================
Current Year Budgeted Annual Monthly Rate
Sales
================================================================================
<S> <C>
Up to $500,000 $5,000
- --------------------------------------------------------------------------------
Greater than $500,000 up to and 8,000
including $1,000,000
- --------------------------------------------------------------------------------
Greater than $1,000,000 up to 10,000
and including $3,000,000
- --------------------------------------------------------------------------------
Greater than $3,000,000 up to 15,000
and including $5,000,000
- --------------------------------------------------------------------------------
Greater than $5,000,000 up to 20,000
and including $10,000,000
- --------------------------------------------------------------------------------
Greater than $10,000,000 up to 30,000
and including $20,000,000
- --------------------------------------------------------------------------------
</TABLE>
Addendum A - Page 7
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Current Year Budgeted Annual Monthly Rate
Sales
================================================================================
<S> <C>
Greater than $20,000,000 up to 40,000
and including $30,000,000
- --------------------------------------------------------------------------------
Greater than $30,000,000 up to 50,000
and including $40,000,000
- --------------------------------------------------------------------------------
Greater than $40,000,000 up to 60,000
and including $50,000,000
- --------------------------------------------------------------------------------
Greater than $50,000,000 up to 70,000
and including $60,000,000
- --------------------------------------------------------------------------------
Greater than $60,000,000 up to 80,000
and including $70,000,000
- --------------------------------------------------------------------------------
Greater than $70,000,000 up to 90,000
and including $80,000,000
- --------------------------------------------------------------------------------
Greater than $80,000,000 100,000
================================================================================
</TABLE>
11. National Programs. TCGI will provide National Program services as
follows:
National Program Description
- ---------------- -----------
Corporate Quality and TCGI will monitor conformance with TCGI's
Engineering Standards national quality and engineering standards,
as described in TCGI's Quality and
Engineering Standards Volume, as in effect
from time to time.
National Service Order TCGI will make available to Operator its
Management National Service Order management system
which allows orders from interexchange
carriers and other national accounts to be
transmitted directly to Operator. Operator
will be responsible for providing hardware,
telephone tie- lines and personnel for access
to TCGI's system.
National Regulatory TCGI will supervise and manage the
Initiatives and representation of Operator in national
Representation regulatory initiatives and issues which
affect Operator. For representation of
Operator at the FCC concerning matters
affecting only Operator, TCGI's
Addendum A - Page 8
<PAGE>
representation will be subject to Operator's
approval.
The cost to Operator of the National Programs is included in the fees payable
pursuant to Section 4(a)(ii) of the Management Services Agreement.
12. Assigned Employees. TCGI will hire all local Operator personnel as TCGI
employees and will provide all salary and benefits plans, as appropriate, to
such employees. Such employees shall become agents of Operator as contract
employees under the Management Services Agreement. Additional TCGI employees who
are not local to Operator but are working for Operator on a full-time basis will
be assigned to Operator as contract employees. For all employees assigned by
TCGI to Operator, whether temporary, part-time or contract employees ("Assigned
Employees"), Operator shall pay monthly in advance the sum of (i) all cash
compensation payable to such employees, plus (ii) a reasonable allocation of
TCGI's costs for all employee benefit plans and fringe benefits with respect to
such employees, plus (iii), without duplication to the allocation provided in
paragraph I.8. above, a reasonable allocation of general administrative overhead
costs applicable to such employees.
II. Additional Services Available from TCGI. TCGI will provide the
following Services at the request of Operator.
1. Special engineering studies and analyses.
2. Special financial studies and analyses.
3. MIS network configuration analyses, design and
implementation, and custom MIS reports.
4. General legal assistance.
5. Office space acquisition and negotiations assistance.
6. Right-of-way acquisition and negotiation assistance.
7. State and local regulatory assistance.
8. Manpower search and screening.
9. Assist Operator in developing individual case basis pricing
for special applications.
10. Access to Affiliate Services, including information from
TCGI's National Tariff Database, engineering inquiries,
customer inquiries,
Addendum A - Page 9
<PAGE>
national clearinghouse for National Account inquiries,
and advisory services to Operator.
11. Insurance assistance.
Operator will pay for all Additional Services on an actual time and materials
basis.
III. Actual Time and Materials Charges. Charges for services to be billed
on an actual time and materials basis (Sections I.1, I.2, I.3, I.5, I.7 and II)
will be determined in accordance with the following:
1. Materials, Services and Out-Of-Pocket Expenses. Actual expenses for
materials used, purchased services from outside suppliers, advisors or
consultants, and travel will be passed through to Operator as incurred at cost.
2. TCGI Employees Not Assigned to Operator. In keeping with the TCGI
manpower and salary grade structure, billing rates have been established for all
TCGI employee grade levels. Time will be billed to Operator at the hourly labor
rates listed below per Grade Level for TCGI employees who are not Assigned
Employees but who perform services for Operator, based on hours actually spent
on Operator work:
<TABLE>
<CAPTION>
======================================================
Grade Level Hourly Rate
======================================================
<S> <C>
A $125.00
------------------------------------------------------
B 75.00
------------------------------------------------------
C 50.00
------------------------------------------------------
D 30.00
======================================================
</TABLE>
IV. Adjustment to Fee Schedules; Payment of Allocated Expenses. All fees
and monthly rates stated herein are subject to change in accordance with the
terms of Section 4(b) of the Management Services Agreement. Operator may be
required to pay TCGI the expenses attributable to the provision of Services by
TCGI in accordance with Section 4(b) of the Management Services Agreement. The
initial weighting system for allocating to Operator its pro rata share of TCGI's
costs in providing Services shall be as follows: direct hours billed shall be
weighted at 50%, annual budgeted revenue shall be weighted at 30% and budgeted
capitalization shall be weighted at 20%.
Addendum A - Page 10
<PAGE>
EXHIBIT B
Undertaking of Parent
The undersigned, which is a Parent of a Partner to the foregoing
Partnership Agreement, hereby covenants and confirms, to and for the benefit of
each other Partner and the Partnership, that it will not, and will not permit
any of its affiliates to, violate or circumvent the provisions of Article 7 of
the Partnership Agreement which are applicable to the Partner of which it is the
Parent. Capitalized terms used in this Undertaking shall have the meanings
assigned to them in the Partnership Agreement dated as of ______________, 1994,
between Hyperion Telecommunications of Pennsylvania, Inc. and TCG Partners.
Dated: ________________
___________________________________
By:________________________________
Name:______________________________
Title:_____________________________
<PAGE>
EXHIBIT B
---------
Undertaking of Parent
---------------------
The undersigned, which is a Parent of a Partner to the foregoing
Partnership Agreement, hereby covenants and confirms, to and for the benefit of
each other Partner and the Partnership, that it will not, and will not permit
any of its affiliates to, violate or circumvent the provisions of Article 7 of
the Partnership Agreement which are applicable to the Partner of which it is the
Parent. Capitalized terms used in this Undertaking shall have the meanings
assigned to them in the Partnership Agreement dated as of ______________, 1994,
between TCI Teleport of Pittsburgh, Inc. and TCG Partners.
Dated: ________________
___________________________________
By:________________________________
Name:______________________________
Title:_____________________________
<PAGE>
TAX APPENDIX
BOOK AND TAX ACCOUNTING PROVISIONS
All capitalized terms which are not defined in this Tax Appendix but which
are defined in the Agreement shall have the meanings set forth in the Agreement.
1. Gross Asset Value; Net Profit and Net Loss
------------------------------------------
1.1 Gross Asset Value. "Gross Asset Value" means, with respect to any
asset, the asset's adjusted basis for federal income tax purposes, modified as
follows:
(a) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of such
asset, as determined by the contributing Partner and the Managing Partner
(unless the Managing Partner is the contributing Partner, in which case the
gross fair market value will be determined in accordance with Section 3.6
of the Agreement).
(b) The Gross Asset Values of all Partnership assets shall be adjusted
to equal their respective gross fair market values, as determined by the
Managing Partner, in the circumstances described in Regulations Section
1.704-1(b)(2)(iv)(f)(5), but in the case of adjustments other than upon the
liquidation of the Partnership within the meaning of Regulations Section
1.704- 1(b)(2)(ii)(g), only if the Managing Partner reasonably determines
that such adjustments are necessary or appropriate to reflect the relative
economic interests of the Partners in the Partnership.
(c) The Gross Asset Value of any Partnership asset distributed to a
Partner shall be the gross fair market value of such asset on the date of
distribution.
(d) The Gross Asset Value of Partnership assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or 743(b), but only to the extent that such
adjustments are taken into account in determining Capital Accounts pursuant
to Regulations Section 1.704-1(b)(2)(iv)(m) and Section 2.1(e) below.
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to clause (a), (b) or (d) above, such Gross Asset Value shall
thereafter be adjusted by the amount determined in accordance with Regulations
Section 1.704-1(b)(2)(iv)(g)(2) and (3).
1.2 Net Profit and Net Loss. "Net Profit" and "Net Loss" means, for each
Fiscal Year or other period, an amount equal to the Partnership taxable income
or loss for such year or period,
<PAGE>
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(a) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing such Net Profit or
Net Loss shall be added to such taxable income or loss.
(b) Code Section 705(a)(2)(B) expenditures of the Partnership, which
are not otherwise taken into account in computing such Net Profit or Net
Loss, shall be subtracted from such taxable income or loss.
(c) In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to clause (b) or (c) of the definition of "Gross Asset
Value," the amount of such adjustment shall be taken into account as gain
or loss from the disposition of such asset for purposes of computing Net
Profit or Net Loss.
(d) Gain or loss resulting from any disposition of Partnership
property with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross Asset Value
of the property disposed of, notwithstanding that the adjusted tax basis of
such property differs from its Gross Asset Value.
(e) If the Gross Asset Value of an asset differs from its adjusted
basis for federal income tax purposes at the beginning of such year or
other period, then in lieu of the depreciation, amortization, and other
cost recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account the amount determined in
accordance with Regulations Section 1.704-1(b)(2)(iv)(g)(2) and (3).
(f) Any items that are specially allocated pursuant to Article 2 of
this Tax Appendix shall not be taken into account in computing such Net
Profit or Net Loss.
(g) Any deduction for a loss on a sale or exchange of Partnership
property that is disallowed to the Partnership under Code Section 267(a)(1)
or 707(b) shall be treated as a Code Section 705(a)(2)(B) expenditure.
-2-
<PAGE>
2. Special Allocation Provisions.
Sections 2.1, 2.2, and 2.3(a) and (b) shall apply with respect to any
Nonrecourse Liabilities or Partner Nonrecourse Debt (as defined below) of the
Partnership if the Managing Partner determines that there is a reasonable basis
to conclude that the Partnership Interests of the Partners under the Agreement
are not the same as the overall interests of the Partners in the Partnership
determined under Regulations Section 1.704-1(b)(3). Sections 2.1(e) and 2.2(a)
shall apply if the Partnership has made an election under Code Section 754 and
there is an adjustment to the adjusted tax basis of any Partnership asset
pursuant to Code Section 734(b) or 743(b). Section 2.4 shall apply if the Gross
Asset Value of Partnership property differs from its adjusted basis for federal
income tax purposes.
2.1 Special Allocations.
(a) Minimum Gain Chargeback. Notwithstanding any other provision of
the Agreement (including this Tax Appendix), if for any Partnership Fiscal
Year there is a net decrease in Partnership Minimum Gain (as defined in
Regulations Section 1.704-2(b)(2)), each Partner shall be specially
allocated items of Partnership income and gain for such year (and, if
necessary, for succeeding years) in an amount equal to such Partner's share
of the net decrease in Partnership Minimum Gain, determined in accordance
with Regulations Section 1.704-2(g), except as otherwise provided in
Regulations Section 1.704-2(f)(2), 1.704-2(f)(3), 1.704-2(f)(4), and
1.704-2(f)(5). Allocations pursuant to the previous sentence shall be made
in proportion to the respective amounts required to be allocated to each
Partner pursuant thereto. The items to be so allocated shall be determined
in accordance with Regulations Section 1.704-2(f)(6). The amount of
Partnership Minimum Gain shall be determined in accordance with Regulations
Section 1.704- 2(d). This Section 2.1(a) is intended to comply with the
minimum gain chargeback requirement of Regulations Section 1.704-2(f) and
shall be interpreted consistently therewith.
(b) Partner Minimum Gain Chargeback. Notwithstanding any other
provision of the Agreement (including this Tax Appendix) except Section
2.1(a), if during a Partnership Fiscal Year there is a net decrease in
Partner Nonrecourse Debt Minimum Gain (as defined in Regulations Section
1.704-2(i)(2)), each Partner who has a share of that Partner Nonrecourse
Debt Minimum Gain (determined in accordance with Regulations Section
1.704-2(i)(5)) as of the beginning of such year shall be specially
allocated items of Partnership income and gain for such year (and, if
necessary, for succeeding years) in an amount equal to such Partner's share
of the net decrease in Partner Nonrecourse Debt Minimum Gain, determined in
accordance with Regulations Section 1.704-2(i)(4) (and taking into account
the exceptions provided therein). Allocations
-3-
<PAGE>
pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Partner pursuant
thereto. The items to be so allocated shall be determined in accordance
with Regulations Section 1.704-2(i)(4). The amount of Partner Nonrecourse
Debt Minimum Gain shall be determined in accordance with Regulations
Section 1.704-2(i)(3). This Section 2.1(b) is intended to comply with the
minimum gain chargeback requirement in Regulations Section 1.704-2(i)(4)
and shall be interpreted consistently therewith.
(c) Nonrecourse Deductions. Nonrecourse Deductions (as defined in
Regulations Section 1.704-2(b)(1)) for any Fiscal Year or other period
shall be specially allocated as Net Loss pursuant to Section 4.6 of the
Agreement. The amount of Nonrecourse Deductions shall be determined in
accordance with Regulations Section 1.704-2(c).
(d) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions
(as defined in Regulations Section 1.704-2(i)(1)) for any Fiscal Year or
other period shall be specially allocated to the Partner who bears the
economic risk of loss with respect to the Partner Nonrecourse Debt to which
such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Section 1.704-2(i). The amount of Partner Nonrecourse
Deductions shall be determined in accordance with Regulations Section
1.704-2(i)(2).
(e) Section 754 Adjustment. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Code Section 734(b)
or 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the
asset) or loss (if the adjustment decreases such basis), and such gain or
loss shall be specially allocated to the Partners in a manner consistent
with the manner in which their Capital Accounts are required to be adjusted
pursuant to such Section of the Regulations.
2.2 Curative Allocations.
(a) Notwithstanding any other provision of the Agreement (including
this Tax Appendix), other than allocations pursuant to Section 2.1 (the
"Regulatory Allocations"), allocations pursuant to Section 2.1(e) above
(the "Basic Regulatory Allocations") shall be taken into account in
allocating items of income, gain, loss, and deduction among the Partners so
that, to the extent possible, the net amount of such allocations of other
items and the Basic Regulatory Allocations to each Partner shall be equal
to the net amount that would have been allocated to each such Partner if
the Basic Regulatory Allocations had not occurred. For purposes of
-4-
<PAGE>
applying the foregoing sentence, allocations pursuant to this Section
2.2(a) shall only be made with respect to Basic Regulatory Allocations to
the extent the Managing Partner reasonably determines that such Basic
Regulatory Allocations would otherwise be inconsistent with the economic
agreement among the Partners.
(b) Notwithstanding any other provision of this Agreement, other than
the Regulatory Allocations, allocations pursuant to Sections 2.1(a) and
2.1(c) above (the "Nonrecourse Regulatory Allocations") shall be taken into
account in allocating items of income, gain, loss, and deduction among the
Partners so that, to the extent possible, the net amount of such
allocations of other items and the Nonrecourse Regulatory Allocations to
each Partner shall be equal to the net amount that would have been
allocated to each such Partner if the Nonrecourse Regulatory Allocations
had not occurred. For purposes of applying the foregoing sentence (i) no
allocations pursuant to this Section 2.2(b) shall be made prior to the
Partnership Fiscal Year during which there is a net decrease in Partnership
Minimum Gain, and then only to the extent necessary to avoid any potential
economic distortions caused by such net decrease in Partnership Minimum
Gain; and (ii) allocations pursuant to this Section 2.2(b) shall be
deferred with respect to allocations pursuant to Section 2.1(c) to the
extent the Managing Partner reasonably determines that such allocations are
likely to be offset by subsequent allocations pursuant to Section 2.1(a).
(c) Notwithstanding any other provision of the Agreement (including
this Tax Appendix), other than the Regulatory Allocations, allocations
pursuant to Sections 2.1(b) and 2.1(d) (the "Partner Nonrecourse Regulatory
Allocations") shall be taken into account in allocating items of income,
gain, loss, and deduction among the Partners so that, to the extent
possible, the net amount of such allocations of other items and the Partner
Nonrecourse Regulatory Allocations to each Partner shall be equal to the
net amount that would have been allocated to each such Partner if the
Partner Nonrecourse Regulatory Allocations had not occurred. For purposes
of applying the foregoing sentence (i) no allocations pursuant to this
Section 2.2(c) shall be made with respect to allocations pursuant to
Section 2.1(d) relating to a particular Partner Nonrecourse Debt prior to
the Partnership Fiscal Year during which there is a net decrease in Partner
Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse
Debt, and then only to the extent necessary to avoid any potential economic
distortions caused by such net decrease in Partner Nonrecourse Debt Minimum
Gain; and (ii) allocations pursuant to this Section 2.2(c) shall be
deferred with respect to allocations pursuant to Section 2.1(d) to the
extent the Managing Partner reasonably determines that such allocations are
likely to be offset by subsequent allocations pursuant to Section 2.1(b).
-5-
<PAGE>
(d) The Managing Partner shall have reasonable discretion, with
respect to each Partnership Fiscal Year, to (i) apply the provisions of
Sections 2.2(a), 2.2(b) and 2.2(c) in whatever order is likely to minimize
the economic distortions that might otherwise result from the Regulatory
Allocations; and (ii) divide all allocations pursuant to Sections 2.2(a),
2.2(b) and 2.2(c) among the Partners in a manner that is likely to minimize
such economic distortions.
(e) Notwithstanding any other provision of the Agreement (including
this Tax Appendix), except the Regulatory Allocations, in the Fiscal Year
in which there is a sale, exchange or other disposition of all or
substantially all of the assets of the Partnership or a dissolution or
liquidation of the Partnership, after allocating items of income, gain,
loss and deduction in accordance with the Regulatory Allocations and the
curative allocations under Sections 2.2(a), 2.2(b), 2.2(c) and 2.2(d), each
Partner shall be allocated remaining items of income, gain, deduction, and
loss to the extent necessary to cause the balance in each Partner's Capital
Account to equal the Distributions that would be made to each such Partner
if such distributions were made to the Partners in accordance with their
Partnership Interests (after payment of the debts and obligations of the
Partnership).
2.3 Other Allocation Rules.
(a) To the extent permitted by Regulations Sections 1.704-2(h) and
1.704-2(i)(6), the Managing Partner shall endeavor to treat Distributions
as not having been made from the proceeds of a Nonrecourse Liability (as
defined in Regulations Section 1.704-2(b)(3) (and Regulations Section
1.752-1(a)(2))) or a Partner Nonrecourse Debt.
(b) Solely for purposes of determining a Partner's proportionate share
of the "excess nonrecourse liabilities" of the Partnership within the
meaning of Regulations Section 1.752-3(a)(3), the Partners' interests in
Partnership profits are equal to their respective Partnership Interests.
The allocation of such "excess nonrecourse liabilities" shall be adjusted
to reflect any subsequent adjustment of the Partnership Interests of the
Partners pursuant to the Agreement.
(c) If any fees or other payments deducted for federal income tax
purposes by the Partnership are recharacterized by a final determination of
the Internal Revenue Service as nondeductible distributions to any Partner,
then, notwithstanding all other allocation provisions (other than the
Regulatory Allocations), gross income shall be allocated to such Partner in
an amount equal to the fees or payments so recharacterized.
(d) If any Partner makes a payment of interest to the
-6-
<PAGE>
Partnership in respect of the late payment of any Capital Contribution
pursuant to Article 4 of the Agreement, the amount of such interest shall
be included in the income of the Partnership and allocated among the
Partners in the same manner as if such interest had been paid by a person
which is not a Partner, and the amount of such interest shall not be
included in the Capital Contributions credited to such Partner's Capital
Account.
(e) All items of Partnership income, gain, loss, deduction, and any
other allocations not otherwise provided for shall be allocated among the
Partners in the same proportion as they share Net Profit or Net Loss, as
the case may be, for the year.
2.4 Contributed Property: Code Section 704(c).
(a) In accordance with Code Section 704(c) and the Regulations
thereunder, income, gain, loss, and deduction with respect to any property
contributed to the capital of the Partnership shall, solely for tax
purposes, be allocated among the Partners so as to take account of any
variation between the adjusted basis of such property to the Partnership
for Federal income tax purposes and its initial Gross Asset Value. To the
extent permitted by the Code and applicable Regulations, such allocations
shall be made in accordance with Proposed Regulations Section 1.704-3(b).
(b) If the Gross Asset Value of a Partnership asset is adjusted
pursuant to Section 1.1(b) above, subsequent allocations of income, gain,
loss, and deduction with respect to such asset for tax purposes shall take
account of any variation between the adjusted basis of such asset for
federal income tax purposes and its Gross Asset Value in the same manner as
under Code Section 704(c) and the Regulations thereunder. To the extent
permitted by the Code and applicable Regulations, such allocations shall be
made in accordance with Proposed Regulations Section 1.704-3(b).
(c) Any elections or other decisions relating to such allocations
shall be made by the Managing Partner in any manner that reasonably
reflects the purpose and intention of this Agreement. Allocations pursuant
to this Section 2.4 are solely for purposes of federal, state, and local
taxes and shall not affect, or in any way be taken into account in
computing, any Entity's Capital Account or share of Net Profits, Net
Losses, other items, or Distributions pursuant to any provision of this
Agreement.
3. Allocation in Event of Transfer. If an interest in the Partnership is
transferred in accordance with Article 5 of the Agreement, the Net Profit and
Net Loss of the Partnership allocable to the transferor and transferee, and the
Capital Account of the transferee, shall be determined as follows:
-7-
<PAGE>
(a) If such transfer is effected on or prior to the fifteenth day of
the month, then such transfer shall be deemed to have occurred on the last
day of the month immediately prior to the month in which such transfer
occurs. If such transfer is effected after the fifteenth day of such month,
such transfer shall be deemed to have occurred on the last day of the month
in which such transfer occurs.
(b) The transferor Partner shall be allocated an amount of Net Profit
or Net Loss equal to the product of (x) a fraction whose numerator consists
of the Partnership Interest transferred and whose denominator consists of
the Partnership Interests held by all Partners, times (y) the Net Profit or
Net Loss of the Partnership for the period ending on the date (or deemed
date) of the transfer. The substitute Partner shall be allocated an amount
equal to the product of (x) a fraction whose numerator consists of the
Partnership Interest transferred and whose denominator consists of the
Partnership Interest held by all Partners, times (y) the Net Profit or Net
Loss of the Partnership for the remainder of the calendar year. The Capital
Account of the transferee as of the date of such transfer shall be
determined in accordance with Regulations Section 1.704-1(b)(2)(iv)(l).
4. Adjustment to Allocations in the Event of Issuance or Redemption of
Partnership Interests.
In the event additional partners acquire interests in the Partnership from
the Partnership, or if the interest of any Partner in the Partnership is
increased through liquidating Distributions to other Partners or decreased
through additional Capital Contributions by other Partners, appropriate
adjustments shall be made to the Distributions and allocations of Net Profit and
Net Loss for periods after such event.
5. Elections Pursuant to Section 754.
In the event of a transfer of an interest in the Partnership permitted
under this Agreement, the Partnership shall, at the request of the transferee
and upon the approval of the Managing Partner, make the election provided by
Code Section 754 to make the adjustment to the basis of Partnership property
provided by Section 743 (if such election is not then in effect), provided that
the transferee agrees to bear the additional accounting expense to the
Partnership resulting from the election (and all subsequent transferees shall
likewise bear a Pro Rata portion of such additional expense). In the event of a
distribution of property by the Partnership, upon the approval of the Managing
Partner, the Partnership shall make the election provided by Section 754 to make
the adjustment to the basis of Partnership property provided by Section 734 (if
such election is not then in effect), in which case any additional accounting
expense to the Partnership resulting from
-8-
<PAGE>
the election shall be borne by the Partnership.
6. Interpretation of Provisions.
It is the intention of the Partners that all allocations pursuant to the
Agreement (including this Tax Appendix) shall comply with the provisions of Code
Section 704 and the Regulations promulgated thereunder. Accordingly, the
provisions of the Agreement (including this Tax Appendix) shall be interpreted
and applied in a manner that is consistent with the provisions of Code Section
704 and the Regulations promulgated thereunder.
7. Tax Matters Partner.
The Managing Partner shall be the Tax Matters Partner of the Partnership.
The Tax Matters Partner shall not take any action which will have a materially
adverse impact on any Partner unless such action shall have been approved by a
Majority Vote of the Partners. The Managing Partner shall have the right to
resign as Tax Matters Partner at any time, upon written notice to all other
Partners, in which event the Partners shall appoint a new Tax Matters Partner.
This provision shall survive any termination of the Agreement. For purposes of
the foregoing, "Tax Matters Partner" shall mean the "tax matters partner" of the
Partnership within the meaning of Section 6231(a)(7) of the Code.
-9-
<PAGE>
INFORMATION APPENDIX
1. Authorized Representatives:
DDI: Robert J. Lemming
TCI: Robert J. Lemming
ADELPHIA: Daniel Milliard
TCP: Al Hansen
2. Business Area:
The Pittsburgh, Pennsylvania Local Access Transport Area (LATA Number 234)
3. Name:
TCG PITTSBURGH
4. Termination Date:
December 31, 2092
5. Municipal Franchises and Regulatory Authorizations for which the
Partnership currently contemplates that it may apply:
None.
6. Additional Agreements relating to the operation of the Exclusive Business
in the Business Area:
None.
7. Exclusive Business Activities conducted by Partners as of the date of this
Agreement:
None.
8. Pre-Organization Operating Expenses and Capital Expenditures Which the
Partnership Shall Reimburse to the Partners:
DDI: None.
TCI: None.
ADELPHIA: None.
TCP: None.
9. Partnership Interests at Partnership Formation:
<TABLE>
<CAPTION>
Interest
<S> <C>
DDI: 52.6%
TCI: 00.0%
ADELPHIA: 12.4%
TCP: 35.0%
------
100.0%
</TABLE>
<PAGE>
10. First Installment of Initial Capital Contribution due at
Closing:
DDI: $5.26
TCI: None
ADELPHIA: $1.24
TCP: $3.50
Payable upon request of the Managing Partner in accordance with Section
4.1 of the Partnership Agreement.
Note: DDI has funded the operation of DDI through the effective date of
the Partnership, and will continue to fund the operation pending the
earlier of the approval by the Pennsylvania Public Utilities Commission
of the transfer of assets from DDI to the Partnership, or the authority
for Teleport Communications Group Inc. to manage the DDI assets on
behalf of DDI. Upon request of the Managing Partner subsequent to the
receipt of such regulatory consent, Adelphia and TCP will be called
upon to make Capital Contributions to the Partnership at their pro rata
share to bring the Partners' Capital Accounts into alignment with DDI's
funding.
11. Potential Partners:
None.
12. Video Services to be included in definition of Exclusive
Business:
None.
13. Ultimate Partnership Interests and Initial Capital
Contributions (after DDI transfer):
Immediately subsequent to formation of the Partnership and contribution
of the assets of DDI to the Partnership, DDI will transfer its
Partnership Interest to TCI pursuant to Section 5.2(a) of the
Partnership Agreement.
<TABLE>
<CAPTION>
Interest Contribution
-------- ------------
<S> <C> <C>
TCI: 52.6% $18,936,000
ADELPHIA: 12.4% $ 4,464,000
TCP: 35.0% $12,600,000
------ -----------
100.0% $36,000,000
</TABLE>
<PAGE>
EXHIBIT 10.28
PARTNERSHIP AGREEMENT
OF
TCG SAN DIEGO
Dated as of June 1, 1994
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE 1: DEFINITIONS.................................................... 1
ARTICLE 2: FORMATION...................................................... 8
2.1 Formation. .............................................. 8
---------
2.2 Name...................................................... 8
----
2.3 Principal Offices......................................... 8
-----------------
2.4 Term...................................................... 8
----
2.5 Property.................................................. 9
--------
ARTICLE 3: PURPOSE, AUTHORITY AND MANAGEMENT OF THE PARTNERSHIP........... 9
3.1 Purpose and Authority..................................... 9
---------------------
3.2 Managing Partner.......................................... 9
----------------
3.3 Meetings of the Partners; Authorized Representatives...... 11
----------------------------------------------------
3.4 Actions Requiring a Majority Vote......................... 12
---------------------------------
3.5 Actions Requiring a Supermajority Vote.................... 13
--------------------------------------
3.6 Special Voting Provisions................................. 15
-------------------------
3.7 Scope of Partners' Authority.............................. 15
----------------------------
3.8 Indemnification of Partners; Allocation of Liabilities.... 16
------------------------------------------------------
3.9 Contribution.............................................. 18
------------
3.10 Insurance and Bonds...................................... 18
-------------------
ARTICLE 4: CAPITALIZATION; ALLOCATION; DISTRIBUTIONS...................... 19
4.1 Initial Capital Contributions............................. 19
-----------------------------
4.2 Additional Capital Contributions.......................... 19
--------------------------------
4.3 Failure to Make Capital Contributions..................... 20
-------------------------------------
4.4 Loans..................................................... 25
-----
4.5 Calculations and Adjustments.............................. 26
----------------------------
4.6 Capital Accounts.......................................... 26
----------------
4.7 Distribution of Partnership Funds......................... 27
---------------------------------
4.8 Allocation of Net Profits and Losses...................... 28
------------------------------------
4.9 Tax Appendix.............................................. 28
------------
ARTICLE 5: TRANSFERS OF PARTNERSHIP INTERESTS; RIGHT OF FIRST REFUSAL..... 28
5.1 Restrictions on Transfer.................................. 28
------------------------
5.2 Exceptions to Restrictions on Transfers................... 29
---------------------------------------
5.3 Rollup Provisions......................................... 31
-----------------
5.4 Right of First Refusal.................................... 32
----------------------
5.5 Purchases by the Partnership or its Assignee.............. 36
--------------------------------------------
5.6 Put Rights................................................ 37
----------
5.7 Prohibited Transfers...................................... 39
--------------------
5.8 Appraisal Process......................................... 39
-----------------
<PAGE>
PAGE
----
5.9 Closing of any Permitted Transfer......................... 40
---------------------------------
5.10 Remedies................................................. 41
--------
ARTICLE 6: BOOKS AND RECORDS; ACCOUNTING; FISCAL YEAR..................... 42
6.1 Books and Records......................................... 42
-----------------
6.2 Financial Statements...................................... 42
--------------------
6.3 Bank Accounts............................................. 43
-------------
6.4 Fiscal Year............................................... 43
-----------
ARTICLE 7: BUSINESS ACTIVITIES............................................ 43
7.1 Conduct of Exclusive Business in Business Area............ 43
----------------------------------------------
7.2 Exceptions for Certain Transactions....................... 45
-----------------------------------
7.3 Existing Activities....................................... 46
-------------------
7.4 Prohibited Transactions.................................. 46
-----------------------
7.5 Controlled Affiliates.................................... 46
---------------------
7.6 Retail Switching Business................................ 47
-------------------------
7.7 Services Offered by the Partnership...................... 47
-----------------------------------
ARTICLE 8: DISSOLUTION.................................................... 48
8.1 Causes of Dissolution..................................... 48
---------------------
8.2 Winding Up and Liquidation................................ 48
--------------------------
8.3 Continuation of the Partnership........................... 49
-------------------------------
8.4 No Withdrawal............................................. 49
-------------
ARTICLE 9: EVENTS OF DEFAULT AND REMEDIES................................. 49
9.1 Events of Default......................................... 49
-----------------
9.2 Remedies.................................................. 50
--------
9.3 Purchase of Defaulting Partner's Partnership Interest..... 52
-----------------------------------------------------
ARTICLE 10: REPRESENTATIONS AND WARRANTIES OF THE PARTNERS................. 53
ARTICLE 11: MISCELLANEOUS.................................................. 54
11.1 Acknowledgements......................................... 54
----------------
11.2 Bill for Partition....................................... 54
------------------
11.3 Notices.................................................. 54
-------
11.4 Amendments............................................... 55
----------
11.5 Indebtedness for Borrowed Money.......................... 55
-------------------------------
11.6 Waivers and Further Agreements; Entire Agreement......... 55
------------------------------------------------
11.7 Severability............................................. 55
------------
11.8 Specific Enforcement; Attorneys Fees..................... 56
------------------------------------
11.9 Counterparts............................................. 56
------------
11.10 Most Favored Nations.................................... 56
--------------------
11.11 Captions; Gender........................................ 56
----------------
- ii -
<PAGE>
PAGE
----
11.12 Governing Law and Binding Effect.................... 56
--------------------------------
11.13 Expenses............................................ 57
--------
11.14 Third Parties....................................... 57
-------------
11.15 Confidentiality..................................... 57
---------------
11.16 Appendices.......................................... 57
----------
EXHIBITS AND APPENDICES
-----------------------
Exhibit A Form of Management Services Agreement
Exhibit B Undertaking of Parent
Tax Appendix
Information Appendix
- iii -
<PAGE>
PARTNERSHIP AGREEMENT
---------------------
THIS PARTNERSHIP AGREEMENT is made as of June 1, 1994, by and
among TCG Partners, a New York general partnership ("TCP"), and the other
parties listed on the signature pages hereof.
RECITALS
--------
The parties desire to establish a partnership for the purposes
hereinafter set forth, subject to the terms and conditions hereof.
AGREEMENTS
----------
In consideration of the foregoing, and of the promises and
covenants contained in this Agreement, the parties agree as follows:
ARTICLE 1: DEFINITIONS
Capitalized terms used in this Agreement shall have the meanings
set forth below or in the Sections of this Agreement referred to below. Terms
used solely in the Tax Appendix are defined in the Tax Appendix.
"Act" means the Uniform Partnership Act, as from time to time
in effect in the State of New York.
"Additional Capital Contribution" has the meaning set forth in
Section 4.2 hereof.
"Affiliate" means, with respect to any Entity, any other Entity
that, directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with the first specified Entity. For
purposes of this Agreement, neither the Partnership, nor any Entity controlled
by the Partnership, shall be deemed to be an Affiliate of a Partner or of any
Affiliate of a Partner, and no Partner or any Affiliate thereof shall be deemed
to be an Affiliate of any other Partner or any Affiliate thereof solely by
virtue of its Partnership Interest.
"Agreement" means this Partnership Agreement, as it may be
amended, modified or supplemented from time to time in accordance with its
terms.
<PAGE>
"Authorized Representative" means the representative of a
Partner who, pursuant to Section 3.3(e) hereof, is authorized to execute any
document and take any action under this Agreement on behalf of such Partner.
The name of the initial Authorized Representative of each Partner is set forth
on the Information Appendix.
"Budget" for any Fiscal Year means the operating and capital
budget for the Partnership for such Fiscal Year prepared by the Managing
Partner and adopted by the Partners in accordance with Section 3.4 hereof.
"Business Area" means the counties listed on the Information
Appendix.
"Business Day" means any day (other than a day which is a
Saturday or Sunday) on which banks are permitted to be open for business in the
City of New York.
"Capital Account" has the meaning set forth in Section 4.6
hereof.
"Capital Contribution" means, for any Partner, the amount of
cash that such Partner has contributed to the capital of the Partnership plus,
if such Partner contributes property other than cash, "Capital Contribution"
shall include the fair market value of such property determined without regard
to Code Section 7701(g) and net of any liabilities secured by such contributed
property that the Partnership is considered to assume or take subject to under
Code Section 752.
"Change in Control", with respect to a Partner, means any
transaction as a result of which such Partner ceases to be a Subsidiary of the
Entity which was its Parent immediately prior to such transaction.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any subsequent federal law of similar import.
"Control" means, as to any Entity, the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Entity, whether through the ownership of equity interests or
voting securities, by contract or otherwise.
"Controlled Affiliate", with respect to any Partner as of any
relevant date, means (i) the Parent of such Partner and (ii) each Affiliate of
such Partner with respect to which such Parent, directly or indirectly through
one or more Controlled Affiliates, exercises or is entitled to exercise by
ownership of
- 2 -
<PAGE>
equity interests or voting securities, contract or otherwise affirmative or
negative control with respect to decisions to Engage in, or to acquire
interests in Entities Engaged in, activities encompassed in the Exclusive
Business. For purposes of this Agreement, the Partnership shall not be deemed
to be a Controlled Affiliate of any Partner or any Affiliate of any Partner.
"Defaulting Partner" has the meaning set forth in Section 9.1
hereof.
"Distribution" means a distribution of cash or property in kind
pursuant to Article 4 or 8 hereof.
"Engage" or "Engaging" means, with respect to an activity,
venture or business, directly or indirectly owning, investing in, managing,
operating or controlling either individually, jointly, in partnership or in
conjunction with any other person, or as a shareholder or providing or leasing
in any material respect any goods or services to such activity, venture or
business.
"Entity" means any individual, general partnership, limited
partnership, corporation, limited-liability company, joint venture, trust,
business trust, cooperative or association, and the heirs, executors,
administrators, legal representatives, successors, and assigns of such Entity
where the context so admits.
"Exclusive Business" means the provision of the following local
telecommunications services:
(a) Digital Private Line Services, including but not
limited to:
DSO (56 or 64 kilobits)
DS1 (1.544 megabits)
Fractional DS1 (in multiples of 56 or 64 kilobits)
DS2 (6.312 megabits)
DS3 (45 megabits)
European-standard E1 (2.048 megabits)
PBX Access Service
SONET Services;
(b) Voice Grade Private Line Services, including but
not limited to:
Two and Four Wire Analog Service
Analog Data Service
Tie Lines from Centrex to PBX;
- 3 -
<PAGE>
(c) Switched Services, including but not limited to:
Payphones and associated interexchange carrier
switched access
Retail Switching Business;
(d) IXC POP To IXC POP Connections;
(e) Provision of the services listed in clauses (a) through (c)
above to IXCs for the purpose of IXC branding or resale;
(f) Provision of Dark Fiber to Third Parties;
(g) Provision of fiber video services to the extent provided on
the Information Appendix; and
(h) Provision of coaxial terminations within commercial buildings
and building complexes on private property or resale of
coaxial services provided by a local exchange carrier, in
each case in connection with the provision of any service
listed in (a) through (g) above;
Provided, however, that the provision of any of the following services
shall not be included in the definition of "Exclusive Business":
(i) Video Services, including but not limited to the
following (but excluding services specified in
clause (g) above):
Short Haul Video
Long Haul Video
Multipoint Video
Switched Video
Wireless Video
Any Other Video Service;
(ii) Wireless Services, including but not limited to:
Cellular Telephone Service
Personal Communications Service
Wireless Data Service
Special Mobile Radio
Enhanced Special Mobile Radio
Paging
Any Other Wireless Service;
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(iii) Services, any portion of which is provided using Coaxial
Cable, including but not limited to the following (but excluding
services specified in clause (h) above):
Video Services
Data Services
Voice Services
Multimedia Services
Wide Area Networking Services
Any other Service;
(iv) Any residential services; and
(v) Transport of residential video programming.
"Fair Market Value" of a Partner's Partnership Interest means
the product of (i) the Percentage Interest of such Partner as of the date of
determination of Fair Market Value times (ii) the price at which a willing
seller (being under no compulsion to sell) would sell, and a willing buyer
(having full knowledge of the facts and being under no compulsion to buy) would
buy, all of the business and assets of the Partnership as a going concern (or
all of the outstanding Partnership Interests, if that would yield a higher
price), in a single arm's-length transaction without time constraints. The
price so determined for the business and assets of the Partnership shall,
without duplication or deduction, be reduced by the amount of all liabilities
of the Partnership.
"Fiscal Year" means the calendar year.
"Indirect Transfer" has the meaning set forth in Section 5.1(a)
hereof.
"Information Appendix" means the information appendix attached
hereto and made a part of this Agreement.
"Initial Capital Contribution" means the aggregate initial
Capital Contribution of each Partner to the capital of the Partnership set
forth in the Information Appendix. If an Initial Capital Contribution is made
in property other than cash, then such Initial Capital Contribution shall
include the fair market value of such property determined without regard to
Code Section 7701(g) and net of liabilities secured by such contributed
property that the Partnership is considered to take subject to or assume under
Code Section 752.
"Majority Vote", with respect to any matter to be voted on by the
Partners, means the affirmative vote of a Partner or Partners whose Percentage
Interests are in excess of 50% of the
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sum of the Percentage Interests of all Partners entitled to vote on such
matter.
"Management Services Agreement" means the Management Services
Agreement between the Partnership and the Manager in substantially the form
attached hereto as Exhibit A, as the same may be amended, modified or
supplemented from time to time in accordance with the provisions hereof and
thereof.
"Manager" means TCGI in its capacity as manager under the
Management Services Agreement, and any successor appointed in accordance with
this Agreement or the Management Services Agreement.
"Managing Partner" means TCP in its capacity as managing partner of
the Partnership, or any successor managing partner of the Partnership appointed
in accordance with Section 3.2(d) hereof.
"Net Profit" and "Net Loss" have the meanings set forth in the Tax
Appendix. "Net Profit" and "Net Loss" mean, generally, for each Fiscal Year or
other period, an amount equal to the Partnership taxable income or loss for such
year or period, with certain adjustments set forth in the Tax Appendix.
"Parent" with respect to any Entity as of any relevant date means
the ultimate corporate or partnership parent entity (within the meaning of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder, as in effect on the date hereof) of such
Entity.
"Parent Undertaking" means the form of Undertaking of Parent
attached hereto as Exhibit B.
"Partner Services Agreement" means, collectively, any fiber lease
agreement, any other agreement for the use of fiber optic telecommunications
facilities and any other agreement (other than the Management Services
Agreement) for services or facilities to be provided by a Partner or an
Affiliate of a Partner to the Partnership in connection with the maintenance or
operation of the business of the Partnership, such as, but not limited to, a
construction agreement, fiber maintenance agreement, electronics maintenance
agreement or other similar agreement.
"Partners" means TCP and the other signatories to this Agreement,
any Entity which becomes a party to this Agreement after the date hereof, and
their respective successors and permitted assigns, and "Partner" means any of
such Partners.
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"Partnership" means the general partnership created pursuant to this
Agreement.
"Partnership Interest" means, as to each Partner, all of the
interest of such Partner in the Partnership, including such Partner's (i) right
to a distributive share of the income, gain, losses and deductions of the
Partnership in accordance herewith, (ii) right to a distributive share of
Partnership assets, (iii) obligations as a Partner, and (iv) rights with
respect to the management of the business and affairs of the Partnership, as
provided herein or by law.
"Percentage Interest" means, as to each Partner, the percentage
set forth opposite its name on the Information Appendix, as such percentage may
be revised in accordance with the provisions hereof; provided, however,
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that except as expressly provided in this Agreement, the Percentage Interest of
a Partner shall not be subject to increase or decrease without such Partner's
prior consent.
"Prime Rate" means the interest rate announced by Citibank, N.A.,
New York, New York, from time to time as its prime lending rate.
"Pro Rata" means the proportion which the respective Percentage
Interest immediately prior to an action of any Partner entitled to participate
in such action bears to the sum of the Percentage Interests immediately prior
to such action of all Partners entitled to participate in such action.
"Regulations" means the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
"Remedies Partner" means the Managing Partner, so long as at the
time of determination the Managing Partner is not a Defaulting Partner;
otherwise, "Remedies Partner" means the non-Defaulting Partner which has the
largest Percentage Interest of all non-Defaulting Partners.
"Retail Switching Business" means the provision of the following
local telecommunications services and associated interexchange carrier switched
access:
Primary Centrex
PBX Dialtone Trunks
Auxiliary Centrex
ISDN - Basic Rate Service or Primary Rate Service
POTS (i.e., Basic telephone service, supplying telephone
lines and access to a switched network).
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"Subsidiary" of any Parent means an Entity (i) more than fifty
percent of whose outstanding shares or securities (representing the right to
vote for the election of directors or other managing authority) are owned or
controlled, directly or indirectly through one or more Subsidiaries, by such
Parent or (ii) which does not have outstanding shares or securities, but more
than fifty percent of whose ownership interests representing the right to make
the decisions for such Entity is owned or controlled, directly or indirectly
through one or more Subsidiaries, by such Parent; provided, however,
that in each case, such Entity shall be deemed to be a Subsidiary only so long
as such ownership or control exists.
"Supermajority Vote", with respect to any matter to be voted on
by the Partners, means the affirmative vote of a Partner or Partners whose
Percentage Interests are at least eighty percent of the sum of the Percentage
Interests of all Partners entitled to vote on such matter.
"Tax Appendix" means the tax appendix attached hereto and made a
part of this Agreement.
"TCGI" means Teleport Communications Group Inc., a Delaware
corporation, and any Entity into which it may be merged or with which it may be
consolidated or to which it may transfer all or substantially all of its
assets.
ARTICLE 2: FORMATION
2.1 Formation. The Partners hereby form the Partnership as a
general partnership under and pursuant to the Act, for the purposes and on the
terms set forth herein.
2.2 Name. The Partnership's name shall be as set forth in the
Information Appendix or such other name as the Partners may determine by
Supermajority Vote.
2.3 Principal Offices. The principal office of the Partnership
shall be in the Business Area or at such other location as the Managing Partner
may from time to time determine, and the Partnership may have an additional
office or offices at such other place or places as the Managing Partner may from
time to time determine.
2.4 Term. The term of the Partnership shall commence as of the
effective date hereof and shall continue for approximately ninety-nine years
thereafter, terminating on the date specified on the Information Appendix,
unless the
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Partnership is dissolved and liquidated prior thereto pursuant to Article 8
below.
2.5 Property. All assets and property, whether real, personal
or mixed, tangible or intangible, including contractual rights, owned or
possessed by the Partnership shall be held or possessed in the name of the
Partnership. All such assets, property and rights shall be deemed to be owned
or possessed by the Partnership as an entity. No Partner shall have any
separate ownership interest in such assets, property or rights. Each Partner's
interest in the Partnership is personal property for all purposes.
ARTICLE 3: PURPOSE, AUTHORITY AND MANAGEMENT OF THE PARTNERSHIP
3.1 Purpose and Authority. The exclusive purpose of the
Partnership shall be to invest in, engage in, operate, manage, develop,
finance, expand and to sell and otherwise dispose of, and otherwise exercise
all rights, powers, privileges and other incidents of ownership with respect
to, any activity encompassed in the Exclusive Business in the Business Area.
The Partnership shall have all powers which may be exercised by a partnership
under the Act.
3.2 Managing Partner.
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(a) Subject to the provisions of Sections 3.4, 3.5 and 3.6
hereof, the Managing Partner shall be responsible for the management and
operations of the Partnership and shall have all powers necessary to manage and
control the Partnership, to conduct its business and to implement any decision
of the Partners adopted pursuant to this Agreement. Without limiting the
generality of the foregoing, the Managing Partner shall have the authority (i)
to appoint and remove officers of the Partnership pursuant to Section 3.2(c)
below, and to authorize such officers to perform such acts and services as the
Managing Partner may approve, (ii) to seek such municipal and regulatory
consents, approvals and authorizations in the name of the Partnership as the
Managing Partner in its reasonable discretion determines to be in the best
interests of the Partnership or otherwise to be necessary under applicable law,
including, without limitation, those set forth on the Information Appendix, and
(iii) to take any action on behalf of the Partnership which does not expressly
require a vote of the Partners pursuant to Sections 3.4, 3.5 or 3.6 hereof.
The Partners acknowledge that the Managing Partner may delegate certain of its
responsibilities hereunder to the Manager pursuant to the Management Services
Agreement and to the officers appointed pursuant to Section 3.2(c) below. The
Manager shall report to the Managing Partner.
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(b) At any time after the termination by the Partnership of
the Management Services Agreement pursuant to the terms hereof and thereof, any
action to be taken or document to be provided or executed by the Manager
hereunder shall thereafter be taken, provided or executed by the Managing
Partner; provided, however, that after such termination, the Managing
Partner shall promptly seek a successor Manager to provide substantially
similar services to the services provided pursuant to the Management Services
Agreement and, upon the affirmative vote of the Partners pursuant to Section
3.4(f), shall enter into a management agreement with such successor Manager.
(c) The Managing Partner shall appoint a chief executive
officer, a chief financial officer and one or more chief operating officers for
the Partnership who shall be responsible for the day-to-day management of the
operations and business of the Partnership. The Partnership shall have such
additional officers as the Managing Partner may determine to appoint. Such
officers shall be deemed agents and employees of the Partnership, shall serve
at the pleasure of the Managing Partner, shall act in accordance with the
Budget, the decisions of the Managing Partner and the decisions of the Partners
adopted by a vote of the Partners pursuant to Section 3.4, 3.5 or 3.6 hereof,
and shall have no authority to take any action which the Managing Partner would
not itself have the authority to take as provided herein. Except as provided
above or as otherwise determined by the Managing Partner, such officers shall
(i) have such powers as are usually exercised by comparably designated officers
of a Delaware corporation and (ii) have the power to bind the Partnership
through the exercise of such powers to the extent consistent with the terms of
this Agreement.
(d) If the Management Services Agreement is terminated
pursuant to the terms hereof and thereof, or if the Managing Partner fails in
any material respect to perform its obligations under this Agreement in
accordance with the terms hereof and customary and reasonable standards of
management in the telecommunications industry, and such failure in performance
continues unremedied for a period of sixty days, or if it is not practicable to
remedy such failure within sixty days, as soon as practicable, after a majority
in Percentage Interests of the Partners (other than the Managing Partner) has
given written notice to the Managing Partner specifying such failure in
reasonable detail, the Partners, by a Majority Vote of the Partners other than
the Managing Partner, shall have the right, by delivery of notice to the
Managing Partner, to remove the Managing Partner as the Managing Partner and
replace it with a successor Managing Partner. Upon delivery of such notice,
the new Managing Partner shall succeed to all of the powers of the removed
Managing Partner hereunder and shall possess and have all such powers.
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3.3 Meetings of the Partners; Authorized Representatives.
----------------------------------------------------
(a) Annual meetings of the Partners shall be held at such
place and time as may be determined from time to time by the Managing Partner,
subject to postponement by a Supermajority Vote of the Partners. Special
meetings of the Partners shall be called by the Managing Partner at the request
of any Partner. Each Partner shall be represented at an annual or special
meeting by its Authorized Representative. The Managing Partner shall give the
Authorized Representative of each Partner at least ten Business Days notice of
the time and place of any annual or special meeting of the Partners. Any such
notice shall include, in reasonable detail, an agenda that sets forth the
matters to be considered at such annual or special meeting. In addition to any
matter set forth in such agenda, any Partner, by ten days prior notice to each
other Partner, may propose for a vote of the Partners at any meeting any matter
which pursuant to Sections 3.4, 3.5 or 3.6 hereof or any other Section of this
Agreement may be decided by the Partners pursuant to a Majority Vote or a
Supermajority Vote. A Partner may waive notice of any meeting in writing
before, at or after such meeting. The attendance of an Authorized
Representative of a Partner at a meeting shall constitute a waiver by such
Partner of notice of such meeting, except when its Authorized Representative
attends such meeting for the express purpose of objecting to the transaction of
any business because the meeting was not properly called. Voting at any annual
or special meeting of the Partners shall be according to Percentage Interests.
(b) At all meetings of the Partners, the Manager shall be
present and prepared to discuss with the Authorized Representatives and other
representatives of the Partners the business of the Partnership and any other
matters regarding the Partnership that any Partner may reasonably request.
(c) Any action required or permitted to be taken by the
Partners at an annual or special meeting may be taken without a meeting if a
written consent to such action is signed on behalf of each Partner by its
Authorized Representative, and such written consent is filed with the records
of the Partnership. Any or all Authorized Representatives may participate in a
meeting by means of conference telephone or similar communications equipment by
means of which all Authorized Representatives participating in the meeting can
hear each other, and participation in such a meeting shall constitute presence
in person by any such Authorized Representative at such meeting.
(d) Minutes of each meeting of the Partners shall be
prepared by the Managing Partner or an officer of the Partnership and
circulated to the Partners.
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(e) The Authorized Representative of each Partner shall have
the authority to execute any document and take any action on behalf of such
Partner pursuant to the terms of this Agreement. In the absence of prior
written notice to the contrary, any action taken or document executed by an
Authorized Representative shall be binding upon the Partner of which he is the
Authorized Representative, and neither the Partnership, nor any other Partner
nor any other Entity shall be obligated to inquire as to the authority of the
Authorized Representative to take any action or execute any document on behalf
of such Partner.
(f) Each Partner shall have the right at any time and from
time to time to replace its Authorized Representative (or any alternate
Authorized Representative) with another individual by written notice to the
Partnership and each other Partner. Each Partner shall be entitled to name an
alternate Authorized Representative to serve in the place of the Authorized
Representative appointed by such Partner should such appointed Authorized
Representative not be able to attend a meeting or meetings. In the event an
Authorized Representative appointed by a Partner dies or is unwilling or unable
to serve as such, such Partner shall promptly appoint a successor to such
Authorized Representative.
3.4 Actions Requiring a Majority Vote. Subject to the provisions of
Sections 3.5 and 3.6 hereof, neither the Managing Partner, nor any other Partner
nor any officer of the Partnership shall take any action, expend any sum, make
any decision or incur any obligation on behalf of the Partnership with respect
to any of the following matters, without a Majority Vote:
(a) the sale, pledge, assignment, lease or other disposition
or mortgaging or other encumbering of Partnership assets with an original
acquisition cost of more than $250,000 but less than $1,000,000;
(b) the adoption of the Budget for each Fiscal Year, which
the Manager shall present to the Partners, together with a business plan as
revised for such period as the Managing Partner determines, for their review no
later than November 1 of the prior Fiscal Year;
(c) requesting any Partner to make an Additional Capital
Contribution;
(d) making capital expenditures or commitments for capital
expenditures in amounts which exceed, taken together with all other such
commitments and expenditures, by 10% the amounts budgeted for such commitments
and expenditures in the Budget for the relevant Fiscal Year;
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(e) settling or initiating any claim or litigation involving
the Partnership and arising in the ordinary course of the Partnership's
business, except for minor employee grievances or proceedings and matters
involving less than $100,000;
(f) any decision to terminate the Management Services
Agreement in accordance with its terms or to enter into a replacement or
successor management agreement; provided, however, that the Managing Partner
shall not be entitled to vote on the termination of the Management Services
Agreement;
(g) the merger or consolidation of the Partnership with any
other Entity, where the Partnership is the surviving Entity;
(h) making Distributions pursuant to the first sentence
of Section 4.7(a) hereof;
provided, however, that in no event shall (i) any Budget be adopted pursuant to
Section 3.4(b) above, (ii) any Additional Capital Contribution be requested from
any Partner pursuant to Section 3.4(c) above, (iii) any capital expenditure or
commitment for capital expenditure in connection with a proposed acquisition be
made by the Partnership pursuant to Section 3.4(d) above, (iv) any claim or
litigation be settled or initiated by the Partnership, pursuant to Section
3.4(e) above, or (v) any merger or consolidation be consummated, pursuant to
Section 3.4(g) above, without in any such case the consent of the Managing
Partner.
3.5 Actions Requiring a Supermajority Vote. Subject to the
provisions of Section 3.6 hereof, neither the Managing Partner, nor any other
Partner nor any officer of the Partnership shall take any action, expend any
sum, make any decision or incur any obligation on behalf of the Partnership
with respect to any of the following matters, without a Supermajority Vote:
(a) the admission of an additional Partner (other than
pursuant to Section 5.2(d) hereof and than a transferee or successor Partner
pursuant to Article 5) or, except as provided in Section 9.2(a)(i) hereof, the
redemption or purchase by the Partnership of any Partnership Interest other
than purchases pursuant to Article 5; provided, however, that no
Partner's Partnership Interest may be diluted by the addition of an additional
Partner hereunder unless the diluted Partner affirmatively agrees;
(b) the merger or consolidation of the Partnership with any
other Entity, where the Partnership is not the surviving Entity, or the
incorporation of the Partnership;
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(c) the sale, pledge, assignment, lease or other disposition
or mortgaging or other encumbering of Partnership assets with an aggregate
original acquisition cost of $1,000,000 or more;
(d) subject to the provisions of Section 4.3(b) hereof, the
incurrence of any indebtedness for borrowed money (or the making of any
guaranty of any indebtedness for borrowed money of any other Entity) in excess
of $100,000 in the aggregate at any time during the term hereof other than
loans pursuant to Section 4.4 hereof and indebtedness arising under any
fiber lease agreement between the Partnership and a Partner or an Affiliate
of a Partner;
(e) any decision relating to Federal Communications
Commission or other federal, state or local regulatory matters which has a
material adverse effect upon the Partnership or any Partner or any Affiliate of
any Partner in the Business Area; provided, however, that if the
decision has a material adverse effect upon a Partner or any Affiliate of any
Partner in the Business Area, the effected Partner must consent to the
decision;
(f) the assignment, transfer, pledge, compromise or release
of any claims of, or debts due, the Partnership, except upon payment in full,
or the arbitration or consent to the arbitration of any disputes or
controversies involving the Partnership, except for matters arising in the
ordinary course of the Partnership's business that involve an amount not in
excess of $75,000 (which shall be in the discretion of the Managing Partner);
(g) settling or initiating any tax audit or any other claim
or litigation involving the Partnership and not arising in the ordinary course
of the Partnership's business;
(h) any general assignment for the benefit of creditors or
the commencement of any proceedings pursuant to any federal or state bankruptcy
or insolvency statutes;
(i) the dissolution or winding up of the Partnership (except
as specifically provided in Article 8) and the decision to continue the
business of the Partnership after dissolution pursuant to Section 8.3 hereof;
(j) filing any protest, petition or pleading with regard to
any Partnership tax return; and
(k) subject to Section 3.6(c) hereof, entering into any
agreement or obtaining any license or franchise which restricts the transfer of
Partnership Interests or subjects the
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Partnership Interests to any security interests, liens, claims, pledges,
options, rights of first refusal, agreements, limitations on voting rights,
charges or other encumbrances of any nature whatsoever.
3.6 Special Voting Provisions. Notwithstanding any other
provision of this Agreement,
(a) if the Partnership desires to enter into a transaction
or agreement with a Partner or an Affiliate of a Partner on terms
which are less favorable to the Partnership than could be obtained
in an arms-length transaction with an unaffiliated third party, or
amend or waive any provision of any such agreement, and if there
are Partners who are not involved, by themselves or through any
Affiliate, in such transaction or agreement, the Partnership shall
not enter into such transaction or agreement, or agree to such
amendment or waiver, without (i) the consent of a majority in
Percentage Interests of all of such disinterested Partners and (ii)
first having offered to enter into a similar transaction or
agreement with each such disinterested Partner or Affiliate on
substantially identical terms;
(b) each Partner, by execution of this Agreement, hereby
consents to the execution and delivery, and the performance by the
Partnership of its obligations under, the Management Services
Agreement;
(c) the approval of all of the Partners shall be required to
enter into any agreement or to obtain any license or franchise
which restricts the transfer of Partnership Interests or subjects
the Partnership Interests to any security interests, liens, claims,
pledges, options, rights of first refusal, agreements, limitations
on voting rights, charges or other encumbrances of any nature
whatsoever, in each case in a manner that discriminates among
Partners; and
(d) the approval of a majority in Percentage Interests of
all of the disinterested Partners shall be required to decline or
approve the conduct of an Exclusive Business activity proposed to
be Engaged in, or an acquisition proposed to be made, by the
Partnership pursuant to Section 7.1 hereof.
3.7 Scope of Partners' Authority. The Managing Partner shall
have exclusive authority to act for and to assume any obligation or
responsibility on behalf of the Partnership, except as expressly restricted
hereby, and no other Partner shall
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have any authority to act for, or assume any obligation or responsibility on
behalf of, the Partnership or another Partner except as otherwise expressly
provided herein or as expressly approved by a vote of the Partners pursuant to
Section 3.4, 3.5 or 3.6 hereof.
3.8 Indemnification of Partners; Allocation of Liabilities.
------------------------------------------------------
(a) The Partnership shall indemnify and save harmless the
officers and employees of the Partnership, the Managing Partner and the
Authorized Representatives of the Partners from any loss, damage or expense
incurred by any of them by reason of any act or omission to act on behalf of
the Partnership, performed by any of them in good faith and without gross
negligence, willful misconduct or breach of this Agreement. Any reasonable
expenses incurred by any indemnified person pursuant to this Section 3.8(a) in
defending any civil or criminal action, suit or proceeding (or the threat
thereof), other than a claim, action, suit or proceeding brought by the
Partnership, which is based, in whole or in part, upon any alleged act or
omission to act on behalf of the Partnership shall be borne and paid by the
Partnership in advance of the final disposition of such action, suit or
proceeding (or the threat thereof) upon receipt of an undertaking by or on
behalf of the indemnified person to repay to the Partnership the amount of such
expenses if it shall ultimately be determined that such person is not entitled
to the indemnification provided for under this Section 3.8(a). Any indemnity
under this Section 3.8(a) shall be provided out of and to the extent of
Partnership assets only.
(b) Each Partner shall indemnify and save harmless the
Partnership and each other Partner and former Partner, the partners or
shareholders of each other Partner and former Partner, and any of their
respective officers, directors, shareholders, partners, employees, agents and
Affiliates, from any loss, damage or expense incurred by any of them by reason
of or resulting from (i) any misrepresentation or breach of warranty of such
Partner set forth in this Agreement or (ii) any unauthorized act taken by such
Partner in the name of the Partnership or any other Partner. Any reasonable
expenses incurred by any Entity entitled to indemnification pursuant to this
Section 3.8(b) in defending any civil or criminal action, suit or proceeding
(or the threat thereof) by reason of or resulting from any such indemnified
matter shall be borne and paid by the indemnifying Partner in advance of the
final disposition of such action, suit or proceeding (or the threat thereof)
upon receipt of an undertaking by or on behalf of the indemnified Entity to
repay to the indemnifying Partner the amount of such expenses if it shall
ultimately be determined that such Entity is not entitled to the
indemnification provided for
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under this Section 3.8(b). Any indemnity under this Section 3.8(b) shall be
provided out of and to the extent of the assets of the indemnifying Partner
only.
(c) With respect to the indemnities provided above in this
Section 3.8, an indemnified party shall, with respect to any claim made against
such indemnified party for which indemnification is available, notify the
indemnifying party in writing of the nature of the claim as soon as practicable
but not more than twenty days after the indemnified party shall have received
notice of the assertion thereof before any court or governmental authority.
The failure by an indemnified party to give notice as provided in the foregoing
sentence shall not relieve the indemnifying party of its obligations under this
Section except to the extent that the failure results in the failure of actual
notice to the indemnifying party and the indemnifying party is damaged solely
as a result of the failure to give notice, provided that the indemnifying party
shall be released of its obligations under this Section only to the extent of
such damage. Upon receipt of notice by an indemnifying party from an
indemnified party of the assertion of any such claim, the indemnifying party
shall employ counsel acceptable to the indemnified party and shall assume the
defense of such claim. The indemnified party shall have the right to employ
separate counsel and to participate in (but not control) any such action, but
the fees and expenses of such counsel shall be the expense of such indemnified
party unless (i) the employment of counsel by such indemnified party has been
authorized by the indemnifying party, (ii) the indemnified party shall have
been advised by its counsel in writing that there is a conflict of interest
between the indemnifying party and the indemnified party in the conduct of the
defense of such action (in which case the indemnifying party shall not have the
right to direct the defense of such action on behalf of the indemnified party)
or (iii) the indemnifying party shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of such counsel shall be at the expense of the indemnifying party. An
indemnifying party shall not be liable for any settlement of an action effected
without its written consent (which consent shall not be unreasonably withheld).
No indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability in respect of such action. Whether or not the Partnership chooses to
defend or prosecute a claim, each Partner shall, to the extent requested by the
Partnership and at the Partnership's expense, cooperate in the prosecution or
defense of such claim and shall furnish such records, information and testimony
and attend such conferences, discovery proceedings, hearings, trials and
appeals as may reasonably be requested in connection therewith.
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(d) The provisions of this Section 3.8 shall survive the
withdrawal of any Partner from the Partnership and the dissolution of the
Partnership.
3.9 Contribution. All liabilities, obligations or commitments
incurred or assumed by the Partnership (or to which it or its property or
assets are subject) ("Partnership Obligations") shall be payable first out
of the assets of the Partnership. Subject to the provisions of Section 3.8
hereof, if the assets of the Partnership (determined without regard to any
Capital Contributions by the Partners pursuant to Section 8.2(b) hereof) are
not sufficient at any time to pay or discharge when due and payable any and all
Partnership Obligations (any such deficiency being referred to herein as a
"Deficiency"), a Partner or former Partner who pays all or any portion of
such Deficiency (whether directly or, in the case of a Partner, by making a
contribution to the capital of the Partnership pursuant to Section 8.2(b)) (a
"Paying Partner") shall be entitled to contribution from those Partners and
former Partners that were Partners at the time of the Partnership's incurrence
or assumption of such Partnership Obligation pursuant to this Section 3.9.
Specifically, if any Paying Partner pays (whether by direct payment or, in the
case of a Partner, by making a Capital Contribution to the Partnership pursuant
to Section 8.2(b) hereof) a portion of any Partnership Obligation included in
such Deficiency that is in excess of such Paying Partner's Pro Rata share of
the unpaid portion of such Partnership Obligation, based on its Percentage
Interest at the time of incurrence or assumption of such Partnership
Obligation, then each other Partner or former Partner which has not paid any
portion of such Partnership Obligation, or which has paid a portion which is
less than its Pro Rata share thereof (based on its Percentage Interest as of
the date of incurrence or assumption), shall contribute ratably to the Paying
Partner so that each Partner and former Partner shall have paid or contributed
its Pro Rata share of such Partnership Obligation based on its Percentage
Interest as of the date of incurrence or assumption. The payment by a Partner
of any portion of a Deficiency hereunder shall be treated as a Capital
Contribution and shall be applied against any obligation of the Paying Partner
under Section 8.2(b) hereof. The provisions of this Section 3.9 shall survive
the withdrawal of any Partner from the Partnership and the dissolution of the
Partnership.
3.10 Insurance and Bonds. Each Partner shall assist the
Partnership to the extent requested by the Manager or the Managing Partner in
procuring satisfactory insurance coverage, bonds and letters of credit for the
Partnership at the expense of the Partnership; provided, however, that
in no event shall any Partner be obligated pursuant to this Section 3.10 to
assume any
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actual or contingent liability, financial risk or reimbursement obligation.
ARTICLE 4: CAPITALIZATION; ALLOCATION; DISTRIBUTIONS
4.1 Initial Capital Contributions.
-----------------------------
(a) Each Partner shall be obligated to make Initial Capital
Contributions to the Partnership in the aggregate amount indicated for it on
the Information Appendix. Except as otherwise expressly provided in an asset
contribution agreement between the Partnership and a Partner, such
contributions shall be made by the Partners Pro Rata, in one or more
installments at such times and in such amounts as may be determined by the
Managing Partner. Each installment of an Initial Capital Contribution of a
Partner shall be due and payable within twenty Business Days of receipt by such
Partner of a request from the Managing Partner for such installment (an
"Initial Capital Payment Date"). A Partner which fails to make all or any
portion of an installment of its Initial Capital Contribution on or before the
related Initial Capital Payment Date is referred to herein as a "Delinquent
Partner", and the unpaid amount of the installment of its Initial Capital
Contribution is referred to herein as the "Initial Capital Unpaid Amount"
or as the "Unpaid Amount". Except as otherwise expressly provided in an
asset contribution agreement between the Partnership and a Partner, all Initial
Capital Contributions shall be in cash unless otherwise determined by the
Managing Partner.
(b) The Initial Capital Contributions have been set by the
Managing Partner based on its current expectations as to the cost of
implementing the initial phase of the construction and operation of the
Partnership's business in the Business Area. Although such costs of
implementing the initial phase may be more or less than currently anticipated,
the amount of the Initial Capital Contributions shall be neither increased nor
decreased without the consent of all Partners.
4.2 Additional Capital Contributions. The Partners may decide, by a
Majority Vote of the Partners pursuant to Section 3.4(c) hereof, that additional
Capital Contributions in excess of the Initial Capital Contributions
("Additional Capital Contributions") are required for the conduct of the
business of the Partnership. Such Additional Capital Contributions shall be made
by the Partners Pro Rata, in one or more installments at such times and in such
amounts as may be determined by the Managing Partner. Each Additional Capital
Contribution of a Partner shall be due and payable within twenty Business Days
of receipt by such Partner of a request from the Managing Partner for such
Additional Capital Contribution (an "Additional Capital
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Payment Date"). A Partner which fails to make all or any portion of an
Additional Capital Contribution on or before the related Additional Capital
Payment Date is referred to herein as a "Declining Partner", and the unpaid
amount of the Additional Capital Contribution is referred to herein as the
"Additional Capital Unpaid Amount" or as the "Unpaid Amount". All
Additional Capital Contributions shall be in cash unless otherwise determined
by the Managing Partner.
4.3 Failure to Make Capital Contributions.
-------------------------------------
(a) (i) Interest shall accrue on any Initial Capital Unpaid
Amount in respect of an Initial Capital Contribution which is not rescinded
pursuant to Section 4.3(b) below at the Prime Rate plus 6% per annum from and
including the Initial Capital Payment Date until such Unpaid Amount and all
interest accrued thereon are paid as provided in this Section 4.3 hereof. The
failure of the Delinquent Partner to pay to the Partnership the Initial Capital
Unpaid Amount together with accrued interest on or before the tenth Business
Day following the related Initial Capital Payment Date (such failure being
referred to herein as an "Initial Capital Payment Default") shall be deemed
an Event of Default for purposes of Article 9.
(ii) Interest shall accrue on any Additional Capital
Unpaid Amount in respect of an Additional Capital Contribution which is not
rescinded pursuant to Section 4.3(b) below at the Prime Rate plus 2% per annum
from and including the Additional Capital Payment Date until such Unpaid Amount
and all interest accrued thereon are paid to the Partnership; provided, however,
that no Additional Capital Contribution may be paid by a Declining Partner to
the Partnership more than twenty Business Days after the related Additional
Capital Payment Date; and provided, further, that no interest shall be payable
in the event the Declining Partner elects not to make the Additional Capital
Contribution. No Partner shall be required to make any Additional Capital
Contribution to the Partnership, and the failure by a Partner to make an
Additional Capital Contribution by the end of such twenty Business Day period
(such failure being referred to herein as an "Additional Capital Refusal") shall
not be deemed an Event of Default for purposes of Article 9.
(b) If an Initial Capital Payment Default or an Additional
Capital Refusal occurs, the other Partners that have timely made the
installments of their Initial Capital Contributions or the Additional Capital
Contributions with respect to which such Initial Capital Payment Default or
Additional Capital Refusal occurred, as the case may be (the "Complying
Partners"), may, with the affirmative vote of Complying Partners (which must
include the affirmative vote of the Managing Partner if it is a Complying
Partner) with an
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aggregate Percentage Interest constituting not less than two-thirds of the sum
of the Percentage Interests of all Complying Partners, by notice given to
each Delinquent Partner or Declining Partner, as the case may be, and each other
Partner within ten Business Days after the occurrence of the Initial Capital
Payment Default or the Additional Capital Refusal:
(i) elect to cause the call of such installment of the
Initial Capital Contribution or such Additional Capital
Contribution to be rescinded (in which case no Initial Capital
Payment Default or Additional Capital Refusal shall be deemed to
have occurred for purposes of this Article 4 and no Event of
Default in respect of an Initial Capital Payment Default shall be
deemed to have occurred for purposes of Article 9 hereof);
(ii) elect to have such installment of the Initial
Capital Contribution or such Additional Capital Contribution made
by the Complying Partners to be deemed loans to the Partnership,
rather than as Capital Contributions, and to make additional loans
to the Partnership in an aggregate amount equal to the related
Unpaid Amount;
(iii) elect to make loans to the Partnership in an
aggregate amount equal to the related Unpaid Amount; or
(iv) elect to make additional Capital Contributions
("Excess Capital Contributions") to the Partnership in an aggregate
amount equal to the related Unpaid Amount;
provided, however, that the same election, if any, shall be made with respect to
each Delinquent Partner and Declining Partner in respect of any request for an
Initial Capital Contribution or Additional Capital Contribution, as the case may
be.
The Complying Partners shall not be obligated to make any election under
this Section 4.3(b). Neither the existence nor the exercise of any right of
election available to the Complying Partners under this Section 4.3(b) shall
affect the Remedies Partner's right to treat Delinquent Partners' Initial
Capital Payment Defaults as an Event of Default and to make any election and
pursue at any time any remedy then available pursuant to Article 9 hereof.
(c) If an election is made pursuant to clause (i) of
Section 4.3(b) hereof, the Partnership shall promptly return to each Partner
the amount of the installment of the Initial
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Capital Contribution or the Additional Capital Contribution contributed by it
in respect of which the related Initial Capital Payment Default or the
Additional Capital Refusal occurred, together with interest, if any, actually
earned on such amount by the Partnership from and including the Initial Capital
Payment Date or the Additional Capital Payment Date to the date such amount is
returned to such Partner.
(d) If an election is made pursuant to clause (ii) or (iii) of
Section 4.3(b) hereof, the indebtedness of the Partnership for the amount loaned
(or deemed loaned pursuant to clause (ii)) (each a "Capital Loan") shall be
evidenced by a promissory note of the Partnership in form and substance
reasonably satisfactory to the Complying Partners making such loans, shall be
unsecured, shall be subordinate to any senior debt of the Partnership, shall
bear interest at a rate per annum equal to the Prime Rate plus 2% per annum and
shall otherwise be on terms and conditions that are no less favorable to the
Partnership than it could obtain in connection with a loan from a bank or other
financial institution not an Affiliate of a Partner. Only those Complying
Partners that voted in favor of making the election pursuant to clause (ii) or
(iii) (each a "Capital Lending Partner") shall be required to make Capital Loans
to the Partnership (in excess of any amount deemed a loan pursuant to clause
(ii)). The amount of the Capital Loan made by each Capital Lending Partner shall
be in proportion to its respective Percentage Interest relative to the sum of
the Percentage Interests of all Capital Lending Partners (in each case as in
effect immediately prior to the related Initial Capital Payment Default or
Additional Capital Refusal), or in such other proportion as the Capital Lending
Partners may agree upon among themselves.
(e) If an election is made pursuant to clause (iv) of
Section 4.3(b) hereof, only those Complying Partners that voted in favor of
making such election (each an "Excess Capital Contributing Partner") shall
be required to make Excess Capital Contributions. The amount of the Excess
Capital Contribution to be made by each Excess Capital Contributing Partner
shall be in proportion to its respective Percentage Interest relative to the
sum of the Percentage Interests of all Excess Capital Contributing Partners (in
each case as in effect immediately prior to the related Initial Capital Payment
Default or Additional Capital Refusal), or in such other proportion as such
Excess Capital Contributing Partners may agree upon among themselves. Excess
Capital Contributions shall be in addition to, and not credited against,
Initial Capital Contributions or Additional Capital Contributions otherwise
payable by the Partners.
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(f) (i) Whenever an Initial Capital Payment Default occurs,
the Percentage Interest of each Partner shall be adjusted (unless the Complying
Partners make an election pursuant to clause (i) or (ii) of Section 4.3(b)
hereof with respect to such Initial Capital Payment Default), with effect from
the related Initial Capital Payment Date, to equal the percentage determined by
dividing (A) the aggregate amount of Initial Capital Contributions and Excess
Capital Contributions actually made by such Partner to the date of
determination divided by (B) the sum of all Initial Capital Contributions and
Excess Capital Contributions actually made by all Partners to the date of
determination. In addition to the adjustment provided in this Section
4.3(f)(i), and subject to Section 4.3(g) hereof, the Delinquent Partner shall
have no right to participate in any subsequent call for Initial Capital
Contributions or Additional Capital Contributions, and each Partner's
Percentage Interest shall be adjusted as of each subsequent Initial Capital
Payment Date and Additional Capital Payment Date in accordance with this
Section 4.3(f) and Section 4.3(g) hereof as though such Delinquent Partner
committed an Initial Capital Payment Default or Additional Capital Refusal with
respect to each such subsequent call for Initial Capital Contributions or
Additional Capital Contributions, respectively.
