<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 3, 1997
REGISTRATION NO. 333-37597
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
TELEPORT COMMUNICATIONS GROUP INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3173139
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
437 RIDGE ROAD
EXECUTIVE BUILDING 3
DAYTON, NEW JERSEY 08810
(732) 392-2000
(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
(718) 355-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
PLEASE ADDRESS A COPY OF ALL COMMUNICATIONS TO:
TIMOTHY J. KELLEY, ESQ. ROBERT EVANS III, ESQ.
DOW, LOHNES & ALBERTSON, PLLC SHEARMAN & STERLING
1200 NEW HAMPSHIRE AVENUE, NW 599 LEXINGTON AVENUE
WASHINGTON, D.C. 20036-6802 NEW YORK, NEW YORK 10022
(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 the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
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>
EXPLANATORY NOTE
This Registration Statement contains a preliminary prospectus relating to a
public offering of Class A Common Stock of Teleport Communications Group Inc.
in the United States and Canada (the "U.S. Offering"), together with separate
preliminary prospectus pages relating to a concurrent public offering of Class
A Common Stock outside the United States and Canada (the "International
Offering"). The complete preliminary prospectus for the U.S. Offering follows
immediately after this Explanatory Note. After such preliminary prospectus are
the following alternate pages for the preliminary prospectus for the
International Offering: a front cover page, an "Underwriting" section and a
back cover page. Each such page has been labeled "Alternate Page for
International Prospectus." All other pages of the preliminary prospectus for
the U.S. Offering are to be used for both the U.S. Offering and the
International Offering.
<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
PROSPECTUS PRELIMINARY PROSPECTUS, DATED NOVEMBER 3, 1997
[LOGO OF TELEPORT COMMUNICATIONS
GROUP(R) INC. APPEARS HERE]
15,000,000 SHARES
TELEPORT COMMUNICATIONS GROUP INC.
CLASS A COMMON STOCK
----------
Of the 15,000,000 shares of Class A Common Stock, par value $0.01 per share
(the "Class A Common Stock") of Teleport Communications Group Inc., a Delaware
corporation (the "Company" or "TCG"), offered hereby, 9,945,592 shares are
being sold by the Selling Stockholder (as defined herein) and the balance of
5,054,408 shares is being sold by the Company. Of the 15,000,000 shares of
Class A Common Stock offered hereby, 11,250,000 shares are being offered in the
United States and Canada (the "U.S. Offering") by the U.S. Underwriters (as
defined herein) and 3,750,000 shares are being offered in a concurrent offering
outside the United States and Canada (the "International Offering" and,
together with the U.S. Offering, the "Offering") by the International Managers
(as defined herein), subject to transfers between the U.S. Underwriters and the
International Managers (collectively, the "Underwriters"). The price to public
and the aggregate underwriting discount per share are identical for the U.S.
Offering and the International Offering. See "Underwriting." The Company will
not receive any proceeds from the sale of shares by the Selling Stockholder.
The Company has two classes of common stock: Class A Common Stock and Class B
Common Stock (collectively, the "Common Stock"). The shares of Common Stock are
substantially identical, except that holders of Class A Common Stock are
entitled to one vote per share and holders of Class B Common Stock are entitled
to 10 votes per share on all matters submitted to a vote of stockholders and
except that only the holders of Class B Common Stock, voting separately as a
class, are entitled to vote on certain matters relating to the scope of the
business of the Company. Each share of Class B Common Stock is convertible at
the option of the holder into one share of Class A Common Stock. See
"Description of Capital Stock." The Class A Common Stock is listed on The
Nasdaq National Market ("Nasdaq") under the symbol "TCGI." On October 15, 1997,
the last reported sale price of the Class A Common Stock on Nasdaq was $50 5/16
per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK
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 TO UNDERWRITING PROCEEDS TO SELLING PROCEEDS TO
PUBLIC DISCOUNT(1) STOCKHOLDER(2) COMPANY (3)
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<S> <C> <C> <C> <C>
Per Share................ $ $ $ $
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Total(4)................. $ $ $ $
</TABLE>
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(1) The Company and the Selling Stockholder have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting estimated expenses of $994,559 payable by the Selling
Stockholder.
(3) Before deducting estimated expenses of $505,441 payable by the Company.
(4) The Company has granted the U.S. Underwriters and the International
Managers options exercisable within 30 days after the date hereof to purchase
up to 1,687,500 and 562,500 additional shares of Class A Common Stock,
respectively, solely to cover over-allotments, if any. If such options are
exercised in full, the total Price to Public, Underwriting Discount and
Proceeds to Company will be $ , $ and $ , respectively. See
"Underwriting."
----------
The shares of Class A Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if issued or delivered to and accepted by
them, subject to approval of certain legal matters by counsel for the
Underwriters and certain other conditions. The Underwriters reserve the right
to withdraw, cancel or modify such offer and to reject orders in whole or in
part. It is expected that delivery of the shares of Class A Common Stock will
be made in New York, New York on or about , 1997.
----------
MERRILL LYNCH & CO. LEHMAN BROTHERS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
DEUTSCHE MORGAN GRENFELL
----------
The date of this Prospectus is , 1997.
<PAGE>
[MAP OF UNITED STATES SHOWING TCG'S OPERATIONAL CITIES AND CITIES UNDER
DEVELOPMENT, AS WELL AS BIZTEL'S 38 GHz LICENSED COVERAGE AREAS.]
[TCG LOGO]
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK, INCLUDING PURCHASES OF THE CLASS A COMMON STOCK TO STABILIZE THEIR
MARKET PRICE, PURCHASES OF THE CLASS A COMMON STOCK TO COVER SOME OR ALL OF A
SHORT POSITION IN THE CLASS A COMMON STOCK MAINTAINED BY THE UNDERWRITERS AND
THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE CLASS A
COMMON STOCK ON NASDAQ IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus and the information and
financial statements, including notes thereto, incorporated by reference
herein. References in this Prospectus to "TCG" or the "Company" refer to
Teleport Communications Group Inc. and its consolidated subsidiaries, unless
the context otherwise requires. Unless otherwise indicated, as used herein, the
terms "pro forma" or "on a pro forma basis" assume that the reorganization of
the Company undertaken in June 1996 in connection with the Company's initial
public offering (the "Reorganization") had occurred at the beginning of the
year presented. Unless otherwise indicated, the information set forth in this
Prospectus does not give effect to the exercise of the Underwriters' over-
allotment options.
THE COMPANY
Teleport Communications Group Inc. is the first and largest competitive local
exchange carrier ("CLEC") in the United States and offers comprehensive all-
distance telecommunications services in major metropolitan markets nationwide.
The Company competes with incumbent local exchange carriers ("ILECs") as "The
Other Local Phone Company(R)" by providing high quality, integrated
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, healthcare
and educational institutions, governmental agencies, long distance carriers and
resellers, Internet service providers, disaster recovery service providers,
wireless communications and financial services companies. TCG offers these
customers technologically advanced 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. As of September 30, 1997, the Company's high
capacity state-of-the-art digital networks were operational in 57 metropolitan
markets, including 18 of the 20 largest metropolitan areas. Company networks
are located primarily in metropolitan areas including New York/New Jersey, Los
Angeles, Chicago, San Francisco, Philadelphia, Boston, Detroit, Baltimore,
Washington, D.C., Dallas, Houston, Miami/Ft. Lauderdale, Seattle, San Diego,
St. Louis, Pittsburgh, Phoenix, Denver, Milwaukee, Indianapolis, Hartford,
Omaha, Providence, Cleveland, Portland (Oregon), Salt Lake City, Nashville,
Chattanooga, Knoxville and Birmingham. Additional TCG networks are in various
stages of development for the metropolitan areas of Cincinnati, Columbus
(Ohio), Charlotte, Tampa Bay, Sacramento, Minneapolis-St. Paul, Atlanta and
Orlando. Upon completion of these networks, the Company will operate networks
in 65 metropolitan markets including 28 of the 30 largest metropolitan areas.
As of June 30, 1997, the Company's fiber optic networks spanned over 7,870
route miles, contained over 398,774 fiber miles and served approximately 10,900
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, the Company's revenues would have increased to $283.4 million
for 1996 from $184.9 million for 1995, an increase of $98.5 million, or 53%.
For the six month period ended June 30, 1997, the Company's revenues were
$212.5 million, an increase of 72% over its revenues on a pro forma basis for
the comparable period in 1996. Substantially all of this growth was 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 $100 billion in 1996. 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 $5.5 billion in 1996, whereas the local switched services
portion of this market for business customers was estimated to have been
approximately $60 billion. The Company has been expanding into the switched
services market over the last six years by constructing switched networks and
obtaining the necessary regulatory authorizations and interconnection
arrangements to become a CLEC.
3
<PAGE>
The Company believes that it is well positioned with the passage and initial
implementation of the Telecommunications Act of 1996 (the "1996 Act") to
address a significantly larger portion of the 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
(as well as increasing the switching capacity of existing switches) and
offering new products and services. Also, in 1996, the Company introduced a new
service offering consisting of basic Internet access for business customers,
and in February 1997 TCG acquired CERFnet Services, Inc. ("CERFnet"), a leading
regional Tier I Internet service provider ("ISP") for business customers. As of
June 30, 1997, the Company offered a variety of Internet services in 22
metropolitan areas.
In September 1997 the Company introduced a general long distance service
offering packaged with its existing local services in 22 metropolitan areas.
The service is being provided primarily through the resale of other carriers'
services, although the Company provides long distance services over its own
facilities wherever possible.
TCG has historically benefited from its relationships with the parents of its
Class B stockholders, TCI Communications, Inc. (together with its consolidated
subsidiaries, "TCI"), Cox Communications, Inc. (together with its consolidated
subsidiaries, "Cox"), Comcast Corporation (together with its consolidated
subsidiaries, "Comcast") and MediaOne of Delaware, Inc., formerly Continental
Cablevision, Inc. (together with its consolidated subsidiaries, "Continental")
(collectively, the "Cable Stockholders"), which are among the largest 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 networks in a rapid, efficient and cost-effective
manner.
The Company believes that it has several advantages that enable it to compete
successfully in the new competitive telecommunications marketplace, including
(i) extensive, technologically advanced networks located or under development
in major metropolitan markets nationwide, (ii) state-of-the-art information
systems, (iii) an experienced management team with significant operational,
technical, financial and regulatory expertise in the telecommunications
industry, (iv) positive relationships with its broad array of commercial
customers, (v) TCG's reputation for high quality service, and (vi) established
relationships with cable television operators.
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 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, Internet services, disaster avoidance
services and video channel transmission services. Switched services revenue
increased 87% for the six months ended June 30, 1997 from the switched
services revenue for the six months ended June 30, 1996 on a pro forma
basis. In the first six months of 1997, approximately 43% of the Company's
revenues were generated from switched services. The Company expects a
growing portion of its revenue to be derived from basic local exchange
telephone services, enhanced switched services, Internet services and high
speed switched data services as it continues to deploy digital switches in
its markets.
. 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 companies, media and
insurance companies, long distance carriers and resellers, healthcare and
educational institutions, governmental
4
<PAGE>
agencies, Internet service providers, disaster recovery service providers,
wireless communications companies, residential multiple dwelling units 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. For the six months ended June
30, 1997, approximately 63% of the Company's revenues were generated from
business customers (including resellers) and approximately 37% were
generated from long distance and local carrier customers.
. OFFER ALL-DISTANCE SERVICES. The Company believes there is a growing
demand, especially from small to medium-sized businesses, for
telecommunications carriers to offer comprehensive packages of services so
that a customer may obtain most or all of its telecommunications needs from
a single provider. In September 1997 TCG broadened its existing long
distance products into a general offering of long distance services in 22
metropolitan areas. These services have enhanced features and are available
packaged with the Company's already comprehensive offerings of local
services. TCG leverages its existing network investment by routing and
switching as great a portion of long distance services as possible over its
existing local and regional facilities, with the balance of such services
being provided by the resale of the services of other carriers. For
example, the Company has substantially completed a reconfiguration of the
many adjacent local networks it operates between Boston and Washington,
D.C. into a regional network covering a geographic area extending from
southern New Hampshire to northern Virginia.
. EXPAND GEOGRAPHIC REACH AND DENSITY OF EXISTING NETWORKS AND ENTER NEW
MARKETS. In response to customer demand, the Company continues 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. The Company may also make selected acquisitions. 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, ILECs,
railways, 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 all or a portion of the telecommunications services offered by
ILECs. However, the Company believes that the extensive geographic reach
and density of its networks make it less reliant than other CLECs on the
networks of the ILECs. In addition, where appropriate, the Company has the
ability to link its customers to its networks through a variety of
technologies including the use of microwave services, including 38 GHz
milliwave. 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.
. OFFER HIGH QUALITY NETWORKS AND SUPERIOR CUSTOMER SERVICE. TCG believes
that it offers cost and service quality advantages over ILECs 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 care
and 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 ILECs.
. BENEFIT FROM WORKING RELATIONSHIPS WITH CABLE TELEVISION OPERATORS. Through
its relationships with cable television operators, including the Cable
Stockholders, the Company has historically 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 working with certain Cable Stockholders
for the provisioning of residential or multiple dwelling
5
<PAGE>
unit telephony services over the cable television operators' hybrid fiber-
coaxial networks with TCG providing switching, call processing, calling
features and ancillary services. Beginning as technical trials, these
efforts have expanded into limited commercial offerings in certain
locations in Connecticut, Michigan, California, Illinois, Maryland and
Florida.
. SPEARHEAD REGULATORY REFORM. As the first and largest CLEC, 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 ILECs. The
Company has continued 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 telecommunications 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 REORGANIZATION
Prior to its initial public offering in 1996, the Company was owned by
subsidiaries of the Cable Stockholders. The business was operated through TCG
and, beginning in 1992, TCG Partners, which is a New York general partnership
which was initially owned by the Cable Stockholders in the same percentages as
TCG. TCG Partners was formed to invest, with TCG, the Cable Stockholders and
other cable operators, in 14 local market partnerships (the "Local Market
Partnerships") to develop and operate local telecommunications networks. The
Local Market Partnerships were owned by TCG, and/or TCG Partners and certain
of the Cable Stockholders which had cable operations in the particular markets
addressed by the Local Market Partnerships and, in some cases, other cable
operators in such markets. To simplify this complex ownership structure, the
Company and the Cable Stockholders agreed to consolidate the ownership of TCG
Partners and of the Local Market Partnerships as wholly-owned subsidiaries of
TCG (the "Reorganization"). As part of this process, certain of the other
cable operators agreed to sell their interests in the Local Market
Partnerships to TCG directly or through a Cable Stockholder. See "Certain
Relationships and Related Transactions--The Reorganization". The financial
statements for one of the Local Market Partnerships were previously
consolidated with those of TCG. Therefore, as a result of the Reorganization,
TCG consolidated the financial statements of only 13 of the 14 Local Market
Partnerships.
THE SELLING STOCKHOLDER
Continental Holding Company, a Massachusetts business trust the shares of
which are owned by MediaOne of Delaware, Inc. ("MediaOne"), is the Selling
Stockholder. MediaOne, which is wholly owned by U S WEST, Inc. ("U S WEST"),
was formerly known as Continental Cablevision, Inc. Continental acquired its
interest in TCG in May 1993. Prior to the consummation of the Reorganization
in June 1996, Continental had designated two individuals to serve on the Board
of Directors of the Company. Upon consummation of the Offering, the Selling
Stockholder will not hold any shares of Class B Common Stock or Class A Common
Stock and, for purposes of this Prospectus, will no longer be deemed to be a
"Cable Stockholder."
On November 15, 1996, Continental was acquired by U S WEST. In connection
with such acquisition, on November 5, 1996, the U.S. Department of Justice
announced, and on February 28, 1997, a final judgment was entered (the "Final
Judgment") with respect to, a settlement with U S WEST and Continental
pursuant to which U S WEST was required to reduce its ownership in TCG below
10% by June 30, 1997, and is required to eliminate such ownership entirely by
December 31, 1998. On February 19, 1997, pursuant to the Amended and Restated
Stockholders' Agreement dated June 26, 1996, between TCG and the Cable
Stockholders (the "Amended Stockholders' Agreement"), the Selling Stockholder
converted 4,000,000 shares of Class B Common
6
<PAGE>
Stock into 4,000,000 shares of Class A Common Stock and in accordance with the
provisions of Rule 144, promulgated by the Commission under the Securities Act,
transferred these shares to one or more third parties. Thereafter, Continental
converted an additional 4,500,000 shares of Class B Common Stock, pursuant to
the Amended Stockholders' Agreement, and in accordance with the provisions of
said Rule 144 transferred 3,840,000 of such shares to one or more third
parties. On September 30, 1997, Continental owned 9,285,592 shares of Class B
Common Stock and 660,000 shares of Class A Common Stock representing 7.4% of
the combined voting power of the Class A Common Stock and Class B Common Stock.
On July 2, 1997, Continental delivered to the Company a request, pursuant to
the Amended Stockholders' Agreement, that the Company effect the registration
of 10,285,592 shares of Class A Common Stock. As required by the Amended
Stockholders' Agreement, Continental gave notice to the remaining Cable
Stockholders of its intention to convert 10,285,592 shares of Class B Common
Stock into a like number of shares of Class A Common Stock, and gave the
remaining Cable Stockholders the right, pursuant to the Amended Stockholders'
Agreement, to purchase these shares in lieu of conversion. The remaining Cable
Stockholders declined to accept this offer. The Company will not be required,
pursuant to the Amended Stockholders' Agreement, to effect a registration of
shares of Class A Common Stock of the remaining Cable Stockholders for twelve
months from the effective date of the Registration Statement of which this
Prospectus is a part.
RECENT DEVELOPMENTS
Third Quarter 1997 Results. On October 29, 1997, the Company reported its
third quarter financial and operating data. The Company reported third quarter
revenues of $131.4 million. TCG's switched services revenue at the end of the
third quarter represented 46% of total revenues and Internet and enhanced data
services revenues were 4.7% of total revenues. Operating expenses for the
Company were 57.2% of revenues and selling, general and administrative expenses
for the Company were 33.9% of revenues for the third quarter. EBITDA for the
third quarter was $11.8 million and EBITDA margin was 9.0% of revenues. Net
loss for the third quarter was $53.8 million or $0.32 per share of Common
Stock. At September 30, 1997, total access lines for switched services were
249,504, voice grade equivalents were 6.28 million and high speed data circuits
in service totaled 669. TCG's capital expenditures during the quarter totaled
$118.0 million. Total fiber optic route miles at the end of the third quarter
were 8,680. Total buildings served were 12,328. Total sales and marketing
employees at the end of the third quarter were 643 out of total employees of
2,899.
BizTel Communications, Inc. On October 29, 1997, the Company acquired the
remaining 50.1% equity interest in BizTel Communications, Inc. ("BizTel") not
owned by the Company in exchange for the issuance of 1,667,631 shares of the
Company's Class A Common Stock. The Company had previously acquired a 49.9%
interest in BizTel in February 1996. BizTel holds Federal Communications
Commission ("FCC") licenses to provide telecommunications services utilizing 38
GHz digital milliwave transmission in over 200 geographic areas, which include
more than 95 of the 100 largest metropolitan markets and all markets where TCG
operates. BizTel's 38 GHz milliwave services can be used by TCG to economically
connect customers to the Company's fiber optic networks, to provide network
redundancy, diverse routing or quick temporary installations and to provide
stand-alone facilities where the Company does not have fiber optic networks.
CERFnet Services, Inc. On February 4, 1997, the Company acquired from General
Atomic Technologies Corporation and General Atomics all the outstanding capital
stock of CERFnet, a leading regional provider of Internet-related services to
businesses, including dial-up and dedicated Internet access, World Wide Web
hosting, and colocation services and Internet training. TCG issued to General
Atomics, CERFnet's former controlling stockholder, 2,100,000 shares of its
Class A Common Stock and granted to General Atomics and certain of its
stockholders certain registration rights with respect to such shares. After the
acquisition, the name of CERFnet was changed to TCG CERFnet, Inc.
7
<PAGE>
Eastern TeleLogic Corporation. Effective as of March 1, 1997, the Company
completed its acquisition of Eastern TeleLogic Corporation ("ETC") for
2,757,083 shares of TCG's Class A Common Stock. The Company also assumed $53
million in ETC debt and loaned $115 million to ETC, the proceeds of which were
used by ETC to redeem the stock held by certain minority shareholders. The
acquisition of ETC provides TCG with access to the Philadelphia market, the
nation's fifth largest market, and allows TCG to establish a contiguous network
between Boston and Washington, D.C. ETC operates a Class 5 digital telephone
switch on its 525-mile fiber optic network which connects to more than 360
buildings. After the acquisition, the name of ETC was changed to TCG Delaware
Valley, Inc. See "Certain Relationships and Related Transactions."
Potential Acquisition. The Company is negotiating with a CLEC, a majority of
the equity of which is owned by a Cable Stockholder, to purchase substantially
all of its assets used in connection with its fiber optic communications
system. If the parties sign a definitive purchase agreement relating to this
acquisition and pending the closing of such transaction, the Company would
provide certain services in connection with the operations of such
communications system. The proposed purchase price is approximately $55 million
in cash and the Company would be required to assume certain obligations of the
seller.
Management believes that the telecommunications industry, including the CLEC
industry, is in a period of consolidation characterized by mergers, joint
ventures, acquisitions, sales of all or part of companies or their assets, and
other joint venture and investment transactions of various structures and sizes
involving telecommunications companies. Management also believes that the
Company is well positioned to participate in this consolidation trend. The
Company, like other telecommunications companies, participates from time to
time in preliminary discussions with third parties regarding a variety of
potential transactions, and the Company has considered and expects to continue
to consider and explore potential transactions of various types with other
telecommunications companies. However, the Company has not reached any
agreements, in principle or otherwise, with respect to any material transaction
and no assurances can be given as to whether any such transaction may be
consummated or, if so, when.
The Company's principal executive offices are located at 437 Ridge Road,
Executive Building 3, Dayton, New Jersey 08810, and its telephone number is
732-392-2000.
RISK FACTORS
Prospective purchasers of the Class A Common Stock should consider all of the
information contained in this Prospectus before making an investment in the
Class A Common Stock. In particular, prospective purchasers should consider the
factors set forth herein under "Risk Factors."
8
<PAGE>
THE OFFERING
Class A Common Stock
Offered:
U.S. Offering............. 11,250,000 shares
International Offering.... 3,750,000 shares
Total.................... 15,000,000 shares
Class A Common Stock
Offered by the Selling
Stockholder................ 9,945,592 shares
Class A Common Stock
Offered by the Company..... 5,054,408 shares
Total..................... 15,000,000 shares
Common Stock to be
outstanding after the
Offering:
Class A Common Stock....... 58,825,012 shares(1)
Class B Common Stock....... 113,489,040 shares
Total..................... 172,314,052 shares(1)
Use of Proceeds............. The net proceeds to the Company are estimated to
be $245.5 million. The Company intends to use
such net proceeds to expand and develop existing
and new networks, which may include acquisitions,
and for other general corporate purposes and
working capital. See "Use of Proceeds." The
Company will not receive any proceeds from the
sale of the shares offered by the Selling
Stockholder.
Voting Rights............... Holders of Class A Common Stock are entitled to
one vote per share and holders of Class B Common
Stock are entitled to 10 votes per share on all
matters submitted to a vote of stockholders. The
holders of the Class A Common Stock and the Class
B Common Stock vote together as a single class on
all matters submitted to a vote of stockholders,
except as otherwise required by law and except
that only the holders of the Class B Common
Stock, voting separately as a class, are entitled
to vote on certain matters relating to the scope
of the business of the Company. Immediately
following the completion of the Offering, the
Cable Stockholders will have approximately 95.2%
of the combined voting power of the Company's
outstanding Common Stock and generally will have
the collective ability to control all matters
requiring stockholder approval, including the
election of directors. See "Security Ownership of
Management, Principal Stockholders and Selling
Stockholder" and "Description of Capital Stock."
Nasdaq National Market
Symbol..................... "TCGI"
- --------
(1) Excludes (i) 10,688,977 shares of Class A Common Stock reserved for
issuance under the TCG 1993 Stock Option Plan (under which options to
purchase approximately 4,222,076 shares had been granted and were
outstanding as of September 30, 1997, at a weighted average exercise price
per share of $13.66, (ii) 1,500,000 shares of Class A Common Stock reserved
for issuance under the TCG 1997 Employee Stock Purchase Plan, (iii) 409,983
shares of Class A Common Stock reserved for issuance under the TCG 1996
Equity Incentive Plan, (iv) 990,335 shares of Class A Common Stock reserved
for issuance under the TCG Restricted Stock and Bonus Plan, under which
283,592 shares have been distributed in the form of restricted stock
awards, and (v) 49,094 shares of Class A Common Stock reserved for issuance
under the TCG Directors Stock Plan. Of the approximately 4,222,076 shares
of Class A Common Stock underlying the options granted under the Stock
Option Plan, options representing 1,388,664 shares are exercisable as of
September 30, 1997.
9
<PAGE>
SUMMARY CONSOLIDATED AND COMBINED FINANCIAL AND OTHER OPERATING DATA
The following tables present summary combined financial data derived from the
audited historical financial statements of TCG and TCG Partners for 1992.
Historical summary combined financial data for the years 1993, 1994 and 1995
have been derived from the combined audited historical financial statements of
TCG and TCG Partners, and the historical summary consolidated financial data
set forth below for 1996 have been derived from the consolidated audited
historical financial statements of TCG. The following information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the consolidated Financial Statements
of TCG and the combined Financial Statements of TCG and TCG Partners and the
notes thereto incorporated by reference in this Prospectus. The financial
statements for the years 1994 through 1996 have been audited by Deloitte &
Touche llp, independent auditors, whose report, included in TCG's Annual Report
on Form 10-K for the year ended December 31, 1996, as amended (the "1996 Form
10-K"), has been incorporated by reference herein. The following tables also
present historical summary combined unaudited financial data for the six months
ended June 30, 1996 and historical summary consolidated unaudited financial
data for the six months ended June 30, 1997 and selected unaudited pro forma
financial data for the six months ended June 30, 1996, as if the Reorganization
consummated in June 1996 had occurred at the beginning of each period. In the
opinion of management, the unaudited financial statements have been prepared on
the same basis as the audited 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 and cash
flows for these periods. Operating results for the six months ended June 30,
1997 are not necessarily indicative of the results that may be expected for the
full year. The summary unaudited pro forma financial information does not
purport to represent what TCG's and TCG Partners' results of operations would
actually have been if the transactions that give rise to the pro forma
adjustments had occurred on the dates assumed, nor are they indicative of the
Company's future results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------------- ---------------------------------
PRO FORMA (1)
FOR THE PRO FORMA (1)
REORGANI- FOR THE
ZATION REORGANIZATION
1992 1993 1994 1995 1996 1996 1996 1996 1997
-------- -------- --------- -------- --------- ------------- -------- -------------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF
OPERATIONS DATA:
Revenues:
Telecommunications
services........ $ 57,256 $ 82,374 $ 99,983 $134,652 $ 244,864 $ 283,383 $ 84,717 $ 123,236 $212,508
Management and
royalty fee from
local market
partnerships(2).. -- 1,555 20,691 31,517 22,805 -- 22,805 -- --
-------- -------- --------- -------- --------- --------- -------- --------- --------
Total revenues... 57,256 83,929 120,674 166,169 267,669 283,383 107,522 123,236 212,508
Operating
expenses......... 28,820 54,218 76,572 93,118 157,591 172,374 62,336 77,117 124,964
Selling, general
and
administrative(3).. 19,625 34,281 39,989 50,475 85,025 98,436 29,380 42,792 72,734
Depreciation and
amortization..... 12,035 16,197 19,933 37,837 78,416 96,260 26,959 44,154 67,011
-------- -------- --------- -------- --------- --------- -------- --------- --------
Operating (loss).. (3,224) (20,767) (15,820) (15,261) (53,363) (83,687) (11,153) (40,827) (52,201)
-------- -------- --------- -------- --------- --------- -------- --------- --------
Interest:
Interest income.. 446 1,072 1,711 4,067 30,219 29,163 2,670 1,614 18,041
Interest
expense......... (1,508) (1,407) (5,079) (23,331) (73,633) (66,946) (17,622) (10,935) (58,251)
-------- -------- --------- -------- --------- --------- -------- --------- --------
Net interest
expense.......... (1,062) (335) (3,368) (19,264) (43,414) (37,783) (14,952) (9,321) (40,210)
-------- -------- --------- -------- --------- --------- -------- --------- --------
Minority
interest(4)...... (142) 796 1,395 663 3,520 4,713 856 2,049 --
Equity in losses
of unconsolidated
affiliates....... -- (2,114) (11,763) (19,541) (19,400) (7,650) (12,394) (645) (2,833)
-------- -------- --------- -------- --------- --------- -------- --------- --------
Loss before income
taxes............ (4,428) (22,420) (29,556) (53,403) (112,657) (124,407) (37,643) (48,744) (95,244)
Income tax benefit
(provision)...... -- 4,149 (433) (401) (2,193) (2,193) (792) (792) (1,116)
-------- -------- --------- -------- --------- --------- -------- --------- --------
Net (loss)........ $ (4,428) $(18,271) $ (29,989) $(53,804) $(114,850) $(126,600) $(38,435) $ (49,536) $(96,360)
======== ======== ========= ======== ========= ========= ======== ========= ========
Net (loss) per
share............ $ (0.06) $ (0.26) $ (0.43) $ (0.77) $ (1.00) $ (0.86) $ (0.54) $ (0.37) $ (0.59)
OTHER DATA:
EBITDA(5)......... $ 8,811 $ (4,570) $ 4,113 $ 22,576 $ 25,053 $ 12,573 $ 15,806 $ 3,327 $ 14,810
Cash flow from
operating
activities....... 6,541 47,438 87,753 36,141 93,618 -- 10,077 -- (21,596)
Cash flow from
investing
activities....... (41,253) (149,107) (265,026) (207,967) (913,513) -- (136,583) -- (143,324)
Cash flow from
financing
activities....... 34,067 129,822 171,557 157,688 1,085,573 -- 160,704 -- (4,870)
Capital
expenditures..... 47,505 155,184 143,276 154,807 308,112 358,204 75,496 126,590 217,871
Ratio of earnings
to fixed
charges(6)....... -- -- -- -- -- -- -- -- --
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
-------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents
and marketable
securities............. $ 3,563 $ 31,716 $ 26,000 $ 11,862 $ 718,346 $ 46,060 $ 469,680
Working capital......... (12,507) (15,278) (32,719) (47,083) 545,325 880,310 311,298
Fixed assets--at cost... 193,650 329,686 422,964 545,653 1,304,229 1,072,616 1,586,060
Total assets............ 171,583 365,202 486,983 614,793 2,050,097 2,420,416 2,160,157
Long-term debt
(including capital
lease obligations)..... 49,679 29,689 200,462 368,464 1,021,063 990,540 1,104,214
Minority interest....... 6,201 12,661 2,903 4,409 -- 18,099 --
Stockholders' equity and
partners' capital
(deficit).............. 77,371 209,141 179,152 125,348 796,870 845,155 804,196
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------- AS OF JUNE 30,
1992 1993 1994 1995 1996 1997
------- --------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA(7):
Metropolitan markets
served................. 10 18 33 48 51 57
Route miles............. 891 1,952 3,902 5,428 6,744 7,870
Fiber miles............. 42,902 90,700 167,314 253,285 346,039 398,774
Voice grade circuits.... 659,810 1,101,317 1,759,058 2,870,837 4,428,770 5,621,953
Digital telephone
switches............... 2 4 6 21 25 30
Employees............... 316 725 1,125 1,499 2,050 2,673
</TABLE>
- --------
(1) Pro forma adjustments include the reversal of TCG's equity in the losses of
13 Local Market Partnerships for 1996, as well as amortization of the
goodwill which was recorded upon the Reorganization and related
transactions and the conversion of subordinated debt to parent to equity.
The pro forma financial information presented above is not necessarily
indicative of the operating results which would have been achieved had the
transactions occurred at the beginning of the periods presented or of the
results to be achieved in the future.
(2) Under the terms of various management services arrangements among TCG and
its unconsolidated Local Market Partnerships and certain other affiliates,
TCG provided operating and administrative support services to such
entities, for which it earned management fees. Upon consummation of the
Reorganization, these fees were no longer reflected as revenues.
(3) 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, $21.4 million and
$21.4 million for the years 1993, 1994, 1995 and 1996 and the six months
ended June 30, 1996, respectively.
(4) Minority interest reflects Fidelity Communications Inc.'s equity interest
in Teleport Communications Boston for 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 six months ended June 30, 1996. In 1996, after giving effect to the
Reorganization and the 1996 Offerings (as defined herein), 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. In 1997, TCG no
longer records minority interest for the Local Market Partnerships due to
the completion of the Reorganization.
(5) 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. EBITDA is not intended to represent cash flows
or results of operations in accordance with U.S. GAAP for the periods
indicated. The Company's use of EBITDA may not be comparable to similarly
titled measures due to the use by other companies of different financial
statement components in calculating EBITDA.
(6) 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 1996 and the six months ended June 30,
1996 and June 30, 1997, earnings were insufficient to cover fixed charges
by $4.4 million, $23.2 million, $31.0 million, $54.1 million, $116.2
million, $38.5 million and $95.2 million, respectively. On a pro forma
basis, earnings would have been insufficient to cover fixed charges by
$129.1 million for the year ended December 31, 1996.
(7) Operating data in all periods reflect operations of TCG, 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 shares of Class A Common Stock offered
hereby, prospective investors should consider carefully the following factors
in addition to the other information contained or incorporated by reference in
this Prospectus.
NEGATIVE CASH FLOW AND OPERATING LOSSES
The capital expenditures of TCG associated with the installation,
development, expansion and acquisition 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. The
Company expects to incur net losses for the foreseeable future as it continues
to install, develop, expand and acquire its existing and new
telecommunications networks and as it expands its long distance and Internet
services. 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.
SIGNIFICANT CAPITAL REQUIREMENTS
The development and expansion of the Company's existing and new networks and
services, including long distance 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.
The Company expects to meet its capital needs with the proceeds of the 1996
Offerings, the proceeds of the Offering, 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 the Company
("TCGNY"), has entered into an Amended and Restated Loan Agreement (the
"Revolving Credit Agreement"), pursuant to which certain financial
institutions have agreed to lend TCGNY up to $400 million to be used in part
to fund the Company's expansion and development of its networks, of which
$380.2 million was available as of August 31, 1997. The ability of TCGNY 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 TCGNY with the covenants contained therein.
The incurrence of long-term indebtedness by TCG in an amount in excess of $4
billion is subject to certain state regulatory approval in New York and in New
Jersey.
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. 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 is highly leveraged. As of June 30, 1997, after giving pro forma
effect to the Offering and the application of the net proceeds therefrom, TCG
would have had approximately $1.1 billion of consolidated total debt and $1.0
billion of consolidated stockholders' equity. See "Use of Proceeds." 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
12
<PAGE>
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.
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 to
successfully 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.
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, including roof rights, obtain any required governmental
authorizations and permits and implement interconnection with ILECs, 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 continue to implement and improve its operational, billing 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 is rapidly
expanding into other related telecommunications services, such as Internet
services and long distance. As the Company expands into new categories of
telecommunications services it will incur certain additional risks in
connection with such expansion, including technological compatibility risks,
increased risk of losses from unauthorized use of long distance services,
increased risk of liability from Internet services, legal and regulatory
risks, increased customer credit risks and possible adverse reaction by some
of its current customers.
DEPENDENCE UPON INTERCONNECTION WITH ILECS; SUBSTANTIAL COMPETITION
The Company faces substantial and increasing 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 (including NYNEX), BellSouth, SBC Communications (including
Pacific Telesis Group), U S WEST, Southern New England Telecommunications,
Cincinnati Bell and GTE. The Company believes that ILECs generally benefit
from their long-standing relations with customers, substantial technical and
financial resources, established ubiquitous networks 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
CLECs offer substantially similar services at prices competitive with those of
the Company. Other CLECs, ILECs entering new geographic markets, 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
13
<PAGE>
Company. In addition, the current trend of actual and proposed business
combinations, strategic investments and alliances in the telecommunications,
cable television and related industries, which include mergers between
participants in the telecommunication industry, may create significant new
competitors for the Company.