(ii) Whenever an Additional Capital Refusal occurs,
the Percentage Interest of each Partner shall be adjusted (unless the Complying
Partners make an election pursuant to clause (i) or (ii) of Section 4.3(b)
hereof with respect to such Additional Capital Refusal), with effect from the
related Additional Capital Payment Date, to equal:
(A), prior to such time as the aggregate amount
of Capital Contributions requested to be made by the Partners
exceeds an amount equal to two times the sum of all of the
Initial Capital Contributions of the Partners shown on the
Information Appendix (the "Threshold Amount"), the percentage
determined by dividing (I) the aggregate amount of Initial
Capital Contributions, Additional Capital Contributions and
Excess Capital Contributions actually made by such Partner to
the date of determination by (II) the sum of all Initial
Capital Contributions, Additional Capital Contributions and
Excess Capital Contributions actually made by all Partners to
the date of determination, or
(B), from and after such time as the aggregate
amount of Capital Contributions requested to be made by the
Partners exceeds the Threshold Amount, the percentage
determined by
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dividing (I) the Fair Market Value of the Partnership
Interest of such Partner immediately prior to such Additional
Capital Refusal, plus any Additional Capital Contribution and
Excess Capital Contribution made by such Partner at the time
of or following such Additional Capital Refusal, by (II) the
sum of the Fair Market Values of the Partnership Interests of
all of the Partners immediately prior to such Additional
Capital Refusal, plus the sum of all Additional Capital
Contributions and Excess Capital Contributions made by all of
the Partners at the time of or following such Additional
Capital Refusal.
Notwithstanding the adjustment provided in this Section 4.3(f)(ii), the
Declining Partner shall have the right to participate in any subsequent call
for Additional Capital Contributions without being required to make any missed
Additional Capital Contribution. For purposes of this clause 4.3(f)(ii) only,
the Fair Market Value of the Partnership Interests of all of the Partners shall
be determined by the Managing Partner, based on its good faith estimate of such
value, in connection with each proposed call for Additional Capital
Contributions. The Managing Partner's determination of such Fair Market Value
shall then be submitted to a vote of the Partners at the time the vote required
by Section 3.4(c) hereof to approve a call for Additional Capital Contributions
is taken. If such determination is approved by a Majority Vote of the
Partners, such determination shall be final and binding on the Partners for
purposes of any adjustment to the Percentage Interests of the Partners pursuant
to this clause 4.3(f)(ii) which requires a determination of such Fair Market
Value.
(g) A Delinquent Partner may, with the consent of the
Managing Partner (or, if the Delinquent Partner is the Managing Partner, with
the consent of Complying Partners with an aggregate Percentage Interest
constituting not less than two-thirds of the sum of the Percentage Interests of
all Complying Partners) and prior to the receipt by the Delinquent Partner of
the notice contemplated by Section 9.2 hereof, cure its Initial Capital Payment
Default by paying to the Partnership an amount (the "Make-up Amount") equal
to the Initial Capital Unpaid Amount plus accrued interest thereon calculated
pursuant to Section 4.3(a)(i) hereof. If an election was made pursuant to
clause (ii) of Section 4.3(b) hereof with respect to such Initial Capital
Payment Default, each Capital Lending Partner shall contribute to the
Partnership an amount equal to the related installment of its Initial Capital
Contribution that was deemed a loan, pursuant to clause (ii) of Section 4.3(b)
hereof, by the contribution to the Partnership of the outstanding principal
amount of all Capital Loans made by such Capital Lending Partner
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in connection with such Initial Capital Payment Default together with an
outstanding principal amount of other Capital Loans made by such Capital
Lending Partner such that the aggregate amount of such contributed Capital
Loans is equal to the amount of such installment (and, if the balance of the
Capital Loans made by such Capital Lending Partner is less than the amount of
such installment, such Capital Lending Partner shall contribute the difference
in cash). The proceeds of the Make-up Amount shall first be promptly applied
by the Partnership to the payment of any accrued but unpaid interest on the
Capital Loans contributed to the Partnership and thereafter to the repayment of
the principal amount of any Capital Lending Partner's Capital Loan which is in
excess of the amount contributed by such Partner in accordance with the
immediately preceding sentence. If an election was made pursuant to clause
(iii) of Section 4.3(b) hereof, the proceeds of the Make-up Amount shall first
be applied by the Partnership to the repayment of the principal of, and accrued
but unpaid interest on, all Capital Loans made with respect to such Initial
Capital Payment Default, and thereafter to the repayment of principal of, and
unpaid interest on, any other outstanding Capital Loans. If an election was
made pursuant to clause (iv) of Section 4.3(b) hereof, the proceeds of the
Make-up Amount shall first be promptly applied to the distribution to each
Excess Capital Contributing Partner an amount equal to its Excess Capital
Contribution plus interest thereon at the Prime Rate plus 2% per annum from and
including the date of such contribution to the date of such distribution. If
the Percentage Interests of the Partners were adjusted pursuant to Section
4.3(f) hereof as a result of the Initial Capital Payment Default, then upon
payment by the Delinquent Partner of the Make-up Amount in full in accordance
with the foregoing provisions of this Section 4.3(g), the Percentage Interests
of the Partners shall be readjusted so as to restore to the Delinquent Partner
and the Complying Partners, for periods subsequent to the payment of the
Make-Up Amount, the respective Percentage Interests they would have had but for
such Initial Capital Payment Default.
4.4 Loans. If the Partners do not in the aggregate make all of the
Capital Contributions requested pursuant to Sections 4.1 or 4.2 above and an
election is not made pursuant to Section 4.3(b) above to make up the shortfall,
the Remedies Partner may, without a vote of the Partners, arrange for a loan to
the Partnership from a Partner, an Affiliate of a Partner or from any other
commercially reasonable source in an amount equal to the shortfall, which loan
shall bear interest at an annual rate no higher than the Prime Rate plus 2% per
annum and be on such other terms and conditions which the Remedies Partner, in
its good faith judgment, determines to be no less favorable to the Partnership
than could be obtained in connection with a loan from a bank or financial
institution not an Affiliate of a
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Partner. Subject to the applicable terms of the Partnership's credit
agreements, the proceeds, if any, of subsequent Capital Contributions or any
proposed Distribution shall be applied first to such loans until such loans,
together with accrued interest and any related fees, are paid in full, before
any such proceeds are used for any other Partnership purpose or any such
proposed Distribution is made to the Partners.
4.5 Calculations and Adjustments. The calculations of the
Percentage Interests provided in Section 4.3 hereof shall be made by the
Remedies Partner, and shall, in the absence of manifest error, be conclusive
and binding on the Partners. The Partnership shall use its best efforts to
obtain any regulatory or other consents or approvals required by any adjustment
to the Percentage Interests of the Partners pursuant to this Section prior to
such adjustment, and if such approval is not obtained, neither such adjustment
nor the Capital Contributions which would require such adjustment shall be
made, or, if already made, such Capital Contributions shall be returned to the
Partners.
4.6 Capital Accounts. The term "Capital Account" shall
mean with respect to each Partner, the aggregate amount of such Partner's
Initial Capital Contribution, increased by:
(a) the amount of each Additional Capital Contribution and
Excess Capital Contribution made by it pursuant to Section 4.2 or
4.3 hereof to the Partnership in cash, if any;
(b) the fair market value without regard to Code Section
7701(g) of property if any, contributed by it as an Additional
Capital Contribution or Excess Capital Contribution pursuant to
Section 4.2 or 4.3 hereof to the Partnership (net of liabilities
secured by such contributed property that the Partnership is
considered to assume or take subject to under Code Section 752);
(c) allocations to it of Net Profit and other items of
income and gain pursuant to Section 4.8 hereof and the Tax
Appendix; and
(d) other additions made in accordance with the Code and
Regulations;
and decreased by:
(i) the amount of cash distributed to it by the Partnership;
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(ii) allocations to it of Net Loss and other items of loss
and deduction pursuant to Section 4.8 hereof and the Tax Appendix;
(iii) the fair market value without regard to Code Section
7701(g) of property distributed to it by the Partnership (net of
liabilities secured by such distributed property that such Partner
is considered to assume or take subject to under Code Section 752);
and
(iv) other deductions made in accordance with the Code and
Regulations.
The Capital Accounts shall be determined and maintained at all times in
accordance with all of the provisions of Regulations Section 1.704-1(b)(2)(iv).
An individual account shall be established and maintained on the books of the
Partnership for each Partner in accordance with the Code. In the event any
Partnership Interest is transferred in accordance with the provisions of
Article 5 hereof, the transferee of such Partnership Interest shall succeed to
the portion of the transferor's Capital Account attributable to such interest.
4.7 Distribution of Partnership Funds.
---------------------------------
(a) The Managing Partner may, after the establishment of
such reserves as it deems appropriate, upon a Majority Vote of the Partners and
subject to restrictions imposed by the Partnership's lenders, if any, and
subject to Section 4.4 hereof, make Distributions to the Partners at any time
and from time to time during the term of the Partnership. In addition, at the
end of each Fiscal Year after the third full Fiscal Year of the Partnership, the
Managing Partner shall distribute, subject to restrictions imposed by the
Partnership's lenders and subject to Section 4.4 hereof, that amount of cash in
the accounts of the Partnership which exceeds two times the sum of, without
duplication, (i) all reserves or other working capital items relating to any
previous Fiscal Year and (ii) the aggregate amount allocated in the Budget for
the next Fiscal Year for reserves, losses, capital expenditures and debt
repayment and working capital, if any. All such Distributions (other than
Distributions pursuant to Section 8.2 hereof) will be made to the Partners Pro
Rata.
(b) No Partner shall have the right to withdraw any amount
from its Capital Account, or to receive any Distribution, except as provided in
Sections 4.7(a) and 8.2 hereof. Notwithstanding the foregoing, the Partnership
shall pay in full all loans extended by Partners to the Partnership prior to
making any Distributions to the Partners.
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4.8 Allocation of Net Profits and Losses. As of the end of
each Fiscal Year of the Partnership, the Net Profit or Net Loss of the
Partnership shall be allocated to the Partners in accordance with their
Percentage Interests, except as otherwise provided in the Tax Appendix.
4.9 Tax Appendix. The provisions of this Article 4 shall be
subject to the provisions of the Tax Appendix.
ARTICLE 5: TRANSFERS OF PARTNERSHIP INTERESTS; RIGHT OF FIRST REFUSAL
5.1 Restrictions on Transfer.
------------------------
(a) A Partner shall, directly or indirectly, offer, sell,
transfer, assign, grant a participation in, pledge or otherwise dispose of any
of its Partnership Interest only in a transaction that (i) is expressly
permitted by this Agreement, (ii) is in accordance with agreements entered into
by the Partnership with third parties to which transfers of interests in the
Partnership are subject (unless the breach of such agreements, other than this
Agreement, would not have a material adverse effect on the Partnership), and
(iii) in which the transferee becomes a party to this Agreement. A Change in
Control of a Partner shall constitute a transfer by such Partner subject to the
provisions of this Article 5 (an "Indirect Transfer").
(b) Except as expressly permitted by this Agreement, each
Partner shall (i) be the owner of the Partnership Interest indicated in the
Partnership's records as being owned by such Partner, in each case free and
clear of any pledge, lien, security interest, charge, claim, equity, option or
encumbrance of any kind, and (ii) have sole voting power with respect to such
Partner's Partnership Interest and will not grant any proxy with respect to
such Partnership Interest, enter into any voting trust or other voting
agreement or arrangement with respect to such Partnership Interest or grant any
other rights to vote such Partnership Interest; provided, however, that the
foregoing shall not be construed to limit the ability of a Partner to enter into
agreements with respect to sales permitted by this Agreement or to enter into
agreements not inconsistent with this Agreement that restrict such Partner's
ability to transfer its Partnership Interest.
(c) After any sale, assignment, transfer or other
conveyance of a Partnership Interest in accordance with the provisions of this
Agreement, the transferred Partnership Interest shall continue to be subject to
all of the provisions of this Agreement, including the provisions of this
Article 5.
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5.2 Exceptions to Restrictions on Transfers. The restrictions
contained in the other Sections of this Article 5 (other than Section 5.7
hereof) shall not apply to the transactions set forth in this Section 5.2.
(a) A Partner may transfer to any Controlled Affiliate which
is a Subsidiary of its Parent, all, but not less than all, of its Partnership
Interest, and TCP may transfer to TCGI or any Subsidiary of TCGI all or any
part of its Partnership Interest, provided that, in each such case, the
transferee assumes the obligations of the transferor under this Agreement with
respect to such Partnership Interest and becomes a party to this Agreement.
(b) A Partner may permit an Indirect Transfer that results
from the sale or other disposition of all or substantially all of the stock or
assets of the Parent of such Partner, provided that the Parent of the
transferee agrees to execute a Parent Undertaking.
(c) If a Partner conducts, or has a Controlled Affiliate
which conducts, a business in the Business Area and in connection with such
business such Partner or Controlled Affiliate has entered into a fiber
lease agreement or other agreement for the use of fiber optic
telecommunications facilities, then such Partner shall have the right, but
shall not be obligated, to sell its Partnership Interest to the buyer (the
"Acquirer") of all or substantially all of the assets of such business or
of all or substantially all of the outstanding stock of such Partner or
Controlled Affiliate, on any terms and conditions acceptable to it, so long as,
in the case of a sale of the assets of such business of such Partner or
Controlled Affiliate, the Acquirer becomes a party to this Agreement and
assumes the obligations of the selling Partner or Controlled Affiliate under
such fiber lease agreement or other agreement for the use of facilities and
that in any case the Parent of the Acquirer executes a Parent Undertaking;
provided, however, that if the Acquirer or any Affiliate of the Acquirer is
Engaged in the Exclusive Business in the Business Area, such Partner shall not
have the right to sell its Partnership Interest to the Acquirer unless such sale
is approved by a Supermajority Vote.
(d) (i) The Managing Partner shall have the right, but
shall not be obligated, at any time prior to the date specified on the
Information Appendix (the "Offer Expiration Date"), to sell that portion of its
Partnership Interest set forth on the Information Appendix (the "Excess
Interest") to the Entities (or Subsidiaries of such Entities) listed on the
Information Appendix (the "Potential Partners"), subject to the following
conditions:
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(A) The Percentage Interest of each
Potential Partner which purchases a portion of the Excess Interest
shall be as set forth on the Information Appendix for such
Potential Partner and the Percentage Interest of the Managing
Partner shall be correspondingly reduced;
(B) The Deemed Initial Capital Contribution of a
Potential Partner shall be as set forth on the Information Appendix
for such Potential Partner;
(C) The purchase price for each sale to a Potential
Partner shall be payable in cash and shall be the product of the
Deemed Initial Capital Contribution of such Potential Partner (as
set forth on the Information Appendix) times the percentage of the
Initial Capital Contributions of all existing Partners which have
been contributed by the existing Partners as of the date of the sale
to the Potential Partner;
(D) A Potential Partner which purchases a Percentage
Interest shall succeed to the obligation of the Managing Partner to
make its Initial Capital Contribution to the extent of the Deemed
Initial Capital Contribution less the purchase price paid to the
Managing Partner pursuant to paragraph (C) above, and the Initial
Capital Contribution of the Managing Partner shall be
correspondingly reduced; and
(E) Each Potential Partner shall become a Partner by
delivering to the Partnership (which shall promptly send notice
thereof to the other Partners) a counterpart signature page to this
Agreement and shall deliver to the Partnership a Parent Undertaking
by its Parent (if any). No further action by the Partnership or the
Partners shall be required for such Potential Partner to become a
party to this Agreement.
(ii) If any portion of the Excess Interest remains
unsold to the Potential Partners after the Offer Expiration Date, the Managing
Partner shall, within ten Business Days after the Offer Expiration Date, offer
to sell the unsold portion of the Excess Interest to the other Partners. The
purchase price for any portion of the Excess Interest shall be the same as the
purchase price which would have been payable by the Potential Partners pursuant
to clause (i) (C) above for such portion of the Excess Interest, but, in
addition, the Purchasing Partners (as that term is defined below) shall pay
interest on such purchase price at the rate of 10% per annum from the date of
this Agreement to the date such purchase price is paid. If a Partner desires
to accept such offer as to at least its Pro Rata
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portion of the unsold Excess Interest, such Partner (a "Purchasing
Partner") shall, within fourteen days of receipt of such offer, notify the
Managing Partner and each other Partner of its intention to acquire its full
Pro Rata portion of the unsold portion of the Excess Interest. If a Partner
does not elect to acquire its Pro Rata portion of the unsold portion of the
Excess Interest, the Managing Partner shall notify the Purchasing Partners of
the portion of the Excess Interest remaining, and each Purchasing Partner shall
then have ten days after the later of receipt of such notice and the expiration
of the fourteen day period described above to notify the Managing Partner of
its intention to acquire such unacquired portion of the Excess Interest (the
"Unpurchased Portion") (and, if more than one Purchasing Partner notifies the
Managing Partner of its willingness to purchase the Unpurchased Portion then,
unless otherwise agreed by such Purchasing Partners, the Unpurchased Portion
shall be allocated among the Purchasing Partners who have so notified the
Managing Partner Pro Rata). The closing of the sale of the unsold portion of the
Excess Interest to the Purchasing Partners shall occur and be conducted in
accordance with the provisions of Section 5.9 hereof. The Managing Partner
shall, subject to the provisions of this Agreement, retain that portion of the
Excess Interest which is not sold to Potential Partners or to Purchasing
Partners.
5.3 Rollup Provisions.
-----------------
(a) Subject to Section 5.3(b) below, but notwithstanding any
other provision herein, at any time after the third anniversary of the date
hereof, any Partner (the "Rollup Partner"), with the consent of TCGI, which
may be withheld in TCGI's sole discretion, may transfer (or permit an Indirect
Transfer of) all or any part of its Partnership Interest to TCGI for stock of
TCGI. The terms and conditions of such transfer, including the amount of stock
of TCGI to be received by the transferring Partner, shall be determined between
the transferring Partner and TCGI; provided, however, that TCGI shall not be
obligated to accept any such transfer, and TCGI shall have no liability with
respect to such negotiations or for failure to reach agreement with respect
thereto for any reason whatsoever.
(b) No Partner may transfer (or permit an Indirect Transfer
of) all or any part of its Partnership Interest to TCGI, unless TCGI shall
first have delivered a written offer (the "Rollup Offer") to each other
Partner to purchase (directly or by an Indirect Transfer) all or part of such
Partner's Partnership Interest on the same terms and in the same proportion as
TCGI has agreed to purchase the Rollup Partner's Partnership Interest (based on
the respective Percentage Interests, immediately prior to such rollup, of all
Partners (including the Rollup Partner) who desire to participate in such
rollup). Each
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Partner that desires to participate in such rollup shall give notice to TCGI
(and deliver a copy thereof to each other Partner) of its election (a "Rollup
Election") to sell to TCGI the portion of its Partnership Interest to be
determined as described above on the terms and conditions applicable to the
proposed sale by the Rollup Partner (including the per Percentage Interest
consideration proposed to be paid to the Rollup Partner). The right to make a
Rollup Election shall terminate if notice thereof has not been given to TCGI
and each other Partner by the twentieth Business Day after receipt of the
Rollup Offer.
(c) Any transfer pursuant to this Section 5.3 shall be
exempt from the restrictions contained in the other Sections of this Article 5.
5.4 Right of First Refusal.
----------------------
(a) If, other than pursuant to Section 5.2, 5.3 or 5.5
hereof, any Partner (the "Selling Partner"), at any time after the third
anniversary of the date hereof, desires to sell all, but not less than all, of
its Partnership Interest, whether by sale of such Partnership Interest, sale of
all of the equity interests of such Selling Partner, or the sale of equity
interests of an Entity that would result in a Change in Control of the Selling
Partner (in each such case, the portion thereof consisting of the Partnership
Interest only being the "Offered Interest"), to an unaffiliated third party
offeror who has made a bona fide written offer to purchase the Offered Interest
(or assets of which the Partnership Interest forms a part) and who is
financially capable of consummating such purchase (the "Offeror"), it shall
deliver to the other Partners a notice (a "Notice of Sale") of its
intention to sell the Offered Interest to the Offeror. The Notice of Sale
shall include the economic terms and conditions of such sale, including the
name of the Offeror and controlling owners, principal officers and directors
(subject to any legal or contractual restrictions on the disclosure of such
identity) and the price for the Offered Interest and shall contain the Selling
Partner's offer to sell the Offered Interest to the other Partners on such
terms and conditions. If the offer from the Offeror is given or received in
connection with a transaction pursuant to which assets or ownership interests
in addition to the Offered Interest are proposed to be disposed of (including,
without limitation, pursuant to an Indirect Transfer), the Notice of Sale shall
also contain the Selling Partner's good faith estimate, based on reasonable
allocation and attribution methods, of the portion of the aggregate
consideration for the assets or ownership interests to be disposed of which is
reasonably allocated to the Offered Interest, which shall be the purchase price
for the Offered Interest (which price shall, unless otherwise agreed by the
Electing Partners (as defined below), be payable in cash). The
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non-Selling Partners shall enter into appropriate confidentiality agreements as
reasonably requested by the Selling Partner in connection with the offer from
the Offeror and the information contained in the Notice of Sale. If a
non-Selling Partner desires to accept such offer as to at least its Pro Rata
portion of the Offered Interest, such Partner (an "Electing Partner")
shall, within fourteen days of receipt of such Notice of Sale, notify the
Selling Partner of its intention to acquire its full Pro Rata portion of the
Offered Interest and deliver a copy of such notice to each other non-Selling
Partner. If a non-Selling Partner does not elect to acquire its Pro Rata
portion of the Offered Interest, the Selling Partner shall notify the Electing
Partners of the portion of the Offered Interest remaining, and each Electing
Partner shall then have ten days after the later of receipt of such notice and
the expiration of the fourteen day period described above to notify the Selling
Partner of its intention to acquire such unacquired portion of the Offered
Interest (the "Uncommitted Portion") (and, if more than one Electing
Partner notifies the Selling Partner of its willingness to purchase the
Uncommitted Portion then, unless otherwise agreed by such Electing Partners,
the Uncommitted Portion shall be allocated among the Electing Partners who have
so notified the Selling Partner Pro Rata). The Electing Partners shall have
thirty days after the termination of the foregoing procedure to enter into a
binding agreement with the Selling Partner to acquire all of the Offered
Interest on the economic terms and conditions set forth in the Notice of Sale;
provided, however, that if the purchase price set forth in the Notice
of Sale is not all cash, the Selling Partner and the Electing Partners shall
negotiate in good faith as to the value of the non-cash consideration, and the
Electing Partners shall have the right to pay the purchase price for the
Offered Interest all in cash. The Selling Partner and the Electing Partners
shall negotiate in good faith to enter into a binding agreement with respect to
the sale of the Offered Interest, which binding agreement shall contain:
(i) the representation and warranty of the Selling Partner that the
Electing Partners will receive good and valid title to the Offered
Interest, free and clear of all security interests, liens, claims,
pledges, options, rights of first refusal, agreements, limitations
on voting rights, charges and other encumbrances of any nature
whatsoever except as set forth in this Agreement or otherwise
applicable to all of the Partnership Interests and except for
governmental, regulatory and other third party consents and
approvals required for transfers of partnership interests
generally;
(ii) the following conditions to the closing of such sale:
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(A) all applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated
thereunder, shall have expired or been terminated;
(B) all governmental approvals and other third party
consents expressly required with respect to the transactions
to be consummated at such closing shall have been obtained,
to the extent the failure to obtain such approvals or
consents would prevent the Selling Partner from performing
any of its material obligations under the transaction
documents or would result in any materially adverse change
in, or materially adverse effect on, the business, assets,
results of operations, financial condition or prospects of
the Partnership and the Entities controlled by the
Partnership taken as a whole;
(C) there shall be no preliminary or permanent injunction or
other order by any court of competent jurisdiction
restricting, preventing or prohibiting the consummation of
the transactions to be consummated at such closing; and
(D) the representation and warranty of the Selling Partner
contemplated by clause (i) of this sentence shall be true and
correct at the closing of such sale with the same force and
effect as if then made; and
(iii) such other representations, warranties, conditions and
indemnifications as may be agreed upon by the Selling Partner and
the Electing Partners.
(b) If non-Selling Partners do not notify the Selling
Partner of their intention to acquire, in the aggregate, all the Offered
Interest within the period set forth in Section 5.4(a) hereof or if a binding
agreement to purchase all of the Offered Interest covered by the Notice of Sale
is not entered into within the thirty day period set forth in Section 5.4(a)
hereof for any reason other than a violation of this Section 5.4 or wrongful
acts or willful bad faith on the part of the Selling Partner, or if a purchase
covered by such a binding agreement is not consummated within the period
provided in Section 5.9 hereof, or if the non-Selling Partners are
prohibited by law from acquiring the Offered Interest, for any reason other
than a breach by the Selling Partner of any of its covenants, representations
or warranties in such binding agreement that are a condition to consummation of
such purchase, the Selling Partner
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shall have the right, at any time during the one year period after the
expiration of the relevant period, to close on a sale of all of the Offered
Interest to the Offeror on economic terms and conditions no less favorable in
the aggregate to the Selling Partner than those set forth in the Notice of
Sale. The Selling Partner shall, as promptly as practicable and prior to the
closing of such sale, provide to the other Partners a copy of the agreement for
the sale of the Offered Interest so as to permit the non-Selling Partners to
confirm for themselves that the economic terms and conditions of such sale are
not less favorable in the aggregate to the Selling Partner than those set forth
in the Notice of Sale. If the Selling Partner does not close the sale of the
Offered Interest to the Offeror during such one year period, the procedure set
forth above with respect to the Notice of Sale shall be repeated with respect
to any subsequent proposed sale of the Partnership Interest of the Selling
Partner (whether by sale of such Partnership Interest, sale of all of the
equity interests of such Selling Partner, or the sale of equity interests of an
Entity that would result in a Change in Control of the Selling Partner).
(c) In furtherance of the rights set forth in this Section,
each Partner and the Partnership agree that, following receipt of notice that a
Selling Partner desires to sell an Offered Interest to a potential Offeror and
upon execution by such potential Offeror of a letter of intent and a
confidentiality agreement in form and substance reasonably satisfactory to the
Managing Partner, at reasonable times and without interfering with the business
or operations of the Partnership, the Managing Partner will take all necessary
action to:
(i) provide to such potential Offeror and its
employees and agents reasonable access to all books and records of
the Partnership and any and all reports, budgets, proposals or
other written material prepared by or on behalf of the Partnership;
(ii) make the officers and employees of the
Partnership available for meetings with such potential Offeror and
its employees and agents;
(iii) permit on-site visits to the Partnership's
facilities by such potential Offeror and its employees and agents;
(iv) provide full and free access to a data room to
such potential Offeror and its employees and agents;
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(v) assist the Selling Partner in obtaining all
necessary consents to any disposition of the Offered Interest; and
(vi) assist in the preparation of any descriptive
memoranda or other sales materials relating to the Partnership and
give the Selling Partner the right to share such information with
such potential Offeror and its employees and agents;
provided that in each case, the Selling Partner agrees to reimburse the
Partnership and the other Partners for any out of pocket expenses incurred by
them in connection with the foregoing actions. Notwithstanding the foregoing,
if non-Selling Partners have timely notified the Selling Partner pursuant to
Section 5.4(a) hereof of their intention to acquire all of the Offered
Interest, then the Partnership and the Partners shall not be obligated to
comply with the covenants contained in this Section 5.4(c) during the period
that a binding agreement for such acquisition is being negotiated or thereafter
(subject to such binding agreement being executed and the closing thereunder
occurring within the applicable time limitations set forth in Sections 5.4(a)
and 5.9 hereof).
5.5 Purchases by the Partnership or its Assignee.
--------------------------------------------
(a) If, after the consummation of any rollup transaction
pursuant to the provisions of Section 5.3(a) and (b) above, Partners (the
"Minority Partners") other than TCP, TCGI and their Controlled Affiliates
hold in the aggregate no more than 10% of the outstanding Percentage Interests,
then the Partnership (or any Entity to which the Partnership assigns such
right) shall have the right at any time thereafter to purchase all, but not
less than all, of the Partnership Interests of the Minority Partners for a
purchase price equal to the Fair Market Value of such Partnership Interests
determined in accordance with the appraisal process provided in Section 5.8
hereof.
(b) The Partnership shall have the right at any time to
purchase all, but not less than all, of the Partnership Interest of any Partner
the Percentage Interest of which is 3% or less of the outstanding Percentage
Interests for a purchase price equal to the Fair Market Value of such
Partnership Interest determined in accordance with the appraisal process
provided in Section 5.8 hereof.
(c) If a Partner, which had the right pursuant to Section
5.2(c) above to sell its Partnership Interest (or would have had such right
except that the Acquirer (as that term is defined in Section 5.2(c) hereof) is
Engaged in the Exclusive Business in the Business Area), elects not to do so or
is
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prevented from doing so pursuant to the proviso to the first sentence of
Section 5.2(c) hereof, and as a result thereof neither such Partner nor any
Affiliate of such Partner is a party to a fiber lease agreement or other
agreement for the use of fiber optic telecommunications facilities with the
Partnership, then the Partnership shall have the right, at any time after the
date which is ninety days after the consummation of the sale described in
Section 5.2(c) hereof, to purchase all, but not less than all, of the
Partnership Interest of such Partner for a purchase price equal to the greater
of (i) 90% of the Fair Market Value of such Partnership Interest determined in
accordance with the appraisal process provided in Section 5.8 hereof; or (ii)
100% of the Fair Market Value of such Partnership Interest determined in
accordance with the appraisal process provided in Section 5.8 hereof, if the
Acquirer is prohibited by law from acquiring the Partner's Partnership Interest
or if the sale to the Acquirer is not approved by Supermajority Vote as
required in Section 5.2(c); provided, however, that if the acquisition by the
Acquirer described in Section 5.2(c) occurs after the third anniversary of the
date hereof and if prior to the end of such ninety day period, such Partner
receives an offer from an Offeror (as described in Section 5.4(a)) other than
the Acquirer, then the provisions of Section 5.4 shall apply and the provisions
of this Section 5.5(c) shall only apply to that portion of the Offered
Interest, if any, which remains after completion of the application of Section
5.4.
5.6 Put Rights.
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(a) If the Partners decide pursuant to Section 3.5(c) to
merge or consolidate with another Entity and the Partnership is not the
surviving Entity, each Partner which voted against such merger or consolidation
shall have the right for thirty days after such vote to require that the
Partnership (or its designee) purchase all of such Partner's Partnership
Interest on the terms set forth in this Section. Such put shall be exercisable
by delivery within such thirty day period to the Partnership of notice of
exercise by such Partner. The purchase price to be paid to such Partner for
its Partnership Interest pursuant to this Section shall be paid in cash and
shall equal the Fair Market Value of such Partner's Partnership Interest as
determined in accordance with the provisions of Section 5.8 hereof. The
closing of the purchase and sale of such Partner's Partnership Interest shall
occur and be conducted in accordance with the provisions of Section 5.9 hereof.
(b) Notwithstanding the provisions of Section 4.3(a)(ii),
if at any time after the third anniversary of the date hereof, a Partner (i)
has made Initial Capital Contributions in the aggregate amount indicated on the
Information Appendix; (ii) votes against requesting the Partners to make an
Additional
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<PAGE>
Capital Contribution but such request is otherwise affirmatively approved; and
(iii) fails to make the requested Additional Capital Contribution within the
time period provided in Section 4.3(a)(ii) (an "Objecting Partner"); and the
Complying Partners do not make an election under Section 4.3(b)(i) to rescind
the call, the Objecting Partner may within ten Business Days of such election
call for a determination of the Fair Market Value of the Partnership in
accordance with Article 5.8. If the Fair Market Value as determined is less
than ninety percent of the sum of all Capital Contributions made by the
Partner, minus the sum of all cash distributions to the Partner and minus the
fair market value of any property distributed to the Partner by the
Partnership, the Objecting Partner may require the Partnership to purchase in
cash all of such Objecting Partner's Partnership Interest for the Fair Market
Value of such Objecting Partner's Partnership Interest, provided, however, that
the Complying Partners may rescind the request for an Additional Capital
Contribution within ten Business Days after the determination of Fair Market
Value, and the Objecting Partner may not require the Partnership to purchase
such Objecting Partner's Partnership Interest. The closing of the purchase and
sale of such Objecting Partner's Partnership Interest shall occur and be
conducted in accordance with the provisions of Section 5.9 hereof.
(c) (i) Any Partner which, together with its Controlled
Affiliates holds in the aggregate less than 10% of the outstanding Percentage
Interests, shall have the right to require the Partnership to purchase for cash
all of such Partner's Partnership Interest for a purchase price as determined
below, (A) annually on each anniversary of the effective date of this
Agreement, beginning on the third anniversary of date or (B) at any time, in
the event that such Partner enters into a Control Put Transaction. For
purposes of this Section, a "Control Put Transaction" shall consist of any
transaction or series of transactions pursuant to which (X) the Partner enters
into a definitive agreement with a dominant Local Exchange Carrier that is not
engaged in the Exclusive Business in the Business Area, which definitive
agreement provides for the pursuit by the Partner of the Exclusive Business in
the Business Area with such dominant Local Exchange Carrier other than through
the Partnership; (Y) any Entity other than the Partner's Parent or a Controlled
Affiliate of the Partner's Parent becomes the beneficial owner directly or
indirectly of more than twenty-five percent of the outstanding common stock of,
or otherwise becomes entitled vote more than twenty-five percent of the voting
power entitled to vote at elections for directors of, the Partner, its Parent,
or an intervening Subsidiary of its Parent; or (Z) upon the initial issuance
and sale of securities by the Partner, its Parent, or an intervening Subsidiary
of its Parent, in an underwritten public offering pursuant to a Registration
Statement filed with the Securities and Exchange Commission in accordance
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with the Securities Act of 1933, as amended, pursuant to which Entities other
than the Partner's Parent or a Controlled Affiliate of the Partner's Parent
becomes the beneficial owner directly or indirectly of more than twenty-five
percent of the outstanding common stock of the Partner, its Parent, or an
intervening Subsidiary of its Parent.
(ii) In the case of a Control Put Transaction as set forth
in Section (c)(i)(X), above, the purchase price for any such Partnership
Interest shall be equal to the sum of all Capital Contributions made by the
Partner minus the sum of all cash distributions to the Partner and the fair
market value of any property distributions to the Partner. In the case of any
other event set forth in Section (c)(i), above, pursuant to which a Partner
shall have the right to require the Partnership to purchase such Partner's
Partnership Interest, the purchase price for any such Partnership Interest
shall be equal to 80% of the Fair Market Value of such Partnership Interest, as
determined in accordance with Section 5.8 hereof at the expense of such
Partner. The closing of the purchase and sale of such Partner's Partnership
Interest shall occur and be conducted in accordance with the provisions of
Section 5.9 hereof.
5.7 Prohibited Transfers. Notwithstanding any provision to
the contrary in this Article 5, except pursuant to a transaction contemplated
by Section 5.3, no Partner may transfer any Partnership Interest if the
interest sought to be transferred, when added to the total of all other
Partnership Interests transferred within a period of twelve consecutive months
prior thereto, equals or exceeds 50% of the aggregate of all Partnership
Interests, except with the prior written consent of all of the other Partners.
A transfer of the equity interests in a Partner which is a corporation or in an
Entity of which such Partner is a direct or indirect corporate Subsidiary shall
not constitute a transfer prohibited by, or taken into consideration in
determining the applicability of, this Section.
5.8 Appraisal Process. The Fair Market Value of a Partner's
Partnership Interest for purposes of this Agreement shall be determined as
follows:
(a) The Partners shall endeavor to agree upon such Fair
Market Value.
(b) If the Partners fail to agree within thirty Business
Days after the date of the occurrence of the event necessitating valuation of
the Partner's Partnership Interest, then the Fair Market Value of such
Partnership Interest shall be determined by independent appraisal, such
appraisal to be made by a qualified appraiser selected by the Partner whose
Partnership
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<PAGE>
Interest is being appraised (the "Appraisal Partner") and the Partners
holding a majority in Percentage Interests (excluding the Percentage Interest
of the Appraisal Partner). If the Partners have not agreed on the selection of
an appraiser within five Business Days after the expiration of such thirty
Business Day period, then the Appraisal Partner shall select one appraiser and
the Partners holding a majority in Percentage Interests (excluding the
Percentage Interest of the Appraisal Partner) shall select a second appraiser,
such selections to be made promptly and in any event within ten Business Days
after the expiration of the foregoing five Business Day period. (If only one
appraiser is timely selected within such ten Business Day period, the appraisal
shall be made solely by such timely-selected appraiser.) The appraiser, or
each appraiser in the event of more than one appraiser, shall submit its
determination of the Fair Market Value of the Appraisal Partner's Partnership
Interest within forty-five Business Days of the date of its selection. If
there are two appraisers and their respective determinations of such Fair
Market Value vary by 10% or less of the higher of such determinations, the Fair
Market Value of the Appraisal Partner's Partnership Interest shall be the
average of the two determinations. If such determinations vary by more than
10% of the higher of such determinations, the determination of the Fair Market
Value of the Appraisal Partner's Partnership Interest shall be decided by
arbitration by the office of the American Arbitration Association located in or
nearest to the Business Area in accordance with the Commercial Arbitration
Rules of the American Arbitration Association.
(c) Any determination of Fair Market Value pursuant to this
Section 5.8 shall be final and binding on the Partners. No appraiser selected
pursuant to Section 5.8(b) shall be affiliated with any Partner and each shall
be an investment banker or other qualified person with prior experience in
appraising businesses comparable to the business of the Partnership. The fees
and expenses of any appraisers or arbitrators shall be paid by the Partnership.
5.9 Closing of any Permitted Transfer. Unless otherwise
agreed between the buyer and seller, the closing of a purchase and sale of a
Partnership Interest permitted by this Agreement (other than pursuant to
Section 5.4(b) or Section 5.2(c)) shall take place at the offices of the
Partnership on or before the thirtieth day after the later of:
(a) the completion of the appraisal process, if applicable;
(b) the expiration or termination of all applicable
governmental waiting periods;
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(c) the receipt of all necessary governmental consents
needed to approve the transactions contemplated herein, which consents have not
been reversed, stayed, enjoined, set aside, annulled or suspended, and with
respect to which no requests are pending for administrative or judicial review,
reconsideration, appeal or stay, and the time for filing any such requests and
the time for the issuer of such consent to set aside the action on its own
motion have expired;
(d) the receipt of all material third party consents needed
to approve the transactions contemplated herein; and
(e) the termination of any applicable preliminary or
permanent injunction or other order by any court of competent jurisdiction
restricting, preventing or prohibiting the consummation of such purchase and
sale.
At said closing, the purchaser shall pay the total purchase price against the
seller's delivery to the purchaser of instruments representing or evidencing
the Partnership Interest purchased, all duly endorsed and accompanied by
assignments as are sufficient to effect due transfer of the ownership of such
interest to the purchaser.
5.10 Remedies. No actual or purported disposition of any
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Partnership Interest (or any portion thereof), nor any right thereto, whether
voluntary or involuntary, direct or indirect, in violation of any provision of
this Agreement shall be valid or effective to grant any Entity any right, title
or interest in or to such Partnership Interest (or portion thereof). The
transferor of any Partnership Interest (or portion thereof) disposed of in
violation of any provision of this Agreement, until such disposition or
purported disposition shall have been rescinded, shall not be entitled to
exercise any of the rights of a Partner or to receive any Distributions from
the Partnership from and after the date of such disposition or purported
disposition or failure to comply, as the case may be. Notwithstanding the
foregoing, to the extent that a Partner would have been entitled to Partnership
Distributions but for the preceding provisions of this Section, if and when
such disposition or purported disposition shall be rescinded or such failure to
comply shall be cured, such Partner shall be entitled to receive all such
Partnership Distributions (but no interest shall be paid thereon with respect
to the period between the date on which such Partnership Distributions would
have been made but for this Section and the date they are actually made).
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ARTICLE 6: BOOKS AND RECORDS;ACCOUNTING; FISCAL YEAR
6.1 Books and Records. The Managing Partner shall keep, or
cause to be kept by the Manager pursuant to the Management Services Agreement,
current and complete records and books of account in which shall be entered
fully and accurately all transactions of the Partnership. The books of the
Partnership shall be kept on an accrual basis of accounting and in accordance
with generally accepted accounting principles consistently applied. The
Partnership's books and records shall be maintained at the principal offices of
the Managing Partner and shall be available for inspection and copying by the
Partners or their duly authorized representatives during normal business hours.
6.2 Financial Statements. The Managing Partner shall cause to
be delivered to each Partner the following financial statements prepared, in
each case, in accordance with generally accepted accounting principles
consistently applied (and, if required by any Partner for purposes of reporting
under the Securities Exchange Act of 1934, Regulation S-X):
(a) Promptly upon availability, but in any event within
thirty days of the end of each month, (i) a balance sheet as of the end of such
month; and (ii) the related statements of income or loss, Partner's capital
(deficiency), and cash flows for the interim period through the end of such
month and for the month then ended, and setting forth in each case in
comparative form the figures for such previous fiscal periods as any Partner
may reasonably request and comparisons to budget;
(b) Promptly upon availability but in any event within forty
days of the end of each quarter, (i) a balance sheet as of the end of such
quarter; and (ii) the related statements of income or loss, Partner's capital
(deficiency), and of cash flows for the interim period through the end of such
quarter and for the quarter then ended, and setting forth in each in
comparative form the figures for such previous fiscal periods as any Partner
may reasonably request and comparisons to budget;
(c) Promptly upon availability, but in any event within
eighty-five days of the end of each Fiscal Year, a balance sheet of the
Partnership as of the end of such Fiscal Year, and the related statements of
income or loss, Partner's capital (deficiency) and cash flows for such Fiscal
Year, all in reasonable detail with appropriate notes to such financial
statements and supporting schedules, setting forth in each case in comparative
form the figures for the previous year, which financial statements may, at the
option of the Managing Partner, be certified by a nationally recognized
accounting firm;
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(d) Together with the annual statements required pursuant to
Section 6.2(c) above, a report of the Net Profit or Net Loss and Distributions,
if any, for such Fiscal Year, a schedule setting forth each Partner's Capital
Account as at the end of the period covered by such statements and a Schedule
K-1 for each Partner, a copy of the Partnership's federal and state tax returns
and other information required by applicable tax regulations or necessary for
each Partner to prepare its federal, state and local tax returns; and
(e) With reasonable promptness, such other financial
information or reports as any Partner may reasonably request from time to time.
6.3 Bank Accounts. The Partnership shall maintain bank
accounts in such banks or institutions as the Managing Partner from time to
time shall select, and such accounts shall be drawn upon by check signed by
such person or persons, and in such manner, as may be designated by the
Managing Partner. All moneys of the Partnership shall be deposited in the bank
or other financial institution account or accounts of the Partnership.
Partnership funds shall not be commingled with those of any other Entity
without the consent of all Partners.
6.4 Fiscal Year. The Partnership's fiscal year for income tax
purposes and for financial and partnership accounting purposes shall be the
Fiscal Year.
ARTICLE 7: BUSINESS ACTIVITIES
7.1 Conduct of Exclusive Business in Business Area.
----------------------------------------------
(a) Except as expressly permitted in this Article 7 or in
the Information Appendix, for so long as it is a Partner, and unless it
ceases to be a Partner as a result of (i) a Permitted Transfer pursuant to
Article 5.2, (ii) a purchase of its Partnership Interest pursuant to Article
5.4, (iii) a purchase of its Partnership Interest pursuant to Article 5.5, or
(iv) a purchase of its Partnership Interest pursuant to Article 5.6(b) or
5.6(c), or (v) dissolution of the Partnership, for three years after it ceases
to be a Partner (but in no event beyond the expiration or earlier termination
of this Agreement), no Partner shall Engage, or permit its Controlled
Affiliates to Engage, in the Business Area in an activity encompassed in the
Exclusive Business without having first offered to the Partnership (outside of
the Budget process) the opportunity to Engage, in lieu of such Partner or
Controlled Affiliate, in such activity (the "Offer"), which offer shall set
forth in reasonable detail the nature and scope of the activity proposed to be
Engaged in. The Partnership shall have thirty days from its receipt of the
Offer to accept or reject it.
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If the Partnership fails to accept the Offer within such thirty day period, it
shall be deemed to have rejected the Offer, and the offering Partner or its
Controlled Affiliate shall be permitted to Engage in such activity in the
Business Area. If the Partnership accepts the Offer, the offering Partner and
its Controlled Affiliates shall not Engage in such activity in the Business
Area; provided, however, that if the Partnership accepts the Offer but
does not take reasonable steps to commence such activity, other than as a
result of a violation of this Agreement or wrongful acts or willful bad faith
on the part of the offering Partner, or any of its Controlled Affiliates, the
offering Partner or its Controlled Affiliate, as the case may be, shall be
permitted to Engage in such activity. If the offering Partner or Controlled
Affiliate does not take reasonable steps to commence such activity within a
reasonable period of time after acquiring the right to do so, it shall lose its
right to Engage in such activity, and, thereafter, be required to reoffer the
opportunity to do so to the Partnership in accordance with, and shall otherwise
comply with, the foregoing provisions of this Section 7.1. The foregoing to
the contrary notwithstanding, TCP shall be subject to the restrictions set
forth in this Section 7.1(a) unless it ceases to be a Partner after being
removed as the Managing Partner pursuant to Section 3.2(d) hereof. It is the
Partners' good faith intent that the Partnership shall be the primary vehicle
for the conduct of the Exclusive Business in the Business Area. If the
Partnership determines not to accept an Offer, the Partner making the Offer
shall use its best efforts to negotiate, or, if the Offer was made by a
Controlled Affiliate of a Partner, such Partner shall use its best efforts to
cause such Controlled Affiliate to negotiate, agreements with the Partnership,
which are reasonable in the independent judgment of both parties, pursuant to
which the Partnership, alone or jointly with such Partner or its Controlled
Affiliates, would provide appropriate service to customers in the locations in
which the activity described in the Offer is conducted.
(b) If the Partnership does not accept an Offer pursuant to
Section 7.1(a) above, it shall have the right, by notice given to the Partner
or its Controlled Affiliate on the third anniversary of its rejection of such
Offer or within thirty days thereafter, to require that such Partner or
Controlled Affiliate negotiate in good faith with the Partnership for the sale
to the Partnership at the greater of fair market value or cost of the assets
and business comprising such activity or, at the option of such Partner or
Controlled Affiliate, of the stock or other equity interests in the Entity
Engaged exclusively in such activity (and may concurrently suggest, without any
obligation on the part of the Partnership, alternative transaction structures
such as joint ventures and management contracts). If such negotiations are not
successful, the parties to such negotiations shall, at the request of the
Partnership, use their best efforts to negotiate agreements with the
Partnership, which are reasonable in the
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independent judgment of both parties, pursuant to which the Partnership, alone
or jointly with such Partner or its Controlled Affiliates, would provide
appropriate service to customers in the locations in which such activity is
conducted. The parties shall not, however, be obligated to negotiate pursuant
to this Section 7.1(b) for more than ninety days in any twelve month period.
Neither the Partner nor its Controlled Affiliate shall enter into any agreement
or arrangement in connection with such activity, other than rights of first
refusal, rights of first negotiation and similar arrangements, which would
prevent it from selling the assets and business Engaged in such activity or the
stock or other equity interests of the Entity Engaged exclusively in such
activity pursuant to this Section 7.1(b).
(c) Notwithstanding the foregoing, a Partner and its
Controlled Affiliates shall be permitted, directly or indirectly, now or in the
future, to do any of the following without being required to follow the
procedures set forth in Section 7.1(a) above:
(i) to conduct any activity included in the Exclusive
Business in the Business Area which is a necessary component of the conduct of,
incidental to, or encompasses the provision of transport for any business
(other than an Exclusive Business) of the Partner or its Controlled Affiliates
in the Business Area or to enter into an arrangement with an independent third
party for the provision of any services included in such Exclusive Business in
the Business Area which is a necessary component of the conduct of, incidental
to, or encompasses the provision of transport for such business (other than an
Exclusive Business), so long as, in each case, the Partner or such Controlled
Affiliate shall first use its best efforts to negotiate agreements with the
Partnership, which are reasonable in the independent judgment of both parties,
pursuant to which the Partnership would provide such services included in such
Exclusive Business in the Business Area on terms no less favorable to the
Partner or such Controlled Affiliate as the Partner or such Controlled
Affiliate could obtain from an independent third party or could provide for
itself; and
(ii) to provide internal communications and internal
telephone services, including, without limitation, owning and operating
telephone switching equipment, to a Partner and its Affiliates and to tenants
of buildings for which a Partner or an Affiliate acts as the landlord in the
Business Area.
7.2 Exceptions for Certain Transactions. Each Partner and its
Controlled Affiliates shall be permitted to do any of the following without
being obligated to make an Offer to the Partnership pursuant to 7.1:
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(a) invest in companies that are Engaged in the Exclusive
Business in the Business Area where such investments are incidental to
investments in public companies and constitute less than 10% of the outstanding
securities and voting interest of such companies;
(b) acquire companies an incidental portion of the business
of which (such portion being deemed to be incidental if the assets, revenues
and income relating to the Exclusive Business are less than 10% of the assets,
revenues and income, respectively, of the company being acquired and if the
assets relating to such Exclusive Business have a fair market value of less
than $5,000,000) is encompassed in the Exclusive Business in the Business Area;
and
(c) sell, transfer or otherwise dispose of any investment
made pursuant to clause 7.2(a) above or the stock, assets or business of any
company acquired pursuant to clause 7.2(b) above.
7.3 Existing Activities. Notwithstanding anything to the contrary in
this Article 7, a Partner and/or its Controlled Affiliate which are listed in
the Information Appendix as being Engaged in a specified activity or activities
encompassed in the Exclusive Business in the Business Area on the effective date
hereof (or, if later, on the date such Partner becomes a Partner) shall be
permitted to continue to Engage in such activity or activities; provided,
however, that such Partner or its Controlled Affiliate, as the case may be,
shall not materially expand or increase such activity or activities from that
described in the Information Appendix; and provided, further, that such Partner
shall use its best efforts to negotiate, or cause such Controlled Affiliates to
negotiate, agreements with the Partnership, which are reasonable in the
independent judgment of both parties, pursuant to which the Partnership would
conduct such activity or activities on terms no less favorable to the Partner or
such Controlled Affiliate as the Partner or such Controlled Affiliate could
obtain from an independent third party or could provide for itself.
7.4 Prohibited Transactions. Notwithstanding any provision to
the contrary in this Agreement, no Partner shall, nor shall any Partner permit
its Controlled Affiliates to, Engage in the Exclusive Business in the Business
Area with any Entity which is not a Controlled Affiliate of such Partner or of
any Controlled Affiliate of such Partner, except as expressly permitted in
Section 7.1(c)(i).
7.5 Controlled Affiliates. Any breach by a Controlled
Affiliate of a Partner of the provisions of this Article 7 shall be deemed to
be a breach by such Partner.
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7.6 Retail Switching Business. A Partner and its Controlled
-------------------------
Affiliates, other than TCGI and its Controlled Affiliates for as long as TCGI
is the Manager, shall be permitted to Engage in the Retail Switching Business,
and any other Switching Business not specifically set forth in clauses (c) and
(e) of the definition of Exclusive Business, without being required to follow
the procedures set forth in Section 7.1 above. However, prior to Engaging in
the Retail Switching Business (other than solely in connection with the
provision or transport of any of the services listed in clauses (i) through
(iv) of the definition of "Exclusive Business" in Article I hereof), such
Partner shall, or shall cause its Controlled Affiliate to, enter into a
Reciprocal Resale Agreement on terms and conditions comparable to those
available in similar arms length commercial transactions which shall contain,
among other terms reasonably acceptable to the Partnership and such Partner or
Controlled Affiliate, the following provisions:
(a) As soon as a customer, which is not already a Partner
Customer (as that term is defined in paragraph (b) below), obtains any service
from the Partnership (including, without limitation, any Partnership service
resold by an interexchange carrier) and for so long as such customer continues
to obtain service from the Partnership, such customer shall be deemed to be a
"TCG Customer" for the purpose of the sales representation provisions of the
Reciprocal Resale Agreement.
(b) As soon as a customer, which is not already a TCG
Customer (as that term is defined in paragraph (a) above), obtains any Retail
Switching Business from the Partner or its Controlled Affiliate in the
Business Area and for so long as such customer continues to obtain such
services from the Partner or its Controlled Affiliate, such customer shall be
deemed to be a "Partner Customer" for the purpose of the sales representation
provisions of the Reciprocal Resale Agreement.
(c) The Partnership shall be the exclusive sales
representative for selling the Partner's or its Controlled Affiliate's Retail
Switching Business to TCG Customers, and the Partner or its Controlled
Affiliate shall be the exclusive sales representative for selling the
Partnership's services to Partner Customers; provided, however, that,
-------- -------
notwithstanding the exclusivity provisions of the Reciprocal Resale Agreement,
the Partnership, the Partner or the Controlled Affiliate shall be permitted to
enter into reseller arrangements (whether exclusive or non-exclusive) with
interexchange carriers which arrangements permit the interexchange carriers to
resell the services of the Partnership, the Partner or the Controlled
Affiliate, as the case may be.
7.7 Services Offered by the Partnership. If the Partnership
-----------------------------------
provides any services to a Partner or an Affiliate of
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a Partner, the Partnership shall offer the same services on the same terms and
conditions to each other Partner and its Affiliates.
ARTICLE 8: DISSOLUTION
8.1 Causes of Dissolution. To the extent permitted by the Act, the
dissolution of the Partnership shall occur only upon the occurrence of any of
the following events:
(a) The sale, or taking by eminent domain, of all or
substantially all of the assets of the Partnership;
(b) A legal or regulatory determination, or the revocation
or non-renewal of any franchise or license held by the Partnership which
revocation or non-renewal is not subject to further governmental or judicial
review and which, in any such case, renders it unlawful or impossible for the
Partnership to conduct all or substantially all of the Exclusive Business in
the Business Area;
(c) The expiration of the term of this Agreement; or
(d) The agreement of the Partners in accordance with Section
3.5 to dissolve the Partnership.
Upon a dissolution, unless the Partners agree to continue the business of the
Partnership pursuant to Section 8.3, no further business shall be done in the
Partnership's name, except for the taking of such action as shall be necessary
for the performance and discharge of the Partnership's obligations, the
winding-up of its affairs and the liquidation and distribution of its assets in
accordance with the provisions hereof.
8.2 Winding Up and Liquidation.
(a) Upon dissolution, subject to Section 8.3, the
Partnership's affairs shall be wound up by the Managing Partner and its
property liquidated as rapidly as business circumstances will permit, and the
Partners shall, subject to any provisions of law or of any other applicable
agreement, make Distributions in the following manner and order:
(i) To payment and discharge of the claims of all
creditors of the Partnership who are not Partners or Affiliates of Partners;
(ii) To payment and discharge of the claims of all
creditors of the Partnership who are Partners or Affiliates of Partners pro
rata in accordance with the amounts of such claims;
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(iii) To creation of reasonable cash reserves for the
payment of any taxes, expenses or liabilities, contingent or otherwise; and
(iv) To the Partners in accordance with their Capital
Accounts; provided, however, that Distributions made pursuant to this Section
8.2(a)(iv) shall be made in accordance with the time requirements set forth in
Regulations Section 1.704-1(b)(2)(ii)(b)(2).
(b) Upon liquidation of the Partnership, if any Partner's
Capital Account has a deficit balance (after giving effect to all
contributions, Distributions and allocations for all taxable years, including
the year during which such liquidation occurs), such Partner shall contribute
to the capital of the Partnership the amount necessary to restore such deficit
balance to zero in compliance with Regulations Section 1.704-1(b)(2)(ii)(b)(3).
8.3 Continuation of the Partnership. Upon the dissolution of
the Partnership, the Partners, by a Majority Vote, may decide to continue the
business of the Partnership pursuant to this Agreement.
8.4 No Withdrawal. Except as otherwise expressly provided in
this Agreement, no Partner may withdraw from the Partnership without the
consent of all of the other Partners.
ARTICLE 9: EVENTS OF DEFAULT AND REMEDIES
9.1 Events of Default. An "Event of Default" shall be
considered to have occurred with respect to a Partner (a "Defaulting
Partner") if:
(a) such Partner sells, assigns, transfers, grants a
participation in, pledges, encumbers or otherwise conveys all or
any part of its Partnership Interest, except as permitted by this
Agreement; provided, however, that no Event of Default
shall be considered to have occurred for thirty days following the
involuntary encumbrance of all or any part of such Partnership
Interest if during such thirty day period such Partner acts
diligently to, and does, remove any such encumbrance, including,
but not limited to, effecting the posting of a bond to prevent
foreclosure where necessary;
(b) an Initial Capital Payment Default (as that term is
defined in Section 4.3(a)(i)) occurs with respect to such Partner
and the related call of the
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installment of the Initial Capital Contribution in respect of which
the Initial Capital Payment Default occurred is not rescinded
pursuant to Section 4.3(b)(i);
(c) such Partner fails to perform or violates any other
material term or condition of this Agreement and such failure or
violation continues for thirty days after written notice thereof
has been given to such Partner by the Remedies Partner;
(d) such Partner institutes proceedings of any nature under
the Federal Bankruptcy Code, or any similar state or Federal law
for the relief of debtors (a "Bankruptcy Law"), wherein such
Partner seeks relief as a debtor; such Partner makes a general
assignment for the benefit of creditors; or such Partner has
instituted against it proceedings under any section of any
Bankruptcy Law, which proceedings are not dismissed, stayed or
discharged within sixty days after the filing thereof or if stayed,
which stay is thereafter lifted without a contemporaneous discharge
or dismissal of such proceedings (such Partner may be referred to
hereinafter as a "Bankrupt Partner"); or
(e) such Partner otherwise causes the dissolution of the
Partnership in contravention of this Agreement.
9.2 Remedies.
(a) Upon the occurrence and during the continuance of an
Event of Default with respect to a Defaulting Partner, the Remedies Partner may
elect:
(i) with the approval of those Partners who are not
Defaulting Partners ("non-Defaulting Partners") with an aggregate
Percentage Interest constituting not less than a majority of the
sum of the Percentage Interests of all non-Defaulting Partners, to
cause the Partnership, or its designee(s), to purchase the
Partnership Interest of such Defaulting Partner pursuant to Section
9.3; or
(ii) to seek to enjoin such default or to obtain
specific performance of a Defaulting Partner's (or the applicable
Controlled Affiliate's) obligations or to seek Damages (as defined
and subject to the limitations specified below) or both.
provided, however, that, with respect to an Event of Default arising under
Section 9.1(b) above, if there is more than one
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Defaulting Partner (as that term is defined in Section 4.1(a) hereof) in
connection with any call of an installment of the Partners' Initial Capital
Contributions, the Remedies Partner shall make the same election with respect
to each such Defaulting Partner; and provided further that with respect to an
Event of Default arising under Section 9.1(c) above, the Remedies Partner may
not elect to purchase the Partnership Interest of the Defaulting Partner
pursuant to Section 9.3.
(b) The election of a remedy specified in clause 9.2(a)(i)
or (ii) above may be exercised by notice given to the Defaulting Partner (x),
in the case of an Event of Default specified in clause (b) of Section 9.1, at
any time, or (y), in the case of any other Event of Default, within ninety days
after the Remedies Partner obtains actual knowledge of the Event of Default;
provided that, if an election pursuant to clause 9.2(a)(ii) above is made to
seek an injunction, specific performance or other equitable relief and a final
judgment in such action is rendered denying such equitable remedy, then, within
ninety days thereafter, the Remedies Partner may elect to pursue the remedy
specified in clause 9.2(a)(i) above (subject to the prior approval of the
non-Defaulting Partners contemplated by Section 9.2(a)(i) above) unless, prior
to the giving of such notice, the Defaulting Partner has cured (or caused to be
cured) the Event of Default in full or the final judgment denying equitable
relief specifically held that there was no Event of Default, and no other Event
of Default with respect to such Defaulting Partner has occurred and is
continuing.
(c) The remedies set forth in Section 9.2(a) above shall not
be deemed mutually exclusive, and selection or resort to any thereof shall not
preclude selection or resort to the others; provided that, if the Remedies
Partner makes an election pursuant to clause 9.2(a)(i) above in respect of any
Event of Default, then it may not pursue any other remedy in respect of that
Event of Default. Except for the resort to the remedy set forth in clause
9.2(a)(i) above, the resort to any remedy pursuant to this Section 9.2 shall
not for any purpose be deemed to be a waiver of any other remedy available
under this Agreement or under applicable law.
(d) Except as provided in Section 9.2(c), unless an Event of
Default shall have been waived in writing or cured, the Partnership or the
non-Defaulting Partners shall be entitled to recover from the Defaulting
Partner (or its Parent pursuant to the applicable Parent Undertaking) in an
appropriate proceeding any and all damages, losses and expenses (including
reasonable attorneys' fees and disbursements) (collectively "Damages")
-------
suffered or incurred by the Partnership or the non-Defaulting Partners as a
result of such Event of Default; provided, that neither the Partnership nor the
non-Defaulting Partners shall
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have or assert any claim against the Defaulting Partner or any of its
Affiliates for punitive Damages or for indirect, special or consequential
Damages suffered as a result of such Event of Default.
(e) Upon the occurrence and during the continuance of the
related Event of Default, and except as required by applicable law, a
Defaulting Partner shall not be entitled to vote on any matter submitted to a
vote of the Partners and its Percentage Interest shall not be included in
calculating the Percentage Interests required to approve or disapprove any such
matter, and such Defaulting Partner shall not be entitled to exercise any
rights under Section 5.4 (or, without the consent of the Remedies Partner, any
rights under Section 5.2 or Section 5.5 of this Agreement). In all other
respects a Defaulting Partner shall continue to have all of the rights and
obligations of a Partner under this Agreement and applicable law.
9.3 Purchase of Defaulting Partner's Partnership Interest.
-----------------------------------------------------
(a) If an election is made pursuant to clause 9.2(a)(i), the
closing of the purchase of the Defaulting Partner's Percentage Interest shall
take place at the time and at the place determined in accordance with the
provisions of Section 5.9. The Partnership (or its designee) shall pay a
purchase price for the Defaulting Partner's Percentage Interest (which shall be
payable in cash) equal to 50% of the Fair Market Value of such Partnership
Interest. Upon payment of the purchase price to the Defaulting Partner, the
Defaulting Partner shall deliver to the Partnership (or its designee(s)) all
documents necessary to transfer to the Partnership (or its designee(s)) good
title to its Partnership Interest.
(b) Notwithstanding Section 9.3(a), if an election is made
pursuant to clause 9.2(a)(i) and the only Event of Default that has occurred
and is continuing is that the Defaulting Partner is a Bankrupt Partner, then
the time, place and manner of the purchase of such Defaulting Partner's
Partnership Interest shall be as provided in Section 9.3(a), except that the
Partnership (or its designee(s)) shall pay a purchase price for such
Partnership Interest (which shall be payable in cash) equal to 90% of the Fair
Market Value of such Partnership Interest.
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ARTICLE 10: REPRESENTATIONS AND WARRANTIES OF THE PARTNERS
Each Partner makes the following representations and warranties to
each other, each with respect to itself only:
(a) It is duly incorporated or organized, validly existing
and in good standing under the laws of its state of incorporation or
organization and duly qualified or registered to do business in each state or
jurisdiction in which failure to so qualify or register would have a material
adverse effect upon such Partner or the Partnership.
(b) It and each of its Controlled Affiliates has the full
power and authority to take all actions contemplated by this Agreement and any
of the Management Services Agreement, Partner Services Agreement and Parent
Undertaking to which it or any of its Controlled Affiliates is a party.
(c) The execution, delivery and performance of this
Agreement and each of the Management Services Agreement, Partner Services
Agreement and Parent Undertaking to which it or any of its Controlled
Affiliates is a party, have been, or at the appropriate time shall be, duly
authorized by all necessary action on its part or the part of any such
Controlled Affiliate, as the case may be.
(d) This Agreement and each of the Management Services
Agreement, Partner Services Agreement and Parent Undertaking to which it or one
of its Controlled Affiliates is a party, constitutes a valid and binding
obligation of it enforceable in accordance with the terms hereof and thereof,
subject as to enforceability to limits imposed by bankruptcy, insolvency or
similar laws affecting creditors' rights generally and the availability of
equitable remedies.
(e) To the best of its knowledge, the execution, delivery
and performance of this Agreement and of each of the Management Services
Agreement, Partner Services Agreement and Parent Undertaking to which
it or one of its Controlled Affiliate is a party, do not violate any provision
of law other than possible violations arising from breaches or defaults under
any governmental or municipal approval, franchise or authorization,
right-of-way agreement, pole attachment agreement or conduit agreement.
(f) The execution, delivery and performance of this
Agreement and of each of the Management Services Agreement, Partner Services
Agreement and Parent Undertaking to which it or one of its Controlled
Affiliate is a party, do not violate any provision of its or of its Controlled
Affiliates' organizational documents.
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(g) The execution, delivery and performance of this
Agreement and of each of the Management Services Agreement, Partner Services
Agreement and Parent Undertaking to which it or one of its Controlled
Affiliate is a party, are not inconsistent with, and do not violate or cause a
breach or default under, any agreement or obligation to which it or any of its
Controlled Affiliates is a party or is otherwise subject, other than any
governmental or municipal approval, franchise or authorization, right-of-way
agreement, pole attachment agreement or conduit agreement.
(h) It is aware of no pending challenges to any governmental
or municipal approval, franchise and authorization, right-of-way agreement,
pole attachment agreement or conduit agreement to which it or one of its
Controlled Affiliate is a party that, if successful, would prohibit it from
consummating the transactions and performing the obligations provided for in
this Agreement.
ARTICLE 11: MISCELLANEOUS
11.1 Acknowledgements.
----------------
(a) Each Partner affirms and acknowledges that no
representations, warranties or statements have been made to it by any party
hereto other than those expressly set forth in this Agreement and that, in
entering into this Agreement, it has not relied upon anything done or said with
respect to this Agreement or with respect to the relationship between the
parties, other than as expressly set forth in this Agreement.
(b) Each Partner affirms and acknowledges that neither the
Partnership nor the Managing Partner has made any representation or warranty
regarding any financial statements, business plans, projections or other
information provided to such Partner except as expressly provided herein. Any
projections and business plans provided to the Partners reflect the Managing
Partner's current estimate and projections as to the manner and cost of the
development of the Partnership's business in the Business Area. Such estimate
and projections are subject to change.
11.2 Bill for Partition. Each of the Partners covenants that
------------------
neither it nor any person or persons claiming through or under it, will file a
bill for partition of the Partnership property.
11.3 Notices. All notices and other communications hereunder
-------
shall be (a) in writing (except to the extent otherwise expressly provided
hereunder); (b) delivered by telecopy, by commercial overnight or same-day
delivery service with all delivery costs paid by sender, or by registered or
certified mail
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with postage prepaid, return receipt requested; (c) deemed given on the date
and at the time shown on the telecopy confirmation of receipt (if delivered by
telecopy), on the date and at the time (if recorded) of delivery by the
commercial delivery service, as shown in the records thereof (if delivered by
commercial overnight or same-day delivery service), or on the date shown on the
return receipt (if delivered by registered or certified mail); and (d)
addressed to the parties at their addresses specified on the signature pages
hereof (or at such other address for a party as shall be specified by like
notice).
11.4 Amendments. This Agreement may not be amended nor shall any
waiver, change, modification, consent, or discharge be effected, including,
without limitation, any change in the definition of Exclusive Business, except
by an instrument in writing adopted by each Partner; provided, however, that an
amendment to increase the dollar values set forth in any of Sections 3.4(a),
3.4(e), 3.5(d), 3.5(e), or 3.5(g) may be adopted by a Supermajority Vote; and
provided, further, that any changes in this Agreement required solely by the
admission of an additional Partner may be adopted by the same Percentage
Interest as is required to approve the admission of such Partner.
11.5 Indebtedness for Borrowed Money. The Partnership shall not
incur any indebtedness for borrowed money the terms of which permit the creditor
under such indebtedness to have recourse against a Partner without the express
written consent of that Partner.
11.6 Waivers and Further Agreements; Entire Agreement. Any
waiver of any terms or conditions of this Agreement shall be in writing and
shall not operate as a waiver of any other breach of such terms or conditions
or any other term or condition, nor shall any failure to enforce any provision
hereof operate as a waiver of such provision or of any other provision hereof.
Each of the Partners agrees to execute all such further instruments and
documents and to take all such further action as any other Partner may
reasonably require in order to effectuate the terms and purposes of this
Agreement. The Partners agree that this Agreement, including the Exhibits and
Appendices hereto, constitutes the entire agreement among them with respect to
the subject matter of the Partnership and supersedes all prior agreements and
understandings among them as to such subject matter, and there are no
restrictions, agreements, arrangements or undertakings, oral or written, among
the Partners relating to the Partnership which are not fully expressed or
referred to herein.
11.7 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full
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force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith
to modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the greatest extent possible.
11.8 Specific Enforcement; Attorneys Fees. The parties hereto
agree that the remedy at law for damages upon violation of the terms of this
Agreement would be inadequate because the Partnership Interests and the
business of the Partnership are deemed unique. Therefore, the parties agree
that the provisions of this Agreement may be specifically enforced by any court
of competent jurisdiction, and each Partner and its respective transferees
agree to submit to the jurisdiction of the court where any such action for
specific performance is brought. If any Partner defaults in its performance of
any of the terms and conditions of this Agreement and if, as a result of such
default, a lawsuit seeking damages, specific performance or any other remedy is
filed by any other Partner, then, in that event, the prevailing party in such a
lawsuit shall be entitled to obtain attorney's fees from the losing party in
such amount as shall be determined by the court to be reasonable under the
circumstances.
11.9 Counterparts. This Agreement may be executed in
counterparts each of which shall be deemed an original and all of which
together shall constitute one and the same instrument, and in pleading or
proving any provision of this Agreement, it shall not be necessary to produce
more than one complete set of such counterparts.
11.10 Most Favored Nations. If the Partnership enters into a
Partner Services Agreement with a Partner or an Affiliate of a Partner, the
Partnership shall offer the same terms and conditions to each other Partner or
its Affiliate.
11.11 Captions; Gender. Article and section headings contained in
this Agreement are for reference purposes only and shall not in any way affect
the meaning or interpretation of this Agreement. Whenever used herein the
singular number shall include the plural, the plural shall include the singular,
and the use of any gender shall include all genders.
11.12 Governing Law and Binding Effect. This Agreement shall
be governed by and construed and enforced in accordance with the law (other
than the law governing conflicts of law questions) and decisions of the State
of New York applicable to contracts made and to be performed entirely
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therein. This Agreement shall bind and inure to the benefit of each of the
Partners and their successors and permitted assigns.
11.13 Expenses. Each of the Partners shall bear its own expenses,
including legal and other professional fees, incurred by it in the negotiation
and preparation of this Agreement; provided, however, that the Partnership shall
reimburse Partners for the pre-organization operating expenses they incurred
prior to the date hereof to the extent listed on the Information Appendix.
11.14 Third Parties. None of the provisions of this Agreement
shall be for the benefit of, or enforceable by, any creditor of the Partnership
or other third parties.
11.15 Confidentiality. Each Partner agrees that it shall not,
directly or indirectly, without the prior written consent of each other
Partner, disclose the terms of this Agreement or the identity of the Partners
or use for its own benefit (except as a Partner of the Partnership) or disclose
to any Entity any information, trade secrets, confidential customer
information, patents, patent rights, technical data or know-how relating to the
products, processes, methods, equipment or business practices of the
Partnership, except (a) to the extent any of the foregoing is or becomes
available to the public other than as a result of disclosure by such Partner or
any of its Affiliates or the directors, officers, employees, agents, advisors
and controlling persons of it or any of its Affiliates, (b), subject to the
terms of an appropriate confidentiality agreement, as necessary to effect a
transaction under Article 5, (c) as may be required by law and (d) as any
Partner may disclose to its lenders, rating agencies and business and financial
advisors. In the event any Partner is required by applicable law or regulation
or by legal process to disclose any of the foregoing, it will provide the other
Partners with prompt notice thereof to enable them to seek an appropriate
protective order.
11.16 Appendices. The Tax Appendix and the Information Appendix are
hereby incorporated by reference and made a part of this Agreement as if they
were set forth herein in their entirety.
- 57 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Partnership Agreement as of the date first above written.
TCG PARTNERS
By: /s/ J. Curt Hockemeier
------------------------------
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-1011
Attention: Robert Annunziata, Chairman and Chief
Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
TIMES MIRROR ACCESS, INC.
By: /s/ Michael G. Rose
---------------------------------
Address: 2381-91 Morse Ave.
Irvine, CA 92714
Attention: Michael G. Rose
Vice President
Fax: 714-660-0501
<PAGE>
Partnership Agreement as of the date first above written.
TCG PARTNERS
By: /s/ J. Curt Hockemeier
----------------------------------
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-1011
Attention: Robert Annunziata, Chairman and Chief
Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
COX TELEPORT SAN DIEGO, INC.
By: /s/ Robert G. McRann
---------------------------------
Address: 5159 Federal Boulevard
San Diego, CA 92105
Attention: Robert G. McRann
Fax: (619) 266-5540
and
David M. Woodrow
Senior Vice President
Cox Cable Communications
1400 Lake Hearn Drive
Atlanta, GA 30319
Fax: (404) 843-5939
<PAGE>
EXHIBIT A
---------
Form of Management Services Agreement
-------------------------------------
<PAGE>
MANAGEMENT SERVICES AGREEMENT
-----------------------------
This MANAGEMENT SERVICES AGREEMENT is made as of June 1, 1994, by and
between TELEPORT COMMUNICATIONS GROUP INC., a Delaware corporation having its
principal office at One Teleport Drive, Suite 301, Staten Island, New York 10311
("TCGI"), and TCG SAN DIEGO, a New York general partnership having its principal
office at 1370 India Street, Ste. 200, San Diego, CA 92101 ("Operator").
RECITALS
--------
Operator has been created by a Partnership Agreement of even date herewith
(the "Partnership Agreement") between TCG Partners ("TCP"), an affiliate of
TCGI, and others. The Partnership Agreement contemplates that Operator
will construct and operate a local telecommunications transmission system (the
"Project") in San Diego and vicinity. In connection therewith, Operator desires
to obtain certain services from TCGI and TCGI desires to offer such services.
In addition, Operator is willing to participate in various national programs
provided by TCGI and to obtain certain quality standards and proprietary rights,
and Operator is willing to pay TCGI a quarterly fee in recognition of the value
of such programs, standards and rights. Capitalized terms used herein and not
otherwise defined shall have the respective meanings ascribed thereto in the
Partnership Agreement.
AGREEMENTS
----------
In consideration of the foregoing and of the promises and covenants
contained in this Agreement, the parties agree as follows:
1. Management Services.
-------------------
(a) Generally. Reference is made to Addendum A attached hereto, which
Addendum is incorporated into this Agreement to the same extent as if set forth
herein in full. Addendum A describes certain services (the "Services"). TCGI
hereby agrees to provide the Services described in Section I of Addendum A and,
to the extent requested by Operator from time to time, the additional Services
described in Section II of Addendum A, and Operator hereby agrees to use the
Services described in Section I of Addendum A and accepts the option to use the
additional Services described in Section II of Addendum A. The Services will be
provided by TCGI and its affiliates and by the employees, consultants, agents
and contractors of TCGI and its affiliates.
(b) Exclusivity. During the term of this Agreement, Operator agrees not
to obtain any of the Services described in Section I of Addendum A from any
Entity other than TCGI and its affiliates (and their respective employees,
consultants, agents
<PAGE>
and contractors) pursuant to this Agreement. Operator may obtain Services
described in Section II of Addendum A from any Entity.
(c) Quality. TCGI shall perform all of the Services that are of a
professional nature in a professional manner in accordance with all applicable
professional standards and all applicable laws. TCGI shall perform all of the
Services that are of a nonprofessional nature in a workmanlike manner in
accordance with all applicable industry standards and all applicable laws.
2. National Programs. In connection with TCGI's provision and Operator's
use of those Services designated in Addendum A as the "National Programs," TCGI
and Operator agree as follows:
(a) Name. Subject to the provisions of Section 2.2 of the Partnership
Agreement, Operator shall use its best efforts to include the words "TCG" or
"Teleport Communications" in all of its trade names regardless of the legal form
of Operator from time to time. Upon the termination or expiration of this
Agreement, Operator agrees that it will immediately cease using any of "TCG,"
"Teleport," "Teleport Communications" or "TC," or any name or initials similar
thereto, as part or all of its trade names.
(b) Quality Standards. TCGI will provide Operator with regularly updated
written quality standards relating to the installation, provisioning,
engineering and maintenance of telecommunications services, which standards
shall be those employed generally by TCGI, its subsidiaries and those entities
managed by TCGI pursuant to agreements similar to this Agreement in providing
telecommunications services. Operator shall implement and comply with such
standards.