The 1996 Act is intended to increase competition in the local
telecommunications business. The 1996 Act requires all local exchange
providers, including the Company and new entrants, to offer their services for
resale and requires ILECs to offer their substantial network facilities on a
discounted wholesale basis and on an unbundled basis. These requirements may
facilitate entry by new competitors without substantial capital risk or
investment. However, there can be no assurance that any rates or facilities
offered by ILECs to TCG or other CLECs will be economically attractive or
technically viable.
The Company believes that the 1996 Act will provide it with increased
business opportunities and potentially better margins by opening all local
markets to competition and by requiring ILECs to provide improved direct
interconnection at lower cost. However, under the 1996 Act, the FCC and some
state regulatory authorities may provide ILECs with increased flexibility to
reprice their service as competition develops and as ILECs allow competitors
to interconnect to their networks. In addition, some new entrants in the local
market may price certain services to a particular customer or for a particular
route below the prices charged by the Company for services to that customer or
for that route, just as the Company may itself underprice those new entrants.
If ILECs and other competitors lower their rates and can sustain significantly
lower prices over time, this may adversely affect revenues and margins of TCG.
If regulatory decisions permit the ILECs to charge CLECs substantial fees for
interconnection to the ILECs' networks or afford ILECs other regulatory
relief, such decisions could also have a material adverse effect on the
Company.
FEDERAL AND STATE REGULATION
TCG is subject to extensive federal and state regulation, much of which is
governed by the 1996 Act. The Company cannot predict the manner in which all
aspects of the 1996 Act will be implemented by the FCC and by state regulators
or the impact that such implementation and regulation will have on its
business. The terms of TCG's interconnection agreements with ILECs pursuant to
the 1996 Act and the costs of the negotiations, arbitrations, and regulatory
and judicial proceedings associated with obtaining such agreements remain
uncertain and depend on the outcome of pending and future litigation,
legislation and administrative proceedings. The extent to which the Company
will be required to contribute a portion of its gross revenues to support
universal service programs under the 1996 Act, and the extent to which TCG
will be eligible to receive payments from the universal service fund remain
uncertain. See "Business--Regulatory and Governmental Matters."
The manner in which the FCC implements the standards and procedures in the
1996 Act for determining whether certain ILECs (Ameritech, Bell Atlantic,
BellSouth, SBC Communications and U S WEST) are permitted to provide long
distance services within their telephone service areas may affect TCG's
ability to compete with those ILECs and may affect the market share of the
major long distance carriers, which are among TCG's largest customers. In
addition, while the Company cannot predict the final outcome of the FCC's
proceeding to modify the interstate access charge system, TCG believes that it
is likely that the rules ultimately implemented by the FCC will result in a
significant restructuring of rates for ILEC interstate switched access
services and a significant increase in pricing flexibility for ILECs, which
could have a material adverse effect on TCG. See "Business--Regulatory and
Governmental Matters." Furthermore, various ILECs have argued that certain
enhanced service providers, including ISPs, should no longer be exempt from
access charges, and certain ILECs have taken the position that they will not
pay reciprocal compensation with respect to telephone services from the ILEC's
customer to an ISP. TCG believes these positions are contrary to the 1996 Act,
and the FCC and state commissions that have considered this issue have
rejected the argument that ISPs should be subject to access charges.
Nevertheless, the Company cannot predict whether the ILECs will ultimately be
successful in asserting their positions, which could have a material adverse
effect on TCG, both as an ISP and as a provider of TCG local exchange services
to other ISPs.
14
<PAGE>
The 1996 Act contains other provisions that, depending upon the manner in
which they are implemented by the FCC and interpreted by courts, could
potentially affect TCG's business, including a provision that limits 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 that provides
local exchange service in such cable operator's franchise area.
The United States Court of Appeals for the District of Columbia decided on
July 1, 1997 to reject the system adopted by the FCC for the compensation of
providers of pay telephone services by long distance companies. The Court
remanded the matter to the FCC for further proceedings. The Company, as a
provider of pay telephone services in a number of metropolitan areas, is a
recipient of such pay telephone compensation payments. On October 9, 1997, the
FCC adopted new rules which reduce the compensation to providers of pay
telephone services.
In most states, TCG is subject to certification and tariff filing
requirements with respect to intrastate services. Some states may, in addition
to requiring the filing of tariffs for intrastate services, impose additional
regulatory burdens that may materially affect TCG. See "Business--Regulatory
and Governmental Matters." TCG now provides interstate services under tariffs
filed with the FCC. The Company may in the future be required to cancel its
federal tariff filings at the FCC and implement replacement contractual
arrangements, which could result in substantial legal and administrative
expenses. See "Business--Regulatory and Governmental Matters."
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 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. TCG has recently initiated litigation with
several municipalities asserting violations of the requirements of the 1996
Act. The need for such litigation may cause TCG to incur substantial
administrative and legal costs. In addition, TCG has experienced substantial
delays in obtaining certain municipal and other authorizations required for
TCG's network expansion plans. Such delays could have a material adverse
effect on TCG and could also compel the Company to enter into materially
unfavorable long-term agreements with municipalities and others in an effort
to shorten such delays.
In addition, TCG currently leases, and plans in the future to enter into
facility arrangements on an arm's length basis 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 on 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 franchises, licenses or similar agreements
for a particular metropolitan area were terminated prior to its expiration
date or not renewed and TCG were forced to remove its fiber or
15
<PAGE>
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.
DEPENDENCE ON SIGNIFICANT CUSTOMERS
The Company has substantial business relations with a few large customers,
including the major long distance carriers. For the six months ended June 30,
1997, the Company's 10 largest customers accounted for approximately 43% of
TCG's total revenues. During such period, no customer accounted for more than
10% 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 most or
all of the major long distance carriers are pursuing alternatives to their
current practices with regard to obtaining local telecommunications services,
including expanded use of wireless technologies and construction of their own
facilities. This type of activity has accelerated 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 interexchange carrier
("IXC"), from providing any telecommunications services. In addition, the 1996
Act required ILECs to unbundle their network facilities and to offer their
services for resale by other companies at wholesale discounts. Accordingly,
long distance carriers are 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 CLEC.
RISKS ASSOCIATED WITH THE PROVISION OF INTERNET SERVICES
The rapid evolution of the Internet has created a highly competitive and
fragmented market for Internet access and services, which is characterized by
rapidly changing technology, evolving industry standards and frequent new
product and service introductions. TCG's Internet products and services must
compete on the basis of transmission speed, quality, cost, ease-of-use and
customer support. Demand and market acceptance for TCG's products and services
are subject to a high level of uncertainty. In addition, crucial issues
concerning the commercial use of the Internet remain unresolved and may impact
the growth of the Internet markets targeted by the Company. The Federal Trade
Commission is considering whether to recommend the adoption of laws or
regulations to protect consumer privacy on the Internet, which could require
the Company to change the way it collects or uses customer information. Market
acceptance of the Company's Internet products and services is substantially
dependent upon its customers' understanding and adopting the Internet as a new
way of conducting business and exchanging information. If the market develops
more slowly than expected, or remains highly competitive, the Company's
Internet products may be materially adversely affected.
The law relating to liability of ISPs for information transmitted over their
networks is unsettled. There is a potential that the use of the Company's
Internet products and services could give rise to claims against the Company
under both United States and foreign law for defamation, negligence, copyright
or trademark infringement or other theories based on the nature and content of
materials distributed over its networks. There is uncertainty concerning how
evolving copyright and trademark laws will be applied to online environments.
Patent claims could also be asserted against the Company in the future based
upon its services or technology. A number of lawsuits have sought, sometimes
successfully, to impose liability on ISPs for defamatory speech and
infringement of copyrighted materials. The 1996 Act prohibits, and imposes
criminal penalties and civil liability for using, an interactive computer
service for transmitting indecent or obscene communications. Although the
anti-indecency provisions of the 1996 Act were declared unconstitutional by
the U.S. Supreme Court on June 26, 1997, a number of states and foreign
countries have adopted or are currently considering similar legislation.
Litigation challenging the constitutionality of such statutes is pending. The
imposition upon ISPs or Web server hosts of liability for materials
transmitted over their systems could require the Company to implement measures
to reduce or discontinue certain product or service offerings. Furthermore,
the manner and extent to which Internet services and facilities may be subject
to regulation by the FCC or by state and local governments is
16
<PAGE>
uncertain. The cost of underlying telecommunications circuits for ISPs may
increase in the near future as a result of FCC regulatory actions implementing
the 1996 Act. In addition, the Company's general liability insurance may not
cover potential claims of the foregoing types and may not be adequate to
indemnify the Company for all liability that may be imposed. Any imposition of
liability that is not covered by insurance or is in excess of insurance
coverage could have a material adverse impact on the Company's business,
financial condition and results of operations.
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, such as the possible increased use
of wireless technologies to provide basic telephone service to residences or
businesses. TCG may be required to select in advance one technology over
another; but the Company cannot 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.
CONTROL BY PRINCIPAL STOCKHOLDERS; CONFLICTS OF INTEREST; POSSIBLE COMPETITION
The Cable Stockholders hold all the Company's Class B Common Stock,
representing approximately, after giving effect to the sale of the Selling
Stockholder's shares in the Offering, 95.2% of the combined voting power of
the Company's outstanding Class A Common Stock and Class B Common Stock, and
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 action were favored
by a majority of the holders of the Class A Common Stock.
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. Affiliates of TCI, Cox and Comcast, which collectively
have designated, and will for the foreseeable future have the right to
designate, a majority of the directors of the Company, together with an
affiliate of Sprint, have formed Sprint PCS, a provider of wireless
telecommunications services. Furthermore, affiliates of TCI, Cox and Comcast
are principal owners of At Home Corporation ("At Home"), a provider of
Internet related services over the @Home (TM) network. TCG believes that the
Internet services offered or to be offered by At Home may compete with
services offered or to be offered by the Company. In addition, no assurance
can be given that the Cable Stockholders will not otherwise compete with TCG
in certain markets or in the provision of certain telecommunications services.
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
June 26, 2001, 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.
17
<PAGE>
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.
DEPENDENCE ON KEY PERSONNEL
The loss of the services of any of Robert Annunziata, John A. Scarpati,
Robert C. Atkinson, Joel Gross or Stuart A. Mencher could have an adverse
impact on the Company. The Company has employment agreements with each of
Messrs. Annunziata, Scarpati, Atkinson, Gross and Mencher. The Company does
not carry key man life insurance on any 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 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.
SHARES ELIGIBLE FOR FUTURE SALE; DIVESTITURE BY CABLE STOCKHOLDERS; EFFECT OF
DIVESTITURE OF CONTINENTAL SHARES
Upon completion of the Offering, there will be 58,825,012 shares of Class A
Common Stock outstanding (172,314,052 shares assuming the conversion of all
outstanding shares of Class B Common Stock), of which 50,702,843 shares are
tradeable without restriction by persons other than "affiliates" of TCG. The
remaining shares of Class A Common Stock (including any Class A Common Stock
issued upon conversion of Class B Common Stock) are deemed "restricted"
securities within the meaning of the Securities Act, and, as such, may not be
sold in the absence of registration under the Securities Act or an exemption
therefrom, including the exemptions contained in Rule 144 under the Securities
Act.
The Company, certain of its officers and the holders of the Class B Common
Stock have agreed not to offer, sell, contract to sell, file a registration
statement pursuant to the Securities Act (except for certain registration
statements relating to the issuance of stock and stock options to employees)
or otherwise dispose of any shares of Class A Common Stock or securities
convertible into or exchangeable or exercisable for Class A Common Stock
(except for the shares of Class A Common Stock held by the Selling Stockholder
offered hereby, and
18
<PAGE>
except for private transactions by the holders of Class B Common Stock where
the transferee agrees to be bound by such restrictions), without the prior
written consent of Merrill Lynch on behalf of the U.S. Representatives and the
International Representatives (as defined herein), for a period of ninety days
after the date of this Prospectus.
No assurance can be given that holders of the Class B Common Stock will not
decide, based upon then prevailing market and other conditions, to convert
their Class B Common Stock to Class A Common Stock and to dispose of all or a
portion of such stock pursuant to the provisions of Rule 144 under the
Securities Act or pursuant to the demand registration rights contained in the
Amended Stockholders' Agreement or otherwise. In addition to the demand
registration rights of the holders of the Class B Common Stock under the
Amended Stockholders' Agreement, certain holders of Class A Common Stock that
acquired such Class A Common Stock in the Reorganization or in connection with
the Company's acquisition of CERFnet and BizTel have "piggy-back" registration
rights. No assurance can be given that holders of the "restricted" shares of
Class A Common Stock will not decide to dispose of them pursuant to the
provisions of Rule 144 or otherwise. See "Shares Eligible for Future Sale."
No predictions can be made about the effect, if any, that market sales of
shares of Class A Common Stock or the availability of such shares for sale
would have on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of Class A Common Stock in the public market, or
the perception that such sales could occur, may have an adverse impact on the
market price for the shares of Class A Common Stock offered hereby or on the
ability of the Company to raise capital through a public offering of its
equity securities. See "Shares Eligible for Future Sale."
SUBSTANTIAL DILUTION
Purchasers of the Class A Common Stock offered hereby will incur immediate
and substantial dilution in pro forma net tangible book value per share. See
"Dilution."
ABSENCE OF DIVIDENDS ON COMMON STOCK
TCG has never paid or declared dividends on its capital stock and intends to
retain future earnings, if any, to finance the development and expansion of
its networks and operations. In addition, the Company's debt instruments
contain covenants that may limit the ability of TCG to pay dividends on the
Common Stock. Therefore, TCG does not anticipate paying any dividends in the
foreseeable future. See "Dividend Policy."
19
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the net proceeds from the sale of shares
by the Selling Stockholder pursuant to the Offering. The net proceeds to the
Company from its sale of shares pursuant to the Offering are estimated to be
approximately $245.5 million (approximately $355.0 million if the
Underwriters' over-allotment options are exercised in full) based upon an
assumed offering price of $50 5/16, the last reported sale price of the Class
A Common Stock on October 15, 1997 after deducting underwriting discount and
estimated expenses of the Offering.
TCG intends to use the net proceeds from the sale of its shares pursuant to
the Offering 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 and other telecommunications assets 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 and other
telecommunications assets 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 from the sale of its shares
pursuant to the Offering. The Company has no specific plans for a significant
portion of the net proceeds of the Offering. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Pending the foregoing uses, the net proceeds to the Company from its sale of
shares pursuant to the Offering will be invested in short-term, interest
bearing investment-grade securities.
DILUTION
As of June 30, 1997, the net tangible book value of TCG was $537.8 million,
or $3.10 per share of Common Stock. Net tangible book value per share
represents the Company's net worth less intangible assets of $266.4 million
divided by the total number of shares of Common Stock outstanding. After
giving effect to the sale by TCG of 5,054,408 shares of Class A Common Stock
pursuant to the Offering and deducting the estimated underwriting discount and
expenses to the Company of the Offering, the pro forma net tangible book value
of TCG as of June 30, 1997 would have been $783.3 million, or $4.39 per share
of Common Stock. Such amount represents an immediate increase in pro forma net
tangible book value of $1.29 to the Company's existing stockholders and
immediate dilution to new investors of $45.92 per share of Common Stock. The
following table illustrates the dilution in pro forma net tangible book value
per share to new investors:
<TABLE>
<S> <C> <C>
Public Offering price per share.................................. $50.31
Net tangible book value per share before the Offering.......... $3.10
Increase in net tangible book value per share attributable to
net proceeds to the Company of the Offering................... 1.29
------
Pro forma net tangible book value per share after the Offering... 4.39
------
Dilution of net tangible book value per share to new investors... $45.92
======
</TABLE>
20
<PAGE>
PRICE RANGE OF CLASS A COMMON STOCK
The Company's Class A Common Stock commenced trading on The Nasdaq National
Market on June 27, 1996 under the symbol "TCGI". As of October 15, 1997, the
last reported sale price of the Class A Common Stock was $50 5/16. As of
October 15, 1997, there were approximately 14,511 holders of record of the
Class A Common Stock. The following table sets forth the high and low sale
prices of the Class A Common Stock as reported by The Nasdaq National Market
for each of the quarters in the period commencing June 27, 1996 through
October 15, 1997.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
1996
Second Quarter................................................. $19 1/8 $16
Third Quarter.................................................. 27 3/8 14 1/8
Fourth Quarter................................................. 35 3/8 22
1997
First Quarter.................................................. 35 1/4 22 5/8
Second Quarter................................................. 34 1/8 21
Third Quarter.................................................. 46 1/8 33 1/2
Fourth Quarter (through October 15)............................ 53 3/4 45 1/2
</TABLE>
DIVIDEND POLICY
The Company has never paid or declared dividends on its Common Stock and
intends to retain future earnings to finance the development and expansion of
its networks and operations. The Company does not anticipate paying any cash
dividends in the foreseeable future on its Common Stock. Any decision whether
to pay cash dividends will be made by the Company's Board of Directors in
light of the conditions then existing, including the Company's results of
operations, financial condition and requirements, business conditions and
other factors. In addition, as a holding company, the ability of the Company
to pay dividends is dependent upon the receipt of dividends or other payments
from its subsidiaries, and the Indentures governing the Company's 9 7/8%
Senior Notes due 2006 and 11 1/8% Senior Discount Notes due 2007 contain
covenants which may limit the ability of the Company to pay dividends on the
Class A Common Stock. Under the most restrictive of these covenants, the
Company currently is not permitted to pay dividends on the Common Stock.
21
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited consolidated cash and cash
equivalents, marketable securities, and capitalization of the Company at June
30, 1997, and as adjusted to give effect to the Offering. The table should be
read in conjunction with the historical consolidated financial statements of
the Company and related notes included in the 1996 Form 10-K and the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. See
"Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
-----------------------
ACTUAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and marketable
securities(1)(2)...................................... $ 469,680 $ 715,210
========== ==========
Current portion of capital lease obligations........... $ 29,069 $ 29,069
========== ==========
Long-term debt:
Senior Discount Notes due 2007....................... $ 696,255 $ 696,255
Senior Notes due 2006................................ 300,000 300,000
Unamortized debt issuance costs...................... (24,410) (24,410)
Long-term bank debt.................................. 52,575 52,575
Long-term capital lease obligations.................. 27,355 27,355
TCI Note............................................. 28,029 28,029
---------- ----------
Total long-term debt............................... 1,079,804 1,079,804
---------- ----------
Stockholders' equity:
Preferred Stock, $.01 par value; 150,000,000 shares
authorized and no shares outstanding as of June 30,
1997 ............................................... -- --
Class A Common Stock, $.01 par value; 450,000,000
shares authorized, 40,188,368 and 57,028,368 shares
issued and outstanding as of June 30, 1997 and as
adjusted, respectively(2)(3)........................ 402 571
Class B Common Stock, $.01 par value; 300,000,000
shares authorized, 133,250,370 and 121,464,778
shares issued and outstanding as of June 30, 1997
and as adjusted, respectively(2)(3)................. 1,333 1,215
Additional paid-in-capital(2)(3)..................... 1,300,563 1,546,042
Accumulated deficit.................................. (377,372) (377,372)
Unrealized gain on marketable securities............. 295 295
---------- ----------
925,221 1,170,751
Treasury stock, 7,975,738 shares of Class B Common
Stock, at cost........................................ (121,025) (121,025)
---------- ----------
Total stockholders' equity......................... 804,196 1,049,726
---------- ----------
Total capitalization............................... $1,884,000 $2,129,530
========== ==========
</TABLE>
- --------
(1) The as adjusted amounts include the net proceeds to the Company from the
sale of shares in the Offering. See "Use of Proceeds."
(2) As adjusted to reflect the net proceeds from the sale of 5.1 million
shares of Class A Common Stock in the Offering.
(3) As adjusted to reflect the conversion of 11.8 million shares of Class B
Common Stock to Class A Common Stock, of which 9.9 million shares are being
offered by the Selling Stockholder.
22
<PAGE>
SELECTED CONSOLIDATED AND COMBINED FINANCIAL DATA
The following tables present selected combined financial data derived from
the audited historical financial statements of TCG and TCG Partners for 1992.
Historical 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 TCG and TCG Partners, and the selected consolidated
financial data set forth below for 1996 have been derived from the
consolidated audited financial statements of TCG. The financial statements for
the years 1994 through 1996 have been audited by Deloitte & Touche llp,
independent auditors, whose report, included in TCG's 1996 Form 10-K, has been
incorporated by reference herein. The following tables also present selected
financial data for the six months ended June 30, 1996 and June 30, 1997
derived from the unaudited combined financial statements of TCG and TCG
Partners and the consolidated financial statements of TCG, respectively. In
the opinion of management, the unaudited financial statements have been
prepared on the same basis as the audited 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
and cash flows for these periods. Operating results for the six months ended
June 30, 1997 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
the consolidated financial statements of TCG and the combined financial
statements of TCG and TCG Partners and the notes thereto incorporated by
reference in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------- ------------------
1992 1993 1994 1995 1996 1996 1997
-------- --------- -------- -------- --------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues:
Telecommunications
services................. $ 57,256 $ 82,374 $ 99,983 $134,652 $ 244,864 $ 84,717 $212,508
Management and royalty
fees from local market
partnerships(1).......... -- 1,555 20,691 31,517 22,805 22,805 --
-------- --------- -------- -------- --------- -------- --------
Total revenues............ 57,256 83,929 120,674 166,169 267,669 107,522 212,508
Operating expenses......... 28,820 54,218 76,572 93,118 157,591 62,336 124,964
Selling, general and
administrative(2)......... 19,625 34,281 39,989 50,475 85,025 29,380 72,734
Depreciation and
amortization.............. 12,035 16,197 19,933 37,837 78,416 26,959 67,011
-------- --------- -------- -------- --------- -------- --------
Operating (loss).......... (3,224) (20,767) (15,820) (15,261) (53,363) (11,153) (52,201)
-------- --------- -------- -------- --------- -------- --------
Interest:
Interest income........... 446 1,072 1,711 4,067 30,219 2,670 18,041
Interest expense.......... (1,508) (1,407) (5,079) (23,331) (73,633) (17,622) (58,251)
-------- --------- -------- -------- --------- -------- --------
Net interest expense....... (1,062) (335) (3,368) (19,264) (43,414) (14,952) (40,210)
-------- --------- -------- -------- --------- -------- --------
Minority interest(3)....... (142) 796 1,395 663 3,520 856 --
Equity in losses of
unconsolidated
affiliates................ -- (2,114) (11,763) (19,541) (19,400) (12,394) (2,833)
-------- --------- -------- -------- --------- -------- --------
Loss before income taxes... (4,428) (22,420) (29,556) (53,403) (112,657) (37,643) (95,244)
Income tax benefit
(provision)............... -- 4,149 (433) (401) (2,193) (792) (1,116)
-------- --------- -------- -------- --------- -------- --------
Net (loss)................ $ (4,428) $ (18,271) $(29,989) $(53,804) $(114,850) $(38,435) $(96,360)
======== ========= ======== ======== ========= ======== ========
Net (loss) per share....... $ (0.06) $ (0.26) $ (0.43) $ (0.77) $ (1.00) $ (0.54) $ (0.59)
OTHER DATA:
EBITDA (4)................. $ 8,811 $ (4,570) $ 4,113 $ 22,576 $ 25,053 $ 15,806 $ 14,810
Cash flows from operating
activities................ 6,541 47,438 87,753 36,141 93,618 10,077 (21,596)
Cash flows from investing
activities................ (41,253) (149,107) (265,026) (207,967) (913,513) (136,583) (143,324)
Cash flows from financing
activities................ 34,067 129,822 171,557 157,688 1,085,573 160,704 (4,870)
Capital expenditures....... 47,505 155,184 143,276 154,807 308,112 75,496 217,871
Ratio of earnings to fixed
charges(5)................... -- -- -- -- -- -- --
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
-------------------------------------------------- ---------------------
1992 1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents
and marketable
securities............. $ 3,563 $ 31,716 $ 26,000 $ 11,862 $ 718,346 $ 46,060 $ 469,680
Working capital......... (12,507) (15,278) (32,719) (47,083) 545,325 880,310 311,298
Fixed assets--at cost... 193,650 329,686 422,964 545,653 1,304,229 1,072,616 1,586,060
Total assets............ 171,583 365,202 486,983 614,793 2,050,097 2,420,416 2,160,157
Long-term debt
(including capital
lease obligations)..... 49,679 29,689 200,462 368,464 1,021,063 990,540 1,104,214
Minority interest....... 6,201 12,661 2,903 4,409 -- 18,099 --
Stockholders' equity and
partners' capital
(deficit).............. 77,371 209,141 179,152 125,348 796,870 845,155 804,196
</TABLE>
- --------
(1) Under the terms of various management services arrangements among TCG and
its unconsolidated Local Market Partnerships and certain other affiliates,
TCG provided operating and administrative support services to such
entities, for which it earned management fees. Upon consummation of the
Reorganization, these fees were no longer 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, $21.4 million and
$21.4 million for the years 1993, 1994, 1995 and 1996 and the six months
ended June 30, 1996, respectively.
(3) Minority interest reflects Fidelity Communications Inc.'s equity interest
in Teleport Communications Boston for 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 six months ended June 30, 1996. In 1996, after giving effect to the
Reorganization and the debt and equity offerings consummated in June 1996,
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. In
1997, TCG no longer records minority interest for the Local Market
Partnerships due to the completion of the Reorganization.
(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. EBITDA is not intended to represent cash
flows or results of operations in accordance with U.S. GAAP for the
periods indicated. The Company's use of EBITDA may not be comparable to
similarly titled measures due to the use by other companies of different
financial statement components in calculating EBITDA.
(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 1996 and the six months ended June 30,
1996 and June 30, 1997, earnings were insufficient to cover fixed charges
by $4.4 million, $23.2 million, $31.0 million, $54.1 million, $116.2
million, $38.5 million and $95.2 million, respectively.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
TCG, the first and largest CLEC 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"(R) by
providing high quality, integrated 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, healthcare and educational institutions, governmental
agencies, long distance carriers and resellers, Internet service providers,
disaster recovery service providers and wireless communications and financial
services companies. TCG offers these customers technologically advanced
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. As of September 30, 1997, the Company's high
capacity state-of-the-art digital networks were operational in 57 metropolitan
markets, including 18 of the 20 largest metropolitan areas. Company networks
are located primarily in metropolitan areas including New York/New Jersey, Los
Angeles, Chicago, San Francisco, Philadelphia, Boston, Detroit, Baltimore,
Washington, D.C., Dallas, Houston, Miami/Ft. Lauderdale, Seattle, San Diego,
St. Louis, Pittsburgh, Phoenix, Denver, Milwaukee, Indianapolis, Hartford,
Omaha, Providence, Cleveland, Portland (Oregon), Salt Lake City, Nashville,
Chattanooga, Knoxville and Birmingham. Additional TCG networks are under
development for the metropolitan areas of Cincinnati, Columbus (Ohio),
Charlotte, Tampa Bay, Sacramento, Minneapolis-St. Paul, Atlanta and Orlando.
Upon completion of these networks, the Company will operate networks in 65
metropolitan markets including 28 of the 30 largest metropolitan areas. As of
June 30, 1997, the Company's fiber optic networks spanned over 7,870 route
miles, contained over 398,774 fiber miles and served approximately 10,900
buildings.
TCG has historically benefited from its relationships with the parents of
the Cable Stockholders, which are among the largest 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 networks in a rapid, efficient and cost-effective manner.
The Company believes that it has several advantages that enable it to
compete successfully in the new competitive telecommunications marketplace,
including (i) extensive, technologically advanced networks located or under
development in major metropolitan markets nationwide, (ii) state-of-the-art
information systems, (iii) an experienced management team with significant
operational, technical, financial and regulatory expertise in the
telecommunications industry, (iv) positive relationships with its broad array
of commercial customers, (v) TCG's reputation for high quality service, and
(vi) established relationships with cable television operators.
On July 2, 1996, TCG issued 27,025,000 shares of Class A Common Stock which
resulted in gross proceeds of approximately $432.4 million as part of an
initial public offering, and $300 million of 9 7/8% Senior Notes due 2006 and
$1,073 million aggregate principal amount at maturity of 11 1/8% Senior
Discount Notes due 2007 (collectively, the "1996 Offerings"). Prior to the
1996 Offerings, the Company was owned by subsidiaries of the Cable
Stockholders. The business was operated through TCG and, beginning in 1992,
TCG Partners, which is a New York general partnership owned prior to the
Reorganization by the Cable Stockholders in the same percentages as TCG. TCG
Partners was formed to invest, with TCG, the Cable Stockholders and other
cable operators, in 14 Local Market Partnerships to develop and operate local
telecommunications networks. The Local Market Partnerships were owned by TCG,
and/or TCG Partners and certain of the Cable Stockholders which had cable
operations in the particular markets addressed by the Local Market
Partnerships and, in some cases, other cable operators in such markets. To
simplify this complex ownership structure, the Company and the Cable
Stockholders completed the Reorganization whereby they agreed to consolidate
the ownership of TCG Partners and of the Local Market Partnerships as wholly-
owned subsidiaries of TCG. As part of this process, certain of
25
<PAGE>
the other cable operators agreed to sell their interests in the Local Market
Partnerships to TCG directly or through a Cable Stockholder. See "Certain
Relationships and Related Transactions--The Reorganization". The financial
statements for one of the Local Market Partnerships were previously
consolidated with those of TCG. Therefore, as a result of the Reorganization,
TCG consolidated the financial statements of only 13 of the 14 Local Market
Partnerships.
In response to customer demand, 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 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 typically 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 have 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
(earnings (loss) before interest, income taxes, depreciation, amortization,
minority interest and equity in losses of unconsolidated affiliates).
As of December 31, 1996, the Company's consolidated financial statements
reflect the 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, Washington D.C., St. Louis and 13 of the 14 former Local Market
Partnerships. Additionally, the consolidated financial statements as of
December 31, 1996 reflect the Company's equity in the losses of ETC and BizTel
in which the Company retained an approximate 49% indirect interest and an
approximate 49.9% direct interest, respectively. See "Business--Recent
Developments--Eastern TeleLogic Acquisition" and "Business--Recent
Developments--BizTel Communications, Inc." Commencing July 1, 1996, the
statements of operations and cash flows consolidate the operations of 13 of
the former Local Market Partnerships as a result of the Reorganization.
Management fees and royalty fees charged to the Local Market Partnerships by
TCG were recorded as revenue in the consolidated financial statements through
June 30, 1996.
As of December 31, 1995, the combined financial statements of TCG and TCG
Partners reflect the 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, Washington D.C., and the Local Market Partnership
in St. Louis in which TCG and TCG Partners owned 60.8% of the partnership
interests. Additionally, the combined financial statements of TCG and TCG
Partners for 1995 reflect the Company's equity in the losses of the 13
unconsolidated Local Market Partnerships, as well as the Company's equity in
losses of ETC, in which the Company retained an approximate 25% indirect
interest. Management fees and royalty fees charged to the Local Market
Partnerships by TCG prior to the Reorganization were recorded as revenue in
the combined financial statements.
For the year ended December 31, 1996, TCG's capital expenditures, its
acquisitions and working capital were funded by the 1996 Offerings, which
raised approximately $1.3 billion of aggregate gross proceeds, as well as
borrowings under the Revolving Credit Agreement, pursuant to which certain
financial institutions agreed to loan the Company's wholly-owned subsidiary
TCG New York, Inc. up to $250 million. Such Revolving Credit Agreement has
been amended and restated and the maximum amount that may be borrowed
thereunder has been increased to $400 million. See "Description of Certain
Indebtedness--Revolving Credit Agreement."
26
<PAGE>
The development of TCG's business, the construction and expansion of its
telecommunications networks and its operating expenses require significant
expenditures, often resulting in negative cash flow. Although TCG generated
positive EBITDA on a consolidated basis for 1996, several of its subsidiaries
did not and will not generate positive EBITDA until such time as adequate
customer bases are established.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenues
Total revenues increased to $212.5 million for the six months ended June 30,
1997 from $107.5 million for the similar period in 1996, representing an
increase of $105.0 million, or 98%. Pursuant to the Reorganization, TCG
consolidated the financial statements of the Local Market Partnerships, which
accounted for 38% of total revenue for the six months ended June 30, 1997.
Telecommunications services revenue increased to $212.5 million for the six
months ended June 30, 1997, from $84.7 million for the six months ended June
30, 1996, representing an increase of $127.8 million, or 151%. The increase in
revenues occurred in every revenue category, most significantly switched
services. This increase in revenues is also a result of increased market
penetration primarily in TCG's existing markets as well as expansion into new
markets. Total revenues for the six months ended June 30, 1997 include $17.0
million attributable to ETC and CERFnet, which were acquired by TCG during the
first quarter of 1997 and were consolidated with TCG from their respective
dates of acquisition.
On a pro forma basis, had telecommunications services revenue generated by
unconsolidated Local Market Partnerships been included in the prior period's
financial statements, total revenues would have increased to $212.5 million
for the six months ended June 30, 1997 from $123.2 million for the six months
ended June 30, 1996, reflecting an increase of $89.3 million, or 72%. 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. Annualized monthly recurring revenue increased to approximately
$444.8 million for the month of June 30, 1997, from $245.9 million on a pro
forma basis for the comparable period in 1996, an increase of $198.9 million,
or 81%. Monthly recurring revenue represents monthly service charges billable
to telecommunications services customers for the month indicated, but excludes
non-recurring revenues for certain one-time services, such as installation
fees or equipment charges.
Switched services revenue increased 87%, for the six months ended June 30,
1997 from pro forma switched services revenue for the similar period in 1996.
Switched services revenue represented 43% and 40% (on a pro forma basis) of
total revenue for the six months ended June 30, 1997 and 1996, respectively.
Increased monthly dedicated services revenue, as well as sales growth in
enhanced switched services products to new customers, also contributed to
overall revenue growth. Dedicated services revenue increased 56% for the six
months ended June 30, 1997, from pro forma dedicated services revenue for the
similar period in 1996.
Management fees were directly related to operating and administrative
support services provided by TCG to the Local Market Partnerships. Royalty
fees were charged to the Local Market Partnerships based on revenue. As a
result of the Reorganization, management and royalty fees from the Local
Market Partnerships are no longer reflected as revenue for the six months
ended June 30, 1997, due to the consolidation of the Local Market
Partnerships.
Operating Expenses
Operating expenses increased to $125.0 million for the six months ended June
30, 1997, from $62.3 million for the six months ended June 30, 1996, an
increase of $62.7 million, or 101%. Pursuant to the Reorganization, TCG has
consolidated the financial statements of the Local Market Partnerships, the
operating expenses of which accounted for 38% of the total operating expenses
for the six months ended June 30, 1997. The remaining increase is directly
related to the costs associated with the expansion of TCG's networks. These
expenses
27
<PAGE>
include costs specifically associated with network operations including
compensation costs for technical personnel and access, rights-of-way, node,
rent and maintenance expenses. Offsetting these expense increases are
reductions in expenses due to renegotiation of interconnection agreements with
ILECs. Operating expenses increased to $125.0 million for the six months ended
June 30, 1997, from $77.1 million on a pro forma basis for the six months
ended June 30, 1996, an increase of $47.9 million, or 62%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $72.7 million for
the six months ended June 30, 1997, from $29.4 million for the six months
ended June 30, 1996, an increase of $43.3 million, or 147%. Pursuant to the
Reorganization, TCG has consolidated the financial statements of the Local
Market Partnerships, the selling, general and administrative expenses of which
accounted for 52% of the total selling, general and administrative expenses
for the six months ended June 30, 1997. The remaining increase is attributable
to the costs required to maintain an infrastructure which supports the
continued expansion of the Company's networks and the introduction of new
services. These costs include compensation, occupancy, insurance, professional
fees, and sales and marketing expenses. Selling, general and administrative
expenses increased to $72.7 million for the six months ended June 30, 1997,
from $42.8 million on a pro forma basis for the six months ended June 30,
1996, an increase of $29.9 million, or 70%.
EBITDA
EBITDA decreased to $14.8 million for the six months ended June 30, 1997,
from $15.8 million for the six months ended June 30, 1996, a decrease of $1.0
million. Pursuant to the Reorganization, TCG has consolidated the financial
statements of the Local Market Partnerships, the EBITDA of which accounted for
22% of total EBITDA for the six months ended June 30, 1997. EBITDA increased
to $14.8 million for the six months ended June 30, 1997, from $3.3 million on
a pro forma basis for the six months ended June 30, 1996, an increase of $11.5
million. The Local Market Partnerships, which are included in the pro forma
financial data to reflect the Reorganization, had 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 $67.0 million for the six
months ended June 30, 1997, from $27.0 million for the six months ended June
30, 1996, an increase of $40.0 million, or 148%. This increase is primarily
attributable to increased depreciation related to the expansion of the
Company's local telecommunications networks throughout the country and
increased amortization of goodwill related to various 1996 and 1997
acquisitions. Depreciation and amortization expense increased to $67.0 million
for the six months ended June 30, 1997, from $44.2 million on a pro forma
basis for the six months ended June 30, 1996, an increase of $22.8 million, or
52%.