3. Term. This Agreement shall have an initial term of fifteen years from
the date hereof and shall be renewed automatically for successive five-year
terms after the initial term unless, at least six months prior to the expiration
of the current term, either party notifies the other party in writing of its
desire to terminate this Agreement as of the end of the current term. The
initial term and any subsequent renewal term shall be subject to early
termination pursuant to Section 6. Notwithstanding the termination or
expiration of this Agreement:
(a) After the termination or expiration of this Agreement, TCGI shall
continue to provide, for a reasonable additional period not to exceed three
months, any of the Services that are required by Operator during such period to
permit an orderly transition to a successor service provider or providers, and
Operator agrees to pay the charges for such Services set forth in Addendum A, as
adjusted from time to time in accordance with Section 4(b), in the manner
provided in this Agreement;
- 2 -
<PAGE>
(b) The provisions of Section 9 and Section 10 shall survive the
termination or expiration of this Agreement indefinitely; and
(c) The provisions of Section 2(b) and Section 4(a)(ii), and those
provisions of this Agreement relating to the payment of the fee specified in
Section 4(a)(ii), shall survive the termination or expiration of this Agreement
until the expiration of all agreements under which Operator provides
telecommunications services to national accounts through TCGI's National
Programs; provided, however, that the fee payable pursuant to Section 4(a)(ii)
after the termination or expiration of this Agreement shall be limited to 3% of
those Project Gross Revenues that are attributable to such national accounts.
4. Fees and Charges.
----------------
(a) Fees. In return for the Services to be provided to Operator under
this Agreement, Operator shall pay to TCGI the following amounts:
(i) The charges set forth in Addendum A, as adjusted from time to time in
accordance with Section 4(b) and Addendum A; and
(ii) With respect to (A) the period commencing on the date hereof and
ending on the last day of the second full calendar quarter after the date hereof
and (B) each subsequent calendar quarter during the term of this Agreement (each
such period hereinafter called an "Applicable Period"), a payment equal to the
greater of (1) 3% of Project Gross Revenues (as hereinafter defined) with
respect to the Applicable Period, or (2) an amount equal to the product of
$278.00 times the number of days in the first Applicable Period and an amount
equal to $25,000 for each subsequent Applicable Period. The term "Project Gross
Revenues" means, with respect to any Applicable Period, all revenues derived by
Operator from the conduct of the Business (as that term is defined in the
Partnership Agreement) during the Applicable Period, determined on an accrual
basis, with adjustment for bad debt and otherwise in accordance with generally
accepted accounting principles consistently applied.
(b) Adjustments. The charges stated on Addendum A are based on TCGI's
best estimate as of the date hereof of its cost of providing the Services to
Operator and to all of the other entities with which TCGI has entered into
agreements similar to this Agreement. TCGI shall periodically, but not less
often than quarterly, calculate the actual cost of providing the Services and
determine whether the amounts paid by Operator for such period are less than or
exceed Operator's pro rata share of TCGI's actual costs in providing the
Services in such period. The expenses attributable to the provision by TCGI of
any Service
- 3 -
<PAGE>
to Operator shall be calculated by allocating the expenses incurred by TCGI in
providing such Service to all telecommunications transmission systems managed by
TCGI (including Operator) among all such systems on the basis of an equitably
weighted average of each system's direct hours billed, annual budgeted revenue
and budgeted capitalization. The weighting of each variable shall be determined
from time to time by TCGI. The initial weighting system is set forth in Section
IV of Addendum A. TCGI may adjust any of the fees and monthly rates set forth
on Addendum A as a result of such calculation to provide that the amounts paid
by Operator pursuant hereto more closely approximate TCGI's actual costs of
providing the Services. In addition, if as a result of TCGI's calculation of
its cost of providing the Services it determines that Operator has paid more or
less than its pro rata share of TCGI's cost of providing the Services in any
period, TCGI shall send a statement to Operator with the next monthly bill
provided pursuant to Section 4(c) below setting forth the amount of such
overpayment or underpayment. If Operator has overpaid, it shall be entitled to
a credit in the amount of such overpayment against subsequent payments. If
Operator has underpaid, it shall pay to TCGI the amount of such underpayment.
TCGI shall provide Operator within ninety days of the end of each of its fiscal
years with a certificate from its independent accountants certifying Operator's
pro rata share of TCGI's costs in providing the Services. Operator shall
receive a credit in the amount of, or shall pay an amount equal to, any
overpayment or underpayment reflected in such certificate as provided above. In
no event, however, shall the charges to Operator pursuant to this Section 4(b)
or Addendum A resulting from the cost of providing the Services to Operator,
when taken as a whole, exceed the cost at which Operator could obtain like
services from qualified, unaffiliated third parties.
(c) Payments and Billing.
(i) TCGI shall provide Operator with itemized monthly bills with respect
to all charges specified in Addendum A and any adjustments made pursuant to
Section 4(b) above. Billing for items charged on a unit fee basis or a fixed
fee basis shall be in advance and billing for items charged on an actual time
and materials basis shall be in arrears. Each such bill shall be payable within
thirty days from the date of Operators's receipt thereof.
(ii) The fee specified in Section 4(a)(ii) shall be paid as follows:
(A) With respect to the first Applicable Period, Operator shall pay the
product of $278.00 times the number of days in the first Applicable Period prior
to the last day of the first Applicable Period and shall pay the amount, if any,
by which the fee specified in Section 4(a)(ii) for the first
- 4 -
<PAGE>
Applicable Period exceeds the product of $278.00 times the number of days in the
first Applicable Period within sixty days after the end of the first Applicable
Period.
(B) With respect to each Applicable Period after the first Applicable
Period, Operator shall pay $25,000 toward the fee specified in Section 4(a)(ii)
on or before the first day of such Applicable Period and shall pay the amount,
if any, by which the fee specified in Section 4(a)(ii) for such Applicable
Period exceeds $25,000 within sixty days after the end of such Applicable
Period.
(iii) Within sixty days after the end of each Applicable Period, Operator
shall provide TCGI with a statement, certified as correct by Operator's General
Manager or chief financial officer, as to the amount of Project Gross Revenues
for the Applicable Period. Operator will permit any authorized TCGI employees
or certified public accountants retained by TCGI to examine Operator's books of
account, records, reports and other papers relating to the determination of
Project Gross Revenues, to make copies and extracts therefrom (except with
respect to that containing proprietary information), and to discuss such items
with Operator's officers and accountants (and by this provision Operator
authorizes the accountants to discuss such items), all at such reasonable times
and as often as may reasonably be requested. Any such examination shall be
performed at TCGI's sole cost and expense unless such examination reveals a
material understatement in any quarterly statement of Project Gross Revenues, in
which event the cost of such examination shall be borne by Operator.
(iv) Operator shall inform TCGI of any discrepancies, claims for credits
or other problems with any bill within thirty days after Operator's receipt
thereof. If TCGI is so notified, Operator and TCGI shall meet promptly and
shall negotiate in good faith a resolution of the dispute. TCGI agrees to
maintain detailed records relating to its provision of the Services. TCGI will
permit Operator at any time upon reasonable notice to examine all of such
records, to make copies and extracts therefrom and to discuss such records and
other matters relating to the Services with the respective officers, employees
and independent public accountants of TCGI (and by this provision TCGI
authorizes the accountants to discuss such items).
(v) Any amount not received when due will be subject to a late charge at a
rate equal to the lesser of 1 1/2% per month or the maximum amount permitted by
law (if any).
(vi) Operator will be permitted to offset any amounts due to Operator from
TCGI or its wholly-owned subsidiaries against any amounts payable to TCGI
hereunder.
- 5 -
<PAGE>
5. Taxes. Operator agrees to pay any sales, use, gross receipts, excise
or other local, state or Federal taxes or charges, however designated (excluding
taxes on TCGI's net income), imposed on or based upon the provision, sale or use
of the Services provided under this Agreement or otherwise related to the
transactions contemplated hereby. Any taxes imposed on TCGI that are required
to be paid by Operator under this Section 5 shall be separately stated on each
monthly bill to Operator.
6. Termination.
(a) Operator may terminate this Agreement by written notice to TCGI if
TCGI fails in any material respect to perform its obligations under this
Agreement in accordance with the terms hereof and customary and reasonable
standards of management in the telecommunications industry, and such failure in
performance continues unremedied for a period of sixty days after
Operator has given written notice to TCGI specifying such failure in reasonable
detail , provided, however, that if it is not practicable to remedy such
failure in performance within sixty days, TCGI must remedy such failure in
performance as soon as practicable thereafter. In no event shall the financial
performance of Operator or any failure by Operator to meet its budget for any
period be deemed a failure of performance by TCGI.
(b) TCGI may terminate this Agreement by written notice to Operator if
Operator fails in any material respect to perform its obligations under this
Agreement (other than those described in Section 6(c)) in accordance with the
terms hereof and customary and reasonable standards of management in the
telecommunications industry, and such failure continues unremedied for a period
of one hundred eighty days after TCGI has given written notice to Operator
specifying such failure in reasonable detail.
(c) TCGI may terminate this Agreement by written notice to Operator if
Operator fails to make any payment due to TCGI under this Agreement within
thirty days of the date when such payment was due unless such failure is due to
a good faith dispute between TCGI and Operator regarding such payment.
(d) Either party may terminate this Agreement by giving written notice to
the other party if the other party:
(i) files a voluntary petition in bankruptcy or is adjudicated a bankrupt
or insolvent or files any petition or answer seeking arrangement, composition,
readjustment, or similar relief under the present or any future bankruptcy act
or any other present or future applicable federal or state law relating to
bankruptcy, insolvency or other relief for debtors; or
- 6 -
<PAGE>
(ii) has an involuntary petition filed against it seeking arrangement,
composition, readjustment, liquidation or similar relief under the present of
any future federal bankruptcy act or any other federal or state law relating to
bankruptcy, insolvency or other relief for debtors which is not vacated within
sixty days from the date of entry thereof; or
(iii) makes an assignment for the benefit of creditors or takes any other
similar action for the protection or benefit of creditors; or
(iv) in connection with the ownership, operation or management of the
Project or the performance of its obligations under this Agreement, commits any
felony or any other criminal act that materially threatens to result in
suspension, revocation, or adverse modification of any governmental franchise,
license, authorization or permit required for the conduct of the terminating
party's business; or
(v) misappropriates or converts any assets of the terminating party.
7. Other Remedies. In addition to the termination rights set forth in
Section 6, each party may exercise any other remedy available at law or equity
in the event of a default by the other party in the performance of its
obligations under this Agreement.
8. Limitation on Liability. TCGI shall in no event (i) have any liability
to Operator for any damages, expenses, costs or losses resulting from its
performance or nonperformance of the Services, except as may be caused by TCGI's
willful misconduct or gross negligence; (ii) HAVE ANY LIABILITY WHATSOEVER FOR
SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES AS A RESULT OF ITS
PERFORMANCE OR NONPERFORMANCE OF THE SERVICES; or (iii) have any liability for
any failure of performance hereunder due to causes beyond its control, including
but not limited to acts of God, fire, flood or other catastrophes; any law,
order, regulation, direction or action of the United States Government, or of
any other government, including state and local governments having or claiming
jurisdiction over TCGI or Operator, or of any department, agency, commission,
bureau, corporation or other instrumentality of any one or more of these
federal, state or local governments, or of any civil or military authority;
national emergencies; unavailability of material or rights-of-way;
insurrections; riots; wars; or strikes, lock-outs, work stoppages or other labor
difficulties. TCGI makes no representation or warranty with respect to the
operations or results, financial or otherwise, of the Project, and shall have no
liability therefor.
9. Proprietary Information. Each party acknowledges that, in the course
of the performance of this Agreement, it may have access to privileged and
proprietary information claimed to be
- 7 -
<PAGE>
unique, secret and confidential, and which constitutes the exclusive property or
trade secrets of the other, and the parties acknowledge that they are in a
confidential relationship with each other. This information may be presented in
documents marked with a restrictive notice or otherwise tangibly designated as
proprietary or during oral discussions, at which time representatives of the
disclosing party will specify that the information is proprietary. Each party
agrees to maintain the confidentiality of the proprietary information and to use
the same degree of care as it uses with regard to its own proprietary
information to prevent the disclosure, publication or unauthorized use of the
proprietary information. Neither party may duplicate or copy proprietary
information of the other party other than to the extent necessary for legitimate
business uses in connection with this Agreement. A party shall be excused from
these nondisclosure provisions if the proprietary information has been, or is
subsequently, made public by the other party or is independently developed by
such party or if the other party gives its express, prior written consent to the
disclosure of the proprietary information or if the disclosure is required by
law or regulation. Operator hereby acknowledges that certain deliverables to be
included in the Services, such as software, data processing systems and manuals,
are the proprietary property of TCGI or of third parties. Operator agrees that
upon TCGI's request it will execute, and comply with, license or sublicense
agreements in reasonable and customary form with respect to such deliverables.
10. Indemnification.
(a) Indemnification by Operator. Operator will indemnify and hold
harmless TCGI, its affiliates (other than Operator), and all officers,
directors, employees, stockholders, partners and agents of TCGI and its
affiliates (individually, a "TCGI Indemnitee") from and against any and all
claims, demands, costs, damages, losses, liabilities, joint and/or several,
expenses of any nature (including reasonable attorneys', accountants' and
experts' fees and disbursements), judgments, fines, settlements and other
amounts (collectively, "Damages") arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or investigative
(collectively "Claims") in which the TCGI Indemnitee may be involved or is
threatened to be involved, as a party or otherwise, arising out of TCGI's acts
or omissions under this Agreement or the ownership or operation of Operator's
business or assets, regardless of whether this Agreement continues to be in
effect or the TCGI Indemnitee continues to be an affiliate, or an officer,
director, employee, stockholder, partner or agent of TCGI or its affiliate, at
the time any such Claims are made or Damages incurred, provided (i) the TCGI
Indemnitee acted in good faith and in a manner it reasonably believed to be in
the best interest of Operator and, with respect to any criminal proceeding, had
no reasonable cause to believe its conduct was unlawful,
- 8 -
<PAGE>
and (ii) the TCGI Indemnitee's conduct did not constitute gross negligence,
willful misconduct or a breach of this Agreement. Any indemnification hereunder
will be satisfied solely out of the assets of Operator.
(b) Indemnification by TCGI. TCGI will indemnify and hold harmless
Operator, its affiliates, and all officers, directors, employees, stockholders,
partners and agents of TCGI and its affiliates (individually, an "Operator
Indemnitee") from and against any and all Damages arising from any and all
Claims in which the Operator Indemnitee may be involved or is threatened to be
involved, as a party or otherwise, arising out of Operator's acts or omissions
under this Agreement or the ownership or operation of TCGI's business or assets,
regardless of whether this Agreement continues to be in effect or the Operator
Indemnitee continues to be an affiliate, or an officer, director, employee,
stockholder, partner or agent of Operator, at the time any such Claims are made
or Damages incurred, provided (i) the Operator Indemnitee acted in good faith
and in a manner it reasonably believed to be in the best interest of TCGI and,
with respect to any criminal proceeding, had no reasonable cause to believe its
conduct was unlawful, and (ii) the Operator Indemnitee's conduct did not
constitute gross negligence, willful misconduct or a breach of this Agreement.
Any indemnification hereunder will be satisfied solely out of the assets of
TCGI.
(c) Procedure. No claims for indemnification shall be made by either
party against the other unless the aggregate amount of such claim, together with
any other indemnifiable claims of such party, exceeds the amount of $5,000. Any
reasonable expenses incurred by any indemnified person pursuant to this Section
10 in defending any civil or criminal action, suit or proceeding (or the threat
thereof), other than a claim, action, suit or proceeding brought by the
indemnifying party, shall be borne and paid by the indemnifying party in advance
of the final disposition of such action, suit or proceeding (or the threat
thereof) upon receipt of an undertaking by or on behalf of the indemnified
person to repay to the indemnifying party the amount of such expenses if it
shall ultimately be determined that such person is not entitled to the
indemnification provided for under this Section 10. Any person asserting a
right to indemnification under this Section 10 shall so notify the indemnifying
party in writing. If the facts giving rise to such indemnification involve any
actual or threatened claim or demand by or against a third party, the
indemnifying party shall be entitled to control the defense or prosecution of
such claim or demand in the name of the indemnified person, if the indemnifying
party notifies the indemnified person in writing of its intention to do so
within twenty days of the receipt of such notice by the indemnified person. The
indemnified person shall have the right, however, to participate in such
proceeding through counsel of its own choosing, which participation shall be at
its sole expense.
- 9 -
<PAGE>
Whether or not the indemnifying party chooses to defend or prosecute such claim,
each indemnified person and Lessor or Lessee, whichever is not the indemnifying
party, shall, to the extent requested by the indemnifying party and at the
indemnifying party's expense, cooperate in the prosecution or defense of such
claim and shall furnish such records, information and testimony and attend such
conferences, discovery proceedings, hearings, trials and appeals as may
reasonably be requested in connection therewith.
11. Independent Contractor. TCGI shall serve as an independent contractor
in connection with the matters set forth herein and its employees shall not be
employees of Operator, provided, however, that TCGI may provide Operator with
contract employees as part of the Services and be reimbursed therefor as more
fully provided on Addendum A. TCGI shall take no action, nor omit to take any
action, that would create the appearance, or lead a reasonable person to
believe, that TCGI (including its employees other than contract employees) in
acting hereunder has any relationship to Operator other than that of an agent to
its principal.
12. Obligations Unimpaired.
(a) Subject to the provisions of Section 6 and paragraphs (b) and (c) of
this Section 12, the obligations to be performed by Operator and TCGI under this
Agreement shall not be affected or impaired by any cause.
(b) Notwithstanding paragraph (a) of this Section 12, Operator shall have
the right to terminate the Agreement if:
(i) TCP is removed as Managing Partner of Operator; or offers, sells,
assigns, transfers, assigns, grants a participation in, pledges, or otherwise
disposes of its Partnership Interest in violation of the provisions of the
Partnership Agreement;
(ii) TCGI assigns, transfers, or in any other manner disposes of any of
its rights, privileges, or obligations under this Agreement other than as
permitted in this Agreement;
(iii) either TCGI or TCP voluntarily liquidates or dissolves, or suffers
involuntary liquidation or dissolution, or sells or otherwise disposes of all
its assets; or
(iv) Operator ceases to provide the Business services enumerated in the
Partnership Agreement as a result of termination or expiration of the
Partnership Agreement.
- 10 -
<PAGE>
(c) Notwithstanding paragraph (a) of this Section 12, TCGI shall have the
right to terminate the Agreement if it ceases to provide the services described
in Addendum A.
13. Miscellaneous. This Agreement constitutes the entire Agreement
between TCGI and Operator with respect to the subject matter hereof, and all
prior agreements, representations, statements, negotiations and undertakings are
superseded by this Agreement. THERE ARE NO AGREEMENTS, WARRANTIES OR
REPRESENTATIONS, EXPRESS OR IMPLIED EITHER IN FACT OR BY OPERATION OF LAW,
STATUTORY OR OTHERWISE, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
A PARTICULAR PURPOSE OR USE, EXCEPT THOSE EXPRESSLY SET FORTH HEREIN. This
Agreement may not be amended or waived except by a writing signed by the party
against which enforcement hereof is sought. The provisions of this Agreement
shall be governed by and construed in accordance with the laws of the State of
New York. This Agreement may be executed in two counterparts, each of which
shall be deemed to be an original.
14. Successors and Assigns; Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties' respective successors and
permitted assigns. Neither party shall assign, transfer, or in any other manner
dispose of, any of its rights, privileges or obligations under this Agreement
except in connection with a transaction specifically permitted by and in
accordance with the applicable provisions of Article 5 of the Partnership
Agreement and any attempt to make such an assignment, transfer or disposition
without consent shall be null and void. This provision shall not limit TCGI's
discretion to delegate duties and responsibilities to employees or agents of
TCGI or its affiliates in accordance with normal and customary management
practices.
15. Compliance With Law. Operator shall be the franchisee, licensee and
permittee of all governmental franchises, licenses, authorizations and permits
required for its business, and shall retain ultimate control over the Project
and its assets. Operator shall also retain ultimate responsibility for
compliance with the rules, regulations and policies of the Federal
Communications Commission (the "FCC") and each applicable state regulatory
authority having jurisdiction over the Project or Operator (collectively, the
"Regulatory Authorities") and the terms of the Communications Act of 1934, as
amended (the "Act"). TCGI agrees to cooperate in all reasonable respects with
Operator to the extent necessary to remain in compliance with respect to the Act
and the rules, regulations and policies of the FCC and of all applicable
Regulatory Authorities.
- 11 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Management
Services Agreement as of the date first above written.
TELEPORT COMMUNICATIONS GROUP INC.
By /s/ Alf T. Hansen
-------------------------------
Alf T. Hansen
Senior Vice President
TCG SAN DIEGO
By /s/ Alf T. Hansen
-------------------------------
Alf T. Hansen
Senior Vice President
- 12 -
<PAGE>
ADDENDUM A
----------
DESCRIPTION OF SERVICES AND CHARGES
-----------------------------------
I. TCGI Provided Services. TCGI shall provide the following Services on a
regular basis, in accordance with the level of the Operator's business activity,
at the rates listed.
1. Management - Senior Management Supervision. TCGI will provide
management supervision to Operator in support of Operator's business plan and
the objectives of its partners. The supervisory and general management
functions to be performed include:
. Review of business plans
. Review of annual budget and five-year plan prepared by Operator's
General Manager
. Financial reviews and controls
Operator will pay for these services on an actual time and materials basis (see
Section III).
2. Engineering - Circuit Order Layout Record, Training and
Operations. TCGI will maintain a database of the Network layout down to
individual circuit level. All circuit order layout record (COLR) information
should be reviewed by Operator for accuracy. TCGI will provide operational
performance (capital and expense) reviews and assist in network expansion. TCGI
will train employees assigned to Operator, as required. Operator will pay for
these services on an actual time and materials basis (see Section III).
3. Finance - Accounting Administration. TCGI will provide all
billing, collections, accounts payable, bookkeeping and financial reporting
services as listed below. In addition, TCGI will order supplies, materials and
services required by Operator, process invoices submitted by Operator and
purchase orders generated by or on behalf of Operator in accordance with
approved capital budgets and budgeted expenditures.
<TABLE>
<CAPTION>
SERVICE DESCRIPTION
- ------- -----------
<S> <C>
Billing Monthly billing of customers.
Collections Ongoing collection and processing of
customer payments.
Credit review Credit check to determine
creditworthiness of new customers.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Bookkeeping Functions General ledger, accounts receivable,
accounts payable, liabilities and
fixed asset property records.
Cash Control Cash management, reconciliation of
bank statements and cash forecasting
requirements.
Accounting for Fixed Assets Accounting for all capital accounts,
as to accumulated depreciation and
book and tax depreciation
calculations.
Tax Compliance Compliance with tax codes, including
annual preparation of partnership
federal, state and local tax returns
and K-1 tax reporting schedules.
Financial Reports and Analysis A monthly summary including balance
sheet, profit and loss, budget vs.
actual, fixed asset summary, cash and
investments, statement of changes in
financial position.
Capital Accounts Ongoing accounting for partner
capital accounts, capital
contributions and withdrawals.
Other Reports Other reports, including regulatory
reports, required by or pursuant to
the Partnership Agreement or as
directed by Operator.
</TABLE>
Operator will pay for these services on an actual time and materials basis (see
Section III).
4. Information Systems - Management Information Systems. TCGI will
provide centralized MIS/Data Processing hardware and software to Operator by
remote access from TCGI's corporate location. TCGI will manage centralized MIS
operations and will provide general systems support and guidance to Operator.
Operator will be responsible for the purchasing and operation of local MIS
hardware and software such as personal computers, remote terminals, printers,
plotters and other peripherals, and required telecommunications lines or local
area network interfaces necessary to access the centralized MIS resources of
TCGI.
Addendum A - Page 2
<PAGE>
<TABLE>
SYSTEM DESCRIPTION
- ------ -----------
<S> <C>
Capital budget tracking and P.O. Tracks capital expenditures and
invoice tracking purchase orders.
Inventory tracking Tracks electronics and cable and
other inside/outside plant inventory.
Technician labor tracking Tracks manpower time of technical
employees.
Internal labor tracking Tracks TCG employee time and
allocates to expense or capital
projects.
Circuit tracking Tracks all circuits current work in
progress and billable installed base,
due dates, turn up dates and billing
dates.
Order input processing Tracks orders through to
implementation.
Property records Tracks fixed assets for required
reporting.
Engineering & operations design Maintains databases of COLRs and
existing plant. Creates work orders
and lists of all electronics and work
required to install a new circuit.
General ledger Drives accounting and budgeting
process.
Fixed asset Tracks depreciation expenses by
account.
Payroll Payroll contracted with Automatic
Data Processing.
Billing/accounts receivable Drives billing and accounts
receivable.
Financial reporting and expense Drives financial analysis process
budget tracking.
Business planning Models/forecasts business for
planning purposes.
</TABLE>
Addendum A - Page 3
<PAGE>
Operator will pay for MIS processing costs at the following rates per month
based on actual annual sales for the immediately preceding fiscal year:
<TABLE>
<CAPTION>
Prior Year Annual Sales Monthly
Rate
<S> <C>
Up to $250,000 $ 5,000
Greater than $250,000 up to and 7,000
including $15,000,000
Greater than $15,000,000 up to 20,000
and including $25,000,000
Greater than $25,000,000 90,000
</TABLE>
5. Legal/Regulatory - Contract Reviews & Local Counsel Supervision.
TCGI will review all contracts, consulting agreements and other legally binding
arrangements. TCGI will provide standard contract forms. To provide Operator
with the benefits of TCGI's legal experience and expertise in the area of
telecommunications, metropolitan area networks and alternate local transmission
services, and in particular, to ensure consistency in regulatory stance, TCGI
will be available as needed for supervision and guidance of Operator's local
counsel and/or local regulatory counsel. Operator will pay for these services
on an actual time and materials basis (see Section III).
6. National Marketing and Pricing - Product Planning and Pricing;
National Advertising & Marketing. TCGI shall provide the following additional
marketing and pricing services:
. Develop, publish and update a standard pricing guide.
. Create market data and analysis for network expansion plans.
. Develop new applications including service descriptions, pricing
and sales strategy.
. Plan and implement national advertising campaign and strategic
accounts programs.
. Conduct competitive service analysis and ongoing tariff review to
assess potential impact on TCGI.
. Place general image advertising in national communications media.
Addendum A - Page 4
<PAGE>
. Assist Operator in local promotional and public relations efforts.
. Trade show planning and implementation for national and regional
exhibits; distribute qualified sales leads to each city resulting
from trade shows.
. Design and develop sales brochures and premiums.
. Update and maintain mailing lists, and develop and implement direct
mail campaigns.
. Distribute press releases, Teleport Report, trade show invitations,
etc.
Operator will pay for these services at the following rates per month based on
budgeted sales for the relevant fiscal year:
<TABLE>
<CAPTION>
Budgeted Annual Sales for Such Monthly Rate
Year
<S> <C>
Up to $3,000,000 $ 3,900
Greater than $3,000,000 up to 5,850
and including $6,000,000
Greater than $6,000,000 up to 7,800
and including $9,000,000
Greater than $9,000,000 up to 9,750
and including $12,000,000
Greater than $12,000,000 up to 11,700
and including $15,000,000
Greater than $15,000,000 up to 13,650
and including $18,000,000
Greater than $18,000,000 up to 15,600
and including $21,000,000
Greater than $21,000,000 up to 17,550
and including $24,000,000
Greater than $24,000,000 up to 19,500
and including $27,000,000
Greater than $27,000,000 up to 21,450
and including $30,000,000
Greater than $30,000,000 up to 23,400
and including $33,000,000
</TABLE>
Addendum A - Page 5
<PAGE>
<TABLE>
<S> <C>
Greater than $33,000,000 up to 25,350
and including $36,000,000
Greater than $36,000,000 up to 27,300
and including $39,000,000
Greater than $39,000,000 up to 29,250
and including $42,000,000
Greater than $42,000,000 up to 31,200
and including $45,000,000
Greater than $45,000,000 up to 33,150
and including $48,000,000
Greater than $48,000,000 up to 35,100
and including $51,000,000
Greater than $51,000,000 up to 37,050
and including $54,000,000
Greater than $54,000,000 up to 39,000
and including $57,000,000
Greater than $57,000,000 up to 40,950
and including $60,000,000
Greater than $60,000,000 up to 42,900
and including $63,000,000
Greater than $63,000,000 up to 44,850
and including $66,000,000
Greater than $66,000,000 46,800
</TABLE>
7. Operations - 24-Hour Remote Systems Monitoring. TCGI shall
provide 24-hour monitoring of the installed network in accordance with its
standard monitoring practices with respect to network systems in the New York
metropolitan area. Operator will provide necessary long distance tie-lines.
Operator will pay a unit fee for 24-hour remote systems monitoring for private
lines at a rate of $300.00 per Network Monitoring Unit per year, set at the
beginning of each year based on the average number of Network Monitoring Units
budgeted for the year, payable in twelve equal monthly installments. Operator
will pay a unit fee for remote monitoring for switching at a rate of $75,000 per
year plus $1,000 per switch module per year, set at the beginning of each year
based on the number of budgeted switch modules for the year, payable in twelve
equal monthly installments. Operator will pay for any trouble management
requiring additional man hours on an actual time and materials basis (see
Section III).
Addendum A - Page 6
<PAGE>
8. Personnel Administration - Payroll & Benefits. TCGI will provide
all benefit & employee administration with respect to payroll, 401(k), medical,
dental, retirement, vacation, disability, and sick leave. Operator shall pay a
unit fee for these services of $230.00 per month per budgeted year-end Assigned
Employee (as that term is defined in paragraph I.12. below).
9. Quality - Training and Course Documentation. TCGI's ongoing
commitment to employee education and training will be maintained by providing
in-house training and documentation on TCGI procedures and operational
guidelines. TCGI shall notify Operator from time to time of its training
programs. Guidance on policy and outside education/training will also be
available as needed. Operator will pay for training and course documentation at
TCGI's standard rates.
10. Sales - National Sales Representation. TCGI's National Sales
Group and senior executives will actively seek to sell Operator services on a
national level to organizations such as interexchange carriers, large financial
institutions and other corporations with a nationwide presence. These services
will be provided to meet mutually agreed national sales quota targets which will
be set by Operator and TCGI. This program is supplemental to Operator's local
sales effort, which may include national accounts contacted on a local basis.
Operator will pay for these services at the following rate per month based on
budgeted revenues for the current fiscal year:
<TABLE>
<CAPTION>
Current Year Budgeted Annual Monthly Rate
Sales
<S> <C>
Up to $500,000 $ 5,000
Greater than $500,000 up to and 8,000
including $1,000,000
Greater than $1,000,000 up to 10,000
and including $3,000,000
Greater than $3,000,000 up to 15,000
and including $5,000,000
Greater than $5,000,000 up to 20,000
and including $10,000,000
Greater than $10,000,000 up to 30,000
and including $20,000,000
</TABLE>
Addendum A - Page 7
<PAGE>
<TABLE>
<S> <C>
Greater than $20,000,000 up to 40,000
and including $30,000,000
Greater than $30,000,000 up to 50,000
and including $40,000,000
Greater than $40,000,000 up to 60,000
and including $50,000,000
Greater than $50,000,000 up to 70,000
and including $60,000,000
Greater than $60,000,000 up to 80,000
and including $70,000,000
Greater than $70,000,000 up to 90,000
and including $80,000,000
Greater than $80,000,000 100,000
</TABLE>
11. National Programs. TCGI will provide National Program services
as follows:
<TABLE>
<CAPTION>
National Program Description
- --------------------------------------------------------------- ------------------------------------
<S> <C>
Corporate Quality and TCGI will monitor conformance with
Engineering Standards TCGI's national quality and
engineering standards, as described
in TCGI's Quality and Engineering
Standards Volume, as in effect from
time to time.
National Service Order TCGI will make available to
Management Operator its National Service Order
management system which allows
orders from interexchange carriers
and other national accounts to be
transmitted directly to Operator.
Operator will be responsible for
providing hardware, telephone tie-
lines and personnel for access to
TCGI's system.
National Regulatory TCGI will supervise and manage the
Initiatives and representation of Operator in
Representation national regulatory initiatives and
issues which affect Operator. For
representation of Operator at the
FCC concerning matters affecting
only Operator, TCGI's
</TABLE>
Addendum A - Page 8
<PAGE>
<TABLE>
<S> <C>
representation will be subject to
Operator's approval.
</TABLE>
The cost to Operator of the National Programs is included in the fees payable
pursuant to Section 4(a)(ii) of the Management Services Agreement.
12. Assigned Employees. TCGI will hire all local Operator personnel
as TCGI employees and will provide all salary and benefits plans, as
appropriate, to such employees. Such employees shall become agents of Operator
as contract employees under the Management Services Agreement. Additional TCGI
employees who are not local to Operator but are working for Operator on a full-
time basis will be assigned to Operator as contract employees. For all
employees assigned by TCGI to Operator, whether temporary, part-time or contract
employees ("Assigned Employees"), Operator shall pay monthly in advance the sum
of (i) all cash compensation payable to such employees, plus (ii) a reasonable
allocation of TCGI's costs for all employee benefit plans and fringe benefits
with respect to such employees, plus (iii), without duplication to the
allocation provided in paragraph I.8. above, a reasonable allocation of general
administrative overhead costs applicable to such employees.
II. Additional Services Available from TCGI. TCGI will provide the
following Services at the request of Operator.
1. Special engineering studies and analyses.
2. Special financial studies and analyses.
3. MIS network configuration analyses, design and implementation,
and custom MIS reports.
4. General legal assistance.
5. Office space acquisition and negotiations assistance.
6. Right-of-way acquisition and negotiation assistance.
7. State and local regulatory assistance.
8. Manpower search and screening.
9. Assist Operator in developing individual case basis pricing for
special applications.
10. Access to Affiliate Services, including information from TCGI's
National Tariff Database, engineering inquiries, customer
inquiries,
Addendum A - Page 9
<PAGE>
national clearinghouse for National Account inquiries, and
advisory services to Operator.
11. Insurance assistance.
Operator will pay for all Additional Services on an actual time and materials
basis.
III. Actual Time and Materials Charges. Charges for services to be billed
on an actual time and materials basis (Sections I.1, I.2, I.3, I.5, I.7 and II)
will be determined in accordance with the following:
1. Materials, Services and Out-Of-Pocket Expenses. Actual expenses
for materials used, purchased services from outside suppliers, advisors or
consultants, and travel will be passed through to Operator as incurred at cost.
2. TCGI Employees Not Assigned to Operator. In keeping with the TCGI
manpower and salary grade structure, billing rates have been established for all
TCGI employee grade levels. Time will be billed to Operator at the hourly labor
rates listed below per Grade Level for TCGI employees who are not Assigned
Employees but who perform services for Operator, based on hours actually spent
on Operator work:
Grade Level Hourly Rate
A $125.00
B 75.00
C 50.00
D 30.00
IV. Adjustment to Fee Schedules; Payment of Allocated Expenses. All fees
and monthly rates stated herein are subject to change in accordance with the
terms of Section 4(b) of the Management Services Agreement. Operator may be
required to pay TCGI the expenses attributable to the provision of Services by
TCGI in accordance with Section 4(b) of the Management Services Agreement. The
initial weighting system for allocating to Operator its pro rata share of TCGI's
costs in providing Services shall be as follows: direct hours billed shall be
weighted at 50%, annual budgeted revenue shall be weighted at 30% and budgeted
capitalization shall be weighted at 20%.
Addendum A - Page 10
<PAGE>
EXHIBIT B
---------
Undertaking of Parent
---------------------
The undersigned, which is a Parent of a Partner to the foregoing
Partnership Agreement, hereby covenants and confirms, to and for the benefit of
each other Partner and the Partnership, that it will not, and will not permit
any of its affiliates to, violate or circumvent the provisions of Article 7 of
the Partnership Agreement which are applicable to the Partner of which it is
the Parent. Capitalized terms used in this Undertaking shall have the meanings
assigned to them in the Partnership Agreement dated as of June 1, 1994, between
Times Mirror Access, Inc. and TCG Partners.
Dated: March 1, 1994
_____________
Times Mirror Cable Television, Inc.
- -----------------------------------
By: /s/ Michael G. Rose
________________________________
Name: Michael G. Rose
______________________________
Title: Vice President, New Business Development
_________________________________________
<PAGE>
TAX APPENDIX
-------------------
BOOK AND TAX ACCOUNTING PROVISIONS
----------------------------------
All capitalized terms which are not defined in this Tax Appendix but which
are defined in the Agreement shall have the meanings set forth in the Agreement.
1. Gross Asset Value; Net Profit and Net Loss
------------------------------------------
1.1 Gross Asset Value. "Gross Asset Value" means, with respect to any
asset, the asset's adjusted basis for federal income tax purposes, modified as
follows:
(a) The initial Gross Asset Value of any asset contributed by a Partner to
the Partnership shall be the gross fair market value of such asset, as
determined by the contributing Partner and the Managing Partner (unless the
Managing Partner is the contributing Partner, in which case the gross fair
market value will be determined in accordance with Section 3.6 of the
Agreement).
(b) The Gross Asset Values of all Partnership assets shall be adjusted to
equal their respective gross fair market values, as determined by the Managing
Partner, in the circumstances described in Regulations Section 1.704-
1(b)(2)(iv)(f)(5), but in the case of adjustments other than upon the
liquidation of the Partnership within the meaning of Regulations Section 1.704-
1(b)(2)(ii)(g), only if the Managing Partner reasonably determines that such
adjustments are necessary or appropriate to reflect the relative economic
interests of the Partners in the Partnership.
(c) The Gross Asset Value of any Partnership asset distributed to a
Partner shall be the gross fair market value of such asset on the date of
distribution.
(d) The Gross Asset Value of Partnership assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or 743(b), but only to the extent that such
adjustments are taken into account in determining Capital Accounts pursuant to
Regulations Section 1.704-1(b)(2)(iv)(m) and Section 2.1(e) below.
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to clause (a), (b) or (d) above, such Gross Asset Value shall
thereafter be adjusted by the amount determined in accordance with Regulations
Section 1.704-1(b)(2)(iv)(g)(2) and (3).
1.2 Net Profit and Net Loss. "Net Profit" and "Net Loss" means, for each
Fiscal Year or other period, an amount equal to the Partnership taxable income
or loss for such year or period,
<PAGE>
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(a) Any income of the Partnership that is exempt from federal income tax
and not otherwise taken into account in computing such Net Profit or Net Loss
shall be added to such taxable income or loss.
(b) Code Section 705(a)(2)(B) expenditures of the Partnership, which are
not otherwise taken into account in computing such Net Profit or Net Loss, shall
be subtracted from such taxable income or loss.
(c) In the event the Gross Asset Value of any Partnership asset is adjusted
pursuant to clause (b) or (c) of the definition of "Gross Asset Value," the
amount of such adjustment shall be taken into account as gain or loss from the
disposition of such asset for purposes of computing Net Profit or Net Loss.
(d) Gain or loss resulting from any disposition of Partnership property
with respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property disposed
of, notwithstanding that the adjusted tax basis of such property differs from
its Gross Asset Value.
(e) If the Gross Asset Value of an asset differs from its adjusted basis
for federal income tax purposes at the beginning of such year or other period,
then in lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account the amount determined in accordance with Regulations
Section 1.704-1(b)(2)(iv)(g)(2) and (3).
(f) Any items that are specially allocated pursuant to Article 2 of this
Tax Appendix shall not be taken into account in computing such Net Profit or Net
Loss.
(g) Any deduction for a loss on a sale or exchange of Partnership property
that is disallowed to the Partnership under Code Section 267(a)(1) or 707(b)
shall be treated as a Code Section 705(a)(2)(B) expenditure.
-2-
<PAGE>
2. Special Allocation Provisions.
-----------------------------
Sections 2.1, 2.2, and 2.3(a) and (b) shall apply with respect to any
Nonrecourse Liabilities or Partner Nonrecourse Debt (as defined below) of the
Partnership if the Managing Partner determines that there is a reasonable basis
to conclude that the Partnership Interests of the Partners under the Agreement
are not the same as the overall interests of the Partners in the Partnership
determined under Regulations Section 1.704-1(b)(3). Sections 2.1(e) and 2.2(a)
shall apply if the Partnership has made an election under Code Section 754 and
there is an adjustment to the adjusted tax basis of any Partnership asset
pursuant to Code Section 734(b) or 743(b). Section 2.4 shall apply if the Gross
Asset Value of Partnership property differs from its adjusted basis for federal
income tax purposes.
2.1 Special Allocations.
-------------------
(a) Minimum Gain Chargeback. Notwithstanding any other provision of the
Agreement (including this Tax Appendix), if for any Partnership Fiscal Year
there is a net decrease in Partnership Minimum Gain (as defined in Regulations
Section 1.704-2(b)(2)), each Partner shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, for succeeding
years) in an amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain, determined in accordance with Regulations Section
1.704-2(g), except as otherwise provided in Regulations Section 1.704-2(f)(2),
1.704-2(f)(3), 1.704-2(f)(4), and 1.704-2(f)(5). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts required
to be allocated to each Partner pursuant thereto. The items to be so allocated
shall be determined in accordance with Regulations Section 1.704-2(f)(6). The
amount of Partnership Minimum Gain shall be determined in accordance with
Regulations Section 1.704-2(d). This Section 2.1(a) is intended to comply with
the minimum gain chargeback requirement of Regulations Section 1.704-2(f) and
shall be interpreted consistently therewith.
(b) Partner Minimum Gain Chargeback. Notwithstanding any other provision
of the Agreement (including this Tax Appendix) except Section 2.1(a), if during
a Partnership Fiscal Year there is a net decrease in Partner Nonrecourse Debt
Minimum Gain (as defined in Regulations Section 1.704-2(i)(2)), each Partner who
has a share of that Partner Nonrecourse Debt Minimum Gain (determined in
accordance with Regulations Section 1.704-2(i)(5)) as of the beginning of such
year shall be specially allocated items of Partnership income and gain for such
year (and, if necessary, for succeeding years) in an amount equal to such
Partner's share of the net decrease in Partner Nonrecourse Debt Minimum Gain,
determined in accordance with Regulations Section 1.704-2(i)(4) (and taking into
account the exceptions provided therein). Allocations
-3-
<PAGE>
pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Partner pursuant thereto. The items to
be so allocated shall be determined in accordance with Regulations Section
1.704-2(i)(4). The amount of Partner Nonrecourse Debt Minimum Gain shall be
determined in accordance with Regulations Section 1.704-2(i)(3). This Section
2.1(b) is intended to comply with the minimum gain chargeback requirement in
Regulations Section 1.704-2(i)(4) and shall be interpreted consistently
therewith.
(c) Nonrecourse Deductions. Nonrecourse Deductions (as defined in
Regulations Section 1.704-2(b)(1)) for any Fiscal Year or other period shall be
specially allocated as Net Loss pursuant to Section 4.6 of the Agreement. The
amount of Nonrecourse Deductions shall be determined in accordance with
Regulations Section 1.704-2(c).
(d) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions
(as defined in Regulations Section 1.704-2(i)(1)) for any Fiscal Year or other
period shall be specially allocated to the Partner who bears the economic risk
of loss with respect to the Partner Nonrecourse Debt to which such Partner
Nonrecourse Deductions are attributable in accordance with Regulations Section
1.704-2(i). The amount of Partner Nonrecourse Deductions shall be determined in
accordance with Regulations Section 1.704-2(i)(2).
(e) Section 754 Adjustment. To the extent an adjustment to the adjusted
tax basis of any Partnership asset pursuant to Code Section 734(b) or 743(b) is
required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into
account in determining Capital Accounts, the amount of such adjustment to the
Capital Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases such
basis), and such gain or loss shall be specially allocated to the Partners in a
manner consistent with the manner in which their Capital Accounts are required
to be adjusted pursuant to such Section of the Regulations.
2.2 Curative Allocations.
--------------------
(a) Notwithstanding any other provision of the Agreement (including this
Tax Appendix), other than allocations pursuant to Section 2.1 (the "Regulatory
Allocations"), allocations pursuant to Section 2.1(e) above (the "Basic
Regulatory Allocations") shall be taken into account in allocating items of
income, gain, loss, and deduction among the Partners so that, to the extent
possible, the net amount of such allocations of other items and the Basic
Regulatory Allocations to each Partner shall be equal to the net amount that
would have been allocated to each such Partner if the Basic Regulatory
Allocations had not occurred. For purposes of
-4-
<PAGE>
applying the foregoing sentence, allocations pursuant to this Section 2.2(a)
shall only be made with respect to Basic Regulatory Allocations to the extent
the Managing Partner reasonably determines that such Basic Regulatory
Allocations would otherwise be inconsistent with the economic agreement among
the Partners.
(b) Notwithstanding any other provision of this Agreement, other than the
Regulatory Allocations, allocations pursuant to Sections 2.1(a) and 2.1(c) above
(the "Nonrecourse Regulatory Allocations") shall be taken into account in
allocating items of income, gain, loss, and deduction among the Partners so
that, to the extent possible, the net amount of such allocations of other items
and the Nonrecourse Regulatory Allocations to each Partner shall be equal to the
net amount that would have been allocated to each such Partner if the
Nonrecourse Regulatory Allocations had not occurred. For purposes of applying
the foregoing sentence (i) no allocations pursuant to this Section 2.2(b) shall
be made prior to the Partnership Fiscal Year during which there is a net
decrease in Partnership Minimum Gain, and then only to the extent necessary to
avoid any potential economic distortions caused by such net decrease in
Partnership Minimum Gain; and (ii) allocations pursuant to this Section 2.2(b)
shall be deferred with respect to allocations pursuant to Section 2.1(c) to the
extent the Managing Partner reasonably determines that such allocations are
likely to be offset by subsequent allocations pursuant to Section 2.1(a).
(c) Notwithstanding any other provision of the Agreement (including this
Tax Appendix), other than the Regulatory Allocations, allocations pursuant to
Sections 2.1(b) and 2.1(d) (the "Partner Nonrecourse Regulatory Allocations")
shall be taken into account in allocating items of income, gain, loss, and
deduction among the Partners so that, to the extent possible, the net amount of
such allocations of other items and the Partner Nonrecourse Regulatory
Allocations to each Partner shall be equal to the net amount that would have
been allocated to each such Partner if the Partner Nonrecourse Regulatory
Allocations had not occurred. For purposes of applying the foregoing sentence
(i) no allocations pursuant to this Section 2.2(c) shall be made with respect to
allocations pursuant to Section 2.1(d) relating to a particular Partner
Nonrecourse Debt prior to the Partnership Fiscal Year during which there is a
net decrease in Partner Nonrecourse Debt Minimum Gain attributable to such
Partner Nonrecourse Debt, and then only to the extent necessary to avoid any
potential economic distortions caused by such net decrease in Partner
Nonrecourse Debt Minimum Gain; and (ii) allocations pursuant to this Section
2.2(c) shall be deferred with respect to allocations pursuant to Section 2.1(d)
to the extent the Managing Partner reasonably determines that such allocations
are likely to be offset by subsequent allocations pursuant to Section 2.1(b).
-5-
<PAGE>
(d) The Managing Partner shall have reasonable discretion, with respect to
each Partnership Fiscal Year, to (i) apply the provisions of Sections 2.2(a),
2.2(b) and 2.2(c) in whatever order is likely to minimize the economic
distortions that might otherwise result from the Regulatory Allocations; and
(ii) divide all allocations pursuant to Sections 2.2(a), 2.2(b) and 2.2(c) among
the Partners in a manner that is likely to minimize such economic distortions.
(e) Notwithstanding any other provision of the Agreement (including this
Tax Appendix), except the Regulatory Allocations, in the Fiscal Year in which
there is a sale, exchange or other disposition of all or substantially all of
the assets of the Partnership or a dissolution or liquidation of the
Partnership, after allocating items of income, gain, loss and deduction in
accordance with the Regulatory Allocations and the curative allocations under
Sections 2.2(a), 2.2(b), 2.2(c) and 2.2(d), each Partner shall be allocated
remaining items of income, gain, deduction, and loss to the extent necessary to
cause the balance in each Partner's Capital Account to equal the Distributions
that would be made to each such Partner if such distributions were made to the
Partners in accordance with their Partnership Interests (after payment of the
debts and obligations of the Partnership).
2.3 Other Allocation Rules.
----------------------
(a) To the extent permitted by Regulations Sections 1.704-2(h) and 1.704-
2(i)(6), the Managing Partner shall endeavor to treat Distributions as not
having been made from the proceeds of a Nonrecourse Liability (as defined in
Regulations Section 1.704-2(b)(3) (and Regulations Section 1.752-1(a)(2))) or a
Partner Nonrecourse Debt.
(b) Solely for purposes of determining a Partner's proportionate share of
the "excess nonrecourse liabilities" of the Partnership within the meaning of
Regulations Section 1.752-3(a)(3), the Partners' interests in Partnership
profits are equal to their respective Partnership Interests. The allocation of
such "excess nonrecourse liabilities" shall be adjusted to reflect any
subsequent adjustment of the Partnership Interests of the Partners pursuant to
the Agreement.
(c) If any fees or other payments deducted for federal income tax purposes
by the Partnership are recharacterized by a final determination of the Internal
Revenue Service as nondeductible distributions to any Partner, then,
notwithstanding all other allocation provisions (other than the Regulatory
Allocations), gross income shall be allocated to such Partner in an amount equal
to the fees or payments so recharacterized.
(d) If any Partner makes a payment of interest to the
-6-
<PAGE>
Partnership in respect of the late payment of any Capital Contribution pursuant
to Article 4 of the Agreement, the amount of such interest shall be included in
the income of the Partnership and allocated among the Partners in the same
manner as if such interest had been paid by a person which is not a Partner, and
the amount of such interest shall not be included in the Capital Contributions
credited to such Partner's Capital Account.
(e) All items of Partnership income, gain, loss, deduction, and any other
allocations not otherwise provided for shall be allocated among the Partners in
the same proportion as they share Net Profit or Net Loss, as the case may be,
for the year.
2.4 Contributed Property: Code Section 704(c).
-----------------------------------------
(a) In accordance with Code Section 704(c) and the Regulations thereunder,
income, gain, loss, and deduction with respect to any property contributed to
the capital of the Partnership shall, solely for tax purposes, be allocated
among the Partners so as to take account of any variation between the adjusted
basis of such property to the Partnership for Federal income tax purposes and
its initial Gross Asset Value. To the extent permitted by the Code and
applicable Regulations, such allocations shall be made in accordance with
Proposed Regulations Section 1.704-3(b).
(b) If the Gross Asset Value of a Partnership asset is adjusted pursuant
to Section 1.1(b) above, subsequent allocations of income, gain, loss, and
deduction with respect to such asset for tax purposes shall take account of any
variation between the adjusted basis of such asset for federal income tax
purposes and its Gross Asset Value in the same manner as under Code Section
704(c) and the Regulations thereunder. To the extent permitted by the Code and
applicable Regulations, such allocations shall be made in accordance with
Proposed Regulations Section 1.704-3(b).
(c) Any elections or other decisions relating to such allocations shall be
made by the Managing Partner in any manner that reasonably reflects the purpose
and intention of this Agreement. Allocations pursuant to this Section 2.4 are
solely for purposes of federal, state, and local taxes and shall not affect, or
in any way be taken into account in computing, any Entity's Capital Account or
share of Net Profits, Net Losses, other items, or Distributions pursuant to any
provision of this Agreement.
3. Allocation in Event of Transfer. If an interest in the Partnership is
transferred in accordance with Article 5 of the Agreement, the Net Profit and
Net Loss of the Partnership allocable to the transferor and transferee, and the
Capital Account of the transferee, shall be determined as follows:
-7-
<PAGE>
(a) If such transfer is effected on or prior to the fifteenth day of the
month, then such transfer shall be deemed to have occurred on the last day of
the month immediately prior to the month in which such transfer occurs. If such
transfer is effected after the fifteenth day of such month, such transfer shall
be deemed to have occurred on the last day of the month in which such transfer
occurs.
(b) The transferor Partner shall be allocated an amount of Net Profit or
Net Loss equal to the product of (x) a fraction whose numerator consists of the
Partnership Interest transferred and whose denominator consists of the
Partnership Interests held by all Partners, times (y) the Net Profit or Net Loss
of the Partnership for the period ending on the date (or deemed date) of the
transfer. The substitute Partner shall be allocated an amount equal to the
product of (x) a fraction whose numerator consists of the Partnership Interest
transferred and whose denominator consists of the Partnership Interest held by
all Partners, times (y) the Net Profit or Net Loss of the Partnership for the
remainder of the calendar year. The Capital Account of the transferee as of the
date of such transfer shall be determined in accordance with Regulations Section
1.704-1(b)(2)(iv)(l).
4. Adjustment to Allocations in the Event of Issuance or Redemption of
-------------------------------------------------------------------
Partnership Interests.
---------------------
In the event additional partners acquire interests in the Partnership from
the Partnership, or if the interest of any Partner in the Partnership is
increased through liquidating Distributions to other Partners or decreased
through additional Capital Contributions by other Partners, appropriate
adjustments shall be made to the Distributions and allocations of Net Profit and
Net Loss for periods after such event.
5. Elections Pursuant to Section 754.
---------------------------------
In the event of a transfer of an interest in the Partnership permitted
under this Agreement, the Partnership shall, at the request of the transferee
and upon the approval of the Managing Partner, make the election provided by
Code Section 754 to make the adjustment to the basis of Partnership property
provided by Section 743 (if such election is not then in effect), provided that
the transferee agrees to bear the additional accounting expense to the
Partnership resulting from the election (and all subsequent transferees shall
likewise bear a Pro Rata portion of such additional expense). In the event of a
distribution of property by the Partnership, upon the approval of the Managing
Partner, the Partnership shall make the election provided by Section 754 to make
the adjustment to the basis of Partnership property provided by Section 734 (if
such election is not then in effect), in which case any additional accounting
expense to the Partnership resulting from
-8-
<PAGE>
the election shall be borne by the Partnership.
6. Interpretation of Provisions.
----------------------------
It is the intention of the Partners that all allocations pursuant to the
Agreement (including this Tax Appendix) shall comply with the provisions of Code
Section 704 and the Regulations promulgated thereunder. Accordingly, the
provisions of the Agreement (including this Tax Appendix) shall be interpreted
and applied in a manner that is consistent with the provisions of Code Section
704 and the Regulations promulgated thereunder.
7. Tax Matters Partner.
-------------------
The Managing Partner shall be the Tax Matters Partner of the Partnership.
The Tax Matters Partner shall not take any action which will have a materially
adverse impact on any Partner unless such action shall have been approved by a
Majority Vote of the Partners. The Managing Partner shall have the right to
resign as Tax Matters Partner at any time, upon written notice to all other
Partners, in which event the Partners shall appoint a new Tax Matters Partner.
This provision shall survive any termination of the Agreement. For purposes of
the foregoing, "Tax Matters Partner" shall mean the "tax matters partner" of the
Partnership within the meaning of Section 6231(a)(7) of the Code.
-9-
<PAGE>
INFORMATION APPENDIX
--------------------
1. Authorized Representatives:
--------------------------
COX: Robert G. McRann
TIMES MIRROR: Michael G. Rose
TCP: Al Hansen
2. Business Area:
-------------
The Metropolitan San Diego, California Local Access
Transport Area (LATA Number 732)
3. Partnership Interests and Initial Capital Contributions:
-------------------------------------------------------
<TABLE>
<CAPTION>
Interest Contribution
--------- ------------
<S> <C> <C>
COX: 46.35% $13,270,874
TIMES MIRROR: 7.30% $ 2,090,127
TCP: 46.35% $13,270,874
------ -----------
100.00% $28,631,875
</TABLE>
4. Name:
----
TCG SAN DIEGO
5. Termination Date:
----------------
December 31, 2093
6. Municipal Franchises and Regulatory Authorizations for which the
----------------------------------------------------------------
Partnership currently contemplates that it may apply:
----------------------------------------------------
None.
7. Additional Agreements relating to the operation of the Exclusive Business
-------------------------------------------------------------------------
in the Business Area:
--------------------
None.
8. Exclusive Business Activities conducted by Partners as of the date of this
--------------------------------------------------------------------------
Agreement:
---------
None.
<PAGE>
9. Pre-Organization Operating Expenses and Capital Expenditures Which the
----------------------------------------------------------------------
Partnership Shall Reimburse to the Partners:
-------------------------------------------
COX: None.
TIMES MIRROR: None.
TCP: None.
10. Installment of Initial Capital Contribution due at
--------------------------------------------------
Closing:
-------
COX: None
TIMES MIRROR: $ 1,036,538
TC: None
Payable upon request of the Managing Partner in accordance
with Section 4.1 of the Partnership Agreement.
11. Potential Partners:
------------------
Offer Expiration Date: December 31, 1994
Excess Interest: 22.7%
Name: Percentage Deemed Initial
----- ---------- --------------
Interest: Capital
-------- -------
Contribution:
------------
TIME WARNER: 22.7% $ 6,499,435
12. Video Services to be included in definition of Exclusive
--------------------------------------------------------
Business:
--------
None.
<PAGE>
SAN DIEGO
6/16/94
<TABLE>
<CAPTION>
TCG COX TIMES MIRROR TOTAL
--- --- ------------ -----
46.35% 46.35% 7.30% 100.00%
<S> <C> <C> <C> <C>
Initial Funding 1,531,312 1,531,312 0 3,062,624
Total Funding 1,531,312 1,531,312 0 3,062,624
Repayment of Loans (743,868) (20,443) 0 (764,311)
----------------------------------------------------------------
Total Cash Flow Net of Loan 787,444 1,510,869 0 2,298,313
11/93 Capital Call 2,250,000 2,250,000 4,500,000
7/94 Capital Call 2,800,000 2,800,000 5,600,000
Capital Funding Through
7/94 6,581,312 6,581,312 0 13,162,624
Gross Up Contribution 0 0 1,036,539 1,036,539
Capital Account 6,581,312 6,581,312 1,036,539 14,199,163
</TABLE>
Repayment of loans in the amount of $743,868 to TCG and $20,443 to COX
<PAGE>
EXHIBIT 10.29
PARTNERSHIP AGREEMENT
OF
TCG SAN FRANCISCO
Dated as of January 1, 1994
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1: DEFINITIONS.......................................................................... 1
ARTICLE 2: FORMATION............................................................................ 7
2.1 Formation. .................................................................... 7
2.2 Name............................................................................ 7
2.3 Principal Offices............................................................... 7
2.4 Term............................................................................ 7
2.5 Property........................................................................ 7
ARTICLE 3: PURPOSE, AUTHORITY AND MANAGEMENT OF THE
PARTNERSHIP.......................................................................... 8
3.1 Purpose and Authority........................................................... 8
3.2 Managing Partner................................................................ 8
3.3 Meetings of the Partners; Authorized
Representatives............................................................... 9
3.4 Actions Requiring a Majority Vote............................................... 11
3.5 Actions Requiring a Supermajority Vote.......................................... 12
3.6 Special Voting Provisions....................................................... 13
3.7 Scope of Partners' Authority.................................................... 14
3.8 Indemnification of Partners; Allocation
of Liabilities................................................................ 14
3.9 Contribution.................................................................... 16
3.10 Insurance and Bonds............................................................. 17
ARTICLE 4: CAPITALIZATION; ALLOCATION; DISTRIBUTIONS............................................ 17
4.1 Initial Capital Contributions................................................... 17
4.2 Additional Capital Contributions................................................ 18
4.3 Failure to Make Capital Contributions........................................... 19
4.4 Loans........................................................................... 24
4.5 Calculations and Adjustments.................................................... 25
4.6 Capital Accounts................................................................ 25
4.7 Distribution of Partnership Funds............................................... 26
4.8 Allocation of Net Profits and Losses............................................ 26
4.9 Tax Appendix.................................................................... 26
ARTICLE 5: TRANSFERS OF PARTNERSHIP INTERESTS; RIGHT OF
FIRST REFUSAL........................................................................ 27
5.1 Restrictions on Transfer........................................................ 27
5.2 Exceptions to Restrictions on Transfers......................................... 27
5.3 Rollup Provisions............................................................... 30
5.4 Right of First Refusal.......................................................... 31
5.5 Purchases by the Partnership or its
Assignee...................................................................... 35
5.6 Put Rights of Partners.......................................................... 36
5.7 Prohibited Transfers............................................................ 37
5.8 Appraisal Process............................................................... 37
5.9 Closing of any Permitted Transfer............................................... 38
5.10 Remedies........................................................................ 39
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE 6: BOOKS AND RECORDS; ACCOUNTING; FISCAL YEAR........................................... 39
6.1 Books and Records............................................................... 39
6.2 Financial Statements............................................................ 40
6.3 Bank Accounts................................................................... 41
6.4 Fiscal Year..................................................................... 41
ARTICLE 7: OTHER BUSINESS ACTIVITIES............................................................ 41
7.1 Conduct of Exclusive Business in
Business Area................................................................. 41
7.2 Exceptions for Certain Transactions............................................. 43
7.3 Existing Activities............................................................. 43
7.4 Prohibited Transactions......................................................... 43
7.5 Controlled Affiliates........................................................... 44
7.6 Services Offered by the Partnership............................................. 44
ARTICLE 8: DISSOLUTION.......................................................................... 44
8.1 Causes of Dissolution........................................................... 44
8.2 Winding Up and Liquidation...................................................... 45
8.3 Continuation of the Partnership................................................. 45
8.4 No Withdrawal................................................................... 46
ARTICLE 9: EVENTS OF DEFAULT AND REMEDIES....................................................... 46
9.1 Events of Default............................................................... 46
9.2 Remedies........................................................................ 47
9.3 Purchase of Defaulting Partner's
Partnership Interest.......................................................... 48
ARTICLE 10: REPRESENTATIONS AND WARRANTIES OF THE
PARTNERS............................................................................. 49
ARTICLE 11: MISCELLANEOUS........................................................................ 50
11.1 Acknowledgements............................................................... 50
11.2 Bill for Partition............................................................. 50
11.3 Notices........................................................................ 50
11.4 Amendments..................................................................... 51
11.5 Indebtedness for Borrowed Money................................................ 51
11.6 Waivers and Further Agreements; Entire
Agreement.................................................................... 51
11.7 Severability................................................................... 51
11.8 Specific Enforcement; Attorneys Fees........................................... 52
11.9 Counterparts................................................................... 52
11.10 Captions; Gender.............................................................. 52
11.11 Governing Law and Binding Effect.............................................. 52
11.12 Expenses...................................................................... 52
11.13 Third Parties................................................................. 53
11.14 Confidentiality............................................................... 53
11.15 Appendices.................................................................... 53
</TABLE>
<PAGE>
Exhibits and Appendices
Exhibit A Form of Management Services Agreement
Exhibit B Undertaking of Parent
Tax Appendix
Information Appendix
<PAGE>
PARTNERSHIP AGREEMENT
THIS PARTNERSHIP AGREEMENT is made as of January 1, 1994, by and among
TELEPORT COMMUNICATIONS SAN FRANCISCO, INC., a Delaware Corporation ("TC"), and
the other parties listed on the signature pages hereof.
RECITALS
The parties desire to establish a partnership for the purposes hereinafter
set forth, subject to the terms and conditions hereof.
AGREEMENTS
In consideration of the foregoing, and of the promises and covenants
contained in this Agreement, the parties agree as follows:
ARTICLE 1: DEFINITIONS
Capitalized terms used in this Agreement shall have the meanings set forth
below or in the Sections of this Agreement referred to below. Terms used solely
in the Tax Appendix are defined in the Tax Appendix.
"Act" means the Uniform Partnership Act, as from time to time in effect in
the State of New York.
"Additional Capital Contribution" has the meaning set forth in Section 4.2
hereof.
"Affiliate" means, with respect to any Entity, any other Entity that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with the first specified Entity. For
purposes of this Agreement, neither the Partnership, nor any Entity controlled
by the Partnership, shall be deemed to be an Affiliate of a Partner or of any
Affiliate of a Partner, and no Partner or any Affiliate thereof shall be deemed
to be an Affiliate of any other Partner or any Affiliate thereof solely by
virtue of its Partnership Interest.
"Agreement" means this Partnership Agreement, as it may be amended,
modified or supplemented from time to time in accordance with its terms.
<PAGE>
"Authorized Representative" means the representative of a Partner who,
pursuant to Section 3.3(e) hereof, is authorized to execute any document and
take any action under this Agreement on behalf of such Partner. The name of the
initial Authorized Representative of each Partner is set forth on the
Information Appendix.
"Budget" for any Fiscal Year means the operating and capital budget for the
Partnership for such Fiscal Year prepared by the Managing Partner and adopted by
the Partners in accordance with Section 3.4 hereof.
"Business" means the Exclusive Business and the Non-Exclusive Business.
"Business Area" means the counties listed on the Information Appendix.
"Business Day" means any day (other than a day which is a Saturday or
Sunday) on which banks are permitted to be open for business in the City of New
York.
"Capital Account" has the meaning set forth in Section 4.6 hereof.
"Capital Contribution" means, for any Partner, the amount of cash that such
Partner has contributed to the capital of the Partnership plus, if such Partner
contributes property other than cash, "Capital Contribution" shall include the
fair market value of such property determined without regard to Code Section
7701(g) and net of any liabilities secured by such contributed property that the
Partnership is considered to assume or take subject to under Code Section 752.
"Change in Control", with respect to a Partner, means any transaction as a
result of which such Partner ceases to be a Subsidiary of the Entity which was
its Parent immediately prior to such transaction.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any subsequent federal law of similar import.
"Commercially reasonable efforts" means such good faith efforts as would
reasonably be expected to bring about the intended result, but would not require
the undertaking of extraordinary or unreasonable measures to obtain any such
results, including, without limitation, requiring any party to make any
extraordinary or unreasonable expenditures.
- 2 -
<PAGE>
"Control" means, as to any Entity, the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such Entity, whether through the ownership of equity interests or voting
securities, by contract or otherwise.
"Controlled Affiliate", with respect to any Partner as of any relevant
date, means (i) the Parent of such Partner and (ii) each Affiliate of such
Partner with respect to which such Parent, directly or indirectly through one or
more Controlled Affiliates, exercises or is entitled to exercise by ownership of
equity interests or voting securities, contract or otherwise affirmative or
negative control with respect to decisions to Engage in, or to acquire interests
in Entities Engaged in, activities encompassed in the Exclusive Business. For
purposes of this Agreement, the Partnership shall not be deemed to be a
Controlled Affiliate of any Partner or any Affiliate of any Partner.
"Defaulting Partner" has the meaning set forth in Section 9.1 hereof.
"Distribution" means a distribution of cash or property in kind pursuant to
Article 4 or 8 hereof.
"Engage" or "Engaging" means, with respect to an activity, venture or
business, directly or indirectly owning, investing in, managing, operating or
controlling it either individually, jointly, in partnership or in conjunction
with any other person, or as a shareholder, or providing or leasing in any
material respect any goods or services to such activity, venture or business.
"Entity" means any individual, general partnership, limited partnership,
corporation, limited-liability company, joint venture, trust, business trust,
cooperative or association, and the heirs, executors, administrators, legal
representatives, successors, and assigns of such Entity where the context so
permits.
"Exclusive Business" means the provision of the following local
telecommunications services (other than for the provision or transport of the
Non-Exclusive Business):
(a) Access services to IXC's for commercial customers:
(i) Private line access;
(ii) Switched access;
(b) Local private line telecommunications services to commercial
customers;
- 3 -
<PAGE>
(c) Switched access transport between a local exchange carrier and an
IXC for residential traffic;
(d) IXC POP to IXC POP connections;
(e) Provision of dark fiber to third parties; and
(f) Provision of fiber video services to the extent provided on the
Information Appendix.
"Fair Market Value" of a Partner's Partnership Interest means the product
of (i) the Percentage Interest of such Partner as of the date of determination
of Fair Market Value times (ii) the price at which a willing seller (being under
no compulsion to sell) would sell, and a willing buyer (having full knowledge of
the facts and being under no compulsion to buy) would buy, all of the business
and assets of the Partnership as a going concern (or all of the outstanding
Partnership Interests, if that would yield a higher price), in a single
arm's-length transaction without time constraints. The price so determined for
the business and assets of the Partnership shall, without duplication or
deduction, be reduced by the amount of all liabilities of the Partnership.
"Fiscal Year" means the calendar year.
"Indirect Transfer" has the meaning set forth in Section 5.1(a) hereof.
"Information Appendix" means the information appendix attached hereto and
made a part of this Agreement.
"Initial Capital Contribution" means the aggregate initial Capital
Contribution of each Partner to the capital of the Partnership set forth in the
Information Appendix. If an Initial Capital Contribution is made in property
other than cash, then such Initial Capital Contribution shall include the fair
market value of such property determined without regard to Code Section 7701(g)
and net of liabilities secured by such contributed property that the Partnership
is considered to take subject to or assume under Code Section 752.
"Majority Vote", with respect to any matter to be voted on by the Partners,
means the affirmative vote of a Partner or Partners whose Percentage Interests
are in excess of 50% of the sum of the Percentage Interests of all Partners
entitled to vote on such matter.
"Management Services Agreement" means the Management Services Agreement
between the Partnership and the Manager in substantially the form attached
hereto as Exhibit A, as the same
- 4 -
<PAGE>
may be amended, modified or supplemented from time to time in accordance with
the provisions hereof and thereof.
"Manager" means TCGI in its capacity as manager under the Management
Services Agreement, and any successor appointed in accordance with this
Agreement or the Management Services Agreement.
"Managing Partner" means TC in its capacity as managing partner of the
Partnership, or any successor managing partner of the Partnership appointed in
accordance with Section 3.2(d) hereof.
"Net Profit" and "Net Loss" have the meanings set forth in the Tax
Appendix. "Net Profit" and "Net Loss" mean, generally, for each Fiscal Year or
other period, an amount equal to the Partnership taxable income or loss for such
year or period, with certain adjustments set forth in the Tax Appendix.
"Non-Exclusive Business" means local telecommunications switched services
to commercial customers.
"Parent" with respect to any Entity as of any relevant date means the
ultimate corporate or partnership parent entity (within the meaning of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder, as in effect on the date hereof) of such
Entity.
"Parent Undertaking" means the form of Undertaking of Parent attached
hereto as Exhibit B.
"Partner Services Agreement" means, collectively, any fiber lease
agreement, any other agreement for the use of fiber optic telecommunications
facilities and any other agreement (other than the Management Services
Agreement) for services to be provided by a Partner or an Affiliate of a Partner
to the Partnership in connection with the maintenance or operation of the
business of the Partnership, such as, but not limited to, a construction
agreement, fiber maintenance agreement, electronics maintenance agreement or
other similar agreement.
"Partners" means TC and the other signatories to this Agreement, any Entity
which becomes a party to this Agreement after the date hereof, and their
respective successors and permitted assigns, and "Partner" means any of such
Partners.
"Partnership" means the general partnership created pursuant to this
Agreement.
- 5 -
<PAGE>
"Partnership Interest" means, as to each Partner, all of the interest of
such Partner in the Partnership, including such Partner's (i) right to a
distributive share of the income, gain, losses and deductions of the Partnership
in accordance herewith, (ii) right to a distributive share of Partnership
assets, (iii) obligations as a Partner, and (iv) rights with respect to the
management of the business and affairs of the Partnership, as provided herein or
by law.
"Percentage Interest" means, as to each Partner, the percentage set forth
opposite its name on the Information Appendix, as such percentage may be revised
in accordance with the provisions hereof; provided, however, that except as
expressly provided in this Agreement, the Percentage Interest of a Partner shall
not be subject to increase or decrease without such Partner's prior consent.
"Prime Rate" means the interest rate announced by Citibank, N.A., New York,
New York, from time to time as its prime lending rate.
"Pro Rata" means the proportion which the respective Percentage Interest
immediately prior to an action of any Partner entitled to participate in such
action bears to the sum of the Percentage Interests immediately prior to such
action of all Partners entitled to participate in such action.
"Regulations" means the Income Tax Regulations, including Temporary
Regulations, promulgated under the Code, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).
"Remedies Partner" means the Managing Partner, so long as at the time of
determination the Managing Partner is not a Defaulting Partner; otherwise,
"Remedies Partner" means the non- Defaulting Partner which has the largest
Percentage Interest of all non-Defaulting Partners.
"Subsidiary" of any Parent means an Entity (i) more than fifty percent of
whose outstanding shares or securities (representing the right to vote for the
election of directors or other managing authority) are owned or controlled,
directly or indirectly through one or more Subsidiaries, by such Parent, or (ii)
which does not have outstanding shares or securities, but more than fifty
percent of whose ownership interests representing the right to make the
decisions for such Entity is owned or controlled, directly or indirectly through
one or more Subsidiaries, by such Parent; provided, however, that in each case,
such Entity shall be deemed to be a Subsidiary only so long as such ownership or
control exists.
- 6 -
<PAGE>
"Supermajority Vote", with respect to any matter to be voted on by the
Partners, means the affirmative vote of a Partner or Partners whose Percentage
Interests are at least eighty percent of the sum of the Percentage Interests of
all Partners entitled to vote on such matter.
"Tax Appendix" means the tax appendix attached hereto and made a part of
this Agreement.
"TCGI" means Teleport Communications Group Inc., a Delaware corporation,
and any Entity into which it may be merged or with which it may be consolidated
or to which it may transfer all or substantially all of its assets.
ARTICLE 2: FORMATION
2.1 Formation. The Partners hereby form the Partnership as a general
partnership under and pursuant to the Act, for the purposes and on the terms set
forth herein.
2.2 Name. The Partnership's name shall be as set forth in the Information
Appendix or such other name as the Partners may determine by Supermajority Vote.
2.3 Principal Offices. The principal office of the Partnership shall be in
the Business Area or at such other location as the Managing Partner may from
time to time determine, and the Partnership may have an additional office or
offices at such other place or places as the Managing Partner may from time to
time determine.
2.4 Term. The term of the Partnership shall commence as of the effective
date hereof and shall continue for approximately ninety-nine years thereafter,
terminating on the date specified on the Information Appendix, unless the
Partnership is dissolved and liquidated prior thereto pursuant to Article 8
below.
2.5 Property. All assets and property, whether real, personal or mixed,
tangible or intangible, including contractual rights, owned or possessed by the
Partnership shall be held or possessed in the name of the Partnership. All such
assets, property and rights shall be deemed to be owned or possessed by the
Partnership as an entity. No Partner shall have any separate ownership interest
in such assets, property or rights. Each Partner's interest in the Partnership
is personal property for all purposes.
- 7 -
<PAGE>
ARTICLE 3: PURPOSE, AUTHORITY AND MANAGEMENT OF THE PARTNERSHIP
3.1 Purpose and Authority. The purpose of the Partnership shall be to
invest in, engage in, operate, manage, develop, finance, expand and to sell and
otherwise dispose of, and otherwise exercise all rights, powers, privileges and
other incidents of ownership with respect to, any activity encompassed in the
Business in the Business Area. The Partnership shall have all powers which may
be exercised by a partnership under the Act.
3.2 Managing Partner.
(a) Subject to the provisions of Sections 3.4, 3.5 and 3.6 hereof, the
Managing Partner shall be responsible for the management and operations of
the Partnership and shall have all powers necessary to manage and control
the Partnership, to conduct its business and to implement any decision of
the Partners adopted pursuant to this Agreement. Without limiting the
generality of the foregoing, the Managing Partner shall have the authority
(i) to appoint and remove officers of the Partnership pursuant to Section
3.2(c) below, and to authorize such officers to perform such acts and
services as the Managing Partner may approve, (ii) to seek such municipal
and regulatory consents, approvals and authorizations in the name of the
Partnership as the Managing Partner in its reasonable discretion determines
to be in the best interests of the Partnership or otherwise to be necessary
under applicable law, including, without limitation, those set forth on the
Information Appendix, and (iii) to take any action on behalf of the
Partnership which does not expressly require a vote of the Partners
pursuant to Sections 3.4, 3.5 or 3.6 hereof. The Partners acknowledge that
the Managing Partner may delegate certain of its responsibilities hereunder
to the Manager pursuant to the Management Services Agreement and to the
officers appointed pursuant to Section 3.2(c) below. The Manager shall
report to the Managing Partner.
(b) At any time after the termination by the Partnership of the
Management Services Agreement pursuant to the terms hereof and thereof, any
action to be taken or document to be provided or executed by the Manager
hereunder shall thereafter be taken, provided or executed by the Managing
Partner; provided, however, that after such termination, the Managing
Partner shall promptly seek a successor Manager to provide substantially
similar services to the services provided pursuant to the Management
Services Agreement and, upon the affirmative vote of the Partners pursuant
to Section 3.4(f), shall enter into a management agreement with such
successor Manager.
(c) The Managing Partner shall appoint a chief executive officer, a
chief financial officer and one or more
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chief operating officers for the Partnership who shall be responsible for
the day-to-day management of the operations and business of the
Partnership. The Partnership shall have such additional officers as the
Managing Partner may determine to appoint. Such officers shall be deemed
agents and employees of the Partnership, shall serve at the pleasure of the
Managing Partner, shall act in accordance with the Budget, the decisions of
the Managing Partner and the decisions of the Partners adopted by a vote of
the Partners pursuant to Section 3.4, 3.5 or 3.6 hereof, and shall have no
authority to take any action which the Managing Partner would not itself
have the authority to take as provided herein. Except as provided above or
as otherwise determined by the Managing Partner, such officers shall (i)
have such powers as are usually exercised by comparably designated officers
of a Delaware corporation and (ii) have the power to bind the Partnership
through the exercise of such powers to the extent consistent with the terms
of this Agreement.
(d) If the Managing Partner fails in any material respect to perform
its obligations under this Agreement in accordance with the terms hereof
and customary and reasonable standards of management in the
telecommunications industry, and such failure in performance continues
unremedied for a period of one hundred eighty days after a majority in
Percentage Interests of the Partners (other than the Managing Partner) has
given written notice to the Managing Partner specifying such failure in
reasonable detail, the Partners, by a Majority Vote of the Partners other
than the Managing Partner, shall have the right, by delivery of notice to
the Managing Partner, to remove the Managing Partner as the Managing
Partner and replace it with a successor Managing Partner. Upon delivery of
such notice, the new Managing Partner shall succeed to all of the powers of
the removed Managing Partner hereunder and shall possess and have all such
powers.
3.3 Meetings of the Partners; Authorized Representatives.
(a) Annual meetings of the Partners shall be held at such place and
time as may be determined from time to time by the Managing Partner,
subject to postponement by a Supermajority Vote of the Partners. Special
meetings of the Partners shall be called by the Managing Partner at the
request of any Partner. Each Partner shall be represented at an annual or
special meeting by its Authorized Representative. The Managing Partner
shall give the Authorized Representative of each Partner at least ten
Business Days notice of the time and place of any annual or special meeting
of the Partners. Any such notice shall include, in reasonable detail, an
agenda that sets forth the matters to be considered at such annual or
special meeting. In addition to any matter set forth in such agenda, any
Partner, by notice to each
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other Partner sent within two business days of such Partner's receipt of
such agenda, may propose for a vote of the Partners at any meeting any
matter which pursuant to Sections 3.4, 3.5 or 3.6 hereof or any other
Section of this Agreement may be decided by the Partners pursuant to a
Majority Vote or a Supermajority Vote. A Partner may waive notice of any
meeting in writing before, at or after such meeting. The attendance of an
Authorized Representative of a Partner at a meeting shall constitute a
waiver by such Partner of notice of such meeting, except when its
Authorized Representative attends such meeting for the express purpose of
objecting to the transaction of any business because the meeting was not
properly called. Voting at any annual or special meeting of the Partners
shall be according to Percentage Interests.
(b) At all meetings of the Partners, the Manager shall be present and
prepared to discuss with the Authorized Representatives and other
representatives of the Partners the business of the Partnership and any
other matters regarding the Partnership that any Partner may reasonably
request.
(c) Any action required or permitted to be taken by the Partners at an
annual or special meeting may be taken without a meeting if a written
consent to such action is signed on behalf of each Partner by its
Authorized Representative, and such written consent is filed with the
records of the Partnership. Any or all Authorized Representatives may
participate in a meeting by means of conference telephone or similar
communications equipment by means of which all Authorized Representatives
participating in the meeting can hear each other, and participation in such
a meeting shall constitute presence in person by any such Authorized
Representative at such meeting.
(d) Minutes of each meeting of the Partners shall be prepared by the
Managing Partner or an officer of the Partnership and circulated to the
Partners.
(e) The Authorized Representative of each Partner shall have the
authority to execute any document and take any action on behalf of such
Partner pursuant to the terms of this Agreement. In the absence of prior
written notice to the contrary, any action taken or document executed by an
Authorized Representative shall be binding upon the Partner of which he is
the Authorized Representative, and neither the Partnership, nor any other
Partner nor any other Entity shall be obligated to inquire as to the
authority of the Authorized Representative to take any action or execute
any document on behalf of such Partner.
(f) Each Partner shall have the right at any time and from time to
time to replace its Authorized Representative
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(or any alternate Authorized Representative) with another individual by
written notice to the Partnership and each other Partner. Each Partner
shall be entitled to name an alternate Authorized Representative to serve
in the place of the Authorized Representative appointed by such Partner
should such appointed Authorized Representative not be able to attend a
meeting or meetings. In the event an Authorized Representative appointed by
a Partner dies or is unwilling or unable to serve as such, such Partner
shall promptly appoint a successor to such Authorized Representative.
3.4 Actions Requiring a Majority Vote. Subject to the provisions of
Sections 3.5 and 3.6 hereof, neither the Managing Partner, the Manager, nor any
other Partner nor any officer of the Partnership shall take any action, expend
any sum, make any decision or incur any obligation on behalf of the Partnership
with respect to any of the following matters, without a Majority Vote:
(a) the sale, pledge, assignment, lease or other disposition or
mortgaging or other encumbering of Partnership assets with an original
acquisition cost of more than $250,000 but less than $1,000,000;
(b) the adoption of the Budget for each Fiscal Year, which the Manager
shall present to the Partners, together with a business plan as revised for
such period as the Managing Partner determines, for their review no later
than November 1 of the prior Fiscal Year;
(c) requesting any Partner to make an Additional Capital Contribution;
(d) making capital expenditures or commitments for capital
expenditures in amounts which exceed, taken together with all other such
commitments and expenditures, by 10% the amounts budgeted for such
commitments and expenditures in the Budget for the relevant Fiscal Year;
(e) settling or initiating any claim or litigation involving the
Partnership and arising in the ordinary course of the Partnership's
business, except for minor employee grievances or proceedings and matters
involving less than $100,000;
(f) any decision to terminate the Management Services Agreement in
accordance with its terms or to enter into a replacement or successor
management agreement; provided, however, that the Managing Partner shall
not be entitled to vote on the termination of the Management Services
Agreement; and
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(g) the merger or consolidation of the Partnership with any other
Entity, where the Partnership is the surviving Entity, provided, however,
that no Partner's Partnership Interest may be diluted by such merger or
consolidation hereunder unless the diluted Partner affirmatively agrees;
(h) making Distributions pursuant to the first sentence of Section
4.7(a) hereof;
provided, however, that in no event shall (i) any Budget be adopted pursuant to
Section 3.4(b) above, (ii) any capital expenditure or commitment for capital
expenditure in connection with a proposed acquisition be made by the Partnership
pursuant to Section 3.4(d) above, (iii) any claim or litigation be settled or
initiated by the Partnership, pursuant to Section 3.4(e) above, or (iv) any
merger or consolidation be consummated, pursuant to Section 3.4(g) above,
without in any such case the consent of the Managing Partner.
3.5 Actions Requiring a Supermajority Vote. Subject to the provisions of
Section 3.6 hereof, neither the Managing Partner, the Manager, nor any other
Partner nor any officer of the Partnership shall take any action, expend any
sum, make any decision or incur any obligation on behalf of the Partnership with
respect to any of the following matters, without a Supermajority Vote:
(a) the admission of an additional Partner (other than pursuant to
Section 5.2(d) hereof and than a transferee or successor Partner pursuant
to Article 5) or, except as provided in Section 9.2(a)(i) hereof, the
redemption or purchase by the Partnership of any Partnership Interest;
provided, however, that no Partner's Partnership Interest may be diluted by
the addition of an additional Partner hereunder unless the diluted Partner
affirmatively agrees;
(b) the merger or consolidation of the Partnership with any other
Entity, where the Partnership is not the surviving Entity, or the
incorporation of the Partnership;
(c) the sale, pledge, assignment, lease or other disposition or
mortgaging or other encumbering of Partnership assets with an aggregate
original acquisition cost of $1,000,000 or more;
(d) subject to the provisions of Section 4.3(b) hereof, the incurrence
of any indebtedness for borrowed money (or the making of any guaranty of
any indebtedness for borrowed money of any other Entity) in excess of
$100,000 in the aggregate at any time during the term hereof other than
loans pursuant to
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Section 4.4 hereof and indebtedness arising under any fiber lease agreement
between the Partnership and a Partner or an Affiliate of a Partner;
(e) any decision relating to Federal Communications Commission or
other federal, state or local regulatory matters which has a material
adverse effect upon the Partnership or any Partner or any Affiliate of any
Partner in the Business Area;
(f) the assignment, transfer, pledge, compromise or release of any
claims of, or debts due, the Partnership, except upon payment in full, or
the arbitration or consent to the arbitration of any disputes or
controversies involving the Partnership, except for matters arising in the
ordinary course of the Partnership's business that involve an amount not in
excess of $75,000 (which shall be in the discretion of the Managing
Partner);
(g) settling or initiating any tax audit or any other claim or
litigation involving the Partnership and not arising in the ordinary course
of the Partnership's business;
(h) any general assignment for the benefit of creditors or the
commencement of any proceedings pursuant to any federal or state bankruptcy
or insolvency statutes;
(i) the dissolution or winding up of the Partnership (except as
specifically provided in Article 8) and the decision to continue the
business of the Partnership after dissolution pursuant to Section 8.3
hereof;
(j) filing any protest, petition or pleading with regard to any
Partnership tax return; and
(k) subject to Section 3.6(c) hereof, entering into any agreement or
obtaining any license or franchise which restricts the transfer of
Partnership Interests or subjects the Partnership Interests to any security
interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on voting rights, charges or other encumbrances of
any nature whatsoever.
3.6 Special Voting Provisions. Notwithstanding any other provision of this
Agreement,
(a) if the Partnership desires to enter into a transaction or
agreement with a Partner or an Affiliate of a Partner on terms which are
less favorable to the Partnership than could be obtained in an arms-length
transaction with an unaffiliated third party, or amend
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or waive any provision of any such agreement, and if there are Partners who
are not involved, by themselves or through any Affiliate, in such
transaction or agreement, the Partnership shall not enter into such
transaction or agreement, or agree to such amendment or waiver, without the
consent of all of the disinterested Partners;
(b) each Partner, by execution of this Agreement, hereby consents to
the execution and delivery, and the performance by the Partnership of its
obligations under, the Management Services Agreement;
(c) the approval of all of the Partners shall be required to enter
into any agreement or to obtain any license or franchise which restricts
the transfer of Partnership Interests or subjects the Partnership Interests
to any security interests, liens, claims, pledges, options, rights of first
refusal, agreements, limitations on voting rights, charges or other
encumbrances of any nature whatsoever, in each case in a manner that
discriminates among Partners; and
(d) the approval of a majority in Percentage Interests of all of the
disinterested Partners shall be required to decline or approve the conduct
of a business activity proposed to be Engaged in, or an acquisition
proposed to be made, by the Partnership pursuant to Section 7.1 hereof.
3.7 Scope of Partners' Authority. The Managing Partner shall have exclusive
authority to act for and to assume any obligation or responsibility on behalf of
the Partnership, except as expressly restricted hereby, and no other Partner
shall have any authority to act for, or assume any obligation or responsibility
on behalf of, the Partnership or another Partner except as otherwise expressly
provided herein or as expressly approved by a vote of the Partners pursuant to
Section 3.4, 3.5 or 3.6 hereof.
3.8 Indemnification of Partners; Allocation of Liabilities.
(a) The Partnership shall indemnify and save harmless the officers and
employees of the Partnership, the Managing Partner and the Authorized
Representatives of the Partners from any loss, damage or expense incurred
by any of them by reason of any act or omission to act on behalf of the
Partnership, performed by any of them in good faith and without gross
negligence, willful misconduct or breach of this Agreement. Any reasonable
expenses incurred by any indemnified person
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pursuant to this Section 3.8(a) in defending any civil or criminal action,
suit or proceeding (or the threat thereof), other than a claim, action,
suit or proceeding brought by the Partnership, which is based, in whole or
in part, upon any alleged act or omission to act on behalf of the
Partnership shall be borne and paid by the Partnership in advance of the
final disposition of such action, suit or proceeding (or the threat
thereof) upon receipt of an undertaking by or on behalf of the indemnified
person to repay to the Partnership the amount of such expenses if it shall
ultimately be determined that such person is not entitled to the
indemnification provided for under this Section 3.8(a). Any indemnity under
this Section 3.8(a) shall be provided out of and to the extent of
Partnership assets only.
(b) Each Partner shall indemnify and save harmless the Partnership and
each other Partner and former Partner, the partners or shareholders of each
other Partner and former Partner, and any of their respective officers,
directors, shareholders, partners, employees, agents and Affiliates, from
any loss, damage or expense incurred by any of them by reason of or
resulting from (i) any misrepresentation or breach of warranty of such
Partner set forth in this Agreement or (ii) any unauthorized act taken by
such Partner in the name of the Partnership or any other Partner. Any
reasonable expenses incurred by any Entity entitled to indemnification
pursuant to this Section 3.8(b) in defending any civil or criminal action,
suit or proceeding (or the threat thereof) by reason of or resulting from
any such indemnified matter shall be borne and paid by the indemnifying
Partner in advance of the final disposition of such action, suit or
proceeding (or the threat thereof) upon receipt of an undertaking by or on
behalf of the indemnified Entity to repay to the indemnifying Partner the
amount of such expenses if it shall ultimately be determined that such
Entity is not entitled to the indemnification provided for under this
Section 3.8(b). Any indemnity under this Section 3.8(b) shall be provided
out of and to the extent of the assets of the indemnifying Partner only.
(c) With respect to the indemnities provided above in this Section
3.8, an indemnified party shall, with respect to any claim made against
such indemnified party for which indemnification is available, notify the
indemnifying party in writing of the nature of the claim as soon as
practicable but not more than ten days after the indemnified party shall
have received notice of the assertion thereof before any court or
governmental authority. The failure by an indemnified party to give notice
as provided in the foregoing sentence shall not relieve the indemnifying
party of its obligations under this Section except to the extent that the
failure results in the failure of actual notice to the indemnifying party
and the indemnifying party is damaged solely as a result of the failure
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to give notice. Upon receipt of notice by an indemnifying party from an
indemnified party of the assertion of any such claim, the indemnifying
party shall employ counsel acceptable to the indemnified party and shall
assume the defense of such claim. The indemnified party shall have the
right to employ separate counsel and to participate in (but not control)
any such action, but the fees and expenses of such counsel shall be the
expense of such indemnified party unless (i) the employment of counsel by
such indemnified party has been authorized by the indemnifying party, (ii)
the indemnified party shall have been advised by its counsel in writing
that there is a conflict of interest between the indemnifying party and the
indemnified party in the conduct of the defense of such action (in which
case the indemnifying party shall not have the right to direct the defense
of such action on behalf of the indemnified party) or (iii) the
indemnifying party shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of
such counsel shall be at the expense of the indemnifying party. An
indemnifying party shall not be liable for any settlement of an action
effected without its written consent (which consent shall not be
unreasonably withheld). No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect of such
action. Whether or not the Partnership chooses to defend or prosecute a
claim, each Partner shall, to the extent requested by the Partnership and
at the Partnership's expense, cooperate in the prosecution or defense of
such claim and shall furnish such records, information and testimony and
attend such conferences, discovery proceedings, hearings, trials and
appeals as may reasonably be requested in connection therewith.
(d) The provisions of this Section 3.8 shall survive the withdrawal of
any Partner from the Partnership and the dissolution of the Partnership;
provided, however, that the obligation of a Partner to indemnify the
Partnership and other Partners pursuant to this Section 3.8(b) shall only
arise with respect to actions or events occurring during the period such
Partner was a Partner.
3.9 Contribution. All liabilities, obligations or commitments incurred or
assumed by the Partnership (or to which it or its property or assets are
subject) ("Partnership Obligations") shall be payable first out of the assets of
the Partnership. Subject to the provisions of Section 3.8 hereof, if the assets
of the Partnership (determined without regard to any Capital Contributions by
the Partners pursuant to Section 8.2(b) hereof) are not sufficient at any time
to pay or discharge when due and payable any and all Partnership Obligations
(any such deficiency being referred to herein as a "Deficiency"), a Partner
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or former Partner who pays all or any portion of such Deficiency (whether
directly or, in the case of a Partner, by making a contribution to the capital
of the Partnership pursuant to Section 8.2(b)) (a "Paying Partner") shall be
entitled to contribution from those Partners and former Partners that were
Partners at the time of the Partnership's incurrence or assumption of such
Partnership Obligation pursuant to this Section 3.9. Specifically, if any Paying
Partner pays (whether by direct payment or, in the case of a Partner, by making
a Capital Contribution to the Partnership pursuant to Section 8.2(b) hereof) a
portion of any Partnership Obligation included in such Deficiency that is in
excess of such Paying Partner's Pro Rata share of the unpaid portion of such
Partnership Obligation, based on its Percentage Interest at the time of
incurrence or assumption of such Partnership Obligation, then each other Partner
or former Partner which has not paid any portion of such Partnership Obligation,
or which has paid a portion which is less than its Pro Rata share thereof (based
on its Percentage Interest as of the date of incurrence or assumption), shall
contribute ratably to the Paying Partner so that each Partner and former Partner
shall have paid or contributed its Pro Rata share of such Partnership Obligation
based on its Percentage Interest as of the date of incurrence or assumption. The
payment by a Partner of any portion of a Deficiency hereunder shall be treated
as a Capital Contribution and shall be applied against any obligation of the
Paying Partner under Section 8.2(b) hereof. The provisions of this Section 3.9
shall survive the withdrawal of any Partner from the Partnership and the
dissolution of the Partnership.
3.10 Insurance and Bonds. Each Partner shall assist the Partnership to the
extent requested by the Manager or the Managing Partner in procuring
satisfactory insurance coverage, bonds and letters of credit for the Partnership
at the expense of the Partnership; provided, however, that in no event shall any
Partner be obligated pursuant to this Section 3.10 to assume any actual or
contingent liability, financial risk or reimbursement obligation.
ARTICLE 4: CAPITALIZATION; ALLOCATION; DISTRIBUTIONS
4.1 Initial Capital Contributions.
(a) Each Partner shall be obligated to make Initial Capital
Contributions to the Partnership in the aggregate amount indicated for it
on the Information Appendix. Except as otherwise expressly provided in an
asset contribution agreement between the Partnership and a Partner, such
contributions shall be made by the Partners Pro Rata, in one or more
installments at such times and in such amounts as may be determined by the
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Managing Partner. Each installment of an Initial Capital Contribution of a
Partner shall be due and payable within twenty Business Days of receipt by
such Partner of a request from the Managing Partner for such installment
(an "Initial Capital Payment Date"). A Partner which fails to make all or
any portion of an installment of its Initial Capital Contribution on or
before the related Initial Capital Payment Date is referred to herein as a
"Delinquent Partner", and the unpaid amount of the installment of its
Initial Capital Contribution is referred to herein as the "Initial Capital
Unpaid Amount" or as the "Unpaid Amount". Except as otherwise expressly
provided in an asset contribution agreement between the Partnership and a
Partner, all Initial Capital Contributions shall be in cash unless
otherwise determined by the Managing Partner.
(b) The Initial Capital Contributions have been set by the Managing
Partner based on its current expectations as to the cost of implementing
the initial phase of the construction and operation of the Partnership's
business in the Business Area. Although such costs of implementing the
initial phase may be more or less than currently anticipated, the amount of
the Initial Capital Contributions shall be neither increased nor decreased
without the consent of all Partners.
4.2 Additional Capital Contributions. The Partners may decide, by a
Majority Vote of the Partners pursuant to Section 3.4(c) hereof, that additional
Capital Contributions in excess of the Initial Capital Contributions
("Additional Capital Contributions") are required for the conduct of the
business of the Partnership. Such Additional Capital Contributions shall be made
by the Partners Pro Rata, in one or more installments at such times and in such
amounts as may be determined by the Managing Partner. Each Additional Capital
Contribution of a Partner shall be due and payable within twenty Business Days
of receipt by such Partner of a request from the Managing Partner for such
Additional Capital Contribution (an "Additional Capital Payment Date"). A
Partner which fails to make all or any portion of an Additional Capital
Contribution on or before the related Additional Capital Payment Date is
referred to herein as a "Declining Partner", and the unpaid amount of the
Additional Capital Contribution is referred to herein as the "Additional Capital
Unpaid Amount" or as the "Unpaid Amount". All Additional Capital Contributions
shall be in cash unless otherwise determined by the Managing Partner.
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4.3 Failure to Make Capital Contributions.
(a) (i) Interest shall accrue on any Initial Capital Unpaid Amount in
respect of an Initial Capital Contribution which is not rescinded pursuant
to Section 4.3(b) below at the Prime Rate plus 6% per annum from and
including the Initial Capital Payment Date until such Unpaid Amount and all
interest accrued thereon are paid as provided in this Section 4.3 hereof.
The failure of the Delinquent Partner to pay to the Partnership the Initial
Capital Unpaid Amount together with accrued interest on or before the tenth
Business Day following the related Initial Capital Payment Date (such
failure being referred to herein as an "Initial Capital Payment Default")
shall be deemed an Event of Default for purposes of Article 9.
(ii) Interest shall accrue on any Additional Capital Unpaid Amount
in respect of an Additional Capital Contribution which is not rescinded
pursuant to Section 4.3(b) below at the Prime Rate plus 2% per annum from
and including the Additional Capital Payment Date until such Unpaid Amount
and all interest accrued thereon are paid to the Partnership; provided,
however, that no Additional Capital Contribution may be paid by a Declining
Partner to the Partnership more than twenty Business Days after the related
Additional Capital Payment Date; and provided, further, that no interest
shall be payable in the event the Declining Partner elects not to make the
Additional Capital Contribution. No Partner shall be required to make any
Additional Capital Contribution to the Partnership, and the failure by a
Partner to make an Additional Capital Contribution by the end of such
twenty Business Day period (such failure being referred to herein as an
"Additional Capital Refusal") shall not be deemed an Event of Default for
purposes of Article 9.
(b) If an Initial Capital Payment Default or an Additional Capital
Refusal occurs, the other Partners that have timely made the installments
of their Initial Capital Contributions or the Additional Capital
Contributions with respect to which such Initial Capital Payment Default or
Additional Capital Refusal occurred, as the case may be (the "Complying
Partners"), may, with the affirmative vote of Complying Partners (which
must include the affirmative vote of the Managing Partner if it is a
Complying Partner) with an aggregate Percentage Interest constituting not
less than two-thirds of the sum of the Percentage Interests of all
Complying Partners, by notice given to each Delinquent Partner or Declining
Partner, as the case may be, and each other Partner within ten Business
Days after the occurrence of the Initial Capital Payment Default or the
Additional Capital Refusal:
(i) elect to cause the call of such installment of the Initial
Capital Contribution or such
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Additional Capital Contribution to be rescinded (in which case no
Initial Capital Payment Default or Additional Capital Refusal shall be
deemed to have occurred for purposes of this Article 4 and no Event of
Default in respect of an Initial Capital Payment Default shall be
deemed to have occurred for purposes of Article 9 hereof);
(ii) elect to have such installment of the Initial Capital
Contribution or such Additional Capital Contribution made by the
Complying Partners to be deemed loans to the Partnership, rather than
as Capital Contributions, and to make additional loans to the
Partnership in an aggregate amount equal to the related Unpaid Amount;
(iii) elect to make loans to the Partnership in an aggregate
amount equal to the related Unpaid Amount; or
(iv) elect to make additional Capital Contributions ("Excess
Capital Contributions") to the Partnership in an aggregate amount
equal to the related Unpaid Amount;
provided, however, that the same election, if any, shall be made with
respect to each Delinquent Partner and Declining Partner in respect of any
request for an Initial Capital Contribution or Additional Capital
Contribution, as the case may be.
The Complying Partners shall not be obligated to make any election under
this Section 4.3(b). Neither the existence nor the exercise of any right of
election available to the Complying Partners under this Section 4.3(b)
shall affect the Remedies Partner's right to treat Delinquent Partners'
Initial Capital Payment Defaults as an Event of Default and to make any
election and pursue at any time any remedy then available pursuant to
Article 9 hereof.
(c) If an election is made pursuant to clause (i) of Section 4.3(b)
hereof, the Partnership shall promptly return to each Partner the amount of
the installment of the Initial Capital Contribution or the Additional
Capital Contribution contributed by it in respect of which the related
Initial Capital Payment Default or the Additional Capital Refusal occurred,
together with interest, if any, actually earned on such amount by the
Partnership from and including the Initial Capital Payment Date or the
Additional Capital Payment Date to the date such amount is returned to such
Partner.
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(d) If an election is made pursuant to clause (ii) or (iii) of Section
4.3(b) hereof, the indebtedness of the Partnership for the amount loaned
(or deemed loaned pursuant to clause (ii)) (each a "Capital Loan") shall be
evidenced by a promissory note of the Partnership in form and substance
reasonably satisfactory to the Complying Partners making such loans, shall
be unsecured, shall be subordinate to any senior debt of the Partnership,
shall bear interest at a rate per annum equal to the Prime Rate plus 2% per
annum and shall otherwise be on terms and conditions that are no less
favorable to the Partnership than it could obtain in connection with a loan
from a bank or other financial institution not an Affiliate of a Partner.
Only those Complying Partners that voted in favor of making the election
pursuant to clause (ii) or (iii) (each a "Capital Lending Partner") shall
be required to make Capital Loans to the Partnership (in excess of any
amount deemed a loan pursuant to clause (ii)). The amount of the Capital
Loan made by each Capital Lending Partner shall be in proportion to its
respective Percentage Interest relative to the sum of the Percentage
Interests of all Capital Lending Partners (in each case as in effect
immediately prior to the related Initial Capital Payment Default or
Additional Capital Refusal), or in such other proportion as the Capital
Lending Partners may agree upon among themselves.
(e) If an election is made pursuant to clause (iv) of Section 4.3(b)
hereof, only those Complying Partners that voted in favor of making such
election (each an "Excess Capital Contributing Partner") shall be required
to make Excess Capital Contributions. The amount of the Excess Capital
Contribution to be made by each Excess Capital Contributing Partner shall
be in proportion to its respective Percentage Interest relative to the sum
of the Percentage Interests of all Excess Capital Contributing Partners (in
each case as in effect immediately prior to the related Initial Capital
Payment Default or Additional Capital Refusal), or in such other proportion
as such Excess Capital Contributing Partners may agree upon among
themselves. Excess Capital Contributions shall be in addition to, and not
credited against, Initial Capital Contributions or Additional Capital
Contributions otherwise payable by the Partners.
(f) (i) Whenever an Initial Capital Payment Default occurs, the
Percentage Interest of each Partner shall be adjusted (unless the Complying
Partners make an election pursuant to clause (i) or (ii) of Section 4.3(b)
hereof with respect to such Initial Capital Payment Default), with effect
from the related Initial Capital Payment Date, to equal the percentage
determined by dividing (A) the aggregate amount of Initial Capital
Contributions and Excess Capital Contributions actually made by such
Partner to the date of determination divided by (B)
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the sum of all Initial Capital Contributions and Excess Capital
Contributions actually made by all Partners to the date of determination.
In addition to the adjustment provided in this Section 4.3(f)(i), and
subject to Section 4.3(g) hereof, the Delinquent Partner shall have no
right to participate in any subsequent call for Initial Capital
Contributions or Additional Capital Contributions, and each Partner's
Percentage Interest shall be adjusted as of each subsequent Initial Capital
Payment Date and Additional Capital Payment Date in accordance with this
Section 4.3(f) and Section 4.3(g) hereof as though such Delinquent Partner
committed an Initial Capital Payment Default or Additional Capital Refusal
with respect to each such subsequent call for Initial Capital Contributions
or Additional Capital Contributions, respectively.
(ii) Whenever an Additional Capital Refusal occurs, the Percentage
Interest of each Partner shall be adjusted (unless the Complying Partners
make an election pursuant to clause (i) or (ii) of Section 4.3(b) hereof
with respect to such Additional Capital Refusal), with effect from the
related Additional Capital Payment Date, to equal:
(A), prior to such time as the aggregate amount of Capital
Contributions requested to be made by the Partners exceeds an amount
equal to one and one half (1.5) times the sum of all of the Initial
Capital Contributions of the Partners shown on the Information
Appendix (the "Threshold Amount"), the percentage determined by
dividing (I) the aggregate amount of Initial Capital Contributions,
Additional Capital Contributions and Excess Capital Contributions
actually made by such Partner to the date of determination by (II) the
sum of all Initial Capital Contributions, Additional Capital
Contributions and Excess Capital Contributions actually made by all
Partners to the date of determination, or
(B), from and after such time as the aggregate amount of Capital
Contributions requested to be made by the Partners exceeds the
Threshold Amount, the percentage determined by dividing (I) the Fair
Market Value of the Partnership Interest of such Partner immediately
prior to such Additional Capital Refusal, plus any Additional Capital
Contribution and Excess Capital Contribution made by such Partner at
the time of or following such Additional Capital Refusal, by (II) the
sum of the Fair Market Values of the Partnership Interests of all of
the Partners immediately prior to such Additional Capital
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Refusal, plus the sum of all Additional Capital Contributions and
Excess Capital Contributions made by all of the Partners at the time
of or following such Additional Capital Refusal.
Notwithstanding the adjustment provided in this Section 4.3(f)(ii), the
Declining Partner shall have the right to participate in any subsequent
call for Additional Capital Contributions without being required to make
any missed Additional Capital Contribution. For purposes of this clause
4.3(f)(ii) only, the Fair Market Value of the Partnership Interests of all
of the Partners shall be determined by the Managing Partner, based on its
good faith estimate of such value, in connection with each proposed call
for Additional Capital Contributions. The Managing Partner's determination
of such Fair Market Value shall then be submitted to a vote of the Partners
at the time the vote required by Section 3.4(c) hereof to approve a call
for Additional Capital Contributions is taken. If such determination is
approved by a Majority Vote of the Partners, such determination shall be
final and binding on the Partners for purposes of any adjustment to the
Percentage Interests of the Partners pursuant to this clause 4.3(f)(ii)
which requires a determination of such Fair Market Value.
(g) A Delinquent Partner may, with the consent of the Managing Partner
(or, if the Delinquent Partner is the Managing Partner, with the consent of
Complying Partners with an aggregate Percentage Interest constituting not
less than two-thirds of the sum of the Percentage Interests of all
Complying Partners) and prior to the receipt by the Delinquent Partner of
the notice contemplated by Section 9.2 hereof, cure its Initial Capital
Payment Default by paying to the Partnership an amount (the "Make-up
Amount") equal to the Initial Capital Unpaid Amount plus accrued interest
thereon calculated pursuant to Section 4.3(a)(i) hereof. If an election was
made pursuant to clause (ii) of Section 4.3(b) hereof with respect to such
Initial Capital Payment Default, each Capital Lending Partner shall
contribute to the Partnership an amount equal to the related installment of
its Initial Capital Contribution that was deemed a loan, pursuant to clause
(ii) of Section 4.3(b) hereof, by the contribution to the Partnership of
the outstanding principal amount of all Capital Loans made by such Capital
Lending Partner in connection with such Initial Capital Payment Default
together with an outstanding principal amount of other Capital Loans made
by such Capital Lending Partner such that the aggregate amount of such
contributed Capital Loans is equal to the amount of such installment (and,
if the balance of the Capital Loans made by such Capital Lending Partner is
less than the amount of such installment, such Capital Lending Partner
shall contribute the difference in cash). The proceeds of the Make-up
Amount shall first be promptly applied by the Partnership to the payment of
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any accrued but unpaid interest on the Capital Loans contributed to the
Partnership and thereafter to the repayment of the principal amount of any
Capital Lending Partner's Capital Loan which is in excess of the amount
contributed by such Partner in accordance with the immediately preceding
sentence. If an election was made pursuant to clause (iii) of Section
4.3(b) hereof, the proceeds of the Make-up Amount shall first be applied by
the Partnership to the repayment of the principal of, and accrued but
unpaid interest on, all Capital Loans made with respect to such Initial
Capital Payment Default, and thereafter to the repayment of principal of,
and unpaid interest on, any other outstanding Capital Loans. If an election
was made pursuant to clause (iv) of Section 4.3(b) hereof, the proceeds of
the Make-up Amount shall first be promptly applied to the distribution to
each Excess Capital Contributing Partner an amount equal to its Excess
Capital Contribution plus interest thereon at the Prime Rate plus 2% per
annum from and including the date of such contribution to the date of such
distribution. If the Percentage Interests of the Partners were adjusted
pursuant to Section 4.3(f) hereof as a result of the Initial Capital
Payment Default, then upon payment by the Delinquent Partner of the Make-up
Amount in full in accordance with the foregoing provisions of this Section
4.3(g), the Percentage Interests of the Partners shall be readjusted so as
to restore to the Delinquent Partner and the Complying Partners, for
periods subsequent to the payment of the Make-Up Amount, the respective
Percentage Interests they would have had but for such Initial Capital
Payment Default.
4.4 Loans. If the Partners do not in the aggregate make all of the Capital
Contributions requested pursuant to Sections 4.1 or 4.2 above and an election is
not made pursuant to Section 4.3(b) above to make up the shortfall, the Remedies
Partner may, without a vote of the Partners, arrange for a loan to the
Partnership from a Partner, an Affiliate of a Partner or from any other
commercially reasonable source in an amount equal to the shortfall, which loan
shall bear interest at an annual rate no higher than the Prime Rate plus 2% per
annum and be on such other terms and conditions which the Remedies Partner, in
its good faith judgment, determines to be no less favorable to the Partnership
than could be obtained in connection with a loan from a bank or financial
institution not an Affiliate of a Partner. Subject to the applicable terms of
the Partnership's credit agreements, the proceeds, if any, of subsequent Capital
Contributions or any proposed Distribution shall be applied first to such loans
until such loans, together with accrued interest and any related fees, are paid
in full, before any such proceeds are used for any other Partnership purpose or
any such proposed Distribution is made to the Partners.
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4.5 Calculations and Adjustments. The calculations of the Percentage
Interests provided in Section 4.3 hereof shall be made by the Remedies Partner,
and shall, in the absence of manifest error, be conclusive and binding on the
Partners. The Partnership shall use commercially reasonable efforts to obtain
any regulatory or other consents or approvals required by any adjustment to the
Percentage Interests of the Partners pursuant to this Section prior to such
adjustment, and if such approval is not obtained, neither such adjustment nor
the Capital Contributions which would require such adjustment shall be made, or,
if already made, such Capital Contributions shall be returned to the Partners.
4.6 Capital Accounts. The term "Capital Account" shall mean with respect to
each Partner, the aggregate amount of such Partner's Initial Capital
Contribution, increased by:
(a) the amount of each Additional Capital Contribution and Excess
Capital Contribution made by it pursuant to Section 4.2 or 4.3 hereof to
the Partnership in cash, if any;
(b) the fair market value without regard to Code Section 7701(g) of
property if any, contributed by it as an Additional Capital Contribution or
Excess Capital Contribution pursuant to Section 4.2 or 4.3 hereof to the
Partnership (net of liabilities secured by such contributed property that
the Partnership is considered to assume or take subject to under Code
Section 752);
(c) allocations to it of Net Profit and other items of income and gain
pursuant to Section 4.8 hereof and the Tax Appendix; and
(d) other additions made in accordance with the Code and Regulations;
and decreased by:
(i) the amount of cash distributed to it by the Partnership;
(ii) allocations to it of Net Loss and other items of loss and
deduction pursuant to Section 4.8 hereof and the Tax Appendix;
(iii) the fair market value without regard to Code Section 7701(g) of
property distributed to it by the Partnership (net of liabilities secured
by such distributed property that such Partner is considered to assume or
take subject to under Code Section 752); and
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(iv) other deductions made in accordance with the Code and
Regulations.
The Capital Accounts shall be determined and maintained at all times in
accordance with all of the provisions of Regulations Section 1.704-1(b)(2)(iv).
An individual account shall be established and maintained on the books of the
Partnership for each Partner in accordance with the Code. In the event any
Partnership Interest is transferred in accordance with the provisions of Article
5 hereof, the transferee of such Partnership Interest shall succeed to the
portion of the transferor's Capital Account attributable to such interest.
4.7 Distribution of Partnership Funds.
(a) The Managing Partner may, after the establishment of such reserves
as it deems appropriate, upon a Majority Vote of the Partners and subject
to restrictions imposed by the Partnership's lenders, if any, and subject
to Section 4.4 hereof, make Distributions to the Partners at any time and
from time to time during the term of the Partnership. In addition, at the
end of each Fiscal Year after the third full Fiscal Year of the
Partnership, the Managing Partner shall distribute, subject to restrictions
imposed by the Partnership's lenders and subject to Section 4.4 hereof,
that amount of cash in the accounts of the Partnership which exceeds two
times the sum of, without duplication, (i) all reserves or other working
capital items relating to any previous Fiscal Year and (ii) the aggregate
amount allocated in the Budget for the next Fiscal Year for reserves,
losses, capital expenditures and debt repayment and working capital, if
any. All such Distributions (other than Distributions pursuant to Section
8.2 hereof) will be made to the Partners Pro Rata.
(b) No Partner shall have the right to withdraw any amount from its
Capital Account, or to receive any Distribution, except as provided in
Sections 4.7(a) and 8.2 hereof. Notwithstanding the foregoing, the
Partnership shall pay in full all loans extended by Partners to the
Partnership prior to making any Distributions to the Partners.
4.8 Allocation of Net Profits and Losses. As of the end of each Fiscal Year
of the Partnership, the Net Profit or Net Loss of the Partnership shall be
allocated to the Partners in accordance with their Percentage Interests, except
as otherwise provided in the Tax Appendix.
4.9 Tax Appendix. The provisions of this Article 4 shall be subject to the
provisions of the Tax Appendix.
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ARTICLE 5: TRANSFERS OF PARTNERSHIP INTERESTS; RIGHT OF FIRST REFUSAL
5.1 Restrictions on Transfer.
(a) A Partner shall, directly or indirectly, offer, sell, transfer,
assign, grant a participation in, pledge or otherwise dispose of any of its
Partnership Interest only in a transaction that (i) is expressly permitted
by this Agreement, (ii) is in accordance with agreements entered into by
the Partnership with third parties to which transfers of interests in the
Partnership are subject (unless the breach of such agreements, other than
this Agreement, would not have a material adverse effect on the
Partnership), and (iii) in which the transferee becomes a party to this
Agreement. A Change in Control of a Partner shall constitute a transfer by
such Partner subject to the provisions of this Article 5 (an "Indirect
Transfer").
(b) Except as expressly permitted by this Agreement, each Partner
shall (i) be the owner of the Partnership Interest indicated in the
Partnership's records as being owned by such Partner, in each case free and
clear of any pledge, lien, security interest, charge, claim, equity, option
or encumbrance of any kind, and (ii) have sole voting power with respect to
such Partner's Partnership Interest and will not grant any proxy with
respect to such Partnership Interest, enter into any voting trust or other
voting agreement or arrangement with respect to such Partnership Interest
or grant any other rights to vote such Partnership Interest; provided,
however, that the foregoing shall not be construed to limit the ability of
a Partner to enter into agreements with respect to sales permitted by this
Agreement or to enter into agreements not inconsistent with this Agreement
that restrict such Partner's ability to transfer its Partnership Interest.
(c) After any sale, assignment, transfer or other conveyance of a
Partnership Interest in accordance with the provisions of this Agreement,
the transferred Partnership Interest shall continue to be subject to all of
the provisions of this Agreement, including the provisions of this Article
5.
5.2 Exceptions to Restrictions on Transfers. The restrictions contained in
the other Sections of this Article 5 (other than Section 5.7 hereof) shall not
apply to the transactions set forth in this Section 5.2.
(a) A Partner may transfer to any Controlled Affiliate which is a
Subsidiary of its Parent, all, but not less than all, of its Partnership
Interest, and TC may transfer to TCGI or any Subsidiary of TCGI all or any
part of its Partnership
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Interest, provided that, in each such case, the transferee assumes the
obligations of the transferor under this Agreement with respect to such
Partnership Interest and becomes a party to this Agreement.
(b) A Partner may permit an Indirect Transfer that results from the
sale or other disposition of all or substantially all of the stock or
assets of the Parent of such Partner, provided that the Parent of the
transferee agrees to execute a Parent Undertaking.
(c) If a Partner conducts, or has a Controlled Affiliate which
conducts, a business in the Business Area and in connection with such
business such Partner or Controlled Affiliate has entered into a fiber
lease agreement or other agreement for the use of fiber optic
telecommunications facilities, then such Partner shall have the right, but
shall not be obligated, to sell its Partnership Interest to the buyer (the
"Acquirer") of all or substantially all of the assets of such business or
of all or substantially all of the outstanding stock of such Controlled
Affiliate, on any terms and conditions acceptable to it, so long as, in the
case of a sale of the assets of such business of such Partner or Controlled
Affiliate, the Acquirer becomes a party to this Agreement and assumes the
obligations of the selling Partner or Controlled Affiliate under such fiber
lease agreement or other agreement for the use of facilities and that in
any case the Parent of the Acquirer executes a Parent Undertaking;
provided, however, that if the Acquirer or any Affiliate of the Acquirer is
Engaged in the Exclusive Business in the Business Area, such Partner shall
not have the right to sell its Partnership Interest to the Acquirer unless
such sale is approved by a Supermajority Vote.
(d) (i) The Managing Partner shall have the right, but shall not be
obligated, at any time prior to the date specified on the Information
Appendix (the "Offer Expiration Date"), to sell that portion of its
Partnership Interest set forth on the Information Appendix (the "Excess
Interest") to the Entities (or Subsidiaries of such Entities) listed on the
Information Appendix (the "Potential Partners"), subject to the following
conditions:
(A) The Percentage Interest of each Potential Partner which
purchases a portion of the Excess Interest shall be as set forth on
the Information Appendix for such Potential Partner and the Percentage
Interest of the Managing Partner shall be correspondingly reduced;
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(B) The Deemed Initial Capital Contribution of a Potential
Partner shall be as set forth on the Information Appendix for such
Potential Partner;
(C) The purchase price for each sale to a Potential Partner shall
be payable in cash and shall be the product of the Deemed Initial
Capital Contribution of such Potential Partner (as set forth on the
Information Appendix) times the percentage of the Initial Capital
Contributions of all existing Partners which have been contributed by
the existing Partners as of the date of the sale to the Potential
Partner;
(D) A Potential Partner which purchases a Percentage Interest
shall succeed to the obligation of the Managing Partner to make its
Initial Capital Contribution to the extent of the Deemed Initial
Capital Contribution less the purchase price paid to the Managing
Partner pursuant to paragraph (C) above, and the Initial Capital
Contribution of the Managing Partner shall be correspondingly reduced;
and
(E) Each Potential Partner shall become a Partner by delivering
to the Partnership (which shall promptly send notice thereof to the
other Partners) a counterpart signature page to this Agreement and
shall deliver to the Partnership a Parent Undertaking by its Parent
(if any). No further action by the Partnership or the Partners shall
be required for such Potential Partner to become a party to this
Agreement.
(ii) If any portion of the Excess Interest remains unsold to the
Potential Partners after the Offer Expiration Date, the Managing Partner
shall, within ten Business Days after the Offer Expiration Date, offer to
sell the unsold portion of the Excess Interest to the other Partners. The
purchase price for any portion of the Excess Interest shall be the same as
the purchase price which would have been payable by the Potential Partners
pursuant to clause (i) (C) above for such portion of the Excess Interest,
but, in addition, the Purchasing Partners (as that term is defined below)
shall pay interest on such purchase price at the rate of 10% per annum from
the date of this Agreement to the date such purchase price is paid. If a
Partner desires to accept such offer as to at least its Pro Rata portion of
the unsold Excess Interest, such Partner (a "Purchasing Partner") shall,
within fourteen days of receipt of such offer, notify the Managing Partner
and each other Partner of its intention to acquire its full Pro Rata
portion of the unsold portion of the Excess Interest. If a Partner does not
elect to acquire its Pro Rata portion of the unsold portion of the Excess
Interest, the Managing Partner shall notify the Purchasing
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Partners of the portion of the Excess Interest remaining, and each
Purchasing Partner shall then have ten days after the later of receipt of
such notice and the expiration of the fourteen day period described above
to notify the Managing Partner of its intention to acquire such unacquired
portion of the Excess Interest (the "Unpurchased Portion") (and, if more
than one Purchasing Partner notifies the Managing Partner of its
willingness to purchase the Unpurchased Portion then, unless otherwise
agreed by such Purchasing Partners, the Unpurchased Portion shall be
allocated among the Purchasing Partners who have so notified the Managing
Partner Pro Rata). The closing of the sale of the unsold portion of the
Excess Interest to the Purchasing Partners shall occur and be conducted in
accordance with the provisions of Section 5.9 hereof. The Managing Partner
shall, subject to the provisions of this Agreement, retain that portion of
the Excess Interest which is not sold to Potential Partners or to
Purchasing Partners.
5.3 Rollup Provisions.
(a) Subject to Section 5.3(b) below, but notwithstanding any other
provision herein, at any time after the third anniversary of the date
hereof, any Partner (the "Rollup Partner"), with the consent of TCGI, which
may be withheld in TCGI's sole discretion, may transfer (or permit an
Indirect Transfer of) all or any part of its Partnership Interest to TCGI
for stock of TCGI. The terms and conditions of such transfer, including the
amount of stock of TCGI to be received by the transferring Partner, shall
be determined between the transferring Partner and TCGI; provided, however,
that TCGI shall not be obligated to accept any such transfer, and TCGI
shall have no liability with respect to such negotiations or for failure to
reach agreement with respect thereto for any reason whatsoever.
(b) No Partner may transfer (or permit an Indirect Transfer of) all or
any part of its Partnership Interest to TCGI, unless TCGI shall first have
delivered a written offer (the "Rollup Offer") to each other Partner to
purchase (directly or by an Indirect Transfer) all or part of such
Partner's Partnership Interest on the same terms and in the same proportion
as TCGI has agreed to purchase the Rollup Partner's Partnership Interest
(based on the respective Percentage Interests, immediately prior to such
rollup, of all Partners (including the Rollup Partner) who desire to
participate in such rollup). Each Partner that desires to participate in
such rollup shall give notice to TCGI (and deliver a copy thereof to each
other Partner) of its election (a "Rollup Election") to sell to TCGI the
portion of its Partnership Interest to be determined as described above on
the terms and conditions applicable to the proposed sale by the Rollup
Partner (including the per Percentage Interest consideration proposed to be
paid to the Rollup Partner). The
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right to make a Rollup Election shall terminate if notice thereof has not
been given to TCGI and each other Partner by the twentieth Business Day
after receipt of the Rollup Offer.
(c) Any transfer pursuant to this Section 5.3 shall be exempt from the
restrictions contained in the other Sections of this Article 5.
5.4 Right of First Refusal.
(a) If, other than pursuant to Section 5.2, 5.3 or 5.5 hereof, any
Partner (the "Selling Partner"), at any time after the third anniversary of
the date hereof, desires to sell all, but not less than all, of its
Partnership Interest, whether by sale of such Partnership Interest, sale of
all of the equity interests of such Selling Partner, or the sale of equity
interests of an Entity that would result in a Change in Control of the
Selling Partner (in each such case, the portion thereof consisting of the
Partnership Interest only being the "Offered Interest"), to an unaffiliated
third party offeror who has made a bona fide written offer to purchase the
Offered Interest (or assets of which the Partnership Interest forms a part)
and who is financially capable of consummating such purchase (the
"Offeror"), it shall deliver to the other Partners a notice (a "Notice of
Sale") of its intention to sell the Offered Interest to the Offeror. The
Notice of Sale shall include the economic terms and conditions of such
sale, including the name of the Offeror and controlling owners, principal
officers and directors (subject to any legal or contractual restrictions on
the disclosure of such identity) and the price for the Offered Interest and
shall contain the Selling Partner's offer to sell the Offered Interest to
the other Partners on such terms and conditions. If the offer from the
Offeror is given or received in connection with a transaction pursuant to
which assets or ownership interests in addition to the Offered Interest are
proposed to be disposed of (including, without limitation, pursuant to an
Indirect Transfer), the Notice of Sale shall also contain the Selling
Partner's good faith estimate, based on reasonable allocation and
attribution methods, of the portion of the aggregate consideration for the
assets or ownership interests to be disposed of which is reasonably
allocated to the Offered Interest, which shall be the purchase price for
the Offered Interest (which price shall, unless otherwise agreed by the
Electing Partners (as defined below), be payable in cash). The non-Selling
Partners shall enter into appropriate confidentiality agreements as
reasonably requested by the Selling Partner in connection with the offer
from the Offeror and the information contained in the Notice of Sale. If a
non-Selling Partner desires to accept such offer as to at least its Pro
Rata portion of the Offered Interest, such Partner (an "Electing Partner")
shall, within fourteen days of receipt of such Notice of Sale,
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notify the Selling Partner of its intention to acquire its full Pro Rata
portion of the Offered Interest and deliver a copy of such notice to each
other non-Selling Partner. If a non-Selling Partner does not elect to
acquire its Pro Rata portion of the Offered Interest, the Selling Partner
shall notify the Electing Partners of the portion of the Offered Interest
remaining, and each Electing Partner shall then have ten days after the
later of receipt of such notice and the expiration of the fourteen day
period described above to notify the Selling Partner of its intention to
acquire such unacquired portion of the Offered Interest (the "Uncommitted
Portion") (and, if more than one Electing Partner notifies the Selling
Partner of its willingness to purchase the Uncommitted Portion then, unless
otherwise agreed by such Electing Partners, the Uncommitted Portion shall
be allocated among the Electing Partners who have so notified the Selling
Partner Pro Rata). The Electing Partners shall have ninety days after the
termination of the foregoing procedure to enter into a binding agreement
with the Selling Partner to acquire all of the Offered Interest on the
economic terms and conditions set forth in the Notice of Sale; provided,
however, that if the purchase price set forth in the Notice of Sale is not
all cash, the Selling Partner and the Electing Partners shall negotiate in
good faith as to the value of the non-cash consideration, and the Electing
Partners shall have the right to pay the purchase price for the Offered
Interest all in cash. The Selling Partner and the Electing Partners shall
negotiate in good faith to enter into a binding agreement with respect to
the sale of the Offered Interest, which binding agreement shall contain:
(i) the representation and warranty of the Selling Partner that the
Electing Partners will receive good and valid title to the Offered
Interest, free and clear of all security interests, liens, claims,
pledges, options, rights of first refusal, agreements, limitations on
voting rights, charges and other encumbrances of any nature whatsoever
except as set forth in this Agreement or otherwise applicable to all
of the Partnership Interests and except for governmental, regulatory
and other third party consents and approvals required for transfers of
partnership interests generally;
(ii) the following conditions to the closing of such sale:
(A) all applicable waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder, shall have expired or been
terminated;
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(B) all governmental approvals and other third party consents
expressly required with respect to the transactions to be
consummated at such closing shall have been obtained, to the
extent the failure to obtain such approvals or consents would
prevent the Selling Partner from performing any of its material
obligations under the transaction documents or would result in
any materially adverse change in, or materially adverse effect
on, the business, assets, results of operations, financial
condition or prospects of the Partnership and the Entities
controlled by the Partnership taken as a whole;
(C) there shall be no preliminary or permanent injunction or
other order by any court of competent jurisdiction restricting,
preventing or prohibiting the consummation of the transactions to
be consummated at such closing; and
(D) the representation and warranty of the Selling Partner
contemplated by clause (i) of this sentence shall be true and
correct at the closing of such sale with the same force and
effect as if then made; and
(iii) such other representations, warranties, conditions and
indemnifications as may be agreed upon by the Selling Partner and the
Electing Partners.
(b) If non-Selling Partners do not notify the Selling Partner of their
intention to acquire, in the aggregate, all the Offered Interest within the
period set forth in Section 5.4(a) hereof or if a binding agreement to
purchase all of the Offered Interest covered by the Notice of Sale is not
entered into within the ninety day period set forth in Section 5.4(a)
hereof for any reason other than a violation of this Section 5.4 or
wrongful acts or willful bad faith on the part of the Selling Partner, or
if a purchase covered by such a binding agreement is not consummated within
the period provided in Section 5.9 hereof, for any reason other than a
breach by the Selling Partner of any of its covenants, representations or
warranties in such binding agreement that are a condition to consummation
of such purchase, the Selling Partner shall have the right, at any time
during the one year period after the expiration of the relevant period, to
close on a sale of all of the Offered Interest to the Offeror on economic
terms and conditions no less favorable in the aggregate to the Selling
Partner than those set forth in the Notice of Sale. The Selling Partner
shall, as promptly as practicable and prior to the closing of such sale,
provide to the other Partners a copy of the agreement for the sale of the
Offered Interest so
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as to permit the non-Selling Partners to confirm for themselves that the
economic terms and conditions of such sale are not less favorable in the
aggregate to the Selling Partner than those set forth in the Notice of
Sale. If the Selling Partner does not close the sale of the Offered
Interest to the Offeror during such one year period, the procedure set
forth above with respect to the Notice of Sale shall be repeated with
respect to any subsequent proposed sale of the Partnership Interest of the
Selling Partner (whether by sale of such Partnership Interest, sale of all
of the equity interests of such Selling Partner, or the sale of equity
interests of an Entity that would result in a Change in Control of the
Selling Partner).
(c) In furtherance of the rights set forth in this Section, each
Partner and the Partnership agree that, following receipt of notice that a
Selling Partner desires to sell an Offered Interest to a potential Offeror
and upon execution by such potential Offeror of a letter of intent and a
confidentiality agreement in form and substance reasonably satisfactory to
the Managing Partner, at reasonable times and without interfering with the
business or operations of the Partnership, the Managing Partner will take
all necessary action to:
(i) provide to such potential Offeror and its employees and
agents reasonable access to all books and records of the Partnership
and any and all reports, budgets, proposals or other written material
prepared by or on behalf of the Partnership;
(ii) make the officers and employees of the Partnership available
for meetings with such potential Offeror and its employees and agents;
(iii) permit on-site visits to the Partnership's facilities by
such potential Offeror and its employees and agents;
(iv) provide full and free access to a data room to such
potential Offeror and its employees and agents;
(v) assist the Selling Partner in obtaining all necessary
consents to any disposition of the Offered Interest; and
(vi) assist in the preparation of any descriptive memoranda or
other sales materials relating to the Partnership and give the Selling
Partner the right to share such information with such potential
Offeror and its employees and agents;
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provided that in each case, the Selling Partner agrees to reimburse the
Partnership and the other Partners for any out of pocket expenses incurred
by them in connection with the foregoing actions. Notwithstanding the
foregoing, if non-Selling Partners have timely notified the Selling Partner
pursuant to Section 5.4(a) hereof of their intention to acquire all of the
Offered Interest, then the Partnership and the Partners shall not be
obligated to comply with the covenants contained in this Section 5.4(c)
during the period that a binding agreement for such acquisition is being
negotiated or thereafter (subject to such binding agreement being executed
and the closing thereunder occurring within the applicable time limitations
set forth in Sections 5.4(a) and 5.9 hereof).
5.5 Purchases by the Partnership or its Assignee.
(a) If, after the consummation of any rollup transaction pursuant to
the provisions of Section 5.3(a) and (b) above, Partners (the "Minority
Partners") other than TC, TCGI and their Controlled Affiliates hold in the
aggregate no more than 10% of the outstanding Percentage Interests, then
the Partnership (or any Entity to which the Partnership assigns such right)
shall have the right at any time thereafter to purchase all, but not less
than all, of the Partnership Interests of the Minority Partners for a
purchase price equal to the Fair Market Value of such Partnership Interests
determined in accordance with the appraisal process provided in Section 5.8
hereof.
(b) The Partnership shall have the right at any time to purchase all,
but not less than all, of the Partnership Interest of any Partner the
Percentage Interest of which is 3% or less of the outstanding Percentage
Interests for a purchase price equal to the Fair Market Value of such
Partnership Interest determined in accordance with the appraisal process
provided in Section 5.8 hereof.
(c) If a Partner, which had the right pursuant to Section 5.2(c) above
to sell its Partnership Interest (or would have had such right except that
the Acquirer (as that term is defined in Section 5.2(c) hereof) is Engaged
in the Exclusive Business in the Business Area), elects not to do so or is
prevented from doing so pursuant to the proviso to the first sentence of
Section 5.2(c) hereof, and as a result thereof neither such Partner nor any
Affiliate of such Partner is a party to a fiber lease agreement or other
agreement for the use of fiber optic telecommunications facilities with the
Partnership, then the Partnership shall have the right, at any time after
the date which is ninety days after the consummation of the sale described
in Section 5.2(c) hereof, to purchase all, but not less than all, of the
Partnership Interest of such Partner for a purchase price equal to the
greater of (i) 90% of the Fair Market
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Value of such Partnership Interest determined in accordance with the
appraisal process provided in Section 5.8 hereof; or (ii) 100% of the Fair
Market Value of such Partnership Interest determined in accordance with the
appraisal process provided in Section 5.8 hereof, if the Acquirer is
prohibited by law from acquiring the Partner's Partnership Interest;
provided, however, that if the acquisition by the Acquirer described in
Section 5.2(c) occurs after the third anniversary of the date hereof and if
prior to the end of such ninety day period, such Partner receives an offer
from an Offeror (as described in Section 5.4(a)) other than the Acquirer,
then the provisions of Section 5.4 only shall apply.
5.6 Put Rights of Partners.
(a) If the Partners decide pursuant to Section 3.5(b) to merge or
consolidate with another Entity and the Partnership is not the surviving
Entity, each Partner which voted against such merger or consolidation shall
have the right for thirty days after such vote to require that the
Partnership (or its designee) purchase all of such Partner's Partnership
Interest on the terms set forth in this Section. Such put shall be
exercisable by delivery within such thirty day period to the Partnership of
notice of exercise by such Partner. The purchase price to be paid to such
Partner for its Partnership Interest pursuant to this Section shall be paid
in cash and shall equal the Fair Market Value of such Partner's Partnership
Interest as determined in accordance with the provisions of Section 5.8
hereof. The closing of the purchase and sale of such Partner's Partnership
Interest shall occur and be conducted in accordance with the provisions of
Section 5.9 hereof.
(b) Beginning at the earlier of (i) the fourth anniversary of the date
hereof, or (ii) the date upon which a Partner has made Initial Capital
Contributions in the aggregate amount indicated on the Information
Appendix, any Partner (the "Putting Partner") may, by giving written notice
within ten business days of January 1st and July 1st of each year, require
the Partnership to purchase all of such Putting Partner's Partnership
Interest for an amount equal to the Putting Partners' Capital Account
together with interest at a rate per annum equal to the Prime Rate plus 2%
per annum, calculated from the date of the Capital Contribution. The
closing of the purchase and sale of such Putting Partner's Partnership
Interest shall occur and be conducted in accordance with the provisions of
Article 5.9 hereof; provided, however, that in no event shall the closing
take place prior to ninety days after the date of the notice. The purchase
price shall be payable in cash or, with the consent of TCGI, which may be
withheld in TCGI's sole discretion, in stock of TCGI.
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5.7 Prohibited Transfers. Notwithstanding any provision to the contrary in
this Article 5, except pursuant to a transaction contemplated by Section 5.3, no
Partner may transfer any Partnership Interest if the interest sought to be
transferred, when added to the total of all other Partnership Interests
transferred within a period of twelve consecutive months prior thereto, equals
or exceeds 50% of the aggregate of all Partnership Interests, except with the
prior written consent of all of the other Partners. A transfer of the equity
interests in a Partner which is a corporation or in an Entity of which such
Partner is a direct or indirect corporate Subsidiary shall not constitute a
transfer prohibited by, or taken into consideration in determining the
applicability of, this Section.
5.8 Appraisal Process. The Fair Market Value of a Partner's Partnership
Interest for purposes of this Agreement shall be determined as follows:
(a) The Partners shall endeavor to agree upon such Fair Market Value.
(b) If the Partners fail to agree within thirty Business Days after
the date of the occurrence of the event necessitating valuation of the
Partner's Partnership Interest, then the Fair Market Value of such
Partnership Interest shall be determined by independent appraisal,
such appraisal to be made by a qualified appraiser selected by the
Partner whose Partnership Interest is being appraised (the "Appraisal
Partner") and the Partners holding a majority in Percentage Interests
(excluding the Percentage Interest of the Appraisal Partner). If the
Partners have not agreed on the selection of an appraiser within five
Business Days after the expiration of such thirty Business Day period,
then the Appraisal Partner shall select one appraiser and the Partners
holding a majority in Percentage Interests (excluding the Percentage
Interest of the Appraisal Partner) shall select a second appraiser,
such selections to be made promptly and in any event within ten
Business Days after the expiration of the foregoing five Business Day
period. (If only one appraiser is timely selected within such ten
Business Day period, the appraisal shall be made solely by such
timely-selected appraiser.) The appraiser, or each appraiser in the
event of more than one appraiser, shall submit its determination of
the Fair Market Value of the Appraisal Partner's Partnership Interest
within forty-five Business Days of the date of its
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selection. If there are two appraisers and their respective
determinations of such Fair Market Value vary by 10% or less of the
higher of such determinations, the Fair Market Value of the Appraisal
Partner's Partnership Interest shall be the average of the two
determinations. If such determinations vary by more than 10% of the
higher of such determinations, the determination of the Fair Market
Value of the Appraisal Partner's Partnership Interest shall be decided
by arbitration by the office of the American Arbitration Association
located in or nearest to the Business Area in accordance with the
Commercial Arbitration Rules of the American Arbitration Association.
(c) Any determination of Fair Market Value pursuant to this Section
5.8 shall be final and binding on the Partners. No appraiser selected
pursuant to Section 5.8(b) shall be affiliated with any Partner and
each shall be an investment banker or other qualified person with
prior experience in appraising businesses comparable to the business
of the Partnership. The fees and expenses of any appraisers or
arbitrators shall be paid by the Partnership.
5.9 Closing of any Permitted Transfer. Unless otherwise agreed between the
buyer and seller, the closing of a purchase and sale of a Partnership Interest
permitted by this Agreement (other than pursuant to Section 5.4(b) or Section
5.2(c)) shall take place at the offices of the Partnership on or before the
thirtieth day after the later of:
(a) the completion of the appraisal process, if applicable;
(b) the expiration or termination of all applicable governmental
waiting periods;
(c) the receipt of all necessary governmental consents needed to
approve the transactions contemplated herein, which consents have not been
reversed, stayed, enjoined, set aside, annulled or suspended, and with
respect to which no requests are pending for administrative or judicial
review, reconsideration, appeal or stay, and the time for filing any such
requests and the time for the issuer of such consent to set aside the
action on its own motion have expired;
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(d) the receipt of all material third party consents needed to approve
the transactions contemplated herein; and
(e) the termination of any applicable preliminary or permanent
injunction or other order by any court of competent jurisdiction
restricting, preventing or prohibiting the consummation of such purchase
and sale.
At said closing, the purchaser shall pay the total purchase price against the
seller's delivery to the purchaser of instruments representing or evidencing the
Partnership Interest purchased, all duly endorsed and accompanied by assignments
as are sufficient to effect due transfer of the ownership of such interest to
the purchaser.
5.10 Remedies. No actual or purported disposition of any Partnership
Interest (or any portion thereof), nor any right thereto, whether voluntary or
involuntary, direct or indirect, in violation of any provision of this Agreement
shall be valid or effective to grant any Entity any right, title or interest in
or to such Partnership Interest (or portion thereof). The transferor of any
Partnership Interest (or portion thereof) disposed of in violation of any
provision of this Agreement, until such disposition or purported disposition
shall have been rescinded, shall not be entitled to exercise any of the rights
of a Partner or to receive any Distributions from the Partnership from and after
the date of such disposition or purported disposition or failure to comply, as
the case may be. Notwithstanding the foregoing, to the extent that a Partner
would have been entitled to Partnership Distributions but for the preceding
provisions of this Section, if and when such disposition or purported
disposition shall be rescinded or such failure to comply shall be cured, such
Partner shall be entitled to receive all such Partnership Distributions (but no
interest shall be paid thereon with respect to the period between the date on
which such Partnership Distributions would have been made but for this Section
and the date they are actually made).
ARTICLE 6: BOOKS AND RECORDS; ACCOUNTING; FISCAL YEAR
6.1 Books and Records. The Managing Partner shall keep, or cause to be kept
by the Manager pursuant to the Management Services Agreement, current and
complete records and books of account in which shall be entered fully and
accurately all transactions of the Partnership. The books of the Partnership
shall be kept on an accrual basis of accounting and in accordance with generally
accepted accounting principles consistently applied. The Partnership's books and
records shall be maintained at the principal offices of the Managing Partner
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and shall be available for inspection and copying by the Partners or their duly
authorized representatives during normal business hours.
6.2 Financial Statements. The Managing Partner shall cause to be delivered
to each Partner the following financial statements prepared, in each case, in
accordance with generally accepted accounting principles consistently applied
(and, if required by any Partner for purposes of reporting under the Securities
Exchange Act of 1934, Regulation S-X):
(a) Promptly upon availability, but in any event within thirty days of
the end of each month, (i) a balance sheet as of the end of such month; and
(ii) the related statements of income or loss, Partner's capital
(deficiency), and cash flows for the interim period through the end of such
month and for the month then ended, and setting forth in each case in
comparative form the figures for such previous fiscal periods as any
Partner may reasonably request and comparisons to budget;
(b) Promptly upon availability but in any event within forty days of
the end of each quarter, (i) a balance sheet as of the end of such quarter;
and (ii) the related statements of income or loss, Partner's capital
(deficiency), and of cash flows for the interim period through the end of
such quarter and for the quarter then ended, and setting forth in each in
comparative form the figures for such previous fiscal periods as any
Partner may reasonably request and comparisons to budget;
(c) Promptly upon availability, but in any event within eighty-five
days of the end of each Fiscal Year, a balance sheet of the Partnership as
of the end of such Fiscal Year, and the related statements of income or
loss, Partner's capital (deficiency) and cash flows for such Fiscal Year,
all in reasonable detail with appropriate notes to such financial
statements and supporting schedules, setting forth in each case in
comparative form the figures for the previous year, which financial
statements may, at the option of the Managing Partner, be certified by a
nationally recognized accounting firm;
(d) Together with the annual statements required pursuant to Section
6.2(c) above, a report of the Net Profit or Net Loss and Distributions, if
any, for such Fiscal Year, a schedule setting forth each Partner's Capital
Account as at the end of the period covered by such statements and a
Schedule K-1 for each Partner, a copy of the Partnership's federal and
state tax returns and other information required by applicable tax
regulations or necessary for each Partner to prepare its federal, state and
local tax returns; and
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(e) With reasonable promptness, such other financial information or
reports as any Partner may reasonably request from time to time.
6.3 Bank Accounts. The Partnership shall maintain bank accounts in such
banks or institutions as the Managing Partner from time to time shall select,
and such accounts shall be drawn upon by check signed by such person or persons,
and in such manner, as may be designated by the Managing Partner. All moneys of
the Partnership shall be deposited in the bank or other financial institution
account or accounts of the Partnership. Partnership funds shall not be
commingled with those of any other Entity without the consent of all Partners.
6.4 Fiscal Year. The Partnership's fiscal year for income tax purposes and
for financial and partnership accounting purposes shall be the Fiscal Year.
ARTICLE 7: OTHER BUSINESS ACTIVITIES
7.1 Conduct of Exclusive Business in Business Area.
(a) Except as expressly permitted in this Article 7 or in the
Information Appendix, for so long as it is a Partner and, and unless it
ceases to be a Partner as a result of a purchase of its Partnership
Interest pursuant to Section 5.5 hereof, for three years after it ceases to
be a Partner (but in no event beyond the expiration or earlier termination
of this Agreement), no Partner shall Engage, or permit its Controlled
Affiliates to Engage, in the Business Area in an activity encompassed in
the Exclusive Business without having first offered to the Partnership
(outside of the Budget process) the opportunity to Engage, in lieu of such
Partner or Controlled Affiliate, in such activity (the "Offer"), which
offer shall set forth in reasonable detail the nature and scope of the
activity proposed to be Engaged in. The Partnership shall have thirty days
from its receipt of the Offer to accept or reject it. If the Partnership
fails to accept the Offer within such thirty day period, it shall be deemed
to have rejected the Offer, and the offering Partner or its Controlled
Affiliate shall be permitted to Engage in such activity in the Business
Area. If the Partnership accepts the Offer, the offering Partner and its
Controlled Affiliates shall not Engage in such activity in the Business
Area; provided, however, that if the Partnership accepts the Offer but does
not within a reasonable period of time after such acceptance take
reasonable steps to commence such activity, other than as a result of a
violation of this Agreement or wrongful acts or willful bad faith on the
part of the offering Partner, or any of its Controlled Affiliates, the
offering Partner or its Controlled Affiliate, as the case may be, shall be
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permitted to Engage in such activity. If the offering Partner or Controlled
Affiliate does not take reasonable steps to commence such activity within a
reasonable period of time after acquiring the right to do so, it shall lose
its right to Engage in such activity, and, thereafter, be required to
reoffer the opportunity to do so to the Partnership in accordance with, and
shall otherwise comply with, the foregoing provisions of this Section 7.1.
The foregoing to the contrary notwithstanding, TC shall not be subject to
the restrictions set forth in this Section 7.1(a) after it ceases to be a
Partner if it has sold its Partnership Interest after being removed as the
Managing Partner pursuant to Section 3.2(d) hereof. It is the Partners'
good faith intent that the Partnership shall be the primary vehicle for the
conduct of the Exclusive Business in the Business Area, and it is
contemplated that this provision will be utilized by a Partner or its
Controlled Affiliates only under unusual or exceptional circumstances and
not for the purpose of avoiding or subverting the purposes and intent of
this Agreement. If the Partnership determines not to accept an Offer, the
Partner making the Offer shall use commercially reasonable efforts to
negotiate, or, if the Offer was made by a Controlled Affiliate of a
Partner, such Partner shall use commercially reasonable efforts to cause
such Controlled Affiliate to negotiate, agreements with the Partnership,
which are reasonable in the independent judgment of both parties, pursuant
to which the Partnership, alone or jointly with such Partner or its
Controlled Affiliates, would provide appropriate service to customers in
the locations in which the activity described in the Offer is conducted.
(b) Notwithstanding the foregoing, a Partner and its Controlled
Affiliates shall be permitted, directly or indirectly, now or in the
future, to do any of the following without being required to follow the
procedures set forth in Section 7.1(a) above:
(i) to conduct any activity included in the Exclusive Business in
the Business Area which is a necessary component of the conduct of, or
incidental to, or encompasses the provision of transport for any
Non-Exclusive Business by the Partner or its Controlled Affiliates in
the Business Area or to enter into an arrangement with an independent
third party for the provision of any services included in such
Exclusive Business in the Business Area which is a necessary component
of the conduct of, or incidental to, or encompasses the provision of
transport for such Non-Exclusive Business; and
(ii) to provide internal communications and internal telephone
services, including, without limitation, owning and operating
telephone switching equipment, to a Partner and its Affiliates and to
tenants of buildings for which a
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Partner or an Affiliate acts as the landlord in the Business Area.
7.2 Exceptions for Certain Transactions. Each Partner and its Controlled
Affiliates shall be permitted to do any of the following without being obligated
to make an Offer to the Partnership pursuant to 7.1:
(a) invest in companies that are Engaged in the Exclusive Business in
the Business Area where such investments are incidental to investments in
public companies and constitute less than 10% of the outstanding securities
and voting interest of such companies;
(b) acquire companies an incidental portion of the business of which
(such portion being deemed to be incidental if the assets, revenues and
income relating to the Exclusive Business are less than 10% of the assets,
revenues and income, respectively, of the company being acquired and if the
assets relating to such Exclusive Business have a fair market value of less
than $5,000,000) is encompassed in the Exclusive Business in the Business
Area; and
(c) sell, transfer or otherwise dispose of any investment made
pursuant to clause 7.2(a) above or the stock, assets or business of any
company acquired pursuant to clause 7.2(b) above.
7.3 Existing Activities. Notwithstanding anything to the contrary in this
Article 7, a Partner and/or its Controlled Affiliate which are listed in the
Information Appendix as being Engaged in a specified activity or activities
encompassed in the Exclusive Business in the Business Area on the effective date
hereof (or, if later, on the date such Partner becomes a Partner) shall be
permitted to continue to Engage in such activity or activities; provided,
however, that such Partner or its Controlled Affiliate, as the case may be,
shall not materially expand or increase such activity or activities from that
described in the Information Appendix; and provided, further, that such Partner
shall use commercially reasonable efforts to negotiate, or cause such Controlled
Affiliates to negotiate, agreements with the Partnership, which are reasonable
in the independent judgment of both parties, pursuant to which the Partnership
would conduct such activity or activities on terms no less favorable to the
Partner or such Controlled Affiliate as the Partner or such Controlled Affiliate
could obtain from an independent third party or could provide for itself.
7.4 Prohibited Transactions. Notwithstanding any provision to the contrary
in this Agreement, no Partner shall, nor shall any Partner permit its Controlled
Affiliates to, Engage
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in the Exclusive Business in the Business Area with any Entity which is not a
Controlled Affiliate of such Partner or of any Controlled Affiliate of such
Partner, except as expressly permitted in Section 7.1(c)(i).
7.5 Controlled Affiliates. Any breach by a Controlled Affiliate of a
Partner of the provisions of this Article 7 shall be deemed to be a breach by
such Partner.
7.6 Services Offered by the Partnership. If the Partnership provides any
services to a Partner or an Affiliate of a Partner, the Partnership shall offer
the same services on the same terms and conditions to each other Partner and its
Affiliates.
7.7 Non-Exclusive Business. A Partner and its Controlled Affiliates shall
be permitted to Engage in the Non-Exclusive Business. However, prior to Engaging
in the Non-Exclusive Business, such Partner shall, or shall cause its Controlled
Affiliate to, enter into a Reciprocal Resale Agreement with the Partnership.
7.8 Services Offered by the Partners. If the Partner or an Affiliate of a
Partner provides services to any entity, the Partner or its Affiliate shall
offer the same services on the same terms and conditions to the Partnership.
ARTICLE 8: DISSOLUTION
8.1 Causes of Dissolution. To the extent permitted by the Act, the
dissolution of the Partnership shall occur only upon the occurrence of any of
the following events:
(a) The sale, or taking by eminent domain, of all or substantially all
of the assets of the Partnership;
(b) A legal or regulatory determination, or the revocation or
non-renewal of any franchise or license held by the Partnership which
revocation or non-renewal is not subject to further governmental or
judicial review and which, in any such case, renders it unlawful or
impossible for the Partnership to conduct all or substantially all of the
Exclusive Business in the Business Area;
(c) The expiration of the term of this Agreement; or
(d) The agreement of the Partners in accordance with Section 3.5 to
dissolve the Partnership.
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Upon a dissolution, unless the Partners agree to continue the business of the
Partnership pursuant to Section 8.3, no further business shall be done in the
Partnership's name, except for the taking of such action as shall be necessary
for the performance and discharge of the Partnership's obligations, the
winding-up of its affairs and the liquidation and distribution of its assets in
accordance with the provisions hereof.
8.2 Winding Up and Liquidation.
(a) Upon dissolution, subject to Section 8.3, the Partnership's
affairs shall be wound up by the Managing Partner and its property
liquidated as rapidly as business circumstances will permit, and the
Partners shall, subject to any provisions of law or of any other applicable
agreement, make Distributions in the following manner and order:
(i) To payment and discharge of the claims of all creditors of
the Partnership who are not Partners or Affiliates of Partners;
(ii) To payment and discharge of the claims of all creditors of
the Partnership who are Partners or Affiliates of Partners pro rata in
accordance with the amounts of such claims;
(iii) To creation of reasonable cash reserves for the payment of
any taxes, expenses or liabilities, contingent or otherwise; and
(iv) To the Partners in accordance with their Capital Accounts;
provided, however, that Distributions made pursuant to this Section
8.2(a)(iv) shall be made in accordance with the time requirements set
forth in Regulations Section 1.704-1(b)(2)(ii)(b)(2).
(b) Upon liquidation of the Partnership, if any Partner's Capital
Account has a deficit balance (after giving effect to all contributions,
Distributions and allocations for all taxable years, including the year
during which such liquidation occurs), such Partner shall contribute to the
capital of the Partnership the amount necessary to restore such deficit
balance to zero in compliance with Regulations Section 1.704-
1(b)(2)(ii)(b)(3).
8.3 Continuation of the Partnership. Upon the dissolution of the
Partnership, the Partners, by a Supermajority Vote, may decide to continue the
business of the Partnership pursuant to this Agreement.
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8.4 No Withdrawal. Except as otherwise expressly provided in this
Agreement, no Partner may withdraw from the Partnership without the consent of
all of the other Partners.