Interest Income
Interest income increased to $18.0 million for the six months ended June 30,
1997, from $2.7 million for the six months ended June 30, 1996, an increase of
$15.3 million. This increase is attributable to interest earned on the cash
and cash equivalents and marketable securities in which net proceeds from the
1996 Offerings were invested pending the use of such proceeds.
Interest Expense
Interest expense increased to $58.3 million for the six months ended June
30, 1997, from $17.6 million for the six months ended June 30, 1996, an
increase of $40.7 million. This increase resulted from interest on the
Company's Senior Notes, Senior Discount Notes, the subordinated note to TCI
issued on June 26, 1996, and interest on the long-term bank debt which TCG
assumed in the acquisition of ETC, partially offset by the absence of interest
for the six months ended June 30, 1997 on the Revolving Credit Agreement and
borrowings under a loan agreement from the Cable Stockholders (the
"Stockholders' Loan Agreement").
28
<PAGE>
Equity in Losses of Unconsolidated Affiliates
Equity in losses of unconsolidated affiliates decreased to $2.8 million for
the six months ended June 30, 1997 from $12.4 million for the six months ended
June 30, 1996, a decrease of $9.6 million. This decrease resulted from the
consolidation of the Local Market Partnerships and ETC.
Net Loss
The Company's results for the six months ended June 30, 1997, reflected a
net loss of $96.4 million, compared to a net loss of $38.4 million for the six
months ended June 30, 1996, an increase in net loss of $58.0 million. This
increase in net loss is attributable to the factors discussed above. Net loss
increased to $96.4 million for the six months ended June 30, 1997 from $49.5
million on a pro forma basis for the six months ended June 30, 1996, an
increase of $46.9 million.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues
Total revenues increased to $267.7 million for 1996 from $166.2 million for
1995, representing an increase of $101.5 million, or 61%. Telecommunications
services revenue increased to $244.9 million for 1996 from $134.7 million for
1995, an increase of $110.2 million, or 82%. Revenue increased in every
category, most significantly in switched services. These increases reflect
increased sales of services in existing and new markets and the growth of
TCG's customer base.
During 1996, TCG expanded its dedicated services markets to Salt Lake City,
Portland (Oregon), Cleveland and Washington D.C. It also expanded its switched
services markets to Indianapolis, Denver, and New Jersey and installed a
second switch in its Boston metropolitan serving area. TCG significantly
increased revenue from the Company's data services line of business in 1996 by
$3.0 million, an increase of 290% from 1995.
On a pro forma basis, had telecommunications services revenue generated by
unconsolidated Local Market Partnerships been included in the consolidated
financial statements of the Company in 1996 and the combined financial
statements of TCG and TCG Partners in 1995, total revenues would have
increased to $283.4 million for 1996 from $184.9 million for 1995, an increase
of $98.5 million, or 53%. This growth in revenues is a direct result of
increased market penetration of all telecommunications services offered in
existing markets and the addition of new markets. On a pro forma basis,
annualized monthly recurring revenue increased to approximately $329.0 million
for December 1996 from $211.1 million for December 1995, an increase of $117.9
million, or 56%. Monthly recurring revenue represents monthly service charges
billable to telecommunications services customers for the month indicated, but
excludes non- recurring revenues for certain one-time services, such as
installation fees or equipment charges.
On a pro forma basis, switched services revenue increased to $113.0 million
for 1996 from $63.9 million for 1995, an increase of $49.1 million, or 77%.
The increase is due primarily to increases in switched, local and toll
services revenue, long distance carrier access usage volumes and sales of
additional enhanced switched services products to customers in existing and
new markets. On a pro forma basis, dedicated services revenue increased to
$161.7 million for 1996 from $116.5 million, which included $1.7 million in
data services products for 1995, an increase of $45.2 million, or 39%.
Management and royalty fees from Local Market Partnerships decreased to
$22.8 million for 1996, a decrease of $8.7 million, or 28%, from $31.5 million
for 1995. Management fees are directly related to operating and administrative
support services provided by TCG to the former Local Market Partnerships. The
royalty fees were charged to the Local Market Partnerships based on revenue.
As a result of the Reorganization, management and royalty fees from the Local
Market Partnerships are no longer reflected as revenue beginning July 1, 1996,
due to the consolidation of the Local Market Partnerships.
29
<PAGE>
Operating Expenses
Operating expenses increased to $157.6 million for 1996 from $93.1 million
for 1995, an increase of $64.5 million, or 69%. This increase is primarily
attributable to costs associated with the expansion of networks throughout the
country, including compensation costs for technical personnel 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, which
included expenses generated by the Local Market Partnerships, increased to
$172.4 million for 1996 from $112.6 million for 1995, an increase of $59.8
million, or 53%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $85.0 million for
1996 from $50.5 million for 1995, an increase of $34.5 million, or 68%. 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 which included expenses generated by the
Local Market Partnerships, increased to $98.4 million for 1996 from $71.7
million for 1995, an increase of $26.7 million, or 37%.
EBITDA
EBITDA increased to $25.1 million for 1996 from $22.6 million for 1995, an
increase of $2.5 million. This increase is primarily attributable to increases
in dedicated and switched revenues. Additionally, on a pro forma basis, 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 $12.6 million for 1996 from $0.6 million for 1995, an
increase of $12.0 million. The Local Market Partnerships, which are included
in the pro forma financial data to reflect the Reorganization, had 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 $78.4 million for 1996
from $37.8 million for 1995, an increase of $40.6 million, or 107%. This
increase is primarily attributable to increased depreciation associated with
the expansion of the local telecommunications networks throughout the country
and increased amortization of goodwill related to various 1996 acquisitions.
On a pro forma basis, depreciation and amortization expense, which included
depreciation and amortization of the Local Market Partnerships, increased to
$96.3 million for 1996 from $62.8 million for 1995, an increase of $33.5
million, or 53%.
Interest Income
Interest income increased to $30.2 million for 1996 from $4.1 million for
1995, an increase of $26.1 million. This increase is attributable to interest
earned on the cash and cash equivalents and marketable securities in which net
proceeds from the 1996 Offerings were invested pending the use of such
proceeds.
Interest Expense
Interest expense increased to $73.6 million for 1996 from $23.3 million for
1995, an increase of $50.3 million. This increase resulted from interest on
the Company's Senior Notes, Senior Discount Notes, and a subordinated note to
TCI, issued on June 26, 1996, offset by the absence of approximately six
months of interest associated with the Revolving Credit Agreement and
borrowings under the Stockholders' Loan Agreement.
30
<PAGE>
Equity in Losses of Unconsolidated Affiliates
Equity in losses of unconsolidated affiliates decreased to $19.4 million for
1996 from $19.5 million for 1995, a decrease of $0.1 million. This decrease
resulted from the consolidation of the Local Market Partnerships in June 1996,
offset by greater losses from unconsolidated affiliates in 1996 compared to
1995.
Income Taxes
In 1996 and 1995, TCG 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 1996
and 1995 provisions for income taxes resulted from state income taxes where
TCG is required to file separate state income tax returns.
At December 31, 1996, TCG had operating loss carry-forwards for tax purposes
of approximately $170.5 million, expiring principally in 2009 through 2012.
Net Loss
The Company's results for 1996 reflected a net loss of $114.9 million,
compared to a net loss of $53.8 million for 1995, an increase of $61.1
million. This increase in net loss is attributable to the factors discussed
above. On a pro forma basis, net loss increased to $126.6 million for 1996
from $67.6 million for 1995, an increase of $59.0 million.
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, an increase of $45.5 million, or 38%. Telecommunications services
revenues increased to $134.7 million for 1995 from $100.0 million for 1994, an
increase of $34.7 million, or 35%. The increase in revenue occurred in every
revenue category, most significantly in switched services. This increase in
revenue also 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
$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 TCG 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
business as well as in building new switched businesses.
Operating Expenses
Operating expenses increased to $93.1 million for 1995 from $76.6 million
for 1994, an increase of $16.5 million, or 22%. This increase is primarily
attributable to costs associated with network operations including
compensation costs for technical personnel and access, rights-of-way, node,
rent and maintenance expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expense increased to $50.5 million for
1995 from $40.0 million for 1994, an increase of $10.5 million, or 26%. 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.
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 revenue. Furthermore, TCG has
obtained increases through greater automation and through lower access costs.
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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 an increase in deprecation related to
the expansion of the Company's local telecommunications network nationally and
to changes in the estimated useful lives of certain electronics equipment,
which were made during 1995 in order to conform with industry standards.
Interest Income
Interest income increased to $4.1 million in 1995 from $1.7 million in 1994,
an increase of $2.4 million 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. This increase is primarily attributable to
the interest due Cable Stockholders under the Stockholders' Loan Agreement as
well as interest under the Revolving Credit Agreement, which was entered into
in May 1995 and amended and restated in 1997. Also, contributing to the
increased interest expense is an increase of $15.2 million in capital lease
obligations under agreements entered into with various Cable Stockholders.
Equity in Losses of Unconsolidated Affiliates
Equity in losses 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 TCG's equity share in the losses of ETC.
Income Taxes
In 1995 and 1994, TCG generated net operating losses and, accordingly,
incurred a net tax benefit. In accordance with 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
TCG is required to file separate state income tax returns.
At December 31, 1995, TCG had operating loss carry-forwards 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 for TCG 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. This increase in net loss is attributable to the factors
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
TCG had total assets of approximately $2.2 billion and $2.1 billion as of
June 30, 1997 and December 31, 1996, respectively. At June 30, 1997, the
Company's current assets of approximately $572.2 million exceeded current
liabilities of $260.9 million, providing working capital of approximately
$311.3 million. Network and equipment, net of depreciation, as of June 30,
1997, aggregated approximately $1.3 billion.
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The 1996 Offerings resulted in aggregate gross proceeds of approximately
$1.3 billion, which were received by TCG on July 2, 1996. In July 1996, TCG
utilized a portion of the net proceeds of the 1996 Offerings (i) to repay $250
million of bank indebtedness plus accrued interest, and (ii) to purchase
7,975,738 shares of Class B Common Stock owned by Continental for $16.00 per
share, less related expenses, for a net cost of $121 million. In addition, a
portion of the net proceeds was used in connection with the acquisition of
ETC. TCG has invested the remaining net proceeds from the 1996 Offerings in
cash equivalents and marketable securities such as Treasury bills and
commercial paper. TCG will utilize the remaining proceeds to expand its
networks, for acquisitions and to provide funds for working capital.
On July 28, 1997, TCG New York, Inc., TCG's wholly owned subsidiary,
increased the maximum amount available under the Revolving Credit Agreement to
$400 million. Approximately $380.2 million was available as of August 31,
1997.
Effective as of March 1, 1997, TCG completed its acquisition of Eastern
TeleLogic Corporation (now known as TCG Delaware Valley, Inc.) ("ETC") for
2,757,083 shares of its Class A Common Stock. The Company also assumed $53
million in ETC debt and loaned $115 million to ETC, the proceeds of which were
used by ETC to redeem the stock held by certain minority stockholders. In
addition, as part of the acquisition, TCG assumed ETC's credit facility. This
facility, which ETC entered into in October 1995, is a $60 million credit
facility (the "ETC Facility") with certain banks. Initial borrowings under the
ETC Facility of $37 million were principally used to repay existing long-term
debt, leases and certain subordinated convertible demand promissory notes. The
ETC Facility provides for interest based upon either the base rate, or London
Interbank Offered Rate ("LIBOR"), adjusted as defined in the Facility (7.4375%
at June 30, 1997), which is payable quarterly. The balance outstanding is due
on September 30, 1998. Borrowings under the ETC Facility are collateralized by
substantially all of the assets and outstanding common stock of ETC. In
addition, the ETC Facility contains certain restrictive covenants which, among
other things, require ETC to maintain certain debt service coverage ratios and
limit the payment of dividends and capital expenditures. In addition, ETC is
required to pay 3/8% per year on the available portion of the ETC Facility.
The total outstanding balance at June 30, 1997, was $52.6 million.
On February 4, 1997, the Company acquired all the outstanding capital stock
of CERFnet, a leading regional provider of Internet-related services to
businesses, including dial-up and dedicated Internet access, World Wide Web
hosting, and colocation services and Internet training. TCG issued to
CERFnet's former controlling stockholder 2,100,000 shares of its Class A
Common Stock and granted to such stockholder certain registration rights with
respect to such shares of Class A Common Stock.
On October 29, 1997, the Company acquired the remaining 50.1% equity
interest in BizTel not owned by it in exchange for the issuance of 1,667,631
shares of the Company's Class A Common Stock. The Company had previously
acquired a 49.9% interest in BizTel in February 1996.
The Company is negotiating with a CLEC, a majority of the equity of which is
owned by a Cable Stockholder, to purchase substantially all of its assets used
in connection with its fiber optic communications system. If the parties sign
a definitive purchase agreement relating to this acquisition and pending the
closing of such transaction, the Company would provide certain services in
connection with the operations of such communications system. The proposed
purchase price is approximately $55 million in cash and the Company would be
required to assume certain obligations of the seller.
The Company has incurred significant net operating losses resulting from the
development and operation of new networks which TCG expects will continue as
it expands its networks. Persistent demands from TCG's customers for capital
intensive local services drives the development, construction and expansion of
its networks. While cash provided by operations may be sufficient to fund
modest incremental growth, it is not expected to be sufficient to fund the
extensive expansion and development of networks as currently planned. See
"Risk Factors--Negative Cash Flows and Operating Losses."
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Net cash (used for) provided by financing activities for the six months
ended June 30, 1997 and 1996, was ($4.9) million and $160.7 million,
respectively, comprised primarily of principal payments on capital leases,
partially offset by proceeds from the exercise of employee stock options, for
the six months ended June 30, 1997 and borrowings under the Revolving Credit
Agreement for the six months ended June 30, 1996. Net cash (used for) provided
by operating activities was ($21.6) million and $10.1 million for the six
months ended June 30, 1997 and 1996, respectively. Net cash used for investing
activities was $143.3 million and $136.6 million for the six months ended June
30, 1997 and 1996, respectively. As of June 30, 1997, cash and cash
equivalents were $107.8 million and marketable securities were $361.9 million.
TCG made capital expenditures (excluding acquisitions) of $217.9 million and
$126.6 million for the six months ended June 30, 1997 and 1996, respectively,
on a pro forma basis. The Company anticipates that capital expenditures
(excluding acquisitions) will be approximately $500 million in the aggregate
in 1997, primarily for the expansion, development and construction of its
networks, the acquisition and deployment of switches and the expansion of
operating support systems.
The Company believes that the net proceeds from the 1996 Offerings and the
Offering and the amount of credit available under the Revolving Credit
Agreement and the ETC Facility will be adequate for its funding requirements
through 1998. The Company intends to preserve financial flexibility in order
to respond to the rapidly evolving telecommunications marketplace. TCG will
continue to take advantage of favorable financing arrangements, including the
sale of debt or equity securities in the public markets, private placements,
increasing the amount available under the existing credit facilities or adding
additional lines of credit.
The Company from time to time evaluates acquisitions and investments in
light of the Company's long range plans. Such acquisitions and investments if
realized, could use a material portion of the Company's financial resources
and may accelerate the need for raising additional capital in the future.
Earnings before fixed charges were insufficient to cover fixed charges for
the six months ended June 30, 1997 and 1996, by $95.2 million and $38.5
million, respectively. On a pro forma basis the Company's earnings would have
been insufficient to cover fixed charges by $50.5 million for the six months
ended June 30, 1996.
The Company's business, financial condition and results of operations may be
adversely affected by regulation. See "Business--Regulatory and Governmental
Matters".
The matters discussed or incorporated by reference in this Prospectus
contain forward-looking statements, within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), which are
inherently uncertain. Actual results and events may differ significantly from
those discussed in such forward-looking statements. In addition to other
information discussed herein, factors that might cause or contribute to such
differences include the risks and uncertainties set forth under the caption
"Risk Factors" in this Prospectus and the matters set forth in the Company's
1996 Form 10-K.
EFFECTS OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share". This statement is effective for financial statements issued for
periods ending after December 15, 1997. Management has evaluated the effect on
its financial reporting from the adoption of this statement and does not
believe it to be significant.
In February 1997, the FASB also issued SFAS No. 129, "Disclosure of
Information about Capital Structure". This statement is effective for
financial statements issued for periods ending after December 15 1997.
Management has evaluated the effect on its financial reporting and as it
contains no change in disclosure requirements for entities that were
previously subject to the requirements of Opinions 10 and 15 and Statement 47,
no further disclosures are needed.
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In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". This statement is effective for financial statements issued for
periods ending after December 15, 1997. Management has evaluated the effect on
its financial reporting from the adoption of this statement and has found the
majority of required disclosures to be not applicable and the remainder to be
not significant.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 requires the reporting of
profit and loss, specific revenue and expense items, and assets for reportable
segments. It also requires the reconciliation of total segment revenues, total
segment profit or loss, total segment assets, and other amounts disclosed for
segments to the corresponding amounts in the general purpose financial
statements. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997. The Company has not yet determined what additional
disclosures may be required in connection with adopting SFAS No. 131.
EFFECTS OF INFLATION
Inflation has not had a significant effect on the Company's operations.
However, there can be no assurance that inflation will not have a material
effect on the Company's operations in the future.
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BUSINESS
THE COMPANY
Teleport Communications Group Inc. is the first and largest CLEC in the
United States and offers comprehensive all-distance telecommunications
services in major metropolitan markets nationwide. The Company competes with
incumbent local exchange carriers as "The Other Local Phone Company"(R) by
providing high quality, integrated 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, healthcare and educational institutions, governmental
agencies, long distance carriers and resellers, Internet service providers,
disaster recovery service providers, wireless communications and financial
services companies. TCG offers these customers technologically advanced
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. As of September 30, 1997, the Company's high
capacity state-of-the-art digital networks were operational in 57 metropolitan
markets, including 18 of the 20 largest metropolitan areas. Company networks
are located primarily in metropolitan areas including New York/New Jersey, Los
Angeles, Chicago, San Francisco, Philadelphia, Boston, Detroit, Baltimore,
Washington, D.C., Dallas, Houston, Miami/Ft. Lauderdale, Seattle, San Diego,
St. Louis, Pittsburgh, Phoenix, Denver, Milwaukee, Indianapolis, Hartford,
Omaha, Providence, Cleveland, Portland (Oregon), Salt Lake City, Nashville,
Chattanooga, Knoxville and Birmingham. Additional TCG networks are in various
stages of development for the metropolitan areas of Cincinnati, Columbus
(Ohio), Charlotte, Tampa Bay, Sacramento, Minneapolis-St. Paul, Atlanta and
Orlando. Upon completion of these networks, the Company will operate networks
in 65 metropolitan markets including 28 of the 30 largest metropolitan areas.
As of June 30, 1997, the Company's fiber optic networks spanned over 7,870
route miles, contained over 398,774 fiber miles and served approximately
10,900 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, the Company's revenues would have increased to $283.4 million
for 1996 from $184.9 million for 1995, an increase of $98.5 million, or 53%.
For the six month period ended June 30, 1997, the Company's revenues were
$212.5 million, an increase of 72% over its revenues on a pro forma basis for
the comparable period in 1996. Substantially all of this growth was 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 $100 billion in 1996. 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 $5.5 billion in 1996, whereas the local switched
services portion of this market for business customers was estimated to have
been approximately $60 billion. The Company has been expanding into the
switched services market over the last six years by constructing switched
networks and obtaining the necessary regulatory authorizations and
interconnection arrangements to become a CLEC.
The Company believes that it is well positioned with the passage and initial
implementation of the 1996 Act to address a significantly larger portion of
the 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 (as well as increasing the switching
capacity of existing switches) and offering new products and services. Also,
in 1996, the Company introduced a new service offering consisting of basic
Internet access for business customers, and in February 1997 TCG acquired
CERFnet, a leading regional Tier I ISP for business customers. As of June 30,
1997, the Company offered a variety of Internet services in 22 metropolitan
areas.
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In September 1997 the Company introduced a general long distance service
offering packaged with its existing local services in 22 metropolitan areas.
The service is being provided primarily through the resale of other carriers'
services, although the Company provides long distance services over its own
facilities wherever possible.
TCG has historically benefited from its relationships with the Cable
Stockholders, which are among the largest 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 networks in a rapid, efficient and cost-effective manner.
The Company believes that it has several advantages that enable it to
compete successfully in the new competitive telecommunications marketplace,
including (i) extensive, technologically advanced networks located or under
development in major metropolitan markets nationwide, (ii) state-of-the-art
information systems, (iii) an experienced management team with significant
operational, technical, financial and regulatory expertise in the
telecommunications industry, (iv) positive relationships with its broad array
of commercial customers, (v) TCG's reputation for high quality service, and
(vi) established relationships with cable television operators.
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 telecommunications services to meet the voice,
data and video transmission needs of its customers, including basic local
exchange telephone services, enhanced switched services, long distance
services, dedicated services, high speed switched data services, Internet
services, disaster avoidance services and video channel transmission
services. Switched services revenue increased 87% for the six months ended
June 30, 1997 from the switched services revenue for the six months ended
June 30, 1996 on a pro forma basis. In the first six months of 1997,
approximately 43% of the Company's revenues were generated from switched
services. The Company expects a growing portion of its revenue to be
derived from basic local exchange telephone services, enhanced switched
services, Internet services and high speed switched data services as it
continues to deploy digital switches in its markets.
. 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 companies, media and
insurance companies, long distance carriers and resellers, healthcare and
educational institutions, governmental agencies, Internet service
providers, disaster recovery service providers, wireless communications
companies, residential multiple dwelling units 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. For the six months ended June 30, 1997, approximately 63%
of the Company's revenues were generated from business customers (including
resellers) and approximately 37% were generated from long distance carrier
customers.
. OFFER ALL-DISTANCE SERVICES. The Company believes there is a growing
demand, especially from small to medium-sized businesses, for
telecommunications carriers to offer comprehensive packages of services so
that a customer may obtain most or all of its telecommunications needs from
a single provider. In September 1997 TCG broadened its existing long
distance products into a general offering of long distance services in 22
metropolitan areas. These services have enhanced features and are available
packaged with the
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Company's already comprehensive offerings of local services. TCG leverages
its existing network investment by routing and switching as great a portion
of long distance services as possible over its existing local and regional
facilities, with the balance of such services being provided by the resale
of the services of other carriers. For example, the Company has
substantially completed a reconfiguration of the many adjacent local
networks it operates between Boston and Washington, D.C. into a regional
network covering a geographic area extending from southern New Hampshire to
northern Virginia.
. EXPAND GEOGRAPHIC REACH AND DENSITY OF EXISTING NETWORKS AND ENTER NEW
MARKETS. In response to customer demand, the Company continues 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. The Company may also make selected acquisitions. 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, ILECs,
railways, 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 all or a portion of the telecommunications services offered by
ILECs. However, the Company believes that the extensive geographic reach
and density of its networks make it less reliant than other CLECs on the
networks of the ILECs. In addition, where appropriate, the Company has the
ability to link its customers to its networks through a variety of
technologies including the use of microwave services, including 38 GHz
milliwave. 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.
. OFFER HIGH QUALITY NETWORKS AND SUPERIOR CUSTOMER SERVICE. TCG believes
that it offers cost and service quality advantages over ILECs 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 care
and 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 ILECs.
. BENEFIT FROM WORKING RELATIONSHIPS WITH CABLE TELEVISION OPERATORS. Through
its relationships with cable television operators, including the Cable
Stockholders, the Company has historically 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 working with certain Cable Stockholders
for the provisioning of residential or multiple dwelling unit telephony
services over the cable television operators' hybrid fiber-coaxial networks
with TCG providing switching, call processing, calling features and
ancillary services. Beginning as technical trials, these efforts have
expanded into limited commercial offerings in certain locations in
Connecticut, Michigan, California, Illinois, Maryland and Florida.
. SPEARHEAD REGULATORY REFORM. As the first and largest CLEC, 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 ILECs. The
Company has continued 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 telecommunications 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.
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RECENT DEVELOPMENTS
Third Quarter 1997 Results. On October 29, 1997, the Company reported its
third quarter financial and operating data. The Company reported third quarter
revenues of $131.4 million. TCG's switched services revenue at the end of the
third quarter represented 46% of total revenues and Internet and enhanced data
services revenues were 4.7% of total revenues. Operating expenses for the
Company were 57.2% of revenues and selling, general and administrative
expenses for the Company were 33.9% of revenues for the third quarter. EBITDA
for the third quarter was $11.8 million and EBITDA margin was 9.0% of
revenues. Net loss for the third quarter was $53.8 million or $0.32 per share
of Common Stock. At September 30, 1997, total access lines for switched
services were 249,504, voice grade equivalents were 6.28 million and high
speed data circuits in service totaled 669. TCG's capital expenditures during
the quarter totaled $118.0 million. Total fiber optic route miles at the end
of the third quarter were 8,680. Total buildings served were 12,328. Total
sales and marketing employees at the end of the third quarter were 643 out of
total employees of 2,899.
BizTel Communications, Inc. On October 29, 1997, the Company acquired the
remaining 50.1% equity interest in BizTel not owned by the Company in exchange
for the issuance of 1,667,631 shares of the Company's Class A Common Stock.
The Company had previously acquired a 49.9% interest in BizTel in February
1996. BizTel holds FCC licenses to provide telecommunications services
utilizing 38 GHz digital milliwave transmission in over 200 geographic areas,
which include more than 95 of the 100 largest metropolitan markets and all
markets were TCG operates. BizTel's 38 GHz milliwave services can be used by
TCG to economically connect customers to the Company's fiberoptic networks, to
provide network redundancy, diverse routing or quick temporary installations
and to provide stand-alone facilities where the Company does not have fiber
optic networks.
CERFnet Acquisition. On February 4, 1997, the Company acquired from General
Atomic Technologies Corporation and General Atomics all the outstanding
capital stock of CERFnet, a leading regional provider of Internet-related
services to businesses, including dial-up and dedicated Internet access, World
Wide Web hosting and colocation services and Internet training. TCG issued to
General Atomics 2,100,000 shares of its Class A Common Stock and granted to
General Atomics certain registration rights with respect to such shares of
Class A Common Stock. CERFnet operates an advanced nationwide backbone
network, maintains state-of-the-art Internet server facilities, has
established and maintains direct peering relationships with other ISPs, and
served over 6,000 customers located primarily in California and Arizona. TCG
expects to upgrade CERFnet's backbone, to accelerate the expansion of
CERFnet's services nationwide and to achieve marketing synergies by packaging
CERFnet's Internet services with TCG's complementary telecommunications
services. After the acquisition, the name of CERFnet was changed to TCG
CERFnet, Inc.
Eastern TeleLogic Acquisition. Effective March 1, 1997, TCG completed its
acquisition of ETC for 2,757,083 shares of TCG's Class A Common Stock. The
Company also assumed $53 million in ETC debt and loaned $115 million to ETC,
the proceeds of which were used to redeem the stock held by certain minority
stockholders. ETC is the leading competitive local exchange carrier in
Philadelphia, Pennsylvania and in the neighboring cities of Camden, New Jersey
and Wilmington, Delaware. In the first of two steps, on October 25, 1996, ETC
redeemed shares of its stock and employee stock options (approximately 47%)
not held by Comcast CAP of Philadelphia, Inc. ("Comcast CAP"), a corporation
owned 51% by Comcast Corporation and 49% by TCG. Comcast CAP borrowed at a
market interest rate approximately $115 million from TCG as a short-term loan
and, in turn, loaned this amount to ETC to effect the redemption. In the
second step, TCG acquired Comcast's 51% stock interest in Comcast CAP in
exchange for 2,757,083 shares of the Company's Class A Common Stock, resulting
in ETC becoming a wholly-owned subsidiary of TCG. Comcast subsequently sold
these shares of Class A Common Stock to a third party. The acquisition of ETC
provides TCG with access to the Philadelphia market, the nation's fifth
largest market, and allows TCG to establish a contiguous network between
Boston and Washington, D.C. ETC operates a Class 5 digital telephone switch
on its 525-mile fiber optic network which connects to more than 360 buildings.
After the acquisition, the name of Eastern TeleLogic Corporation was changed
to TCG Delaware Valley, Inc.
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As part of the acquisition, the Company assumed the ETC Facility. This
facility, which ETC entered into in October 1995, is a $60 million credit
facility with certain banks. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Potential Acquisition. The Company is negotiating with a CLEC, a majority of
the equity of which is owned by a Cable Stockholder, to purchase substantially
all of its assets used in connection with its fiber optic communications
system. If the parties sign a definitive purchase agreement relating to this
acquisition and pending the closing of such transaction, the Company would
provide certain services in connection with the operations of such
communications system. The proposed purchase price is approximately $55
million in cash and the Company would be required to assume certain
obligations of the seller.
The Company has had discussions with a number of other telecommunications
companies regarding acquisitions, possible strategic partnerships and other
investment arrangements. The Company has no present agreement regarding the
terms of any such transaction. If and when attractive opportunities become
available, the Company contemplates pursuing such opportunities to effect such
a transaction. Nonetheless, there can be no assurance that any such strategic
business arrangement will be entered into or the timing thereof. Specifically,
any future decision by the Company as to whether or not to pursue any such
strategic partnership or similar business arrangement will be based upon,
among other things, the relative attractiveness of available alternative
business and investment opportunities, the regulatory environment for
telecommunications properties, future developments relating to the Company,
the CLEC industry, general economic conditions and other future developments.
THE COMPANY'S SERVICES
The Company provides its customers with a comprehensive array of local and
long distance telecommunications services, including basic local exchange
telephone services, enhanced switched services, Internet services, national
and international toll services, 800 services, dedicated services, high-speed
switched data services, disaster avoidance services and video channel
transmission services. Switched voice services offered by the Company
primarily use high-capacity digital switches to route voice transmission
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 transmission from point-to-
point in multiple configurations. The Company provides its media industry
customers with point-to-point, broadcast-quality video channels for video
transmission 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 and regional calling capabilities and connection to
their IXCs. The Company's switched services are branded under the "Prime" name
and include the following:
PrimeDistance SM This service is a long distance service which is offered
as a package to the Company's customers for local services. It is a broad
service including national and international toll services, 800 services,
directory assistance, operator services and fraud detection features.
PrimeNBX SM This service gives voice and data customers a choice for
analog, digital voice-only and ISDN Centrex telephone lines to customers'
desktops. With PrimeNBX, TCG owns, houses, manages and maintains the
switch. PrimeNBX 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 customer owned private branch exchange ("PBX").
PrimeXpress SM This 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 network is accomplished by a DS-1
digital connection or analog trunks between the customer's PBX port and the
Company's switching centers.
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PrimePath SM This service enables customers to connect to the TCG network
using Prime Business Lines or Prime Business PBX Trunks. PrimePath is
available in a variety of feature packages which have been developed to
serve TCG customers, with features such as Call-Waiting, Call-Forwarding,
Conference Calling and PrimeMail voice mail.
PrimePlus SM This service provides customers with a competitive
alternative to ILEC service for intraLATA toll calls. It is a customized,
high quality calling plan available to PrimeNBX, PrimePath and PrimeXpress
customers. TCG works with customers to devise cost-saving intraLATA calling
programs based on actual usage and calling patterns.
PrimeOne SM This 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
intraLATA toll plan.
TCG Pay Phone Services These services provide full public pay telephone
service to public customers and dial tone services and access lines to
other public pay telephone providers, including pay telephone services at
several major airports.
Switched Access Services These services provide IXCs with switched
connections to their customers for the origination and termination of long
distance telephone calls.
Integrated Services Digital Network ("ISDN") PrimePlex SM Services These
services provide TCG's customers with multiple voice and data
communications 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, interconnection of local area networks ("LANs") and
Internet access.
Advanced Intelligent Network ("AIN") Services Utilizing the Bellcore
ISCP/tm format, these services offer customers advanced, customized
switching features which may include local number portability.
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 transmission from point-to-point in flexible
configurations involving different standardized transmission speeds and
circuit capacities, including:
DS-0 This is a dedicated service that accommodates business
communications with digital data transmission through a voice grade
equivalent circuit with a capacity of up to 64 kilobits per second
("kbps"). This service offers a private line digital channel for connecting
telephones, fax machines, personal computers and other telecommunications
equipment. Multiple DS-0 services are offered in a variety of combinations,
depending on the particular application and can also provide voice grade
analog connections.
DS-1 This is a high speed digital channel that typically links customer
locations to long distance carriers or other customer locations. Used for
multiple voice or data transmission, access to the Internet and
interconnection of LANs, DS-1 services accommodate digital data
transmission capacity of up to 1.544 megabits per second ("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 mpbs, 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. This
digital service is used by long distance carriers for central office
connection and by some large corporate users to link multiple sites. It is
also used for data services applications.
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TCG OmniRing SM This service provides 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 OmniRing customers enjoy the benefits of
dedicated private local OC3 or OC12 synchronous optical network ("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 native speed LAN inter-networking data service which is used to
connect workstations and personal computer users on one or more LANs. Called
OmniLAN SM, this service provides users with transmission capacity for 10 mbps
Ethernet, 4 and 16 mbps Token Ring and 100 mpbs 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. OmniLAN 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. In 1996
TCG introduced Fast Ethernet LAN Interconnect Service for business customers
which have or plan to build Fast Ethernet networks and require native speed
connections between geographically disparate LANs.
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,
called OmniStream SM, offer sophisticated switched data services 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. 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.
Internet Services. The Company accommodates its customers' demand for
Internet services directly through TCG CERFnet, a Tier I ISP, and indirectly
by providing the connection between a customer and an ISP. CERFnet Services
include a full range of Internet-related services for businesses and
professionals. These services include basic Internet dial up access for
professionals and small businesses, marketed as DIALn'CERF SM services, and
dedicated Internet access for larger customers at speeds ranging from 56 kbps
to DS-3, as well as LAN connections. CERFnet also provides World Wide Web
hosting services; the customer may choose to locate its Internet server on its
own premises with CERFn'WEB SM services or may colocate its server at a
CERFnet facility connected directly to CERFnet's Internet backbone with WEB
SuperSite SM services. CERFnet also offers Internet training and consulting
including the design of World Wide Web sites. OmniOnLine SM Internet Services
provide business customers with basic Internet access over TCG's SONET based
ATM backbone network.
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.
Wireless Services. OmniWave SM services, TCG's 38 GHZ digital milliwave
private line service, supports capacities of 4 DS-1s, 8 DS-1s and 1 DS-3.
These services can be multiplexed at either end of the circuit to provide
lower levels of bandwidth. OmniWave services utilize a broadband milliwave
transmission spectrum for quality and reliability that is comparable to that
achieved by conventional fiber optic networks. BizTel is TCG's primary and
preferred provider of these services.
Residential Services. TCG currently offers residential telephony services on
a retail basis in several multiple dwelling units and in a number of single
family residences and continues to develop services for this
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market. TCG provides wholesale local exchange services that are suitable for
reselling to residential consumers, including local and long distance toll
usage, features and auxiliary functions such as network provisioning,
installation, customer service, billing, operator services, and directory
assistance. TCG's wholesale customers, which resell these services to
individual users, include landlords, real estate development and management
companies and the Cable Stockholders. With certain exceptions, TCG's ability
to provide residential services is subject to the approval of its Class B
stockholders. See "Description of Capital Stock."
Calling Card Services. In August 1997 TCG commenced offering a full service
long distance calling card with specialized features designed for business
travelers, called PrimeCard SM service.
CUSTOMERS AND MARKETING
The Company's customers are principally telecommunications-intensive
businesses, hospitals, and educational institutions, governmental agencies,
long distance carriers and resellers, Internet service providers, disaster
recovery service providers and wireless communications and financial services
companies. In 1985, the Company's customers were primarily long distance
carriers. While the Company's carrier business has continued to grow, in 1996
all other customers (including resellers) accounted for approximately 62% of
the Company's pro forma revenues. For the first six months of 1997, the
Company's 10 largest customers accounted for approximately 43% of TCG's total
revenues. During that period, no customer accounted for more than 10% of such
revenues.