ARTICLE 9: EVENTS OF DEFAULT AND REMEDIES
9.1 Events of Default. An "Event of Default" shall be considered to have
occurred with respect to a Partner (a "Defaulting Partner") if:
(a) such Partner sells, assigns, transfers, grants a participation in,
pledges, encumbers or otherwise conveys all or any part of its Partnership
Interest, except as permitted by this Agreement; provided, however, that no
Event of Default shall be considered to have occurred for thirty days
following the involuntary encumbrance of all or any part of such
Partnership Interest if during such thirty day period such Partner acts
diligently to, and does, remove any such encumbrance, including, but not
limited to, effecting the posting of a bond to prevent foreclosure where
necessary;
(b) an Initial Capital Payment Default (as that term is defined in
Section 4.3(a)(i)) occurs with respect to such Partner and the related call
of the installment of the Initial Capital Contribution in respect of which
the Initial Capital Payment Default occurred is not rescinded pursuant to
Section 4.3(b)(i);
(c) such Partner fails to perform or violates any other material term
or condition of this Agreement and such failure or violation continues for
thirty days after written notice thereof has been given to such Partner by
the Remedies Partner;
(d) such Partner institutes proceedings of any nature under the
Federal Bankruptcy Code, or any similar state or Federal law for the relief
of debtors (a "Bankruptcy Law"), wherein such Partner seeks relief as a
debtor; such Partner makes a general assignment for the benefit of
creditors; or such Partner has instituted against it proceedings under any
section of any Bankruptcy Law, which proceedings are not dismissed, stayed
or discharged within sixty days after the filing thereof or if stayed,
which stay is thereafter lifted without a contemporaneous discharge or
dismissal of such proceedings (such Partner may be referred to hereinafter
as a "Bankrupt Partner"); or
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(e) such Partner otherwise causes the dissolution of the Partnership
in contravention of this Agreement.
9.2 Remedies.
(a) Upon the occurrence and during the continuance of an Event of
Default with respect to a Defaulting Partner, the Remedies Partner may
elect:
(i) with the approval of those Partners who are not Defaulting
Partners ("non-Defaulting Partners") with an aggregate Percentage
Interest constituting not less than a majority of the sum of the
Percentage Interests of all non-Defaulting Partners, to cause the
Partnership, or its designee(s), to purchase the Partnership Interest
of such Defaulting Partner pursuant to Section 9.3; or
(ii) to seek to enjoin such default or to obtain specific
performance of a Defaulting Partner's (or the applicable Controlled
Affiliate's) obligations or to seek Damages (as defined and subject to
the limitations specified below) or both.
provided, however, that, with respect to an Event of Default arising under
Section 9.1(b) above, if there is more than one Defaulting Partner, the
Remedies Partner shall make the same election with respect to each such
Defaulting Partner.
(b) The election of a remedy specified in clause 9.2(a)(i) or (ii)
above may be exercised by notice given to the Defaulting Partner (x), in
the case of an Event of Default specified in clause (b) of Section 9.1, at
any time, or (y), in the case of any other Event of Default, within ninety
days after the Remedies Partner obtains actual knowledge of the Event of
Default; provided that, if an election pursuant to clause 9.2(a)(ii) above
is made to seek an injunction, specific performance or other equitable
relief and a final judgment in such action is rendered denying such
equitable remedy, then, within ninety days thereafter, the Remedies Partner
may elect to pursue the remedy specified in clause 9.2(a)(i) above (subject
to the prior approval of the non-Defaulting Partners contemplated by
Section 9.2(a)(i) above) unless, prior to the giving of such notice, the
Defaulting Partner has cured (or caused to be cured) the Event of Default
in full or the final judgment denying equitable relief specifically held
that there was no Event of Default, and no other Event of Default with
respect to such Defaulting Partner has occurred and is continuing.
(c) The remedies set forth in Section 9.2(a) above shall not be deemed
mutually exclusive, and selection or
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resort to any thereof shall not preclude selection or resort to the others;
provided that, if the Remedies Partner makes an election pursuant to clause
9.2(a)(i) above in respect of any Event of Default, then it may not pursue
any other remedy in respect of that Event of Default. Except for the resort
to the remedy set forth in clause 9.2(a)(i) above, the resort to any remedy
pursuant to this Section 9.2 shall not for any purpose be deemed to be a
waiver of any other remedy available under this Agreement or under
applicable law.
(d) Unless an Event of Default shall have been waived in writing or
cured, the Partnership or the non-Defaulting Partners shall be entitled to
recover from the Defaulting Partner (or its Parent pursuant to the
applicable Parent Undertaking) in an appropriate proceeding any and all
damages, losses and expenses (including reasonable attorneys' fees and
disbursements) (collectively "Damages") suffered or incurred by the
Partnership or the non-Defaulting Partners as a result of such Event of
Default; provided, that neither the Partnership nor the non- Defaulting
Partners shall have or assert any claim against the Defaulting Partner or
any of its Affiliates for punitive Damages or for indirect, special or
consequential Damages suffered as a result of such Event of Default.
(e) Upon the occurrence and during the continuance of the related
Event of Default, and except as required by applicable law, a Defaulting
Partner shall not be entitled to vote on any matter submitted to a vote of
the Partners and its Percentage Interest shall not be included in
calculating the Percentage Interests required to approve or disapprove any
such matter, and such Defaulting Partner shall not be entitled to exercise
any rights under Section 5.4 (or, without the consent of the Remedies
Partner, any rights under Section 5.2 or Section 5.5 of this Agreement). In
all other respects a Defaulting Partner shall continue to have all of the
rights and obligations of a Partner under this Agreement and applicable
law.
9.3 Purchase of Defaulting Partner's Partnership Interest.
(a) If an election is made pursuant to clause 9.2(a)(i), the closing
of the purchase of the Defaulting Partner's Percentage Interest shall take
place at the time and at the place determined in accordance with the
provisions of Section 5.9. The Partnership (or its designee) shall pay a
purchase price for the Defaulting Partner's Percentage Interest (which
shall be payable in cash) equal to 50% of the Fair Market Value of such
Partnership Interest. Upon payment of the purchase price to the Defaulting
Partner, the Defaulting Partner shall deliver to the Partnership (or its
designee(s)) all documents necessary
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to transfer to the Partnership (or its designee(s)) good title to its
Partnership Interest.
(b) Notwithstanding Section 9.3(a), if an election is made pursuant to
clause 9.2(a)(i) and the only Event of Default that has occurred and is
continuing is that the Defaulting Partner is a Bankrupt Partner, then the
time, place and manner of the purchase of such Defaulting Partner's
Partnership Interest shall be as provided in Section 9.3(a), except that
the Partnership (or its designee(s)) shall pay a purchase price for such
Partnership Interest (which shall be payable in cash) equal to 90% of the
Fair Market Value of such Partnership Interest.
ARTICLE 10: REPRESENTATIONS AND WARRANTIES OF THE PARTNERS
Each Partner makes the following representations and warranties to each
other, each with respect to itself only:
(a) It is duly incorporated or organized, validly existing and in good
standing under the laws of its state of incorporation or organization and
duly qualified or registered to do business in each state or jurisdiction
in which failure to so qualify or register would have a material adverse
effect upon such Partner or the Partnership.
(b) It and each of its Controlled Affiliates has the full power and
authority to take all actions contemplated by this Agreement and any of the
Management Services Agreement, Partner Services Agreement and Parent
Undertaking to which it or any of its Controlled Affiliates is a party.
(c) The execution, delivery and performance of this Agreement and each
of the Management Services Agreement, Partner Services Agreement and Parent
Undertaking to which it or any of its Controlled Affiliates is a party,
have been, or at the appropriate time shall be, duly authorized by all
necessary action on its part or the part of any such Controlled Affiliate,
as the case may be.
(d) This Agreement and each of the Management Services Agreement,
Partner Services Agreement and Parent Undertaking to which it or one of its
Controlled Affiliates is a party, constitutes a valid and binding
obligation of it enforceable in accordance with the terms hereof and
thereof, subject as to enforceability to limits imposed by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and the
availability of equitable remedies.
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<PAGE>
(e) The execution, delivery and performance of this Agreement and of
each of the Management Services Agreement, Partner Services Agreement and
Parent Undertaking to which it or one of its Controlled Affiliate is a
party, do not violate any provision of law or of its or of its Controlled
Affiliates' organizational documents.
(f) The execution, delivery and performance of this Agreement and of
each of the Management Services Agreement, Partner Services Agreement and
Parent Undertaking to which it or one of its Controlled Affiliate is a
party, are not inconsistent with, and do not violate or cause a breach or
default under, any agreement or obligation to which it or any of its
Controlled Affiliates is a party or is otherwise subject.
ARTICLE 11: MISCELLANEOUS
11.1 Acknowledgements.
(a) Each Partner affirms and acknowledges that no representations,
warranties or statements have been made to it by any party hereto other
than those expressly set forth in this Agreement and that, in entering into
this Agreement, it has not relied upon anything done or said with respect
to this Agreement or with respect to the relationship between the parties,
other than as expressly set forth in this Agreement.
(b) Each Partner affirms and acknowledges that neither the Partnership
nor the Managing Partner has made any representation or warranty regarding
any financial statements, business plans, projections or other information
provided to such Partner except as expressly provided herein. Any
projections and business plans provided to the Partners reflect the
Managing Partner's current estimate and projections as to the manner and
cost of the development of the Partnership's business in the Business Area.
Such estimate and projections are subject to change.
11.2 Bill for Partition. Each of the Partners covenants that neither it nor
any person or persons claiming through or under it, will file a bill for
partition of the Partnership property.
11.3 Notices. All notices and other communications hereunder shall be (a)
in writing (except to the extent otherwise expressly provided hereunder); (b)
delivered by telecopy, by commercial overnight or same-day delivery service with
all delivery costs paid by sender, or by registered or certified mail with
postage prepaid, return receipt requested; (c) deemed given on the date and at
the time shown on the telecopy confirmation of
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<PAGE>
receipt (if delivered by telecopy), on the date and at the time (if recorded) of
delivery by the commercial delivery service, as shown in the records thereof (if
delivered by commercial overnight or same-day delivery service), or on the date
shown on the return receipt (if delivered by registered or certified mail); and
(d) addressed to the parties at their addresses specified on the signature pages
hereof (or at such other address for a party as shall be specified by like
notice).
11.4 Amendments. This Agreement may not be amended nor shall any waiver,
change, modification, consent, or discharge be effected, except by an instrument
in writing adopted by each Partner; provided, however, that an amendment to
increase the dollar values set forth in any of Sections 3.4(a), 3.4(e), 3.5(c),
3.5(d), or 3.5(f) may be adopted by a Supermajority Vote; and provided, further,
that any changes in this Agreement required solely by the admission of an
additional Partner may be adopted by the same Percentage Interest as is required
to approve the admission of such Partner.
11.5 Indebtedness for Borrowed Money. The Partnership shall not incur any
indebtedness for borrowed money the terms of which permit the creditor under
such indebtedness to have recourse against a Partner without the express written
consent of that Partner.
11.6 Waivers and Further Agreements; Entire Agreement. Any waiver of any
terms or conditions of this Agreement shall be in writing and shall not operate
as a waiver of any other breach of such terms or conditions or any other term or
condition, nor shall any failure to enforce any provision hereof operate as a
waiver of such provision or of any other provision hereof. Each of the Partners
agrees to execute all such further instruments and documents and to take all
such further action as any other Partner may reasonably require in order to
effectuate the terms and purposes of this Agreement. The Partners agree that
this Agreement, including the Exhibits and Appendices hereto, constitutes the
entire agreement among them with respect to the subject matter of the
Partnership and supersedes all prior agreements and understandings among them as
to such subject matter, and there are no restrictions, agreements, arrangements
or undertakings, oral or written, among the Partners relating to the Partnership
which are not fully expressed or referred to herein.
11.7 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any
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<PAGE>
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner to the end that transactions contemplated hereby are fulfilled
to the greatest extent possible.
11.8 Specific Enforcement; Attorneys Fees. The parties hereto agree that
the remedy at law for damages upon violation of the terms of this Agreement
would be inadequate because the Partnership Interests and the business of the
Partnership are deemed unique. Therefore, the parties agree that the provisions
of this Agreement may be specifically enforced by any court of competent
jurisdiction, and each Partner and its respective transferees agree to submit to
the jurisdiction of the court where any such action for specific performance is
brought. If any Partner defaults in its performance of any of the terms and
conditions of this Agreement and if, as a result of such default, a lawsuit
seeking damages, specific performance or any other remedy is filed by any other
Partner, then, in that event, the prevailing party in such a lawsuit shall be
entitled to obtain attorney's fees from the losing party in such amount as shall
be determined by the court to be reasonable under the circumstances.
11.9 Counterparts. This Agreement may be executed in counterparts each of
which shall be deemed an original and all of which together shall constitute one
and the same instrument, and in pleading or proving any provision of this
Agreement, it shall not be necessary to produce more than one complete set of
such counterparts.
11.10 Captions; Gender. Article and section headings contained in this
Agreement are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement. Whenever used herein the singular
number shall include the plural, the plural shall include the singular, and the
use of any gender shall include all genders.
11.11 Governing Law and Binding Effect. This Agreement shall be governed by
and construed and enforced in accordance with the law (other than the law
governing conflicts of law questions) and decisions of the State of New York
applicable to contracts made and to be performed entirely therein. This
Agreement shall bind and inure to the benefit of each of the Partners and their
successors and permitted assigns.
11.12 Expenses. Each of the Partners shall bear its own expenses, including
legal and other professional fees, incurred by it in the negotiation and
preparation of this Agreement; provided, however, that the Partnership shall
reimburse Partners for the pre-organization operating expenses
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<PAGE>
they incurred prior to the date hereof to the extent listed on the Information
Appendix.
11.13 Third Parties. None of the provisions of this Agreement shall be for
the benefit of, or enforceable by, any creditor of the Partnership or other
third parties.
11.14 Confidentiality. Each Partner agrees that it shall not, directly or
indirectly, without the prior written consent of each other Partner, disclose
the terms of this Agreement or the identity of the Partners or use for its own
benefit (except as a Partner of the Partnership) or disclose to any Entity any
information, trade secrets, confidential customer information, patents, patent
rights, technical data or know-how relating to the products, processes, methods,
equipment or business practices of the Partnership, except (a) to the extent any
of the foregoing is or becomes available to the public other than as a result of
disclosure by such Partner or any of its Affiliates or the directors, officers,
employees, agents, advisors and controlling persons of it or any of its
Affiliates, (b), subject to the terms of an appropriate confidentiality
agreement, as necessary to effect a transaction under Article 5, (c) as may be
required by law and (d) as any Partner may disclose to its lenders, rating
agencies and business and financial advisors. In the event any Partner is
required by applicable law or regulation or by legal process to disclose any of
the foregoing, it will provide the other Partners with prompt notice thereof to
enable them to seek an appropriate protective order.
11.15 Appendices. The Tax Appendix and the Information Appendix are hereby
incorporated by reference and made a part of this Agreement as if they were set
forth herein in their entirety.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Partnership
Agreement as of the date first above written.
TELEPORT COMMUNICATIONS SAN FRANCISCO, INC.
By: /s/ ROBERT ANNUNZIATA
--------------------------------
Robert Annunziata
Chief Executive Officer
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-1011
Attention: Robert Annunziata, Chairman
and Chief Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
TCI TELEPORT OF SAN FRANCISCO, INC.
By: /s/ BRUCE W. RAVENEL
--------------------------------
Bruce W. Ravenel
Vice President
Address: 5619 DTC Parkway
Englewood, Colorado 80111
Attention: Robert J. Lemming
Executive Vice President
Fax: (303) 488-3215
and
Peter J. Stapp, Esq.
Counsel
Fax: (303) 488-3207
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Partnership
Agreement as of the date first above written.
TELEPORT COMMUNICATIONS SAN FRANCISCO, INC.
By: /s/ J. Curt Hockemeier
--------------------------------
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-1011
Attention: Robert Annunziata, Chairman and
Chief Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
VIACOM TELECOM, INC.
By: /s/ JOHN W. GODDARD
--------------------------------
Address: P.O. Box 13
Pleasanton, CA 94566-0811
Attention: John Goddard
President and
Chief Executive Officer
and
Stephanie A Storms, Esq.
Vice President,
Law and Government Relations
and
Don Dallas
Director of Telecommunications
Fax: (510) 463-3241
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Partnership
Agreement as of the date first above written.
TELEPORT COMMUNICATIONS SAN FRANCISCO, INC.
By: /s/ J. Curt Hockemeier
--------------------------------
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-1011
Attention: Robert Annunziata, Chairman and
Chief Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
INTERMEDIA PARTNERS
By: /s/ Leo J. Hindery, Jr.
--------------------------------
Address: 235 Montgomery Street, Suite 420
San Francisco, CA 94104
Attention: Leo J. Hindery, Jr.
Managing General Partner
Fax: (415) 397-3978
Copy to: Gregg Vignos, Esq.
Pillsbury, Madison & Sutro
235 Montgomery Street, 16th Floor
San Francisco, CA 94104
Fax: (415) 477-4816
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Partnership
Agreement as of the date first above written.
TELEPORT COMMUNICATIONS SAN FRANCISCO, INC.
By: /s/ J. Curt Hockemeier
--------------------------------
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-1011
Attention: Robert Annunziata, Chairman and
Chief Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
MICRONET INC.
By: /s/
--------------------------------
Address: Commonwydds, Bldg. B
2370 York Road
Jamison, PA 18929
Attention: Carl J. Cangelosi
Fax: 215-491-0260
<PAGE>
EXHIBIT A
Form of Management Services Agreement
<PAGE>
MANAGEMENT SERVICES AGREEMENT
This MANAGEMENT SERVICES AGREEMENT is made as of January 1, 1994, by and
between TELEPORT COMMUNICATIONS GROUP INC., a Delaware corporation having its
principal office at One Teleport Drive, Staten Island, NY 10311 ("TCGI"), and
TCG SAN FRANCISCO, a New York general partnership having its principal office at
One Bush Street, Suite 510, San Francisco, CA 94104-4406, ("Operator").
RECITALS
Operator has been created by a Partnership Agreement of even date herewith
(the "Partnership Agreement") between Teleport Communications San Francisco,
Inc. ("TC"), and others. Pursuant to an Asset Contribution Agreement, TC has
agreed to contribute assets to Operator upon receipt of all necessary consents.
The Partnership Agreement contemplates that Operator will construct and operate
a local telecommunications transmission system (the "Project") in San Francisco
and vicinity utilizing the contributed TC assets. In connection therewith,
Operator desires to obtain certain services from TCGI and TCGI desires to offer
such services. In addition, Operator is willing to participate in various
national programs provided by TCGI, and to obtain certain quality standards and
proprietary rights, and Operator is willing to pay TCGI a quarterly fee in
recognition of the value of such programs, standards and rights. Capitalized
terms used herein and not otherwise defined shall have the respective meanings
ascribed thereto in the Partnership Agreement.
AGREEMENTS
In consideration of the foregoing and of the promises and covenants
contained in this Agreement, the parties agree as follows:
1. Management Services.
(a) Generally. Reference is made to Addendum A attached hereto, which
Addendum is incorporated into this Agreement to the same extent as if set
forth herein in full. Addendum A describes certain services (the
"Services"). TCGI hereby agrees to provide the Services described in
Section I of Addendum A and, to the extent requested by Operator from time
to time, the additional Services described in Section II of Addendum A, and
Operator hereby agrees to use the Services described in Section I of
Addendum A and accepts the option to use the additional Services described
in Section II of Addendum A. It is understood and agreed that the Services
will be provided by TCGI or its affiliates, and by the employees,
consultants, agents and contractors of TCGI and its affiliates.
<PAGE>
(b) Exclusivity. During the term of this Agreement, Operator agrees
not to obtain any of the Services described in Section I of Addendum A from
any Entity other than TCGI and its affiliates (and their respective
employees, consultants, agents and contractors) pursuant to this Agreement.
Operator may obtain Services described in Section II of Addendum A from any
Entity.
(c) Quality. TCGI shall perform all of the Services that are of a
professional nature in a professional manner in accordance with all
applicable professional standards and all applicable laws. TCGI shall
perform all of the Services that are of a nonprofessional nature in a
workmanlike manner in accordance with all applicable industry standards and
all applicable laws.
2. National Programs. In connection with TCGI's provision and Operator's
use of those Services designated in Addendum A as the "National Programs," TCGI
and Operator agree as follows:
(a) Name. Subject to the provisions of Section 2.2 of the Partnership
Agreement, Operator shall use commercially reasonable efforts to include
the words "TCG" or "Teleport Communications" in all of its trade names
regardless of the legal form of Operator from time to time. Upon the
termination or expiration of this Agreement, Operator agrees that it will
immediately cease using any of "TCG," "Teleport," "Teleport Communications"
or "TC," or any name or initials similar thereto, as part or all of its
trade names.
(b) Quality Standards. TCGI will provide Operator with regularly
updated written quality standards relating to the installation,
provisioning, engineering and maintenance of telecommunications services,
which standards shall be those employed generally by TCGI, its subsidiaries
and those entities managed by TCGI and its affiliates pursuant to
agreements similar to this Agreement in providing telecommunications
services. Operator shall implement and comply with such standards;
provided, however, that the aforementioned standards will not result in
substantially greater cost to Operator without Operator's approval.
3. Term. This Agreement shall have an initial term of five years from the
date hereof and shall be renewed automatically for successive five-year terms
after the initial term unless, at least six months prior to the expiration of
the current term, either party notifies the other party in writing of its desire
to renegotiate the terms of this Agreement as of the end of the current term. If
such notice is made, Operator and TCGI shall negotiate in good faith to renew
this Agreement, on terms acceptable to both parties, prior to the end of the
current term. The initial term and any subsequent renewal term shall be subject
to early termination pursuant to Sections 6 and 12. Notwithstanding the
termination or expiration of this Agreement:
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<PAGE>
(a) After the termination or expiration of this Agreement, TCGI shall
continue to provide, for a reasonable additional period not to exceed three
months, any of the Services that are required by Operator during such
period to permit an orderly transition to a successor service provider or
providers, and Operator agrees to pay the charges for such Services set
forth in Addendum A, as adjusted from time to time in accordance with
Section 4(b), in the manner provided in this Agreement;
(b) The provisions of Section 9 and Section 10 shall survive the
termination or expiration of this Agreement indefinitely; and
(c) The provisions of Section 2(b) and Section 4(a)(ii), and those
provisions of this Agreement relating to the payment of the fee specified
in Section 4(a)(ii), shall survive the termination or expiration of this
Agreement until the expiration of all agreements under which Operator
provides telecommunications services to national accounts through TCGI's
National Programs; provided, however, that the fee payable pursuant to
Section 4(a)(ii) after the termination or expiration of this Agreement
shall be limited to 3% of those Project Gross Revenues that are
attributable to such national accounts.
4. Fees and Charges.
(a) Fees. In return for the Services to be provided to Operator under
this Agreement, Operator shall pay to TCGI the following amounts:
(i) The charges set forth in Addendum A, as adjusted from time to
time in accordance with Section 4(b) and Addendum A; and
(ii) With respect to (A) the period commencing on the date hereof
and ending on the last day of the second full calendar quarter after
the date hereof and (B) each subsequent calendar quarter during the
term of this Agreement (each such period hereinafter called an
"Applicable Period"), a payment equal to the greater of (1) 3% of
Project Gross Revenues (as hereinafter defined) with respect to the
Applicable Period, or (2) an amount equal to the product of $278.00
times the number of days in the first Applicable Period and an amount
equal to $25,000 for each subsequent Applicable Period. The term
"Project Gross Revenues" means, with respect to any Applicable Period,
all revenues derived by Operator from the conduct of the Business (as
that term is defined in the Partnership Agreement) during the
Applicable Period, determined on an accrual basis, with adjustment for
bad debt and otherwise in accordance with generally accepted
accounting principles consistently applied.
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<PAGE>
(b) Adjustments. The charges stated on Addendum A are based on TCGI's
best estimate as of the date hereof of its cost of providing the Services
to Operator and to all local telecommunications transmission systems
managed by TCGI or its affiliates, including Teleport Communications New
York, Inc. TCGI shall periodically, but not less often than quarterly,
calculate the actual cost of providing the Services and determine whether
the amounts paid by Operator for such period are less than or exceed
Operator's pro rata share of the actual costs in providing the Services in
such period. The expenses attributable to the provision by TCGI of any
Service to Operator shall be calculated by allocating the expenses incurred
by TCGI and its affiliates in providing such Service to all
telecommunications transmission systems managed by TCGI and its affiliates
(including Teleport Communications New York, Inc. and Operator) among all
such systems on the basis of an equitably weighted average of each system's
direct hours billed, annual budgeted revenue and budgeted capitalization.
The weighting of each variable shall be determined from time to time by
TCGI. The initial weighting system is set forth in Section IV of Addendum
A. TCGI may adjust any of the fees and monthly rates set forth on Addendum
A as a result of such calculation to provide that the amounts paid by
Operator pursuant hereto more closely approximate TCGI's actual costs of
providing the Services. In addition, if as a result of the calculation of
the cost of providing the Services it is determined that Operator has paid
more or less than its pro rata share of the cost of providing the Services
in any period, TCGI shall send a statement to Operator with the next
monthly bill provided pursuant to Section 4(c) below setting forth the
amount of such overpayment or underpayment. If Operator has overpaid, it
shall be entitled to a credit in the amount of such overpayment against
subsequent payments. If Operator has underpaid, it shall pay to TCGI the
amount of such underpayment. TCGI shall provide Operator within ninety days
of the end of each of its fiscal years with a certificate from its
independent accountants certifying Operator's pro rata share of the cost of
providing the Services. Operator shall receive a credit in the amount of,
or shall pay an amount equal to, any overpayment or underpayment reflected
in such certificate as provided above. In no event, however, shall the
charges to Operator pursuant to this Section 4(b) or Addendum A resulting
from the cost of providing the Services to Operator, when taken as a whole,
exceed the cost at which Operator could obtain like services from
qualified, unaffiliated third parties.
(c) Payments and Billing.
(i) TCGI shall provide Operator with itemized monthly bills with
respect to all charges specified in Addendum A and any adjustments
made pursuant to Section 4(b) above. Billing for items charged on a
unit fee basis or a fixed fee basis shall be in advance and billing
for items charged on an actual time and
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<PAGE>
materials basis shall be in arrears. Each such bill shall be payable
within thirty days from the date of Operators's receipt thereof.
(ii) The fee specified in Section 4(a)(ii) shall be paid as
follows:
(A) With respect to the first Applicable Period, Operator
shall pay the product of $278.00 times the number of days in the
first Applicable Period prior to the last day of the first
Applicable Period and shall pay the amount, if any, by which the
fee specified in Section 4(a)(ii) for the first Applicable Period
exceeds the product of $278.00 times the number of days in the
first Applicable Period within sixty days after the end of the
first Applicable Period.
(B) With respect to each Applicable Period after the first
Applicable Period, Operator shall pay $25,000 toward the fee
specified in Section 4(a)(ii) on or before the first day of such
Applicable Period and shall pay the amount, if any, by which the
fee specified in Section 4(a)(ii) for such Applicable Period
exceeds $25,000 within sixty days after the end of such
Applicable Period.
(iii) Within sixty days after the end of each Applicable Period,
Operator shall provide TCGI with a statement, certified as correct by
Operator's General Manager or chief financial officer, as to the
amount of Project Gross Revenues for the Applicable Period. Operator
will permit any authorized TCGI employee or certified public
accountant retained by TCGI to examine Operator's books of account,
records, reports and other papers relating to the determination of
Project Gross Revenues, to make copies and extracts therefrom (except
with respect to that containing proprietary information), and to
discuss such items with Operator's officers and accountants (and by
this provision Operator authorizes the accountants to discuss such
items), all at such reasonable times and as often as may reasonably be
requested. Any such examination shall be performed at TCGI's sole cost
and expense unless such examination reveals a material understatement
in any quarterly statement of Project Gross Revenues, in which event
the cost of such examination shall be borne by Operator.
(iv) Operator shall inform TCGI of any discrepancies, claims
for credits or other problems with any bill within thirty days after
Operator's receipt thereof. If TCGI is so notified, Operator and TCGI
shall meet promptly and shall negotiate in good faith a resolution of
the dispute. TCGI agrees to maintain detailed records relating to its
provision of the Services. TCGI will permit Operator at any time upon
reasonable notice to examine all of such records, to make copies and
extracts therefrom and to discuss such records and other matters
- 5 -
<PAGE>
relating to the Services with the respective officers, employees and
independent public accountants of TCGI (and by this provision TCGI
authorizes the accountants to discuss such items).
(v) Any amount not received when due will be subject to a late
charge at a rate equal to the lesser of 1 1/2% per month or the
maximum amount permitted by law (if any).
(vi) Operator will be permitted to offset any amounts due to
Operator from TCGI or its wholly-owned subsidiaries against any
amounts payable to TCGI hereunder.
5. Taxes. Operator agrees to pay any sales, use, gross receipts, excise or
other local, state or Federal taxes or charges, however designated (excluding
taxes on TCGI's net income), imposed on or based upon the provision, sale or use
of the Services provided under this Agreement or otherwise related to the
transactions contemplated hereby. Any taxes imposed on TCGI that are required to
be paid by Operator under this Section 5 shall be separately stated on each
monthly bill to Operator.
6. Termination.
(a) Operator may terminate this Agreement by written notice to TCGI if
TCGI fails in any material respect to perform its obligations under this
Agreement in accordance with the terms hereof and customary and reasonable
standards of management in the telecommunications industry, and such
failure in performance continues unremedied for a reasonable period after
Operator has given written notice to TCGI specifying such failure in
reasonable detail. In no event shall the financial performance of Operator
or any failure by Operator to meet its budget for any period be deemed a
failure of performance by TCGI. Operator agrees that TCGI may remedy any
failure in performance by performing again in a satisfactory manner any
Services that Operator maintains were originally performed in an
unsatisfactory manner or by giving Operator a credit against any future
payments due under this Agreement equal to the amount of any charges paid
by Operator for any Services that Operator maintains were originally
performed in an unsatisfactory manner.
(b) TCGI may terminate this Agreement by written notice to Operator if
Operator fails in any material respect to perform its obligations under
this Agreement (other than those described in Section 6(c)) in accordance
with the terms hereof and customary and reasonable standards of management
in the telecommunications industry, and such failure continues unremedied
for a reasonable period after TCGI has given written notice to Operator
specifying such failure in reasonable detail.
(c) TCGI may terminate this Agreement by written notice to Operator if
Operator fails to make any payment due to
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<PAGE>
TCGI under this Agreement within thirty days of the date when such payment
was due unless such failure is due to a good faith dispute between TCGI and
Operator regarding such payment.
(d) Either party may terminate this Agreement by giving written notice
to the other party if the other party:
(i) files a voluntary petition in bankruptcy or is adjudicated a
bankrupt or insolvent or files any petition or answer seeking
arrangement, composition, readjustment, or similar relief under the
present or any future bankruptcy act or any other present or future
applicable federal or state law relating to bankruptcy, insolvency or
other relief for debtors; or
(ii) has an involuntary petition filed against it seeking
arrangement, composition, readjustment, liquidation or similar relief
under the present of any future federal bankruptcy act or any other
federal or state law relating to bankruptcy, insolvency or other
relief for debtors which is not vacated within sixty days from the
date of entry thereof; or
(iii) makes an assignment for the benefit of creditors or takes
any other similar action for the protection or benefit of creditors;
or
(iv) in connection with the ownership, operation or management of
the Project or the performance of its obligations under this
Agreement, commits any felony or any other criminal act that
materially threatens to result in suspension, revocation, or adverse
modification of any governmental franchise, license, authorization or
permit required for the conduct of the terminating party's business;
or
(v) misappropriates or converts any assets of the terminating
party.
7. Other Remedies. In addition to the termination rights set forth in
Section 6, each party may exercise any other remedy available at law or equity
in the event of a default by the other party in the performance of its
obligations under this Agreement.
8. Limitation on Liability. TCGI shall in no event (i) have any liability
to Operator for any damages, expenses, costs or losses resulting from its
performance or nonperformance of the Services, except as may be caused by TCGI's
willful misconduct or gross negligence; (ii) HAVE ANY LIABILITY WHATSOEVER FOR
SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES AS A RESULT OF ITS
PERFORMANCE OR NONPERFORMANCE OF THE SERVICES; or (iii) have any liability for
any failure of performance hereunder due to causes beyond its control, including
but not limited to acts of God, fire, flood or other catastrophes; any law,
order, regulation, direction or action of the United States Government, or of
any
- 7 -
<PAGE>
other government, including state and local governments having or claiming
jurisdiction over TCGI or Operator, or of any department, agency, commission,
bureau, corporation or other instrumentality of any one or more of these
federal, state or local governments, or of any civil or military authority;
national emergencies; unavailability of material or rights-of-way;
insurrections; riots; wars; or strikes, lock-outs, work stoppages or other labor
difficulties. TCGI makes no representation or warranty with respect to the
operations or results, financial or otherwise, of the Project, and shall have no
liability therefor.
9. Proprietary Information. Each party acknowledges that, in the course of
the performance of this Agreement, it may have access to privileged and
proprietary information claimed to be unique, secret and confidential, and which
constitutes the exclusive property or trade secrets of the other, and the
parties acknowledge that they are in a confidential relationship with each
other. This information may be presented in documents marked with a restrictive
notice or otherwise tangibly designated as proprietary or during oral
discussions, at which time representatives of the disclosing party will specify
that the information is proprietary. Each party agrees to maintain the
confidentiality of the proprietary information and to use the same degree of
care as it uses with regard to its own proprietary information to prevent the
disclosure, publication or unauthorized use of the proprietary information.
Neither party may duplicate or copy proprietary information of the other party
other than to the extent necessary for legitimate business uses in connection
with this Agreement. A party shall be excused from these nondisclosure
provisions if the proprietary information has been, or is subsequently, made
public by the other party or is independently developed by such party or if the
other party gives its express, prior written consent to the disclosure of the
proprietary information or if the disclosure is required by law or regulation.
Operator hereby acknowledges that certain deliverables to be included in the
Services, such as software, data processing systems and manuals, are the
proprietary property of TCGI or of third parties. Operator agrees that upon
TCGI's request it will execute, and comply with, license or sublicense
agreements in reasonable and customary form with respect to such deliverables.
10. Indemnification.
(a) Indemnification by Operator. Operator will indemnify and hold
harmless TCGI, its affiliates (other than Operator), and all officers,
directors, employees, stockholders, partners and agents of TCGI and its
affiliates (individually, a "TCGI Indemnitee") from and against any and all
claims, demands, costs, damages, losses, liabilities, joint and/or several,
expenses of any nature (including reasonable attorneys', accountants' and
experts' fees and disbursements), judgments, fines, settlements and other
amounts (collectively, "Damages")
- 8 -
<PAGE>
arising from any and all claims, demands, actions, suits or proceedings,
civil, criminal, administrative or investigative (collectively "Claims") in
which the TCGI Indemnitee may be involved or is threatened to be involved,
as a party or otherwise, arising out of TCGI's acts or omissions under this
Agreement or the ownership or operation of Operator's business or assets,
regardless of whether this Agreement continues to be in effect or the TCGI
Indemnitee continues to be an affiliate, or an officer, director, employee,
stockholder, partner or agent of TCGI or its affiliate, at the time any
such Claims are made or Damages incurred, provided (i) the TCGI Indemnitee
acted in good faith and in a manner it reasonably believed to be in the
best interest of Operator and, with respect to any criminal proceeding, had
no reasonable cause to believe its conduct was unlawful, and (ii) the TCGI
Indemnitee's conduct did not constitute gross negligence, willful
misconduct or a breach of this Agreement. Any indemnification hereunder
will be satisfied solely out of the assets of Operator.
(b) Indemnification by TCGI . TCGI will indemnify and hold harmless
Operator, its affiliates, and all officers, directors, employees,
stockholders, partners and agents of TCGI and its affiliates (individually,
an "Operator Indemnitee") from and against any and all Damages arising from
any and all Claims in which the Operator Indemnitee may be involved or is
threatened to be involved, as a party or otherwise, arising out of
Operator's acts or omissions under this Agreement or the ownership or
operation of TCGI's business or assets, regardless of whether this
Agreement continues to be in effect or the Operator Indemnitee continues to
be an affiliate, or an officer, director, employee, stockholder, partner or
agent of Operator, at the time any such Claims are made or Damages
incurred, provided (i) the Operator Indemnitee acted in good faith and in a
manner it reasonably believed to be in the best interest of TCGI and, with
respect to any criminal proceeding, had no reasonable cause to believe its
conduct was unlawful, and (ii) the Operator Indemnitee's conduct did not
constitute gross negligence, willful misconduct or a breach of this
Agreement. Any indemnification hereunder will be satisfied solely out of
the assets of TCGI.
(c) Procedure. No claims for indemnification shall be made by either
party against the other unless the aggregate amount of such claim, together
with any other indemnifiable claims of such party, exceeds the amount of
$5,000. Any reasonable expenses incurred by any indemnified person pursuant
to this Section 10 in defending any civil or criminal action, suit or
proceeding (or the threat thereof), other than a claim, action, suit or
proceeding brought by the indemnifying party, shall be borne and paid by
the indemnifying party in advance of the final disposition of such action,
suit or proceeding (or the threat thereof) upon receipt of an undertaking
by or on behalf of the indemnified person to repay to the indemnifying
party the
- 9 -
<PAGE>
amount of such expenses if it shall ultimately be determined that such
person is not entitled to the indemnification provided for under this
Section 10. Any person asserting a right to indemnification under this
Section 10 shall so notify the indemnifying party in writing. If the facts
giving rise to such indemnification involve any actual or threatened claim
or demand by or against a third party, the indemnifying party shall be
entitled to control the defense or prosecution of such claim or demand in
the name of the indemnified person, if the indemnifying party notifies the
indemnified person in writing of its intention to do so within twenty days
of the receipt of such notice by the indemnified person. The indemnified
person shall have the right, however, to participate in such proceeding
through counsel of its own choosing, which participation shall be at its
sole expense. Whether or not the indemnifying party chooses to defend or
prosecute such claim, each indemnified person and Lessor or Lessee,
whichever is not the indemnifying party, shall, to the extent requested by
the indemnifying party and at the indemnifying party's expense, cooperate
in the prosecution or defense of such claim and shall furnish such records,
information and testimony and attend such conferences, discovery
proceedings, hearings, trials and appeals as may reasonably be requested in
connection therewith.
11. Independent Contractor. TCGI shall serve as an independent contractor
in connection with the matters set forth herein and its employees shall not be
employees of Operator, provided, however, that TCGI may provide Operator with
contract employees as part of the Services and be reimbursed therefor as more
fully provided on Addendum A. TCGI shall take no action, nor omit to take any
action, that would create the appearance, or lead a reasonable person to
believe, that TCGI (including its employees other than contract employees) in
acting hereunder has any relationship to Operator other than that of an agent to
its principal.
12. Obligations Unimpaired. Subject to the provisions of Section 6, the
obligations to be performed by Operator under this Agreement shall not be
affected or impaired by reason of the happening from time to time of any of the
following:
(a) any assignment or purported assignment of all or any part of the
interest of TC in the Partnership Agreement or of TCGI in this Agreement;
(b) the modification or amendment (whether material or otherwise) of
any obligation, undertaking or condition to be performed by TC under the
Partnership Agreement or the expiration or termination of the Partnership
Agreement, whether caused by TC's default or otherwise;
- 10 -
<PAGE>
(c) the voluntary or involuntary liquidation or dissolution of TC or
TCGI or the sale or other disposition of all or substantially all the
assets of TC or TCGI;
(d) the merger, reorganization or consolidation of Operator or the
sale, divestiture or other disposition of TC's interest in Operator
pursuant to the provisions of the Partnership Agreement;
(e) the termination or expiration of the Partnership Agreement; or
(f) any other cause, whether similar or dissimilar to the foregoing;
it being the intention of Operator that, except as otherwise required by
the provisions hereof, this Agreement be absolute and unconditional in any
and all circumstances.
13. Miscellaneous. This Agreement constitutes the entire Agreement between
TCGI and Operator with respect to the subject matter hereof, and all prior
agreements, representations, statements, negotiations and undertakings are
superseded by this Agreement. THERE ARE NO AGREEMENTS, WARRANTIES OR
REPRESENTATIONS, EXPRESS OR IMPLIED EITHER IN FACT OR BY OPERATION OF LAW,
STATUTORY OR OTHERWISE, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
A PARTICULAR PURPOSE OR USE, EXCEPT THOSE EXPRESSLY SET FORTH HEREIN. This
Agreement may not be amended or waived except by a writing signed by the party
against which enforcement hereof is sought. The provisions of this Agreement
shall be governed by and construed in accordance with the laws of the State of
New York. This Agreement may be executed in two counterparts, each of which
shall be deemed to be an original.
14. Successors and Assigns; Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties' respective successors and
permitted assigns. Neither party shall assign, transfer, or in any other manner
dispose of, any of its rights, privileges or obligations under this Agreement
except in connection with a transaction specifically permitted by and in
accordance with the applicable provisions of Article 5 of the Partnership
Agreement and any attempt to make such an assignment, transfer or disposition
without consent shall be null and void. This provision shall not limit TCGI's
discretion to delegate duties and responsibilities to employees or agents of
TCGI or its affiliates in accordance with normal and customary management
practices.
15. Compliance With Law. Operator shall be the franchisee, licensee and
permittee of all governmental franchises, licenses, authorizations and permits
required for its business, and shall retain ultimate control over the Project
and its assets. Operator shall also retain ultimate responsibility for
compliance
- 11 -
<PAGE>
with the rules, regulations and policies of the Federal Communications
Commission (the "FCC") and each applicable state regulatory authority having
jurisdiction over the Project or Operator (collectively, the "Regulatory
Authorities") and the terms of the Communications Act of 1934, as amended (the
"Act"). TCGI agrees to cooperate in all reasonable respects with Operator to the
extent necessary to remain in compliance with respect to the Act and the rules,
regulations and policies of the FCC and of all applicable Regulatory
Authorities.
IN WITNESS WHEREOF, the parties hereto have executed this Management
Services Agreement as of the date first above written.
TELEPORT COMMUNICATIONS GROUP INC.
By /s/ ALF T. HANSEN
--------------------------------
Alf T. Hansen
Senior Vice President
TCG SAN FRANCISCO,
a Partnership
By /s/ ALF T. HANSEN
--------------------------------
Alf T. Hansen
Senior Vice President
- 12 -
<PAGE>
ADDENDUM A
DESCRIPTION OF SERVICES AND CHARGES
I. TCGI Provided Services. TCGI shall provide the following Services on a
regular basis, in accordance with the level of the Operator's business activity,
at the rates listed.
1. Management - Senior Management Supervision. TCGI will provide
management supervision to Operator in support of Operator's business plan
and the objectives of its partners. The supervisory and general management
functions to be performed include:
o Review of business plans
o Review of annual budget and five-year plan prepared by Operator's
General Manager
o Financial reviews and controls
Operator will pay for these services on an actual time and materials basis
(see Section III).
2. Engineering - Circuit Order Layout Record, Training and Operations.
TCGI will maintain a database of the Network layout down to individual
circuit level. All circuit order layout record (COLR) information should be
reviewed by Operator for accuracy. TCGI will provide operational
performance (capital and expense) reviews and assist in network expansion.
TCGI will train employees assigned to Operator, as required. Operator will
pay for these services on an actual time and materials basis (see Section
III).
3. Finance - Accounting Administration. TCGI will provide all billing,
collections, accounts payable, bookkeeping and financial reporting services
as listed below. In addition, TCGI will order supplies, materials and
services required by Operator, process invoices submitted by Operator and
purchase orders generated by or on behalf of Operator in accordance with
approved capital budgets and budgeted expenditures.
<TABLE>
<CAPTION>
SERVICE DESCRIPTION
------- -----------
<S> <C>
Billing Monthly billing of customers.
Collections Ongoing collection and processing of
customer payments.
Credit review Credit check to determine
creditworthiness of new customers.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SERVICE DESCRIPTION
------- -----------
<S> <C>
Bookkeeping Functions General ledger, accounts receivable,
accounts payable, liabilities and fixed
asset property records.
Cash Control Cash management, reconciliation of bank
statements and cash forecasting
requirements.
Accounting for Fixed Accounting for all capital accounts, as
Assets to accumulated depreciation and book and
tax depreciation calculations.
Tax Compliance Compliance with tax codes, including
annual preparation of partnership
federal, state and local tax returns and
K-1 tax reporting schedules.
Financial Reports and A monthly summary including balance
Analysis sheet, profit and loss, budget vs.
actual, fixed asset summary, cash and
investments, statement of changes in
financial position.
Capital Accounts Ongoing accounting for partner capital
accounts, capital contributions and
withdrawals.
Other Reports Other reports, including regulatory
reports, required by or pursuant to the
Partnership Agreement or as directed by
Operator.
</TABLE>
Operator will pay for these services on an actual time and materials basis
(see Section III).
4. Information Systems - Management Information Systems. TCGI will
provide centralized MIS/Data Processing hardware and software to Operator
by remote access from TCGI's corporate location. TCGI will manage
centralized MIS operations and will provide general systems support and
guidance to Operator. Operator will be responsible for the purchasing and
operation of local MIS hardware and software such as personal computers,
remote terminals, printers, plotters and other peripherals, and required
telecommunications lines or local area network interfaces necessary to
access the centralized MIS resources of TCGI.
Addendum A - Page 2
<PAGE>
<TABLE>
<CAPTION>
SERVICE DESCRIPTION
------- -----------
<S> <C>
Capital budget Tracks capital expenditures and purchase
tracking and P.O. orders.
invoice tracking
Inventory tracking Tracks electronics and cable and other
inside/outside plant inventory.
Technician labor Tracks manpower time of technical
tracking employees.
Internal labor Tracks TCGI employee time and allocates
tracking to expense or capital projects.
Circuit tracking Tracks all circuits current work in
progress and billable installed base,
due dates, turn up dates and billing
dates.
Order input processing Tracks orders through to implementation.
Property records Tracks fixed assets for required
reporting.
Engineering & Maintains databases of COLRs and
operations design existing plant. Creates work orders and
lists of all electronics and work
required to install a new circuit.
General ledger Drives accounting and budgeting process.
Fixed asset Tracks depreciation expenses by account.
Payroll Payroll contracted with Automatic Data
Processing.
Billing/accounts Drives billing and accounts receivable.
receivable
Financial reporting Drives financial analysis process budget
and expense tracking.
Business planning Models/forecasts business for planning
purposes.
</TABLE>
Addendum A - Page 3
<PAGE>
Operator will pay for MIS processing costs at the following rates per month
based on actual annual sales for the immediately preceding fiscal year:
<TABLE>
<CAPTION>
================================================================================
Monthly
Prior Year Annual Sales Rate
================================================================================
<S> <C>
Up to $250,000 $5,000
- --------------------------------------------------------------------------------
Greater than $250,000 up to and 7,000
including $15,000,000
- --------------------------------------------------------------------------------
Greater than $15,000,000 up to 20,000
and including $25,000,000
- --------------------------------------------------------------------------------
Greater than $25,000,000 90,000
================================================================================
</TABLE>
5. Legal/Regulatory - Contract Reviews & Local Counsel Supervision.
TCGI will review all contracts, consulting agreements and other legally
binding arrangements. TCGI will provide standard contract forms. To provide
Operator with the benefits of TCGI's legal experience and expertise in the
area of telecommunications, metropolitan area networks and alternate local
transmission services, and in particular, to ensure consistency in
regulatory stance, TCGI will be available as needed for supervision and
guidance of Operator's local counsel and/or local regulatory counsel.
Operator will pay for these services on an actual time and materials basis
(see Section III).
6. National Marketing and Pricing - Product Planning and Pricing;
National Advertising & Marketing. TCGI shall provide the following
additional marketing and pricing services:
o Develop, publish and update a standard pricing guide.
o Create market data and analysis for network expansion plans.
o Develop new applications including service descriptions, pricing
and sales strategy.
o Plan and implement national advertising campaign and strategic
accounts programs.
o Conduct competitive service analysis and ongoing tariff review to
assess potential impact on TCGI.
o Place general image advertising in national communications media.
Addendum A - Page 4
<PAGE>
o Assist Operator in local promotional and public relations
efforts.
o Trade show planning and implementation for national and regional
exhibits; distribute qualified sales leads to each city resulting
from trade shows.
o Design and develop sales brochures and premiums.
o Update and maintain mailing lists, and develop and implement
direct mail campaigns.
o Distribute press releases, Teleport Report, trade show
invitations, etc.
Operator will pay for these services at the following rates per month based
on budgeted sales for the relevant fiscal year:
<TABLE>
<CAPTION>
================================================================================
Budgeted Annual Sales for Such Monthly Rate
Year
================================================================================
<S> <C>
Up to $3,000,000 $3,900
- --------------------------------------------------------------------------------
Greater than $3,000,000 up to 5,850
and including $6,000,000
- --------------------------------------------------------------------------------
Greater than $6,000,000 up to 7,800
and including $9,000,000
- --------------------------------------------------------------------------------
Greater than $9,000,000 up to 9,750
and including $12,000,000
- --------------------------------------------------------------------------------
Greater than $12,000,000 up to 11,700
and including $15,000,000
- --------------------------------------------------------------------------------
Greater than $15,000,000 up to 13,650
and including $18,000,000
- --------------------------------------------------------------------------------
Greater than $18,000,000 up to 15,600
and including $21,000,000
- --------------------------------------------------------------------------------
Greater than $21,000,000 up to 17,550
and including $24,000,000
- --------------------------------------------------------------------------------
Greater than $24,000,000 up to 19,500
and including $27,000,000
- --------------------------------------------------------------------------------
Greater than $27,000,000 up to 21,450
and including $30,000,000
- --------------------------------------------------------------------------------
Greater than $30,000,000 up to 23,400
and including $33,000,000
================================================================================
</TABLE>
Addendum A - Page 5
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Budgeted Annual Sales for Such Monthly Rate
Year
================================================================================
<S> <C>
Greater than $33,000,000 up to 25,350
and including $36,000,000
- --------------------------------------------------------------------------------
Greater than $36,000,000 up to 27,300
and including $39,000,000
- --------------------------------------------------------------------------------
Greater than $39,000,000 up to 29,250
and including $42,000,000
- --------------------------------------------------------------------------------
Greater than $42,000,000 up to 31,200
and including $45,000,000
- --------------------------------------------------------------------------------
Greater than $45,000,000 up to 33,150
and including $48,000,000
- --------------------------------------------------------------------------------
Greater than $48,000,000 up to 35,100
and including $51,000,000
- --------------------------------------------------------------------------------
Greater than $51,000,000 up to 37,050
and including $54,000,000
- --------------------------------------------------------------------------------
Greater than $54,000,000 up to 39,000
and including $57,000,000
- --------------------------------------------------------------------------------
Greater than $57,000,000 up to 40,950
and including $60,000,000
- --------------------------------------------------------------------------------
Greater than $60,000,000 up to 42,900
and including $63,000,000
- --------------------------------------------------------------------------------
Greater than $63,000,000 up to 44,850
and including $66,000,000
- --------------------------------------------------------------------------------
Greater than $66,000,000 46,800
================================================================================
</TABLE>
7. Operations - 24-Hour Remote Systems Monitoring. TCGI shall provide
24-hour monitoring of the installed network in accordance with its standard
monitoring practices with respect to network systems in the New York
metropolitan area. Operator will provide necessary long distance tie-lines.
Operator will pay a unit fee for 24-hour remote systems monitoring for
private lines at a rate of $300.00 per Network Monitoring Unit per year,
set at the beginning of each year based on the average number of Network
Monitoring Units budgeted for the year, payable in twelve equal monthly
installments. Operator will pay a unit fee for remote monitoring for
switching at a rate of $75,000 per year plus $1,000 per switch module per
year, set at the beginning of each year based on the number of budgeted
switch modules for the year, payable in twelve equal monthly installments.
Operator will pay for any trouble management requiring additional man hours
on an actual time and materials basis (see Section III).
Addendum A - Page 6
<PAGE>
8. Personnel Administration - Payroll & Benefits. TCGI will provide
all benefit & employee administration with respect to payroll, 401(k),
medical, dental, retirement, vacation, disability, and sick leave. Operator
shall pay a unit fee for these services of $230.00 per month per budgeted
year-end Assigned Employee (as that term is defined in paragraph I.12.
below).
9. Quality - Training and Course Documentation. TCGI's ongoing
commitment to employee education and training will be maintained by
providing in-house training and documentation on TCGI procedures and
operational guidelines. TCGI shall notify Operator from time to time of its
training programs. Guidance on policy and outside education/training will
also be available as needed. Operator will pay for training and course
documentation at TCGI's standard rates.
10. Sales - National Sales Representation. TCGI's National Sales Group
and senior executives will actively seek to sell Operator services on a
national level to organizations such as interexchange carriers, large
financial institutions and other corporations with a nationwide presence.
These services will be provided to meet mutually agreed national sales
quota targets which will be set by Operator and TCGI. This program is
supplemental to Operator's local sales effort, which may include national
accounts contacted on a local basis. Operator will pay for these services
at the following rate per month based on budgeted revenues for the current
fiscal year:
<TABLE>
<CAPTION>
================================================================================
Current Year Budgeted Annual Monthly Rate
Sales
================================================================================
<S> <C>
Up to $500,000 $5,000
- --------------------------------------------------------------------------------
Greater than $500,000 up to and 8,000
including $1,000,000
- --------------------------------------------------------------------------------
Greater than $1,000,000 up to 10,000
and including $3,000,000
- --------------------------------------------------------------------------------
Greater than $3,000,000 up to 15,000
and including $5,000,000
- --------------------------------------------------------------------------------
Greater than $5,000,000 up to 20,000
and including $10,000,000
- --------------------------------------------------------------------------------
Greater than $10,000,000 up to 30,000
and including $20,000,000
================================================================================
</TABLE>
Addendum A - Page 7
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Current Year Budgeted Annual Monthly Rate
Sales
================================================================================
<S> <C>
Greater than $20,000,000 up to 40,000
and including $30,000,000
- --------------------------------------------------------------------------------
Greater than $30,000,000 up to 50,000
and including $40,000,000
- --------------------------------------------------------------------------------
Greater than $40,000,000 up to 60,000
and including $50,000,000
- --------------------------------------------------------------------------------
Greater than $50,000,000 up to 70,000
and including $60,000,000
- --------------------------------------------------------------------------------
Greater than $60,000,000 up to 80,000
and including $70,000,000
- --------------------------------------------------------------------------------
Greater than $70,000,000 up to 90,000
and including $80,000,000
- --------------------------------------------------------------------------------
Greater than $80,000,000 100,000
================================================================================
</TABLE>
11. National Programs. TCGI will provide National Program services as
follows:
<TABLE>
<CAPTION>
National Program Description
---------------- -----------
<S> <C>
Corporate Quality and TCGI will monitor conformance with
Engineering Standards TCGI's national quality and engineering
standards, as described in TCGI's
Quality and Engineering Standards
Volume, as in effect from time to time.
National Service Order TCGI will make available to Operator its
Management National Service Order management system
which allows orders from interexchange
carriers and other national accounts to
be transmitted directly to Operator.
Operator will be responsible for
providing hardware, telephone tie-lines
and personnel for access to TCGI's
system.
National Regulatory TCGI will supervise and manage the
Initiatives and representation of Operator in national
Representation regulatory initiatives and issues which
affect Operator. For representation of
Operator at the FCC concerning matters
affecting only Operator, TCGI's
</TABLE>
Addendum A - Page 8
<PAGE>
representation will be subject to
Operator's approval.
The cost to Operator of the National Programs is included in the fees
payable pursuant to Section 4(a)(ii) of the Management Services Agreement.
12. Assigned Employees. TCGI will hire all local Operator personnel as
TCGI employees and will provide all salary and benefits plans, as
appropriate, to such employees. Such employees shall become agents of
Operator as contract employees under the Management Services Agreement.
Additional TCGI employees who are not local to Operator but are working for
Operator on a full-time basis will be assigned to Operator as contract
employees. For all employees assigned by TCGI to Operator, whether
temporary, part-time or contract employees ("Assigned Employees"), Operator
shall pay monthly in advance the sum of (i) all cash compensation payable
to such employees, plus (ii) a reasonable allocation of TCGI's costs for
all employee benefit plans and fringe benefits with respect to such
employees, plus (iii), without duplication to the allocation provided in
paragraph I.8. above, a reasonable allocation of general administrative
overhead costs applicable to such employees.
II. Additional Services Available from TCGI. TCGI will provide the
following Services at the request of Operator.
1. Special engineering studies and analyses.
2. Special financial studies and analyses.
3. MIS network configuration analyses, design and implementation, and
custom MIS reports.
4. General legal assistance.
5. Office space acquisition and negotiations assistance.
6. Right-of-way acquisition and negotiation assistance.
7. State and local regulatory assistance.
8. Manpower search and screening.
9. Assist Operator in developing individual case basis pricing for
special applications.
10. Access to Affiliate Services, including information from TCGI's
National Tariff Database, engineering inquiries, customer inquiries,
Addendum A - Page 9
<PAGE>
national clearinghouse for National Account inquiries, and
advisory services to Operator.
11. Insurance assistance.
Operator will pay for all Additional Services on an actual time and materials
basis.
III. Actual Time and Materials Charges. Charges for services to be billed
on an actual time and materials basis (Sections I.1, I.2, I.3, I.5, I.7 and II)
will be determined in accordance with the following:
1. Materials, Services and Out-Of-Pocket Expenses. Actual expenses for
materials used, purchased services from outside suppliers, advisors or
consultants, and travel will be passed through to Operator as incurred at
cost.
2. TCGI Employees Not Assigned to Operator. In keeping with the TCGI
manpower and salary grade structure, billing rates have been established
for all TCGI employee grade levels. Time will be billed to Operator at the
hourly labor rates listed below per Grade Level for TCGI employees who are
not Assigned Employees but who perform services for Operator, based on
hours actually spent on Operator work:
<TABLE>
<CAPTION>
======================================================
Grade Level Hourly Rate
======================================================
<S> <C>
A $125.00
------------------------------------------------------
B 75.00
------------------------------------------------------
C 50.00
------------------------------------------------------
D 30.00
======================================================
</TABLE>
IV. Adjustment to Fee Schedules; Payment of Allocated Expenses. All fees
and monthly rates stated herein are subject to change in accordance with the
terms of Section 4(b) of the Management Services Agreement. Operator may be
required to pay TCGI the expenses attributable to the provision of Services by
TCGI in accordance with Section 4(b) of the Management Services Agreement. The
initial weighting system for allocating to Operator its pro rata share of TCGI's
costs in providing Services shall be as follows: direct hours billed shall be
weighted at 50%, annual budgeted revenue shall be weighted at 30% and budgeted
capitalization shall be weighted at 20%.
Addendum A - Page 10
<PAGE>
EXHIBIT B
---------
Undertaking of Parent
The undersigned, which is a Parent of a Partner to the foregoing
Partnership Agreement, hereby covenants and confirms, to and for the benefit of
each other Partner and the Partnership, that it will not, and will not permit
any of its affiliates to, violate or circumvent the provisions of Article 7 of
the Partnership Agreement which are applicable to the Partner of which it is the
Parent. Capitalized terms used in this Undertaking shall have the meanings
assigned to them in the Partnership Agreement dated as of January 1, 1994,
between Viacom Telecom, Inc. and Teleport Communications San Francisco, Inc.
Dated: 1/1/94
--------------------
VIACOM INTERNATIONAL INC.
By: /s/ JOHN W. GODDARD
------------------------------
Name: John W. Goddard
----------------------------
Title: Senior Vice President
---------------------------
<PAGE>
EXHIBIT B
---------
Undertaking of Parent
---------------------
The undersigned, which is a Parent of a Partner to the foregoing
Partnership Agreement, hereby covenants and confirms, to and for the benefit of
each other Partner and the Partnership, that it will not, and will not permit
any of its affiliates to, violate or circumvent the provisions of Article 7 of
the Partnership Agreement which are applicable to the Partner of which it is the
Parent. Capitalized terms used in this Undertaking shall have the meanings
assigned to them in the Partnership Agreement dated as of January 1, 1994,
between InterMedia Partners and Teleport Communications San Francisco, Inc.
Dated:
--------------------
INTERMEDIA PARTNERS
By: /s/ LEO J. HINDERY, JR.
------------------------------
Name: Leo J. Hindery, Jr.
----------------------------
Title: Managing General Partner
---------------------------
<PAGE>
EXHIBIT B
---------
Undertaking of Parent
---------------------
The undersigned, which is a Parent of a Partner to the foregoing
Partnership Agreement, hereby covenants and confirms, to and for the benefit of
each other Partner and the Partnership, that it will not, and will not permit
any of its affiliates to, violate or circumvent the provisions of Article 7 of
the Partnership Agreement which are applicable to the Partner of which it is the
Parent. Capitalized terms used in this Undertaking shall have the meanings
assigned to them in the Partnership Agreement dated as of January 1, 1994,
between MicroNet, Inc. and Teleport Communications San Francisco, Inc.
Dated: 6/14/94
--------------------
SUBURBAN CABLE TV CO. INC.
By: /s/ HARRY F. BROOKS
------------------------------
Name: Harry F. Brooks
----------------------------
Title: Vice President
---------------------------
<PAGE>
TAX APPENDIX
BOOK AND TAX ACCOUNTING PROVISIONS
All capitalized terms which are not defined in this Tax Appendix but which
are defined in the Agreement shall have the meanings set forth in the Agreement.
1. Gross Asset Value; Net Profit and Net Loss
1.1 Gross Asset Value. "Gross Asset Value" means, with respect to any
asset, the asset's adjusted basis for federal income tax purposes, modified as
follows:
(a) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of such
asset, as determined by the contributing Partner and the Managing Partner
(unless the Managing Partner is the contributing Partner, in which case the
gross fair market value will be determined in accordance with Section 3.6
of the Agreement).
(b) The Gross Asset Values of all Partnership assets shall be adjusted
to equal their respective gross fair market values, as determined by the
Managing Partner, in the circumstances described in Regulations Section
1.704-1(b)(2)(iv)(f)(5), but in the case of adjustments other than upon the
liquidation of the Partnership within the meaning of Regulations Section
1.704- 1(b)(2)(ii)(g), only if the Managing Partner reasonably determines
that such adjustments are necessary or appropriate to reflect the relative
economic interests of the Partners in the Partnership.
(c) The Gross Asset Value of any Partnership asset distributed to a
Partner shall be the gross fair market value of such asset on the date of
distribution.
(d) The Gross Asset Value of Partnership assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or 743(b), but only to the extent that such
adjustments are taken into account in determining Capital Accounts pursuant
to Regulations Section 1.704-1(b)(2)(iv)(m) and Section 2.1(e) below.
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to clause (a), (b) or (d) above, such Gross Asset Value shall
thereafter be adjusted by the amount determined in accordance with Regulations
Section 1.704-1(b)(2)(iv)(g)(2) and (3).
1.2 Net Profit and Net Loss. "Net Profit" and "Net Loss" means, for each
Fiscal Year or other period, an amount equal to the Partnership taxable income
or loss for such year or period,
<PAGE>
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(a) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing such Net Profit or
Net Loss shall be added to such taxable income or loss.
(b) Code Section 705(a)(2)(B) expenditures of the Partnership, which
are not otherwise taken into account in computing such Net Profit or Net
Loss, shall be subtracted from such taxable income or loss.
(c) In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to clause (b) or (c) of the definition of "Gross Asset
Value," the amount of such adjustment shall be taken into account as gain
or loss from the disposition of such asset for purposes of computing Net
Profit or Net Loss.
(d) Gain or loss resulting from any disposition of Partnership
property with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross Asset Value
of the property disposed of, notwithstanding that the adjusted tax basis of
such property differs from its Gross Asset Value.
(e) If the Gross Asset Value of an asset differs from its adjusted
basis for federal income tax purposes at the beginning of such year or
other period, then in lieu of the depreciation, amortization, and other
cost recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account the amount determined in
accordance with Regulations Section 1.704-1(b)(2)(iv)(g)(2) and (3).
(f) Any items that are specially allocated pursuant to Article 2 of
this Tax Appendix shall not be taken into account in computing such Net
Profit or Net Loss.
(g) Any deduction for a loss on a sale or exchange of Partnership
property that is disallowed to the Partnership under Code Section 267(a)(1)
or 707(b) shall be treated as a Code Section 705(a)(2)(B) expenditure.
-2-
<PAGE>
2. Special Allocation Provisions.
Sections 2.1, 2.2, and 2.3(a) and (b) shall apply with respect to any
Nonrecourse Liabilities or Partner Nonrecourse Debt (as defined below) of the
Partnership if the Managing Partner determines that there is a reasonable basis
to conclude that the Partnership Interests of the Partners under the Agreement
are not the same as the overall interests of the Partners in the Partnership
determined under Regulations Section 1.704-1(b)(3). Sections 2.1(e) and 2.2(a)
shall apply if the Partnership has made an election under Code Section 754 and
there is an adjustment to the adjusted tax basis of any Partnership asset
pursuant to Code Section 734(b) or 743(b). Section 2.4 shall apply if the Gross
Asset Value of Partnership property differs from its adjusted basis for federal
income tax purposes.
2.1 Special Allocations.
(a) Minimum Gain Chargeback. Notwithstanding any other provision of
the Agreement (including this Tax Appendix), if for any Partnership Fiscal
Year there is a net decrease in Partnership Minimum Gain (as defined in
Regulations Section 1.704-2(b)(2)), each Partner shall be specially
allocated items of Partnership income and gain for such year (and, if
necessary, for succeeding years) in an amount equal to such Partner's share
of the net decrease in Partnership Minimum Gain, determined in accordance
with Regulations Section 1.704-2(g), except as otherwise provided in
Regulations Section 1.704-2(f)(2), 1.704-2(f)(3), 1.704-2(f)(4), and
1.704-2(f)(5). Allocations pursuant to the previous sentence shall be made
in proportion to the respective amounts required to be allocated to each
Partner pursuant thereto. The items to be so allocated shall be determined
in accordance with Regulations Section 1.704-2(f)(6). The amount of
Partnership Minimum Gain shall be determined in accordance with Regulations
Section 1.704- 2(d). This Section 2.1(a) is intended to comply with the
minimum gain chargeback requirement of Regulations Section 1.704-2(f) and
shall be interpreted consistently therewith.
(b) Partner Minimum Gain Chargeback. Notwithstanding any other
provision of the Agreement (including this Tax Appendix) except Section
2.1(a), if during a Partnership Fiscal Year there is a net decrease in
Partner Nonrecourse Debt Minimum Gain (as defined in Regulations Section
1.704-2(i)(2)), each Partner who has a share of that Partner Nonrecourse
Debt Minimum Gain (determined in accordance with Regulations Section
1.704-2(i)(5)) as of the beginning of such year shall be specially
allocated items of Partnership income and gain for such year (and, if
necessary, for succeeding years) in an amount equal to such Partner's share
of the net decrease in Partner Nonrecourse Debt Minimum Gain, determined in
accordance with Regulations Section 1.704-2(i)(4) (and taking into account
the exceptions provided therein). Allocations
-3-
<PAGE>
pursuant to the previous sentence shall be made in proportion to the
respective amounts required to be allocated to each Partner pursuant
thereto. The items to be so allocated shall be determined in accordance
with Regulations Section 1.704-2(i)(4). The amount of Partner Nonrecourse
Debt Minimum Gain shall be determined in accordance with Regulations
Section 1.704-2(i)(3). This Section 2.1(b) is intended to comply with the
minimum gain chargeback requirement in Regulations Section 1.704-2(i)(4)
and shall be interpreted consistently therewith.
(c) Nonrecourse Deductions. Nonrecourse Deductions (as defined in
Regulations Section 1.704-2(b)(1)) for any Fiscal Year or other period
shall be specially allocated as Net Loss pursuant to Section 4.6 of the
Agreement. The amount of Nonrecourse Deductions shall be determined in
accordance with Regulations Section 1.704-2(c).
(d) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions
(as defined in Regulations Section 1.704-2(i)(1)) for any Fiscal Year or
other period shall be specially allocated to the Partner who bears the
economic risk of loss with respect to the Partner Nonrecourse Debt to which
such Partner Nonrecourse Deductions are attributable in accordance with
Regulations Section 1.704-2(i). The amount of Partner Nonrecourse
Deductions shall be determined in accordance with Regulations Section
1.704-2(i)(2).
(e) Section 754 Adjustment. To the extent an adjustment to the
adjusted tax basis of any Partnership asset pursuant to Code Section 734(b)
or 743(b) is required, pursuant to Regulations Section
1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital
Accounts, the amount of such adjustment to the Capital Accounts shall be
treated as an item of gain (if the adjustment increases the basis of the
asset) or loss (if the adjustment decreases such basis), and such gain or
loss shall be specially allocated to the Partners in a manner consistent
with the manner in which their Capital Accounts are required to be adjusted
pursuant to such Section of the Regulations.
2.2 Curative Allocations.
(a) Notwithstanding any other provision of the Agreement (including
this Tax Appendix), other than allocations pursuant to Section 2.1 (the
"Regulatory Allocations"), allocations pursuant to Section 2.1(e) above
(the "Basic Regulatory Allocations") shall be taken into account in
allocating items of income, gain, loss, and deduction among the Partners so
that, to the extent possible, the net amount of such allocations of other
items and the Basic Regulatory Allocations to each Partner shall be equal
to the net amount that would have been allocated to each such Partner if
the Basic Regulatory Allocations had not occurred. For purposes of
-4-
<PAGE>
applying the foregoing sentence, allocations pursuant to this Section
2.2(a) shall only be made with respect to Basic Regulatory Allocations to
the extent the Managing Partner reasonably determines that such Basic
Regulatory Allocations would otherwise be inconsistent with the economic
agreement among the Partners.
(b) Notwithstanding any other provision of this Agreement, other than
the Regulatory Allocations, allocations pursuant to Sections 2.1(a) and
2.1(c) above (the "Nonrecourse Regulatory Allocations") shall be taken into
account in allocating items of income, gain, loss, and deduction among the
Partners so that, to the extent possible, the net amount of such
allocations of other items and the Nonrecourse Regulatory Allocations to
each Partner shall be equal to the net amount that would have been
allocated to each such Partner if the Nonrecourse Regulatory Allocations
had not occurred. For purposes of applying the foregoing sentence (i) no
allocations pursuant to this Section 2.2(b) shall be made prior to the
Partnership Fiscal Year during which there is a net decrease in Partnership
Minimum Gain, and then only to the extent necessary to avoid any potential
economic distortions caused by such net decrease in Partnership Minimum
Gain; and (ii) allocations pursuant to this Section 2.2(b) shall be
deferred with respect to allocations pursuant to Section 2.1(c) to the
extent the Managing Partner reasonably determines that such allocations are
likely to be offset by subsequent allocations pursuant to Section 2.1(a).
(c) Notwithstanding any other provision of the Agreement (including
this Tax Appendix), other than the Regulatory Allocations, allocations
pursuant to Sections 2.1(b) and 2.1(d) (the "Partner Nonrecourse Regulatory
Allocations") shall be taken into account in allocating items of income,
gain, loss, and deduction among the Partners so that, to the extent
possible, the net amount of such allocations of other items and the Partner
Nonrecourse Regulatory Allocations to each Partner shall be equal to the
net amount that would have been allocated to each such Partner if the
Partner Nonrecourse Regulatory Allocations had not occurred. For purposes
of applying the foregoing sentence (i) no allocations pursuant to this
Section 2.2(c) shall be made with respect to allocations pursuant to
Section 2.1(d) relating to a particular Partner Nonrecourse Debt prior to
the Partnership Fiscal Year during which there is a net decrease in Partner
Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse
Debt, and then only to the extent necessary to avoid any potential economic
distortions caused by such net decrease in Partner Nonrecourse Debt Minimum
Gain; and (ii) allocations pursuant to this Section 2.2(c) shall be
deferred with respect to allocations pursuant to Section 2.1(d) to the
extent the Managing Partner reasonably determines that such allocations are
likely to be offset by subsequent allocations pursuant to Section 2.1(b).
-5-
<PAGE>
(d) The Managing Partner shall have reasonable discretion, with
respect to each Partnership Fiscal Year, to (i) apply the provisions of
Sections 2.2(a), 2.2(b) and 2.2(c) in whatever order is likely to minimize
the economic distortions that might otherwise result from the Regulatory
Allocations; and (ii) divide all allocations pursuant to Sections 2.2(a),
2.2(b) and 2.2(c) among the Partners in a manner that is likely to minimize
such economic distortions.
(e) Notwithstanding any other provision of the Agreement (including
this Tax Appendix), except the Regulatory Allocations, in the Fiscal Year
in which there is a sale, exchange or other disposition of all or
substantially all of the assets of the Partnership or a dissolution or
liquidation of the Partnership, after allocating items of income, gain,
loss and deduction in accordance with the Regulatory Allocations and the
curative allocations under Sections 2.2(a), 2.2(b), 2.2(c) and 2.2(d), each
Partner shall be allocated remaining items of income, gain, deduction, and
loss to the extent necessary to cause the balance in each Partner's Capital
Account to equal the Distributions that would be made to each such Partner
if such distributions were made to the Partners in accordance with their
Partnership Interests (after payment of the debts and obligations of the
Partnership).
2.3 Other Allocation Rules.
(a) To the extent permitted by Regulations Sections 1.704-2(h) and
1.704-2(i)(6), the Managing Partner shall endeavor to treat Distributions
as not having been made from the proceeds of a Nonrecourse Liability (as
defined in Regulations Section 1.704-2(b)(3) (and Regulations Section
1.752-1(a)(2))) or a Partner Nonrecourse Debt.
(b) Solely for purposes of determining a Partner's proportionate share
of the "excess nonrecourse liabilities" of the Partnership within the
meaning of Regulations Section 1.752-3(a)(3), the Partners' interests in
Partnership profits are equal to their respective Partnership Interests.
The allocation of such "excess nonrecourse liabilities" shall be adjusted
to reflect any subsequent adjustment of the Partnership Interests of the
Partners pursuant to the Agreement.
(c) If any fees or other payments deducted for federal income tax
purposes by the Partnership are recharacterized by a final determination of
the Internal Revenue Service as nondeductible distributions to any Partner,
then, notwithstanding all other allocation provisions (other than the
Regulatory Allocations), gross income shall be allocated to such Partner in
an amount equal to the fees or payments so recharacterized.
(d) If any Partner makes a payment of interest to the
-6-
<PAGE>
Partnership in respect of the late payment of any Capital Contribution
pursuant to Article 4 of the Agreement, the amount of such interest shall
be included in the income of the Partnership and allocated among the
Partners in the same manner as if such interest had been paid by a person
which is not a Partner, and the amount of such interest shall not be
included in the Capital Contributions credited to such Partner's Capital
Account.
(e) All items of Partnership income, gain, loss, deduction, and any
other allocations not otherwise provided for shall be allocated among the
Partners in the same proportion as they share Net Profit or Net Loss, as
the case may be, for the year.
2.4 Contributed Property: Code Section 704(c).
(a) In accordance with Code Section 704(c) and the Regulations
thereunder, income, gain, loss, and deduction with respect to any property
contributed to the capital of the Partnership shall, solely for tax
purposes, be allocated among the Partners so as to take account of any
variation between the adjusted basis of such property to the Partnership
for Federal income tax purposes and its initial Gross Asset Value. To the
extent permitted by the Code and applicable Regulations, such allocations
shall be made in accordance with Proposed Regulations Section 1.704-3(b).
(b) If the Gross Asset Value of a Partnership asset is adjusted
pursuant to Section 1.1(b) above, subsequent allocations of income, gain,
loss, and deduction with respect to such asset for tax purposes shall take
account of any variation between the adjusted basis of such asset for
federal income tax purposes and its Gross Asset Value in the same manner as
under Code Section 704(c) and the Regulations thereunder. To the extent
permitted by the Code and applicable Regulations, such allocations shall be
made in accordance with Proposed Regulations Section 1.704-3(b).
(c) Any elections or other decisions relating to such allocations
shall be made by the Managing Partner in any manner that reasonably
reflects the purpose and intention of this Agreement. Allocations pursuant
to this Section 2.4 are solely for purposes of federal, state, and local
taxes and shall not affect, or in any way be taken into account in
computing, any Entity's Capital Account or share of Net Profits, Net
Losses, other items, or Distributions pursuant to any provision of this
Agreement.
3. Allocation in Event of Transfer. If an interest in the Partnership is
transferred in accordance with Article 5 of the Agreement, the Net Profit and
Net Loss of the Partnership allocable to the transferor and transferee, and the
Capital Account of the transferee, shall be determined as follows:
-7-
<PAGE>
(a) If such transfer is effected on or prior to the fifteenth day of
the month, then such transfer shall be deemed to have occurred on the last
day of the month immediately prior to the month in which such transfer
occurs. If such transfer is effected after the fifteenth day of such month,
such transfer shall be deemed to have occurred on the last day of the month
in which such transfer occurs.