The Company has sought to establish "TCG"(R) "Prime-" and "Omni-" as
recognized brand names for its services and products. TCG is rebranding the
Internet services of its CERFnet subsidiary as "TCG CERFnet" services. 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 and facility diversity. The
Company's centrally managed customer care and support operations are designed
to facilitate the installation of new services and 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 State PUCs (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 initially 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 and
educational and governmental institutions. In addition, TCG markets its
services through sales agents, landlords, advertisements, trade journals,
media relations, direct mail and participation in trade conferences.
The Company is increasing its marketing to small and medium-sized business
customers. The Company's strategies for addressing this market include (i)
hiring and training specialized account executives dedicated to developing
this market; (ii) increased marketing to this class of customers in office
buildings or multiple dwelling units already served by TCG's network; (iii)
developing special services and packages of services attractive to this market
segment; and (iv) employing 38 GHz wireless technology to reach these
customers cost-effectively.
TCG also targets long distance carriers and resellers, ISPs, disaster
recovery service providers and wireless telephone companies through its
national sales organization. The Company has master services agreements (which
generally set forth technical standards, ordering processes, pricing
methodologies and service grade
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requirements, but do not guarantee any specified level of business for TCG)
with a significant number of long distance carriers. For example, 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 these carriers to avoid complete dependence on
the ILECs for access and to obtain a high quality, reliable local connection
at 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 service providers, cable
television companies and long distance carriers, to resell TCG's services. TCG
has engaged in technical trials pursuant to which certain long distance
carriers have resold 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 September 30, 1997, all but one had been terminated.
The Company is seeking to initiate trials with other carriers, but no new
trials have commenced. 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 or become commercial offerings. 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 transmission 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 (primarily provided by BizTel) 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 IXCs
and other local exchange networks. Redundant electronics, with automatic
switching to the backup equipment in the event of failure, protect against
signal deterioration or outages. Continuous monitoring of system components
focuses on proactively avoiding problems rather than just reacting upon
failure.
TCG adds switched, dedicated, Internet 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 and native ATM
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 technologies such as
microwave transmission, including 38 GHz milliwave. 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
networks to accommodate (i) the customer's current and future
telecommunications needs and (ii) the Company's efforts to maximize return on
network investment.
In determining which new markets to enter, the Company carefully analyzes
the potential customer base and competitive condition within the market. The
Company is planning on building new facilities, entering into
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fiber leases, and other arrangements with cable television companies and other
carriers, acquiring existing telecommunications providers and exploring new
technologies that have 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, 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. The Company's use of BizTel as its primary and
preferred provider of 38 GHz services offers the Company the opportunity to
market telecommunications facilities to customers in geographical areas where
the Company has not yet constructed, and may not find it economical to
construct, fiber optic facilities.
The following chart sets forth information regarding each of the Company's
local telecommunications networks that are active or in progress as of June
30, 1997:
<TABLE>
<CAPTION>
METROPOLITAN
AREA METROPOLITAN MARKET(A)
------------ ----------------------
<S> <C>
New York/New Jersey.......... Bergen-Passaic, Jersey City, Middlesex-Somerset-
Hunterdon,
Nassau-Suffolk, New York, Newark, Trenton
Boston....................... Boston, Brockton, Lawrence, Worcester
San Francisco................ Oakland, San Francisco, San Jose
Chicago...................... Chicago, Gary
Philadelphia................. Philadelphia, Wilmington
Los Angeles.................. Los Angeles-Long Beach, Orange County
Houston...................... Houston
Dallas....................... Dallas, Fort Worth-Arlington
Omaha........................ Omaha
Seattle...................... Bellingham, Seattle-Bellevue-Everett, Tacoma
San Diego.................... San Diego
Milwaukee.................... Kenosha, Milwaukee-Waukesha, Racine
Detroit...................... Detroit
Miami/Ft. Lauderdale......... Fort Lauderdale, Miami, W. Palm Beach-Boca Raton
Phoenix...................... Phoenix-Mesa
Hartford..................... Bridgeport, Danbury, Hartford, New London-Norwich,
New Haven-Meriden, Waterbury
St. Louis.................... St. Louis
Indianapolis................. Indianapolis
Baltimore.................... Baltimore
Washington................... Washington, D.C.
Pittsburgh................... Pittsburgh
Denver....................... Boulder-Longmont, Denver
Providence................... Providence-Fall River-Warwick
Cleveland.................... Cleveland-Lorain-Elyria
Portland (Oregon)............ Portland-Vancouver
Salt Lake City............... Salt Lake City-Ogden
Birmingham................... Birmingham
Chattanooga.................. Chattanooga
Knoxville.................... Knoxville
Nashville.................... Nashville
</TABLE>
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<TABLE>
<CAPTION>
METROPOLITAN
AREA METROPOLITAN MARKET(A)
------------ ----------------------
<S> <C>
Tampa Bay................................. Tampa Bay
Orlando................................... Orlando
Columbus (Ohio)........................... Columbus
Charlotte................................. Charlotte
Cincinnati................................ Cincinnati
Atlanta................................... Atlanta
Minneapolis-St. Paul...................... Minneapolis-St. Paul
Sacramento................................ Sacramento
</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.
COMPETITION
The Company faces substantial and increasing 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, SBC Communications, U S WEST, Southern New England
Telecommunications and GTE. The Company believes that ILECs generally benefit
from their long-standing relations with customers, substantial technical and
financial resources, established ubiquitous networks 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
CLECs offer substantially similar services at substantially similar prices to
those of the Company. Other CLECs, ILECs entering new geographic markets,
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. In addition, the current trend of actual and proposed business
combinations and alliances in the telecommunications industry, which include
mergers between ILECs, between IXCs and international carriers and between
IXCs and CLECs, may create significant new competitors for the Company.
The 1996 Act is intended to increase competition in the local
telecommunications business. The 1996 Act requires all local exchange
providers, including the Company and new entrants, to offer their services for
resale and requires ILECs to offer their substantial network facilities on a
discounted wholesale basis and on an unbundled basis. These requirements may
facilitate entry by new competitors without substantial capital risk or
investment. However, there can be no assurance that any rates or facilities
offered by ILECs to TCG or other CLECs will be economically attractive or
technically viable.
The Company believes that the 1996 Act will provide it with increased
business opportunities and potentially better margins by opening all local
markets to competition and by requiring ILECs to provide improved direct
interconnection at lower cost. However, under the 1996 Act, the FCC and some
state regulatory authorities may provide ILECs with increased flexibility to
reprice their service as competition develops and as ILECs allow competitors
to interconnect to their networks. In addition, some new entrants in the local
market may price certain services to a particular customer or for a particular
route below the prices charged by the Company for services to that customer or
for that route, just as the Company may itself underprice those new entrants.
If ILECs and other competitors lower their rates and can sustain significantly
lower prices over time, this may adversely affect revenues and margins of TCG.
If regulatory decisions permit the ILECs to charge CLECs substantial fees for
interconnection to the ILECs' networks or afford ILECs other regulatory
relief, such decisions could also have a 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) 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
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and (iv) a shift by IXCs to purchase access services from 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.
Currently, TCG's services are predominantly local and regional, although TCG
has begun to offer wholesale and other long distance services on a limited
basis in order to provide a full range of telecommunications services to those
customers who prefer to obtain most or all of their telecommunications
services from one provider. However, TCG has examined from time to time, and
will continue to examine, opportunities to expand its provisioning of other
related telecommunications services. If the Company were to expand its
provisioning of telecommunications or Internet 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.
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. In addition, affiliates of TCI, Cox and Comcast, which
collectively have designated a majority of the directors of the Company,
together with an affiliate of Sprint, have formed Sprint PCS, a partnership
created to provide certain wireless telecommunications services. Also,
affiliates of TCI, Cox and Comcast are principal owners of At Home, a provider
of Internet related services over the @Home(TM) Network. 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. 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 June 26, 2001, 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.
REGULATORY AND GOVERNMENTAL MATTERS
Introduction. TCG is subject to extensive federal and state regulation. In
most states, the Company is subject to certification and tariff filing
requirements with respect to intrastate services. TCG is permitted to file
tariffs for interstate access services with the FCC, although such tariff
requirements are generally less restrictive than those imposed on ILECs which
offer similar services. An FCC order that required domestic interstate,
interexchange tariffs to be canceled has been temporarily stayed and a number
of parties have filed petitions with the FCC seeking reconsideration of the
FCC's decision. On June 19, 1997, the FCC adopted an Order that permits CLECs
like the Company to voluntarily withdraw their FCC tariffs for most interstate
services. The Company has not decided whether to withdraw its FCC tariff. On
the same day, the FCC initiated a further inquiry to determine whether to
require that competitive local exchange carriers like the Company withdraw
their tariffs. While the Company cannot predict what the FCC will do with this
further inquiry, were the FCC to require the withdrawal of the Company's
tariffs and replacement of those tariffs with contractual arrangements, TCG
could incur substantial legal and administrative expense.
Under the 1996 Act, all local exchange carriers, including TCG, must
interconnect with other carriers, make their services available for resale by
other carriers, provide non-discriminatory access to rights of way, offer
reciprocal compensation for termination of traffic and provide dialing parity
and telephone number portability. See "--Competition". The Company, ILECs,
other CLECs and long distance carriers, will also be required to contribute
some portion of their gross revenues (subject to adjustments) to the support
of universal service
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programs under the FCC's rules implementing the universal service provisions
of the 1996 Act, which were adopted on May 7, 1997. TCG may also be eligible
to receive funds from universal service programs if the Company provides
services to schools and libraries. Several parties have sought judicial review
of the FCC's universal service rules.
Interconnection/Access Arrangements. Under the 1996 Act, ILECs are required
to negotiate with TCG to provide for interconnection to the ILEC network. In
the event that an interconnection agreement cannot be negotiated the 1996 Act
provides for mandatory arbitration before state public utility commissions
("State PUCs"). TCG was able to reach negotiated agreements with NYNEX (now
owned by Bell Atlantic) for New York, with Pacific Telesis (now owned by SBC
Communications) for California and with BellSouth for its entire region. TCG
was required to seek arbitration with ILECs to obtain interconnection
agreements in other states where the Company operates. During this process TCG
has generally been able to operate pursuant to pre-existing arrangements with
ILECs. TCG has concluded its initial set of arbitrations and its
interconnection agreements are either final or nearing final regulatory
approval. However, some ILECs are seeking judicial review of the arbitrated
decisions and certain of TCG's final interconnection agreements are subject to
appeal to federal and state courts as permitted by the 1996 Act. In
particular, TCG's agreements with U S WEST in Arizona, Colorado, Oregon and
Washington have been appealed by U S WEST and its agreement with Southwestern
Bell in Texas has been appealed by Southwestern Bell. TCG appealed its
agreement with Ameritech in Wisconsin, and both TCG and Ameritech have
appealed the arbitration decision of the Illinois Commerce Commission. On
October 15, 1997, the United States District Court for the Western District of
Wisconsin granted the summary judgment motions of Ameritech Wisconsin and the
Public Service Commission of Wisconsin. TCG has not, at this time, determined
what further steps, if any, it may take in connection with this Wisconsin
appeal. In none of these surviving appeals has a preliminary injunction been
sought or granted and accordingly the interconnection agreements as approved
by the State PUCs remain valid and in effect.
On August 8, 1996, the FCC released both a First Report and Order and a
Second Report and Order and a Memorandum Opinion and Order (collectively, the
"Interconnection Orders"). The Interconnection Orders established a framework
of minimum national standards and procedures to enable State PUCs and the FCC
to begin implementing many of the local competition provisions of the 1996
Act. On September 27, 1996, the FCC issued an Order on Reconsideration of the
First Report and Order, in which it added a non-usage-sensitive charge to the
rate for unbundled switching and clarified that, as a practical matter, an IXC
could not lease unbundled switching for the provision of exchange access
service only until July 1, 1997. The new rules were scheduled to become
effective on September 30, 1996. On October 15, 1996, however, the U.S. Court
of Appeals for the Eighth Circuit issued a stay of certain provisions of the
rules pending its resolution of numerous petitions for review filed by ILECs
and others. Specifically, the Court stayed the FCC's pricing rules and its
"pick and choose" rule, which would have allowed CLECs to receive the benefit
of the most favorable provisions contained in an ILEC's agreements with other
carriers. On July 18, 1997, the Court of Appeals held that the pricing rules
and the "pick and choose" rule exceeded the FCC's authority and were
inconsistent with the terms of the 1996 Act. The Court of Appeals also
invalidated the FCC's rule requiring that interconnection agreements
negotiated prior to enactment of the 1996 Act be submitted to state
commissions for approval, and it held that the FCC had no authority to review
or enforce agreements approved by state regulators. The FCC has indicated that
it may ask the United States Supreme Court to review the decision of the Court
of Appeals. The Supreme Court previously rejected applications to vacate the
stay that had been imposed by the Court of Appeals, and it is impossible to
predict whether the Court will agree to review the decision or what the
outcome of such review would be.
As indicated above, an FCC rule temporarily precluded IXCs from leasing
unbundled switching (and other unbundled network elements) from ILECs for the
provision of exchange access only. The effect of this rule lapsed on June 30,
1997. Since that date, IXCs were free in principle to lease switching and
other network elements from ILECs (through IXC-affiliated CLECs) and to use
those facilities for exchange access, with or without any local facilities
being provided by the IXCs themselves. On August 18, 1997, the FCC issued an
order clarifying that IXCs would be permitted to lease access to ILEC switches
and interoffice circuits on a per-minute basis. The July 18, 1997 Court of
Appeals Order described above overturned an FCC rule that would
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have empowered CLECs, including CLECs affiliated with IXCs, to direct ILECs to
recombine network elements obtained from ILECs on an unbundled basis, but the
Court of Appeals let stand an FCC rule that empowered interconnectors to
direct ILECs to refrain from separating such "unbundled" elements. On October
14, 1997, the Eighth Circuit ruled in favor of those ILECs and substantially
modified its July 18, 1997 decision. The Court ruled that ILECs cannot be
compelled to "combine" two or more unbundled elements into "platforms" or
combinations, finding that IXCs must either combine the elements themselves,
or purchase entire retail services at the applicable wholesale discounts if
they wish to offer local services to their customers. The latter omission was
the subject of petitions for reconsideration filed with the Court of Appeals
by ILECs.
On June 13, 1997 the FCC ordered certain ILECs to refund to certain CLECs,
including the Company, various overcharges by the ILECs for colocation
arrangements retroactive to December 1994. TCG is unable to estimate the
probable amount of this refund but expects that the amount of any refund will
not be material to the Company's financial condition.
ILEC Provision of InterLATA Services. The 1996 Act requires the Bell
Operating Companies (Ameritech, Bell Atlantic, BellSouth, SBC Communications
and U S WEST) to satisfy certain conditions and obtain FCC approval before
they are permitted to provide long distance services in their local telephone
service areas. On June 27, 1997, in its first decision on an application by an
ILEC for permission to provide long distance services, the FCC found that the
ILEC (SBC) had not satisfied the statutory requirements, and it denied the
application. The FCC rejected a similar petition by Ameritech on August 19,
1997, on the grounds that the technical quality of services that it provides
to competitors is inadequate and its systems for receiving and responding to
requests for service from competitors requires substantial improvement.
BellSouth has since filed an application with the FCC for permission to
provide long distance service in South Carolina, criticizing the criteria
applied by the FCC to SBC and Ameritech. SBC has asked the United States Court
of Appeals for the Tenth Circuit to review the FCC's denial of its application
and has also filed a lawsuit in federal district court alleging that the
provisions of the 1996 Act that impose unique requirements and conditions on
the Bell Operating Companies are unconstitutional. In addition, four new
commissioners have been nominated to the five-member FCC, and the ILECs have
clearly indicated that they will seek to persuade the new majority to relax
their standards for ILEC relationships with local competitors. The ability of
Bell Operating Companies to provide long distance services will enable them to
provide customers with a full range of local and long distance
telecommunications services. The provision of long distance services by Bell
Operating Companies may reduce the market share of the major long distance
carriers, which are among TCG's largest customers, but TCG believes it may
encourage these carriers to use TCG's and other CLECs' services instead of
Bell Operating Companies services.
Access Charge Reform. On December 24, 1996, the FCC adopted certain changes
and proposed other changes in the interstate access charge system. The FCC
relaxed certain restrictions on ILECs' ability to lower access prices and
relaxed the regulation of new switched access services in those markets where
there are other providers of access services. If this increased pricing
flexibility is not effectively monitored by federal regulators, it could have
a material adverse effect on TCG's ability to compete in providing interstate
access services. On May 7, 1997, the FCC issued an Order relating to access
charge reform and other matters, certain aspects of which have been appealed
by various parties. The FCC also proposed rules to reform the interstate
access charge rate structure, including proposals that would either grant
ILECs increased pricing flexibility based on increased levels of competition,
or mandate lower rates regardless of the level of competition. Although the
Company cannot predict the outcome of the upcoming access charge reform, TCG
believes that it is likely that the planned reform of the FCC's access charge
rules ultimately will result in a significant restructuring of the rates for
ILEC interstate switched access services, and a significant increase in
pricing flexibility for ILECs. The FCC has enacted a number of reforms of its
switched access rates. It has adopted rules that will provide discounts to
users of certain CLEC switched access transport services, such as those
provided by the Company. On October 9, 1997, the FCC, in response to several
petitions for reconsideration, modified its May 7, 1997 access charge
decision. Additionally, certain of the FCC's proposed reforms are intended to
gradually lead to more cost based rates for tandem switched access services
offered by ILECs, eliminating below cost rates for tandem access services that
prior FCC policies required. The Company believes that these policies will
improve the Company's position in competing for the provision of such
services. Other elements of the FCC's access reforms will lead
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to lower ILEC rates for certain switched access services, or a restructuring
of ILEC switched access rates. These restructured rates could make ILEC
exchange access services more attractive to certain high-volume IXCs while
reducing the attractiveness of ILEC exchange access services for lower-volume
IXCs. Because the FCC's rate structure reforms do not begin to take effect
until January 1, 1998, and since the Company cannot predict the exact impact
of the reforms on ILEC access rates or the Company's prices, the Company
cannot determine whether the access reforms will have any impact on the
Company.
Treatment of Internet Calls. Various ILECs have taken the position that the
historical exemption from access charges of certain enhanced service
providers, which currently include ISPs, should be reversed. Although this
position was rejected by the FCC in its May 7, 1997 access charge Order,
certain ILECs have also taken the position that they will not pay reciprocal
compensation to CLECs with respect to telephone services from the ILEC's
customer to an ISP served by a CLEC. TCG believes these positions are contrary
to the 1996 Act and those state commissions which have so far considered the
issue have declared that ILECs should pay CLECs reciprocal compensation for
the Internet traffic. However, no prediction can be made whether the ILECs
ultimately will be successful in asserting their positions. However, if state
commissions, the FCC or courts were to reach final decisions which found in
favor of the ILECs, such decisions could result in a material adverse effect
on TCG, both as an Internet service provider, itself and as a provider of TCG
local exchange services to other Internet service providers.
Pay Telephone Compensation. The United States Court of Appeals for the
District of Columbia decided on July 1, 1997 to reject the system adopted by
the FCC for the compensation of providers of pay telephone services by long
distance companies. The Court remanded the matter to the FCC for further
proceedings. The Company, as a provider of pay telephone services in a number
of cities, is a recipient of such pay telephone compensation payments. On
October 9, 1997, the FCC adopted new rules which reduce the compensation to
providers of pay telephone services.
Universal Service. In its implementation of the 1996 Act, the FCC
established new federal universal service mechanisms. Under the new rules,
CLECs gain access to universal service subsidies but are required to
contribute to both federal and state universal service funds. The FCC on July
18, 1997, determined that the National Exchange Carrier Association ("NECA")
will be the temporary administrator of the universal service program. All
entities potentially contributing to the program filed a revenue worksheet
with NECA on or before September 1, 1997, and NECA will calculate amounts owed
for universal service support. The first of four quarterly payments will be
due January 1, 1998. The extent of the Company's federal and state universal
service payment obligations cannot be accurately predicted by the Company at
this time, but may be substantial. A number of parties have challenged the
FCC's universal service order and the cases have been consolidated in the U.S.
Court of Appeals for the Fifth Circuit in New Orleans. Either the FCC's
reconsideration of its rules or a judicial determination could result in a
change in CLEC support payments required for federal universal service
programs. Parties also have sought stays of the rules from both the FCC and
the Fifth Circuit. On October 21, 1997, the Fifth Circuit denied such request.
Other 1996 Act Provisions. The 1996 Act contains other provisions that
potentially could affect TCG's business, which may be subject to FCC
rulemaking and judicial interpretation, including a provision that limits 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.
Telephone Number Portability Issues. On July 2, 1996, the FCC released its
First Report and Order and Further Notice of Proposed Rulemaking promulgating
rules and regulations to implement Congress' statutory directive concerning
number portability (the "Number Portability Order"). The Number Portability
Order was modified on March 6, 1997. As modified, the Number Portability Order
requires all ILECs and CLECs to begin phased development of a long-term
service provider portability method in the 100 largest Metropolitan
Statistical Areas ("MSAs") no later than October 1, 1997, and to complete
deployment in those MSAs by December 31, 1998 for all MSAs in which another
carrier has made a specific request for the provision of portability. After
December 31, 1998, each ILEC and CLEC must make number portability available
within specific time frames
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after receiving a specific request by another telecommunications carrier.
Until long-term service portability is available, ILECs and CLECs must provide
currently available number portability measures as soon as reasonably possible
after a specific request from another carrier. As new carriers are at a
competitive disadvantage without telephone number portability, the Number
Portability Order should enhance the ability of the Company to offer service
in competition with the ILECs, but it is uncertain how effective these
regulations will be in promoting number portability. The Number Portability
Order does not address how the costs of implementing long-term service
portability, which could be substantial, will be recovered.
State Regulation. Most State PUCs require carriers that wish to provide
local and other jurisdictionally intrastate common carrier services to be
authorized to provide such services. TCG's operating subsidiaries are
authorized to provide local exchange services in Alabama, Arizona, California,
Colorado, Connecticut, Delaware, the District of Columbia, Florida, Georgia,
Illinois, Indiana, Iowa, Kentucky, Maryland, Massachusetts, Michigan,
Minnesota, Missouri, Nebraska, New Hampshire, New Jersey, New York, North
Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Texas, Utah,
Virginia, Washington and Wisconsin. TCG expects to file for CLEC authority in
a number of additional states, and to seek geographically broadened authority
in states in which it already holds LEC authority for portions of the state.
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 its intrastate
services. In some jurisdictions, the tariff can list a rate range for
intrastate services. TCG may be subject to additional regulatory burdens in
some states, such as quality of service requirements, the requirement to offer
residential service and make universal service contributions. In New York and
New Jersey, TCG has authority to borrow up to $4 billion in long term debt,
which is sufficient to amortize all current long term indebtedness of the
Company.
The July 18, 1997 Court of Appeals Order overturned FCC pricing rules for
unbundled network elements of ILEC exchanges and held that such prices were
subject to regulation by the states. The FCC has appealed the Order to the
Supreme Court. In the meantime, the terms and conditions under which TCG, its
competitors, and IXC-affiliated CLECs obtain interconnection with ILEC
networks will be heavily dependent on pricing decisions by state regulatory
commissions. Most state commissions have adopted pricing methodologies that
are similar in concept to the pricing methodologies proposed by the FCC.
Local Government Authorizations. TCG may be required to obtain from
municipal authorities in certain cities street opening and construction
permits and other rights-of-way to install and expand its digital networks. In
some cities, TCG's affiliates or subcontractors may already possess the
requisite authorizations to construct or expand TCG networks.
In some of the metropolitan areas where TCG provides network services, TCG
may pay license or franchise fees. There can be no assurance that
municipalities that do not currently impose fees will not seek to impose fees
in the future, nor is there any assurance that following the expiration of
existing authorizations, fees will remain at their current levels. Under the
1996 Act, such fees must be fair and reasonable, applied on a competitively
neutral and non-discriminatory basis and be publicly disclosed by the relevant
governmental entity. 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 TCG or another CLEC. In September 1996, TCG
filed suit in federal district court alleging that the City of Dearborn,
Michigan acted in an unlawful and discriminatory manner in imposing a fee
equal to a percentage of gross revenues for its use of public rights-of-way,
which fee is not imposed on the local ILEC (Ameritech Michigan) in violation
of applicable state law and Section 253(c) of the 1996 Act. TCG's suit is
currently pending in the U.S. District Court for the Eastern District of
Michigan (Southern Division). A motion for summary judgment has been filed by
TCG. In addition, in July 1996, a subsidiary of TCG, Teleport Communications
(New York) ("TCNY") filed suit in United States District Court in Newark, New
Jersey alleging that an ordinance adopted by the Township of Bloomfield, New
Jersey imposing a fee per linear foot per year for the right to use a public
right-of-way is unlawfully discriminatory, in violation of the United States
Constitution and Section 253(c) of the 1996 Act. TCNY has filed a motion for
summary
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judgment. The Township of Bloomfield has, however, agreed to change its
ordinance and therefore the parties are in the process of negotiating a
settlement agreement. In addition, in February 1997 the City of Chattanooga
joined TCG in a pending action in the U.S. District Court for Eastern
Tennessee seeking to interpret the nondiscriminatory and competitively neutral
requirements of Section 253(c) of the 1996 Act. On October 24, 1997, the
District Court granted the defendants' motion for summary judgment, ruling
that the City's franchise requirements violated state law.
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 TCNY 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 TCNY pay to The
City of New York as an annual franchise fee an amount based on a percentage of
TCNY's gross revenues. TCG 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 June 30, 1997, the Company employed 2,673 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 ended December 31, 1995 and 1996, rental expense
for operating leases totaled $11.8 million and $18.0 million, respectively. On
a pro forma basis, rental expense for operating leases totaled $16.4 million
and $20.4 million for the years ended December 31, 1995 and 1996,
respectively. The Company has no significant real estate holdings. 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 it maintains its
headquarters, approximately 120,000 square feet in Dayton, New Jersey, where
its principal executive offices are located, and approximately 70,000 square
feet in Englewood, Colorado where its National Customer Service Center is
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
DIRECTORS
Robert Annunziata, age 49, has been Chairman of the Board since 1990 and a
director since 1984. See "--Executive Officers" for a description of Mr.
Annunziata's business experience.
Brendan R. Clouston, age 44, 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 served as a consultant to TCI since August 1997. Mr. Clouston
served as an Executive Vice President of TCI from January 1994 to August 1997
and as Chief Financial Officer of TCI from March 1997 to April 1997. Mr.
Clouston served as President and Chief Executive Officer of TCI
Communications, Inc. ("TCIC"), the predecessor company and now a subsidiary of
TCI from October 1994 to March 1997 and as Executive Vice President and Chief
Operating Officer of TCIC from March 1992 to October 1994. 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.
John R. Dillon, age 56, has been a director since December 1991. Mr. Dillon
was Senior Vice President and Chief Financial Officer of Cox Enterprises, Inc.
("CEI") since 1990 and retired on December 31, 1996. He continues to serve as
a consultant to CEI and joined Cravey, Green & Wahlen, a private equity firm,
as Managing Director in February 1997. He is also a director of Cox
Communications, Inc. ("CCI").
Gerald W. Gaines, age 41, has been a director since November 1994. Mr.
Gaines has been Senior Vice President of Telephony Services for TCI since
1994, and represents TCI in its joint venture with Sprint, Cox and Comcast.
Prior to that, he had been founder and President of GCG Inc., a management
services firm serving the telecommunications industry since 1991. From 1986 to
1991, Mr. Gaines held various executive positions with U S WEST, most recently
serving as President and Chief Executive Officer for U S WEST Service Link, a
service bureau providing operator and computerized validation services. He
also serves on the Board of Directors of the Five Points Media Center.
Jimmy W. Hayes, age 45, has been a director since August 1996. He joined CEI
in 1980 as Accounting Manager. He was promoted in May 1981 to Assistant
Controller in December of that year. He was named a corporate officer in
December 1982, and promoted to Vice President of Finance of CCI in August
1989. He was promoted to Senior Vice President of Finance and Chief Financial
Officer of CCI in January 1992. Prior to joining CCI, Mr. Hayes was an Audit
Manager with Price Waterhouse & Company in Atlanta.
James Bruce Llewellyn, age 70, has been a director since June 1996. He has
been the Chairman of the Board and principal stockholder of the Philadelphia
Coca-Cola Bottling Company since 1985. He was the principal stockholder and
Chairman of the ABC television network affiliate in Buffalo, New York. He
served as the Chairman of Garden State Cablevision, Inc. and has been a
partner in the Washington, D.C. law firm of Dickstein, Shapiro & Morin. He
serves on the Board of Directors of Coors Brewing Company and Essence
Communications, Inc.
James O. Robbins, age 55, has been a director since April 1996. Mr. Robbins
has served as President and Chief Executive Officer of CCI since May 1994.
Prior to that, Mr. Robbins had been President of CCI since 1985. Mr. Robbins
has been a director of CCI since May 1994. Mr. Robbins is a member of the
Executive Committee of the National Cable Television Association. Mr. Robbins
also serves as a director to TeleWest Communications plc and NCR Corporation
and is a representative on the Partnership Board of Sprint Spectrum Holding
Company, L.P., the general partner of Sprint Spectrum, L.P.
Brian L. Roberts, age 38, 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 Comcast UK Cable Partners Limited.
C.B. Rogers, Jr., age 68, has been a director since June 1996. He has been
Chairman of Equifax Inc. since 1992. He was Chief Executive Officer of Equifax
Inc. from 1989 to December 1995. He is Chairman of the
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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 for 33 years before joining Equifax Inc. in 1987. He
also serves on the Board of Directors of Sears, Roebuck & Co., Briggs &
Stratton Corporation, Oxford Industries, Inc. and Morgan Stanley, Dean Witter,
Discover & Co.
Larry E. Romrell, age 57, has been a director since April 1996. Prior to
that time, he was 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 50, 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. He joined Comcast in 1988 with responsibility for
financial administration and corporate accounting. He previously served as
Chief Financial Officer of Advanta Corp., a financial services firm, and was a
tax partner in the Philadelphia office of Arthur Andersen & Co., with which he
was affiliated for 18 years. Mr. Smith serves on several corporate boards
including Comcast UK Cable Partners Limited, Sprint Spectrum Holding Company,
L.P., E! Entertainment Television, Inc. and QVC, Inc.
Bernard W. Schotters, age 52, has been a director since August 1996. He was
appointed Senior Vice President--Finance and Treasurer of TCIC in October
1991. Previously he served as TCI's Vice President--Finance. Mr. Schotters is
currently a member of the National Association of Securities Dealers 1994
Issuer Affairs Committee and functions in a consultative capacity to the
National Cable Television Association. Prior to joining TCI in 1983, Mr.
Schotters was Vice President of Wells Fargo Bank where he was involved in
commercial lending activities.
David M. Woodrow, age 51, has been a director since November 1992. Mr.
Woodrow has been Senior Vice President of Broadband Services for CCI since
1994. Prior to that, he had been Senior Vice President of Operations for CCI
since 1989. Mr. Woodrow is a director of the Cellular Telephone Industry
Association and At Home.
EXECUTIVE OFFICERS
Robert Annunziata, age 49, has been Chairman of the Board 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 30 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 Board of Directors of the YMCA of Greater
New York. Formerly, he served 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, age 46, 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, the CLEC trade association.
Marsha Gewirtzman, age 47, has been Senior Vice President--People Services
since October 1997, having previously served as Vice President--People
Services. She joined TCG as Vice President--Sales Operations in January 1996.
Prior to joining TCG she held various senior management and executive
positions over a period of 8 years with Tiffany & Co. She also spent 15 years
with AT&T in a variety of marketing, sales, management and planning positions.
Ms. Gewirtzman serves on the Board of Directors of the Business School of the
College of William & Mary.
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Joel D. Gross, age 43, 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 held a variety of management positions at AT&T spanning 8 years. Mr.
Gross serves on the Board of Directors of BizTel Communications, Inc.
Alf T. Hansen, age 54, was appointed Senior Vice President--Emerging Markets
in October 1997. Prior to that, he had been Senior Vice President--National
Operations since January 1993, and prior to that, he had been Vice President--
National Operations since March 1990 and Vice President--Engineering and
Operations for TCG's New York/New Jersey metropolitan area since joining TCG
in 1989. Prior to joining TCG, Mr. Hansen worked for AT&T where he had
assignments in Operations, Engineering, Sales and Public Relations. From 1983
to 1988, he managed AT&T's Long Distance Switched Network in New England and
New York. In 1988, he was AT&T's Project Manager responsible for the
implementation of the Tariff 12 Networks.
J. Curt Hockemeier, age 49, was appointed Senior Vice President--Network
Operations in October 1997. Prior to that, he had been Senior Vice President--
Network Services. Mr. Hockemeier joined TCG in January 1993. Prior to that, he
had been Vice President and General Manager of Cox Cable Oklahoma City since
1983. He joined Cox Cable in Atlanta in 1980 as Director of Corporate
Advertising. Mr. Hockemeier was employed by General Electric Co. for 9 years
in a variety of marketing communications assignments prior to joining Cox
Cable.
Marvin L. Lindsey, age 57, was appointed Senior Vice President--MIS in
October 1997. Prior to that, he had 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 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, age 58, was appointed Senior Vice President--Sales and
Marketing in October 1997. Prior to that, he had 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 executive positions with AT&T Information Systems
following almost sixteen years of sales, marketing and management experience
with IBM's Data Processing Division.
John A. Scarpati, age 46, has been Senior Vice President and Chief Financial
Officer since March 1990. He has been the senior financial officer of TCG
since its inception. Prior to joining TCG, he was Vice President and manager
for Merrill Lynch & Co., primarily responsible for performing due diligence
reviews for companies being considered for acquisition by Merrill Lynch & Co.
or its subsidiaries. His assignments included Merrill Lynch & Co.'s investment
in TCG and Merrill Lynch & Co.'s entry into the real estate brokerage and
banking industries. Mr. Scarpati is a Certified Public Accountant and is a
member of the American Institute of Certified Public Accountants and the New
York State Society of Certified Public Accountants.
Kenneth A. Shulman, age 44, 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
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Engineering at Bell Laboratories. Mr. Shulman serves on the Board of Directors
of WarpSpeed Communications, Inc. and the Alliance for Telecommunications
Industry Solutions (ATIS) and is a member of the FCC's North American
Numbering Council.
Maria Terranova-Evans, age 42, 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, age 41, 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.
John W. Thomson, age 49, 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., age 44, 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.
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SECURITY OWNERSHIP OF MANAGEMENT,
PRINCIPAL STOCKHOLDERS AND SELLING STOCKHOLDER
The following table provides information, as of September 30, 1997, with
respect to the beneficial ownership of the Company's Common Stock by (i) each
person known by the Company to be the beneficial owner of more than 5% of any
class of the Company's voting securities, including the Selling Stockholder,
and (ii) 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>
PERCENT OF
CLASS A CLASS B VOTE OF ALL CLASS A CLASS B
COMMON STOCK COMMON STOCK CLASSES OF COMMON STOCK COMMON STOCK
OWNED PRIOR TO OWNED PRIOR TO COMMON OWNED AFTER OWNED AFTER
OFFERING AND OFFERING AND STOCK PRIOR OFFERING AND OFFERING AND
NAME PERCENT OF CLASS PERCENT OF CLASS TO OFFERING PERCENT OF CLASS PERCENT OF CLASS
---- ---------------- ---------------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Cox(1)(2)............... -- 39,087,594(31.8%) 30.8 -- 39,087,594(34.4%)
TCI(3)(2)............... 1,011,528(2.4%) 48,779,388(39.7%) 38.5 1,011,528(1.8%) 48,779,388(43.0%)
Comcast(4)(2)........... -- 25,622,058(20.9%) 20.2 -- 25,622,058(22.6%)
Continental (the Selling
Stockholder)(5)(2)..... 660,000(1.5%) 9,285,592(7.6%) 7.4 -- --
Merrill Lynch, Pierce,
Fenner & Smith
Incorporated(6)........ 2,764,083(6.5%) -- ** 2,764,083(4.8%) --
The Equitable Companies
Incorporated(7)........ 8,967,700(20.9%) -- ** 8,967,700(15.7%) --
Executive Officers and
Directors, as
group(8)............... 993,276(2.3%) -- ** 993,276(1.7%) --
<CAPTION>
PERCENT OF
VOTE OF ALL
CLASSES OF
COMMON
STOCK AFTER
NAME OFFERING
---- -----------
<S> <C>
Cox(1)(2)............... 32.8
TCI(3)(2)............... 41.0
Comcast(4)(2)........... 21.5
Continental (the Selling
Stockholder)(5)(2)..... --
Merrill Lynch, Pierce,
Fenner & Smith
Incorporated(6)........ **
The Equitable Companies
Incorporated(7)........ **
Executive Officers and
Directors, as
group(8)............... **
</TABLE>
- --------
** Represents less than one percent of the vote of all classes of Common
Stock.
(1) Owned by Cox Teleport Partners, Inc., a wholly-owned subsidiary of Cox, a
subsidiary of CEI. The business address for Cox Teleport Partners, Inc.
is 1400 Lake Hearn Drive, Atlanta, Georgia 30319. The information
contained in this table with respect to Cox is based on a joint filing on
Schedule 13D reporting ownership as of July 17, 1996 by Cox, TCI,
Comcast, Continental and certain control persons of such entities (the
"Joint 13D").
(2) Solely as a result of the agreement of the Cable Stockholders to vote in
favor of the others' director nominees under the Amended Stockholders'
Agreement, the Cable Stockholders may be deemed to share beneficial
ownership of the shares beneficially owned by each of them. See "Certain
Relationships and Related Transactions."
(3) Owned by TCI Teleport, Inc., a wholly-owned subsidiary of TCI. The
business address of TCI is 5619 DTC Parkway, Englewood, Colorado 80111-
3000. The information contained in this table with respect to TCI is
based on the Joint 13D.
(4) Owned by a wholly-owned subsidiary of Comcast. The business address of
Comcast is 1500 Market Street, Philadelphia, Pennsylvania 19102-2148. The
information contained in this table with respect to Comcast is based on a
joint filing on the Joint 13D, as amended by Comcast on October 22, 1996,
December 23, 1996 and May 12, 1997.
(5) The business address of MediaOne, formerly Continental Cablevision Inc.
("Continental") is 7800 E. Orchard Road, Suite 480, Englewood, Colorado
80111. The information contained in this table with respect to
Continental is based on the Joint 13D, as amended by Continental on
February 28, 1997. In November 1996, U S WEST announced it had acquired
Continental.
(6) The business address for Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") is North Tower, World Financial Center,
New York, New York 10281-1209.
(7) The business address for The Equitable Companies Incorporated is 1290
Avenue of the Americas, New York, New York 10104. The information
contained in this table with respect to The Equitable Companies
Incorporated is based on a joint filing on Schedule 13G reporting
ownership as of February 14, 1997 by the Mutuelles AXA, AXA-UAP, The
Equitable Companies Incorporated, and their subsidiaries, as amended on
March 7, 1997 and on July 10, 1997. The Equitable Companies Incorporated
directly or indirectly owns a majority of the outstanding common stock of
Donaldson, Lufkin & Jenrette, Inc.
(8) Includes 712,117 shares of Class A Common Stock subject to stock options
exercisable within 60 days. Excludes all shares of Common Stock held by
the Cable Stockholders including shares of Common Stock that may be
deemed to be indirectly owned by a director of the Company who is also an
executive officer or director of one of the Cable Stockholders.
57
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE REORGANIZATION
Prior to the 1996 Offerings, TCG was owned by subsidiaries of Cox
(approximately 30%), TCI (approximately 30%), Comcast (approximately 20%) and
Continental (approximately 20%). The business was operated through TCG, and
beginning in 1992, TCG Partners, which is a New York general partnership owned
prior to the Reorganization by the Cable Stockholders in the same percentages
as TCG. TCG Partners was formed to invest, with TCG, the Cable Stockholders and
other cable operators, in 14 partnerships (the "Local Market Partnerships") to
develop and operate local telecommunications networks. The Local Market
Partnerships were owned by TCG, and/or TCG Partners, and certain of the Cable
Stockholders which have cable operations in the particular markets addressed by
the Local Market Partnerships and, in some cases, other cable operators in such
markets. To simplify this complex ownership structure, TCG and the Cable
Stockholders agreed to consolidate the ownership of TCG Partners and the Local
Market Partnerships as wholly-owned subsidiaries of TCG. As part of this
process, certain of the other cable operators agreed to sell their interests in
the Local Market Partnerships to TCG directly or through a Cable Stockholder.
In connection with the 1996 Offerings, TCG and the Cable Stockholders entered
into a reorganization agreement (the "Reorganization Agreement") pursuant to
which TCG, TCG Partners and the Local Market Partnerships were reorganized (the
"Reorganization"). The principal transactions comprising the Reorganization,
all of which occurred during 1996, were:
. The acquisition by TCG of TCG Partners in exchange for shares of Class B
Common Stock issued to the Cable Stockholders.
. The acquisition by TCG of all of the interests in 12 of the 14 Local Market
Partnerships in exchange for shares of Class B Common Stock issued to the
Cable Stockholders and shares of Class A Common Stock issued to other cable
operators (which other cable operators received "piggy-back" registration
rights with respect to such shares of Class A Common Stock).
. The acquisition by TCG of the partnership interest of Hyperion
Telecommunications, Inc. of Florida in TCG South Florida for $11.6 million.
. The contribution to TCG of $269.0 million in aggregate principal amount of
indebtedness, plus accrued interest from May 1995, owed by TCG to the Cable
Stockholders (except that TCI retained a $26 million subordinated note of
TCG (the "TCI Note")) in exchange for shares of Class B Common Stock issued
to the Cable Stockholders.
. In connection with Continental's then pending merger with U S WEST, the
purchase by TCG of 7,975,738 shares (out of 25,761,330 shares) of Class B
Common Stock owned by Continental at a price per share equal to $16.00 per
share of the Class A Common Stock offered in the 1996 Offerings, less the
applicable underwriting discount and pro rata portion of the registration
fees, representing an aggregate purchase price of $121 million.
In consideration of the transfer by each of the Cable Stockholders of its
respective interest in TCG Partners and the Local Market Partnerships and the
contribution to TCG of the indebtedness described above, the Company issued
immediately prior to the 1996 Offerings 69,250,230 additional shares of Class B
Common Stock to the Cable Stockholders.
On July 2, 1996, TCG issued 576,263 shares of Class A Common Stock to the
unaffiliated minority partners in TCG Detroit in consideration for the transfer
to TCG of the remaining partnership interests in TCG Detroit.
On December 26, 1996, TCI transferred its interest in TCG Seattle and TCG San
Francisco to the Company. In addition, having acquired the 22.9% and 22.2%
minority partnership interests in TCG San Francisco and TCG Seattle,
respectively, formerly held by Viacom Telecom, Inc., TCI transferred those
partnership interests to TCG. (The issuance of shares of Class B Common Stock
to TCI pursuant to the Reorganization assumed that, subsequent to the 1996
Offerings, TCI would so contribute its then current partnership interests in
TCG Seattle and TCG San Francisco, and that TCI would so acquire and contribute
to TCG the partnership interests of
58
<PAGE>
Viacom Telecom, Inc. in TCG Seattle and TCG San Francisco.) In addition, on
December 26, 1996, TCI was issued (i) 638,862 shares of Class A Common Stock
in consideration for the transfer on such date to TCG of the partnership
interest which TCI had acquired from MicroNet, Inc. in TCG San Francisco and
(ii) 372,666 shares of Class A Common Stock in consideration for the transfer
on such date to TCG of the partnership interest which TCI had acquired from
InterMedia Partners in TCG San Francisco. As a result, as of December 26,
1996, all of the Local Market Partnerships had become wholly owned
subsidiaries of TCG.
Amended Stockholders' Agreement. In connection with the Reorganization, TCG
and the Cable Stockholders entered into the Amended Stockholders' Agreement.
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 on Form S-1 (Registration Nos. 333-3850 and 333-
3984, as amended). 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 (other
than Continental) 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
as nominees for director who are neither employed by nor affiliated with TCG
or any holder of Class B Common Stock. 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 (other than shares
held by Continental) of Class B Common Stock held by it and its affiliates.
Under the Company's Amended and Restated Certificate of Incorporation or the
Amended Stockholders' Agreement, the holders of the Class A Common Stock will
not have the right, as a class, to nominate any individuals for election to
the Board of Directors. 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 rights of first offer and rights of first refusal
thereunder with respect to proposed sales of the Class B Common Stock.
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, but not less than 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 holder 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.
If any party desires to convert Class B Common Stock to Class A Common
Stock, it must first offer that stock at a market price to the other holders
of Class B Common Stock who have the right to designate 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.
59
<PAGE>
The parties to the Amended Stockholders' Agreement have demand registration
rights on the following terms: (i) such parties collectively will have the
right to make one demand per year (with any such party having the right to
make such demand), (ii) 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 (iii) if the amount determined pursuant to clause (ii) 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. On July 2, 1997, Continental delivered to the Company a
request that the Company effect the registration of 10,285,592 shares of
Common Stock. As required by the Amended Stockholders' Agreement, Continental
gave notice to the remaining Cable Stockholders of its intention to convert
10,285,592 shares of Class B Common Stock into shares of Class A Common Stock,
and gave the remaining Cable Stockholders the right, pursuant to the Amended
Stockholders' Agreement, to purchase these shares in lieu of conversion. The
remaining Cable Stockholders have chosen not to purchase such shares, and they
have not exercised their right to include any of their shares of Common Stock
in the Offering. 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. Effective March 1, 1997, TCG
completed its previously announced acquisition of ETC for 2,757,083 shares of
TCG's Class A Common Stock. ETC is the leading competitive local exchange
carrier in Philadelphia, Pennsylvania and in the neighboring cities of Camden,
New Jersey and Wilmington, Delaware. In the first of two steps, on October 25,
1996, ETC redeemed shares of its stock and employee stock options
(approximately 47%) not held by Comcast CAP, a corporation owned 51% by
Comcast Corporation and 49% by TCG. Comcast CAP borrowed at a market interest
rate approximately $115 million from TCG as a short-term loan and, in turn,
loaned this amount to ETC to effect the redemption. In the second step, TCG
acquired Comcast's 51% stock interest in Comcast CAP in exchange for 2,757,083
shares of the Company's Class A Common Stock, resulting in ETC becoming a
wholly-owned subsidiary of TCG. In May 1997 Comcast transferred the 2,757,083
shares of Class A Common Stock to a third party in a private transaction. TCG
also assumed an aggregate of approximately $53 million of ETC debt and other
obligations. The acquisition of ETC provides TCG with access to the
Philadelphia market, the nation's fifth largest market, and allows TCG to
establish a contiguous network between Boston and Washington, D.C. ETC
operates a Class 5 digital telephone switch on its 525-mile fiber optic
network which connects to more than 360 buildings. As part of the acquisition,
the Company assumed the ETC Facility. This facility, which ETC entered into in
October 1995, is a $60 million credit facility with certain banks. Initial
borrowings under the ETC Facility of $37 million were principally used to
repay existing long-term debt, leases and certain subordinated convertible
demand promissory notes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
At Home Corporation. In April 1997 the Company entered into a Master
Communications Services Agreement with At Home, which is owned in part by
certain of the owners of the Cable Stockholders. The Agreement provides for
both promotional and standard pricing over a five year term and provides At
Home with the option to colocate certain of its equipment in Company premises
in which event At Home incurs certain obligations to use the Company's
services. The Company believes that the Internet services being or to be
offered by At Home may compete with services being or to be offered by the
Company through its CERFnet subsidiary.
Potential Acquisition. The Company is negotiating with a CLEC, a majority of
the equity of which is owned by a Cable Stockholder, to purchase substantially
all of its assets used in connection with its fiber optic communications
system. If the parties sign a definitive purchase agreement relating to this
acquisition and pending the closing of such transaction, the Company would
provide certain services in connection with the operations of such
communications system. The proposed purchase price is approximately $55
million and the Company would be required to assume certain obligations of the
seller.
60
<PAGE>
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 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. There is no
cap or maximum purchase price under the terms of the Operator Managed Ventures
Services Agreements. In November 1996 TCG notified Cox of its intention to
exercise its option to purchase a 35% interest in Cox's Hampton Roads,
Virginia operations (the Company's options to acquire 35% interests in Cox's
New Orleans and Oklahoma City operations do not mature until 1999) Cox and TCG
are currently engaged in discussions concerning the calculation of the
purchase price formula for Hampton Roads, Virginia, and a possible
renegotiation and restructuring of the respective rights and obligations of
the parties under each of the Operator Managed Ventures Services Agreements.
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 $318,000, $98,000 and $27,000 for the years ended
1996, 1995 and 1994, respectively, and are included in management and royalty
fees from affiliates in the statements of operations. The amount due to Cox
under these agreements was $1,079,000 and $295,000 as of December 31, 1996 and
1995, respectively. Included in accounts receivable-trade are approximately
$436,000 and $262,000 at December 31, 1996 and 1995, respectively, for amounts
owed by Cox customers. In the event of a purchase of an interest in any of the
Cox operations by TCG, the royalty fee for such operation is reduced to 3%.
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. The purchase price for the purchase of the
Continental stock was paid by TCG's delivery to Continental of a promissory
note in the amount of $30.5 million, bearing interest at the rate of 7 5/16%
per annum. The entire principal amount of the promissory note, plus accrued
interest in the amount of $105,320, was paid in November 1994. The promissory
note was canceled upon such payment, and no amounts of principal or interest
remain outstanding thereunder. As a result of those transactions, Teleport
Communications Boston became a wholly owned subsidiary of TCG.
Residential Telephony Agreements. In 1996 TCG entered into a preliminary,
short-term agreement with TCI which provides for the provision of certain
services by TCG to TCI in connection with the development by TCI of
residential telephony service offerings in Hartford, Connecticut, Fremont,
California and Arlington Heights, Illinois and possibly other locations. TCI
has agreed to reimburse TCG for certain costs and cost of capital in
connection with these services. TCI and TCG are in the process of negotiating
a definitive agreement regarding the provision of these services. TCG is also
negotiating an agreement with Comcast to support a Comcast residential service
offering to be conducted in Baltimore, Maryland and Miami, Ft. Lauderdale and
West Palm Beach, Florida. The total number of residential customers with
respect to which TCG provided services to the Cable Stockholders as of
September 30, 1997 was approximately 4,400. At December 31, 1996, the amount
due to TCG for reimbursement by Cable Stockholders in respect of residential
services was $1,057,000, and is included in related parties within the
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
61
<PAGE>
behalf of affiliates, including minority partners in the Local Market
Partnerships, and to apply those purchases toward the volume discounts. In
1995 and 1996, TCG purchased cable on behalf of certain of the Cable
Stockholders which it then sold to them at cost. At December 31, 1996, the
amount receivable from the Cable Stockholders was approximately $1,496,000.
TCG has purchased cable on behalf of unaffiliated parties as well.
CLEC Assets. In connection with the formation of the Local Market
Partnerships in Chicago, Dallas, Pittsburgh and Seattle, TCI 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. The agreed value of
the assets TCI contributed to TCG Chicago was approximately $4 million, for
which it received a 7.4% partnership interest (in addition to the 26.6%
interest it received for cash). The agreed value of the assets TCI contributed
to TCG Dallas was approximately $3.3 million, for which it received a 14.3%
partnership interest (in addition to the 40.8% interest it received for cash).
The agreed value of the assets TCI contributed to TCG Pittsburgh was
approximately $19 million, for which it received a 60% partnership interest.
The agreed value of the assets TCI contributed to TCG Seattle was
approximately $3.3 million, for which it received a 10.8% partnership interest
(in addition to the 32.0% interest it received for cash).
Facilities Arrangements. Affiliates of the Cable Stockholders have entered
into two types of arrangements with TCG pursuant to which fiber optic and
cable transmission facilities are made available to it. Pursuant to the terms
of one type of such arrangements, providing an indefeasible right of use, the
compensation payable by TCG is based on the affiliate's cost of construction
of such facilities, generally payable over five years. For the year ended
December 31, 1996, payments, representing principal plus interest, made to
TCI, Cox, Continental and Comcast pursuant to facilities lease arrangements
with TCG were approximately $12.0 million, $4.8 million, $2.8 million and $2.4
million, respectively. Under the terms of the other type of such arrangements,
TCG 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 TCG is based on a percentage of the total monthly recurring amount
which TCG bills to its customers which are served through such affiliate's
cable transmission service. In connection with a preliminary agreement between
TCG and TCI relating to the provision of residential telephony services, TCI
has agreed to enter into additional facility agreements with TCG for certain
additional metropolitan areas. The terms of these additional facilities
arrangements have not yet been completely finalized. The Company believes that
it will continue to be able to enter into additional facilities arrangements
with TCI, Comcast and Cox which will be negotiated on an arm's-length basis
but which are not expected to be as favorable to the Company as facilities
arrangements negotiated prior to the Reorganization.
Sprint PCS Service Arrangements. Sprint PCS, a partnership owned 60% by TCI,
Comcast and Cox, has entered into preliminary agreements or letters of intent
with a number of wholly-owned subsidiaries of TCG providing for the
construction of special facilities and the provision of services to Sprint PCS
by TCG. TCG and Sprint PCS are in the process of negotiating a national master
services agreement. The amount receivable from Sprint PCS at December 31, 1996
was $345,000.
Comcast Service Arrangements. TCG has agreed to provide Comcast, certain
services on customary terms in the Philadelphia area, and Comcast has agreed
to utilize exclusively TCG's wireline telecommunications services in the
Philadelphia area, subject to certain qualifications.
TCI Subordinated Note. As part of the Reorganization, TCG issued to TCI a
subordinated note in the principal amount of $26 million, which bears interest
at the rate of 7.5% per annum with principal and interest payable in one
installment on June 26, 2001.
The Company believes that the terms, taken as a whole, of the transactions
under the headings "Eastern TeleLogic Corporation and Comcast," "At Home
Corporation," "Potential Acquisition," "Operator Managed Ventures Services
Agreements with Cox," "Fidelity," "Residential Telephony Agreements," "Sales
of Fiber Optic Cable," "CLEC Assets", "Facilities Arrangements", "Sprint PCS
Service Arrangements", "Comcast Service Arrangements" and "TCI Subordinated
Note" were no less favorable to the Company than could have been obtained from
unaffiliated parties.
62
<PAGE>
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES
HOLDERS OF CLASS A COMMON STOCK
The following is a general discussion of certain United States federal
income and estate and gift tax consequences of the ownership and sale or other
disposition of Class A Common Stock by a holder that, for United States
federal income tax purposes, is not a "United States person" (a "Non-United
States Holder"). For purposes of this discussion, a "United States person"
means a citizen or resident (as determined for U.S. federal income tax
purposes) of the United States; a corporation, partnership or other entity
created or organized in the United States or under the laws of the United
States or of any political subdivision thereof; an estate the income of which
is includible in gross income for U.S. federal income tax purposes, regardless
of its source; or a trust if a court within the United States is able to
exercise primary supervision over the administration of the trust and one or
more United States persons have the authority to control all substantial
decisions of the trust. Resident alien individuals will be subject to United
States federal income tax with respect to the Class A Common Stock as if they
were United States citizens.
THIS DISCUSSION IS BASED ON THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE "CODE") AND THE ADMINISTRATIVE INTERPRETATIONS THEREOF AS OF THE DATE
HEREOF, ALL OF WHICH MAY BE CHANGED EITHER RETROACTIVELY OR PROSPECTIVELY.
THIS DISCUSSION IS FOR GENERAL INFORMATION ONLY, DOES NOT CONSIDER ANY
SPECIFIC FACTS OR CIRCUMSTANCES THAT MAY APPLY TO A PARTICULAR NON-UNITED
STATES HOLDER AND DOES NOT ADDRESS ANY TAX CONSEQUENCES ARISING UNDER ANY
STATE, MUNICIPALITY, FOREIGN COUNTRY OR OTHER TAXING JURISDICTION. PROSPECTIVE
INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE UNITED STATES
FEDERAL TAX CONSEQUENCES OF OWNING AND DISPOSING OF CLASS A COMMON STOCK
(INCLUDING THE INVESTOR'S STATUS AS A UNITED STATES PERSON OR NON-UNITED
STATES HOLDER), AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS
OF ANY STATE, MUNICIPALITY, FOREIGN COUNTRY OR OTHER TAXING JURISDICTION.
DIVIDENDS
Dividends, if any, paid to a Non-United States Holder will generally be
subject to the withholding of United States federal income tax at the rate of
30%, unless the dividend is effectively connected with the conduct of a trade
or business (or, if an income tax treaty applies, is attributable to a
"permanent establishment", as defined therein) within the United States of the
Non-United States Holder, in which case the dividend will be subject to the
rules described in the next paragraph. Non-United States Holders should
consult any applicable income tax treaties, which may provide for a reduced
withholding rate or other rules different from those described above. For
purposes of determining whether tax will be withheld at a 30% rate or a
reduced rate as specified by an income tax treaty, current law permits the
Company to presume that dividends paid to an address in a foreign country are
paid to a resident of such country absent knowledge that such presumption is
not warranted. However, under newly issued U.S. Treasury regulations, in the
case of dividends paid after December 31, 1998, in order to obtain a reduced
rate of withholding under an income tax treaty, a Non-United States Holder
generally will be required to provide to the Company a valid Internal Revenue
Service Form W-8 (or any successor form) certifying that such Non-United
States Holder is entitled to benefits under an income tax treaty. The new
regulations also provide special rules for dividend payments made to foreign
intermediaries, U.S. or foreign wholly-owned entities that are disregarded for
U.S. federal income tax purposes and entities that are treated as fiscally
transparent in the United States, the applicable income tax treaty
jurisdiction or both. Prospective investors should consult their tax advisors
concerning the effect, if any, of the adoption of these new U.S. Treasury
regulations on an investment in the Class A Common Stock. A Non-United States
Holder who is eligible for a reduced withholding rate may obtain a refund of
any excess amounts withheld by filing an appropriate claim for a refund with
the Internal Revenue Service (the "Service").
The Company will not withhold federal income tax upon dividends paid to a
Non-United States Holder if the Company receives the appropriate form of the
Service (currently Form 4224) from that Non-United States
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Holder, establishing that such income is effectively connected with the
conduct of a trade or business (or, if an income tax treaty applies, is
attributable to a "permanent establishment", as defined therein) within the
United States of the Non-United States Holder, unless the Company has
knowledge to the contrary. Dividends paid to a Non-United States Holder of
Class A Common Stock that are effectively connected with the conduct of a
trade or business (or, if an income tax treaty applies, are attributable to a
"permanent establishment", as defined therein) within the United States of the
Non-United States Holder will generally be taxed on a net income basis (that
is, after allowance for applicable deductions) at the graduated rates that are
applicable to United States persons. In the case of a Non-United States Holder
that is a corporation, such income may also be subject to the United States
federal branch profits tax (which is generally imposed on a foreign
corporation upon the deemed repatriation from the United States of effectively
connected earnings and profits) at a 30% rate, unless the rate is reduced or
eliminated by an applicable income tax treaty and the Non-United States Holder
is a qualified resident of the treaty country.
GAIN ON SALE OR OTHER DISPOSITION
Subject to special rules applicable to individuals as described below, a
Non-United States Holder will generally not be subject to regular United
States federal income or withholding tax on gain recognized on a sale or other
disposition of Class A Common Stock, unless (i) the gain is effectively
connected with the conduct of a trade or business (or, if an income tax treaty
applies, is attributable to a "permanent establishment", as defined therein)
within the United States of the Non-United States Holder or of a partnership,
trust or estate in which such Non-United States Holder is a partner or
beneficiary, or (ii) the Company has been, is or becomes a "United States real
property holding corporation" within the meaning of Section 897(c)(2) of the
Code at any time within the shorter of the five-year period preceding such
sale or other disposition or such Non-United States Holder's holding period
for the Class A Common Stock.
A corporation is generally considered to be a United States real property
holding corporation if the fair market value of its "United States real
property interests" within the meaning of Section 897(c)(1) of the Code equals
or exceeds 50% of the sum of the fair market value of its worldwide real
property interests plus the fair market value of any other of its assets used
or held for use in a trade or business. The Company believes that it has not
been, is not currently and is not likely to become a United States real
property holding corporation. Further, even if the Company were to become a
United States real property holding corporation, any gain recognized by a Non-
United States Holder still would not be subject to U.S. federal income tax if
the Class A Common Stock were considered to be "regularly traded" (within the
meaning of applicable U.S. Treasury regulations) on an established securities
market (e.g., the Nasdaq National Market, on which the Company's
Class A Common Stock will be listed), and the Non-United States Holder did not
own, directly or indirectly, at any time during the five-year period ending on
the date of the sale or other disposition, more than 5% of the Class A Common
Stock.
Gains realized by a Non-United States Holder of Class A Common Stock that
are effectively connected with the conduct of a trade or business (or, if an
income tax treaty applies, are attributable to a "permanent establishment", as
defined therein) within the United States of the Non-United States Holder will
generally be taxed on a net income basis (that is, after allowance for
applicable deductions) at the graduated rates that are applicable to United
States persons. In the case of a Non-United States Holder that is a
corporation, such income may also be subject to the United States federal
branch profits tax (which is generally imposed on a foreign corporation upon
the deemed repatriation from the United States of effectively connected
earnings and profits) at a 30% rate, unless the rate is reduced or eliminated
by an applicable income tax treaty and the Non-United States Holder is a
qualified resident of the treaty country.
In addition to being subject to the rules described above, an individual
Non-United States Holder who holds Class A Common Stock as a capital asset
will generally be subject to tax at a 30% rate on any gain recognized on the
sale or other disposition of such stock if (i) such gain is not effectively
connected with the conduct of a trade or business (or, if an income tax treaty
applies, is not attributable to a "permanent establishment", as defined
therein) within the United States of the Non-United States Holder, and (ii)
such individual is present in
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the United States for 183 days or more in the taxable year of the sale or
other disposition and either (A) has a "tax home" in the United States (as
specially defined for purposes of the United States federal income tax), or
(B) maintains an office or other fixed place of business in the United States
and the income from the sale of the stock is attributable to such office or
other fixed place of business. Individual Non-United States Holders may also
be subject to tax pursuant to provisions of United States federal income tax
law applicable to certain United States expatriates.
FEDERAL ESTATE AND GIFT TAXES
Class A Common Stock owned or treated as owned by an individual (regardless
of whether such an individual is a citizen or a resident of the United States)
at the date of death will be included in such individual's estate for United
States federal estate tax purposes, unless an applicable estate tax treaty
provides otherwise.
A Non-United States Holder will not be subject to United States federal gift
tax on a transfer of Class A Common Stock, unless such person is a domiciliary
of the United States or such person is an individual subject to provisions of
United States federal gift tax law applicable to certain United States
expatriates.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the Service and to each Non-United
States Holder the amount of dividends paid to, and the tax withheld with
respect to, such Non-United States Holder, regardless of whether tax was
actually withheld and whether withholding was reduced by an applicable income
tax treaty. Pursuant to certain income tax treaties and other agreements, that
information may also be made available to the tax authorities of the country
in which the Non-United States Holder resides.
Payments of dividends to Non-United States Holders may be subject to a 31%
United States federal backup withholding tax. Backup withholding tax, however,
will generally not apply to a holder who furnishes a correct taxpayer
identification number or certificate of foreign status and makes any other
required certification or who is otherwise exempt from backup withholding.
Generally, a Non-United States Holder will provide such certification on the
Service's Form W-8 (or any successor form). Under newly issued U.S. Treasury
Regulations, certain Non-United States Holders who are not currently subject
to backup withholding on dividend payments will have to certify their status
as Non-United States Holders to avoid backup withholding on dividends paid
after December 31, 1998.
The backup withholding and information reporting requirements will generally
also apply to the gross proceeds paid to a Non-United States Holder upon the
sale or other disposition of Class A Common Stock by or through a United
States office of a United States or foreign broker, unless the Non-United
States Holder certifies to the broker under penalties of perjury as to, among
other things, its name, address and status as a Non-United States Holder by
filing the Service's Form W-8 with the broker, or unless the Non-United States
Holder otherwise establishes an exemption. Information reporting requirements
(but not backup withholding) will generally apply to a payment of the proceeds
of a sale or other disposition of Class A Common Stock effected at a foreign
office of (i) a United States broker, (ii) a foreign broker 50% or more of
whose gross income for certain periods is effectively connected with the
conduct of a trade or business within the United States, or (iii) a foreign
broker that is a "controlled foreign corporation" for United States federal
income tax purposes, unless the broker has documentary evidence in its records
that the Non-United States Holder is a Non-United States Holder (and the
broker has no knowledge to the contrary) and certain other conditions are met,
or unless the Non-United States Holder otherwise establishes an exemption.
Neither backup withholding nor information reporting will generally apply to a
payment of the proceeds of a sale or other disposition of Class A Common Stock
effected at a foreign office of a foreign broker not subject to the preceding
sentence. The newly issued U.S. Treasury Regulations, discussed above, have
expanded the categories of foreign brokers who are responsible for backup
withholding and information reporting. Therefore, these regulations may apply
to certain payments made after December 31, 1998 by foreign brokers of
proceeds from the sale or other disposition of Class A Common Stock
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that were previously exempt. Prospective investors should consult their tax
advisors concerning the effect, if any, of the adoption of these new U.S.
Treasury regulations on an investment in the Class A Common Stock.
Any amounts withheld under the backup withholding rules will be refunded or
credited against the Non- United States Holder's United States federal income
tax liability, provided that the Non-United States Holder files an appropriate
claim for a refund with the Service.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Offering and assuming the Underwriters do not
exercise their over-allotment options, there will be 58,825,012 shares of
Class A Common Stock outstanding (172,314,052 shares assuming the conversion
of all outstanding shares of Class B Common Stock), of which the 15,000,000
shares to be sold in the Offering will be tradeable without restriction by
persons other than "affiliates" of TCG. Approximately 8,122,169 outstanding
shares of Class A Common Stock and any additional shares of Class A Common
Stock issued upon conversion of Class B Common Stock will be deemed
"restricted" securities within the meaning of the Securities Act, and, as
such, may not be sold in the absence of registration under the Securities Act
or an exemption therefrom, including the exemptions contained in Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are required to be aggregated) who has been deemed to have
beneficially owned shares of an issuer for at least one year, including an
"affiliate," is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the then outstanding number
of shares of such class or the average weekly trading volume in composite
trading in all national securities exchanges during the four calendar weeks
preceding the filing of the required notice of such sale, provided that such
issuer has been a reporting company for at least ninety days. Sales under Rule
144 are also subject to certain manner of sale provisions, notice requirements
and the availability of current public information about the Company. A person
(or persons whose shares are required to be aggregated) who is not deemed an
affiliate of an issuer and who has beneficially owned shares for at least two
years is entitled to sell such shares under Rule 144 without regard to the
volume limitations described above. Affiliates continue to be subject to such
limitations. As defined in Rule 144, an "affiliate" of an issuer is a person
that directly or indirectly, through one or more intermediaries, controls or
is controlled by, or is under common control with, such issuer. Each of the
Cable Stockholders other than Continental would be deemed "affiliates" of TCG
under the Securities Act.
The Company, certain of its officers and the holders of the Class B Common
Stock (other than Continental) have agreed not to offer, sell, contract to
sell, file a registration statement pursuant to the Securities Act (except for
certain registration statements relating to the issuance of stock and stock
options to employees) or otherwise dispose of any shares of Class A Common
Stock or securities convertible into or exchangeable or exercisable for Class
A Common Stock (except for private transactions by the holders of Class B
Common Stock where the transferee agrees to be bound by such restrictions),
without the prior written consent of Merrill Lynch on behalf of the U.S.
Representatives and the International Representatives, for a period of ninety
days after the date of this Prospectus.
Subject to the Amended Stockholders' Agreement, the shares of the Company's
Class B Common Stock are convertible into shares of Class A Common Stock and,
in the event of conversion of such shares and expiration of the ninety day
lock-up period described above, all of such shares would be immediately
eligible for sale subject to the provisions of Rule 144 under the Securities
Act. After giving effect to the sale of the shares of Class A Common Stock
being sold by Continental pursuant to the Offering, Continental will not own
any Class A Common Stock or Class B Common Stock of TCG. No assurance can be
given that other holders of the Class B Common Stock will not decide, based
upon then prevailing market and other conditions, to convert their Class B
Common Stock to Class A Common Stock and to dispose of all or a portion of
such stock pursuant to the provisions of Rule 144 under the Securities Act or
pursuant to the demand registration rights contained in the Amended
Stockholders' Agreement. See "Certain Relationships and Related Transactions--
Amended Stockholders' Agreement."
The parties to the Amended Stockholders' Agreement have demand registration
rights on the following terms: (i) no demand may be made for twelve months
after the effective date of the Registration Statement of which this
Prospectus is a part, (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
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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. 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.
In connection with the Reorganization and the acquisition of CERFnet and
BizTel, TCG has issued unregistered shares of Class A Common Stock to certain
sellers and granted to such sellers "piggy-back" registration rights with
respect to such Class A Common Stock.
No prediction can be made about the effect, if any, that market sales of
shares of Class A Common Stock or the availability of such shares for sale
would have on the market price prevailing from time to time. Nevertheless,
sales of substantial amounts of Class A Common Stock in the public market, or
the perception that such sales could occur, may have an adverse impact on the
market price for the shares of Class A Common Stock offered hereby or on the
ability of the Company to raise capital through a public offering of its
equity securities. See "Risk Factors--Shares Eligible for Future Sale."
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DESCRIPTION OF CERTAIN INDEBTEDNESS
REVOLVING CREDIT AGREEMENT
On July 28, 1997, TCG New York, Inc., a wholly owned subsidiary of the
Company, entered into an Amended and Restated Loan Agreement (the "Revolving
Credit Agreement") with Toronto Dominion (Texas), Inc., as administrative
agent, The Chase Manhattan Bank, as documentation agent, and the Banks (as
defined in the Revolving Credit Agreement) to finance capital expenditures and
working capital needs of the Company and its subsidiaries. The Company is not
liable for the obligations of TCGNY under the Revolving Credit Agreement;
provided, however, that TCG is obligated to repay to TCGNY an amount equal to
the portion of the proceeds of the loans under the Revolving Credit Agreement
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 TCGNY under the Revolving Credit Agreement.
The initial maximum amount available to TCGNY under the Revolving Credit
Agreement is $400 million; however, the available amount will be reduced
according to a prearranged progressive schedule until maturity at March 31,
2006. As of August 31, 1997, no amount was outstanding under the Revolving
Credit Agreement and TCGNY had $380.2 million in available capacity under the
Revolving Credit Agreement.
At the option of TCGNY, 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 plus 0.5% or (ii) LIBOR. 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
TCGNY. In addition, TCGNY must pay a commitment fee equal to 0.375% per annum
on the unused commitment amount. Any advances will be guaranteed by the
subsidiaries of TCGNY and secured by all the indebtedness of the subsidiaries
of TCGNY to TCGNY, the capital stock of the subsidiaries of TCGNY and the
partnership interests of two of the subsidiaries of TCGNY in Teleport
Communications New York, itself a subsidiary of TCGNY, and by the collateral
assignment of any notes evidencing loans made by TCGNY to TCG or other
subsidiaries of TCG.
The Revolving Credit Agreement contains a number of covenants that restrict
TCGNY 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 TCGNY to enter into transactions
limiting their ability to pay dividends to TCGNY. The Revolving Credit
Agreement provides that TCGNY is not permitted to pay dividends to TCG at any
time prior to July 1, 1999, and may pay dividends to TCG thereafter only if
(a) no default under the Revolving Credit Agreement exists, (b) the ratio of
the debt of TCGNY 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 TCGNY under the
Revolving Credit Agreement may be lent to TCG for general corporate purposes,
so long as such indebtedness is evidenced by promissory notes executed by TCG
in favor of TCGNY, and such promissory notes are pledged to the lenders under
the Revolving Credit Agreement. Finally, TCGNY 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 TCGNY or
its subsidiaries, cross-acceleration to certain material indebtedness of TCG,
certain decisions by the FCC, the loss of a Material License (as defined in
the Revolving Credit Agreement) and a Change of Control of TCGNY (which is
defined as a change in the ownership of the stock of TCGNY that results in
less than 50.1% of all voting rights relating to TCGNY's capital stock being
owned, directly or indirectly, by one or more of the Cable Stockholders, any
of the Cable Stockholders and Sprint Corporation or any person owned by Sprint
Corporation and any of the Cable Stockholders). The occurrence of a payment
default under, or the acceleration of, any indebtedness for borrowed money of
TCG in excess of $50
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million would be an event of default under the Revolving Credit Agreement. The
occurrence of an event of default would allow Toronto Dominion (Texas), Inc.,
The Chase Manhattan Bank and the Banks to accelerate the maturity of the
outstanding advances, call the guarantee of the subsidiaries of TCGNY and
foreclose on the collateral.