(b) The transferor Partner shall be allocated an amount of Net Profit
or Net Loss equal to the product of (x) a fraction whose numerator consists
of the Partnership Interest transferred and whose denominator consists of
the Partnership Interests held by all Partners, times (y) the Net Profit or
Net Loss of the Partnership for the period ending on the date (or deemed
date) of the transfer. The substitute Partner shall be allocated an amount
equal to the product of (x) a fraction whose numerator consists of the
Partnership Interest transferred and whose denominator consists of the
Partnership Interest held by all Partners, times (y) the Net Profit or Net
Loss of the Partnership for the remainder of the calendar year. The Capital
Account of the transferee as of the date of such transfer shall be
determined in accordance with Regulations Section 1.704-1(b)(2)(iv)(l).
4. Adjustment to Allocations in the Event of Issuance or Redemption of
Partnership Interests.
In the event additional partners acquire interests in the Partnership from
the Partnership, or if the interest of any Partner in the Partnership is
increased through liquidating Distributions to other Partners or decreased
through additional Capital Contributions by other Partners, appropriate
adjustments shall be made to the Distributions and allocations of Net Profit and
Net Loss for periods after such event.
5. Elections Pursuant to Section 754.
In the event of a transfer of an interest in the Partnership permitted
under this Agreement, the Partnership shall, at the request of the transferee
and upon the approval of the Managing Partner, make the election provided by
Code Section 754 to make the adjustment to the basis of Partnership property
provided by Section 743 (if such election is not then in effect), provided that
the transferee agrees to bear the additional accounting expense to the
Partnership resulting from the election (and all subsequent transferees shall
likewise bear a Pro Rata portion of such additional expense). In the event of a
distribution of property by the Partnership, upon the approval of the Managing
Partner, the Partnership shall make the election provided by Section 754 to make
the adjustment to the basis of Partnership property provided by Section 734 (if
such election is not then in effect), in which case any additional accounting
expense to the Partnership resulting from
-8-
<PAGE>
the election shall be borne by the Partnership.
6. Interpretation of Provisions.
It is the intention of the Partners that all allocations pursuant to the
Agreement (including this Tax Appendix) shall comply with the provisions of Code
Section 704 and the Regulations promulgated thereunder. Accordingly, the
provisions of the Agreement (including this Tax Appendix) shall be interpreted
and applied in a manner that is consistent with the provisions of Code Section
704 and the Regulations promulgated thereunder.
7. Tax Matters Partner.
The Managing Partner shall be the Tax Matters Partner of the Partnership.
The Tax Matters Partner shall not take any action which will have a materially
adverse impact on any Partner unless such action shall have been approved by a
Majority Vote of the Partners. The Managing Partner shall have the right to
resign as Tax Matters Partner at any time, upon written notice to all other
Partners, in which event the Partners shall appoint a new Tax Matters Partner.
This provision shall survive any termination of the Agreement. For purposes of
the foregoing, "Tax Matters Partner" shall mean the "tax matters partner" of the
Partnership within the meaning of Section 6231(a)(7) of the Code.
-9-
<PAGE>
INFORMATION APPENDIX
1. Authorized Representatives:
TCI: Robert J. Lemming
VIACOM: John Goddard
INTERMEDIA: David G. Rozzelle
LENFEST: Carl J. Cangelosi
TC: Al Hansen
2. Business Area:
The Metropolitan San Francisco - Oakland - San Jose, California Local
Access Transport Area (LATA 722)
3. Partnership Interests and Initial Capital Contributions:
<TABLE>
<CAPTION>
Interest Contribution
-------- ------------
<S> <C> <C>
TCI: 30.7% $13,293,100
VIACOM: 22.9% $ 9,915,700
INTERMEDIA: 4.2% $ 1,818,600
LENFEST: 7.2% $ 3,117,600
TC: 35.0% $15,155,000
100.0% $43,300,000
</TABLE>
4. Name:
TCG SAN FRANCISCO
5. Termination Date:
December 31, 2092
6. Municipal Franchises and Regulatory Authorizations for which the
Partnership currently contemplates that it may apply:
None.
7. Additional Agreements relating to the operation of the Exclusive Business
in the Business Area:
None.
8. Exclusive Business Activities conducted by Partners as of the date of this
Agreement:
None.
<PAGE>
9. Pre-Organization Operating Expenses and Capital Expenditures Which the
Partnership Shall Reimburse to the Partners:
TCI: None.
VIACOM: None.
INTERMEDIA: None.
LENFEST: None.
TC: $5,419,871 (through 10/93)
10. First Installment of Initial Capital Contribution due at Closing:
TCI: $9,122,286
VIACOM: $6,804,571
INTERMEDIA: $1,248,000
LENFEST: $2,139,429
TC: Contribution of TC San Francisco, Inc. assets
valued at $10,400,000.
Payable upon request of the Managing Partner in accordance with Section 4.1
of the Partnership Agreement.
11. Potential Partners:
None.
12. Video Services to be included in definition of Exclusive Business:
None.
<PAGE>
Teleport Communications San Francisco, Inc.
Private Line Balance Sheet
<TABLE>
<CAPTION>
12/31/92 10/31/93
<S> <C> <C>
Assets
Cash $ 22,307 $ 21,885
Accounts Receivable 55,542 184,234
Other Current Assets 36,336 70,418
---------- -----------
Total Current Assets 114,185 276,536
Fixed Assets 6,171,752 10,254,052
Accum Depr/Amort (672,927) (1,070,287)
---------- -----------
Net Fixed Assets 5,498,825 9,183,765
Deferred Charges 0 40,495
Other Assets 8,052 10,553
---------- -----------
Total Assets $5,621,062 $9,511,350
========== ===========
Liabilities
A/P & Accrued Liabilities $ 580,489 $1,511,606
Loans from 1/1/93 0 4,435,701
Capitalization
Stockholder Loans 3,566,075 3,725,289
Common Stock 1,000 1,000
Paid in Capital 4,472,816 4,472,816
Subtotal 8,039,891 8,199,105
Retained Earnings (2,999,318) (4,635,062)
---------- -----------
Total Liabilities & Capitalization $5,621,062 $9,511,350
========== ==========
0 (0)
</TABLE>
<PAGE>
Teleport Communlcatlons San Francisco. Inc.
Use of Loan From 1/1/93 to 10/31/93
<TABLE>
<CAPTION>
Including Excluding
Interest Interest
<S> <C> <C>
P&L
Administrative Salaries 591,109 591,109
Administrative Management Fees 602,347 602 347
Interest 159,214 0
Other P&L Items 281,974 281,974
---------- ---------
Net Loss 1,634,644 1,475,430
Capital Expenditures:
Electronics 1,019,427 1,019,427
Outside Plant 1,449,439 1,449,439
Switch Equipment 326 326
Administrative Equipment 172,497 172,497
Node Improvements 87,532 87,532
Other 57,832 57,832
Subtotal 2,787,053 2,787,053
Capitalized Management Fees 125,089 125,089
Capitalized Salaries & Fringe 242,420 242,420
Total Capital 3,154,562 3,154,562
Working Capital (194,292) (194,292)
---------- ---------
Total Funding 4,594,914 4,435,700
========== =========
</TABLE>
<PAGE>
TCG San Francisco Switch
Switched Services Balance Sheet
<TABLE>
<CAPTION>
12/31/92 10/31/93
Assets
<S> <C> <C>
Cash $ 0 $ 0
Accounts Receivable 0 0
Other Current Assets (1,000) 5,706
--------- ----------
Total Current Assets (1,000) 5,706
Fixed Assets 1,945,683 2,312,494
Accum Depr/Amort Q (333)
---------- ----------
Net Fixed Assets 1,945,683 2,312,161
Deferred Charges 0 0
Other Assets 0 0
---------- ----------
Total Assets $1,944,683 $2,317,868
========== ==========
Liabilities
A/P & Accrued Liabilities $1,824,696 $1,922,316
Loans from 1/1/93 0 984,170
Capitalization
Stockholder Loans 227,586 243,377
Common Stock 0 0
Paid in Capital 0 0
Subtotal 227,586 243,377
Retained Earnings (107,599) (831,995)
---------- ----------
Total Liabilities & Capitalization $1,944,683 $2,317,868
========== ==========
</TABLE>
<PAGE>
TCG San Francisco Switch
Use of Loan From 1/1/93 To 10/31/93
<TABLE>
<CAPTION>
Including Excluding
Interest Interest
-------- --------
<S> <C> <C>
P&L
Administrative Salaries $138,042 $138,042
Administrative Management Fees 368,865 368,865
Interest 15,791 0
Other P&L Items 201,698 201,698
Net Loss 724,396 708,605
Capital Expenditures:
Switch Equipment 88,182 88,182
Administrative Equipment 23,883 23,883
Node Improvements 4,920 4,920
Other 18,335 18,335
Subtotal 135,320 135,320
Capitalized Management Fees 42,605 42,605
Capitalized Salaries & Fringe 122,417 122,417
Total Capital 300,342 300,342
Working Capital (24,777) (24,777)
-------- --------
Total Funding $999,961 $984,170
======== ========
</TABLE>
<PAGE>
Teleport Communications San Francisco
Private Line & Switch Consolidated Balance Sheet
<TABLE>
<CAPTION>
12/31/92 10/31/93
<S> <C> <C>
Assets
Cash $ 22,307 $ 21,885
Accounts Receivable 55,542 184,234
Other Current Assets 35,336 76,124
---------- -----------
Total Current Assets 113,185 282,243
Fixed Assets 8,117,435 12,566,546
Accum Depr/Amort (672,927) (1,070,620)
--------- -----------
Net Fixed Assets 7,444,508 11,495,927
Deferred Charges 0 40,495
Other Assets 8,052 10,553
---------- -----------
Total Assets $7,565,745 $11,829,217
========== ===========
Liabilities
A/P & Accrued Liabilities $2,405,185 $3,433,922
Loans from 1/1/93 0 5,419,871
Deferred Credits 0 0
Capitalization
Stockholder Loans 3,793,661 3,968,666
Common Stock 1,000 1,000
Paid in Capital 4,472,816 4,472,816
---------- -----------
Subtotal 8,267,477 8,442,482
Retained Earnings (3,106,917) (5,467,057)
---------- -----------
Total Liabilities & Capitalization $7,565,745 $11,829,217
========== ===========
0 (0)
</TABLE>
<PAGE>
Teleport Communications San Francisco - Consolidated
Use of Loan From 1/1/93 To 10/31/93
<TABLE>
<CAPTION>
Including Excluding
Interest Interest
<S> <C> <C>
P&L
Administrative Salaries 729,152 729,152
Administrative Management Fees 971,212 971,212
Interest 175,005 0
Other P&L Items 483,672 483,672
Net Loss 2,359,041 2,184,036
Capital Expenditures:
Switch Equipment 88,508 88,508
Electronics 1,019,427 1,019,427
Outside Plant 1,449,439 1,449,439
Administrative Equipment 196,380 196,380
Node Improvements 92,452 92,452
Other 76,167 76,167
Subtotal 2,922,373 2,922,373
Capitalized Management Fees 167,694 167,694
Capitalized Salaries & Fringe 364,837 364,837
Total Capital 3,454,904 3,454,904
Working Capital (219,069) (219,069)
--------- ---------
Total Funding 5,594,876 5,419,871
========= =========
</TABLE>
<PAGE>
SAN FRANCISCO
<TABLE>
<CAPTION>
TCG TCI VIACOM LENFEST INTERMEDIA TOTAL
--- --- ------ ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
35.0% 30.7% 22.9% 7.2% 4.2% 100.0%
12/1992 Value 10,400,000
Gross-Up Contribution 10,400,000 9,122,286 6,804,571 2,139,429 1,248,000 29,714,286
92 Asset Contrib 10,400,000 0 0 0 0 10,400,000
92 Cash Contrib 0 9,122,286 6,804,571 2,139,429 1,248,000 19,314,286
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
1993 Funding
Beginning Cash 0 9,122,286 6,804,571 2,139,429 1,248,000 19,314,286
Additional Funding 0 0 0 0 0 0
--------------------------------------------------------------------------------
Total Funding 0 9,122,286 6,804,571 2,139,429 1,248,000 19,314,286
Repayment of Loan (5,419,871) (5,419,871)
--------------------------------------------------------------------------------
Total Cash Flow Net of Loan (5,419,871) 9,122,286 6,804,571 2,139,429 1,248,000 13,894,415
Budget 7,993,372
Excess/(Deficit) 5,901,043
==========
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
Reconciliation
Funding (Loan) to 10/93 5,419,871
Budget 11/93-12/93 7,993,372
Total Loan + Budget 13,413,243
==========
- -------------------------------------------------------------------------------------------------------------------
Capital Accounts 10,400,000 9,122,286 6,804,571 2,139,429 1,248,000 29,714,286
11/22/93 Draft
</TABLE>
<PAGE>
FIRST AMENDMENT TO PARTNERSHIP AGREEMENT
THIS FIRST AMENDMENT TO PARTNERSHIP AGREEMENT is made and entered into
effective as of January 1, 1994, by and among TELEPORT COMMUNICATIONS SAN
FRANCISCO, INC., a Delaware corporation ("TCGSF"), TCG PARTNERS, a New York
general partnership ("TCP"), TCI TELEPORT OF SAN FRANCISCO, INC., a California
corporation, VIACOM TELECOM INC., a Delaware corporation, INTERMEDIA PARTNERS, a
California limited partnership, and MICRONET INC., a Delaware corporation.
RECITALS
The parties have entered into a Partnership Agreement dated as of January
1, 1994 (the "Agreement"), pursuant to which, on the terms and conditions
contained therein, the parties created the partnership known as "TCG San
Francisco". The parties desire to amend the Agreement to admit TCP as a partner
and to make certain other changes. Capitalized terms used herein and not
otherwise defined shall have the meanings assigned to them in the Agreement.
AGREEMENTS
In consideration of the premises and of the agreements hereinafter set
forth, the parties hereto agree as follows:
1. Amendments.
(a) All references in the Agreement to TC shall be deemed to be references
to TCGSF.
(b) Article 1 of the Agreement is hereby amended by adding the following
definition in the proper alphabetical order:
"TCP" means TCG Partners, a New York general partnership.
(c) The parenthetical phrase in the seventh line of Section 3.2(d) of the
Agreement is hereby amended in its entirety to read as follows: "(other than
the Managing Partner and, if TCGSF is the Managing Partner, TCP)". Section
3.2(d) of the Agreement is further amended by adding the phrase "and, if TCGSF
is the Managing Partner, TCP" after the term "Managing Partner", but before the
comma in the tenth line of that Section.
<PAGE>
(d) The proviso to Section 3.4(f) of the Agreement is hereby amended in its
entirety to read as follows:
"provided, however, that neither the Managing Partner nor, if
TCGSF is the Managing Partner, TCP shall be entitled to vote on
the termination of the Management Services Agreement;"
(e) The parenthetical in the second and third lines of Section 3.5(a) is
hereby amended to read as follows: "(other than a transferee or successor
Partner pursuant to Article 5)".
(f) Section 3.6(d) of the Agreement is hereby amended by adding the
following language at the end of the paragraph:
; provided, however, that TCP and TCGSF are not disinterested
parties with respect to each other.
(g) Section 4.1 of the Agreement is hereby amended by adding the following
language at the end of the second sentence thereof:
; provided, however, that TCGSF shall make its entire Initial
Capital Contribution in one installment at such time as all
regulatory and other third party consents required for the
transfer to the Partnership of the assets comprising its Initial
Capital Contribution, as shown on the Information Appendix, have
been obtained.
(h) Section 4.1 of the Agreement is hereby amended by adding a new Section
4.1(c) at the end thereof which shall read as follows:
(c) If under Section 4.1(a) the Initial Capital Contribution
of TCP or TCGSF is to be made in whole or in part by the
contribution of assets (which assets shall be specified in the
Information Appendix), then upon the contribution of such assets
to the Partnership, the Partnership shall assume, and shall
undertake to pay, satisfy and discharge, the liabilities set
forth in the Information Appendix, which liabilities represent
funding of the operating expenses related to such assets and
incurred by such Partner for the period January 1, 1993, through
the date of this Agreement, plus certain capital expenditures
- 2 -
<PAGE>
incurred by such Partner during such period in connection with
the acquisition, maintenance and improvement of such assets. If
assets are to be contributed by TCP or TCGSF after the date of
this Agreement, then concurrently with the execution of this
Agreement such Partner and the Partnership shall execute an
Interim Management Agreement which provides for the management of
the business associated with such assets by the Partnership
during the period from the date of this Agreement to the date
such assets are contributed to the Partnership (and payment of
expenses associated with such assets during such period shall be
governed by the Interim Management Agreement). If assets are to
be contributed to the Partnership by TCP or TCGSF after the date
of this Agreement, and if the Partnership has sufficient funds,
then at the request of such Partner the Partnership shall advance
to such Partner the amount payable under the first sentence of
this Section 4.1(c) (or such portion of such amount as such
Partner shall request); provided, however, that if the assets to
which such amount is related are not contributed to the
Partnership on or prior to December 31, 1994 (or such later date
as may be agreed upon by the Partnership and such Partner), for
any reason, then on such date (or on such earlier date as it is
known that the assets will not be contributed) the Partner shall
return all such advances to the Partnership.
(i) Section 4.2 of the Agreement is hereby amended in its
entirety to read as follows:
4.2 Additional Capital Contributions. The Partners may
decide, by a Majority Vote of the Partners pursuant to Section
3.4(c) hereof, that additional Capital Contributions in excess of
the Initial Capital Contributions ("Additional Capital
Contributions") are required for the conduct of the business of
the Partnership. Such Additional Capital Contributions shall be
made by the Partners Pro Rata, in one or more installments at
such times and in such amounts as may be determined by the
Managing Partner; provided, however, that TCP and TCGSF may
allocate between themselves in any proportion their respective
shares of any such Additional Capital Contribution, and if either
TCG or TCGSF does not make its full Pro Rata portion of any
Additional
- 3 -
<PAGE>
Capital Contribution, then the other shall have the right to
contribute the shortfall, and following completion of the
procedures set forth in Section 4.3 (but prior to any adjustments
to the Percentage Interests of the Partners under Section
4.3(f)), the Percentage Interests of TCP and TCGSF shall be
adjusted in accordance with the procedures set forth in Section
4.3(f)(ii)(A) below as if the failure of TCG or TCGSF to pay its
full Pro Rata share were an Additional Capital Refusal. Each
Additional Capital Contribution of a Partner shall be due and
payable within twenty Business Days of receipt by such Partner of
a request from the Managing Partner for such Additional Capital
Contribution (an "Additional Capital Payment Date"). A Partner
(other than TCGSF, but including TCP unless TCP individually or
TCP and TCGSF in the aggregate make TCP's and TCGSF's full Pro
Rata share of such Additional Capital ContributiOn) which fails
to make all or any portion of an Additional Capital Contribution
on or before the related Additional Capital Payment Date is
referred to herein as a "Declining Partner", and the unpaid
amount of the Additional Capital Contribution is referred to
herein as the "Additional Capital Unpaid Amount" or as the
"Unpaid Amount". All Additional Capital Contributions shall be in
cash unless otherwise determined by the Managing Partner.
(j) Section 5.2 (a) of the Agreement is hereby amended in its entirety to
read as follows:
(a) A Partner may transfer to any Controlled Affiliate which is a
Subsidiary of its Parent, all, but not less than all, of its Partnership
Interest, and TCGSF and TCP may transfer to either TCGI or TCP or any Subsidiary
of either TCGI or TCP all or any part of its Partnership Interest, provided
that, in each such case, the transferee assumes the obligations of the
transferor under this Agreement with respect to such Partnership Interest and
becomes a party to this Agreement.
(k) The text of Section 5.2(d) of the Agreement is hereby deleted in its
entirety.
(1) Section 5.5(a) of the Agreement is hereby amended by adding the term
"TCP," in front of the term "TCGI" in the third line thereof.
- 4 -
<PAGE>
(m) The sixth sentence of Section 7.1(a) of the Agreement is hereby amended
in its entirety to read as follows:
The foregoing to the contrary notwithstanding, neither TCP
nor TCGSF shall be subject to the restrictions set forth in
this Section 7.1(a) after it ceases to be a Partner if it
has sold its Partnership Interest after TCGSF has been
removed as the Managing Partner pursuant to Section 3.2(d)
hereof.
(n) The Information Appendix is hereby replaced in its entirety by Exhibit
A attached hereto.
2. Admission of TCP. The Partners hereby consent to the admission of TCP to
the Partnership with a Percentage Interest as set forth on the Information
Appendix attached hereto as Exhibit A.
3. Counterparts. This First Amendment may be executed in as many
counterparts as may be convenient and shall become binding when each party has
executed at least one counterpart.
4. Governing Law. This First Amendment shall be governed by, and construed
in accordance with, the laws of the State of New York (without regard to its
laws pertaining to conflicts of law) applicable to contracts executed in and to
be performed entirely in such state.
5. Binding Effect. This First Amendment shall be binding upon and shall
inure to the benefit of the parties and their respective successors and assigns.
6. Reference to Partnership Agreement. Except as amended hereby, the
Agreement shall remain in full force and effect and is hereby ratified and
confirmed in all respects. On and after the effectiveness of the amendments to
the Agreement accomplished hereby, each reference in the Agreement to "this
Agreement", "hereunder", "hereof", "herein" or words of like import, and each
reference to the Agreement in any other document, agreement or instrument
executed and delivered pursuant to the Agreement, shall be deemed a reference to
the Agreement as amended hereby.
- 5 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this First Amendment this l5th day of July, 1994,
such Amendment to be effective as of January 1, 1994.
TELEPORT COMMUNICATIONS SAN
FRANCISCO, INC.
By:/s/ Alf T. Hansen
---------------------------------
Name: Alf T. Hansen
---------------------------
Title: Senior Vice President
---------------------------
TCG PARTNERS
By: /s/ Alf T. Hansen
---------------------------------
Name: Alf T. Hansen
---------------------------
Title: Senior Vice President
---------------------------
TCI TELEPORT OF SAN FRANCISCO, INC.
By: /s/ Bruce W. Ravenel
---------------------------------
Name: Bruce W. Ravenel
---------------------------
Title: Vice President
---------------------------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this First Amendment this 15th day of July, 1994,
such Amendment to be effective as of January 1, 1994.
TELEPORT COMMUNICATIONS SAN
FRANCISCO, INC.
By: /s/ Alf T. Hansen
---------------------------------
Name: Alf T. Hansen
---------------------------
Title: Senior Vice President
---------------------------
TCG PARTNERS
By: /s/ Alf T. Hansen
---------------------------------
Name: Alf T. Hansen
---------------------------
Title: Senior Vice President
---------------------------
MICRONET INC.
By: /s/ Carl J. Cangelosi
---------------------------------
Name: Carl J. Cangelosi
---------------------------
Title: President
---------------------------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this First Amendment this 15th day of July, 1994,
such Amendment to be effective as of January 1, 1994.
TELEPORT COMMUNICATIONS SAN
FRANCISCO, INC.
By: /s/ Alf T. Hansen
---------------------------------
Name: Alf T. Hansen
---------------------------
Title: Senior Vice President
---------------------------
TCG PARTNERS
By: /s/ Alf T. Hansen
---------------------------------
Name: Alf T. Hansen
---------------------------
Title: Senior Vice President
---------------------------
VIACOM TELECOM INC.
By: /s/ John W. Goddard
---------------------------------
Name: John W. Goddard
---------------------------
Title: PRESIDENT
---------------------------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this First Amendment this 15th day of July, 1994,
such Amendment to be effective as of January 1, 1994.
TELEPORT COMMUNICATIONS SAN
FRANCISCO, INC.
By: /s/ Alf T. Hansen
---------------------------------
Name: Alf T. Hansen
---------------------------
Title: Senior Vice President
---------------------------
TCG PARTNERS
By: /s/ Alf T. Hansen
---------------------------------
Name: Alf T. Hansen
---------------------------
Title: Senior Vice President
---------------------------
INTERMEDIA PARTNERS
By: /s/ Leo J. Hindery, Jr.
---------------------------------
Name: Leo J. Hindery, Jr.
---------------------------
Title: Managing General Partner
---------------------------
<PAGE>
EXHIBIT A
INFORMATION APPENDIX
1. Authorized Representatives:
TCI: Robert J. Lemming
VIACOM: John Goddard
INTERMEDIA: David G. Rozzelle
MICRONET: Carl J. Cangelosi
TCGSF: Al Hansen
TCP: Al Hansen
2. Business Area:
The Metropolitan San Francisco - Oakland - San Jose, California Local Access
Transport Area (LATA 722)
3. Partnership Interests and Initial Capital Contributions:
<TABLE>
<CAPTION>
Interest Contribution
--------- ------------
<S> <C> <C>
TCI: 30.7% $13,293,100
VIACOM: 22.9% $ 9,915,700
INTERMEDIA: 4.2% $ 1,818,600
MICRONET: 7.2% $ 3,117,600
TCGSF: 24.02% $10,400,000
TCP: 10.98% $ 4,755,000
----- -----------
100.0% $43,300,000
</TABLE>
4. Name:
TCG SAN FRANCISCO
5. Termination Date:
December 31, 2092
6. Municipal Franchises and Regulatory Authorizations for which the Partnership
currently contemplates that it may apply:
None.
7. Additional Agreements relating to the operation of the Exclusive Business in
the Business Area:
None.
8. Exclusive Business Activities conducted by Partners as of the date of this
Agreement:
None.
<PAGE>
9. Pre-Organization Operating Expenses and Capital Expenditures Which the
Partnership Shall Reimburse to the Partners:
TCI: None.
VIACOM: None.
INTERMEDIA: None.
MICRONET: None.
TCGSF: $3,719,344 (through 10/93)
TCP: $1,700,527 (through 10/93)
10. First Installment of Initial Capital Contribution due at Closing:
TCI: $9,122,286
VIACOM: $6,804,571
INTERMEDIA: $1,248,000
MICRONET: $2,139,429
TCGSF: Contribution of TC San Francisco, Inc. assets
valued at $10,400,000.
TCP: $0
Payable upon request of the Managing Partner in accordance with Section 4.1
of the Partnership Agreement.
11. Potential Partners:
None.
12. Video Services to be included in definition of Exclusive Business:
None.
-2-
<PAGE>
EXHIBIT 10.30
PARTNERSHIP AGREEMENT
OF
TCG SEATTLE
Dated as of January 1, 1994
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C>
ARTICLE 1: DEFINITIONS..................................................... 1
ARTICLE 2: FORMATION....................................................... 7
2.1 Formation. ............................................... 7
2.2 Name....................................................... 7
2.3 Principal Offices.......................................... 7
2.4 Term....................................................... 7
2.5 Property................................................... 7
ARTICLE 3: PURPOSE, AUTHORITY AND MANAGEMENT OF THE
PARTNERSHIP..................................................... 8
3.1 Purpose and Authority...................................... 8
3.2 Managing Partner........................................... 8
3.3 Meetings of the Partners; Authorized
Representatives........................................ 9
3.4 Actions Requiring a Majority Vote.......................... 11
3.5 Actions Requiring a Supermajority Vote..................... 12
3.6 Special Voting Provisions.................................. 13
3.7 Scope of Partners' Authority............................... 14
3.8 Indemnification of Partners; Allocation
of Liabilities......................................... 14
3.9 Contribution............................................... 16
3.10 Insurance and Bonds........................................ 17
ARTICLE 4: CAPITALIZATION; ALLOCATION; DISTRIBUTIONS....................... 17
4.1 Initial Capital Contributions.............................. 17
4.2 Additional Capital Contributions........................... 18
4.3 Failure to Make Capital Contributions...................... 19
4.4 Loans...................................................... 24
4.5 Calculations and Adjustments............................... 25
4.6 Capital Accounts........................................... 25
4.7 Distribution of Partnership Funds.......................... 26
4.8 Allocation of Net Profits and Losses....................... 26
4.9 Tax Appendix............................................... 26
ARTICLE 5: TRANSFERS OF PARTNERSHIP INTERESTS; RIGHT OF
FIRST REFUSAL................................................... 27
5.1 Restrictions on Transfer................................... 27
5.2 Exceptions to Restrictions on Transfers.................... 27
5.3 Rollup Provisions.......................................... 30
5.4 Right of First Refusal..................................... 31
5.5 Purchases by the Partnership or its
Assignee................................................... 35
5.6 Put Rights of Partners..................................... 36
5.7 Prohibited Transfers....................................... 37
5.8 Appraisal Process.......................................... 37
5.9 Closing of any Permitted Transfer.......................... 38
5.10 Remedies.................................................. 39
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE 6: BOOKS AND RECORDS; ACCOUNTING; FISCAL YEAR...................... 39
6.1 Books and Records.......................................... 39
6.2 Financial Statements....................................... 40
6.3 Bank Accounts.............................................. 41
6.4 Fiscal Year................................................ 41
ARTICLE 7: OTHER BUSINESS ACTIVITIES....................................... 41
7.1 Conduct of Exclusive Business in
Business Area.......................................... 41
7.2 Exceptions for Certain Transactions........................ 43
7.3 Existing Activities........................................ 43
7.4 Prohibited Transactions.................................... 43
7.5 Controlled Affiliates...................................... 44
7.6 Non-Exclusive Business..................................... 44
7.7 Services Offered by the Partners .......................... 44
ARTICLE 8: DISSOLUTION..................................................... 44
8.1 Causes of Dissolution...................................... 44
8.2 Winding Up and Liquidation................................. 45
8.3 Continuation of the Partnership............................ 45
8.4 No Withdrawal.............................................. 45
ARTICLE 9: EVENTS OF DEFAULT AND REMEDIES.................................. 46
9.1 Events of Default.......................................... 46
9.2 Remedies................................................... 46
9.3 Purchase of Defaulting Partner's
Partnership Interest................................... 48
ARTICLE 10: REPRESENTATIONS AND WARRANTIES OF THE
PARTNERS........................................................ 49
ARTICLE 11: MISCELLANEOUS................................................... 50
11.1 Acknowledgements.......................................... 50
11.2 Bill for Partition........................................ 50
11.3 Notices................................................... 50
11.4 Amendments................................................ 51
11.5 Indebtedness for Borrowed Money........................... 51
11.6 Waivers and Further Agreements; Entire
Agreement.............................................. 51
11.7 Severability.............................................. 51
11.8 Specific Enforcement; Attorneys Fees...................... 51
11.9 Counterparts.............................................. 52
11.10 Captions; Gender......................................... 52
11.11 Governing Law and Binding Effect......................... 52
11.12 Expenses................................................. 52
11.13 Third Parties............................................ 52
11.14 Confidentiality.......................................... 52
11.15 Appendices............................................... 53
</TABLE>
<PAGE>
Exhibits and Appendices
-----------------------
Exhibit A Form of Management Services Agreement
Exhibit B Undertaking of Parent
Tax Appendix
Information Appendix
<PAGE>
PARTNERSHIP AGREEMENT
THIS PARTNERSHIP AGREEMENT is made as of January 1, 1994, by and among TCG
PARTNERS, a New York general partnership ("TCP"), and the other parties listed
on the signature pages hereof.
RECITALS
The parties desire to establish a partnership for the purposes hereinafter
set forth, subject to the terms and conditions hereof.
AGREEMENTS
In consideration of the foregoing, and of the promises and covenants
contained in this Agreement, the parties agree as follows:
ARTICLE 1: DEFINITIONS
Capitalized terms used in this Agreement shall have the meanings set forth
below or in the Sections of this Agreement referred to below. Terms used solely
in the Tax Appendix are defined in the Tax Appendix.
"Act" means the Uniform Partnership Act, as from time to time in effect in
the State of New York.
"Additional Capital Contribution" has the meaning set forth in Section 4.2
hereof.
"Affiliate" means, with respect to any Entity, any other Entity that,
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with the first specified Entity. For
purposes of this Agreement, neither the Partnership, nor any Entity controlled
by the Partnership, shall be deemed to be an Affiliate of a Partner or of any
Affiliate of a Partner, and no Partner or any Affiliate thereof shall be deemed
to be an Affiliate of any other Partner or any Affiliate thereof solely by
virtue of its Partnership Interest.
"Agreement" means this Partnership Agreement, as it may be amended,
modified or supplemented from time to time in accordance with its terms.
<PAGE>
"Authorized Representative" means the representative of a Partner who,
pursuant to Section 3.3(e) hereof, is authorized to execute any document and
take any action under this Agreement on behalf of such Partner. The name of the
initial Authorized Representative of each Partner is set forth on the
Information Appendix.
"Budget" for any Fiscal Year means the operating and capital budget for the
Partnership for such Fiscal Year prepared by the Managing Partner and adopted by
the Partners in accordance with Section 3.4 hereof.
"Business" means the Exclusive Business and the Non- Exclusive Business.
"Business Area" means the counties listed on the Information Appendix.
"Business Day" means any day (other than a day which is a Saturday or
Sunday) on which banks are permitted to be open for business in the City of New
York.
"Capital Account" has the meaning set forth in Section 4.6 hereof.
"Capital Contribution" means, for any Partner, the amount of cash that such
Partner has contributed to the capital of the Partnership plus, if such Partner
contributes property other than cash, "Capital Contribution" shall include the
fair market value of such property determined without regard to Code Section
7701(g) and net of any liabilities secured by such contributed property that the
Partnership is considered to assume or take subject to under Code Section 752.
"Change in Control", with respect to a Partner, means any transaction as a
result of which such Partner ceases to be a Subsidiary of the Entity which was
its Parent immediately prior to such transaction.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any subsequent federal law of similar import.
"Control" means, as to any Entity, the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such Entity, whether through the ownership of equity interests or voting
securities, by contract or otherwise.
"Controlled Affiliate", with respect to any Partner as of any relevant
date, means (i) the Parent of such Partner and
- 2 -
<PAGE>
(ii) each Affiliate of such Partner with respect to which such Parent, directly
or indirectly through one or more Controlled Affiliates, exercises or is
entitled to exercise by ownership of equity interests or voting securities,
contract or otherwise affirmative or negative control with respect to decisions
to Engage in, or to acquire interests in Entities Engaged in, activities
encompassed in the Exclusive Business. For purposes of this Agreement, (x) the
Partnership shall not be deemed to be a Controlled Affiliate of any Partner or
any Affiliate of any Partner and (y) TCGI and each of its Subsidiaries shall be
deemed to be Controlled Affiliates of TCP.
"Defaulting Partner" has the meaning set forth in Section 9.1 hereof.
"Distribution" means a distribution of cash or property in kind pursuant to
Article 4 or 8 hereof.
"Engage" or "Engaging" means, with respect to an activity, venture or
business, directly or indirectly owning, investing in, managing, operating or
controlling it either individually, jointly, in partnership or in conjunction
with any other person, or as a shareholder, or providing or leasing in any
material respect any goods or services to such activity, venture or business.
"Entity" means any individual, general partnership, limited partnership,
corporation, limited-liability company, joint venture, trust, business trust,
cooperative or association, and the heirs, executors, administrators, legal
representatives, successors, and assigns of such Entity where the context so
permits.
"Exclusive Business" means the provision of the following local
telecommunications services (other than for the provision or transport of the
Non-Exclusive Business):
(a) Access services to IXC's for commercial customers:
(i) Private line access;
(ii) Switched access;
(b) Local line services telecommunications services to
commercial customers;
(c) Switched access transport between a local exchange
carrier and an IXC for residential traffic;
(d) IXC POP to IXC POP connections;
(e) Provision of dark fiber to third parties; and
- 3 -
<PAGE>
(f) Provision of fiber video services to the extent
provided on the Information Appendix.
"Fair Market Value" of a Partner's Partnership Interest means the product
of (i) the Percentage Interest of such Partner as of the date of determination
of Fair Market Value times (ii) the price at which a willing seller (being under
no compulsion to sell) would sell, and a willing buyer (having full knowledge of
the facts and being under no compulsion to buy) would buy, all of the business
and assets of the Partnership as a going concern (or all of the outstanding
Partnership Interests, if that would yield a higher price), in a single
arm's-length transaction without time constraints. The price so determined for
the business and assets of the Partnership shall, without duplication or
deduction, be reduced by the amount of all liabilities of the Partnership.
"Fiscal Year" means the calendar year.
"Indirect Transfer" has the meaning set forth in Section 5.1(a) hereof.
"Information Appendix" means the information appendix attached hereto and
made a part of this Agreement.
"Initial Capital Contribution" means the aggregate initial Capital
Contribution of each Partner to the capital of the Partnership set forth in the
Information Appendix. If an Initial Capital Contribution is made in property
other than cash, then such Initial Capital Contribution shall include the fair
market value of such property determined without regard to Code Section 7701(g)
and net of liabilities secured by such contributed property that the Partnership
is considered to take subject to or assume under Code Section 752.
"Majority Vote", with respect to any matter to be voted on by the Partners,
means the affirmative vote of a Partner or Partners whose Percentage Interests
are in excess of 50% of the sum of the Percentage Interests of all Partners
entitled to vote on such matter.
"Management Services Agreement" means the Management Services Agreement
between the Partnership and the Manager in substantially the form attached
hereto as Exhibit A, as the same may be amended, modified or supplemented from
time to time in accordance with the provisions hereof and thereof.
"Manager" means TCGI in its capacity as manager under the Management
Services Agreement, and any successor appointed in accordance with this
Agreement or the Management Services Agreement.
- 4 -
<PAGE>
"Managing Partner" means TCP in its capacity as managing partner of the
Partnership, or any successor managing partner of the Partnership appointed in
accordance with Section 3.2(d) hereof.
"Net Profit" and "Net Loss" have the meanings set forth in the Tax
Appendix. "Net Profit" and "Net Loss" mean, generally, for each Fiscal Year or
other period, an amount equal to the Partnership taxable income or loss for such
year or period, with certain adjustments set forth in the Tax Appendix.
"Non-Exclusive Business" means local telecommunications switched services
to commercial customers.
"Parent" with respect to any Entity as of any relevant date means the
ultimate corporate or partnership parent entity (within the meaning of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules
and regulations promulgated thereunder, as in effect on the date hereof) of such
Entity.
"Parent Undertaking" means the form of Undertaking of Parent attached
hereto as Exhibit B.
"Partner Services Agreement" means, collectively, any fiber lease
agreement, any other agreement for the use of fiber optic telecommunications
facilities and any other agreement (other than the Management Services
Agreement) for services to be provided by a Partner or an Affiliate of a Partner
to the Partnership in connection with the maintenance or operation of the
business of the Partnership, such as, but not limited to, a construction
agreement, fiber maintenance agreement, electronics maintenance agreement or
other similar agreement.
"Partners" means TCP and the other signatories to this Agreement, any
Entity which becomes a party to this Agreement after the date hereof, and their
respective successors and permitted assigns, and "Partner" means any of such
Partners.
"Partnership" means the general partnership created pursuant to this
Agreement.
"Partnership Interest" means, as to each Partner, all of the interest of
such Partner in the Partnership, including such Partner's (i) right to a
distributive share of the income, gain, losses and deductions of the Partnership
in accordance herewith, (ii) right to a distributive share of Partnership
assets, (iii) obligations as a Partner, and (iv) rights with respect to the
management of the business and affairs of the Partnership, as provided herein or
by law.
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"Percentage Interest" means, as to each Partner, the percentage set forth
opposite its name on the Information Appendix, as such percentage may be revised
in accordance with the provisions hereof; provided, however, that except as
expressly provided in this Agreement, the Percentage Interest of a Partner shall
not be subject to increase or decrease without such Partner's prior consent.
"Prime Rate" means the interest rate announced by Citibank, N.A., New York,
New York, from time to time as its prime lending rate.
"Pro Rata" means the proportion which the respective Percentage Interest
immediately prior to an action of any Partner entitled to participate in such
action bears to the sum of the Percentage Interests immediately prior to such
action of all Partners entitled to participate in such action.
"Regulations" means the Income Tax Regulations, including Temporary
Regulations, promulgated under the Code, as such regulations may be amended from
time to time (including corresponding provisions of succeeding regulations).
"Remedies Partner" means the Managing Partner, so long as at the time of
determination the Managing Partner is not a Defaulting Partner; otherwise,
"Remedies Partner" means the non- Defaulting Partner which has the largest
Percentage Interest of all non-Defaulting Partners.
"Subsidiary" of any Parent means an Entity (i) more than fifty percent of
whose outstanding shares or securities (representing the right to vote for the
election of directors or other managing authority) are owned or controlled,
directly or indirectly through one or more Subsidiaries, by such Parent, or (ii)
which does not have outstanding shares or securities, but more than fifty
percent of whose ownership interests representing the right to make the
decisions for such Entity is owned or controlled, directly or indirectly through
one or more Subsidiaries, by such Parent; provided, however, that in each case,
such Entity shall be deemed to be a Subsidiary only so long as such ownership or
control exists.
"Supermajority Vote", with respect to any matter to be voted on by the
Partners, means the affirmative vote of a Partner or Partners whose Percentage
Interests are at least eighty percent of the sum of the Percentage Interests of
all Partners entitled to vote on such matter.
"Tax Appendix" means the tax appendix attached hereto and made a part of
this Agreement.
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"TCGI" means Teleport Communications Group Inc., a Delaware corporation,
and any Entity into which it may be merged or with which it may be consolidated
or to which it may transfer all or substantially all of its assets.
ARTICLE 2: FORMATION
2.1 Formation. The Partners hereby form the Partnership as a general
partnership under and pursuant to the Act, for the purposes and on the terms set
forth herein.
2.2 Name. The Partnership's name shall be as set forth in the Information
Appendix or such other name as the Partners may determine by Supermajority Vote.
2.3 Principal Offices. The principal office of the Partnership shall be in
the Business Area or at such other location as the Managing Partner may from
time to time determine, and the Partnership may have an additional office or
offices at such other place or places as the Managing Partner may from time to
time determine.
2.4 Term. The term of the Partnership shall commence as of the effective
date hereof and shall continue for approximately ninety-nine years thereafter,
terminating on the date specified on the Information Appendix, unless the
Partnership is dissolved and liquidated prior thereto pursuant to Article 8
below.
2.5 Property. All assets and property, whether real, personal or mixed,
tangible or intangible, including contractual rights, owned or possessed by the
Partnership shall be held or possessed in the name of the Partnership. All such
assets, property and rights shall be deemed to be owned or possessed by the
Partnership as an entity. No Partner shall have any separate ownership interest
in such assets, property or rights. Each Partner's interest in the Partnership
is personal property for all purposes.
ARTICLE 3: PURPOSE, AUTHORITY AND MANAGEMENT OF THE
PARTNERSHIP
3.1 Purpose and Authority. The purpose of the Partnership shall be to
invest in, engage in, operate, manage, develop, finance, expand and to sell and
otherwise dispose of, and otherwise exercise all rights, powers, privileges and
other incidents of ownership with respect to, any activity encompassed in the
Business in the Business Area. The Partnership shall have all powers which may
be exercised by a partnership under the Act.
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3.2 Managing Partner.
(a) Subject to the provisions of Sections 3.4, 3.5 and 3.6 hereof, the
Managing Partner shall be responsible for the management and operations of
the Partnership and shall have all powers necessary to manage and control
the Partnership, to conduct its business and to implement any decision of
the Partners adopted pursuant to this Agreement. Without limiting the
generality of the foregoing, the Managing Partner shall have the authority
(i) to appoint and remove officers of the Partnership pursuant to Section
3.2(c) below, and to authorize such officers to perform such acts and
services as the Managing Partner may approve, (ii) to seek such municipal
and regulatory consents, approvals and authorizations in the name of the
Partnership as the Managing Partner in its reasonable discretion determines
to be in the best interests of the Partnership or otherwise to be necessary
under applicable law, including, without limitation, those set forth on the
Information Appendix, and (iii) to take any action on behalf of the
Partnership which does not expressly require a vote of the Partners
pursuant to Sections 3.4, 3.5 or 3.6 hereof. The Partners acknowledge that
the Managing Partner may delegate certain of its responsibilities hereunder
to the Manager pursuant to the Management Services Agreement and to the
officers appointed pursuant to Section 3.2(c) below. The Manager shall
report to the Managing Partner.
(b) At any time after the termination by the Partnership of the
Management Services Agreement pursuant to the terms hereof and thereof, any
action to be taken or document to be provided or executed by the Manager
hereunder shall thereafter be taken, provided or executed by the Managing
Partner; provided, however, that after such termination, the Managing
Partner shall promptly seek a successor Manager to provide substantially
similar services to the services provided pursuant to the Management
Services Agreement and, upon the affirmative vote of the Partners pursuant
to Section 3.4(f), shall enter into a management agreement with such
successor Manager.
(c) The Managing Partner shall appoint a chief executive officer, a
chief financial officer and one or more chief operating officers for the
Partnership who shall be responsible for the day-to-day management of the
operations and business of the Partnership. The Partnership shall have such
additional officers as the Managing Partner may determine to appoint. Such
officers shall be deemed agents and employees of the Partnership, shall
serve at the pleasure of the Managing Partner, shall act in accordance with
the Budget, the decisions of the Managing Partner and the decisions of the
Partners adopted by a vote of the Partners pursuant to Section 3.4, 3.5 or
3.6 hereof, and shall have no authority to take any action which the
Managing Partner would not itself have the authority to take as
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provided herein. Except as provided above or as otherwise determined by the
Managing Partner, such officers shall (i) have such powers as are usually
exercised by comparably designated officers of a Delaware corporation and
(ii) have the power to bind the Partnership through the exercise of such
powers to the extent consistent with the terms of this Agreement.
(d) If the Managing Partner fails in any material respect to perform
its obligations under this Agreement in accordance with the terms hereof
and customary and reasonable standards of management in the
telecommunications industry, and such failure in performance continues
unremedied for a period of one hundred eighty days after a majority in
Percentage Interests of the Partners (other than the Managing Partner) has
given written notice to the Managing Partner specifying such failure in
reasonable detail, the Partners, by a Majority Vote of the Partners other
than the Managing Partner, shall have the right, by delivery of notice to
the Managing Partner, to remove the Managing Partner as the Managing
Partner and replace it with a successor Managing Partner. Upon delivery of
such notice, the new Managing Partner shall succeed to all of the powers of
the removed Managing Partner hereunder and shall possess and have all such
powers.
3.3 Meetings of the Partners; Authorized Representatives.
(a) Annual meetings of the Partners shall be held at such place and
time as may be determined from time to time by the Managing Partner,
subject to postponement by a Supermajority Vote of the Partners. Special
meetings of the Partners shall be called by the Managing Partner at the
request of any Partner. Each Partner shall be represented at an annual or
special meeting by its Authorized Representative. The Managing Partner
shall give the Authorized Representative of each Partner at least ten
Business Days notice of the time and place of any annual or special meeting
of the Partners. Any such notice shall include, in reasonable detail, an
agenda that sets forth the matters to be considered at such annual or
special meeting. In addition to any matter set forth in such agenda, any
Partner, by notice to each other Partner sent within two business days of
such Partner's receipt of such agenda, may propose for a vote of the
Partners at any meeting any matter which pursuant to Sections 3.4, 3.5 or
3.6 hereof or any other Section of this Agreement may be decided by the
Partners pursuant to a Majority Vote or a Supermajority Vote. A Partner may
waive notice of any meeting in writing before, at or after such meeting.
The attendance of an Authorized Representative of a Partner at a meeting
shall constitute a waiver by such Partner of notice of such meeting, except
when its Authorized Representative attends such meeting for the express
purpose of objecting to the transaction of any business because
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the meeting was not properly called. Voting at any annual or special
meeting of the Partners shall be according to Percentage Interests.
(b) At all meetings of the Partners, the Manager shall be present and
prepared to discuss with the Authorized Representatives and other
representatives of the Partners the business of the Partnership and any
other matters regarding the Partnership that any Partner may reasonably
request.
(c) Any action required or permitted to be taken by the Partners at an
annual or special meeting may be taken without a meeting if a written
consent to such action is signed on behalf of each Partner by its
Authorized Representative, and such written consent is filed with the
records of the Partnership. Any or all Authorized Representatives may
participate in a meeting by means of conference telephone or similar
communications equipment by means of which all Authorized Representatives
participating in the meeting can hear each other, and participation in such
a meeting shall constitute presence in person by any such Authorized
Representative at such meeting.
(d) Minutes of each meeting of the Partners shall be prepared by the
Managing Partner or an officer of the Partnership and circulated to the
Partners.
(e) The Authorized Representative of each Partner shall have the
authority to execute any document and take any action on behalf of such
Partner pursuant to the terms of this Agreement. In the absence of prior
written notice to the contrary, any action taken or document executed by an
Authorized Representative shall be binding upon the Partner of which he is
the Authorized Representative, and neither the Partnership, nor any other
Partner nor any other Entity shall be obligated to inquire as to the
authority of the Authorized Representative to take any action or execute
any document on behalf of such Partner.
(f) Each Partner shall have the right at any time and from time to
time to replace its Authorized Representative (or any alternate Authorized
Representative) with another individual by written notice to the
Partnership and each other Partner. Each Partner shall be entitled to name
an alternate Authorized Representative to serve in the place of the
Authorized Representative appointed by such Partner should such appointed
Authorized Representative not be able to attend a meeting or meetings. In
the event an Authorized Representative appointed by a Partner dies or is
unwilling or unable to serve as such, such Partner shall promptly appoint a
successor to such Authorized Representative.
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3.4 Actions Requiring a Majority Vote. Subject to the provisions of
Sections 3.5 and 3.6 hereof, neither the Managing Partner, the Manager, nor any
other Partner nor any officer of the Partnership shall take any action, expend
any sum, make any decision or incur any obligation on behalf of the Partnership
with respect to any of the following matters, without a Majority Vote:
(a) the sale, pledge, assignment, lease or other disposition or
mortgaging or other encumbering of Partnership assets with an original
acquisition cost of more than $250,000 but less than $1,000,000;
(b) the adoption of the Budget for each Fiscal Year, which the Manager
shall present to the Partners, together with a business plan as revised for
such period as the Managing Partner determines, for their review no later
than November 1 of the prior Fiscal Year;
(c) requesting any Partner to make an Additional Capital Contribution;
(d) making capital expenditures or commitments for capital
expenditures in amounts which exceed, taken together with all other such
commitments and expenditures, by 10% the amounts budgeted for such
commitments and expenditures in the Budget for the relevant Fiscal Year;
(e) settling or initiating any claim or litigation involving the
Partnership and arising in the ordinary course of the Partnership's
business, except for minor employee grievances or proceedings and matters
involving less than $100,000;
(f) any decision to terminate the Management Services Agreement in
accordance with its terms or to enter into a replacement or successor
management agreement; provided, however, that the Managing Partner shall
not be entitled to vote on the termination of the Management Services
Agreement; and
(g) the merger or consolidation of the Partnership with any other
Entity, where the Partnership is the surviving Entity, provided, however,
that no Partner's Partnership Interest may be diluted by such merger or
consolidation hereunder unless the diluted Partner affirmatively agrees;
(h) making Distributions pursuant to the first sentence of Section
4.7(a) hereof;
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provided, however, that in no event shall (i) any Budget be adopted
pursuant to Section 3.4(b) above, (ii) any capital expenditure or
commitment for capital expenditure in connection with a proposed
acquisition be made by the Partnership pursuant to Section 3.4(d) above,
(iii) any claim or litigation be settled or initiated by the Partnership,
pursuant to Section 3.4(e) above, or (iv) any merger or consolidation be
consummated, pursuant to Section 3.4(g) above, without in any such case the
consent of the Managing Partner.
3.5 Actions Requiring a Supermajority Vote. Subject to the provisions of
Section 3.6 hereof, neither the Managing Partner, the Manager, nor any other
Partner nor any officer of the Partnership shall take any action, expend any
sum, make any decision or incur any obligation on behalf of the Partnership with
respect to any of the following matters, without a Supermajority Vote:
(a) the admission of an additional Partner (other than pursuant to
Section 5.2(d) hereof and than a transferee or successor Partner pursuant
to Article 5) or, except as provided in Section 9.2(a)(i) hereof, the
redemption or purchase by the Partnership of any Partnership Interest;
provided, however, that no Partner's Partnership Interest may be diluted by
the additition of an additional Partner hereunder unless the diluted
Partner affirmatively agrees;
(b) the merger or consolidation of the Partnership with any other
Entity, where the Partnership is not the surviving Entity, or the
incorporation of the Partnership;
(c) the sale, pledge, assignment, lease or other disposition or
mortgaging or other encumbering of Partnership assets with an aggregate
original acquisition cost of $1,000,000 or more;
(d) subject to the provisions of Section 4.3(b) hereof, the incurrence
of any indebtedness for borrowed money (or the making of any guaranty of
any indebtedness for borrowed money of any other Entity) in excess of
$100,000 in the aggregate at any time during the term hereof other than
loans pursuant to Section 4.4 hereof and indebtedness arising under any
fiber lease agreement between the Partnership and a Partner or an Affiliate
of a Partner;
(e) any decision relating to Federal Communications Commission or
other federal, state or local regulatory matters which has a material
adverse effect upon the Partnership or any Partner or any Affiliate of any
Partner in the Business Area;
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(f) the assignment, transfer, pledge, compromise or release of any
claims of, or debts due, the Partnership, except upon payment in full, or
the arbitration or consent to the arbitration of any disputes or
controversies involving the Partnership, except for matters arising in the
ordinary course of the Partnership's business that involve an amount not in
excess of $75,000 (which shall be in the discretion of the Managing
Partner);
(g) settling or initiating any tax audit or any other claim or
litigation involving the Partnership and not arising in the ordinary course
of the Partnership's business;
(h) any general assignment for the benefit of creditors or the
commencement of any proceedings pursuant to any federal or state bankruptcy
or insolvency statutes;
(i) the dissolution or winding up of the Partnership (except as
specifically provided in Article 8) and the decision to continue the
business of the Partnership after dissolution pursuant to Section 8.3
hereof;
(j) filing any protest, petition or pleading with regard to any
Partnership tax return; and
(k) subject to Section 3.6(c) hereof, entering into any agreement or
obtaining any license or franchise which restricts the transfer of
Partnership Interests or subjects the Partnership Interests to any security
interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on voting rights, charges or other encumbrances of
any nature whatsoever.
3.6 Special Voting Provisions. Notwithstanding any other provision of this
Agreement,
(a) if the Partnership desires to enter into a transaction or
agreement with a Partner or an Affiliate of a Partner on terms which are
less favorable to the Partnership than could be obtained in an arms-length
transaction with an unaffiliated third party, or amend or waive any
provision of any such agreement, and if there are Partners who are not
involved, by themselves or through any Affiliate, in such transaction or
agreement, the Partnership shall not enter into such transaction or
agreement, or agree to such amendment or waiver, without the consent of all
of the disinterested Partners;
(b) each Partner, by execution of this Agreement, hereby consents to
the execution and delivery, and the
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performance by the Partnership of its obligations under, the Management
Services Agreement;
(c) the approval of all of the Partners shall be required to enter
into any agreement or to obtain any license or franchise which restricts
the transfer of Partnership Interests or subjects the Partnership Interests
to any security interests, liens, claims, pledges, options, rights of first
refusal, agreements, limitations on voting rights, charges or other
encumbrances of any nature whatsoever, in each case in a manner that
discriminates among Partners; and
(d) the approval of a majority in Percentage Interests of all of the
disinterested Partners shall be required to decline or approve the conduct
of a business activity proposed to be Engaged in, or an acquisition
proposed to be made, by the Partnership pursuant to Section 7.1 hereof.
3.7 Scope of Partners' Authority. The Managing Partner shall have exclusive
authority to act for and to assume any obligation or responsibility on behalf of
the Partnership, except as expressly restricted hereby, and no other Partner
shall have any authority to act for, or assume any obligation or responsibility
on behalf of, the Partnership or another Partner except as otherwise expressly
provided herein or as expressly approved by a vote of the Partners pursuant to
Section 3.4, 3.5 or 3.6 hereof.
3.8 Indemnification of Partners; Allocation of Liabilities.
(a) The Partnership shall indemnify and save harmless the officers and
employees of the Partnership, the Managing Partner and the Authorized
Representatives of the Partners from any loss, damage or expense incurred
by any of them by reason of any act or omission to act on behalf of the
Partnership, performed by any of them in good faith and without gross
negligence, willful misconduct or breach of this Agreement. Any reasonable
expenses incurred by any indemnified person pursuant to this Section 3.8(a)
in defending any civil or criminal action, suit or proceeding (or the
threat thereof), other than a claim, action, suit or proceeding brought by
the Partnership, which is based, in whole or in part, upon any alleged act
or omission to act on behalf of the Partnership shall be borne and paid by
the Partnership in advance of the final disposition of such action, suit or
proceeding (or the threat thereof) upon receipt of an undertaking by or on
behalf of the indemnified person to repay to the Partnership the amount of
such expenses if it shall ultimately be determined that such person is
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not entitled to the indemnification provided for under this Section 3.8(a).
Any indemnity under this Section 3.8(a) shall be provided out of and to the
extent of Partnership assets only.
(b) Each Partner shall indemnify and save harmless the Partnership and
each other Partner and former Partner, the partners or shareholders of each
other Partner and former Partner, and any of their respective officers,
directors, shareholders, partners, employees, agents and Affiliates, from
any loss, damage or expense incurred by any of them by reason of or
resulting from (i) any misrepresentation or breach of warranty of such
Partner set forth in this Agreement or (ii) any unauthorized act taken by
such Partner in the name of the Partnership or any other Partner. Any
reasonable expenses incurred by any Entity entitled to indemnification
pursuant to this Section 3.8(b) in defending any civil or criminal action,
suit or proceeding (or the threat thereof) by reason of or resulting from
any such indemnified matter shall be borne and paid by the indemnifying
Partner in advance of the final disposition of such action, suit or
proceeding (or the threat thereof) upon receipt of an undertaking by or on
behalf of the indemnified Entity to repay to the indemnifying Partner the
amount of such expenses if it shall ultimately be determined that such
Entity is not entitled to the indemnification provided for under this
Section 3.8(b). Any indemnity under this Section 3.8(b) shall be provided
out of and to the extent of the assets of the indemnifying Partner only.
(c) With respect to the indemnities provided above in this Section
3.8, an indemnified party shall, with respect to any claim made against
such indemnified party for which indemnification is available, notify the
indemnifying party in writing of the nature of the claim as soon as
practicable but not more than ten days after the indemnified party shall
have received notice of the assertion thereof before any court or
governmental authority. The failure by an indemnified party to give notice
as provided in the foregoing sentence shall not relieve the indemnifying
party of its obligations under this Section except to the extent that the
failure results in the failure of actual notice to the indemnifying party
and the indemnifying party is damaged solely as a result of the failure to
give notice. Upon receipt of notice by an indemnifying party from an
indemnified party of the assertion of any such claim, the indemnifying
party shall employ counsel acceptable to the indemnified party and shall
assume the defense of such claim. The indemnified party shall have the
right to employ separate counsel and to participate in (but not control)
any such action, but the fees and expenses of such counsel shall be the
expense of such indemnified party unless (i) the employment of counsel by
such indemnified party has been authorized by the indemnifying party, (ii)
the indemnified party shall have been advised by its
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counsel in writing that there is a conflict of interest between the
indemnifying party and the indemnified party in the conduct of the defense
of such action (in which case the indemnifying party shall not have the
right to direct the defense of such action on behalf of the indemnified
party) or (iii) the indemnifying party shall not in fact have employed
counsel to assume the defense of such action, in each of which cases the
fees and expenses of such counsel shall be at the expense of the
indemnifying party. An indemnifying party shall not be liable for any
settlement of an action effected without its written consent (which consent
shall not be unreasonably withheld). No indemnifying party will consent to
entry of any judgment or enter into any settlement which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to
such indemnified party of a release from all liability in respect of such
action. Whether or not the Partnership chooses to defend or prosecute a
claim, each Partner shall, to the extent requested by the Partnership and
at the Partnership's expense, cooperate in the prosecution or defense of
such claim and shall furnish such records, information and testimony and
attend such conferences, discovery proceedings, hearings, trials and
appeals as may reasonably be requested in connection therewith.
(d) The provisions of this Section 3.8 shall survive the withdrawal of
any Partner from the Partnership and the dissolution of the Partnership;
provided, however, that the obligation of a Partner to indemnify the
Partnership and other Partners pursuant to this Section 3.8(b) shall only
arise with respect to actions or events occuring during the period such
Partner was a Partner.
3.9 Contribution. All liabilities, obligations or commitments incurred or
assumed by the Partnership (or to which it or its property or assets are
subject) ("Partnership Obligations") shall be payable first out of the assets of
the Partnership. Subject to the provisions of Section 3.8 hereof, if the assets
of the Partnership (determined without regard to any Capital Contributions by
the Partners pursuant to Section 8.2(b) hereof) are not sufficient at any time
to pay or discharge when due and payable any and all Partnership Obligations
(any such deficiency being referred to herein as a "Deficiency"), a Partner or
former Partner who pays all or any portion of such Deficiency (whether directly
or, in the case of a Partner, by making a contribution to the capital of the
Partnership pursuant to Section 8.2(b)) (a "Paying Partner") shall be entitled
to contribution from those Partners and former Partners that were Partners at
the time of the Partnership's incurrence or assumption of such Partnership
Obligation pursuant to this Section 3.9. Specifically, if any Paying Partner
pays (whether by direct payment or, in the case of a Partner, by making a
Capital Contribution to the Partnership pursuant to Section
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8.2(b) hereof) a portion of any Partnership Obligation included in such
Deficiency that is in excess of such Paying Partner's Pro Rata share of the
unpaid portion of such Partnership Obligation, based on its Percentage Interest
at the time of incurrence or assumption of such Partnership Obligation, then
each other Partner or former Partner which has not paid any portion of such
Partnership Obligation, or which has paid a portion which is less than its Pro
Rata share thereof (based on its Percentage Interest as of the date of
incurrence or assumption), shall contribute ratably to the Paying Partner so
that each Partner and former Partner shall have paid or contributed its Pro Rata
share of such Partnership Obligation based on its Percentage Interest as of the
date of incurrence or assumption. The payment by a Partner of any portion of a
Deficiency hereunder shall be treated as a Capital Contribution and shall be
applied against any obligation of the Paying Partner under Section 8.2(b)
hereof. The provisions of this Section 3.9 shall survive the withdrawal of any
Partner from the Partnership and the dissolution of the Partnership.
3.10 Insurance and Bonds. Each Partner shall assist the Partnership to the
extent requested by the Manager or the Managing Partner in procuring
satisfactory insurance coverage, bonds and letters of credit for the Partnership
at the expense of the Partnership; provided, however, that in no event shall any
Partner be obligated pursuant to this Section 3.10 to assume any actual or
contingent liability, financial risk or reimbursement obligation.
ARTICLE 4: CAPITALIZATION; ALLOCATION; DISTRIBUTIONS
4.1 Initial Capital Contributions.
(a) Each Partner shall be obligated to make Initial Capital
Contributions to the Partnership in the aggregate amount indicated for it
on the Information Appendix. Except as otherwise expressly provided in an
asset contribution agreement between the Partnership and a Partner, such
contributions shall be made by the Partners Pro Rata, in one or more
installments at such times and in such amounts as may be determined by the
Managing Partner. Each installment of an Initial Capital Contribution of a
Partner shall be due and payable within twenty Business Days of receipt by
such Partner of a request from the Managing Partner for such installment
(an "Initial Capital Payment Date"). A Partner which fails to make all or
any portion of an installment of its Initial Capital Contribution on or
before the related Initial Capital Payment Date is referred to herein as a
"Delinquent Partner", and the unpaid amount of the installment of its
Initial Capital Contribution is referred to herein as the "Initial Capital
Unpaid Amount" or as the "Unpaid
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Amount". Except as otherwise expressly provided in an asset contribution
agreement between the Partnership and a Partner, all Initial Capital
Contributions shall be in cash unless otherwise determined by the Managing
Partner.
(b) The Initial Capital Contributions have been set by the Managing
Partner based on its current expectations as to the cost of implementing
the initial phase of the construction and operation of the Partnership's
business in the Business Area. Although such costs of implementing the
initial phase may be more or less than currently anticipated, the amount of
the Initial Capital Contributions shall be neither increased nor decreased
without the consent of all Partners.
4.2 Additional Capital Contributions. The Partners may decide, by a
Majority Vote of the Partners pursuant to Section 3.4(c) hereof, that additional
Capital Contributions in excess of the Initial Capital Contributions
("Additional Capital Contributions") are required for the conduct of the
business of the Partnership. Such Additional Capital Contributions shall be made
by the Partners Pro Rata, in one or more installments at such times and in such
amounts as may be determined by the Managing Partner. Each Additional Capital
Contribution of a Partner shall be due and payable within twenty Business Days
of receipt by such Partner of a request from the Managing Partner for such
Additional Capital Contribution (an "Additional Capital Payment Date"). A
Partner which fails to make all or any portion of an Additional Capital
Contribution on or before the related Additional Capital Payment Date is
referred to herein as a "Declining Partner", and the unpaid amount of the
Additional Capital Contribution is referred to herein as the "Additional Capital
Unpaid Amount" or as the "Unpaid Amount". All Additional Capital Contributions
shall be in cash unless otherwise determined by the Managing Partner.
4.3 Failure to Make Capital Contributions.
(a) (i) Interest shall accrue on any Initial Capital Unpaid Amount in
respect of an Initial Capital Contribution which is not rescinded pursuant
to Section 4.3(b) below at the Prime Rate plus 6% per annum from and
including the Initial Capital Payment Date until such Unpaid Amount and all
interest accrued thereon are paid as provided in this Section 4.3 hereof.
The failure of the Delinquent Partner to pay to the Partnership the Initial
Capital Unpaid Amount together with accrued interest on or before the tenth
Business Day following the related Initial Capital Payment Date (such
failure being referred to herein as an "Initial Capital Payment Default")
shall be deemed an Event of Default for purposes of Article 9.
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(ii) Interest shall accrue on any Additional Capital Unpaid
Amount in respect of an Additional Capital Contribution which is not
rescinded pursuant to Section 4.3(b) below at the Prime Rate plus 2%
per annum from and including the Additional Capital Payment Date until
such Unpaid Amount and all interest accrued thereon are paid to the
Partnership; provided, however, that no Additional Capital
Contribution may be paid by a Declining Partner to the Partnership
more than twenty Business Days after the related Additional Capital
Payment Date; and provided, further, that no interest shall be payable
in the event the Declining Partner elects not to make the Additional
Capital Contribution. No Partner shall be required to make any
Additional Capital Contribution to the Partnership, and the failure by
a Partner to make an Additional Capital Contribution by the end of
such twenty Business Day period (such failure being referred to herein
as an "Additional Capital Refusal") shall not be deemed an Event of
Default for purposes of Article 9.
(b) If an Initial Capital Payment Default or an Additional Capital
Refusal occurs, the other Partners that have timely made the installments
of their Initial Capital Contributions or the Additional Capital
Contributions with respect to which such Initial Capital Payment Default or
Additional Capital Refusal occurred, as the case may be (the "Complying
Partners"), may, with the affirmative vote of Complying Partners (which
must include the affirmative vote of the Managing Partner if it is a
Complying Partner) with an aggregate Percentage Interest constituting not
less than two-thirds of the sum of the Percentage Interests of all
Complying Partners, by notice given to each Delinquent Partner or Declining
Partner, as the case may be, and each other Partner within ten Business
Days after the occurrence of the Initial Capital Payment Default or the
Additional Capital Refusal:
(i) elect to cause the call of such installment of the Initial
Capital Contribution or such Additional Capital Contribution to be
rescinded (in which case no Initial Capital Payment Default or
Additional Capital Refusal shall be deemed to have occurred for
purposes of this Article 4 and no Event of Default in respect of an
Initial Capital Payment Default shall be deemed to have occurred for
purposes of Article 9 hereof);
(ii) elect to have such installment of the Initial Capital
Contribution or such Additional Capital Contribution made by the
Complying Partners to be deemed loans to the Partnership, rather than
as Capital Contributions, and to make additional loans to the
Partnership in an aggregate amount equal to the related Unpaid Amount;
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(iii) elect to make loans to the Partnership in an aggregate
amount equal to the related Unpaid Amount; or
(iv) elect to make additional Capital Contributions ("Excess
Capital Contributions") to the Partnership in an aggregate amount
equal to the related Unpaid Amount;
provided, however, that the same election, if any, shall be made with
respect to each Delinquent Partner and Declining Partner in respect of any
request for an Initial Capital Contribution or Additional Capital
Contribution, as the case may be.
The Complying Partners shall not be obligated to make any election under
this Section 4.3(b). Neither the existence nor the exercise of any right of
election available to the Complying Partners under this Section 4.3(b)
shall affect the Remedies Partner's right to treat Delinquent Partners'
Initial Capital Payment Defaults as an Event of Default and to make any
election and pursue at any time any remedy then available pursuant to
Article 9 hereof.
(c) If an election is made pursuant to clause (i) of Section 4.3(b)
hereof, the Partnership shall promptly return to each Partner the amount of
the installment of the Initial Capital Contribution or the Additional
Capital Contribution contributed by it in respect of which the related
Initial Capital Payment Default or the Additional Capital Refusal occurred,
together with interest, if any, actually earned on such amount by the
Partnership from and including the Initial Capital Payment Date or the
Additional Capital Payment Date to the date such amount is returned to such
Partner.
(d) If an election is made pursuant to clause (ii) or (iii) of Section
4.3(b) hereof, the indebtedness of the Partnership for the amount loaned
(or deemed loaned pursuant to clause (ii)) (each a "Capital Loan") shall be
evidenced by a promissory note of the Partnership in form and substance
reasonably satisfactory to the Complying Partners making such loans, shall
be unsecured, shall be subordinate to any senior debt of the Partnership,
shall bear interest at a rate per annum equal to the Prime Rate plus 2% per
annum and shall otherwise be on terms and conditions that are no less
favorable to the Partnership than it could obtain in connection with a loan
from a bank or other financial institution not an Affiliate of a Partner.
Only those Complying Partners that voted in favor of making the election
pursuant to clause (ii) or (iii) (each a "Capital Lending Partner") shall
be required to make Capital Loans to the Partnership (in excess of any
amount deemed a loan pursuant to clause (ii)). The amount of the Capital
Loan made by
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each Capital Lending Partner shall be in proportion to its respective
Percentage Interest relative to the sum of the Percentage Interests of all
Capital Lending Partners (in each case as in effect immediately prior to
the related Initial Capital Payment Default or Additional Capital Refusal),
or in such other proportion as the Capital Lending Partners may agree upon
among themselves.
(e) If an election is made pursuant to clause (iv) of Section 4.3(b)
hereof, only those Complying Partners that voted in favor of making such
election (each an "Excess Capital Contributing Partner") shall be required
to make Excess Capital Contributions. The amount of the Excess Capital
Contribution to be made by each Excess Capital Contributing Partner shall
be in proportion to its respective Percentage Interest relative to the sum
of the Percentage Interests of all Excess Capital Contributing Partners (in
each case as in effect immediately prior to the related Initial Capital
Payment Default or Additional Capital Refusal), or in such other proportion
as such Excess Capital Contributing Partners may agree upon among
themselves. Excess Capital Contributions shall be in addition to, and not
credited against, Initial Capital Contributions or Additional Capital
Contributions otherwise payable by the Partners.
(f) (i) Whenever an Initial Capital Payment Default occurs, the
Percentage Interest of each Partner shall be adjusted (unless the Complying
Partners make an election pursuant to clause (i) or (ii) of Section 4.3(b)
hereof with respect to such Initial Capital Payment Default), with effect
from the related Initial Capital Payment Date, to equal the percentage
determined by dividing (A) the aggregate amount of Initial Capital
Contributions and Excess Capital Contributions actually made by such
Partner to the date of determination divided by (B) the sum of all Initial
Capital Contributions and Excess Capital Contributions actually made by all
Partners to the date of determination. In addition to the adjustment
provided in this Section 4.3(f)(i), and subject to Section 4.3(g) hereof,
the Delinquent Partner shall have no right to participate in any subsequent
call for Initial Capital Contributions or Additional Capital Contributions,
and each Partner's Percentage Interest shall be adjusted as of each
subsequent Initial Capital Payment Date and Additional Capital Payment Date
in accordance with this Section 4.3(f) and Section 4.3(g) hereof as though
such Delinquent Partner committed an Initial Capital Payment Default or
Additional Capital Refusal with respect to each such subsequent call for
Initial Capital Contributions or Additional Capital Contributions,
respectively.
(ii) Whenever an Additional Capital Refusal occurs, the
Percentage Interest of each Partner shall be adjusted
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(unless the Complying Partners make an election pursuant to clause (i)
or (ii) of Section 4.3(b) hereof with respect to such Additional
Capital Refusal), with effect from the related Additional Capital
Payment Date, to equal:
(A), prior to such time as the aggregate amount of Capital
Contributions requested to be made by the Partners exceeds an
amount equal to one and one half (1.5) times the sum of all of
the Initial Capital Contributions of the Partners shown on the
Information Appendix (the "Threshold Amount"), the percentage
determined by dividing (I) the aggregate amount of Initial
Capital Contributions, Additional Capital Contributions and
Excess Capital Contributions actually made by such Partner to the
date of determination by (II) the sum of all Initial Capital
Contributions, Additional Capital Contributions and Excess
Capital Contributions actually made by all Partners to the date
of determination, or
(B), from and after such time as the aggregate amount of
Capital Contributions requested to be made by the Partners
exceeds the Threshold Amount, the percentage determined by
dividing (I) the Fair Market Value of the Partnership Interest of
such Partner immediately prior to such Additional Capital
Refusal, plus any Additional Capital Contribution and Excess
Capital Contribution made by such Partner at the time of or
following such Additional Capital Refusal, by (II) the sum of the
Fair Market Values of the Partnership Interests of all of the
Partners immediately prior to such Additional Capital Refusal,
plus the sum of all Additional Capital Contributions and Excess
Capital Contributions made by all of the Partners at the time of
or following such Additional Capital Refusal.
Notwithstanding the adjustment provided in this Section 4.3(f)(ii),
the Declining Partner shall have the right to participate in any
subsequent call for Additional Capital Contributions without being
required to make any missed Additional Capital Contribution. For
purposes of this clause 4.3(f)(ii) only, the Fair Market Value of the
Partnership Interests of all of the Partners shall be determined by
the Managing Partner, based on its good faith estimate of such value,
in connection with each proposed call for Additional Capital
Contributions. The Managing Partner's determination of such Fair
Market Value shall then be submitted to a vote of the Partners at the
time the vote required by Section 3.4(c) hereof to approve a
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call for Additional Capital Contributions is taken. If such
determination is approved by a Majority Vote of the Partners, such
determination shall be final and binding on the Partners for purposes
of any adjustment to the Percentage Interests of the Partners pursuant
to this clause 4.3(f)(ii) which requires a determination of such Fair
Market Value.
(g) A Delinquent Partner may, with the consent of the Managing Partner
(or, if the Delinquent Partner is the Managing Partner, with the consent of
Complying Partners with an aggregate Percentage Interest constituting not
less than two-thirds of the sum of the Percentage Interests of all
Complying Partners) and prior to the receipt by the Delinquent Partner of
the notice contemplated by Section 9.2 hereof, cure its Initial Capital
Payment Default by paying to the Partnership an amount (the "Make-up
Amount") equal to the Initial Capital Unpaid Amount plus accrued interest
thereon calculated pursuant to Section 4.3(a)(i) hereof. If an election was
made pursuant to clause (ii) of Section 4.3(b) hereof with respect to such
Initial Capital Payment Default, each Capital Lending Partner shall
contribute to the Partnership an amount equal to the related installment of
its Initial Capital Contribution that was deemed a loan, pursuant to clause
(ii) of Section 4.3(b) hereof, by the contribution to the Partnership of
the outstanding principal amount of all Capital Loans made by such Capital
Lending Partner in connection with such Initial Capital Payment Default
together with an outstanding principal amount of other Capital Loans made
by such Capital Lending Partner such that the aggregate amount of such
contributed Capital Loans is equal to the amount of such installment (and,
if the balance of the Capital Loans made by such Capital Lending Partner is
less than the amount of such installment, such Capital Lending Partner
shall contribute the difference in cash). The proceeds of the Make-up
Amount shall first be promptly applied by the Partnership to the payment of
any accrued but unpaid interest on the Capital Loans contributed to the
Partnership and thereafter to the repayment of the principal amount of any
Capital Lending Partner's Capital Loan which is in excess of the amount
contributed by such Partner in accordance with the immediately preceding
sentence. If an election was made pursuant to clause (iii) of Section
4.3(b) hereof, the proceeds of the Make-up Amount shall first be applied by
the Partnership to the repayment of the principal of, and accrued but
unpaid interest on, all Capital Loans made with respect to such Initial
Capital Payment Default, and thereafter to the repayment of principal of,
and unpaid interest on, any other outstanding Capital Loans. If an election
was made pursuant to clause (iv) of Section 4.3(b) hereof, the proceeds of
the Make-up Amount shall first be promptly applied to the distribution to
each Excess Capital Contributing Partner an amount equal to its Excess
Capital Contribution plus interest thereon at the Prime Rate plus 2% per
annum from and including
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the date of such contribution to the date of such distribution. If the
Percentage Interests of the Partners were adjusted pursuant to Section
4.3(f) hereof as a result of the Initial Capital Payment Default, then upon
payment by the Delinquent Partner of the Make-up Amount in full in
accordance with the foregoing provisions of this Section 4.3(g), the
Percentage Interests of the Partners shall be readjusted so as to restore
to the Delinquent Partner and the Complying Partners, for periods
subsequent to the payment of the Make-Up Amount, the respective Percentage
Interests they would have had but for such Initial Capital Payment Default.