ETC FACILITY
ETC, a wholly owned subsidiary of the Company, entered into the ETC Facility
in October 1995 with CoreStates Bank, N.A. and certain other lenders. The ETC
Facility is a $60 million credit facility. Initial borrowings under the ETC
Facility of $37 million were principally used to repay existing long-term
debt, leases and certain subordinated convertible demand promissory notes. The
ETC Facility provides for interest based upon either the base rate, or LIBOR,
adjusted as defined in the ETC Facility (7.4375% at June 30, 1997), which is
payable quarterly. The balance outstanding is due on September 30, 1998.
Borrowings under the ETC Facility are collateralized by substantially all of
ETC's assets and outstanding common stock. In addition, the ETC Facility
contains certain restrictive covenants which, among other things, require ETC
to maintain certain debt service coverage ratios and limit the payment of
dividends and capital expenditures. In addition, ETC is required to pay 3/8%
per year on the available portion of the ETC Facility. The total outstanding
balance at June 30, 1997, was $52.6 million. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation--Liquidity and
Capital Resources."
NOTES ISSUED PURSUANT TO 1996 OFFERINGS
In July 1996 the Company sold $300 million aggregate principal amount of the
9 7/8% Senior Notes due 2006 and $1,073 million aggregate principal amount at
maturity of the 11 1/8% Senior Discount Notes due 2007 (collectively, the
"1996 Notes"). The Senior Notes were issued pursuant to an Indenture (the
"1996 Senior Notes Indenture") between the Company and United States Trust
Company of New York, as trustee, and the Senior Discount Notes were issued
pursuant to an Indenture (the "1996 Senior Discount Notes Indenture" and,
together with the 1996 Senior Notes Indenture, the "1996 Indentures") between
the Company and United States Trust Company of New York, as trustee.
The 1996 Notes are unsecured obligations of the Company, ranking pari passu
in right of payment with all senior unsecured indebtedness of the Company. The
Senior Notes bear interest at the rate of 9 7/8% per annum payable in cash
semiannually on January 1 and July 1 in each year until the principal thereof
is paid or duly provided for. The Senior Discount Notes were issued at a
discount to their aggregate principal amount to generate gross proceeds of
approximately $625 million. The Senior Discount Notes accrete at a rate of 11
1/8%, compounded semiannually, to an aggregate principal amount of $1,073
million by July 1, 2001. Thereafter, interest on the Senior Discount Notes
will accrue at the rate of 11 1/8% per annum and will be payable semiannually
on January 1 and July 1, commencing on January 1, 2002; provided that at any
time prior to July 1, 2001, the Company may elect to commence the accrual of
cash interest on the Senior Discount Notes, in which case the outstanding
principal amount of such 1996 Notes will be reduced to their accreted value as
of the date of such election and cash interest shall become payable
thereafter. The 1996 Notes are subject to redemption at the option of the
Company, in whole or in part, at any time on or after July 1, 2001, initially
at 104.938% of their principal amount in the case of the Senior Notes, and
105.563% in the case of the Senior Discount Notes and declining to 100% of
their principal amount on or after July 1, 2004 in the case of all of the 1996
Notes, in all cases plus accrued and unpaid interest thereon to the applicable
redemption date. In addition, in the event of the first to occur prior to July
1, 1999 of a public equity offering with proceeds of $150 million or more or a
sale or series of related sales by the Company of its capital stock to certain
Strategic Equity Investors (as defined in the 1996 Indentures) for an
aggregate purchase price of $150 million or more, the Company may, at its
option, within 60 days thereof, use net proceeds of such equity offering to
redeem up to one-third of the aggregate principal amount of the 1996 Notes
originally issued at a redemption price of 110% of the accreted value as of
the redemption date of the 1996 Notes so redeemed; provided that at least one-
half of the aggregate principal amount of the 1996 Notes originally issued
remains outstanding after such redemption. Upon the occurrence of a
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Change of Control (as defined in the 1996 Indentures), each holder of 1996
Notes will have the right to require the Company to purchase all or any part
of such holder's 1996 Notes at a purchase price equal to, in the case of the
Senior Discount Notes, 101% of the accreted value thereof in the event of a
Change of Control occurring prior to July 1, 2001, plus any accrued and unpaid
interest not otherwise included in the accreted value or, in the case of the
Senior Notes and, in the event of a Change of Control occurring on or after
July 1, 2001, the Senior Discount Notes, 101% of the principal amount thereof
plus accrued and unpaid interest.
The 1996 Indentures contain certain restrictive covenants which impose
limitations on the Company's and certain of its subsidiaries' ability to,
among other things: (i) incur additional indebtedness, (ii) pay dividends or
make certain other distributions and investments, (iii) create liens, (iv)
create dividend and other payment restrictions on subsidiaries, (v) incur
certain guarantees, (vi) enter into certain asset sale transactions, (vii)
enter into certain transactions with affiliates (including the Cable
Stockholders) and (viii) merge, consolidate or transfer substantially all of
the Company's assets.
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DESCRIPTION OF CAPITAL STOCK
TCG's Amended and Restated Certificate of Incorporation provides for an
authorized capital stock of 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"). No preferred stock is
outstanding, and the Cable Stockholders own, directly or indirectly, all of
the outstanding shares of Class B Common Stock.
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 are set forth in TCG's Amended and Restated Certificate of
Incorporation, as well as the Amended Stockholders' Agreement, copies of which
are available from the Company upon request. The summary set forth below is
qualified by reference to such documents 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, without
limitation, the election of directors and any proposed amendment to the
Amended and Restated Certificate of Incorporation of TCG that would increase
the authorized number of shares of Common Stock or any class thereof or any
other class or series of stock or decrease the number of authorized shares of
any class or series of stock (but not below the number thereof then
outstanding), except as required by the DGCL and except that, for a period of
five years from June 26, 1996, 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 and 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 or any other person, 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;
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(2) a share distribution consisting of Class B Common Stock to holders of
Class B Common Stock and Class A Common 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 of shares of any class of securities of the Company
or any other person other than the Common Stock, either on the basis of a
distribution of identical securities, on an equal per share basis to the
holders of Class A Common Stock and Class B Common Stock, or on the basis of a
distribution of one class of securities to the holders of Class A Common Stock
and another class of securities to holders of Class B Common Stock, provided
that the securities so distributed do not differ in any respect other than
relative voting rights and related differences in designations, conversion and
share distribution provisions, with the holders of Class B Common Stock
receiving the class having the higher relative voting rights, provided that if
the securities so distributed constitute capital stock of a subsidiary of the
Company, such rights shall not differ to a greater extent than the
corresponding differences in voting rights, designations, conversion and
distribution provisions between Class A Common Stock and Class B Common Stock.
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. 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 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,
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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 Holding
Company, has been an "interested stockholder" of TCG for a period in excess of
three years. 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.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is The Bank of New
York.
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UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"U.S. Purchase Agreement") among the Company, the Selling Stockholder and each
of the underwriters named below (the "U.S. Underwriters"), the Company and the
Selling Stockholder have agreed to sell to each of the U.S. Underwriters, and
each of the U.S. Underwriters has severally agreed to purchase from the
Company and the Selling Stockholder, the aggregate number of shares of Class A
Common Stock set forth opposite its name below (the "U.S. Offering").
<TABLE>
<CAPTION>
NUMBER
OF
U.S. UNDERWRITERS SHARES
----------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith..........................
Incorporated
Lehman Brothers Inc. ..........................................
Donaldson, Lufkin & Jenrette Securities Corporation............
Bear, Stearns & Co. Inc. ......................................
Deutsche Morgan Grenfell Inc. .................................
----------
Total..................................................... 11,250,000
==========
</TABLE>
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Lehman Brothers Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation, Bear, Stearns & Co. Inc.
and Deutsche Morgan Grenfell Inc. are acting as representatives (the "U.S.
Representatives") of the U.S. Underwriters.
The Company and the Selling Stockholder have also entered into a purchase
agreement (the "International Purchase Agreement") with certain underwriters
outside the United States and Canada (the "International Managers"), for whom
Merrill Lynch International, Lehman Brothers International (Europe), Cazenove
& Co., Morgan Grenfell & Co. Limited and UBS Limited are acting as
representatives (the "International Representatives"), providing for the
concurrent offer and sale of 3,750,000 shares of Class A Common Stock outside
of the United States and Canada (the "International Offering"). The closings
with respect to the U.S. Offering and the International Offering are
conditioned upon one another.
The U.S. Underwriters have advised the Company that they propose initially
to offer the shares of Class A Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $ per share of
Class A Common Stock. The U.S. Underwriters may allow, and such dealers may
reallow, a discount not in excess of $ per share of Class A Common Stock on
sales to certain other dealers. After the initial public offering, the public
offering price, concession and discount may be changed. The public offering
price, concession and discount per share of Class A Common Stock are identical
under the U.S. Purchase Agreement and the International Purchase Agreement.
The several U.S. Underwriters have agreed, subject to the terms and
conditions set forth in the U.S. Purchase Agreement, to purchase all of the
shares of Class A Common Stock being sold pursuant to such agreement if any of
the shares of Class A Common Stock being sold pursuant to such agreement are
purchased. Under certain circumstances the commitments of non-defaulting U.S.
Underwriters may be increased.
The U.S. Underwriters have advised the Company that they do not intend to
confirm sales of shares of Class A Common Stock offered hereby to any accounts
over which they exercise discretionary authority.
The U.S. Underwriters and the International Managers have entered into an
Intersyndicate Agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate
Agreement, the International Managers and any dealer to whom they sell shares
of Class A Common Stock will not offer to sell or sell shares of Class A
Common Stock to United States or Canadian persons, and the U.S.
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Underwriters and any dealer to whom they sell shares of Class A Common Stock
will not offer to sell or sell shares of Class A Common Stock to non-United
States or non-Canadian persons or to persons they believe intend to resell to
non-United States or non-Canadian persons, except, in each case, for
transactions pursuant to the Intersyndicate Agreement. The Intersyndicate
Agreement also provides, among other things, that sales may be made between
the U.S. Underwriters and the International Managers of such number of shares
of Class A Common Stock as may be mutually agreed. The price of any shares of
Class A Common Stock so sold shall be the public offering price, less an
amount not greater than the selling concession.
The Company has granted to the U.S. Underwriters an option to purchase up to
an aggregate of 1,687,500 additional shares of Class A Common Stock,
exercisable in whole or in part for 30 days after the date of this Prospectus,
solely to cover over-allotments, if any, at the public offering price, less
applicable underwriting discounts and concessions. To the extent that the U.S.
Underwriters exercise this option, the U.S. Underwriters have severally
agreed, subject to certain conditions, to purchase approximately the same
percentage of shares of Class A Common Stock that the number of shares of
Class A Common Stock to be purchased by each of them, as shown in the above
table, bears to the total number of shares of Class A Common Stock initially
offered hereby. The Company has granted to the International Managers an
option to purchase up to an aggregate of 562,500 additional shares of Class A
Common Stock, exercisable in whole or in part for 30 days after the date of
this Prospectus, solely to cover over-allotments, if any, on terms similar to
those granted to the U.S. Underwriters. All or a portion of an over-allotment
option in either of the U.S. Offering or the International Offering may be
allocated to cover an over-allotment in the other Offering, in each case in
the sole discretion of the U.S. Representatives and the International
Representatives.
The Company and the Selling Stockholder have agreed to indemnify the U.S.
Underwriters against certain liabilities, including liabilities under the
Securities Act and other applicable securities laws, or to contribute to
payments the U.S. Underwriters may be required to make in respect thereof.
Under certain circumstances, the Company will reimburse the U.S. Underwriters
for certain of their expenses.
The Company, certain of its officers and the holders of the Class B Common
Stock (other than Continental) have agreed not to offer, sell, contract to
sell, file a registration statement pursuant to the Securities Act (except for
certain registration statements relating to the issuance of stock and stock
options to employees) or otherwise dispose of any shares of Class A Common
Stock or securities convertible into or exchangeable or exercisable for Class
A Common Stock (except for private transactions by the holders of Class B
Common Stock where the transferee agrees to be bound by such restrictions),
without the prior written consent of Merrill Lynch on behalf of the U.S.
Representatives and the International Representatives, for a period of ninety
days after the date of this Prospectus. See "Shares Eligible for Future Sale."
In connection with the U.S. Offering and the International Offering, the
U.S. Underwriters and the International Managers may engage in transactions
that stabilize, maintain or otherwise affect the price of the shares of Class
A Common Stock. Specifically, the U.S. Underwriters and the International
Managers may over-allot the offering, creating a short position. In addition,
the U.S. Underwriters and the International Managers may bid for and purchase
shares of Class A Common Stock in the open market to cover short sales or to
stabilize the price of the shares of Class A Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions allowed for
distributing the shares of Class A Common Stock in the U.S. Offering and the
International Offering if the syndicate repurchases previously distributed
shares of Class A Common Stock in syndicate covering transactions,
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the shares of Class A Common Stock above
independent market levels. The U.S. Underwriters and the International
Managers are not required to engage in these activities and may end any of
these activities at any time.
In connection with the U.S. Offering and the International Offering, the
U.S. Underwriters and the International Managers or their respective
affiliates and selling group members (if any) who are qualified market makers
on Nasdaq may engage in "passive marketing making" in the Class A Common Stock
on The Nasdaq
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National Market in accordance with Rule 103 of Regulation M under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Rule 103
permits, upon the satisfaction of certain conditions, underwriters and selling
group members participating in a distribution that are also Nasdaq market
makers in the security being distributed (or a related security) to engage in
limited market making transactions during the period when Regulation M under
the Exchange Act would otherwise prohibit such activity. Rule 103 prohibits
underwriters and selling group members engaged in passive market making
generally from entering a bid or effecting a purchase at a price that exceeds
the highest bid for those securities displayed on The Nasdaq National Market
by a market maker that is not participating in the distribution. Under Rule
103, each underwriter or selling group member engaged in passive market making
is subject to a daily net purchase limitation equal to 30% of such entity's
average daily trading volume during the two full consecutive calendar months
immediately preceding the date of the filing of the registration statement
under the Securities Act pertaining to the security to be distributed (or such
related security).
The Class A Common Stock is listed on The Nasdaq National Market under the
symbol "TCGI."
Certain of the U.S. Underwriters and their respective affiliates have
provided from time to time, and expect to provide in the future, financial
advisory and investment banking services for, and/or have normal banking
relationships with, the Company and its affiliates, for which they receive
customary compensation.
Merrill Lynch & Co., Inc., an affiliate of one of the Underwriters, was the
majority owner of the Company from its inception until November 23, 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 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. In 1996, the Company paid approximately $210,300 under such
sublease.
During 1996 Merrill Lynch, Pierce, Fenner & Smith Group Employee Services
assumed the responsibilities of Trustee and Plan Administrator for the
Teleport Communications Group Retirement Savings Plan, for which the Company
incurred an expense of $50,000. Additionally, Merrill Lynch, Pierce, Fenner &
Smith Group Employee Services acts as Administrator for the Teleport
Communications Group Inc. Employee Stock Purchase Plan. The Company did not
incur a fee for these services during 1996.
Donaldson, Lufkin & Jenrette Securities Corporation, Lehman Brothers Inc.
and Deutsche Morgan Grenfell Inc. are also customers of the Company. The
Company's provision of telecommunications services to such U.S. Underwriters
is on an arm's-length basis.
Merrill Lynch, Pierce, Fenner & Smith Incorporated owned 2,764,083 shares of
the Class A Common Stock of TCG as of September 30, 1997. The Equitable
Companies Incorporated, which directly or indirectly owns a majority of the
outstanding common stock of Donaldson, Lufkin & Jenrette, Inc., owned
8,967,700 shares of the Class A Common Stock of TCG as of September 30, 1997.
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<PAGE>
LEGAL MATTERS
The legality of the Class A Common Stock offered hereby and certain other
legal matters will be passed upon for TCG by Dow, Lohnes & Albertson, PLLC,
Washington, D.C., and for the Underwriters by Shearman & Sterling, New York,
New York.
EXPERTS
The financial statements incorporated in this Prospectus by reference from
the Company's Annual Report on Form 10-K for the year ended December 31, 1996,
as amended, have been audited by Deloitte & Touche llp, independent auditors,
as stated in their report, which is incorporated herein by reference, and have
been so incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy and information
statements and other information with the Securities and Exchange Commission
(the "Commission"). Such reports, proxy and information statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, its Midwest Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and its Northeast Regional Office, 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission also
maintains a Web site at http://www.sec.gov which contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The Company's Class A Common Stock is
listed on the Nasdaq National Market under the symbol "TCGI". Reports, proxy
and information statements and other information concerning the Company can
also be inspected at the Nasdaq National Market at 1735 K Street, N.W.,
Washington, D.C. 20006.
Statements contained in this Prospectus as to the contents of any contract
or other document are not necessarily complete, and reference is made to the
copy of such contract or other document filed as an exhibit to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, as amended,
which is incorporated herein by reference, or which may be obtained from the
Company upon request, each such statement being qualified in all respects by
such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
TCG's file number for filings made with the Commission under the Exchange
Act is 0-20913. The following documents or information have been filed by the
Company with the Commission and are incorporated herein by reference:
(a) the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, as amended;
(b) the Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997 and June 30, 1997;
(c) the Company's Current Reports on Form 8-K dated January 13, 1997,
February 4, 1997, February 26, 1997, March 3, 1997, March 7, 1997,
March 11, 1997, March 20, 1997 (as amended), April 29, 1997, July 29,
1997 and October 10, 1997; and
(d) the description of the Company's Class A Common Stock set forth
in the registration statement on Form 8-A filed pursuant to the
Exchange Act on June 21, 1996, including any amendments thereto.
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All documents subsequently filed by the Company with the Commission pursuant
to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the initial
filing of the Registration Statement of which this Prospectus forms a part and
prior to the termination of the offering covered by this Prospectus will be
deemed incorporated by reference into this Prospectus and to be a part hereof
from the date of filing of such documents. Any statement contained in a
document incorporated by reference into this Prospectus shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such document. Any statement contained herein or in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein, or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
THE COMPANY HEREBY UNDERTAKES TO PROVIDE WITHOUT CHARGE TO EACH PERSON TO
WHOM A COPY OF THIS PROSPECTUS HAS BEEN DELIVERED, UPON THE WRITTEN OR ORAL
REQUEST OF SUCH PERSON TO TELEPORT COMMUNICATIONS GROUP INC., 437 RIDGE ROAD,
EXECUTIVE BUILDING 3, DAYTON, NEW JERSEY 08810 (TELEPHONE 732-392-2154),
ATTENTION: INVESTOR RELATIONS, A COPY OF ANY OR ALL OF THE DOCUMENTS REFERRED
TO ABOVE (OTHER THAN EXHIBITS TO SUCH DOCUMENTS) WHICH HAVE BEEN INCORPORATED
BY REFERENCE IN THIS PROSPECTUS.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in documents incorporated herein by
reference and under the captions "Prospectus Summary--The Company," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this Prospectus that are
not historical facts, including, without limitation, statements of future
expectations, projections of results of operations and financial condition,
statements of future economic performance and other forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
are subject to known and unknown risks, uncertainties and other factors which
may cause the actual results, performance or achievements of the Company to
differ materially from those contemplated in such forward-looking statements.
In addition to the specific matters referred to herein, including, without
limitation, those noted under the caption "Risk Factors," important factors
which may cause actual results to differ from those contemplated in such
forward-looking statements include: (i) the results of the Company's efforts
to implement its business strategy; (ii) the effect of economic conditions;
(iii) actions of the Company's competitors and the Company's ability to
respond to such actions; (iv) the cost of the Company's capital, which may
depend in part on the Company's portfolio quality, ratings, prospects and
outlook; (v) changes in governmental regulation, tax rates and similar
matters; and (vi) other risks detailed in the Company's other filings with the
Commission.
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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 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.
Central offices--A telecommunications center where switches and other
telecommunications facilities are housed. CLECs 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.
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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 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.
ILECs (incumbent local exchange carriers)--The local phone companies, either
a BOC or an independent carrier (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.
ISP--Internet service provider.
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.
Long distance carriers (interexchange carriers or IXCs)--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.
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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 time slots and placing each signal into its
assigned time slot), 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 a CLEC'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.
Peering arrangements--arrangements between Internet service providers which
allow them to establish mutual connections to the Internet on a preferred
basis.
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) or State PUC--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.
Special access services--The lease of private, dedicated telecommunications
lines or circuits on an ILEC's or a CLEC's network which run to or from the
long distance carrier's POPs. Special access services do not
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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 Extended Area Service, EAS or intraLATA
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.
Tier I Internet service provider--an Internet service provider which has
peering arrangements with other leading Internet service providers.
Voice grade equivalent circuit--One DS-0. One voice grade equivalent circuit
is equal to 64 kilobits of bandwidth.
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[GRAPHIC DESCRIPTION OF TELEPORT'S SERVICES. SERVICES INCLUDE DEDICATED
SERVICES, SWITCHED SERVICES, VIDEO SERVICES AND DATA SERVICES.]
<PAGE>
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE 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 AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDER OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY STATE 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
Use of Proceeds.......................................................... 20
Dilution................................................................. 20
Price Range of Class A Common Stock...................................... 21
Dividend Policy.......................................................... 21
Capitalization........................................................... 22
Selected Consolidated and Combined Financial Data........................ 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 36
Management............................................................... 53
Security Ownership of Management, Principal Stockholders and Selling
Stockholder............................................................. 57
Certain Relationships and Related Transactions........................... 58
Certain United States Tax Consequences to Non-United States Holders of
Class A Common Stock.................................................... 63
Shares Eligible for Future Sale.......................................... 67
Description of Certain Indebtedness...................................... 69
Description of Capital Stock............................................. 72
Underwriting............................................................. 75
Legal Matters............................................................ 78
Experts.................................................................. 78
Available Information.................................................... 78
Incorporation of Certain Documents by Reference.......................... 78
Special Note Regarding Forward-Looking Statements........................ 79
Glossary................................................................. 80
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
15,000,000 SHARES
[TCG LOGO APPEARS HERE]
TELEPORT COMMUNICATIONS GROUP INC.
CLASS A COMMON STOCK
---------------
PROSPECTUS
---------------
MERRILL LYNCH & CO.
LEHMAN BROTHERS
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
DEUTSCHE MORGAN GRENFELL
, 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
(ALTERNATE PAGE--INTERNATIONAL VERSION)
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS, DATED NOVEMBER 3, 1997
PROSPECTUS
15,000,000 SHARES [LOGO OF TELEPORT
TELEPORT COMMUNICATIONS GROUP INC. COMMUNICATIONS
CLASS A COMMON STOCK GROUP(R) APPEARS
HERE]
----------
Of the 15,000,000 shares of Class A Common Stock, par value $0.01 per share
(the "Class A Common Stock") of Teleport Communications Group Inc., a Delaware
corporation (the "Company" or "TCG"), offered hereby (the "Offering"),
9,945,592 shares are being sold by the Selling Stockholder, as defined herein,
and the balance of 5,054,408 shares are being sold by the Company. Of the
15,000,000 shares of Class A Common Stock offered hereby, 3,750,000 shares are
being offered outside the United States and Canada (the "International
Offering") by the International Managers (as defined herein) and 11,250,000
shares are being offered in a concurrent offering in the United States and
Canada (the "U.S. Offering" and, together with the International Offering, the
"Offering") by the U.S. Underwriters (as defined herein), subject to transfers
between the International Managers and the U.S. Underwriters (collectively, the
"Underwriters"). The price to public and the aggregate underwriting discount
per share are identical for the International Offering and the U.S. Offering.
The Company will not receive any proceeds from the sale of shares by the
Selling Stockholder.
The Company has two classes of common stock: Class A Common Stock and Class B
Common Stock (collectively, the "Common Stock"). The shares of Common Stock are
substantially identical, except that holders of Class A Common Stock are
entitled to one vote per share and holders of Class B Common Stock are entitled
to 10 votes per share on all matters submitted to a vote of stockholders and
except that only the holders of Class B Common Stock, voting separately as a
class, are entitled to vote on certain matters relating to the scope of the
business of the Company. Each share of Class B Common Stock is convertible at
the option of the holder into one share of Class A Common Stock. See
"Description of Capital Stock." The Class A Common Stock is listed on The
Nasdaq National Market ("Nasdaq") under the symbol "TCGI." On October 15, 1997,
the last reported sale price of the Class A Common Stock on Nasdaq was $50 5/16
per share.
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON
STOCK.
----------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO SELLING PROCEEDS TO
PUBLIC DISCOUNT(1) STOCKHOLDER(2) COMPANY (3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................ $ $ $ $
- --------------------------------------------------------------------------------
Total(4)................. $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholder have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting estimated expenses of $994,559 payable by the Selling
Stockholder.
(3) Before deducting estimated expenses of $505,441 payable by the Company.
(4) The Company has granted the U.S. Underwriters and the International
Managers options exercisable within 30 days after the date hereof to
purchase up to 1,687,500 and 562,500 additional shares of Class A Common
Stock, respectively, solely to cover over-allotments, if any. If such
options are exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and $ , respectively.
See "Underwriting."
----------
The shares of Class A Common Stock are offered by the several Underwriters,
subject to prior sale, when, as and if issued or delivered to and accepted by
them, subject to approval of certain legal matters by counsel for the
Underwriters and certain other conditions. The Underwriters reserve the right
to withdraw, cancel or modify such offer and to reject orders in whole or in
part. It is expected that delivery of the shares of Class A Common Stock will
be made in New York, New York on or about , 1997.
----------
MERRILL LYNCH INTERNATIONAL LEHMAN BROTHERS
CAZENOVE & CO.
DEUTSCHE MORGAN GRENFELL
UBS LIMITED
----------
The date of this Prospectus is , 1997.
<PAGE>
(ALTERNATE PAGE--INTERNATIONAL VERSION)
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"International Purchase Agreement") among the Company, the Selling Stockholder
and each of the underwriters named below (the "International Managers"), the
Company and the Selling Stockholder have agreed to sell to each of the
International Managers, and each of the International Managers has severally
agreed to purchase from the Company and the Selling Stockholder, the aggregate
number of shares of Class A Common Stock set forth opposite its name below
(the "International Offering").
<TABLE>
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
---------------------- ---------
<S> <C>
Merrill Lynch International........................................
Lehman Brothers International (Europe).............................
Cazenove & Co. ....................................................
Morgan Grenfell & Co. Limited .....................................
UBS Limited........................................................
---------
Total......................................................... 3,750,000
=========
</TABLE>
Merrill Lynch International, Lehman Brothers International (Europe),
Cazenove & Co., Morgan Grenfell & Co. Limited and UBS Limited are acting as
representatives (the "International Representatives") of the International
Managers.
The Company and the Selling Stockholder have also entered into a purchase
agreement (the "U.S. Purchase Agreement") with certain United States
underwriters (the "U.S. Underwriters"), for whom Merrill Lynch, Pierce, Fenner
& Smith Incorporated, Lehman Brothers Inc., Donaldson, Lufkin and Jenrette
Securities Corporation, Bear, Stearns & Co. Inc. and Deutsche Morgan Grenfell
Inc. are acting as representatives (the "U.S. Representatives"), providing for
the concurrent offer and sale of 11,250,000 shares of Class A Common Stock in
the United States and Canada (the "U.S. Offering"). The closings with respect
to the International Offering and the U.S. Offering are conditioned upon one
another.
The International Managers have advised the Company that they propose
initially to offer the shares of Class A Common Stock to the public at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per
share of Class A Common Stock. The International Managers may allow, and such
dealers may reallow, a discount not in excess of $ per share of Class A
Common Stock on sales to certain other dealers. After the initial public
offering, the public offering price, concession and discount may be changed.
The public offering price, concession and discount per share of Class A Common
Stock are identical under the International Purchase Agreement and the U.S.
Purchase Agreement.
The several International Managers have agreed, subject to the terms and
conditions set forth in the International Purchase Agreement, to purchase all
of the shares of Class A Common Stock being sold pursuant to such agreement if
any of the shares of Class A Common Stock being sold pursuant to such
agreement are purchased. Under certain circumstances the commitments of non-
defaulting International Managers may be increased.
The International Managers have advised the Company that they do not intend
to confirm sales of shares of Class A Common Stock offered hereby to any
accounts over which they exercise discretionary authority.
The International Managers and the U.S. Underwriters have entered into an
Intersyndicate Agreement (the "Intersyndicate Agreement") that provides for
the coordination of their activities. Pursuant to the Intersyndicate
Agreement, the U.S. Underwriters and any dealer to whom they sell shares of
Class A Common Stock will not offer to sell or sell shares of Class A Common
Stock to non-United States or non-Canadian persons or to persons
75
<PAGE>
(ALTERNATE PAGE--INTERNATIONAL VERSION)
they believe intend to resell to non-United States or non-Canadian persons, and
the International Managers and any dealer to whom they sell shares of Class A
Common Stock will not offer to sell or sell shares of Class A Common Stock to
United States or Canadian persons, except, in each case, for transactions
pursuant to the Intersyndicate Agreement. The Intersyndicate Agreement also
provides, among other things, that sales may be made between the International
Managers and the U.S. Underwriters of such number of shares of Class A Common
Stock as may be mutually agreed. The price of any shares of Class A Common
Stock so sold shall be the public offering price, less an amount not greater
than the selling concession.
The Company has granted to the International Managers an option to purchase
up to an aggregate of 562,500 additional shares of Class A Common Stock,
exercisable in whole or in part for 30 days after the date of this Prospectus,
solely to cover over-allotments, if any, at the public offering price, less
applicable underwriting discounts and concessions. To the extent that the
International Managers exercise this option, the International Managers have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage of shares of Class A Common Stock that the number of shares of
Class A Common Stock to be purchased by each of them, as shown in the above
table, bears to the total number of shares of Class A Common Stock initially
offered hereby. The Company has granted to the U.S. Underwriters an option to
purchase up to an aggregate of 1,687,500 additional shares of Class A Common
Stock, exercisable in whole or in part for 30 days after the date of this
Prospectus, solely to cover over-allotments, if any, on terms similar to those
granted to the International Managers. All or a portion of an over-allotment
option in either of the U.S. Offering or the International Offering may be
allocated to cover an over-allotment in the other Offering, in each case in the
sole discretion of the U.S. Representatives and the International
Representatives.
The Company and the Selling Stockholder have agreed to indemnify the
International Managers against certain liabilities, including liabilities under
the Securities Act and other applicable securities laws, or to contribute to
payments the International Managers may be required to make in respect thereof.
Under certain circumstances, the Company will reimburse the International
Managers for certain of their expenses.
The Company, certain of its officers and the holders of the Class B Common
Stock (other than Continental) have agreed not to offer, sell, contract to
sell, file a registration statement pursuant to the Securities Act (except for
certain registration statements relating to the issuance of stock and stock
options to employees) or otherwise dispose of any shares of Class A Common
Stock or securities convertible into or exchangeable or exercisable for Class A
Common Stock (except for private transactions by the holders of Class B Common
Stock where the transferee agrees to be bound by such restrictions), without
the prior written consent of Merrill Lynch on behalf of the U.S.
Representatives and the International Representatives, for a period of ninety
days after the date of this Prospectus. See "Shares Eligible for Future Sale."
In connection with the U.S. Offering and the International Offering, the
International Managers and the U.S. Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the shares of Class A
Common Stock. Specifically, the International Managers and the U.S.
Underwriters may over-allot the offering, creating a short position. In
addition, the International Managers and the U.S. Underwriters may bid for and
purchase shares of Class A Common Stock in the open market to cover short sales
or to stabilize the price of the shares of Class A Common Stock. Finally, the
underwriting syndicate may reclaim selling concessions allowed for distributing
the shares of Class A Common Stock in the U.S. Offering and the International
Offering if the syndicate repurchases previously distributed shares of Class A
Common Stock in syndicate covering transactions, stabilization transactions or
otherwise. Any of these activities may stabilize or maintain the market price
of the shares of Class A Common Stock above independent market levels. The
International Managers and the U.S. Underwriters are not required to engage in
these activities and may end any of these activities at any time.
In connection with the International Offering and the U.S. Offering, the
International Managers and the U.S. Underwriters or their respective affiliates
and selling group members (if any) who are qualified market makers on Nasdaq
may engage in "passive market making" in the Class A Common Stock on The Nasdaq
National Market in accordance with Rule 103 of Regulation M under the
Securities Exchange Act of 1934, as amended
76
<PAGE>
(ALTERNATE PAGE--INTERNATIONAL VERSION)
(the "Exchange Act"). Rule 103 permits, upon the satisfaction of certain
conditions, underwriters and selling group members participating in a
distribution that are also Nasdaq market makers in the security being
distributed (or a related security) to engage in limited market making
transactions during the period when Regulation M under the Exchange Act would
otherwise prohibit such activity. Rule 103 prohibits underwriters and selling
group members engaged in passive market making generally from entering a bid or
effecting a purchase at a price that exceeds the highest bid for those
securities displayed on The Nasdaq National Market by a market maker that is
not participating in the distribution. Under Rule 103, each underwriter or
selling group member engaged in passive market making is subject to a daily net
purchase limitation equal to 30% of such entity's average daily trading volume
during the two full consecutive calendar months immediately preceding the date
of the filing of the registration statement under the Securities Act pertaining
to the security to be distributed (or such related security).
Each International Manager has represented and agreed that (i) it has not
offered or sold and, prior to the date six months after the closing date of the
Offering, will not offer and sell any shares of Class A Common Stock to persons
in the United Kingdom, except to persons whose ordinary activities involve them
in acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses, or otherwise in circumstances
which do not constitute an offer to the public in the United Kingdom within the
meaning of the Public Offers of Securities Regulations 1995; (ii) it has
complied and will comply with all applicable provisions of the Financial
Services Act 1986 with respect to anything done by it in relation to the shares
of Class A Common Stock in, from or otherwise involving the United Kingdom; and
(iii) it has only issued or passed on and will only issue or pass on in the
United Kingdom any document received by it in connection with the issue of the
shares of Class A Common Stock to a person who is of a kind described in
Article 11(3) of the Financial Services At 1986 (Investment Advertisements)
(Exemptions) Order 1996, or to any person to whom the document may otherwise
lawfully be issued or passed on.
The Class A Common Stock is listed on The Nasdaq National Market under the
symbol "TCGI."
Certain of the International Managers and their respective affiliates have
provided from time to time, and expect to provide in the future, financial
advisory and investment banking services for, and/or have normal banking
relationships with, the Company and its affiliates, for which they receive
customary compensation.
Merrill Lynch & Co., Inc., an affiliate of one of the International Managers,
was the majority owner of the Company from its inception until November 23,
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 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. In
1996, the Company paid approximately $210,300 under such sublease.
During 1996 Merrill Lynch, Pierce, Fenner & Smith Group Employee Services
assumed the responsibilities of Trustee and Plan Administrator for the Teleport
Communications Group Retirement Savings Plan, for which the Company incurred an
expense of $50,000. Additionally, Merrill Lynch, Pierce, Fenner & Smith Group
Employee Services acts as Administrator for the Teleport Communications Group
Inc. Employee Stock Purchase Plan. The Company did not incur a fee for these
services during 1996.
Donaldson, Lufkin & Jenrette Securities Corporation, Lehman Brothers Inc. and
Deutsche Morgan Grenfell Inc., are also customers of the Company. The Company's
provision of telecommunications services to such U.S. Underwriters is on an
arm's-length basis.
Merrill Lynch, Pierce, Fenner & Smith Incorporated owned 2,764,083 shares of
the Class A Common Stock of TCG as of September 30, 1997. The Equitable
Companies Incorporated, which directly or indirectly owns a majority of the
outstanding common stock of Donaldson, Lufkin & Jenrette, Inc., owned 8,967,700
shares of the Class A Common Stock of TCG as of September 30, 1997.
77
<PAGE>
(ALTERNATE PAGE--INTERNATIONAL VERSION)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE 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 AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDER OR THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE
IN ANY STATE 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
Use of Proceeds.......................................................... 20
Dilution................................................................. 20
Price Range of Class A Common Stock...................................... 21
Dividend Policy.......................................................... 21
Capitalization........................................................... 22
Selected Consolidated and Combined Financial Data........................ 23
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 36
Management............................................................... 53
Security Ownership of Management, Principal Stockholders and Selling
Stockholder............................................................. 57
Certain Relationships and Related Transactions........................... 58
Certain United States Tax Consequences to Non-United States Holders of
Class A Common Stock.................................................... 63
Shares Eligible for Future Sale.......................................... 67
Description of Certain Indebtedness...................................... 69
Description of Capital Stock............................................. 72
Underwriting............................................................. 75
Legal Matters............................................................ 78
Experts.................................................................. 78
Available Information.................................................... 78
Incorporation of Certain Documents by Reference.......................... 78
Special Note Regarding Forward-Looking Statements........................ 79
Glossary................................................................. 80
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
15,000,000 SHARES
[LOGO OF TELEPORT COMMUNICATIONS GROUP(R) INC. APPEARS HERE]
TELEPORT COMMUNICATIONS GROUP INC.