4.4 Loans. If the Partners do not in the aggregate make all of the Capital
Contributions requested pursuant to Sections 4.1 or 4.2 above and an election is
not made pursuant to Section 4.3(b) above to make up the shortfall, the Remedies
Partner may, without a vote of the Partners, arrange for a loan to the
Partnership from a Partner, an Affiliate of a Partner or from any other
commercially reasonable source in an amount equal to the shortfall, which loan
shall bear interest at an annual rate no higher than the Prime Rate plus 2% per
annum and be on such other terms and conditions which the Remedies Partner, in
its good faith judgment, determines to be no less favorable to the Partnership
than could be obtained in connection with a loan from a bank or financial
institution not an Affiliate of a Partner. Subject to the applicable terms of
the Partnership's credit agreements, the proceeds, if any, of subsequent Capital
Contributions or any proposed Distribution shall be applied first to such loans
until such loans, together with accrued interest and any related fees, are paid
in full, before any such proceeds are used for any other Partnership purpose or
any such proposed Distribution is made to the Partners.
4.5 Calculations and Adjustments. The calculations of the Percentage
Interests provided in Section 4.3 hereof shall be made by the Remedies Partner,
and shall, in the absence of manifest error, be conclusive and binding on the
Partners. The Partnership shall use its best efforts to obtain any regulatory or
other consents or approvals required by any adjustment to the Percentage
Interests of the Partners pursuant to this Section prior to such adjustment, and
if such approval is not obtained, neither such adjustment nor the Capital
Contributions which would require such adjustment shall be made, or, if already
made, such Capital Contributions shall be returned to the Partners.
4.6 Capital Accounts. The term "Capital Account" shall mean with respect to
each Partner, the aggregate amount of such Partner's Initial Capital
Contribution, increased by:
(a) the amount of each Additional Capital Contribution and Excess
Capital Contribution made by it
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pursuant to Section 4.2 or 4.3 hereof to the Partnership in cash, if any;
(b) the fair market value without regard to Code Section 7701(g) of
property if any, contributed by it as an Additional Capital Contribution or
Excess Capital Contribution pursuant to Section 4.2 or 4.3 hereof to the
Partnership (net of liabilities secured by such contributed property that
the Partnership is considered to assume or take subject to under Code
Section 752);
(c) allocations to it of Net Profit and other items of income and gain
pursuant to Section 4.8 hereof and the Tax Appendix; and
(d) other additions made in accordance with the Code and Regulations;
and decreased by:
(i) the amount of cash distributed to it by the Partnership;
(ii) allocations to it of Net Loss and other items of loss and
deduction pursuant to Section 4.8 hereof and the Tax Appendix;
(iii) the fair market value without regard to Code Section 7701(g) of
property distributed to it by the Partnership (net of liabilities secured
by such distributed property that such Partner is considered to assume or
take subject to under Code Section 752); and
(iv) other deductions made in accordance with the Code and
Regulations.
The Capital Accounts shall be determined and maintained at all times in
accordance with all of the provisions of Regulations Section 1.704-1(b)(2)(iv).
An individual account shall be established and maintained on the books of the
Partnership for each Partner in accordance with the Code. In the event any
Partnership Interest is transferred in accordance with the provisions of Article
5 hereof, the transferee of such Partnership Interest shall succeed to the
portion of the transferor's Capital Account attributable to such interest.
4.7 Distribution of Partnership Funds.
(a) The Managing Partner may, after the establishment of such reserves
as it deems appropriate, upon a Majority Vote of the Partners and subject
to restrictions imposed
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by the Partnership's lenders, if any, and subject to Section 4.4 hereof,
make Distributions to the Partners at any time and from time to time during
the term of the Partnership. In addition, at the end of each Fiscal Year
after the third full Fiscal Year of the Partnership, the Managing Partner
shall distribute, subject to restrictions imposed by the Partnership's
lenders and subject to Section 4.4 hereof, that amount of cash in the
accounts of the Partnership which exceeds two times the sum of, without
duplication, (i) all reserves or other working capital items relating to
any previous Fiscal Year and (ii) the aggregate amount allocated in the
Budget for the next Fiscal Year for reserves, losses, capital expenditures
and debt repayment and working capital, if any. All such Distributions
(other than Distributions pursuant to Section 8.2 hereof) will be made to
the Partners Pro Rata.
(b) No Partner shall have the right to withdraw any amount from its
Capital Account, or to receive any Distribution, except as provided in
Sections 4.7(a) and 8.2 hereof. Notwithstanding the foregoing, the
Partnership shall pay in full all loans extended by Partners to the
Partnership prior to making any Distributions to the Partners.
4.8 Allocation of Net Profits and Losses. As of the end of each Fiscal Year
of the Partnership, the Net Profit or Net Loss of the Partnership shall be
allocated to the Partners in accordance with their Percentage Interests, except
as otherwise provided in the Tax Appendix.
4.9 Tax Appendix. The provisions of this Article 4 shall be subject to the
provisions of the Tax Appendix.
ARTICLE 5: TRANSFERS OF PARTNERSHIP INTERESTS; RIGHT OF FIRST REFUSAL
5.1 Restrictions on Transfer.
(a) A Partner shall, directly or indirectly, offer, sell, transfer,
assign, grant a participation in, pledge or otherwise dispose of any of its
Partnership Interest only in a transaction that (i) is expressly permitted
by this Agreement, (ii) is in accordance with agreements entered into by
the Partnership with third parties to which transfers of interests in the
Partnership are subject (unless the breach of such agreements, other than
this Agreement, would not have a material adverse effect on the
Partnership), and (iii) in which the transferee becomes a party to this
Agreement. A Change in Control of a Partner shall constitute a transfer by
such Partner subject to the provisions of this Article 5 (an "Indirect
Transfer").
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(b) Except as expressly permitted by this Agreement, each Partner
shall (i) be the owner of the Partnership Interest indicated in the
Partnership's records as being owned by such Partner, in each case free and
clear of any pledge, lien, security interest, charge, claim, equity, option
or encumbrance of any kind, and (ii) have sole voting power with respect to
such Partner's Partnership Interest and will not grant any proxy with
respect to such Partnership Interest, enter into any voting trust or other
voting agreement or arrangement with respect to such Partnership Interest
or grant any other rights to vote such Partnership Interest; provided,
however, that the foregoing shall not be construed to limit the ability of
a Partner to enter into agreements with respect to sales permitted by this
Agreement or to enter into agreements not inconsistent with this Agreement
that restrict such Partner's ability to transfer its Partnership Interest.
(c) After any sale, assignment, transfer or other conveyance of a
Partnership Interest in accordance with the provisions of this Agreement,
the transferred Partnership Interest shall continue to be subject to all of
the provisions of this Agreement, including the provisions of this Article
5.
5.2 Exceptions to Restrictions on Transfers. The restrictions contained in
the other Sections of this Article 5 (other than Section 5.7 hereof) shall not
apply to the transactions set forth in this Section 5.2.
(a) A Partner may transfer to any Controlled Affiliate which is a
Subsidiary of its Parent, all, but not less than all, of its Partnership
Interest, and TCP may transfer to TCGI or any Subsidiary of TCGI all or any
part of its Partnership Interest, provided that, in each such case, the
transferee assumes the obligations of the transferor under this Agreement
with respect to such Partnership Interest and becomes a party to this
Agreement.
(b) A Partner may permit an Indirect Transfer that results from the
sale or other disposition of all or substantially all of the stock or
assets of the Parent of such Partner, provided that the Parent of the
transferee agrees to execute a Parent Undertaking.
(c) If a Partner conducts, or has a Controlled Affiliate which
conducts, a business in the Business Area and in connection with such
business such Partner or Controlled Affiliate has entered into a fiber
lease agreement or other agreement for the use of fiber optic
telecommunications facilities, then such Partner shall have the right, but
shall not be obligated, to sell its Partnership Interest to the buyer (the
"Acquirer") of all or substantially all of the assets of such
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business or of all or substantially all of the outstanding stock of such
Controlled Affiliate, on any terms and conditions acceptable to it, so long
as, in the case of a sale of the assets of such business of such Partner or
Controlled Affiliate, the Acquirer becomes a party to this Agreement and
assumes the obligations of the selling Partner or Controlled Affiliate
under such fiber lease agreement or other agreement for the use of
facilities and that in any case the Parent of the Acquirer executes a
Parent Undertaking; provided, however, that if the Acquirer or any
Affiliate of the Acquirer is Engaged in the Exclusive Business in the
Business Area, such Partner shall not have the right to sell its
Partnership Interest to the Acquirer unless such sale is approved by a
Supermajority Vote.
(d) (i) The Managing Partner shall have the right, but shall not be
obligated, at any time prior to the date specified on the Information
Appendix (the "Offer Expiration Date"), to sell that portion of its
Partnership Interest set forth on the Information Appendix (the "Excess
Interest") to the Entities (or Subsidiaries of such Entities) listed on the
Information Appendix (the "Potential Partners"), subject to the following
conditions:
(A) The Percentage Interest of each Potential Partner which
purchases a portion of the Excess Interest shall be as set forth on
the Information Appendix for such Potential Partner and the Percentage
Interest of the Managing Partner shall be correspondingly reduced;
(B) The Deemed Initial Capital Contribution of a Potential
Partner shall be as set forth on the Information Appendix for such
Potential Partner;
(C) The purchase price for each sale to a Potential Partner shall
be payable in cash and shall be the product of the Deemed Initial
Capital Contribution of such Potential Partner (as set forth on the
Information Appendix) times the percentage of the Initial Capital
Contributions of all existing Partners which have been contributed by
the existing Partners as of the date of the sale to the Potential
Partner;
(D) A Potential Partner which purchases a Percentage Interest
shall succeed to the obligation of the Managing Partner to make its
Initial Capital Contribution to the extent of the Deemed Initial
Capital Contribution less the purchase price paid to the Managing
Partner pursuant to paragraph (C) above, and the Initial Capital
Contribution of the Managing Partner shall be correspondingly reduced;
and
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(E) Each Potential Partner shall become a Partner by delivering
to the Partnership (which shall promptly send notice thereof to the
other Partners) a counterpart signature page to this Agreement and
shall deliver to the Partnership a Parent Undertaking by its Parent
(if any). No further action by the Partnership or the Partners shall
be required for such Potential Partner to become a party to this
Agreement.
(ii) If any portion of the Excess Interest remains unsold to the
Potential Partners after the Offer Expiration Date, the Managing Partner
shall, within ten Business Days after the Offer Expiration Date, offer to
sell the unsold portion of the Excess Interest to the other Partners. The
purchase price for any portion of the Excess Interest shall be the same as
the purchase price which would have been payable by the Potential Partners
pursuant to clause (i) (C) above for such portion of the Excess Interest,
but, in addition, the Purchasing Partners (as that term is defined below)
shall pay interest on such purchase price at the rate of 10% per annum from
the date of this Agreement to the date such purchase price is paid. If a
Partner desires to accept such offer as to at least its Pro Rata portion of
the unsold Excess Interest, such Partner (a "Purchasing Partner") shall,
within fourteen days of receipt of such offer, notify the Managing Partner
and each other Partner of its intention to acquire its full Pro Rata
portion of the unsold portion of the Excess Interest. If a Partner does not
elect to acquire its Pro Rata portion of the unsold portion of the Excess
Interest, the Managing Partner shall notify the Purchasing Partners of the
portion of the Excess Interest remaining, and each Purchasing Partner shall
then have ten days after the later of receipt of such notice and the
expiration of the fourteen day period described above to notify the
Managing Partner of its intention to acquire such unacquired portion of the
Excess Interest (the "Unpurchased Portion") (and, if more than one
Purchasing Partner notifies the Managing Partner of its willingness to
purchase the Unpurchased Portion then, unless otherwise agreed by such
Purchasing Partners, the Unpurchased Portion shall be allocated among the
Purchasing Partners who have so notified the Managing Partner Pro Rata).
The closing of the sale of the unsold portion of the Excess Interest to the
Purchasing Partners shall occur and be conducted in accordance with the
provisions of Section 5.9 hereof. The Managing Partner shall, subject to
the provisions of this Agreement, retain that portion of the Excess
Interest which is not sold to Potential Partners or to Purchasing Partners.
5.3 Rollup Provisions.
(a) Subject to Section 5.3(b) below, but notwithstanding any other
provision herein, at any time after the
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third anniversary of the date hereof, any Partner (the "Rollup Partner"),
with the consent of TCGI, which may be withheld in TCGI's sole discretion,
may transfer (or permit an Indirect Transfer of) all or any part of its
Partnership Interest to TCGI for stock of TCGI. The terms and conditions of
such transfer, including the amount of stock of TCGI to be received by the
transferring Partner, shall be determined between the transferring Partner
and TCGI; provided, however, that TCGI shall not be obligated to accept any
such transfer, and TCGI shall have no liability with respect to such
negotiations or for failure to reach agreement with respect thereto for any
reason whatsoever.
(b) No Partner may transfer (or permit an Indirect Transfer of) all or
any part of its Partnership Interest to TCGI, unless TCGI shall first have
delivered a written offer (the "Rollup Offer") to each other Partner to
purchase (directly or by an Indirect Transfer) all or part of such
Partner's Partnership Interest on the same terms and in the same proportion
as TCGI has agreed to purchase the Rollup Partner's Partnership Interest
(based on the respective Percentage Interests, immediately prior to such
rollup, of all Partners (including the Rollup Partner) who desire to
participate in such rollup). Each Partner that desires to participate in
such rollup shall give notice to TCGI (and deliver a copy thereof to each
other Partner) of its election (a "Rollup Election") to sell to TCGI the
portion of its Partnership Interest to be determined as described above on
the terms and conditions applicable to the proposed sale by the Rollup
Partner (including the per Percentage Interest consideration proposed to be
paid to the Rollup Partner). The right to make a Rollup Election shall
terminate if notice thereof has not been given to TCGI and each other
Partner by the twentieth Business Day after receipt of the Rollup Offer.
(c) Any transfer pursuant to this Section 5.3 shall be exempt from the
restrictions contained in the other Sections of this Article 5.
5.4 Right of First Refusal.
(a) If, other than pursuant to Section 5.2, 5.3 or 5.5 hereof, any
Partner (the "Selling Partner"), at any time after the third anniversary of
the date hereof, desires to sell all, but not less than all, of its
Partnership Interest, whether by sale of such Partnership Interest, sale of
all of the equity interests of such Selling Partner, or the sale of equity
interests of an Entity that would result in a Change in Control of the
Selling Partner (in each such case, the portion thereof consisting of the
Partnership Interest only being the "Offered Interest"), to an unaffiliated
third party offeror who has made a bona fide written offer to purchase the
Offered Interest (or assets of which the Partnership Interest forms a part)
and who is
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financially capable of consummating such purchase (the "Offeror"), it shall
deliver to the other Partners a notice (a "Notice of Sale") of its
intention to sell the Offered Interest to the Offeror. The Notice of Sale
shall include the economic terms and conditions of such sale, including the
name of the Offeror and controlling owners, principal officers and
directors (subject to any legal or contractual restrictions on the
disclosure of such identity) and the price for the Offered Interest and
shall contain the Selling Partner's offer to sell the Offered Interest to
the other Partners on such terms and conditions. If the offer from the
Offeror is given or received in connection with a transaction pursuant to
which assets or ownership interests in addition to the Offered Interest are
proposed to be disposed of (including, without limitation, pursuant to an
Indirect Transfer), the Notice of Sale shall also contain the Selling
Partner's good faith estimate, based on reasonable allocation and
attribution methods, of the portion of the aggregate consideration for the
assets or ownership interests to be disposed of which is reasonably
allocated to the Offered Interest, which shall be the purchase price for
the Offered Interest (which price shall, unless otherwise agreed by the
Electing Partners (as defined below), be payable in cash). The non-Selling
Partners shall enter into appropriate confidentiality agreements as
reasonably requested by the Selling Partner in connection with the offer
from the Offeror and the information contained in the Notice of Sale. If a
non-Selling Partner desires to accept such offer as to at least its Pro
Rata portion of the Offered Interest, such Partner (an "Electing Partner")
shall, within fourteen days of receipt of such Notice of Sale, notify the
Selling Partner of its intention to acquire its full Pro Rata portion of
the Offered Interest and deliver a copy of such notice to each other
non-Selling Partner. If a non-Selling Partner does not elect to acquire its
Pro Rata portion of the Offered Interest, the Selling Partner shall notify
the Electing Partners of the portion of the Offered Interest remaining, and
each Electing Partner shall then have ten days after the later of receipt
of such notice and the expiration of the fourteen day period described
above to notify the Selling Partner of its intention to acquire such
unacquired portion of the Offered Interest (the "Uncommitted Portion")
(and, if more than one Electing Partner notifies the Selling Partner of its
willingness to purchase the Uncommitted Portion then, unless otherwise
agreed by such Electing Partners, the Uncommitted Portion shall be
allocated among the Electing Partners who have so notified the Selling
Partner Pro Rata). The Electing Partners shall have ninety days after the
termination of the foregoing procedure to enter into a binding agreement
with the Selling Partner to acquire all of the Offered Interest on the
economic terms and conditions set forth in the Notice of Sale; provided,
however, that if the purchase price set forth in the Notice of Sale is not
all cash, the Selling Partner and the Electing Partners shall
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negotiate in good faith as to the value of the non-cash consideration, and
the Electing Partners shall have the right to pay the purchase price for
the Offered Interest all in cash. The Selling Partner and the Electing
Partners shall negotiate in good faith to enter into a binding agreement
with respect to the sale of the Offered Interest, which binding agreement
shall contain:
(i) the representation and warranty of the Selling Partner
that the Electing Partners will receive good and valid title
to the Offered Interest, free and clear of all security
interests, liens, claims, pledges, options, rights of first
refusal, agreements, limitations on voting rights, charges and
other encumbrances of any nature whatsoever except as set
forth in this Agreement or otherwise applicable to all of the
Partnership Interests and except for governmental, regulatory
and other third party consents and approvals required for
transfers of partnership interests generally;
(ii) the following conditions to the closing of such
sale:
(A) all applicable waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations promulgated
thereunder, shall have expired or been terminated;
(B) all governmental approvals and other third party
consents expressly required with respect to the
transactions to be consummated at such closing shall
have been obtained, to the extent the failure to
obtain such approvals or consents would prevent the
Selling Partner from performing any of its material
obligations under the transaction documents or would
result in any materially adverse change in, or
materially adverse effect on, the business, assets,
results of operations, financial condition or
prospects of the Partnership and the Entities
controlled by the Partnership taken as a whole;
(C) there shall be no preliminary or permanent
injunction or other order by any court of competent
jurisdiction restricting, preventing or prohibiting
the consummation of the transactions to be
consummated at such closing; and
(D) the representation and warranty of the
Selling Partner contemplated by clause (i) of this
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sentence shall be true and correct at the closing
of such sale with the same force and effect as if
then made; and
(iii) such other representations, warranties, conditions and
indemnifications as may be agreed upon by the Selling Partner
and the Electing Partners.
(b) If non-Selling Partners do not notify the Selling Partner of their
intention to acquire, in the aggregate, all the Offered Interest within the
period set forth in Section 5.4(a) hereof or if a binding agreement to
purchase all of the Offered Interest covered by the Notice of Sale is not
entered into within the ninety day period set forth in Section 5.4(a)
hereof for any reason other than a violation of this Section 5.4 or
wrongful acts or willful bad faith on the part of the Selling Partner, or
if a purchase covered by such a binding agreement is not consummated within
the period provided in Section 5.9 hereof, for any reason other than a
breach by the Selling Partner of any of its covenants, representations or
warranties in such binding agreement that are a condition to consummation
of such purchase, the Selling Partner shall have the right, at any time
during the one year period after the expiration of the relevant period, to
close on a sale of all of the Offered Interest to the Offeror on economic
terms and conditions no less favorable in the aggregate to the Selling
Partner than those set forth in the Notice of Sale. The Selling Partner
shall, as promptly as practicable and prior to the closing of such sale,
provide to the other Partners a copy of the agreement for the sale of the
Offered Interest so as to permit the non-Selling Partners to confirm for
themselves that the economic terms and conditions of such sale are not less
favorable in the aggregate to the Selling Partner than those set forth in
the Notice of Sale. If the Selling Partner does not close the sale of the
Offered Interest to the Offeror during such one year period, the procedure
set forth above with respect to the Notice of Sale shall be repeated with
respect to any subsequent proposed sale of the Partnership Interest of the
Selling Partner (whether by sale of such Partnership Interest, sale of all
of the equity interests of such Selling Partner, or the sale of equity
interests of an Entity that would result in a Change in Control of the
Selling Partner).
(c) In furtherance of the rights set forth in this Section, each
Partner and the Partnership agree that, following receipt of notice that a
Selling Partner desires to sell an Offered Interest to a potential Offeror
and upon execution by such potential Offeror of a letter of intent and a
confidentiality agreement in form and substance reasonably satisfactory to
the Managing Partner, at reasonable times and without interfering with the
business or operations of the
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Partnership, the Managing Partner will take all necessary action to:
(i) provide to such potential Offeror and its employees and
agents reasonable access to all books and records of the Partnership
and any and all reports, budgets, proposals or other written material
prepared by or on behalf of the Partnership;
(ii) make the officers and employees of the Partnership available
for meetings with such potential Offeror and its employees and agents;
(iii) permit on-site visits to the Partnership's facilities by
such potential Offeror and its employees and agents;
(iv) provide full and free access to a data room to such
potential Offeror and its employees and agents;
(v) assist the Selling Partner in obtaining all necessary
consents to any disposition of the Offered Interest; and
(vi) assist in the preparation of any descriptive memoranda or
other sales materials relating to the Partnership and give the Selling
Partner the right to share such information with such potential
Offeror and its employees and agents;
provided that in each case, the Selling Partner agrees to reimburse the
Partnership and the other Partners for any out of pocket expenses incurred
by them in connection with the foregoing actions. Notwithstanding the
foregoing, if non-Selling Partners have timely notified the Selling Partner
pursuant to Section 5.4(a) hereof of their intention to acquire all of the
Offered Interest, then the Partnership and the Partners shall not be
obligated to comply with the covenants contained in this Section 5.4(c)
during the period that a binding agreement for such acquisition is being
negotiated or thereafter (subject to such binding agreement being executed
and the closing thereunder occurring within the applicable time limitations
set forth in Sections 5.4(a) and 5.9 hereof).
5.5 Purchases by the Partnership or its Assignee.
(a) If, after the consummation of any rollup transaction pursuant to
the provisions of Section 5.3(a) and (b) above, Partners (the "Minority
Partners") other than TCP, TCGI and their Controlled Affiliates hold in the
aggregate no more
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than 10% of the outstanding Percentage Interests, then the Partnership (or
any Entity to which the Partnership assigns such right) shall have the
right at any time thereafter to purchase all, but not less than all, of the
Partnership Interests of the Minority Partners for a purchase price equal
to the Fair Market Value of such Partnership Interests determined in
accordance with the appraisal process provided in Section 5.8 hereof.
(b) The Partnership shall have the right at any time to purchase all,
but not less than all, of the Partnership Interest of any Partner the
Percentage Interest of which is 3% or less of the outstanding Percentage
Interests for a purchase price equal to the Fair Market Value of such
Partnership Interest determined in accordance with the appraisal process
provided in Section 5.8 hereof.
(c) If a Partner, which had the right pursuant to Section 5.2(c) above
to sell its Partnership Interest (or would have had such right except that
the Acquirer (as that term is defined in Section 5.2(c) hereof) is Engaged
in the Exclusive Business in the Business Area), elects not to do so or is
prevented from doing so pursuant to the proviso to the first sentence of
Section 5.2(c) hereof, and as a result thereof neither such Partner nor any
Affiliate of such Partner is a party to a fiber lease agreement or other
agreement for the use of fiber optic telecommunications facilities with the
Partnership, then the Partnership shall have the right, at any time after
the date which is ninety days after the consummation of the sale described
in Section 5.2(c) hereof, to purchase all, but not less than all, of the
Partnership Interest of such Partner for a purchase price equal to the
greater of (i) 90% of the Fair Market Value of such Partnership Interest
determined in accordance with the appraisal process provided in Section 5.8
hereof; or (ii) 100% of the Fair Market Value of such Partnership Interest
determined in accordance with the appraisal process provided in Section 5.8
hereof, if the Acquirer is prohibited by law from acquiring the Partner's
Partnership Interest; provided, however, that if the acquisition by the
Acquirer described in Section 5.2(c) occurs after the third anniversary of
the date hereof and if prior to the end of such ninety day period, such
Partner receives an offer from an Offeror (as described in Section 5.4(a))
other than the Acquirer, then the provisions of Section 5.4 shall apply.
5.6 Put Rights of Partners.
(a) If the Partners decide pursuant to Section 3.5(b) to merge or
consolidate with another Entity and the Partnership is not the surviving
Entity, each Partner which voted against such merger or consolidation shall
have the right for thirty days after such vote to require that the
Partnership (or its designee)
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purchase all of such Partner's Partnership Interest on the terms set forth
in this Section. Such put shall be exercisable by delivery within such
thirty day period to the Partnership of notice of exercise by such Partner.
The purchase price to be paid to such Partner for its Partnership Interest
pursuant to this Section shall be paid in cash and shall equal the Fair
Market Value of such Partner's Partnership Interest as determined in
accordance with the provisions of Section 5.8 hereof. The closing of the
purchase and sale of such Partner's Partnership Interest shall occur and be
conducted in accordance with the provisions of Section 5.9 hereof.
(b) Beginning at the earlier of (i) the fourth anniversary of the date
hereof, or (ii) the date upon which a Partner has made Initial Capital
Contributions in the aggregate amount indicated on the Information
Appendix, any Partner (the "Putting Partner") may, by giving written notice
within ten business days of January 1st and July 1st of each year, require
the Partnership to purchase all of such Putting Partner's Partnership
Interest for an amount equal to the Putting Partners' Capital Account
together with interest at a rate per annum equal to the Prime Rate plus 2%
per annum, calculated from the date of the Capital Contribution. The
closing of the purchase and sale of such Putting Partner's Partnership
Interest shall occur and be conducted in accordance with the provisions of
Article 5.9 hereof; provided, however, that in no event shall the closing
take place prior to ninety days after the date of the notice. The purchase
price shall be payable in cash or, with the consent of TCGI, which may be
withheld in TCGI's sole discretion, in stock of TCGI.
5.7 Prohibited Transfers. Notwithstanding any provision to the contrary in
this Article 5, except pursuant to a transaction contemplated by Section 5.3, no
Partner may transfer any Partnership Interest if the interest sought to be
transferred, when added to the total of all other Partnership Interests
transferred within a period of twelve consecutive months prior thereto, equals
or exceeds 50% of the aggregate of all Partnership Interests, except with the
prior written consent of all of the other Partners. A transfer of the equity
interests in a Partner which is a corporation or in an Entity of which such
Partner is a direct or indirect corporate Subsidiary shall not constitute a
transfer prohibited by, or taken into consideration in determining the
applicability of, this Section.
5.8 Appraisal Process. The Fair Market Value of a Partner's Partnership
Interest for purposes of this Agreement shall be determined as follows:
(a) The Partners shall endeavor to agree upon such Fair Market
Value.
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(b) If the Partners fail to agree within thirty Business Days
after the date of the occurrence of the event necessitating
valuation of the Partner's Partnership Interest, then the Fair
Market Value of such Partnership Interest shall be determined by
independent appraisal, such appraisal to be made by a qualified
appraiser selected by the Partner whose Partnership Interest is
being appraised (the "Appraisal Partner") and the Partners
holding a majority in Percentage Interests (excluding the
Percentage Interest of the Appraisal Partner). If the Partners
have not agreed on the selection of an appraiser within five
Business Days after the expiration of such thirty Business Day
period, then the Appraisal Partner shall select one appraiser and
the Partners holding a majority in Percentage Interests
(excluding the Percentage Interest of the Appraisal Partner)
shall select a second appraiser, such selections to be made
promptly and in any event within ten Business Days after the
expiration of the foregoing five Business Day period. (If only
one appraiser is timely selected within such ten Business Day
period, the appraisal shall be made solely by such
timely-selected appraiser.) The appraiser, or each appraiser in
the event of more than one appraiser, shall submit its
determination of the Fair Market Value of the Appraisal Partner's
Partnership Interest within forty-five Business Days of the date
of its selection. If there are two appraisers and their
respective determinations of such Fair Market Value vary by 10%
or less of the higher of such determinations, the Fair Market
Value of the Appraisal Partner's Partnership Interest shall be
the average of the two determinations. If such determinations
vary by more than 10% of the higher of such determinations, the
determination of the Fair Market Value of the Appraisal Partner's
Partnership Interest shall be decided by arbitration by the
office of the American Arbitration Association located in or
nearest to the Business Area in accordance with the Commercial
Arbitration Rules of the American Arbitration Association.
(c) Any determination of Fair Market Value pursuant to this
Section 5.8 shall be final and binding on the Partners. No
appraiser selected pursuant to Section 5.8(b) shall be affiliated
with any Partner and each shall be an investment
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banker or other qualified person with prior experience in
appraising businesses comparable to the business of the
Partnership. The fees and expenses of any appraisers or
arbitrators shall be paid by the Partnership.
5.9 Closing of any Permitted Transfer. Unless otherwise agreed between the
buyer and seller, the closing of a purchase and sale of a Partnership Interest
permitted by this Agreement (other than pursuant to Section 5.4(b) or Section
5.2(c)) shall take place at the offices of the Partnership on or before the
thirtieth day after the later of:
(a) the completion of the appraisal process, if applicable;
(b) the expiration or termination of all applicable governmental
waiting periods;
(c) the receipt of all necessary governmental consents needed to
approve the transactions contemplated herein, which consents have not been
reversed, stayed, enjoined, set aside, annulled or suspended, and with
respect to which no requests are pending for administrative or judicial
review, reconsideration, appeal or stay, and the time for filing any such
requests and the time for the issuer of such consent to set aside the
action on its own motion have expired;
(d) the receipt of all material third party consents needed to approve
the transactions contemplated herein; and
(e) the termination of any applicable preliminary or permanent
injunction or other order by any court of competent jurisdiction
restricting, preventing or prohibiting the consummation of such purchase
and sale.
At said closing, the purchaser shall pay the total purchase price against the
seller's delivery to the purchaser of instruments representing or evidencing the
Partnership Interest purchased, all duly endorsed and accompanied by assignments
as are sufficient to effect due transfer of the ownership of such interest to
the purchaser.
5.10 Remedies. No actual or purported disposition of any Partnership
Interest (or any portion thereof), nor any right thereto, whether voluntary or
involuntary, direct or indirect, in violation of any provision of this Agreement
shall be valid or effective to grant any Entity any right, title or interest in
or
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to such Partnership Interest (or portion thereof). The transferor of any
Partnership Interest (or portion thereof) disposed of in violation of any
provision of this Agreement, until such disposition or purported disposition
shall have been rescinded, shall not be entitled to exercise any of the rights
of a Partner or to receive any Distributions from the Partnership from and after
the date of such disposition or purported disposition or failure to comply, as
the case may be. Notwithstanding the foregoing, to the extent that a Partner
would have been entitled to Partnership Distributions but for the preceding
provisions of this Section, if and when such disposition or purported
disposition shall be rescinded or such failure to comply shall be cured, such
Partner shall be entitled to receive all such Partnership Distributions (but no
interest shall be paid thereon with respect to the period between the date on
which such Partnership Distributions would have been made but for this Section
and the date they are actually made).
ARTICLE 6: BOOKS AND RECORDS; ACCOUNTING; FISCAL YEAR
6.1 Books and Records. The Managing Partner shall keep, or cause to be kept
by the Manager pursuant to the Management Services Agreement, current and
complete records and books of account in which shall be entered fully and
accurately all transactions of the Partnership. The books of the Partnership
shall be kept on an accrual basis of accounting and in accordance with generally
accepted accounting principles consistently applied. The Partnership's books and
records shall be maintained at the principal offices of the Managing Partner and
shall be available for inspection and copying by the Partners or their duly
authorized representatives during normal business hours.
6.2 Financial Statements. The Managing Partner shall cause to be delivered
to each Partner the following financial statements prepared, in each case, in
accordance with generally accepted accounting principles consistently applied
(and, if required by any Partner for purposes of reporting under the Securities
Exchange Act of 1934, Regulation S-X):
(a) Promptly upon availability, but in any event within thirty days of
the end of each month, (i) a balance sheet as of the end of such month; and
(ii) the related statements of income or loss, Partner's capital
(deficiency), and cash flows for the interim period through the end of such
month and for the month then ended, and setting forth in each case in
comparative form the figures for such previous fiscal periods as any
Partner may reasonably request and comparisons to budget;
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(b) Promptly upon availability but in any event within forty days of
the end of each quarter, (i) a balance sheet as of the end of such quarter;
and (ii) the related statements of income or loss, Partner's capital
(deficiency), and of cash flows for the interim period through the end of
such quarter and for the quarter then ended, and setting forth in each in
comparative form the figures for such previous fiscal periods as any
Partner may reasonably request and comparisons to budget;
(c) Promptly upon availability, but in any event within eighty-five
days of the end of each Fiscal Year, a balance sheet of the Partnership as
of the end of such Fiscal Year, and the related statements of income or
loss, Partner's capital (deficiency) and cash flows for such Fiscal Year,
all in reasonable detail with appropriate notes to such financial
statements and supporting schedules, setting forth in each case in
comparative form the figures for the previous year, which financial
statements may, at the option of the Managing Partner, be certified by a
nationally recognized accounting firm;
(d) Together with the annual statements required pursuant to Section
6.2(c) above, a report of the Net Profit or Net Loss and Distributions, if
any, for such Fiscal Year, a schedule setting forth each Partner's Capital
Account as at the end of the period covered by such statements and a
Schedule K-1 for each Partner, a copy of the Partnership's federal and
state tax returns and other information required by applicable tax
regulations or necessary for each Partner to prepare its federal, state and
local tax returns; and
(e) With reasonable promptness, such other financial information or
reports as any Partner may reasonably request from time to time.
6.3 Bank Accounts. The Partnership shall maintain bank accounts in such
banks or institutions as the Managing Partner from time to time shall select,
and such accounts shall be drawn upon by check signed by such person or persons,
and in such manner, as may be designated by the Managing Partner. All moneys of
the Partnership shall be deposited in the bank or other financial institution
account or accounts of the Partnership. Partnership funds shall not be
commingled with those of any other Entity without the consent of all Partners.
6.4 Fiscal Year. The Partnership's fiscal year for income tax purposes and
for financial and partnership accounting purposes shall be the Fiscal Year.
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ARTICLE 7: OTHER BUSINESS ACTIVITIES
7.1 Conduct of Exclusive Business in Business Area.
(a) Except as expressly permitted in this Article 7 or in the
Information Appendix, for so long as it is a Partner and, and unless it
ceases to be a Partner as a result of a purchase of its Partnership
Interest pursuant to Section 5.5 hereof, for three years after it ceases to
be a Partner (but in no event beyond the expiration or earlier termination
of this Agreement), no Partner shall Engage, or permit its Controlled
Affiliates to Engage, in the Business Area in an activity encompassed in
the Exclusive Business without having first offered to the Partnership
(outside of the Budget process) the opportunity to Engage, in lieu of such
Partner or Controlled Affiliate, in such activity (the "Offer"), which
offer shall set forth in reasonable detail the nature and scope of the
activity proposed to be Engaged in. The Partnership shall have thirty days
from its receipt of the Offer to accept or reject it. If the Partnership
fails to accept the Offer within such thirty day period, it shall be deemed
to have rejected the Offer, and the offering Partner or its Controlled
Affiliate shall be permitted to Engage in such activity in the Business
Area. If the Partnership accepts the Offer, the offering Partner and its
Controlled Affiliates shall not Engage in such activity in the Business
Area; provided, however, that if the Partnership accepts the Offer but does
not within a reasonable period of time after such acceptance take
reasonable steps to commence such activity, other than as a result of a
violation of this Agreement or wrongful acts or willful bad faith on the
part of the offering Partner, or any of its Controlled Affiliates, the
offering Partner or its Controlled Affiliate, as the case may be, shall be
permitted to Engage in such activity. If the offering Partner or Controlled
Affiliate does not take reasonable steps to commence such activity within a
reasonable period of time after acquiring the right to do so, it shall lose
its right to Engage in such activity, and, thereafter, be required to
reoffer the opportunity to do so to the Partnership in accordance with, and
shall otherwise comply with, the foregoing provisions of this Section 7.1.
The foregoing to the contrary notwithstanding, TCP shall not be subject to
the restrictions set forth in this Section 7.1(a) after it ceases to be a
Partner if it has sold its Partnership Interest after being removed as the
Managing Partner pursuant to Section 3.2(d) hereof. It is the Partners'
good faith intent that the Partnership shall be the primary vehicle for the
conduct of the Exclusive Business in the Business Area, and it is
contemplated that this provision will be utilized by a Partner or its
Controlled Affiliates only under unusual or exceptional circumstances and
not for the purpose of avoiding or subverting the purposes and intent of
this Agreement. If the Partnership determines not to accept an Offer, the
Partner making
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the Offer shall use its best efforts to negotiate, or, if the Offer was
made by a Controlled Affiliate of a Partner, such Partner shall use its
best efforts to cause such Controlled Affiliate to negotiate, agreements
with the Partnership, which are reasonable in the independent judgment of
both parties, pursuant to which the Partnership, alone or jointly with such
Partner or its Controlled Affiliates, would provide appropriate service to
customers in the locations in which the activity described in the Offer is
conducted.
(b) Notwithstanding the foregoing, a Partner and its Controlled
Affiliates shall be permitted, directly or indirectly, now or in the
future, to do any of the following without being required to follow the
procedures set forth in Section 7.1(a) above:
(i) to conduct any activity included in the Exclusive Business in
the Business Area which is a necessary component of the conduct of, or
incidental to, or encompasses the provision of transport for any
Non-Exclusive Business by the Partner or its Controlled Affiliates in
the Business Area or to enter into an arrangement with an independent
third party for the provision of any services included in such
Exclusive Business in the Business Area which is a necessary component
of the conduct of, or incidental to, or encompasses the provision of
transport for such Non-Exclusive Business; and
(ii) to provide internal communications and internal telephone
services, including, without limitation, owning and operating
telephone switching equipment, to a Partner and its Affiliates and to
tenants of buildings for which a Partner or an Affiliate acts as the
landlord in the Business Area.
7.2 Exceptions for Certain Transactions. Each Partner and its Controlled
Affiliates shall be permitted to do any of the following without being obligated
to make an Offer to the Partnership pursuant to 7.1:
(a) invest in companies that are Engaged in the Exclusive Business in
the Business Area where such investments are incidental to investments in
public companies and constitute less than 10% of the outstanding securities
and voting interest of such companies;
(b) acquire companies an incidental portion of the business of which
(such portion being deemed to be incidental if the assets, revenues and
income relating to the Exclusive Business are less than 10% of the assets,
revenues and income, respectively, of the company being acquired and if the
assets relating to such Exclusive Business have a fair market value of
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less than $5,000,000) is encompassed in the Exclusive Business in the
Business Area; and
(c) sell, transfer or otherwise dispose of any investment made
pursuant to clause 7.2(a) above or the stock, assets or business of any
company acquired pursuant to clause 7.2(b) above.
7.3 Existing Activities. Notwithstanding anything to the contrary in this
Article 7, a Partner and/or its Controlled Affiliate which are listed in the
Information Appendix as being Engaged in a specified activity or activities
encompassed in the Exclusive Business in the Business Area on the effective date
hereof (or, if later, on the date such Partner becomes a Partner) shall be
permitted to continue to Engage in such activity or activities; provided,
however, that such Partner or its Controlled Affiliate, as the case may be,
shall not materially expand or increase such activity or activities from that
described in the Information Appendix; and provided, further, that such Partner
shall use its best efforts to negotiate, or cause such Controlled Affiliates to
negotiate, agreements with the Partnership, which are reasonable in the
independent judgment of both parties, pursuant to which the Partnership would
conduct such activity or activities on terms no less favorable to the Partner or
such Controlled Affiliate as the Partner or such Controlled Affiliate could
obtain from an independent third party or could provide for itself.
7.4 Prohibited Transactions. Notwithstanding any provision to the contrary
in this Agreement, no Partner shall, nor shall any Partner permit its Controlled
Affiliates to, Engage in the Exclusive Business in the Business Area with any
Entity which is not a Controlled Affiliate of such Partner or of any Controlled
Affiliate of such Partner, except as expressly permitted in Section 7.1(c)(i).
7.5 Controlled Affiliates. Any breach by a Controlled Affiliate of a
Partner of the provisions of this Article 7 shall be deemed to be a breach by
such Partner.
7.6 Non-Exclusive Business. A Partner and its Controlled Affiliates shall
be permitted to Engage in the NonExclusive Business. However, prior to Engaging
in the NonExclusive Business, such Partner shall, or shall cause its Controlled
Affiliate to, enter into a Reciprocal Resale Agreement with the Partnership.
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7.7 Services Offered by the Partners. If the Partner or an Affiliate of a
Partner provides services to any entity, the Partner or its Affiliate shall
offer the same services on the same terms and conditions to the Partnership.
ARTICLE 8: DISSOLUTION
8.1 Causes of Dissolution. To the extent permitted by the Act,
the dissolution of the Partnership shall occur only upon the occurrence of any
of the following events:
(a) The sale, or taking by eminent domain, of all or substantially all
of the assets of the Partnership;
(b) A legal or regulatory determination, or the revocation or
non-renewal of any franchise or license held by the Partnership which
revocation or non-renewal is not subject to further governmental or
judicial review and which, in any such case, renders it unlawful or
impossible for the Partnership to conduct all or substantially all of the
Exclusive Business in the Business Area;
(c) The expiration of the term of this Agreement; or
(d) The agreement of the Partners in accordance with Section 3.5 to
dissolve the Partnership.
Upon a dissolution, unless the Partners agree to continue the business of the
Partnership pursuant to Section 8.3, no further business shall be done in the
Partnership's name, except for the taking of such action as shall be necessary
for the performance and discharge of the Partnership's obligations, the
winding-up of its affairs and the liquidation and distribution of its assets in
accordance with the provisions hereof.
8.2 Winding Up and Liquidation.
(a) Upon dissolution, subject to Section 8.3, the Partnership's
affairs shall be wound up by the Managing Partner and its property
liquidated as rapidly as business circumstances will permit, and the
Partners shall, subject to any provisions of law or of any other applicable
agreement, make Distributions in the following manner and order:
(i) To payment and discharge of the claims of all creditors of
the Partnership who are not Partners or Affiliates of Partners;
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(ii) To payment and discharge of the claims of all creditors of
the Partnership who are Partners or Affiliates of Partners pro rata in
accordance with the amounts of such claims;
(iii) To creation of reasonable cash reserves for the payment of
any taxes, expenses or liabilities, contingent or otherwise; and
(iv) To the Partners in accordance with their Capital Accounts;
provided, however, that Distributions made pursuant to this Section
8.2(a)(iv) shall be made in accordance with the time requirements set
forth in Regulations Section 1.704-1(b)(2)(ii)(b)(2).
(b) Upon liquidation of the Partnership, if any Partner's Capital
Account has a deficit balance (after giving effect to all contributions,
Distributions and allocations for all taxable years, including the year
during which such liquidation occurs), such Partner shall contribute to the
capital of the Partnership the amount necessary to restore such deficit
balance to zero in compliance with Regulations Section 1.704-
1(b)(2)(ii)(b)(3).
8.3 Continuation of the Partnership. Upon the dissolution of the
Partnership, the Partners, by a Supermajority Vote, may decide to continue the
business of the Partnership pursuant to this Agreement.
8.4 No Withdrawal. Except as otherwise expressly provided in this
Agreement, no Partner may withdraw from the Partnership without the consent of
all of the other Partners.
ARTICLE 9: EVENTS OF DEFAULT AND REMEDIES
9.1 Events of Default. An "Event of Default" shall be considered to have
occurred with respect to a Partner (a "Defaulting Partner") if:
(a) such Partner sells, assigns, transfers, grants a participation in,
pledges, encumbers or otherwise conveys all or any part of its Partnership
Interest, except as permitted by this Agreement; provided, however, that no
Event of Default shall be considered to have occurred for thirty days
following the involuntary encumbrance of all or any part of such
Partnership Interest if during such thirty day period such Partner acts
diligently to, and does, remove any such encumbrance, including, but not
limited to,
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<PAGE>
effecting the posting of a bond to prevent foreclosure where necessary;
(b) an Initial Capital Payment Default (as that term is defined in
Section 4.3(a)(i)) occurs with respect to such Partner and the related call
of the installment of the Initial Capital Contribution in respect of which
the Initial Capital Payment Default occurred is not rescinded pursuant to
Section 4.3(b)(i);
(c) such Partner fails to perform or violates any other material term
or condition of this Agreement and such failure or violation continues for
thirty days after written notice thereof has been given to such Partner by
the Remedies Partner;
(d) such Partner institutes proceedings of any nature under the
Federal Bankruptcy Code, or any similar state or Federal law for the relief
of debtors (a "Bankruptcy Law"), wherein such Partner seeks relief as a
debtor; such Partner makes a general assignment for the benefit of
creditors; or such Partner has instituted against it proceedings under any
section of any Bankruptcy Law, which proceedings are not dismissed, stayed
or discharged within sixty days after the filing thereof or if stayed,
which stay is thereafter lifted without a contemporaneous discharge or
dismissal of such proceedings (such Partner may be referred to hereinafter
as a "Bankrupt Partner"); or
(e) such Partner otherwise causes the dissolution of the Partnership
in contravention of this Agreement.
9.2 Remedies.
(a) Upon the occurrence and during the continuance of an Event of
Default with respect to a Defaulting Partner, the Remedies Partner may
elect:
(i) with the approval of those Partners who are not Defaulting
Partners ("non-Defaulting Partners") with an aggregate Percentage
Interest constituting not less than a majority of the sum of the
Percentage Interests of all non-Defaulting Partners, to cause the
Partnership, or its designee(s), to purchase the Partnership Interest
of such Defaulting Partner pursuant to Section 9.3; or
(ii) to seek to enjoin such default or to obtain specific
performance of a Defaulting Partner's
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<PAGE>
(or the applicable Controlled Affiliate's) obligations or to seek
Damages (as defined and subject to the limitations specified below) or
both.
provided, however, that, with respect to an Event of Default arising under
Section 9.1(b) above, if there is more than one Defaulting Partner, the
Remedies Partner shall make the same election with respect to each such
Defaulting Partner.
(b) The election of a remedy specified in clause 9.2(a)(i) or (ii)
above may be exercised by notice given to the Defaulting Partner (x), in
the case of an Event of Default specified in clause (b) of Section 9.1, at
any time, or (y), in the case of any other Event of Default, within ninety
days after the Remedies Partner obtains actual knowledge of the Event of
Default; provided that, if an election pursuant to clause 9.2(a)(ii) above
is made to seek an injunction, specific performance or other equitable
relief and a final judgment in such action is rendered denying such
equitable remedy, then, within ninety days thereafter, the Remedies Partner
may elect to pursue the remedy specified in clause 9.2(a)(i) above (subject
to the prior approval of the non-Defaulting Partners contemplated by
Section 9.2(a)(i) above) unless, prior to the giving of such notice, the
Defaulting Partner has cured (or caused to be cured) the Event of Default
in full or the final judgment denying equitable relief specifically held
that there was no Event of Default, and no other Event of Default with
respect to such Defaulting Partner has occurred and is continuing.
(c) The remedies set forth in Section 9.2(a) above shall not be deemed
mutually exclusive, and selection or resort to any thereof shall not
preclude selection or resort to the others; provided that, if the Remedies
Partner makes an election pursuant to clause 9.2(a)(i) above in respect of
any Event of Default, then it may not pursue any other remedy in respect of
that Event of Default. Except for the resort to the remedy set forth in
clause 9.2(a)(i) above, the resort to any remedy pursuant to this Section
9.2 shall not for any purpose be deemed to be a waiver of any other remedy
available under this Agreement or under applicable law.
(d) Unless an Event of Default shall have been waived in writing or
cured, the Partnership or the non-Defaulting Partners shall be entitled to
recover from the Defaulting Partner (or its Parent pursuant to the
applicable Parent Undertaking) in an appropriate proceeding any and all
damages, losses and expenses (including reasonable attorneys' fees and
disbursements) (collectively "Damages") suffered or incurred by the
Partnership or the non-Defaulting Partners as a result of such Event of
Default; provided, that neither the Partnership nor the non-Defaulting
Partners shall have or assert any claim against the
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<PAGE>
Defaulting Partner or any of its Affiliates for punitive Damages or for
indirect, special or consequential Damages suffered as a result of such
Event of Default.
(e) Upon the occurrence and during the continuance of the related
Event of Default, and except as required by applicable law, a Defaulting
Partner shall not be entitled to vote on any matter submitted to a vote of
the Partners and its Percentage Interest shall not be included in
calculating the Percentage Interests required to approve or disapprove any
such matter, and such Defaulting Partner shall not be entitled to exercise
any rights under Section 5.4 (or, without the consent of the Remedies
Partner, any rights under Section 5.2 or Section 5.5 of this Agreement). In
all other respects a Defaulting Partner shall continue to have all of the
rights and obligations of a Partner under this Agreement and applicable
law.
9.3 Purchase of Defaulting Partner's Partnership Interest.
(a) If an election is made pursuant to clause 9.2(a)(i), the closing
of the purchase of the Defaulting Partner's Percentage Interest shall take
place at the time and at the place determined in accordance with the
provisions of Section 5.9. The Partnership (or its designee) shall pay a
purchase price for the Defaulting Partner's Percentage Interest (which
shall be payable in cash) equal to 50% of the Fair Market Value of such
Partnership Interest. Upon payment of the purchase price to the Defaulting
Partner, the Defaulting Partner shall deliver to the Partnership (or its
designee(s)) all documents necessary to transfer to the Partnership (or its
designee(s)) good title to its Partnership Interest.
(b) Notwithstanding Section 9.3(a), if an election is made pursuant to
clause 9.2(a)(i) and the only Event of Default that has occurred and is
continuing is that the Defaulting Partner is a Bankrupt Partner, then the
time, place and manner of the purchase of such Defaulting Partner's
Partnership Interest shall be as provided in Section 9.3(a), except that
the Partnership (or its designee(s)) shall pay a purchase price for such
Partnership Interest (which shall be payable in cash) equal to 90% of the
Fair Market Value of such Partnership Interest.
ARTICLE 10: REPRESENTATIONS AND WARRANTIES OF THE PARTNERS
Each Partner makes the following representations and warranties to each
other, each with respect to itself only:
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<PAGE>
(a) It is duly incorporated or organized, validly existing and in good
standing under the laws of its state of incorporation or organization and
duly qualified or registered to do business in each state or jurisdiction
in which failure to so qualify or register would have a material adverse
effect upon such Partner or the Partnership.
(b) It and each of its Controlled Affiliates has the full power and
authority to take all actions contemplated by this Agreement and any of the
Management Services Agreement, Partner Services Agreement and Parent
Undertaking to which it or any of its Controlled Affiliates is a party.
(c) The execution, delivery and performance of this Agreement and each
of the Management Services Agreement, Partner Services Agreement and Parent
Undertaking to which it or any of its Controlled Affiliates is a party,
have been, or at the appropriate time shall be, duly authorized by all
necessary action on its part or the part of any such Controlled Affiliate,
as the case may be.
(d) This Agreement and each of the Management Services Agreement,
Partner Services Agreement and Parent Undertaking to which it or one of its
Controlled Affiliates is a party, constitutes a valid and binding
obligation of it enforceable in accordance with the terms hereof and
thereof, subject as to enforceability to limits imposed by bankruptcy,
insolvency or similar laws affecting creditors' rights generally and the
availability of equitable remedies.
(e) The execution, delivery and performance of this Agreement and of
each of the Management Services Agreement, Partner Services Agreement and
Parent Undertaking to which it or one of its Controlled Affiliate is a
party, do not violate any provision of law or of its or of its Controlled
Affiliates' organizational documents.
(f) The execution, delivery and performance of this Agreement and of
each of the Management Services Agreement, Partner Services Agreement and
Parent Undertaking to which it or one of its Controlled Affiliate is a
party, are not inconsistent with, and do not violate or cause a breach or
default under, any agreement or obligation to which it or any of its
Controlled Affiliates is a party or is otherwise subject.
ARTICLE 11: MISCELLANEOUS
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<PAGE>
11.1 Acknowledgements.
(a) Each Partner affirms and acknowledges that no representations,
warranties or statements have been made to it by any party hereto other
than those expressly set forth in this Agreement and that, in entering into
this Agreement, it has not relied upon anything done or said with respect
to this Agreement or with respect to the relationship between the parties,
other than as expressly set forth in this Agreement.
(b) Each Partner affirms and acknowledges that neither the Partnership
nor the Managing Partner has made any representation or warranty regarding
any financial statements, business plans, projections or other information
provided to such Partner except as expressly provided herein. Any
projections and business plans provided to the Partners reflect the
Managing Partner's current estimate and projections as to the manner and
cost of the development of the Partnership's business in the Business Area.
Such estimate and projections are subject to change.
11.2 Bill for Partition. Each of the Partners covenants that neither it nor
any person or persons claiming through or under it, will file a bill for
partition of the Partnership property.
11.3 Notices. All notices and other communications hereunder shall be (a)
in writing (except to the extent otherwise expressly provided hereunder); (b)
delivered by telecopy, by commercial overnight or same-day delivery service with
all delivery costs paid by sender, or by registered or certified mail with
postage prepaid, return receipt requested; (c) deemed given on the date and at
the time shown on the telecopy confirmation of receipt (if delivered by
telecopy), on the date and at the time (if recorded) of delivery by the
commercial delivery service, as shown in the records thereof (if delivered by
commercial overnight or same-day delivery service), or on the date shown on the
return receipt (if delivered by registered or certified mail); and (d) addressed
to the parties at their addresses specified on the signature pages hereof (or at
such other address for a party as shall be specified by like notice).
11.4 Amendments. This Agreement may not be amended nor shall any waiver,
change, modification, consent, or discharge be effected, except by an instrument
in writing adopted by each Partner; provided, however, that an amendment to
increase the dollar values set forth in any of Sections 3.4(a), 3.4(e), 3.5(c),
3.5(d), or 3.5(f) may be adopted by a Supermajority Vote; and provided, further,
that any changes in this Agreement required solely by the admission of an
additional Partner may be adopted by the same Percentage Interest as is required
to approve the admission of such Partner.
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<PAGE>
11.5 Indebtedness for Borrowed Money. The Partnership shall not incur any
indebtedness for borrowed money the terms of which permit the creditor under
such indebtedness to have recourse against a Partner without the express written
consent of that Partner.
11.6 Waivers and Further Agreements; Entire Agreement. Any waiver of any
terms or conditions of this Agreement shall be in writing and shall not operate
as a waiver of any other breach of such terms or conditions or any other term or
condition, nor shall any failure to enforce any provision hereof operate as a
waiver of such provision or of any other provision hereof. Each of the Partners
agrees to execute all such further instruments and documents and to take all
such further action as any other Partner may reasonably require in order to
effectuate the terms and purposes of this Agreement. The Partners agree that
this Agreement, including the Exhibits and Appendices hereto, constitutes the
entire agreement among them with respect to the subject matter of the
Partnership and supersedes all prior agreements and understandings among them as
to such subject matter, and there are no restrictions, agreements, arrangements
or undertakings, oral or written, among the Partners relating to the Partnership
which are not fully expressed or referred to herein.
11.7 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the greatest extent possible.
11.8 Specific Enforcement; Attorneys Fees. The parties hereto agree that
the remedy at law for damages upon violation of the terms of this Agreement
would be inadequate because the Partnership Interests and the business of the
Partnership are deemed unique. Therefore, the parties agree that the provisions
of this Agreement may be specifically enforced by any court of competent
jurisdiction, and each Partner and its respective transferees agree to submit to
the jurisdiction of the court where any such action for specific performance is
brought. If any Partner defaults in its performance of any of the terms and
conditions of this Agreement and if, as a result of such default, a lawsuit
seeking damages, specific performance or any other remedy is filed by any other
Partner, then, in that event,
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<PAGE>
the prevailing party in such a lawsuit shall be entitled to obtain attorney's
fees from the losing party in such amount as shall be determined by the court to
be reasonable under the circumstances.
11.9 Counterparts. This Agreement may be executed in counterparts each of
which shall be deemed an original and all of which together shall constitute one
and the same instrument, and in pleading or proving any provision of this
Agreement, it shall not be necessary to produce more than one complete set of
such counterparts.
11.10 Captions; Gender. Article and section headings contained in this
Agreement are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement. Whenever used herein the singular
number shall include the plural, the plural shall include the singular, and the
use of any gender shall include all genders.
11.11 Governing Law and Binding Effect. This Agreement shall be governed by
and construed and enforced in accordance with the law (other than the law
governing conflicts of law questions) and decisions of the State of New York
applicable to contracts made and to be performed entirely therein. This
Agreement shall bind and inure to the benefit of each of the Partners and their
successors and permitted assigns.
11.12 Expenses. Each of the Partners shall bear its own expenses, including
legal and other professional fees, incurred by it in the negotiation and
preparation of this Agreement; provided, however, that the Partnership shall
reimburse Partners for the pre-organization operating expenses they incurred
prior to the date hereof to the extent listed on the Information Appendix.
11.13 Third Parties. None of the provisions of this Agreement shall be for
the benefit of, or enforceable by, any creditor of the Partnership or other
third parties.
11.14 Confidentiality. Each Partner agrees that it shall not, directly or
indirectly, without the prior written
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<PAGE>
consent of each other Partner, disclose the terms of this Agreement or the
identity of the Partners or use for its own benefit (except as a Partner of the
Partnership) or disclose to any Entity any information, trade secrets,
confidential customer information, patents, patent rights, technical data or
know-how relating to the products, processes, methods, equipment or business
practices of the Partnership, except (a) to the extent any of the foregoing is
or becomes available to the public other than as a result of disclosure by such
Partner or any of its Affiliates or the directors, officers, employees, agents,
advisors and controlling persons of it or any of its Affiliates, (b), subject to
the terms of an appropriate confidentiality agreement, as necessary to effect a
transaction under Article 5, (c) as may be required by law and (d) as any
Partner may disclose to its lenders, rating agencies and business and financial
advisors. In the event any Partner is required by applicable law or regulation
or by legal process to disclose any of the foregoing, it will provide the other
Partners with prompt notice thereof to enable them to seek an appropriate
protective order.
11.15 Appendices. The Tax Appendix and the Information Appendix are hereby
incorporated by reference and made a part of this Agreement as if they were set
forth herein in their entirety.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Partnership Agreement as of the date first above written.
TCG PARTNERS
By: /s/ Robert Annunziata
------------------------------
Robert Annunziata
Chief Executive Officer
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-
1011
Attention: Robert Annunziata, Chairman
and Chief Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
TCI TELEPORT OF SEATTLE, INC.
By: /s/ Bruce W. Ravenel
------------------------------
Bruce W. Ravenel
Vice President
Address: 5619 DTC Parkway
Englewood, Colorado 80111
Attention: Robert J. Lemming
Executive Vice President
Fax: (303) 488-3215
and
Peter J. Stapp, Esq.
Counsel
Fax: (303) 488-3207
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Partnership
Agreement as of the date first above written.
TCG PARTNERS
By: /s/ J. Curt Hockemeier
------------------------------
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-
1011
Attention: Robert Annunziata, Chairman
and Chief Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
DIGITAL DIRECT OF SEATTLE, INC.
By: /s/ Bruce W. Ravenel
------------------------------
Bruce W. Ravenel
Vice President
Address: 5619 DTC Parkway
Englewood, Colorado 80111
Attention: Robert J. Lemming
Executive Vice President
Fax: (303) 488-3215
and
Peter J. Stapp, Esq.
Counsel
Fax: (303) 488-3207
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Partnership
Agreement as of the date first above written.
TCG PARTNERS
By: /s/ J. Curt Hockemeier
------------------------------
Address: 1 Teleport Drive, Suite 301
Staten Island, New York 10331-
1011
Attention: Robert Annunziata, Chairman
and Chief Executive Officer
and
John W. Thomson, Esquire, Vice
President and General Counsel
Fax: (718) 983-2795
VIACOM TELECOM, INC.
By: /s/ John Goddard
------------------------------
Address: P.O. Box 13
Pleasanton, CA 94566-0811
Attention: John Goddard
President and
Chief Executive Officer
and
Stephanie A Storms, Esq.
Vice President,
Law and Government Relations
and
Don Dallas
Director of Telecommunications
Fax: (510) 463-3241
<PAGE>
EXHIBIT A
Form of Management Services Agreement
<PAGE>
MANAGEMENT SERVICES AGREEMENT
This MANAGEMENT SERVICES AGREEMENT is made as of January 1, 1994, by and
between TELEPORT COMMUNICATIONS GROUP INC., a Delaware corporation having its
principal office at One Teleport Drive, Staten Island, NY 10311 ("TCGI"), and
TCG SEATTLE, a New York general partnership having its principal office at 1215
Fourth Avenue, Suite 1500, Seattle, WA 98161 ("Operator").
RECITALS
Operator has been created by a Partnership Agreement of even date herewith
(the "Partnership Agreement") between TCG Partners("TCP"), and others. The
Partnership Agreement contemplates that Operator will construct and operate a
local telecommunications transmission system (the "Project") in Seattle and
vicinity utilizing the contributed TC assets. In connection therewith, Operator
desires to obtain certain services from TCGI and TCGI desires to offer such
services. In addition, Operator is willing to participate in various national
programs provided by TCGI, and to obtain certain quality standards and
proprietary rights, and Operator is willing to pay TCGI a quarterly fee in
recognition of the value of such programs, standards and rights. Capitalized
terms used herein and not otherwise defined shall have the respective meanings
ascribed thereto in the Partnership Agreement.
AGREEMENTS
In consideration of the foregoing and of the promises and covenants
contained in this Agreement, the parties agree as follows:
1. Management Services.
(a) Generally. Reference is made to Addendum A attached hereto, which
Addendum is incorporated into this Agreement to the same extent as if set
forth herein in full. Addendum A describes certain services (the
"Services"). TCGI hereby agrees to provide the Services described in
Section I of Addendum A and, to the extent requested by Operator from time
to time, the additional Services described in Section II of Addendum A, and
Operator hereby agrees to use the Services described in Section I of
Addendum A and accepts the option to use the additional Services described
in Section II of Addendum A. It is understood and agreed that the Services
will be provided by TCGI or its affiliates, and by the employees,
consultants, agents and contractors of TCGI and its affiliates.
(b) Exclusivity. During the term of this Agreement, Operator agrees
not to obtain any of the Services described in
<PAGE>
Section I of Addendum A from any Entity other than TCGI and its affiliates
(and their respective employees, consultants, agents and contractors)
pursuant to this Agreement. Operator may obtain Services described in
Section II of Addendum A from any Entity.
(c) Quality. TCGI shall perform all of the Services that are of a
professional nature in a professional manner in accordance with all
applicable professional standards and all applicable laws. TCGI shall
perform all of the Services that are of a nonprofessional nature in a
workmanlike manner in accordance with all applicable industry standards and
all applicable laws.
2. National Programs. In connection with TCGI's provision and Operator's
use of those Services designated in Addendum A as the "National Programs," TCGI
and Operator agree as follows:
(a) Name. Subject to the provisions of Section 2.2 of the Partnership
Agreement, Operator shall use its best efforts to include the words "TCG"
or "Teleport Communications" in all of its trade names regardless of the
legal form of Operator from time to time. Upon the termination or
expiration of this Agreement, Operator agrees that it will immediately
cease using any of "TCG," "Teleport," "Teleport Communications" or "TC," or
any name or initials similar thereto, as part or all of its trade names.
(b) Quality Standards. TCGI will provide Operator with regularly
updated written quality standards relating to the installation,
provisioning, engineering and maintenance of telecommunications services,
which standards shall be those employed generally by TCGI, its subsidiaries
and those entities managed by TCGI and its affiliates pursuant to
agreements similar to this Agreement in providing telecommunications
services. Operator shall implement and comply with such standards.
3. Term. This Agreement shall have an initial term of five years from the
date hereof and shall be renewed automatically for successive five-year terms
after the initial term unless, at least six months prior to the expiration of
the current term, either party notifies the other party in writing of its desire
to renegotiate the terms of this Agreement as of the end of the current term. If
such notice is made, Operator and TCGI shall negotiate in good faith to renew
this Agreement, on terms acceptable to both parties, prior to the end of the
current term. The initial term and any subsequent renewal term shall be subject
to early termination pursuant to Section 6. Notwithstanding the termination or
expiration of this Agreement:
(a) After the termination or expiration of this Agreement, TCGI shall
continue to provide, for a reasonable additional period not to exceed three
months, any of the Services that are required by Operator during such
period to permit an orderly transition to a successor service provider or
providers,
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<PAGE>
and Operator agrees to pay the charges for such Services set forth in
Addendum A, as adjusted from time to time in accordance with Section 4(b),
in the manner provided in this Agreement;
(b) The provisions of Section 9 and Section 10 shall survive the
termination or expiration of this Agreement indefinitely; and
(c) The provisions of Section 2(b) and Section 4(a)(ii), and those
provisions of this Agreement relating to the payment of the fee specified
in Section 4(a)(ii), shall survive the termination or expiration of this
Agreement until the expiration of all agreements under which Operator
provides telecommunications services to national accounts through TCGI's
National Programs; provided, however, that the fee payable pursuant to
Section 4(a)(ii) after the termination or expiration of this Agreement
shall be limited to 3% of those Project Gross Revenues that are
attributable to such national accounts.
4. Fees and Charges.
(a) Fees. In return for the Services to be provided to Operator under
this Agreement, Operator shall pay to TCGI the following amounts:
(i) The charges set forth in Addendum A, as adjusted from time to
time in accordance with Section 4(b) and Addendum A; and
(ii) With respect to (A) the period commencing on the date hereof
and ending on the last day of the second full calendar quarter after
the date hereof and (B) each subsequent calendar quarter during the
term of this Agreement (each such period hereinafter called an
"Applicable Period"), a payment equal to the greater of (1) 3% of
Project Gross Revenues (as hereinafter defined) with respect to the
Applicable Period, or (2) an amount equal to the product of $278.00
times the number of days in the first Applicable Period and an amount
equal to $25,000 for each subsequent Applicable Period. The term
"Project Gross Revenues" means, with respect to any Applicable Period,
all revenues derived by Operator from the conduct of the Business (as
that term is defined in the Partnership Agreement) during the
Applicable Period, determined on an accrual basis, with adjustment for
bad debt and otherwise in accordance with generally accepted
accounting principles consistently applied.
(b) Adjustments. The charges stated on Addendum A are based on TCGI's
best estimate as of the date hereof of its cost of providing the Services
to Operator and to all of the other entities with which TCGI or its
affiliates have entered into agreements similar to this Agreement. TCGI
shall periodically, but not less often than quarterly, calculate the actual
cost of
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<PAGE>
providing the Services and determine whether the amounts paid by Operator
for such period are less than or exceed Operator's pro rata share of TCGI's
actual costs in providing the Services in such period. The expenses
attributable to the provision by TCGI of any Service to Operator shall be
calculated by allocating the expenses incurred by TCGI and its affiliates
in providing such Service to all telecommunications transmission systems
managed by TCGI and its affiliates (including Operator) among all such
systems on the basis of an equitably weighted average of each system's
direct hours billed, annual budgeted revenue and budgeted capitalization.
The weighting of each variable shall be determined from time to time by
TCGI. The initial weighting system is set forth in Section IV of Addendum
A. TCGI may adjust any of the fees and monthly rates set forth on Addendum
A as a result of such calculation to provide that the amounts paid by
Operator pursuant hereto more closely approximate TCGI's actual costs of
providing the Services. In addition, if as a result of the calculation of
the cost of providing the Services it is determined that Operator has paid
more or less than its pro rata share of the cost of providing the Services
in any period, TCGI shall send a statement to Operator with the next
monthly bill provided pursuant to Section 4(c) below setting forth the
amount of such overpayment or underpayment. If Operator has overpaid, it
shall be entitled to a credit in the amount of such overpayment against
subsequent payments. If Operator has underpaid, it shall pay to TCGI the
amount of such underpayment. TCGI shall provide Operator within ninety days
of the end of each of its fiscal years with a certificate from its
independent accountants certifying Operator's pro rata share of the cost of
providing the Services. Operator shall receive a credit in the amount of,
or shall pay an amount equal to, any overpayment or underpayment reflected
in such certificate as provided above. In no event, however, shall the
charges to Operator pursuant to this Section 4(b) or Addendum A resulting
from the cost of providing the Services to Operator, when taken as a whole,
exceed the cost at which Operator could obtain like services from
qualified, unaffiliated third parties.
(c) Payments and Billing.
(i) TCGI shall provide Operator with itemized monthly bills with
respect to all charges specified in Addendum A and any adjustments
made pursuant to Section 4(b) above. Billing for items charged on a
unit fee basis or a fixed fee basis shall be in advance and billing
for items charged on an actual time and materials basis shall be in
arrears. Each such bill shall be payable within thirty days from the
date of Operators's receipt thereof.
(ii) The fee specified in Section 4(a)(ii) shall be paid as
follows:
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<PAGE>
(A) With respect to the first Applicable Period, Operator
shall pay the product of $278.00 times the number of days in the
first Applicable Period prior to the last day of the first
Applicable Period and shall pay the amount, if any, by which the
fee specified in Section 4(a)(ii) for the first Applicable Period
exceeds the product of $278.00 times the number of days in the
first Applicable Period within sixty days after the end of the
first Applicable Period.
(B) With respect to each Applicable Period after the first
Applicable Period, Operator shall pay $25,000 toward the fee
specified in Section 4(a)(ii) on or before the first day of such
Applicable Period and shall pay the amount, if any, by which the
fee specified in Section 4(a)(ii) for such Applicable Period
exceeds $25,000 within sixty days after the end of such
Applicable Period.
(iii) Within sixty days after the end of each Applicable Period,
Operator shall provide TCGI with a statement, certified as correct by
Operator's General Manager or chief financial officer, as to the
amount of Project Gross Revenues for the Applicable Period. Operator
will permit any authorized TCGI employee or certified public
accountant retained by TCGI to examine Operator's books of account,
records, reports and other papers relating to the determination of
Project Gross Revenues, to make copies and extracts therefrom (except
with respect to that containing proprietary information), and to
discuss such items with Operator's officers and accountants (and by
this provision Operator authorizes the accountants to discuss such
items), all at such reasonable times and as often as may reasonably be
requested. Any such examination shall be performed at TCGI's sole cost
and expense unless such examination reveals a material understatement
in any quarterly statement of Project Gross Revenues, in which event
the cost of such examination shall be borne by Operator.
(iv) Operator shall inform TCGI of any discre- pancies, claims
for credits or other problems with any bill within thirty days after
Operator's receipt thereof. If TCGI is so notified, Operator and TCGI
shall meet promptly and shall negotiate in good faith a resolution of
the dispute. TCGI agrees to maintain detailed records relating to its
provision of the Services. TCGI will permit Operator at any time upon
reasonable notice to examine all of such records, to make copies and
extracts therefrom and to discuss such records and other matters
relating to the Services with the respective officers, employees and
independent public accountants of TCGI (and by this provision TCGI
authorizes the accountants to discuss such items).
(v) Any amount not received when due will be subject to a late
charge at a rate equal to the lesser of 1 1/2% per month or the
maximum amount permitted by law (if any).
- 5 -
<PAGE>
(vi) Operator will be permitted to offset any amounts due to
Operator from TCGI or its wholly-owned subsidiaries against any
amounts payable to TCGI hereunder.
5. Taxes. Operator agrees to pay any sales, use, gross receipts, excise or
other local, state or Federal taxes or charges, however designated (excluding
taxes on TCGI's net income), imposed on or based upon the provision, sale or use
of the Services provided under this Agreement or otherwise related to the
transactions contemplated hereby. Any taxes imposed on TCGI that are required to
be paid by Operator under this Section 5 shall be separately stated on each
monthly bill to Operator.
6. Termination.
(a) Operator may terminate this Agreement by written notice to TCGI if
TCGI fails in any material respect to perform its obligations under this
Agreement in accordance with the terms hereof and customary and reasonable
standards of management in the telecommunications industry, and such
failure in performance continues unremedied for a period of one hundred
eighty days after Operator has given written notice to TCGI specifying such
failure in reasonable detail. In no event shall the financial performance
of Operator or any failure by Operator to meet its budget for any period be
deemed a failure of performance by TCGI. Operator agrees that TCGI may
remedy any failure in performance by performing again in a satisfactory
manner any Services that Operator maintains were originally performed in an
unsatisfactory manner or by giving Operator a credit against any future
payments due under this Agreement equal to the amount of any charges paid
by Operator for any Services that Operator maintains were originally
performed in an unsatisfactory manner.
(b) TCGI may terminate this Agreement by written notice to Operator if
Operator fails in any material respect to perform its obligations under
this Agreement (other than those described in Section 6(c)) in accordance
with the terms hereof and customary and reasonable standards of management
in the telecommunications industry, and such failure continues unremedied
for a period of one hundred eighty days after TCGI has given written notice
to Operator specifying such failure in reasonable detail.
(c) TCGI may terminate this Agreement by written notice to Operator if
Operator fails to make any payment due to TCGI under this Agreement within
thirty days of the date when such payment was due unless such failure is
due to a good faith dispute between TCGI and Operator regarding such
payment.
(d) Either party may terminate this Agreement by giving written notice
to the other party if the other party:
- 6 -
<PAGE>
(i) files a voluntary petition in bankruptcy or is adjudicated a
bankrupt or insolvent or files any petition or answer seeking
arrangement, composition, readjustment, or similar relief under the
present or any future bankruptcy act or any other present or future
applicable federal or state law relating to bankruptcy, insolvency or
other relief for debtors; or
(ii) has an involuntary petition filed against it seeking
arrangement, composition, readjustment, liquidation or similar relief
under the present of any future federal bankruptcy act or any other
federal or state law relating to bankruptcy, insolvency or other
relief for debtors which is not vacated within sixty days from the
date of entry thereof; or
(iii) makes an assignment for the benefit of creditors or takes
any other similar action for the protection or benefit of creditors;
or
(iv) in connection with the ownership, operation or management of
the Project or the performance of its obligations under this
Agreement, commits any felony or any other criminal act that
materially threatens to result in suspension, revocation, or adverse
modification of any governmental franchise, license, authorization or
permit required for the conduct of the terminating party's business;
or
(v) misappropriates or converts any assets of the terminating
party.
7. Other Remedies. In addition to the termination rights set forth in
Section 6, each party may exercise any other remedy available at law or equity
in the event of a default by the other party in the performance of its
obligations under this Agreement.
8. Limitation on Liability. TCGI shall in no event (i) have any liability
to Operator for any damages, expenses, costs or losses resulting from its
performance or nonperformance of the Services, except as may be caused by TCGI's
willful misconduct or gross negligence; (ii) HAVE ANY LIABILITY WHATSOEVER FOR
SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE DAMAGES AS A RESULT OF ITS
PERFORMANCE OR NONPERFORMANCE OF THE SERVICES; or (iii) have any liability for
any failure of performance hereunder due to causes beyond its control, including
but not limited to acts of God, fire, flood or other catastrophes; any law,
order, regulation, direction or action of the United States Government, or of
any other government, including state and local governments having or claiming
jurisdiction over TCGI or Operator, or of any department, agency, commission,
bureau, corporation or other instrumentality of any one or more of these
federal, state or local governments, or of any civil or military authority;
national emergencies; unavailability of material or rights-of-way;
insurrections; riots; wars; or strikes, lock-outs, work stoppages or
- 7 -
<PAGE>
other labor difficulties. TCGI makes no representation or warranty with respect
to the operations or results, financial or otherwise, of the Project, and shall
have no liability therefor.
9. Proprietary Information. Each party acknowledges that, in the course of
the performance of this Agreement, it may have access to privileged and
proprietary information claimed to be unique, secret and confidential, and which
constitutes the exclusive property or trade secrets of the other, and the
parties acknowledge that they are in a confidential relationship with each
other. This information may be presented in documents marked with a restrictive
notice or otherwise tangibly designated as proprietary or during oral
discussions, at which time representatives of the disclosing party will specify
that the information is proprietary. Each party agrees to maintain the
confidentiality of the proprietary information and to use the same degree of
care as it uses with regard to its own proprietary information to prevent the
disclosure, publication or unauthorized use of the proprietary information.
Neither party may duplicate or copy proprietary information of the other party
other than to the extent necessary for legitimate business uses in connection
with this Agreement. A party shall be excused from these nondisclosure
provisions if the proprietary information has been, or is subsequently, made
public by the other party or is independently developed by such party or if the
other party gives its express, prior written consent to the disclosure of the
proprietary information or if the disclosure is required by law or regulation.
Operator hereby acknowledges that certain deliverables to be included in the
Services, such as software, data processing systems and manuals, are the
proprietary property of TCGI or of third parties. Operator agrees that upon
TCGI's request it will execute, and comply with, license or sublicense
agreements in reasonable and customary form with respect to such deliverables.
10. Indemnification.
(a) Indemnification by Operator. Operator will indemnify and hold
harmless TCGI, its affiliates (other than Operator), and all officers,
directors, employees, stockholders, partners and agents of TCGI and its
affiliates (individually, a "TCGI Indemnitee") from and against any and all
claims, demands, costs, damages, losses, liabilities, joint and/or several,
expenses of any nature (including reasonable attorneys', accountants' and
experts' fees and disbursements), judgments, fines, settlements and other
amounts (collectively, "Damages") arising from any and all claims, demands,
actions, suits or proceedings, civil, criminal, administrative or
investigative (collectively "Claims") in which the TCGI Indemnitee may be
involved or is threatened to be involved, as a party or otherwise, arising
out of TCGI's acts or omissions under this Agreement or the ownership or
operation of Operator's business or assets, regardless of whether this
Agreement continues to be in effect or the TCGI
- 8 -
<PAGE>
Indemnitee continues to be an affiliate, or an officer, director, employee,
stockholder, partner or agent of TCGI or its affiliate, at the time any
such Claims are made or Damages incurred, provided (i) the TCGI Indemnitee
acted in good faith and in a manner it reasonably believed to be in the
best interest of Operator and, with respect to any criminal proceeding, had
no reasonable cause to believe its conduct was unlawful, and (ii) the TCGI
Indemnitee's conduct did not constitute gross negligence, willful
misconduct or a breach of this Agreement. Any indemnification hereunder
will be satisfied solely out of the assets of Operator.
(b) Indemnification by TCGI. TCGI will indemnify and hold harmless
Operator, its affiliates, and all officers, directors, employees,
stockholders, partners and agents of TCGI and its affiliates (individually,
an "Operator Indemnitee") from and against any and all Damages arising from
any and all Claims in which the Operator Indemnitee may be involved or is
threatened to be involved, as a party or otherwise, arising out of
Operator's acts or omissions under this Agreement or the ownership or
operation of TCGI's business or assets, regardless of whether this
Agreement continues to be in effect or the Operator Indemnitee continues to
be an affiliate, or an officer, director, employee, stockholder, partner or
agent of Operator, at the time any such Claims are made or Damages
incurred, provided (i) the Operator Indemnitee acted in good faith and in a
manner it reasonably believed to be in the best interest of TCGI and, with
respect to any criminal proceeding, had no reasonable cause to believe its
conduct was unlawful, and (ii) the Operator Indemnitee's conduct did not
constitute gross negligence, willful misconduct or a breach of this
Agreement. Any indemnification hereunder will be satisfied solely out of
the assets of TCGI.
(c) Procedure. No claims for indemnification shall be made by either
party against the other unless the aggregate amount of such claim, together
with any other indemnifiable claims of such party, exceeds the amount of
$5,000. Any reasonable expenses incurred by any indemnified person pursuant
to this Section 10 in defending any civil or criminal action, suit or
proceeding (or the threat thereof), other than a claim, action, suit or
proceeding brought by the indemnifying party, shall be borne and paid by
the indemnifying party in advance of the final disposition of such action,
suit or proceeding (or the threat thereof) upon receipt of an undertaking
by or on behalf of the indemnified person to repay to the indemnifying
party the amount of such expenses if it shall ultimately be determined that
such person is not entitled to the indemnification provided for under this
Section 10. Any person asserting a right to indemnification under this
Section 10 shall so notify the indemnifying party in writing. If the facts
giving rise to such indemnification involve any actual or threatened claim
or demand by or against a third party, the indemnifying party shall be
entitled to control the defense or prosecution of such claim or
- 9 -
<PAGE>
demand in the name of the indemnified person, if the indemnifying party
notifies the indemnified person in writing of its intention to do so within
twenty days of the receipt of such notice by the indemnified person. The
indemnified person shall have the right, however, to participate in such
proceeding through counsel of its own choosing, which participation shall
be at its sole expense. Whether or not the indemnifying party chooses to
defend or prosecute such claim, each indemnified person and Lessor or
Lessee, whichever is not the indemnifying party, shall, to the extent
requested by the indemnifying party and at the indemnifying party's
expense, cooperate in the prosecution or defense of such claim and shall
furnish such records, information and testimony and attend such
conferences, discovery proceedings, hearings, trials and appeals as may
reasonably be requested in connection therewith.
11. Independent Contractor. TCGI shall serve as an independent contractor
in connection with the matters set forth herein and its employees shall not be
employees of Operator, provided, however, that TCGI may provide Operator with
contract employees as part of the Services and be reimbursed therefor as more
fully provided on Addendum A. TCGI shall take no action, nor omit to take any
action, that would create the appearance, or lead a reasonable person to
believe, that TCGI (including its employees other than contract employees) in
acting hereunder has any relationship to Operator other than that of an agent to
its principal.
12. Obligations Unimpaired. Subject to the provisions of Section 6, the
obligations to be performed by Operator under this Agreement shall not be
affected or impaired by reason of the happening from time to time of any of the
following:
(a) any assignment or purported assignment of all or any part of the
interest of TCP in the Partnership Agreement or of TCGI in this Agreement;
(b) the modification or amendment (whether material or otherwise) of
any obligation, undertaking or condition to be performed by TCP under the
Partnership Agreement or the expiration or termination of the Partnership
Agreement, whether caused by TCP's default or otherwise;
(c) the voluntary or involuntary liquidation or dissolution of TC or
TCGI or the sale or other disposition of all or substantially all the
assets of TC or TCGI;
(d) the merger, reorganization or consolidation of Operator or the
sale, divestiture or other disposition of TCP's interest in Operator
pursuant to the provisions of the Partnership Agreement;
- 10 -
<PAGE>
(e) the termination or expiration of the Partnership Agreement; or
(f) any other cause, whether similar or dissimilar to the foregoing;
it being the intention of Operator that, except as otherwise required by
the provisions hereof, this Agreement be absolute and unconditional in any
and all circumstances.
13. Miscellaneous. This Agreement constitutes the entire Agreement between
TCGI and Operator with respect to the subject matter hereof, and all prior
agreements, representations, statements, negotiations and undertakings are
superseded by this Agreement. THERE ARE NO AGREEMENTS, WARRANTIES OR
REPRESENTATIONS, EXPRESS OR IMPLIED EITHER IN FACT OR BY OPERATION OF LAW,
STATUTORY OR OTHERWISE, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR
A PARTICULAR PURPOSE OR USE, EXCEPT THOSE EXPRESSLY SET FORTH HEREIN. This
Agreement may not be amended or waived except by a writing signed by the party
against which enforcement hereof is sought. The provisions of this Agreement
shall be governed by and construed in accordance with the laws of the State of
New York. This Agreement may be executed in two counterparts, each of which
shall be deemed to be an original.
14. Successors and Assigns; Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties' respective successors and
permitted assigns. Neither party shall assign, transfer, or in any other manner
dispose of, any of its rights, privileges or obligations under this Agreement
except in connection with a transaction specifically permitted by and in
accordance with the applicable provisions of Article 5 of the Partnership
Agreement and any attempt to make such an assignment, transfer or disposition
without consent shall be null and void. This provision shall not limit TCGI's
discretion to delegate duties and responsibilities to employees or agents of
TCGI or its affiliates in accordance with normal and customary management
practices.
15. Compliance With Law. Operator shall be the franchisee, licensee and
permittee of all governmental franchises, licenses, authorizations and permits
required for its business, and shall retain ultimate control over the Project
and its assets. Operator shall also retain ultimate responsibility for
compliance with the rules, regulations and policies of the Federal
Communications Commission (the "FCC") and each applicable state regulatory
authority having jurisdiction over the Project or Operator (collectively, the
"Regulatory Authorities") and the terms of the Communications Act of 1934, as
amended (the "Act"). TCGI agrees to cooperate in all reasonable respects with
Operator to the extent necessary to remain in compliance with respect to the Act
and the rules, regulations and policies of the FCC and of all applicable
Regulatory Authorities.
- 11 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Management
Services Agreement as of the date first above written.
TELEPORT COMMUNICATIONS GROUP INC.
By /s/ Alf T. Hansen
----------------------------
Alf T. Hansen
Senior Vice President
TCG SEATTLE, a Partnership
By /s/ Alf T. Hansen
----------------------------
Alf T. Hansen
Senior Vice President
- 12 -
<PAGE>
ADDENDUM A
DESCRIPTION OF SERVICES AND CHARGES
I. TCGI Provided Services. TCGI shall provide the following Services on a
regular basis, in accordance with the level of the Operator's business activity,
at the rates listed.
1. Management - Senior Management Supervision. TCGI will provide management
supervision to Operator in support of Operator's business plan and the
objectives of its partners. The supervisory and general management functions to
be performed include:
. Review of business plans
. Review of annual budget and five-year plan
prepared by Operator's General Manager
. Financial reviews and controls
Operator will pay for these services on an actual time and materials basis (see
Section III).
2. Engineering - Circuit Order Layout Record, Training and Operations. TCGI
will maintain a database of the Network layout down to individual circuit level.
All circuit order layout record (COLR) information should be reviewed by
Operator for accuracy. TCGI will provide operational performance (capital and
expense) reviews and assist in network expansion. TCGI will train employees
assigned to Operator, as required. Operator will pay for these services on an
actual time and materials basis (see Section III).
3. Finance - Accounting Administration. TCGI will provide all billing,
collections, accounts payable, bookkeeping and financial reporting services as
listed below. In addition, TCGI will order supplies, materials and services
required by Operator, process invoices submitted by Operator and purchase orders
generated by or on behalf of Operator in accordance with approved capital
budgets and budgeted expenditures.
SERVICE DESCRIPTION
- ------- -----------
Billing Monthly billing of customers.
Collections Ongoing collection and processing of
customer payments.
Credit review Credit check to determine
creditworthiness of new customers.
<PAGE>
Bookkeeping Functions General ledger, accounts receivable, accounts
payable, liabilities and fixed asset property
records.
Cash Control Cash management, reconciliation of bank
statements and cash forecasting requirements.
Accounting for Fixed Accounting for all capital accounts, as to
Assets accumulated depreciation and book and tax
depreciation calculations.
Tax Compliance Compliance with tax codes, including annual
preparation of partnership federal, state and
local tax returns and K-1 tax reporting
schedules.
Financial Reports and A monthly summary including balance sheet,
Analysis profit and loss, budget vs. actual, fixed
asset summary, cash and investments,
statement of changes in financial position.
Capital Accounts Ongoing accounting for partner capital
accounts, capital contributions and
withdrawals.
Other Reports Other reports, including regulatory reports,
required by or pursuant to the Partnership
Agreement or as directed by Operator.
Operator will pay for these services on an actual time and materials basis (see
Section III).
4. Information Systems - Management Information Systems. TCGI will provide
centralized MIS/Data Processing hardware and software to Operator by remote
access from TCGI's corporate location. TCGI will manage centralized MIS
operations and will provide general systems support and guidance to Operator.
Operator will be responsible for the purchasing and operation of local MIS
hardware and software such as personal computers, remote terminals, printers,
plotters and other peripherals, and required telecommunications lines or local
area network interfaces necessary to access the centralized MIS resources of
TCGI.
Addendum A - Page 2
<PAGE>
SYSTEM DESCRIPTION
Capital budget Tracks capital expenditures and purchase
tracking and P.O. orders.
invoice tracking
Inventory tracking Tracks electronics and cable and other
inside/outside plant inventory.
Technician labor Tracks manpower time of technical employees.
tracking
Internal labor Tracks TCGI employee time and allocates to
tracking expense or capital projects.
Circuit tracking Tracks all circuits current work in progress
and billable installed base, due dates, turn
up dates and billing dates.
Order input processing Tracks orders through to implementation.
Property records Tracks fixed assets for required reporting.
Engineering &
operations design Maintains databases of COLRs and existing
plant. Creates work orders and lists of all
electronics and work required to install a
new circuit.
General ledger Drives accounting and budgeting process.
Fixed asset Tracks depreciation expenses by account.
Payroll Payroll contracted with Automatic Data
Processing.
Billing/accounts Drives billing and accounts receivable.
receivable
Financial reporting Drives financial analysis process budget
and expense tracking.
Business planning Models/forecasts business for planning
purposes.
Addendum A - Page 3
<PAGE>
Operator will pay for MIS processing costs at the following rates per month
based on actual annual sales for the immediately preceding fiscal year:
<TABLE>
<CAPTION>
============================================================================
Monthly
Prior Year Annual Sales Rate
============================================================================
<S> <C>
Up to $250,000 $5,000
- ----------------------------------------------------------------------------
Greater than $250,000 up to and 7,000
including $15,000,000
- ----------------------------------------------------------------------------
Greater than $15,000,000 up to 20,000
and including $25,000,000
- ----------------------------------------------------------------------------
Greater than $25,000,000 90,000
============================================================================
</TABLE>
5. Legal/Regulatory - Contract Reviews & Local Counsel Supervision. TCGI
will review all contracts, consulting agreements and other legally binding
arrangements. TCGI will provide standard contract forms. To provide Operator
with the benefits of TCGI's legal experience and expertise in the area of
telecommunications, metropolitan area networks and alternate local transmission
services, and in particular, to ensure consistency in regulatory stance, TCGI
will be available as needed for supervision and guidance of Operator's local
counsel and/or local regulatory counsel. Operator will pay for these services on
an actual time and materials basis (see Section III).
6. National Marketing and Pricing - Product Planning and Pricing; National
Advertising & Marketing. TCGI shall provide the following additional marketing
and pricing services:
o Develop, publish and update a standard pricing guide.
o Create market data and analysis for network expansion plans.
o Develop new applications including service descriptions, pricing
and sales strategy.
o Plan and implement national advertising campaign and strategic
accounts programs.
o Conduct competitive service analysis and ongoing tariff review
to assess potential impact on TCGI.
o Place general image advertising in national communications
media.
Addendum A - Page 4
<PAGE>
. Assist Operator in local promotional and public relations
efforts.
. Trade show planning and implementation for national and regional
exhibits; distribute qualified sales leads to each city
resulting from trade shows.
. Design and develop sales brochures and premiums.
. Update and maintain mailing lists, and develop and implement
direct mail campaigns.
. Distribute press releases, Teleport Report, trade show
invitations, etc.
Operator will pay for these services at the following rates per month based on
budgeted sales for the relevant fiscal year:
<TABLE>
<CAPTION>
================================================================================
Budgeted Annual Sales for Such Monthly Rate
Year
================================================================================
<S> <C>
Up to $3,000,000 $3,900
- --------------------------------------------------------------------------------
Greater than $3,000,000 up to 5,850
and including $6,000,000
- --------------------------------------------------------------------------------
Greater than $6,000,000 up to 7,800
and including $9,000,000
- --------------------------------------------------------------------------------
Greater than $9,000,000 up to 9,750
and including $12,000,000
- --------------------------------------------------------------------------------
Greater than $12,000,000 up to 11,700
and including $15,000,000
- --------------------------------------------------------------------------------
Greater than $15,000,000 up to 13,650
and including $18,000,000
- --------------------------------------------------------------------------------
Greater than $18,000,000 up to 15,600
and including $21,000,000
- --------------------------------------------------------------------------------
Greater than $21,000,000 up to 17,550
and including $24,000,000
- --------------------------------------------------------------------------------
Greater than $24,000,000 up to 19,500
and including $27,000,000
- --------------------------------------------------------------------------------
Greater than $27,000,000 up to 21,450
and including $30,000,000
- --------------------------------------------------------------------------------
Greater than $30,000,000 up to 23,400
and including $33,000,000
- --------------------------------------------------------------------------------
</TABLE>
Addendum A - Page 5
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Budgeted Annual Sales for Such Monthly Rate
Year
================================================================================
<S> <C>
Greater than $33,000,000 up to 25,350
and including $36,000,000
- --------------------------------------------------------------------------------
Greater than $36,000,000 up to 27,300
and including $39,000,000
- --------------------------------------------------------------------------------
Greater than $39,000,000 up to 29,250
and including $42,000,000
- --------------------------------------------------------------------------------
Greater than $42,000,000 up to 31,200
and including $45,000,000
- --------------------------------------------------------------------------------
Greater than $45,000,000 up to 33,150
and including $48,000,000
- --------------------------------------------------------------------------------
Greater than $48,000,000 up to 35,100
and including $51,000,000
- --------------------------------------------------------------------------------
Greater than $51,000,000 up to 37,050
and including $54,000,000
- --------------------------------------------------------------------------------
Greater than $54,000,000 up to 39,000
and including $57,000,000
- --------------------------------------------------------------------------------
Greater than $57,000,000 up to 40,950
and including $60,000,000
- --------------------------------------------------------------------------------
Greater than $60,000,000 up to 42,900
and including $63,000,000
- --------------------------------------------------------------------------------
Greater than $63,000,000 up to 44,850
and including $66,000,000
- --------------------------------------------------------------------------------
Greater than $66,000,000 46,800
================================================================================
</TABLE>
7. Operations - 24-Hour Remote Systems Monitoring.TCGI shall provide
24-hour monitoring of the installed network in accordance with its standard
monitoring practices with respect to network systems in the New York
metropolitan area. Operator will provide necessary long distance tie-lines.
Operator will pay a unit fee for 24-hour remote systems monitoring for private
lines at a rate of $300.00 per Network Monitoring Unit per year, set at the
beginning of each year based on the average number of Network Monitoring Units
budgeted for the year, payable in twelve equal monthly installments. Operator
will pay a unit fee for remote monitoring for switching at a rate of $75,000 per
year plus $1,000 per switch module per year, set at the beginning of each year
based on the number of budgeted switch modules for the year, payable in twelve
equal monthly installments. Operator will pay for any trouble management
requiring additional man hours on an actual time and materials basis (see
Section III).
Addendum A - Page 6
<PAGE>
8. Personnel Administration - Payroll & Benefits. TCGI will provide all
benefit & employee administration with respect to payroll, 401(k), medical,
dental, retirement, vacation, disability, and sick leave. Operator shall pay a
unit fee for these services of $230.00 per month per budgeted year-end Assigned
Employee (as that term is defined in paragraph I.12.
below).
9. Quality - Training and Course Documentation. TCGI's ongoing commitment
to employee education and training will be maintained by providing in-house
training and documentation on TCGI procedures and operational guidelines. TCGI
shall notify Operator from time to time of its training programs. Guidance on
policy and outside education/training will also be available as needed. Operator
will pay for training and course documentation at TCGI's standard rates.
10. Sales - National Sales Representation. TCGI's National Sales Group and
senior executives will actively seek to sell Operator services on a national
level to organizations such as interexchange carriers, large financial
institutions and other corporations with a nationwide presence. These services
will be provided to meet mutually agreed national sales quota targets which will
be set by Operator and TCGI. This program is supplemental to Operator's local
sales effort, which may include national accounts contacted on a local basis.
Operator will pay for these services at the following rate per month based on
budgeted revenues for the current fiscal year:
<TABLE>
<CAPTION>
================================================================================
Current Year Budgeted Annual Monthly Rate
Sales
================================================================================
<S> <C>
Up to $500,000 $5,000
- --------------------------------------------------------------------------------
Greater than $500,000 up to and 8,000
including $1,000,000
- --------------------------------------------------------------------------------
Greater than $1,000,000 up to 10,000
and including $3,000,000
- --------------------------------------------------------------------------------
Greater than $3,000,000 up to 15,000
and including $5,000,000
- --------------------------------------------------------------------------------
Greater than $5,000,000 up to 20,000
and including $10,000,000
- --------------------------------------------------------------------------------
Greater than $10,000,000 up to 30,000
and including $20,000,000
- --------------------------------------------------------------------------------
</TABLE>
Addendum A - Page 7
<PAGE>
<TABLE>
<CAPTION>
================================================================================
Current Year Budgeted Annual Monthly Rate
Sales
================================================================================
<S> <C>
Greater than $20,000,000 up to 40,000
and including $30,000,000
- --------------------------------------------------------------------------------
Greater than $30,000,000 up to 50,000
and including $40,000,000
- --------------------------------------------------------------------------------
Greater than $40,000,000 up to 60,000
and including $50,000,000
- --------------------------------------------------------------------------------
Greater than $50,000,000 up to 70,000
and including $60,000,000
- --------------------------------------------------------------------------------
Greater than $60,000,000 up to 80,000
and including $70,000,000
- --------------------------------------------------------------------------------
Greater than $70,000,000 up to 90,000
and including $80,000,000
- --------------------------------------------------------------------------------
Greater than $80,000,000 100,000
================================================================================
</TABLE>
11. National Programs. TCGI will provide National Program services as
follows:
National Program Description
- ---------------- -----------
Corporate Quality and TCGI will monitor conformance with TCGI's
Engineering Standards national quality and engineering standards,
as described in TCGI's Quality and
Engineering Standards Volume, as in effect
from time to time.
National Service Order TCGI will make available to Operator its
Management National Service Order management system
which allows orders from interexchange
carriers and other national accounts to be
transmitted directly to Operator. Operator
will be responsible for providing hardware,
telephone tie- lines and personnel for access
to TCGI's system.
National Regulatory TCGI will supervise and manage the
Initiatives and representation of Operator in national
Representation regulatory initiatives and issues which
affect Operator. For representation of
Operator at the FCC concerning matters
affecting only Operator, TCGI's
Addendum A - Page 8
<PAGE>
representation will be subject to Operator's
approval.
The cost to Operator of the National Programs is included in the fees payable
pursuant to Section 4(a)(ii) of the Management Services Agreement.
12. Assigned Employees. TCGI will hire all local Operator personnel as TCGI
employees and will provide all salary and benefits plans, as appropriate, to
such employees. Such employees shall become agents of Operator as contract
employees under the Management Services Agreement. Additional TCGI employees who
are not local to Operator but are working for Operator on a full-time basis will
be assigned to Operator as contract employees. For all employees assigned by
TCGI to Operator, whether temporary, part-time or contract employees ("Assigned
Employees"), Operator shall pay monthly in advance the sum of (i) all cash
compensation payable to such employees, plus (ii) a reasonable allocation of
TCGI's costs for all employee benefit plans and fringe benefits with respect to
such employees, plus (iii), without duplication to the allocation provided in
paragraph I.8. above, a reasonable allocation of general administrative overhead
costs applicable to such employees.
II. Additional Services Available from TCGI. TCGI will provide the
following Services at the request of Operator.
1. Special engineering studies and analyses.
2. Special financial studies and analyses.
3. MIS network configuration analyses, design and
implementation, and custom MIS reports.
4. General legal assistance.
5. Office space acquisition and negotiations assistance.
6. Right-of-way acquisition and negotiation assistance.
7. State and local regulatory assistance.
8. Manpower search and screening.
9. Assist Operator in developing individual case basis pricing
for special applications.
10. Access to Affiliate Services, including information from
TCGI's National Tariff Database, engineering inquiries,
customer inquiries,
Addendum A - Page 9
<PAGE>
national clearinghouse for National Account inquiries, and
advisory services to Operator.
11. Insurance assistance.
Operator will pay for all Additional Services on an actual time and materials
basis.
III. Actual Time and Materials Charges. Charges for services to be billed
on an actual time and materials basis (Sections I.1, I.2, I.3, I.5, I.7 and II)
will be determined in accordance with the following:
1. Materials, Services and Out-Of-Pocket Expenses. Actual expenses for
materials used, purchased services from outside suppliers, advisors or
consultants, and travel will be passed through to Operator as incurred at cost.
2. TCGI Employees Not Assigned to Operator. In keeping with the TCGI
manpower and salary grade structure, billing rates have been established for all
TCGI employee grade levels. Time will be billed to Operator at the hourly labor
rates listed below per Grade Level for TCGI employees who are not Assigned
Employees but who perform services for Operator, based on hours actually spent
on Operator work:
<TABLE>
<CAPTION>
======================================================
Grade Level Hourly Rate
======================================================
<S> <C>
A $125.00
------------------------------------------------------
B 75.00
------------------------------------------------------
C 50.00
------------------------------------------------------
D 30.00
======================================================
</TABLE>
IV. Adjustment to Fee Schedules; Payment of Allocated Expenses. All fees
and monthly rates stated herein are subject to change in accordance with the
terms of Section 4(b) of the Management Services Agreement. Operator may be
required to pay TCGI the expenses attributable to the provision of Services by
TCGI in accordance with Section 4(b) of the Management Services Agreement. The
initial weighting system for allocating to Operator its pro rata share of TCGI's
costs in providing Services shall be as follows: direct hours billed shall be
weighted at 50%, annual budgeted revenue shall be weighted at 30% and budgeted
capitalization shall be weighted at 20%.
Addendum A - Page 10
<PAGE>
Undertaking of Parent
The undersigned, which is a Parent of a Partner to the foregoing
Partnership Agreement, hereby covenants and confirms, to and for the benefit of
each other Partner and the Partnership, that it will not, and will not permit
any of its affiliates to, violate or circumvent the provisions of Article 7 of
the Partnership Agreement which are applicable to the Partner of which it is the
Parent. Capitalized terms used in this Undertaking shall have the meanings
assigned to them in the Partnership Agreement dated as of January 1, 1994,
between Viacom Telecom, Inc. and TCG Partners.
Dated: 1/1/94
By: /s/ John W. Goddard
-----------------------
Name: John W. Goddard
Title: Senior Vice President
<PAGE>
TAX APPENDIX
BOOK AND TAX ACCOUNTING PROVISIONS
All capitalized terms which are not defined in this Tax Appendix but which
are defined in the Agreement shall have the meanings set forth in the Agreement.
1. Gross Asset Value; Net Profit and Net Loss
1.1 Gross Asset Value. "Gross Asset Value" means, with respect to any
asset, the asset's adjusted basis for federal income tax purposes, modified as
follows:
(a) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of such
asset, as determined by the contributing Partner and the Managing Partner
(unless the Managing Partner is the contributing Partner, in which case the
gross fair market value will be determined in accordance with Section 3.6
of the Agreement).
(b) The Gross Asset Values of all Partnership assets shall be adjusted
to equal their respective gross fair market values, as determined by the
Managing Partner, in the circumstances described in Regulations Section
1.704-1(b)(2)(iv)(f)(5), but in the case of adjustments other than upon the
liquidation of the Partnership within the meaning of Regulations Section
1.704- 1(b)(2)(ii)(g), only if the Managing Partner reasonably determines
that such adjustments are necessary or appropriate to reflect the relative
economic interests of the Partners in the Partnership.
(c) The Gross Asset Value of any Partnership asset distributed to a
Partner shall be the gross fair market value of such asset on the date of
distribution.
(d) The Gross Asset Value of Partnership assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or 743(b), but only to the extent that such
adjustments are taken into account in determining Capital Accounts pursuant
to Regulations Section 1.704-1(b)(2)(iv)(m) and Section 2.1(e) below.
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to clause (a), (b) or (d) above, such Gross Asset Value shall
thereafter be adjusted by the amount determined in accordance with Regulations
Section 1.704-1(b)(2)(iv)(g)(2) and (3).
1.2 Net Profit and Net Loss. "Net Profit" and "Net Loss" means, for each
Fiscal Year or other period, an amount equal to the Partnership taxable income
or loss for such year or period,
<PAGE>
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(a) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing such Net Profit or
Net Loss shall be added to such taxable income or loss.
(b) Code Section 705(a)(2)(B) expenditures of the Partnership, which
are not otherwise taken into account in computing such Net Profit or Net
Loss, shall be subtracted from such taxable income or loss.
(c) In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to clause (b) or (c) of the definition of "Gross Asset
Value," the amount of such adjustment shall be taken into account as gain
or loss from the disposition of such asset for purposes of computing Net
Profit or Net Loss.
(d) Gain or loss resulting from any disposition of Partnership
property with respect to which gain or loss is recognized for federal
income tax purposes shall be computed by reference to the Gross Asset Value
of the property disposed of, notwithstanding that the adjusted tax basis of
such property differs from its Gross Asset Value.
(e) If the Gross Asset Value of an asset differs from its adjusted
basis for federal income tax purposes at the beginning of such year or
other period, then in lieu of the depreciation, amortization, and other
cost recovery deductions taken into account in computing such taxable
income or loss, there shall be taken into account the amount determined in
accordance with Regulations Section 1.704-1(b)(2)(iv)(g)(2) and (3).
(f) Any items that are specially allocated pursuant to Article 2 of
this Tax Appendix shall not be taken into account in computing such Net
Profit or Net Loss.
(g) Any deduction for a loss on a sale or exchange of Partnership
property that is disallowed to the Partnership under Code Section 267(a)(1)
or 707(b) shall be treated as a Code Section 705(a)(2)(B) expenditure.
-2-
<PAGE>
2. Special Allocation Provisions.
Sections 2.1, 2.2, and 2.3(a) and (b) shall apply with respect to any
Nonrecourse Liabilities or Partner Nonrecourse Debt (as defined below) of the
Partnership if the Managing Partner determines that there is a reasonable basis
to conclude that the Partnership Interests of the Partners under the Agreement
are not the same as the overall interests of the Partners in the Partnership
determined under Regulations Section 1.704-1(b)(3). Sections 2.1(e) and 2.2(a)
shall apply if the Partnership has made an election under Code Section 754 and
there is an adjustment to the adjusted tax basis of any Partnership asset
pursuant to Code Section 734(b) or 743(b). Section 2.4 shall apply if the Gross
Asset Value of Partnership property differs from its adjusted basis for federal
income tax purposes.
2.1 Special Allocations.
(a) Minimum Gain Chargeback. Notwithstanding any other provision of the
Agreement (including this Tax Appendix), if for any Partnership Fiscal Year
there is a net decrease in Partnership Minimum Gain (as defined in Regulations
Section 1.704-2(b)(2)), each Partner shall be specially allocated items of
Partnership income and gain for such year (and, if necessary, for succeeding
years) in an amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain, determined in accordance with Regulations Section
1.704-2(g), except as otherwise provided in Regulations Section 1.704-2(f)(2),
1.704-2(f)(3), 1.704-2(f)(4), and 1.704-2(f)(5). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts required
to be allocated to each Partner pursuant thereto. The items to be so allocated
shall be determined in accordance with Regulations Section 1.704-2(f)(6). The
amount of Partnership Minimum Gain shall be determined in accordance with
Regulations Section 1.704- 2(d). This Section 2.1(a) is intended to comply with
the minimum gain chargeback requirement of Regulations Section 1.704-2(f) and
shall be interpreted consistently therewith.
(b) Partner Minimum Gain Chargeback. Notwithstanding any other provision of
the Agreement (including this Tax Appendix) except Section 2.1(a), if during a
Partnership Fiscal Year there is a net decrease in Partner Nonrecourse Debt
Minimum Gain (as defined in Regulations Section 1.704-2(i)(2)), each Partner who
has a share of that Partner Nonrecourse Debt Minimum Gain (determined in
accordance with Regulations Section 1.704-2(i)(5)) as of the beginning of such
year shall be specially allocated items of Partnership income and gain for such
year (and, if necessary, for succeeding years) in an amount equal to such
Partner's share of the net decrease in Partner Nonrecourse Debt Minimum Gain,
determined in accordance with Regulations Section 1.704-2(i)(4) (and taking into
account the exceptions provided therein). Allocations
-3-
<PAGE>
pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Partner pursuant thereto. The items to
be so allocated shall be determined in accordance with Regulations Section
1.704-2(i)(4). The amount of Partner Nonrecourse Debt Minimum Gain shall be
determined in accordance with Regulations Section 1.704-2(i)(3). This Section
2.1(b) is intended to comply with the minimum gain chargeback requirement in
Regulations Section 1.704-2(i)(4) and shall be interpreted consistently
therewith.
(c) Nonrecourse Deductions. Nonrecourse Deductions (as defined in
Regulations Section 1.704-2(b)(1)) for any Fiscal Year or other period shall be
specially allocated as Net Loss pursuant to Section 4.6 of the Agreement. The
amount of Nonrecourse Deductions shall be determined in accordance with
Regulations Section 1.704-2(c).
(d) Partner Nonrecourse Deductions. Any Partner Nonrecourse Deductions (as
defined in Regulations Section 1.704-2(i)(1)) for any Fiscal Year or other
period shall be specially allocated to the Partner who bears the economic risk
of loss with respect to the Partner Nonrecourse Debt to which such Partner
Nonrecourse Deductions are attributable in accordance with Regulations Section
1.704-2(i). The amount of Partner Nonrecourse Deductions shall be determined in
accordance with Regulations Section 1.704-2(i)(2).
(e) Section 754 Adjustment. To the extent an adjustment to the adjusted tax
basis of any Partnership asset pursuant to Code Section 734(b) or 743(b) is
required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into
account in determining Capital Accounts, the amount of such adjustment to the
Capital Accounts shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases such
basis), and such gain or loss shall be specially allocated to the Partners in a
manner consistent with the manner in which their Capital Accounts are required
to be adjusted pursuant to such Section of the Regulations.
2.2 Curative Allocations.
(a) Notwithstanding any other provision of the Agreement (including this
Tax Appendix), other than allocations pursuant to Section 2.1 (the "Regulatory
Allocations"), allocations pursuant to Section 2.1(e) above (the "Basic
Regulatory Allocations") shall be taken into account in allocating items of
income, gain, loss, and deduction among the Partners so that, to the extent
possible, the net amount of such allocations of other items and the Basic
Regulatory Allocations to each Partner shall be equal to the net amount that
would have been allocated to each such Partner if the Basic Regulatory
Allocations had not occurred. For purposes of
-4-
<PAGE>
applying the foregoing sentence, allocations pursuant to this Section 2.2(a)
shall only be made with respect to Basic Regulatory Allocations to the extent
the Managing Partner reasonably determines that such Basic Regulatory
Allocations would otherwise be inconsistent with the economic agreement among
the Partners.
(b) Notwithstanding any other provision of this Agreement, other than the
Regulatory Allocations, allocations pursuant to Sections 2.1(a) and 2.1(c) above
(the "Nonrecourse Regulatory Allocations") shall be taken into account in
allocating items of income, gain, loss, and deduction among the Partners so
that, to the extent possible, the net amount of such allocations of other items
and the Nonrecourse Regulatory Allocations to each Partner shall be equal to the
net amount that would have been allocated to each such Partner if the
Nonrecourse Regulatory Allocations had not occurred. For purposes of applying
the foregoing sentence (i) no allocations pursuant to this Section 2.2(b) shall
be made prior to the Partnership Fiscal Year during which there is a net
decrease in Partnership Minimum Gain, and then only to the extent necessary to
avoid any potential economic distortions caused by such net decrease in
Partnership Minimum Gain; and (ii) allocations pursuant to this Section 2.2(b)
shall be deferred with respect to allocations pursuant to Section 2.1(c) to the
extent the Managing Partner reasonably determines that such allocations are
likely to be offset by subsequent allocations pursuant to Section 2.1(a).
(c) Notwithstanding any other provision of the Agreement (including this
Tax Appendix), other than the Regulatory Allocations, allocations pursuant to
Sections 2.1(b) and 2.1(d) (the "Partner Nonrecourse Regulatory Allocations")
shall be taken into account in allocating items of income, gain, loss, and
deduction among the Partners so that, to the extent possible, the net amount of
such allocations of other items and the Partner Nonrecourse Regulatory
Allocations to each Partner shall be equal to the net amount that would have
been allocated to each such Partner if the Partner Nonrecourse Regulatory
Allocations had not occurred. For purposes of applying the foregoing sentence
(i) no allocations pursuant to this Section 2.2(c) shall be made with respect to
allocations pursuant to Section 2.1(d) relating to a particular Partner
Nonrecourse Debt prior to the Partnership Fiscal Year during which there is a
net decrease in Partner Nonrecourse Debt Minimum Gain attributable to such
Partner Nonrecourse Debt, and then only to the extent necessary to avoid any
potential economic distortions caused by such net decrease in Partner
Nonrecourse Debt Minimum Gain; and (ii) allocations pursuant to this Section
2.2(c) shall be deferred with respect to allocations pursuant to Section 2.1(d)
to the extent the Managing Partner reasonably determines that such allocations
are likely to be offset by subsequent allocations pursuant to Section 2.1(b).
-5-
<PAGE>
(d) The Managing Partner shall have reasonable discretion, with respect to
each Partnership Fiscal Year, to (i) apply the provisions of Sections 2.2(a),
2.2(b) and 2.2(c) in whatever order is likely to minimize the economic
distortions that might otherwise result from the Regulatory Allocations; and
(ii) divide all allocations pursuant to Sections 2.2(a), 2.2(b) and 2.2(c) among
the Partners in a manner that is likely to minimize such economic distortions.
(e) Notwithstanding any other provision of the Agreement (including this
Tax Appendix), except the Regulatory Allocations, in the Fiscal Year in which
there is a sale, exchange or other disposition of all or substantially all of
the assets of the Partnership or a dissolution or liquidation of the
Partnership, after allocating items of income, gain, loss and deduction in
accordance with the Regulatory Allocations and the curative allocations under
Sections 2.2(a), 2.2(b), 2.2(c) and 2.2(d), each Partner shall be allocated
remaining items of income, gain, deduction, and loss to the extent necessary to
cause the balance in each Partner's Capital Account to equal the Distributions
that would be made to each such Partner if such distributions were made to the
Partners in accordance with their Partnership Interests (after payment of the
debts and obligations of the Partnership).
2.3 Other Allocation Rules.
(a) To the extent permitted by Regulations Sections 1.704-2(h) and
1.704-2(i)(6), the Managing Partner shall endeavor to treat Distributions as not
having been made from the proceeds of a Nonrecourse Liability (as defined in
Regulations Section 1.704-2(b)(3) (and Regulations Section 1.752-1(a)(2))) or a
Partner Nonrecourse Debt.
(b) Solely for purposes of determining a Partner's proportionate share of
the "excess nonrecourse liabilities" of the Partnership within the meaning of
Regulations Section 1.752-3(a)(3), the Partners' interests in Partnership
profits are equal to their respective Partnership Interests. The allocation of
such "excess nonrecourse liabilities" shall be adjusted to reflect any
subsequent adjustment of the Partnership Interests of the Partners pursuant to
the Agreement.
(c) If any fees or other payments deducted for federal income tax purposes
by the Partnership are recharacterized by a final determination of the Internal
Revenue Service as nondeductible distributions to any Partner, then,
notwithstanding all other allocation provisions (other than the Regulatory
Allocations), gross income shall be allocated to such Partner in an amount equal
to the fees or payments so recharacterized.
(d) If any Partner makes a payment of interest to the
-6-
<PAGE>
Partnership in respect of the late payment of any Capital Contribution pursuant
to Article 4 of the Agreement, the amount of such interest shall be included in
the income of the Partnership and allocated among the Partners in the same
manner as if such interest had been paid by a person which is not a Partner, and
the amount of such interest shall not be included in the Capital Contributions
credited to such Partner's Capital Account.
(e) All items of Partnership income, gain, loss, deduction, and any other
allocations not otherwise provided for shall be allocated among the Partners in
the same proportion as they share Net Profit or Net Loss, as the case may be,
for the year.
2.4 Contributed Property: Code Section 704(c).
(a) In accordance with Code Section 704(c) and the Regulations thereunder,
income, gain, loss, and deduction with respect to any property contributed to
the capital of the Partnership shall, solely for tax purposes, be allocated
among the Partners so as to take account of any variation between the adjusted
basis of such property to the Partnership for Federal income tax purposes and
its initial Gross Asset Value. To the extent permitted by the Code and
applicable Regulations, such allocations shall be made in accordance with
Proposed Regulations Section 1.704-3(b).
(b) If the Gross Asset Value of a Partnership asset is adjusted pursuant to
Section 1.1(b) above, subsequent allocations of income, gain, loss, and
deduction with respect to such asset for tax purposes shall take account of any
variation between the adjusted basis of such asset for federal income tax
purposes and its Gross Asset Value in the same manner as under Code Section
704(c) and the Regulations thereunder. To the extent permitted by the Code and
applicable Regulations, such allocations shall be made in accordance with
Proposed Regulations Section 1.704-3(b).
(c) Any elections or other decisions relating to such allocations shall be
made by the Managing Partner in any manner that reasonably reflects the purpose
and intention of this Agreement. Allocations pursuant to this Section 2.4 are
solely for purposes of federal, state, and local taxes and shall not affect, or
in any way be taken into account in computing, any Entity's Capital Account or
share of Net Profits, Net Losses, other items, or Distributions pursuant to any
provision of this Agreement.
3. Allocation in Event of Transfer.
If an interest in the Partnership is transferred in accordance with Article
5 of the Agreement, the Net Profit and Net Loss of the Partnership allocable to
the transferor and transferee, and the Capital Account of the transferee, shall
be determined as follows:
-7-
<PAGE>
(a) If such transfer is effected on or prior to the fifteenth day of
the month, then such transfer shall be deemed to have occurred on the last
day of the month immediately prior to the month in which such transfer
occurs. If such transfer is effected after the fifteenth day of such month,
such transfer shall be deemed to have occurred on the last day of the month
in which such transfer occurs.
(b) The transferor Partner shall be allocated an amount of Net Profit
or Net Loss equal to the product of (x) a fraction whose numerator consists
of the Partnership Interest transferred and whose denominator consists of
the Partnership Interests held by all Partners, times (y) the Net Profit or
Net Loss of the Partnership for the period ending on the date (or deemed
date) of the transfer. The substitute Partner shall be allocated an amount
equal to the product of (x) a fraction whose numerator consists of the
Partnership Interest transferred and whose denominator consists of the
Partnership Interest held by all Partners, times (y) the Net Profit or Net
Loss of the Partnership for the remainder of the calendar year. The Capital
Account of the transferee as of the date of such transfer shall be
determined in accordance with Regulations Section 1.704-1(b)(2)(iv)(l).
4. Adjustment to Allocations in the Event of Issuance or Redemption of
Partnership Interests.
In the event additional partners acquire interests in the Partnership from
the Partnership, or if the interest of any Partner in the Partnership is
increased through liquidating Distributions to other Partners or decreased
through additional Capital Contributions by other Partners, appropriate
adjustments shall be made to the Distributions and allocations of Net Profit and
Net Loss for periods after such event.
5. Elections Pursuant to Section 754.
In the event of a transfer of an interest in the Partnership permitted
under this Agreement, the Partnership shall, at the request of the transferee
and upon the approval of the Managing Partner, make the election provided by
Code Section 754 to make the adjustment to the basis of Partnership property
provided by Section 743 (if such election is not then in effect), provided that
the transferee agrees to bear the additional accounting expense to the
Partnership resulting from the election (and all subsequent transferees shall
likewise bear a Pro Rata portion of such additional expense). In the event of a
distribution of property by the Partnership, upon the approval of the Managing
Partner, the Partnership shall make the election provided by Section 754 to make
the adjustment to the basis of Partnership property provided by Section 734 (if
such election is not then in effect), in which case any additional accounting
expense to the Partnership resulting from
-8-
<PAGE>
the election shall be borne by the Partnership.
6. Interpretation of Provisions.
It is the intention of the Partners that all allocations pursuant to the
Agreement (including this Tax Appendix) shall comply with the provisions of Code
Section 704 and the Regulations promulgated thereunder. Accordingly, the
provisions of the Agreement (including this Tax Appendix) shall be interpreted
and applied in a manner that is consistent with the provisions of Code Section
704 and the Regulations promulgated thereunder.
7. Tax Matters Partner.
The Managing Partner shall be the Tax Matters Partner of the Partnership.
The Tax Matters Partner shall not take any action which will have a materially
adverse impact on any Partner unless such action shall have been approved by a
Majority Vote of the Partners. The Managing Partner shall have the right to
resign as Tax Matters Partner at any time, upon written notice to all other
Partners, in which event the Partners shall appoint a new Tax Matters Partner.
This provision shall survive any termination of the Agreement. For purposes of
the foregoing, "Tax Matters Partner" shall mean the "tax matters partner" of the
Partnership within the meaning of Section 6231(a)(7) of the Code.
-9-
<PAGE>
INFORMATION APPENDIX
1. Authorized Representatives:
TCI: Robert J. Lemming
VIACOM: John Goddard
TC: Al Hansen
2. Business Area:
The Seattle Local Access Transport Area (LATA Number 676)
3. Partnership Interests and Initial Capital Contributions:
<TABLE>
<CAPTION>
Interest Contribution
-------- ------------
<S> <C> <C>
TCI: 42.8% $13,182,400
VIACOM: 22.2% $ 6,837,600
TC: 35.0% $10,780,000
----- -----------
100.0% $30,800,000
</TABLE>
4. Name:
TCG SEATTLE
5. Termination Date:
December 31, 2092
6. Municipal Franchises and Regulatory Authorizations for which
the Partnership currently contemplates that it may apply:
None.
7. Additional Agreements relating to the operation of the
Exclusive Business in the Business Area:
None.
8. Exclusive Business Activities conducted by Partners as of
the date of this Agreement:
None.
9. Pre-Organization Operating Expenses and Capital Expenditures
Which the Partnership Shall Reimburse to the Partners:
TCI: $378,548 (fiber leases as of 10/93)
VIACOM: None.
TC: $1,550,262 (as of 10/93)
<PAGE>
10. First Installment of Initial Capital Contribution due at
Closing:
TCI: Contribution of DDI assets valued at $3,325,236
VIACOM: $1,724,772
TC: $2,719,235
Payable upon request of the Managing Partner in accordance with Section
4.1 of the Partnership Agreement.
11. Potential Partners:
None.
12. Video Services to be included in definition of Exclusive
Business:
See following page.
<PAGE>
SEATTLE
<TABLE>
<CAPTION>
TCG TCI VIACOM TOTAL
--- --- ------ -----
35.0% 42.8% 22.2% 100.0%
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993 Funding
DDI Asset Contrib 0 3,325,236 0 7,769,243
Gross-Up Contribution 2,719,235 0 1,724,772 4,444,007
Additional Funding 0 0 0 0
-------------------------------------------------------------------
Total Funding 2,719,235 0 1,724,772 4,444,007
Repayment of Loan to 10/93 (1,550,262) (1,550,262)
DDI Fiber Lease (378,548) (378,548)
-------------------------------------------------------------------
Total Cash Flow Net of Loan 1,168,973 (378,548) 1,724,772 2,515,197
Budget 11/93 - 12/93 2,251,264
Excess/(Deficit) 263,933
=========
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Reconciliation
Funding (Loan) to 10/93 1,550,262
DDI Fiber Lease 378,548
1,928,810
Budget 11/93 - 12/93 2,251,264
Total Loan + Budget 4,180,074
=========
- -------------------------------------------------------------------------------------------------------
Capital Accounts 2,719,235 3,325,236 0 6,044,471
</TABLE>
<PAGE>
Teleport Communications Seattle, Inc.
Private Line Balance Sheet
<TABLE>
<CAPTION>
12/31/92 10/31/93
<S> <C> <C>
Assets
Cash $0 $0
Accounts Receivable 0 94,724
Other Current Assets 0 50,671
-- ----------
Total Current Assets 0 145,395
Fixed Assets 0 1,513,654
Accum Depr/Amort 0 (17,442)
-- ----------
Net Fixed Assets 0 1,496,212
Deferred Charges 0 0
Other Assets 0 3,650
-- ----------
Total Assets $0 $1,645,257
== ==========
Liabilities
A/P & Accrued Liabilities $0 $1,215,550
Loans from 1/1/93 0 1,550,262
Capitalization
Stockholder Loans 0 27,375
Common Stock 0 0
Paid in Capital 0 0
Subtotal 0 27,375
Retained Earnings 0 (1,147,930)
Total Liabilities & Capitalization $0 $1,645,257
== ==========
O O
</TABLE>
<PAGE>
Teleport Communications Seattle, Inc.
Use of Loan From 1/1/93 to 10/31/93
<TABLE>
<CAPTION>
Including Excluding
Interest Interest
<S> <C> <C>
P&L
Administrative Salaries 693,702 693,702
Administrative Management Fees 347,298 347,298
Interest 27,375 0
Other P&L Items 79,555 79,555
Net Loss 1,147,930 1,120,555
Capital Expenditures:
Electronics 366,491 366,491
Outside Plant 15,389 15,389
Administrative Equipment 184,586 184,586
Node Improvements 10,150 10,150
Other 59,631 59,631
Subtotal 636,247 636,247
Capitalized Management Fees 87,747 87,747
Capitalized Salaries & Fringe 106 911 106,911
Total Capital 830,905 830,905
Working Capital (401,197) (401,197)
--------- ---------
Total Funding 1,577,638 1,550,263
========= =========
</TABLE>
<PAGE>
FIRST AMENDMENT TO PARTNERSHIP AGREEMENT
THIS FIRST AMENDMENT TO PARTNERSHIP AGREEMENT is made and entered into
effective as of January 1, 1994, by and among TCG SEATTLE, INC., a New York
corporation ("TCG"), TCI TELEPORT OF SEATTLE, INC., a Washington corporation
("TCI Seattle"), VIACOM TELECOM INC., a Delaware corporation, and DIGITAL DIRECT
OF SEATTLE, INC., a Washington corporation ("DDI Seattle").
RECITALS
The parties have entered into a Partnership Agreement dated as of January
1, 1994 (the "Agreement"), pursuant to which, on the terms and conditions
contained therein, the parties created the partnership known as "TCG Seattle".
The parties desire to amend the Agreement to alter the contribution obligations
of TCI Seattle and DDI Seattle and to make certain other changes. Capitalized
terms used herein and not otherwise defined shall have the meanings assigned to
them in the Agreement.
AGREEMENTS
In consideration of the premises and of the agreements hereinafter set
forth, the parties hereto agree as follows:
1. Amendments.
(a) Article 1 of the Agreement is hereby amended by adding the
following definitions in the proper alphabetical order:
"TCI Seattle" means TCI Teleport of Seattle, Inc., a Washington
corporation.
"DDI Seattle" means Digital Direct of Seattle, Inc., a Washington
corporation.
(b) The parenthetical in the first, second and third lines of Section
3.5(a) is hereby amended to read as follows: "(other than a transferee or
successor Partner pursuant to Article 5)".
(c) Section 3.6(d) of the Agreement is hereby amended by adding the
following language at the end of the paragraph:
<PAGE>
; provided, however, that TCI Seattle and DDI Seattle are not
disinterested parties with respect to each other.
(d) The second sentence of Section 4.1(a) of the Agreement is hereby
amended in its entirety to read as follows:
Except as otherwise expressly provided in the Information Appendix or
in an asset contribution agreement between the Partnership and a
Partner, such contributions shall be made by the Partners Pro Rata, in
one or more installments at such times and in such amounts as may be
determined by the Managing Partner; provided, however, that DDI
Seattle shall make its entire Initial Capital Contribution in one
installment at such time as all regulatory and other third party
consents required for the transfer to the Partnership of the assets
comprising its Initial Capital Contribution, as shown on the
Information Appendix, have been obtained.
(e) Section 4.1 of the Agreement is hereby amended by adding a new
Section 4.1(c) at the end thereof which shall read as follows:
(c) If under Section 4.1(a) the Initial Capital Contribution of
TCI Seattle or DDI Seattle is to be made in whole or in part by the
contribution of assets (which assets shall be specified in the
Information Appendix), then upon the contribution of such assets to
the Partnership, the Partnership shall assume, and shall undertake to
pay, satisfy and discharge, the liabilities set forth in the
Information Appendix, which liabilities represent funding of the
operating expenses related to such assets and incurred by such Partner
for the period January 1, 1993, through the date of this Agreement,
plus certain capital expenditures incurred by such Partner during such
period in connection with the acquisition, maintenance and improvement
of such assets. If assets are to be contributed by TCI Seattle or DDI
Seattle after the date of this Agreement, then concurrently with the
execution of this Agreement such Partner and the Partnership have
executed a certain Management Agreement dated effective as of January
1, 1993 which provides for the management of the business associated
with such assets by the Partnership during the period
-2-
<PAGE>
from the date of this Agreement to the date such assets are
contributed to the Partnership (and payment of expenses associated
with such assets during such period shall be governed by the
Management Agreement). If assets are to be contributed to the
Partnership by TCI Seattle or DDI Seattle after the date of this
Agreement, and if the Partnership has sufficient funds, then at the
request of such Partner the Partnership shall advance to such Partner
the amount payable under the first sentence of this Section 4.1(c) (or
such portion of such amount as such Partner shall request); provided,
however, that if the assets to which such amount is related are not
contributed to the Partnership on or prior to December 31, 1994 (or
such later date as may be agreed upon by the Partnership and such
Partner), for any reason, then on such date (or on such earlier date
as it is known that the assets will not be contributed) the Partner
shall return all such advances to the Partnership.
(f) Section 4.2 of the Agreement is hereby amended in its entirety to
read as follows:
4.2 Additional Capital Contributions. The Partners may decide, by
a Majority Vote of the Partners pursuant to Section 3.4(c) hereof,
that additional Capital Contributions in excess of the Initial Capital
Contributions ("Additional Capital Contributions") are required for
the conduct of the business of the Partnership. Such Additional
Capital Contributions shall be made by the Partners Pro Rata, in one
or more installments at such times and in such amounts as may be
determined by the Managing Partner; provided, however, that TCI
Seattle and DDI Seattle may allocate between themselves in any
proportion their respective shares of any such Additional Capital
Contribution, and if either TCI Seattle or DDI Seattle does not make
its full Pro Rata portion of any Additional Capital Contribution, then
the other shall have the right to contribute the shortfall, and
following completion of the procedures set forth in Section 4.3 (but
prior to any adjustments to the Percentage Interests of the Partners
under Section 4.3(f)), the Percentage Interests of TCI Seattle and DDI
Seattle shall be adjusted in accordance with the procedures set forth
in Section 4.3(f)(ii)(A) below as if the
- 3 -
<PAGE>
failure of TCI Seattle or DDI Seattle to pay its full Pro Rata share
were an Additional Capital Refusal. Each Additional Capital
Contribution of a Partner shall be due and payable within twenty
Business Days of receipt by such Partner of a request from the
Managing Partner for such Additional Capital Contribution (an
"Additional Capital Payment Day"). A Partner (other than DDI Seattle,
but including TCI Seattle unless TCI Seattle individually or TCI
Seattle and DDI Seattle in the aggregate make TCI Seattle's and DDI
Seattle's full Pro Rata share of such Additional Capital Contribution)
which fails to make all or any portion of an Additional Capital
Contribution on or before the related Additional Capital Payment Date
is referred to herein as a "Declining Partner", and the unpaid amount
of the Additional Capital Contribution is referred to herein as the
"Additional Capital Unpaid Amount" or as the "Unpaid Amount". All
Additional Capital Contributions shall be in cash unless otherwise
determined by the Managing Partner.
(g) The text of Section 5.2(d) of the Agreement is hereby deleted in
its entirety.
(h) The Information Appendix is hereby replaced in its entirety by
Exhibit A attached hereto.
2. Counterparts. This First Amendment may be executed in as many
counterparts as may be convenient and shall become binding when each party has
executed at least one counterpart.
3. Governing Law. This First Amendment shall be governed by, and construed
in accordance with, the laws of the State of New York (without regard to its
laws pertaining to conflicts of law) applicable to contracts executed in and to
be performed entirely in such state.
4. Binding Effect. This First Amendment shall be binding upon and shall
inure to the benefit of the parties and their respective successors and assigns.
5. Reference to Partnership Agreement. Except as amended hereby, the
Agreement shall remain in full force and effect and is hereby ratified and
confirmed in all respects. On and after the effectiveness of the amendments to
the Agreement accomplished hereby, each reference in the Agreement to "this
Agreement", "hereunder", "hereof", "herein" or words of like import, and each
reference to the Agreement in any other
- 4 -
<PAGE>
document, agreement or instrument executed and delivered pursuant to the
Agreement, shall be deemed a reference to the Agreement as amended hereby.
- 5 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this First Amendment this 6th day of Sept., 1994,
such First Amendment to be effective January 1, 1994.
TCG SEATTLE, INC.
By: /s/ John Scarpati
--------------------------------
Name: John Scarpati
Title: SVP CFO
VIACOM TELECOM INC.
By: /s/ John W. Goddard
--------------------------------
Name: John W. Goddard
Title: President
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this First Amendment this ____ day of ____________,
1994, such First Amendment to be effective January 1, 1994.
TCG SEATTLE, INC.
By: /s/ John Scarpati
--------------------------------
Name: John A. Scarpati
Title: SVP CFO
DIGITAL DIRECT OF SEATTLE, INC.
By: /s/ Robert J. Lemming
--------------------------------
Name: Robert J. Lemming
Title: Executive Vice President
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
representatives to execute this First Amendment this _____ day of __________ ,
1994, such First Amendment to be effective January 1, 1994.
TCG SEATTLE, INC.
By: /s/ John Scarpati
--------------------------------
Name: John A. Scarpati
Title: SVP CFO
TCI TELEPORT OF SEATTLE, INC.
By: /s/ Robert J. Lemming
--------------------------------
Name: Robert J. Lemming
Title: Vice President
<PAGE>
EXHIBIT A
INFORMATION APPENDIX
1. Authorized Representatives:
TCI SEATTLE: Robert J. Lemming
DDI SEATTLE: Robert J. Lemming
VIACOM: John Goddard
TCG: Al Hansen
2. Business Area:
The Seattle Local Access Transport Area (LATA Number 676)
3. Partnership Interests and Initial Capital Contributions:
<TABLE>
<CAPTION>
Interest Contribution
-------- ------------
<S> <C> <C>
TCI SEATTLE: 32.0% $ 9,857,164
DDI SEATTLE: 10.8% $ 3,325,236
VIACOM: 22.2% $ 6,837,600
TCG: 35.0% $10,780,000
----- -----------
100.0% $30,800,000
</TABLE>
4. Name:
TCG SEATTLE
5. Termination Date:
December 31, 2092
6. Municipal Franchises and Regulatory Authorizations for which the
Partnership currently contemplates that it may apply:
None.
7. Additional Agreements relating to the operation of the Exclusive Business
in the Business Area:
None.
8. Exclusive Business Activities conducted by Partners as of the date of this
Agreement:
None.
<PAGE>
9. Pre-Organization Operating Expenses and Capital Expenditures Which the
Partnership Shall Reimburse to the Partners:
<TABLE>
<S> <C>
TCI SEATTLE: $378,548 (fiber leases as of
10/93)
DDI SEATTLE: None
VIACOM: None
TCG: $1,550,262 (as of 10/93)
</TABLE>
10. First Installment of Initial Capital Contribution due at Closing:
<TABLE>
<S> <C>
TCI SEATTLE: $0
DDI SEATTLE: Contribution of assets valued at
$3,325,236
VIACOM: $1,724,772
TCG: $2,719,235
</TABLE>
Payable upon request of the Managing Partner in accordance with Section 4.1
of the Partnership Agreement.
11. Video Services to be included in definition of Exclusive Business:
See following page.
<PAGE>
<TABLE>
<CAPTION>
SEATTLE VIDEO CIRCUITS
Customer: Location A: Location Z: Circuit #1:
- --------- ----------- ----------- -----------
<S> <C> <C> <C>
RXL Communications 4141 4th Ave 206 S.W. 112 St. 12-VSZT-000012
Seattle, WA 98106 Seattle, WA
RXL Communications 4141 4th Ave Westin Bldg. 12-VXZZ-000170
Seattle, WA 98106 2001 Sixth Avenue
Seattle, WA
Third Avenue 2720 3rd Avenue Westin Bldg. 12-VSZR-000033
Productions Seattle, WA 98121 2001 Sixth Ave 12-VSZR-000034
Seattle, WA 98109
VYVX NVN Westin Bldg. 11107 234th Ave. SE 12-VSZR-000025
2001 Sixth Ave Issaquah, WA 98027
Seattle, WA 98109
VYVX NVN Westin Bldg. 333 Dexter Ave. 12-VSZR-000026
2001 Sixth Ave Seattle, WA 98106
Seattle, WA 98109
KCTS Loew Hall 401 Mercer l2-VPZT-000055
Seattle, WA 98107 Seattle, WA 98107
KCTS 401 Mercer 1611 18th St. 12-VPZT-000056
Seattle, WA 98107 Seattle, WA
Prime Sports Nw 11107 234th SE Westin Bldg. Temporary
Issaquah, WA 98032 2001 Sixth Ave. Circuit
Seattle, WA 98109
</TABLE>
<PAGE>
Exhibit 10.31
AGREEMENT
This AGREEMENT is entered into as of this 18th day of April, 1996, among
TELEPORT COMMUNICATIONS GROUP INC., a Delaware corporation ("TCG"), and COMCAST
CORPORATION, a Pennsylvania corporation ("Comcast").
Background
----------
WHEREAS, Comcast owns 51% of the outstanding capital stock of Comcast CAP
of Philadelphia, Inc. ("Comcast CAP") and TCG owns 49% of the outstanding
capital stock of Comcast CAP; and
WHEREAS, Comcast CAP owns a majority of the outstanding capital stock of
Eastern TeleLogic Corporation ("ETC"), and various other persons own the
remaining outstanding capital stock of ETC and options to acquire capital stock
of ETC (collectively, the "Minority Shareholders"); and
WHEREAS, Comcast CAP and the Minority Shareholders have entered into a
Stockholders Agreement (the "ETC Agreement"), or may otherwise enter into a
transaction, pursuant to which the ownership interests in ETC of the Minority
Shareholders will be acquired by Comcast CAP (the "Minority Purchase"); and
Comcast and TCG have entered into a Stockholders Agreement pursuant to which
Comcast and TCG have agreed on their respective rights and obligations in
connection with the Minority Purchase; and
WHEREAS, Comcast desires that, at the time of the Minority Purchase, TCG
purchase all of the interests in ETC not owned by it, and TCG desires to
purchase such interests at such time; and
WHEREAS, following the sale of its interest in ETC to TCG, Comcast desires
that it have certain defined contractual rights with respect to the businesses
of TCG and ETC in the areas where certain subsidiaries of Comcast operate
wireless communications systems, and TCG has agreed to provide such rights and
to cause ETC to provide such rights, all as specified herein.
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. Purchase of Interests in ETC. On such date as Comcast CAP is
----------------------------
obligated to consummate the Minority Purchase (the "Closing"), whether as a
result of the exercise of rights of the parties to the ETC Agreement or by
agreement between Comcast CAP and the Minority Shareholders, TCG will (i)
provide Comcast CAP with the consideration necessary to acquire all of the
interests in ETC of the Minority Shareholders; and (ii) acquire all of the
interests in ETC of Comcast. The consideration necessary for the transaction
specified in (i) will be provided in cash or as otherwise agreed to by the
Minority Shareholders and Comcast CAP with the consent
<PAGE>
of TCG. The consideration necessary for the transaction specified in (ii) will
be provided in cash or, at the option of TCG in the event TCG then has a class
of shares registered under the Securities Act of 1934 (the "Class A Common
Stock"), in unregistered shares of the Class A Common Stock having a value equal
to the amount of cash that would otherwise be required. Such shares will be
valued at the Market Price of TCG's Class A Common Stock (as such term is
defined in the Amended and Restated Stockholders' Agreement of TCG in the form
of Exhibit E to the Reorganization Agreement dated of even date herewith) at the
closing of such transaction. TCG and Comcast will agree at such time on the
method by which such acquisitions shall occur, so as to achieve the most
efficient result for both parties from tax and regulatory perspectives (i.e.,
whether by the direct acquisition of interests in ETC or their indirect
acquisition through the acquisition of interests in Comcast CAP), and neither
Comcast CAP nor Comcast will enter into any agreement with the Minority
Shareholders regarding the Minority Purchase except on terms and conditions
acceptable to TCG. The price paid to the Minority Shareholders will be that
determined under the ETC Agreement or by the agreement of Comcast CAP and the
Minority Shareholders. The price paid to Comcast will be that paid to the
Minority Shareholders, on a per share basis, with the consent of TCG.
2. Comcast Rights With Respect to TCG and ETC. Following Closing,
------------------------------------------
Comcast will have the following rights with respect to TCG and ETC (the terms
the "Company" or the "Companies" will refer to either or both of TCG and ETC, as
the context requires), and the Companies will have the following rights with
respect to Comcast, in the Comcast Area (as such term in defined in subsection
(h) below). Comcast's rights may be exercised and enforced only by or for the
benefit of, and the Companies' rights may be exercised and enforced only with
respect to, Comcast's subsidiaries which are engaged in the wireless
communications business in the Comcast Area.
(a) The Companies will give adequate notice to Comcast of its build
plan, and Comcast will give adequate notice to the Companies of its build plan,
so that the parties can jointly build fiber plant, on customary terms (including
as to maintenance).
(b) If permitted under agreements with building owners and to the
extent reasonably practicable, the parties will share access to buildings and
provide use of rights of way, on customary terms.
(c) Comcast will have the right to resell the Companies' products and
services in packages or bundles with Comcast's wireless services, using
Comcast's brand names, on customary terms.
(d) If permitted under agreements with local exchange companies and
applicable law, Comcast will have the right to interconnect to local exchange
carriers through the Companies' facilities (including collocation), and the
Companies will have the right to interconnect to local exchange carriers through
Comcast's facilities (including collocation), on customary terms.
2
<PAGE>
(e) If the Companies determine to include wireless services in a
package or bundle of products or services to be offered to a potential customer,
Comcast will be given a similar opportunity to make a proposal to the Companies
regarding Comcast's participation in such offering, and the Companies will
decide on whether to select Comcast's services based on arm's length
considerations only.
(f) The Companies will use reasonable efforts to architect and design
their systems, platforms, networks, products and services in a manner that
facilitates seamless integration of the Companies' products and services with
those wireless services of Comcast so long as such integration would not be
materially inconsistent with or otherwise materially interfere with the
Companies' decision to integrate their products and services with other wireless
services. Comcast may request the Companies undertake, at Comcast's expense and
for Comcast's sole benefit as owner thereof, the development of technical
information that Comcast reasonably believes is necessary to effect such
integration, provided that in the Companies' sole discretion such activity does
not materially interfere with the Companies' business. If the Companies agree
to equitably share the costs of such development, they will be permitted to
share the benefits thereof.
(g) The terms and conditions of each agreement between a Company and
Comcast pursuant hereto will be no less favorable to Comcast (individually and
collectively) than those being offered by a Company at the time of such
agreement to any other person, taking into account differences in volume and
term; provided that in considering the volume made available to a Company by
Comcast, Comcast will receive the same volume credit as PhillieCo, L.P. does, if
any, with respect to the volume provided by Sprint Spectrum.
(h) The term "Comcast Area" will have the meaning given to it in
Section 6.4(g) of the Amended and Restated Agreement of Limited Partnership of
PhillieCo as in effect on the date hereof.
3. Comcast agrees that Comcast and its subsidiaries and controlled
affiliates, including subsidiaries and controlled affiliates which may from time
to time provide cellular telephony services in the Comcast Area, shall,
following Closing, utilize exclusively as promptly as possible and to the
maximum extent possible, the wireline telecommunications services of the
Companies which services shall include, without limitation, all access
connections to long distance, local and other carriers, all backbone connections
and all internal communications requirements, provided that the Companies shall
provide Comcast with satisfactory quality assurances and that the Companies
shall provide such telecommunications services at reasonable and customary
prices and on reasonable and customary terms and conditions as may be set forth
in the Companies' tariffs or in the Companies' standard form contracts, as the
case may be, and in any event on terms and conditions no less favorable to
Comcast (individually and collectively) than those being offered by a Company at
such time to any other person, taking into account differences in volume and
terms; provided that in considering the volume made available to a Company by
Comcast, Comcast will receive the same volume credit as PhillieCo, L.P. does, if
any, with respect to the volume provided by Sprint Spectrum.
3
<PAGE>
IT WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above indicated.
TELEPORT COMMUNICATIONS GROUP INC.
By: /s/
-------------------------------------------
COMCAST CORPORATION
By: /s/
-------------------------------------------
4
<PAGE>
EXHIBIT 12
TCGI AND TCGP
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
FOR THE FOR THE
REORGANIZATION FOR THE THREE REORGANIZATION
AND OFFERINGS FOR MONTHS ENDED AND OFFERINGS FOR
FOR THE YEAR ENDED DECEMBER 31, THE YEAR ENDED MARCH 31, THE THREE MONTHS
--------------------------------------------- DECEMBER 31, ------------------ ENDED MARCH 31,
1991 1992 1993 1994 1995 1995 1995 1996 1996
------ ------- -------- -------- -------- ----------------- -------- -------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income
(Loss)........... $2,457 $(4,428) $(18,271) $(29,989) $(53,804) $(126,640) $(11,538) $(18,692) $(37,731)
Add (Deduct):
Income Tax
Provision
(Benefit)........ (484) -- (4,149) 433 401 401 335 225 225
Less: Minority
Interest......... -- -- (796) (1,395) (663) (2,673) (201) (150) (855)
------ ------- -------- -------- -------- --------- -------- -------- --------
Pre Tax Income
(Loss)........... 1,973 (4,428) (23,216) (30,951) (54,066) (128,912) (11,404) (18,617) (38,361)
------ ------- -------- -------- -------- --------- -------- -------- --------
Add: Fixed Charges
Interest......... 885 1,508 2,548 8,867 27,206 70,426 4,600 8,148 18,432
Amortization of
debt expense.... -- -- -- -- 116 116 -- 42 42
------ ------- -------- -------- -------- --------- -------- -------- --------
Total fixed
charges........ 885 1,508 2,548 8,867 27,322 70,542 4,600 8,190 18,474
------ ------- -------- -------- -------- --------- -------- -------- --------
$2,858 $(2,920) $(20,668) $(22,084) $(26,744) $ (58,370) $ (6,804) $(10,427) $(19,887)
====== ======= ======== ======== ======== ========= ======== ======== ========
Fixed Charges..... $ 885 $ 1,508 $ 2,548 $ 8,867 $ 27,322 $ 70,542 $ 4,600 $ 8,190 $ 18,474
====== ======= ======== ======== ======== ========= ======== ======== ========
Ratio of Earnings
to Fixed
Charges.......... 3.23x NA NA NA NA NA NA NA NA
Deficiency of
Earnings to Fixed
Charges.......... NA $ 4,428 $ 23,216 $ 30,951 $ 54,066 $ 128,912 $ 11,404 $ 18,617 $ 38,361
</TABLE>
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in Amendment No. 1 to Registration Statement No. 333-
3984 of Teleport Communications Group Inc. of our report on the combined
financial statements of Teleport Communications Group Inc. and its
subsidiaries and TCG Partners dated February 16, 1996 (February 29, 1996 as to
Note 6, April 24, 1996 as to Note 1 and May 13, 1996 as to Note 12) and our
report on the combined financial statements of Local Market Partnerships to be
Acquired by Teleport Communications Group Inc. dated February 16, 1996 (May
13, 1996 as to Note 9) appearing in such Prospectus, which is a part of such
Registration Statement, and to the reference to us under the headings "Summary
Combined Financial and Other Operating Data," "Selected Combined Financial
Data" and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
New York, New York
May 31, 1996
<PAGE>
EXHIBIT 23.3
May 29, 1996
Teleport Communications Group Inc.
One Teleport Drive
Staten Island, NY 10311-1011
Gentlemen:
The undersigned hereby consents to being designated as a person who will
be appointed to the Board of Directors of Teleport Communications Group Inc., a
Delaware corporation (the "Company") in the Company's Registration Statements on
Form S-1 (File Nos. 333-3850 and 333-3984).
Very Truly yours
/s/ JAMES BRUCE LLEWELLYN
-------------------------
JAMES BRUCE LLEWELLYN
<PAGE>
EXHIBIT 23.4
May 29, 1996
Teleport Communications Group Inc.
One Teleport Drive
Staten Island, NY 10311-1011
Gentlemen:
The undersigned hereby consents to being designated as a person who will
be appointed to the Board of Directors of Teleport Communications Group Inc., a
Delaware corporation (the "Company") in the Company's Registration Statements on
Form S-1 (File Nos. 333-3850 and 333-3984).
Very truly yours,
/s/C.B. ROGERS, JR.
--------------------
C.B. ROGERS, JR.
<PAGE>
EXHIBIT 25
FORM T-1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
--------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2)_______
--------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
114 West 47th Street 10036-1532
New York, NY (Zip Code)
(Address of principal
executive offices)
--------------------
Teleport Communications Group Inc.
(Exact name of obligor as specified in its charter)
Delaware 13-3173139
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
One Teleport Drive 10311-1011
Staten Island, NY (Zip Code)
(Address of principal executive offices)
--------------------
_% Senior Discount Notes due 2007
_% Senior Notes due 2006
(Title of the indenture securities)
================================================================================
<PAGE>
- 2 -
GENERAL
1. GENERAL INFORMATION
-------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it is
subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
-----------------------------
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
Teleport Communications Group Inc. currently is not in default under any of
its outstanding securities for which United States Trust Company of New York
is Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12,
13, 14 and 15 of Form T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
----------------
T-1.1 -- Organization Certificate, as amended, issued by the State
of New York Banking Department to transact business as a
Trust Company, is incorporated by reference to Exhibit
T-1.1 to Form T-1 filed on September 15, 1995 with the
Commission pursuant to the Trust Indenture Act of 1939, as
amended by the Trust Indenture Reform Act of 1990
(Registration No. 33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
- 3 -
16. LIST OF EXHIBITS
----------------
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of
the Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
- ----
As of May 29, 1996, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States Trust
Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
-----------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 29th day
of May, 1996.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ Gerard F. Ganey
-----------------------------
Gerard F. Ganey
Senior Vice President
<PAGE>
Exhibit T-1.6
-------------
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
---------------------
By: S/Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
DECEMBER 31, 1995
-----------------
($ IN THOUSANDS)
---------------
ASSETS
- ------
Cash and Due from Banks $ 86,275
Short-Term Investments 50
Securities, Available for Sale 676,970
Loans 1,257,372
Less: Allowance for Credit Losses 13,254
---------
Net Loans 1,244,118
Premises and Equipment 57,692
Other Assets 129,999
---------
TOTAL ASSETS $2,195,104
=========
LIABILITIES
- -----------
Deposits:
Non-Interest Bearing $ 471,642
Interest Bearing 1,306,996
---------
Total Deposits 1,778,638
Short-Term Credit Facilities 114,789
Accounts Payable and Accrued Liabilities 146,307
---------
TOTAL LIABILITIES $2,039,734
=========
STOCKHOLDER'S EQUITY
- ---------------------
Common Stock 14,995
Capital Surplus 41,944
Retained Earnings 96,878
Unrealized Gains on Securities Available
for Sale (Net of Taxes) 1,553
---------
TOTAL STOCKHOLDER'S EQUITY 155,370
---------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $2,195,104
=========
<PAGE>
- 2 -
I, RICHARD E. BRINKMANN, SENIOR VICE PRESIDENT & COMPTROLLER of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkman, SVP & Controller
December 31, 1995
RL/pg
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERIM
COMBINED FINANCIAL STATEMENTS<F1> AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 16,805
<SECURITIES> 0
<RECEIVABLES> 36,840
<ALLOWANCES> 3,272
<INVENTORY> 0
<CURRENT-ASSETS> 56,512
<PP&E> 576,806
<DEPRECIATION> 126,273
<TOTAL-ASSETS> 658,906
<CURRENT-LIABILITIES> 98,527
<BONDS> 0
0
0
<COMMON> 119,100
<OTHER-SE> (12,444)
<TOTAL-LIABILITY-AND-EQUITY> 658,906
<SALES> 39,553
<TOTAL-REVENUES> 50,435
<CGS> 0
<TOTAL-COSTS> 55,566
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6,958)
<INCOME-PRETAX> (18,467)
<INCOME-TAX> (225)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,692)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>UNAUDITED
</FN>
</TABLE>