CLASS A COMMON STOCK
----------------
PROSPECTUS
----------------
MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS
CAZENOVE & CO.
DEUTSCHE MORGAN GRENFELL
UBS LIMITED
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale of the Class A Common Stock being registered, other than the underwriting
discounts and commissions. All amounts shown are estimates except for the
Securities and Exchange Commission registration fee and the NASD filing fee.
These fees are being paid by the Selling Stockholder and the Company based on
the number of shares of Class A Common Stock each is selling in the Offering.
<TABLE>
<S> <C>
Registration Fee.............................................. $ 257,117
NASD Filing Fee............................................... 30,500
Blue Sky Fees and Expenses.................................... 12,000
Printing and Engraving Fees................................... 450,000
Legal Fees and Expenses....................................... 275,000
Accounting Fees and Expenses.................................. 175,000
Miscellaneous................................................. 300,383
----------
Total....................................................... $1,500,000
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Article V of the Amended and Restated Certificate of Incorporation of the
Company, (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 the Company shall not be personally liable to the
Company 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 the Company shall indemnify its
officers, directors, employees and agents to the full extent permitted by
Delaware law.
II-1
<PAGE>
ITEM 16 EXHIBITS
<TABLE>
<C> <S>
1.1 Form of U.S. Purchase Agreement
1.2 Form of International Purchase Agreement
*3.6 Amended and Restated Certificate of Incorporation of TCG, as revised
*3.7 Amended and Restated By-laws of TCG, as revised
*4.2 Form of Amended and Restated Stockholders' Agreement
*4.3 Form of Indenture between the Company and United States Trust Company
of New York, as Trustee, relating to the 11 1/8% Senior Discount Notes
due 2007 of the Company
*4.4 Form of Indenture between the Company and United States Trust Company
of New York, as Trustee, relating to 9 7/8% Senior Notes due 2006 of
the Company
5 Opinion of Dow, Lohnes & Albertson, PLLC
10.11 Amended and Restated Loan Agreement, dated July 28, 1997.
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Dow, Lohnes & Albertson, PLLC (contained in their opinion
in Exhibit 5)
**24 Power of Attorney
</TABLE>
- --------
* Incorporated by reference to the corresponding exhibit of TCG's
Registration Statements on Form S-1 (File Nos. 333-3850 and 333-3984)
** Previously filed
ITEM 17. UNDERTAKINGS
a. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's Annual Report pursuant to Section 13(a) or Section 15(d) of
the Exchange Act that is incorporated by reference in the registration
statement shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
b. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors,
officers and controlling persons of the registrant pursuant to the
foregoing provisions or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
c. The undersigned Registrant hereby undertakes that:
i. For purposes of determining any liability under the Securities 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 the Registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed part of this registration statement as of the time it was
declared effective.
ii. For the purpose of determining any liability under the Securities
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.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT NO. 2
TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED IN THE CITY OF DAYTON, STATE OF NEW JERSEY ON THE
3RD DAY OF NOVEMBER, 1997.
TELEPORT COMMUNICATIONS GROUP INC.
/s/ Robert Annunziata
By: _________________________________
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 2 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.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
Chairman of the
/s/ Robert Annunziata Board of Directors, November 3, 1997
- ------------------------------------- President and Chief
ROBERT ANNUNZIATA Executive Officer
Senior Vice
/s/ John A. Scarpati President and Chief November 3, 1997
- ------------------------------------- Financial Officer
JOHN A. SCARPATI (Principal
Financial Officer)
Vice President and
/s/ Maria Terranova-Evans Controller November 3, 1997
- ------------------------------------- (Principal
MARIA TERRANOVA-EVANS Accounting Officer)
* Director
- ------------------------------------- November 3, 1997
JAMES O. ROBBINS
* Director
- ------------------------------------- November 3, 1997
BRIAN L. ROBERTS
Director
- -------------------------------------
BRENDAN R. CLOUSTON
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- --------- ----
<S> <C> <C>
* Director
- ------------------------------------- November 3, 1997
JOHN R. DILLON
* Director
- ------------------------------------- November 3, 1997
GERALD W. GAINES
* Director
- ------------------------------------- November 3, 1997
LAWRENCE S. SMITH
* Director
- ------------------------------------- November 3, 1997
LARRY E. ROMRELL
* Director
- ------------------------------------- November 3, 1997
DAVID M. WOODROW
* Director
- ------------------------------------- November 3, 1997
JAMES BRUCE LLEWELYN
* Director
- ------------------------------------- November 3, 1997
C.B. ROGERS, JR.
* Director
- ------------------------------------- November 3, 1997
JIMMY W. HAYES
* Director
- ------------------------------------- November 3, 1997
BERNARD W. SCHOTTERS
</TABLE>
* Robert Annunziata, by signing his name hereto, does sign this document on
behalf of each of the persons indicated above for whom he is the attorney-in-
fact pursuant to a power of attorney duly executed by such person and filed
with the Securities and Exchange Commission.
/s/ Robert Annunziata
By: _________________________________
Robert Annunziata
Attorney-in-Fact
II-4
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE NUMBER
----------- ----------- ------------
<C> <S> <C>
1.1 Form of U.S. Purchase Agreement
1.2 Form of International Purchase Agreement
*3.6 Amended and Restated Certificate of Incorporation of TCG, as
revised
*3.7 Amended and Restated By-laws of TCG, as revised
*4.2 Form of Amended and Restated Stockholders' Agreement
*4.3 Form of Indenture between the Company and United States Trust
Company of New York, as Trustee, relating to the 11 1/8% Senior
Discount Notes due 2007 of the Company
*4.4 Form of Indenture between the Company and United States Trust
Company of New York, as Trustee, relating to 9 7/8% Senior Notes
due 2006 of the Company
5 Opinion of Dow, Lohnes & Albertson, PLLC
10.11 Amended and Restated Loan Agreement, dated July 28, 1997.
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Dow, Lohnes & Albertson, PLLC (contained in their
opinion in Exhibit 5)
**24 Power of Attorney
</TABLE>
- --------
* Incorporated by reference to the corresponding exhibit of TCG's
Registration Statements on Form S-1 (File Nos. 333-3850 and 333-3984)
** Previously filed
<PAGE>
EXHIBIT 1.1
TELEPORT COMMUNICATIONS GROUP INC.
(a Delaware corporation)
_________________ Shares of Class A Common Stock
(Par Value $.01 Per Share)
U.S. PURCHASE AGREEMENT
-----------------------
, 1997
---------------
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Lehman Brothers Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Bear, Stearns & Co. Inc.
Deutsche Morgan Grenfell Inc.
as U.S. Representatives of the several U.S. Underwriters
c/o Merrill Lynch, Pierce, Fenner & Smith Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Teleport Communications Group Inc., a Delaware corporation (the "Company"),
-------
and Continental Holding Company, a Massachusetts business trust (the "Selling
-------
Shareholder"), confirm their respective agreements with Merrill Lynch & Co.,
- -----------
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and each of
-------------
the other U.S. Underwriters named in Schedule A hereto (collectively, the "U.S.
----
Underwriters," which term shall also include any underwriter substituted as
- ------------
hereinafter provided in Section 10 hereof), for which Merrill Lynch and Lehman
Brothers Inc., Donaldson, Lufkin & Jenrette Securities Corporation, Bear,
Stearns & Co. Inc. and Deutsche Morgan Grenfell Inc. are acting as
representatives (in such capacity, the "U.S. Representatives"), with respect to
--------------------
(i) the sale by the Company and the Selling Shareholder acting severally and not
jointly, and the purchase by the U.S. Underwriters, acting severally and not
jointly, of the respective numbers of shares of Class A Common Stock, par value
$.01 per share, of the Company ("Class A Common Stock") set forth in Schedule A
--------------------
hereto, and (ii) the grant by the Company to the U.S. Underwriters, acting
severally and not jointly, of the option described in Section 2(b) hereof to
purchase all or any part of _____________ additional shares of Class A Common
Stock
<PAGE>
2
to cover over-allotments, if any. The aforesaid _____________ shares of Class A
Common Stock (the "Initial U.S. Securities") to be purchased by the U.S.
-----------------------
Underwriters and all or any part of the ________________ shares of Class A
Common Stock subject to the option described in Section 2(b) hereof (the "U.S.
----
Option Securities") are hereinafter called, collectively, the "U.S. Securities."
- ----------------- ---------------
It is understood that the Company and the Selling Shareholder are
concurrently entering into an agreement dated the date hereof (the
"International Purchase Agreement") providing for the offering by the Company
- ---------------------------------
and the Selling Shareholder of an aggregate of ________________________ shares
of Class A Common Stock (the "Initial International Securities") through
--------------------------------
arrangements with certain underwriters outside the United States and Canada (the
"International Managers") for which Merrill Lynch International, Lehman Brothers
----------------------
International (Europe), Cazenove & Co., Morgan Grenfell & Co. Limited and UBS
Limited are acting as lead managers (the "Lead Managers") and the grant by the
-------------
Company to the International Managers, acting severally and not jointly, of an
option to purchase all or any part of the International Managers' pro rata
portion of up to _____________ additional shares of Class A Common Stock solely
to cover over-allotments, if any (the "International Option Securities" and,
-------------------------------
together with the U.S. Option Securities, the "Option Securities"). The Initial
-----------------
International Securities and the International Option Securities are hereinafter
called the "International Securities."
------------------------
It is understood that the Company and the Selling Shareholder are not
obligated to sell and the U.S. Underwriters are not obligated to purchase, any
Initial U.S. Securities unless all of the Initial International Securities are
contemporaneously purchased by the International Managers.
The U.S. Underwriters and the International Managers are hereinafter
collectively called the "Underwriters," the Initial U.S. Securities and the
------------
Initial International Securities are hereinafter collectively called the
"Initial Securities," and the U.S. Securities and the International Securities
- -------------------
are hereinafter collectively called the "Securities."
----------
The Underwriters will concurrently enter into an Intersyndicate Agreement
of even date herewith (the "Intersyndicate Agreement") providing for the
------------------------
coordination of certain transactions among the Underwriters under the direction
of Merrill Lynch (in such capacity, the "Global Coordinator").
------------------
The Company and the Selling Shareholder understand that the U.S.
Underwriters propose to make a public offering of the U.S. Securities as soon as
the U.S. Representatives deem advisable after this Agreement has been executed
and delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-37597) and ____
- -----------
amendment[s]
<PAGE>
3
thereto covering the registration of the Securities under the Securities Act of
1933, as amended (the "1933 Act"), including the related preliminary prospectus
--------
or prospectuses. Promptly after execution and delivery of this Agreement, the
Company will either (i) prepare and file a prospectus in accordance with the
provisions of Rule 430A ("Rule 430A") of the rules and regulations of the
---------
Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b) of
--------------------
Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the Company has
-----------
elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare
--------
and file a term sheet (a "Term Sheet") in accordance with the provisions of Rule
----------
434 and Rule 424(b). Two forms of prospectus are to be used in connection with
the offering and sale of the Securities: one relating to the U.S. Securities
(the "Form of U.S. Prospectus") and one relating to the International Securities
-----------------------
(the "Form of International Prospectus"). The Form of International Prospectus
--------------------------------
is identical to the Form of U.S. Prospectus, except for the front cover and back
cover pages and the information under the caption "Underwriting." The
information included in any such prospectus, if any, or in any such Term Sheet,
as the case may be, that was omitted from such registration statement at the
time it became effective but that is deemed to be part of such registration
statement at the time it became effective (a) pursuant to paragraph (b) of Rule
430A is referred to as "Rule 430A Information" or (b) pursuant to paragraph (d)
---------------------
of Rule 434 is referred to as "Rule 434 Information." Each Form of U.S.
--------------------
Prospectus and Form of International Prospectus used before such registration
statement became effective, and any prospectus that omitted, as applicable, the
Rule 430A Information or the Rule 434 Information, that was used after such
effectiveness and prior to the execution and delivery of this Agreement, is
herein called a "preliminary prospectus." Such registration statement,
----------------------
including the exhibits, schedules and amendment(s) thereto, if any, and the
documents incorporated by reference pursuant to Item 12 of Form S-3 under the
1933 Act, at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, if and as applicable, is herein called
the "Registration Statement." Any registration statement filed pursuant to Rule
----------------------
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
-----------
Registration Statement," and after such filing the term "Registration Statement"
- ---------------------- ----------------------
shall include the Rule 462(b) Registration Statement. The final Form of U.S.
Prospectus and the final Form of International Prospectus, including the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the 1933 Act, in the forms first furnished to the Underwriters for use in
connection with the confirmation of sales of the Securities are herein called
the "U.S. Prospectus" and the "International Prospectus," respectively, and
--------------- ------------------------
collectively, the "Prospectuses." If Rule 434 is relied on, the terms "U.S.
------------ ----
Prospectus" and "International Prospectus" shall refer to the preliminary U.S.
- ---------- ------------------------
Prospectus dated ____________, 1997 and preliminary International Prospectus
dated ____________, 1997, respectively, each together with the applicable Term
Sheet and all references in this Agreement to the date of such Prospectuses
shall mean the date of the applicable Term Sheet. For purposes of this
Agreement, all references to the Registration Statement, any preliminary
prospectus, the International Prospectus, the U.S. Prospectus or any Term Sheet
or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the
<PAGE>
4
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
system ("EDGAR").
-----
All references in this Agreement to financial statements and schedules and
other information which is "contained," "included," "referred to" or "stated" in
the Registration Statement, any preliminary prospectus or the Prospectuses (or
other references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, any preliminary prospectus or the
Prospectuses, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement, any preliminary
prospectus or the Prospectuses shall be deemed to mean and include the filing of
any document under the Securities Exchange Act of 1934 (the "1934 Act") that is
--------
incorporated by reference in the Registration Statement, such preliminary
prospectus or the Prospectuses, as the case may be.
SECTION 1. Representations and Warranties. (a) Representations and
------------------------------
Warranties by the Company. The Company represents and warrants to each U.S.
Underwriter and to the Selling Shareholder, and agrees with each U.S.
Underwriter and the Selling Shareholder, as follows:
(i) Compliance with Registration Requirements. The Company meets the
-----------------------------------------
requirements for use of Form S-3 under the 1933 Act. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted and are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part of
the Commission for additional information has been complied with.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (and, if any U.S. Option Securities are
purchased, at the Date of Delivery), the Registration Statement, the Rule
462(b) Registration Statement and any amendments and supplements thereto
complied and will comply in all material respects with the requirements of
the 1933 Act and the 1933 Act Regulations and did not and will not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading. Neither of the Prospectuses nor any amendments or
supplements thereto, at the time the Prospectuses or any amendments or
supplements thereto were issued and at the Closing Time (and, if any U.S.
Option Securities are purchased, at the Date of Delivery), included or will
include an untrue statement of a material fact or omitted or will omit to
state a material fact necessary in order to
<PAGE>
5
make the statements therein, in the light of the circumstances under which
they were made, not misleading. If Rule 434 is used, the Company will
comply with the requirements of Rule 434 and the Prospectuses shall not be
"materially different," as such term is used in Rule 434, from the
prospectuses included in the Registration Statement at the time it became
effective. The representations and warranties in this subsection shall not
apply to statements in or omissions from the Registration Statement or the
Prospectuses made in reliance upon and in conformity with information
furnished to the Company in writing by any Underwriter through the U.S.
Representatives or the Lead Managers expressly for use in the Registration
Statement or the Prospectuses.
(ii) Incorporated Documents. The documents incorporated or deemed to
----------------------
be incorporated by reference in the Registration Statement and the
Prospectuses, when they became effective or at the time they were or
hereafter are filed with the Commission, complied and will comply in all
material respects with the requirements of the 1933 Act and the 1933 Act
Regulations or the 1934 Act and the rules and regulations of the Commission
thereunder (the "1934 Act Regulations"), as applicable, and, when read
--------------------
together with the other information in the Prospectuses, at the time the
Registration Statement became effective, at the time the Prospectuses were
issued and at the Closing Time (and, if any Option Securities are
purchased, at the Date of Delivery), did not and will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading.
(iii) Independent Accountants. The accountants who certified the
-----------------------
financial statements and supporting schedules included in the Registration
Statement are independent public accountants as required by the 1933 Act
and the 1933 Act Regulations.
(iv) Financial Statements. The combined balance sheets of the Company
--------------------
and its subsidiaries and TCG Partners, a New York general partnership
(collectively, "TCG"), as of December 31, 1995 and the related combined
---
statements of operations, changes in stockholders' equity and partners'
capital (deficit), and cash flows for the years ended December 31, 1994 and
1995 and the combined balance sheet of TCG as of June 30, 1996 and the
related combined statements of operations and cash flows for the six month
period ended June 30, 1996 included in the Registration Statement and the
Prospectuses, together with the related schedules and notes, present fairly
the combined financial position of TCG at the dates indicated and the
combined results, of TCG's operations and TCG's cash flows for the periods
specified; said financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a consistent
----
basis throughout the periods involved. The consolidated balance sheet of
the Company and its subsidiaries as of December
<PAGE>
6
31, 1996 and the related consolidated statements of operations, changes in
stockholders' equity and partners' capital (deficit) and cash flows for the
year ended December 31, 1996 and the consolidated balance sheet of the
Company as of June 30, 1997 and the related consolidated statements of
operations and cash flows for the six months ended June 30, 1997 included
in the Registration Statement and the Prospectuses, together with the
related schedules and notes, present fairly the consolidated financial
position of the Company and its consolidated subsidiaries at the dates
indicated and the statements of operations, changes in stockholders' equity
and partners' capital (deficit) and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with GAAP applied on a
consistent basis throughout the periods involved. The supporting
schedules, if any, included in the Registration Statement present fairly in
accordance with GAAP the information required to be stated therein. The
selected financial data and the summary financial information included in
the Prospectuses present fairly the information shown therein and have been
compiled on a basis consistent with that of the audited financial
statements included in the Registration Statement.
(v) No Material Adverse Change in Business. Since the respective
--------------------------------------
dates as of which information is given in the Registration Statement and
the Prospectuses, except as otherwise stated therein, (A) there has been no
material adverse change or no development involving a prospective material
adverse change, in the condition, financial or otherwise, or in the
earnings or business affairs of the Company and its Subsidiaries considered
as one enterprise, whether or not arising in the ordinary course of
business (a "Material Adverse Effect"), (B) there have been no transactions
-----------------------
entered into by the Company or any of its Subsidiaries, other than those in
the ordinary course of business, which are material with respect to the
Company and its Subsidiaries considered as one enterprise and which are
required to be disclosed in the Registration Statement or which would have
been required to be disclosed in the Registration Statement prior to its
effectiveness, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(vi) Good Standing of the Company. The Company has been duly
----------------------------
organized and is validly existing as a corporation in good standing under
the laws of the State of Delaware and has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectuses and to enter into and perform its obligations
under this Agreement; and the Company is duly qualified as a foreign
corporation to transact business and is in good standing in each other
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the
<PAGE>
7
failure so to qualify or to be in good standing would not result in a
Material Adverse Effect.
(vii) Good Standing of Subsidiaries. Schedule C lists each
-----------------------------
"significant subsidiary" of the Company (as such term is defined in Rule 1-
02 of Regulation S-X) and other subsidiaries not deemed "significant" but
nonetheless material (each a "Subsidiary" and, collectively, the
----------
"Subsidiaries"). Each Subsidiary has been duly organized or formed and is
-------------
validly existing as a corporation, a partnership or a limited partnership
in good standing (with respect to a Subsidiary that is a corporation or
limited partnership) under the laws of the jurisdiction in which it has
been incorporated or formed, as applicable, has the necessary corporate or
partnership power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectuses and (with
respect to a Subsidiary that is a corporation or a limited partnership) is
duly qualified as a foreign corporation or limited partnership to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify
or to be in good standing would not result in a Material Adverse Effect;
except as otherwise disclosed in the Registration Statement or on Schedule
C hereof, all of the issued and outstanding capital stock of each such
Subsidiary which is a corporation has been duly authorized and validly
issued, is fully paid and non-assessable and all the issued and outstanding
capital stock of each such Subsidiary which is a corporation and all the
existing partnership interests of such Subsidiary which is a partnership or
a limited partnership are owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim or equity; and none of the outstanding shares of
capital stock of any Subsidiary which is a corporation was issued in
violation of the preemptive rights of any securityholder of such
Subsidiary.
(viii) Capitalization. The authorized, issued and outstanding
--------------
capital stock of the Company is as set forth in the Prospectuses in the
column entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement, pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectuses or pursuant to the exercise of convertible securities or
options referred to in the Prospectuses). The shares of issued and
outstanding capital stock of the Company, including the Securities to be
purchased by the U.S. Underwriters and the International Managers from the
Selling Shareholder, have been duly authorized and validly issued and are
fully paid and non-assessable; none of the outstanding shares of capital
stock of the Company, including the Securities to be purchased by the U.S.
Underwriters and the International Managers from the Selling Shareholder,
was issued in violation of the preemptive rights of any securityholder of
the Company arising under the Delaware General Corporation Law (the
"DGCL"), the Company's
----
<PAGE>
8
certificate of incorporation or bylaws or any agreement to which the
Company is a party.
(ix) Authorization of Agreement. This Agreement and the International
--------------------------
Purchase Agreement have been duly authorized, executed and delivered by the
Company.
(x) Authorization and Description of Securities. The Securities to be
-------------------------------------------
purchased by the U.S. Underwriters and the International Managers from the
Company have been duly authorized for issuance and sale to the U.S.
Underwriters pursuant to this Agreement and the International Managers
pursuant to the International Purchase Agreement, respectively, and, when
issued and delivered by the Company pursuant to this Agreement and the
International Purchase Agreement, respectively, against payment of the
consideration set forth herein and the International Purchase Agreement,
respectively, will be validly issued, fully paid and non-assessable; the
Class A Common Stock conforms to all statements relating thereto contained
in the Prospectuses and such description conforms to the rights set forth
in the instruments defining the same; no holder of the Securities will be
subject to personal liability for the payment of the Company's debts except
as they may be liable by reason of their own conduct or acts and except as
holders of the Securities may be liable pursuant to Section 282 of the
DGCL; and the issuance of the Securities is not subject to preemptive or
other similar rights of any securityholder of the Company arising under the
DGCL, the Company's certificate of incorporation or bylaws or any agreement
to which the Company is a party.
(xi) Absence of Defaults and Conflicts. Neither the Company nor any
---------------------------------
Subsidiary is in violation of its charter or by-laws or partnership
agreement, as the case may be, or in default in the performance or
observance of any obligation, agreement, covenant or condition contained in
any contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or other agreement or instrument to which the Company or any
Subsidiary is a party or by which it or any of them may be bound, or to
which any of the property or assets of the Company or any Subsidiary is
subject (collectively, "Agreements and Instruments") except for such
--------------------------
violations or defaults that would not reasonably be expected to result in a
Material Adverse Effect; and the execution, delivery and performance of
this Agreement and the International Purchase Agreement and the
consummation of the transactions contemplated in this Agreement and the
International Purchase Agreement, the issuance and sale of the Securities
and the use of the proceeds from the sale of the Securities as described in
the Prospectuses under the caption "Use of Proceeds" and compliance by the
---------------
Company with its obligations under this Agreement and the International
Purchase Agreement have been duly authorized by all necessary corporate
action and do not and will not, whether with or without the giving of
notice or passage of time or both,
<PAGE>
9
conflict with or constitute a breach of, or default or Repayment Event (as
defined below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
Subsidiary pursuant to the Agreements and Instruments (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that
would not reasonably be expected to result in a Material Adverse Effect),
nor will such actions result in any violation of the provisions of the
charter or by-laws or partnership agreement, as the case may be, of the
Company or any Subsidiary or any applicable law (including the
Communications Act of 1934, as amended, and the Telecommunications Act of
1996, as amended (the "1996 Act"), and the rules, regulations and policies
--------
of the Federal Communications Commission (the "FCC") and the public
---
utilities laws of the various states in which the Company and the
Subsidiaries do business and the ordinances, rules and regulations of the
various local governments in which the Company and the Subsidiaries do
business), statute, rule, regulation, judgment, order, writ or decree of
any government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any Subsidiary or any of their
assets, properties or operations (except for such violations that would not
reasonably be expected to result in a Material Adverse Effect). As used
herein, a "Repayment Event" means any event or condition which gives the
---------------
holder of any note, debenture or other evidence of indebtedness for
borrowed money in principal amount in excess of $10 million (or any person
acting on such holder's behalf) the right to require the repurchase,
redemption or repayment of all or a portion of such indebtedness by the
Company or any Subsidiary.
(xii) Absence of Labor Dispute. No labor dispute with the employees
------------------------
of the Company or any Subsidiary exists or, to the knowledge of the
Company, is imminent, and the Company is not aware of any existing or
imminent labor disturbance by the employees of any of its or any
Subsidiary's principal suppliers, manufacturers, customers or contractors,
which, in either case, may reasonably be expected to result in a Material
Adverse Effect.
(xiii) Absence of Proceedings. There is no action, suit, proceeding,
----------------------
inquiry or investigation before or brought by any court or governmental
agency or body, domestic or foreign, now pending, or, to the knowledge of
the Company, threatened, against or affecting the Company or any Subsidiary
(or any of the properties or assets thereof), which is required to be
disclosed in the Registration Statement (other than as disclosed therein),
or which might reasonably be expected to result in a Material Adverse
Effect, or which might reasonably be expected to materially and adversely
affect the consummation of the transactions contemplated in this Agreement
and the International Purchase Agreement or the performance by the Company
of its obligations hereunder or thereunder; the aggregate of all pending
legal or governmental proceedings to which the Company or any Subsidiary is
a party or of
<PAGE>
10
which any of their respective properties or assets is the subject which are
not described in the Registration Statement, including ordinary routine
litigation incidental to the business, could not reasonably be expected to
result in a Material Adverse Effect.
(xiv) Accuracy of Exhibits. There are no contracts or documents that
--------------------
are required by the 1993 Act, the 1933 Act Regulations, the 1934 Act or the
1934 Act Regulations to be described in the Registration Statement, the
Prospectuses or the documents incorporated by reference therein or to be
filed as exhibits thereto that have not been so described and filed as
required.
(xv) Possession of Intellectual Property. The Company and the
-----------------------------------
Subsidiaries own or possess, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on the business
---------------------
now operated by them, and neither the Company nor any of the Subsidiaries
has received any notice or is otherwise aware of any infringement of or
conflict with asserted rights of others with respect to any Intellectual
Property or of any facts or circumstances which would render any
Intellectual Property invalid or inadequate to protect the interest of the
Company or any of the Subsidiaries therein, and which infringement or
conflict (if the subject of any unfavorable decision, ruling or finding) or
invalidity or inadequacy, singly or in the aggregate, would reasonably be
expected to result in a Material Adverse Effect.
(xvi) Absence of Further Requirements. No filing with, or
-------------------------------
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Company of its
obligations hereunder, in connection with the offering, issuance or sale of
the Securities under this Agreement and the International Purchase
Agreement or the consummation of the transactions contemplated by this
Agreement and the International Purchase Agreement, (i) except such as have
been already obtained or as may be required under the 1933 Act or the 1933
Act Regulations and foreign or state securities or blue sky laws and (ii)
except for notice filings where the failure to make such filing would not
materially adversely affect the performance by the Company of its
obligations hereunder, in connection with the offering, issuance or sale of
the Securities under this Agreement and the International Purchase
Agreement or the consummation of the transactions contemplated by this
Agreement and the International Purchase Agreement.
<PAGE>
11
(xvii) Possession of Licenses and Permits. The Company and the
----------------------------------
Subsidiaries possess all permits, licenses, approvals, consents and other
authorizations issued by the appropriate federal, state, local or foreign
regulatory agencies or bodies (including the FCC, the public utilities
commission, or any equivalent body, of each state in which the Company and
its Subsidiaries do business and any other relevant state and local
authorities (the "Local Authorities")) required for the conduct of the
-----------------
business now operated by them (collectively, "Governmental Licenses"),
---------------------
except where the failure to possess any such permit, license, approval,
consent or authorization would not reasonably be expected to result in a
Material Adverse Effect; the Company and the Subsidiaries are in compliance
with the terms and conditions of all such Governmental Licenses, except
where the failure so to comply would not reasonably be expected to, singly
or in the aggregate, have a Material Adverse Effect; all of the
Governmental Licenses are (except for the effects of the 1996 Act as
described in the Prospectuses) valid and in full force and effect, except
where the invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not reasonably
be expected to have a Material Adverse Effect; there is no outstanding
adverse judgment, decree or order that has been issued by the FCC or any of
the Local Authorities against the Company or any of the Subsidiaries and
which, singly or in the aggregate, would reasonably be expected to result
in a Material Adverse Effect; and neither the Company nor any of the
Subsidiaries has received any notice of or is aware of proceedings relating
to the revocation or modification of any such Governmental Licenses or that
would otherwise affect the operations of the Company or the Subsidiaries
and which, singly or in the aggregate, would reasonably be expected to
result in a Material Adverse Effect.
(xviii) Title to Property. The Company and the Subsidiaries have
-----------------
good and marketable title to all real property owned by the Company and the
Subsidiaries and good title to all other properties owned by them, in each
case, free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind except such as (a) are
described in the Prospectuses, (b) are "Permitted Liens" under the 1996
Indentures and the Revolving Credit Agreement (as such terms are defined in
the Prospectuses) or (c) would not reasonably be expected to, singly or in
the aggregate, result in a Material Adverse Effect; and all of the leases
and subleases material to the business of the Company and the Subsidiaries,
considered as one enterprise, and under which the Company or any of the
Subsidiaries holds properties described in the Prospectuses, are in full
force and effect, and neither the Company nor any Subsidiary has any notice
of any claim of any sort that has been asserted by anyone adverse to the
rights of the Company or any Subsidiary under any of the leases or
subleases mentioned above, or affecting or questioning the rights of the
Company or such Subsidiary to the continued possession of the leased or
<PAGE>
12
subleased premises under any such lease or sublease except for such claims
that would not reasonably be expected to result in a Material Adverse
Effect.
(xix) Investment Company Act. The Company is not, and upon the
----------------------
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectuses
will not be, an "investment company" or an entity "controlled" by an
"investment company" as such terms are defined in the Investment Company
Act of 1940, as amended (the "1940 Act").
--------
(xx) Environmental Laws. Except as described in the Registration
------------------
Statement and except as would not, singly or in the aggregate, result in a
Material Adverse Effect, (A) neither the Company nor any of the
Subsidiaries is in violation of any federal, state, local or foreign
statute, law, rule, regulation, ordinance or code or any judicial or
administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to pollution or
protection of human health, the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata)
or wildlife, including, without limitation, laws and regulations relating
to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum or
petroleum products (collectively, "Hazardous Materials") or to the
-------------------
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials (collectively, "Environmental
-------------
Laws"), (B) the Company and its Subsidiaries have all permits,
----
authorizations and approvals required under any applicable Environmental
Laws and are each in compliance with their requirements, (C) there are no
pending or, to the Company's knowledge, threatened administrative,
regulatory or judicial actions, suits, demands, demand letters, claims,
liens, notices of noncompliance or violation, investigation or proceedings
relating to any Environmental Law against the Company or any of its
Subsidiaries and (D) there are no events or circumstances that might
reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any of its
Subsidiaries relating to Hazardous Materials or the violation of
Environmental Laws.
(xxi) Registration Rights. Except as described in the Registration
-------------------
Statement, the Company has not granted any registration rights or other
similar rights to have any securities registered pursuant to the
Registration Statement or otherwise registered by the Company under the
1933 Act.
(b) Representations and Warranties by the Selling Shareholder. The
Selling Shareholder represents and warrants to each U.S. Underwriter and to the
Company, and agrees with each U.S. Underwriter and the Company, as follows:
<PAGE>
13
(i) Accurate Disclosure. The Selling Shareholder has reviewed and is
-------------------
familiar with the Registration Statement and the Prospectuses and neither
the Prospectuses nor any amendments or supplements thereto includes any
untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and the Selling
Shareholder is not prompted to sell the Securities to be sold by the
Selling Shareholder hereunder by any information concerning the Company or
any subsidiary of the Company which is not set forth in the Prospectuses.
(ii) Authorization of Agreements. The Selling Shareholder has the
---------------------------
full right, power and authority to enter into this Agreement and the
International Purchase Agreement and to sell, transfer and deliver the
Securities to be sold by the Selling Shareholder hereunder and thereunder.
The execution and delivery of this Agreement and the International Purchase
Agreement and the sale and delivery of the Securities to be sold by the
Selling Shareholder and the consummation of the transactions contemplated
herein and compliance by the Selling Shareholder with its obligations
hereunder and under the International Purchase Agreement have been duly
authorized by all necessary action of the Selling Shareholder and do not
and will not, whether with or without the giving of notice or passage of
time or both, conflict with or constitute a breach of, or default under, or
result in the creation or imposition of any tax, lien, charge or
encumbrance upon the Securities to be sold by the Selling Shareholder or
any property or assets of the Selling Shareholder pursuant to any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note,
license, lease or other agreement or instrument to which the Selling
Shareholder is a party or by which the Selling Shareholder may be bound, or
to which any of the property or assets of the Selling Shareholder is
subject except for such conflicts, breaches or defaults or liens, charges
or encumbrances upon any property or assets of the Selling Shareholder that
would not reasonably be expected to result in a material adverse change or
development involving a material adverse change, in the condition,
financial or otherwise, or in the earnings or business affairs of the
Selling Shareholder, whether or not arising in the ordinary course of
business, or in its ability to perform its obligations hereunder or under
the International Purchase Agreement nor will such action result in any
violation of the provisions of the organizational instrument of the Selling
Shareholder, if applicable, or any applicable treaty, law, statute, rule,
regulation, judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Selling Shareholder or any of its properties.
(iii) Good and Marketable Title. The Selling Shareholder has and
-------------------------
will at the Closing Time have good and marketable title to the Securities
to be sold by the Selling Shareholder hereunder, free and clear of any
security interest, mortgage,
<PAGE>
14
pledge, lien, charge, claim, equity or encumbrance of any kind, other than
pursuant to this Agreement and the International Purchase Agreement; and
upon delivery of such Securities and payment of the purchase price therefor
as herein contemplated, assuming each such Underwriter has no notice of any
adverse claim, each of the Underwriters will receive good and marketable
title to the Securities purchased by it from the Selling Shareholder, free
and clear of any security interest, mortgage, pledge, lien, charge, claim,
equity or encumbrance of any kind.
(iv) Absence of Manipulation. The Selling Shareholder has not taken,
-----------------------
and will not take, directly or indirectly, any action which is designed to
or which has constituted or which might reasonably be expected to cause or
result in stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
(v) Absence of Further Requirements. No filing with, or consent,
-------------------------------
approval, authorization, order, registration, qualification or decree of,
any court or governmental authority or agency, domestic or foreign, is
necessary or required for the performance by the Selling Shareholder of its
obligations hereunder, or in connection with the sale and delivery of the
Securities hereunder or the consummation of the transactions contemplated
by this Agreement and the International Purchase Agreement, except (a) for
the approval pursuant to the Final Judgement (as such term is defined in
the Prospectuses), which has been obtained and (b) such as may have
previously been made or obtained or as may be required under the 1933 Act
or the 1933 Act Regulations or state securities laws.
(vi) Certificates Suitable for Transfer. Certificates for all of the
----------------------------------
Securities to be sold by the Selling Shareholder pursuant to this Agreement
and the International Purchase Agreement, in suitable form for transfer by
delivery or accompanied by duly executed instruments of transfer or
assignment in blank with signatures guaranteed, have been placed in custody
with the Custodian with irrevocable conditional instructions to deliver
such Securities to the Underwriters pursuant to this Agreement and the
International Purchase Agreement.
(vii) No Association with NASD. Neither the Selling Shareholder nor
------------------------
any of its affiliates directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control
with, or has any other association with (within the meaning of Article I,
Section 1(m) of the By-laws of the National Association of Securities
Dealers, Inc. ("NASD")), any member firm of the NASD.
----
(c) Officer's Certificates. Any certificate signed by any officer of
the Company or any of the Subsidiaries delivered to the Global Coordinator, the
U.S. Representatives or to counsel for the U.S. Underwriters pursuant to this
Agreement or
<PAGE>
15
otherwise in connection with the offering of the Securities shall be deemed a
representation and warranty by the Company to each U.S. Underwriter as to the
matters covered thereby; and any certificate signed by or on behalf of the
Selling Shareholder as such and delivered to the Global Coordinator, the U.S.
Representatives or to counsel for the U.S. Underwriters pursuant to the terms of
this Agreement shall be deemed a representation and warranty by the Selling
Shareholder to each U.S. Underwriter as to the matters covered thereby.
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing. (a)
-----------------------------------------------
Initial Securities. On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
and the Selling Shareholder, severally and not jointly, agree to sell to each
U.S. Underwriter, severally and not jointly, and each U.S. Underwriter,
severally and not jointly, agrees to purchase from the Company and the Selling
Shareholder, at the price per share set forth in Schedule B, that proportion of
the number of Initial U.S. Securities to be sold by the Company or the Selling
Shareholder, as the case may be, which the number of Initial U.S. Securities set
forth in Schedule A opposite the name of such U.S. Underwriter, plus any
additional number of Initial U.S. Securities which such Underwriter may become
obligated to purchase pursuant to the provisions of Section 10 hereof, bears to
the total number of Initial U.S. Securities, subject, in each case, to such
adjustments among the U.S. Underwriters as the U.S. Representatives in their
sole discretion shall make to eliminate any sales or purchases of fractional
securities.
(b) Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an option to the U.S.
Underwriters, severally and not jointly, to purchase up to an additional
_____________ shares of Class A Common Stock at the price per share set forth in
Schedule B. The option hereby granted will expire 30 days after the date hereof
and may be exercised in whole or in part from time to time only for the purpose
of covering over-allotments which may be made in connection with the offering
and distribution of the Initial U.S. Securities upon notice by the Global
Coordinator to the Company setting forth the number of U.S. Option Securities as
to which the several U.S. Underwriters are then exercising the option and the
time and date of payment and delivery for such U.S. Option Securities. Any such
time and date of delivery for the U.S. Option Securities (a "Date of Delivery")
----------------
shall be determined by the Global Coordinator, but shall not be later than seven
full business days after the exercise of said option, nor in any event prior to
the Closing Time, as hereinafter defined. If the option is exercised as to all
or any portion of the U.S. Option Securities, each of the U.S. Underwriters,
acting severally and not jointly, will purchase that proportion of the total
number of U.S. Option Securities then being purchased which the number of
Initial U.S. Securities set forth in Schedule A opposite the name of such U.S.
Underwriter bears to the total number of Initial U.S. Securities, subject in
each case to such adjustments as the Global Coordinator in its discretion shall
make to eliminate any sales or purchases of fractional shares.
<PAGE>
16
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
Shearman & Sterling, 599 Lexington Avenue, New York, NY 10022, or at such other
place as shall be agreed upon by the Global Coordinator and the Company and the
Selling Shareholder, at 9:00 A.M. (Eastern time) either on the third (fourth if
the pricing occurs after 4:30 P.M. (Eastern time) on any given day) business day
after the date hereof (unless postponed in accordance with the provisions of
Section 10 hereof), or such other time not later than ten business days after
such date as shall be agreed upon by the Global Coordinator and the Company and
the Selling Shareholder (such time and date of payment and delivery being herein
called the "Closing Time").
------------
In addition, in the event that any or all of the U.S. Option
Securities are purchased by the U.S. Underwriters, payment of the purchase price
for, and delivery of certificates for, such U.S. Option Securities shall be made
at the above-mentioned offices, or at such other place as shall be agreed upon
by the Global Coordinator and the Company, on each Date of Delivery as specified
in the notice from the Global Coordinator to the Company.
Payment shall be made to the Company and the Selling Shareholder by
wire transfer of immediately available funds to separate bank accounts
designated by each of the Company and the Selling Shareholder against delivery
to the U.S. Representatives for the respective accounts of the U.S. Underwriters
of certificates for the U.S. Securities to be purchased by them. It is
understood that each U.S. Underwriter has authorized the U.S. Representatives,
for its account, to accept delivery of, receipt for, and make payment of the
purchase price for, the Initial U.S. Securities and the U.S. Option Securities,
if any, which it has agreed to purchase. Merrill Lynch, individually and not as
representative of the U.S. Underwriters, may (but shall not be obligated to)
make payment of the purchase price for the Initial U.S. Securities or the U.S.
Option Securities, if any, to be purchased by any U.S. Underwriter whose funds
have not been received by the Closing Time or the relevant Date of Delivery, as
the case may be, but such payment shall not relieve such U.S. Underwriter from
its obligations hereunder.
(d) Denominations; Registration. Certificates for the Initial U.S.
Securities and the U.S. Option Securities, if any, shall be in such
denominations and registered in such names as the U.S. Representatives may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
U.S. Securities and the U.S. Option Securities, if any, will be made available
for examination and packaging by the U.S. Representatives in The City of New
York not later than 9:00 A.M. (Eastern Time) on the business day prior to the
Closing Time or the relevant Date of Delivery, as the case may be.
<PAGE>
17
SECTION 3. Covenants of the Company. The Company covenants with each
------------------------
U.S. Underwriter as follows:
(a) Compliance with Securities Regulations and Commission Requests.
The Company will comply with the requirements of Rule 430A or Rule 434, as
applicable, and will notify the Global Coordinator immediately, and confirm
the notice in writing, (i) when any post-effective amendment to the
Registration Statement, shall have become effective, or any supplement to
the Prospectuses or any amended Prospectuses shall have been filed, (ii) of
the receipt of any comments from the Commission relating to the
Registration Statement or the Prospectuses, or any amendment or supplement
thereto, (iii) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectuses
or for additional information relating to the offering of the Securities,
and (iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus, or of the suspension of
the qualification of the Securities for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceedings for
any of such purposes. The Company will promptly effect the filings
necessary, if any, pursuant to Rule 424(b) and will take such steps as it
deems necessary to ascertain promptly whether the form of prospectus
transmitted for filing under Rule 424(b) was received for filing by the
Commission and, in the event that it was not, it will promptly file such
prospectus. The Company will make every reasonable effort to prevent the
issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest practicable moment.
(b) Filing of Amendments. The Company will give the Global Coordinator
notice of its intention to file or prepare any amendment to the
Registration Statement (including any filing under Rule 462(b)), any Term
Sheet or any amendment, supplement or revision to either the prospectuses
included in the Registration Statement at the time it became effective or
to the Prospectuses, whether pursuant to the 1933 Act, the 1934 Act or
otherwise, will furnish the Global Coordinator with copies of any such
documents a reasonable amount of time prior to such proposed filing or use,
as the case may be, and will not file or use any such document to which the
Global Coordinator or counsel for the U.S. Underwriters shall reasonably
object.
(c) Delivery of Registration Statements. The Company has furnished or
will deliver to the Global Coordinator and counsel for the U.S.
Underwriters, without charge, signed copies of the Registration Statement
as originally filed and of each amendment thereto (and copies of exhibits
filed therewith or incorporated by reference therein and documents
incorporated or deemed to be incorporated by reference therein) whether
filed before or after the Registration Statement became effective, and
signed copies of all consents and certificates of experts, and will also
deliver to the
<PAGE>
18
U.S. Representatives, without charge, a conformed copy of the Registration
Statement as originally filed and of each amendment thereto (without
exhibits) for each of the U.S. Underwriters. If applicable, the copies of
the Registration Statement and each amendment thereto furnished to the U.S.
Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each U.S.
Underwriter, without charge, as many copies of each preliminary prospectus
as such U.S. Underwriter reasonably requested, and the Company hereby
consents to the use of such copies for purposes permitted by the 1933 Act.
The Company will furnish to each U.S. Underwriter, without charge, during
the period when the U.S. Prospectus is required to be delivered under the
1933 Act or the 1934 Act such number of copies of the U.S. Prospectus (as
amended or supplemented) as such U.S. Underwriter may reasonably request.
If applicable, the U.S. Prospectus and any amendments or supplements
thereto furnished to the U.S. Underwriters will be identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will
comply with the 1933 Act and the 1933 Act Regulations and the 1934 Act and
the 1934 Act Regulations so as to permit the completion of the distribution
of the Securities as contemplated in this Agreement, the International
Purchase Agreement and in the Prospectuses. If at any time when a
prospectus is required by the 1933 Act to be delivered in connection with
sales of the Securities, any event shall occur or condition shall exist as
a result of which it is necessary, in the opinion of counsel for the U.S.
Underwriters or for the Company, to amend the Registration Statement or
amend or supplement either of the Prospectuses in order that the
Prospectuses will not include any untrue statements of a material fact or
omit to state a material fact necessary in order to make the statements
therein not misleading in the light of the circumstances existing at the
time it is delivered to a purchaser, or if it shall be necessary, in the
opinion of such counsel, at any such time to amend the Registration
Statement or amend or supplement either of the Prospectuses in order to
comply with the requirements of the 1933 Act or the 1933 Act Regulations,
the Company will promptly prepare and file with the Commission, subject to
Section 3(b) hereof, such amendment or supplement as may be necessary to
correct such statement or omission or to make the Registration Statement or
the Prospectuses comply with such requirements, and the Company will
furnish to the U.S. Underwriters such number of copies of such amendment or
supplement as the U.S. Underwriters may reasonably request.
<PAGE>
19
(f) Rule 158. The Company will timely file such reports pursuant to
the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earning statement for the
purposes of, and to provide the benefits contemplated by, the last
paragraph of Section 11(a) of the 1933 Act.
(g) Use of Proceeds. The Company will use the net proceeds received
by it from the sale of the Securities in the manner specified in the
Prospectuses under "Use of Proceeds."
(h) Listing. The Company will use its best efforts to effect and
maintain the quotation of the Securities on the Nasdaq National Market and
will file with the Nasdaq National Market all documents and notices
required by the Nasdaq National Market to be filed by companies that have
securities that are traded in the over-the-counter market and quotations
for which are reported by the Nasdaq National Market.
(i) Restriction on Sale of Securities. During a period of 90 days
from the date of the Prospectuses, the Company will not, without the prior
written consent of the Global Coordinator, (i) directly or indirectly,
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase or otherwise transfer or dispose of any share of
Class A Common Stock or any securities convertible into or exercisable or
exchangeable for Class A Common Stock or file any registration statement
under the 1933 Act with respect to any of the foregoing or (ii) enter into
any swap or any other agreement or any transaction that transfers, in whole
or in part, directly or indirectly, the economic consequence of ownership
of the Class A Common Stock, whether any such swap or transaction described
in clause (i) or (ii) above is to be settled by delivery of Class A Common
Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Securities to be sold hereunder and
under the International Purchase Agreement, (B) any shares of Class A
Common Stock issued or options to purchase Class A Common Stock granted
pursuant to existing employee benefit plans of the Company referred to in
the Prospectuses or (C) any shares of Class A Common Stock issued pursuant
to any non-employee director stock plan or dividend reinvestment plan.
(j) Reporting Requirements. The Company, during the period when the
Prospectuses are required to be delivered under the 1933 Act or the 1934
Act, will file all documents required to be filed with the Commission
pursuant to the 1934 Act within the time periods required by the 1934 Act
and the 1934 Act Regulations.
SECTION 4. Payment of Expenses. (a) Expenses. The Company and the
-------------------
Selling Shareholder will pay or cause to be paid, pro rata, based of the number
of Securities being sold by each, all expenses incident to the performance of
their obligations under this
<PAGE>
20
Agreement, including (i) the preparation, printing and filing of the
Registration Statement (including financial statements and exhibits) as
originally filed and of each amendment thereto, (ii) the printing and delivery
to the Underwriters of this Agreement and any Agreement among Underwriters,
(iii) the preparation, issuance and delivery of the certificates for the
Securities to the Underwriters, including any stock or other transfer taxes and
any stamp or other duties payable upon the sale, issuance or delivery of the
Securities to the Underwriters, and the transfer of the Securities between the
U.S. Underwriters and International Managers, (iv) the fees and disbursements of
the Company's counsel, accountants and other advisors, (v) the reasonable fees
and disbursements of counsel for the Underwriters in connection with the
preparation of the Blue Sky Survey and any supplement thereto, (vi) the printing
and delivery to the Underwriters of copies of each preliminary prospectus, any
Term Sheets and of the Prospectuses and any amendments or supplements thereto,
(vii) the preparation, printing and delivery to the Underwriters of copies of
the Blue Sky Survey and any supplement thereto, (viii) the fees and expenses of
any transfer agent or registrar for the Securities, (ix) the filing fees
incident to, and the reasonable fees and disbursements of counsel to the
Underwriters in connection with, the review by the NASD of the terms of the sale
of the Securities, (x) the fees and expenses incurred in connection with the
inclusion of the Securities in The Nasdaq National Market and (xi) all
reasonable costs and expenses of the Underwriters.
(b) Expenses of the Selling Shareholder. The Selling Shareholder will
pay all expenses incident to the performance of its obligations under, and the
consummation of the transactions contemplated by this Agreement, including (i)
any stamp duties, capital duties and stock transfer taxes, if any, payable upon
the sale of the Securities to the Underwriters, and their transfer between the
Underwriters pursuant to an agreement between such Underwriters, and (ii) the
fees and disbursements of its counsel and accountants.
(c) Termination of Agreement. If this Agreement is terminated by the
U.S. Representatives in accordance with the provisions of Section 5, Section
9(a)(i) or Section 11 hereof, the Company and the Selling Shareholder shall
reimburse the U.S. Underwriters for all of their reasonable out-of-pocket
expenses incurred in connection with the offering and sale of the Securities,
including the reasonable fees and disbursements of counsel for the U.S.
Underwriters.
(d) Allocation of Expenses. The provisions of this Section shall not
affect any agreement that the Company and the Selling Shareholder may make for
the sharing of such costs and expenses.
SECTION 5. Conditions of U.S. Underwriters' Obligations. The
--------------------------------------------
obligations of the several U.S. Underwriters hereunder are subject to the
accuracy as of the Closing Time of the representations and warranties of the
Company and the Selling Shareholder contained in Section 1 hereof or in
certificates of any officer of the Company or any
<PAGE>
21
Subsidiary of the Company or on behalf of the Selling Shareholder delivered
pursuant to the provisions hereof, to the performance by the Company and the
Selling Shareholder of their respective covenants and other obligations
hereunder, and to the following further conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at the Closing Time no stop order suspending the
effectiveness of the Registration Statement shall have been issued under
the 1933 Act or proceedings therefor initiated or threatened by the
Commission, and any request on the part of the Commission for additional
information from the Company or its agents shall have been complied with to
the reasonable satisfaction of counsel to the U.S. Underwriters.
Prospectuses containing the Rule 430A Information shall have been filed
with the Commission in accordance with Rule 424(b) (or a post-effective
amendment providing such information shall have been filed and declared
effective in accordance with the requirements of Rule 430A) or, if the
Company has elected to rely upon Rule 434, a Term Sheet shall have been
filed with the Commission in accordance with Rule 424(b).
(b) Opinions of Counsel for the Company. At the Closing Time, the
U.S. Representatives shall have received the favorable opinions, dated as
of the Closing Time, of (i) the General Counsel of the Company and (ii)
Dow, Lohnes & Albertson, PLLC, counsel for the Company, together with
signed or reproduced copies of such letters for each of the other U.S.
Underwriters substantially in the form set forth in Exhibits A(i) and A(ii)
hereto, respectively, and to such further effect, arising as a result of
changed circumstances between the date hereof and the Closing Time, as
counsel to the U.S. Underwriters may reasonably request. In giving such
opinions such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York, the federal law
of the United States and the General Corporation Law of the State of
Delaware, upon the opinions of counsel reasonably satisfactory to the U.S.
Representatives. Such counsel may also state that, insofar as such
opinions involve factual matters, they have relied, to the extent they deem
proper, upon certificates of officers of the Company and its Subsidiaries
and certificates of public officials. Such opinions shall not state that
they are to be governed or qualified by, or that they are otherwise subject
to, any treatise, written policy or other document relating to legal
opinions, including without limitation, the Legal Opinion Accord of the ABA
Section of Business Law (1991).
(c) Opinion of Counsel for the Selling Shareholder. At the Closing
Time, the U.S. Representatives shall have received the favorable opinion,
dated as of the Closing Time, of Steven Miller, Esq., counsel for the
Selling Shareholder, together with signed or reproduced copies of such
letter for each of the other U.S. Underwriters substantially in the form
set forth in Exhibit B hereto and to such
<PAGE>
22
further effect, arising as a result of changed circumstances between the
date hereof and the Closing Time as counsel to the U.S. Underwriters may
reasonably request.
(d) Opinion of Counsel for U.S. Underwriters. At the Closing Time,
the U.S. Representatives shall have received the favorable opinion, dated
as of the Closing Time, of Shearman & Sterling, counsel for the U.S.
Underwriters, together with signed or reproduced copies of such letter for
each of the other U.S. Underwriters with respect to the matters set forth
in clauses (4) (solely as to preemptive rights arising under the DGCL or
the Company's certificate of incorporation or bylaws) and (14) of the form
of opinion of the General Counsel of the Company in Exhibit A(i) hereto and
with respect to the matters set forth in clauses (1), (2), (3), (4) and (7)
(solely as to the information in the Prospectuses under "Description of
Capital -- Common Stock") and clause (iii) of the paragraph immediately
following clause (10) of the form of opinion of Dow, Lohnes & Albertson,
PLLC in Exhibit A(ii) hereto. In giving such opinion such counsel may
rely, as to all matters governed by the laws of jurisdictions other than
the law of the State of New York, the federal law of the United States and
the General Corporation Law of the State of Delaware, upon the opinions of
counsel satisfactory to the U.S. Representatives. Such counsel may also
state that, insofar as such opinion involves factual matters, they have
relied, to the extent they deem proper, upon certificates of officers of
the Company and its Subsidiaries and certificates of public officials.
(e) Officers' Certificate. At the Closing Time, (i) the Registration
Statement and the Prospectuses, as they may then be amended or
supplemented, shall contain all statements that are required to be stated
therein under the 1933 Act and the 1933 Act Regulations and in all material
respects shall conform to the requirements of the 1933 Act and the 1933 Act
Regulations, (ii) the Company shall have complied in all material respects
with Rule 430A (if it shall have elected to rely thereon) and neither the
Registration Statement nor the Prospectuses, as they may then be amended or
supplemented, shall contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and (iii) there shall not have been,
since the date hereof or since the respective dates as of which information
is given in the Prospectuses, any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Company and its Subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, and the U.S.
Representatives shall have received a certificate of the Company, signed by
the President or a Vice President of the Company and by the chief financial
or chief accounting officer of the Company, dated as of the Closing Time,
to such effect, with respect to clause (i), and to the effect that (A)
there has been no such material adverse change, (B) the representations and
warranties in Section 1(a) hereof are true and correct with the same force
and effect as though expressly made at and as of the
<PAGE>
23
Closing Time, (C) the Company has complied with all agreements and
satisfied all conditions herein on its part to be performed or satisfied at
or prior to the Closing Time, and (D) no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or, to the
knowledge of the Company, are contemplated by the Commission.
(f) Certificate of Selling Shareholder. At the Closing Time, the U.S.
Representatives shall have received a certificate of the Selling
Shareholder, dated as of the Closing Time, to the effect that (i) the
representations and warranties of the Selling Shareholder contained in
Section 1(b) hereof are true and correct in all respects with the same
force and effect as though expressly made at and as of the Closing Time and
(ii) the Selling Shareholder has complied in all material respects with all
agreements and all conditions on its part to be performed under this
Agreement at or prior to the Closing Time.
(g) Accountant's Comfort Letter. At the time of the execution of this
Agreement, the U.S. Representatives shall have received from Deloitte &
Touche LLP a letter dated such date, in form and substance satisfactory to
the U.S. Representatives, together with signed or reproduced copies of such
letter for each of the other U.S. Underwriters containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and
the Prospectuses.
(h) Bring-down Comfort Letter. At the Closing Time the
Representatives shall have received from Deloitte & Touche LLP a letter,
dated as of the Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (g) of this
Section, except that the specified date referred to shall be a date not
more than three business days prior to the Closing Time.
(i) Approval of Listing. At the time of effectiveness of the
Registration Statement, the Securities shall have been approved for
inclusion in The Nasdaq National Market, subject only to official notice of
issuance.
(j) No Objection. The NASD shall not have raised any objection with
respect to the fairness and reasonableness of the underwriting terms and
arrangements.
(k) Lock-up Agreements. At the date of this Agreement, the U.S.
Representatives shall have received an agreement substantially in the form
of Exhibit C hereto signed by the persons listed on Schedule D hereto.
<PAGE>
24
(l) Purchase of Initial International Securities. Contemporaneously with
the purchase by the U.S. Underwriters of the Initial U.S. Securities under
this Agreement, the International Managers shall have purchased the Initial
International Securities under the International Purchase Agreement.
(m) Conditions to Purchase of U.S. Option Securities. In the event
that the U.S. Underwriters exercise their option provided in Section 2(b)
hereof to purchase all or any portion of the U.S. Option Securities, the
representations and warranties of the Company contained herein and the
statements in any certificates furnished by the Company or any Subsidiary
of the Company hereunder shall be true and correct as of each Date of
Delivery and, at the relevant Date of Delivery, the U.S. Representatives
shall have received:
(i) Company Officers' Certificate. A certificate of the Company,
-----------------------------
dated such Date of Delivery, signed by the President or a Vice
President of the Company and by the chief financial or chief
accounting officer of the Company, confirming that the certificate
delivered at the Closing Time pursuant to Section 5(e) hereof remains
true and correct as of such Date of Delivery.
(ii) Opinions of Counsel for Company. The favorable opinions of
-------------------------------
(A) the General Counsel of the Company and (B) Dow, Lohnes &
Albertson, PLLC, counsel for the Company, described in Section 5(b)
hereof, each in form and substance reasonably satisfactory to counsel
for the Underwriters, dated such Date of Delivery, relating to the
U.S. Option Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinions required by Section 5(b)
hereof.
(iii) Opinion of Counsel for U.S. Underwriters. The favorable
----------------------------------------
opinion of Shearman & Sterling, counsel for the U.S. Underwriters,
dated such Date of Delivery, relating to the U.S. Option Securities to
be purchased on such Date of Delivery and otherwise to the same effect
as the opinion required by Section 5(d) hereof.
(iv) Bring-down Comfort Letter. A letter from Deloitte & Touche
-------------------------
LLP, in form and substance satisfactory to the U.S. Representatives
and dated such Date of Delivery, substantially in the same form and
substance as the letter furnished to the U.S. Representatives pursuant
to Section 5(h) hereof, except that the "specified date" in the letter
furnished pursuant to this paragraph shall be a date not more than
five days prior to such Date of Delivery.
<PAGE>
25
(n) Additional Documents. At the Closing Time and at each Date of
Delivery, counsel for the U.S. Underwriters shall have been furnished with
such documents as they may reasonably require for the purpose of enabling
them to pass upon the issuance and sale of the Securities as herein
contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company and the Selling
Shareholder in connection with the issuance and sale of the Securities as
herein contemplated shall be reasonably satisfactory in form and substance
to the U.S. Representatives and counsel for the U.S. Underwriters.
(o) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement, or, in the case of any condition to the purchase of U.S.
Option Securities on a Date of Delivery which is after the Closing Time,
the obligations of the several U.S. Underwriters to purchase the relevant
Option Securities, may be terminated by the U.S. Representatives by notice
to the Company at any time at or prior to the Closing Time or such Date of
Delivery, as the case may be, and such termination shall be without
liability of any party to any other party except as provided in Section 4
hereof and except that Sections 1, 6, 7 and 8 hereof shall survive any such
termination and remain in full force and effect.
SECTION 6. Indemnification. (a) Indemnification of U.S.
---------------
Underwriters. The Company agrees to indemnify and hold harmless each U.S.
Underwriter, its directors, officers and employees, and each person, if any, who
controls any U.S. Underwriter within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act to the extent and in the manner set forth in
clauses (i), (ii), and (iii) below. In addition, the Selling Shareholder agrees
to indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including any Rule 430A Information and any
Rule 434 Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus or the Prospectuses (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
<PAGE>
26
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever, in any such case, based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided that
(subject to Section 6(d) below) any such settlement is effected with the
written consent of the Company and the Selling Shareholder; and
(iii) against any and all expense whatsoever, as incurred (including
the reasonable fees and disbursements of counsel chosen by Merrill Lynch),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or (ii)
above;
provided, however, that this indemnity agreement shall not apply to any loss,
- -------- -------
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
U.S. Underwriter through the U.S. Representatives expressly for use in the
Registration Statement (or any amendment thereto), including any Rule 430A
Information and any Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectuses (or any amendment or supplement thereto); and
provided, further, that, with respect to the Selling Shareholder, this indemnity
- -------- -------
agreement shall apply only to any loss, liability, claim, damage or expense to
the extent arising out of any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and conformity with information
furnished to the Company by the Selling Shareholder expressly for use in the
Registration Statement (or any amendment thereto), including any Rule 430A
Information and any Rule 434 Information, if applicable, or preliminary
prospectus or the Prospectuses (or any amendment or supplement thereto). The
foregoing indemnity agreement with respect to any preliminary prospectus or any
Prospectus (or amendments or supplement thereto) shall not inure to the benefit
of any U.S. Underwriter from whom the person asserting any such loss, liability,
claim, damage or expense purchased Securities (or any director, officer or
employee of such U.S. Underwriter, or any person who controls such U.S.
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act) if a copy of the applicable Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such U.S. Underwriter to such
person, if such is required by law, at or prior to the written confirmation of
the sale of such Securities to such person and if such Prospectus (as so amended
or supplemented) would have cured the defect giving rise to such loss,
liability, claim, damage or expense.
<PAGE>
27
(b) Indemnification of Company, Directors and Officers and Selling
Shareholder. Each U.S. Underwriter severally agrees to indemnify and hold
harmless the Company, its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, and the
Selling Shareholder and each person, if any, who controls the Selling
Shareholder within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act, against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including any Rule 430A Information and any Rule 434
Information, if applicable, or any preliminary prospectus or the U.S. Prospectus
(or any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such U.S. Underwriter through
the U.S. Representatives expressly for use in the Registration Statement (or any
amendment thereto) or such preliminary prospectus or the Prospectuses (or any
amendment or supplement thereto).
(c) Actions Against Parties; Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it is
not materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to Section
6(a) above, counsel to the indemnified parties shall be selected by Merrill
Lynch, and, in the case of parties indemnified pursuant to Section 6(b) above,
counsel to the indemnified parties shall be selected by the Company. If it so
elects within a reasonable time after receipt of the notice mentioned above from
an indemnified party, an indemnifying party, jointly with any other indemnifying
parties receiving such notice, may assume the defense of such action with
counsel chosen by it and reasonably satisfactory to the indemnified parties
defendant in such action, unless such indemnified parties reasonably object to
such assumption on the ground that there may be legal defenses available to them
which are different from or in addition to those available to such indemnifying
party. If an indemnifying party assumes the defense of such action, the
indemnifying party shall not be liable for any fees and expenses of counsel for
the indemnified parties incurred thereafter in connection with such action. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim
<PAGE>
28
whatsoever in respect of which indemnification or contribution could be sought
under this Section 6 or Section 7 hereof (whether or not the indemnified parties
are actual or potential parties thereto), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of any indemnified party.
(d) Settlement Without Consent if Failure to Reimburse. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)(ii) hereof effected without its written
consent if (i) such settlement is entered into more than 45 days after receipt
by such indemnifying party of the aforesaid request, (ii) such indemnifying
party shall have received notice of the terms of such settlement at least 30
days prior to such settlement being entered into and (iii) such indemnifying
party fails, prior to the date of such settlement, to both reimburse such
indemnified party in accordance with such request to the extent it considers
such request to be reasonable and to provide written notice to the indemnified
party substantiating any unpaid balance as unreasonable.
(e) Limitation of Selling Shareholder's Liability. The Selling
Shareholder shall not be responsible for the payment of an amount, pursuant to
this Section 6 and Section 6 of the International Purchase Agreement, which
exceeds the gross proceeds (after deducting the Underwriters' discount but
before deducting expenses) received by the Selling Shareholder from the sale of
the Securities by the Selling Shareholder hereunder and under the International
Purchase Agreement.
(f) Other Agreements with Respect to Indemnification. The provisions
of this Section shall not affect any agreement between the Company and the
Selling Shareholder with respect to indemnification.
SECTION 7. Contribution. If the indemnification provided for in
------------
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Shareholder on the one hand and the U.S. Underwriters on
the other hand from the offering of the Securities pursuant to this Agreement or
(ii) if the allocation provided by clause (i) is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company and the Selling Shareholder on the one hand and of the U.S. Underwriters
on the other hand in connection with the statements or omissions, which resulted
in such losses,
<PAGE>
29
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company and the Selling
Shareholder on the one hand and the U.S. Underwriters on the other hand in
connection with the offering of the U.S. Securities pursuant to this Agreement
shall be deemed to be in the same respective proportions as the total net
proceeds from the offering of the U.S. Securities pursuant to this Agreement
(before deducting expenses but after deducting the underwriting discount)
received by the Company and the Selling Shareholder and the total underwriting
discount received by the U.S. Underwriters, in each case as set forth on the
cover of the U.S. Prospectus, or, if Rule 434 is used, the corresponding
location on the Term Sheet, bear to the aggregate initial public offering price
of the U.S. Securities as set forth on such cover.
The relative fault of the Company and the Selling Shareholder on the
one hand and the U.S. Underwriters on the other hand shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company or by the Selling
Shareholder or by the U.S. Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company, the Selling Shareholder and the U.S. Underwriters agree
that it would not be just and equitable if contribution pursuant to this Section
7 were determined by pro rata allocation (even if the U.S. Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 7. The aggregate amount of losses, liabilities, claims, damages
and expenses incurred by an indemnified party and referred to above in this
Section 7 shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based upon any
such untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no U.S. Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the U.S. Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such U.S. Underwriter has otherwise been required to pay by reason of any such
untrue or alleged untrue statement or omission or alleged omission.
<PAGE>
30
No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls a
U.S. Underwriter within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as such U.S.
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company or the Selling Shareholder within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act shall have the same rights to contribution as
the Company or the Selling Shareholder, as the case may be. The U.S.
Underwriters' respective obligations to contribute pursuant to this Section 7
are several in proportion to the number of Initial U.S. Securities set forth
opposite their respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
-----------------------------------------------------
Delivery. All representations, warranties and agreements contained in this
- --------
Agreement or in certificates of the Company or the Selling Shareholder submitted
pursuant hereto, shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of any U.S. Underwriter or controlling
person, or by or on behalf of the Company or the Selling Shareholder, and shall
survive delivery of the U.S. Securities to the U.S. Underwriters; provided,
--------
however, that in no event shall this Section 8 be construed as a waiver by the
- -------
Company or the Selling Shareholder of any statute of limitations applicable to
any such representation, warranty or agreement.
SECTION 9. Termination of Agreement. (a) Termination; General. The
------------------------
U.S. Representatives may terminate this Agreement, by notice to the Company and
the Selling Shareholder, at any time at or prior to the Closing Time (i) if
there has been, since the time of execution of this Agreement or since the
respective dates as of which information is given in the U.S. Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and its
Subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States or the international
financial markets, any outbreak of hostilities or escalation thereof or other
calamity or crisis or any change or development involving a prospective change
in national or international political, financial or economic conditions, in
each case the effect of which is such as to make it, in the judgment of the U.S.
Representatives, impracticable to market the Securities or to enforce contracts
for the sale of the Securities, or (iii) if trading in any securities of the
Company has been suspended or limited by the Commission or The Nasdaq National
Market, or if trading generally on the American Stock Exchange or the New York
Stock Exchange or in The Nasdaq National Market has been suspended or limited,
or minimum or maximum prices for trading have
<PAGE>
31
been fixed, or maximum ranges for prices have been required, by any of said
exchanges or by such system or by order of the Commission, the NASD or any other
governmental authority, or (iv) if a banking moratorium has been declared by
either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6 and 7 hereof shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the U.S. Underwriters. If one
-----------------------------------------------
or more of the U.S. Underwriters shall fail at the Closing Time or a Date of
Delivery to purchase the Securities which it or they are obligated to purchase
under this Agreement (the "Defaulted Securities"), the U.S. Representatives
--------------------
shall have the right, within 24 hours thereafter, to make arrangements for one
or more of the non-defaulting U.S. Underwriters, or any other underwriters, to
purchase all, but not less than all, of the Defaulted Securities in such amounts
as may be agreed upon and upon the terms herein set forth; if, however, the U.S.
Representatives shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of Securities to be purchased on such date, each of the non-
defaulting U.S. Underwriters shall be obligated, severally and not jointly,
to purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting U.S. Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
Securities to be purchased on such date, this Agreement or, with respect to
any Date of Delivery which occurs after the Closing Time, the obligation of
the Underwriters to purchase and of the Company to sell the Option
Securities to be purchased and sold on such Date of Delivery shall
terminate without liability on the part of any non-defaulting U.S.
Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
U.S. Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement or, in the case of a Date of Delivery which is
after the Closing Time, which does not result in a termination of the obligation
of the U.S. Underwriters to purchase and the Company to sell the relevant U.S.
Option Securities, as the case may be, either the U.S. Representatives or the
Company shall have the right to postpone the Closing Time or the relevant Date
of Delivery, as the case may be, for a period not exceeding seven days in
<PAGE>
32
order to effect any required changes in the Registration Statement or the
Prospectuses or in any other documents or arrangements. As used herein, the
term "U.S. Underwriter" includes any person substituted for a U.S. Underwriter
under this Section 10.
SECTION 11. Default by the Selling Shareholder or the Company. (a)
-------------------------------------------------
If the Selling Shareholder shall fail at Closing Time or at a Date of Delivery
to sell and deliver the number of Securities which the Selling Shareholder is
obligated to sell hereunder, then the U.S. Underwriters may, at the option of
the U.S. Representatives, by notice from the U.S. Representatives to the
Company, either (a) terminate this Agreement without any liability on the part
of any non-defaulting party except that the provisions of Sections 1, 4, 6 and 7
shall remain in full force and effect or (b) elect to purchase the Securities
which the Company has agreed to sell hereunder. No action taken pursuant to
this Section shall relieve the Selling Shareholder from liability in respect of
such default.
In the event of a default by the Selling Shareholder as referred to in
this Section, each of the U.S. Representatives and the Company shall have the
right to postpone the Closing Time or the relevant Date of Delivery for a period
not exceeding seven days in order to effect any required change in the
Registration Statement or Prospectus or in any other documents or arrangements.
(b) If the Company shall fail at the Closing Time or at a Date of
Delivery to sell the number of Securities that it is obligated to sell
hereunder, then this Agreement shall terminate without any liability on the part
of any non-defaulting party; provided, however, that the provisions of Sections
-------- -------
1, 4, 6 and 7 shall remain in full force and effect. No action taken pursuant
to this Section shall relieve the Company from liability in respect of such
default.
SECTION 12. Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if delivered by
overnight courier or transmitted by any standard form of telecommunication.
Notices to the U.S. Underwriters shall be directed to the U.S. Representatives
at North Tower, World Financial Center, New York, New York 10281-1201; notices
to the Company shall be directed to it at One Teleport Drive, Staten Island, New
York, New York 10311, Attention: John W. Thomson, Esq.; and notices to the
---------
Selling Shareholder shall be directed to Continental Holding Company, c/o US
WEST, Inc., 7800 E. Orchard Drive - Suite 480, Englewood, Colorado 80111,
attention of Steven Miller, Esq.
SECTION 13. Parties. This Agreement shall inure to the benefit of
-------
and be binding upon the U.S. Underwriters, the Company and the Selling
Shareholder and their respective successors. Nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any person, firm or
corporation, other than the U.S. Underwriters, the Company and the Selling
Shareholder and their respective successors and the controlling
<PAGE>
33
persons and officers and directors referred to in Sections 6 and 7 hereof and
their heirs and legal representatives, any legal or equitable right, remedy or
claim under or in respect of this Agreement or any provision herein contained.
This Agreement and all conditions and provisions hereof are intended to be for
the sole and exclusive benefit of the U.S. Underwriters, the Company and the
Selling Shareholder and their respective successors, and said controlling
persons and officers and directors and their heirs and legal representatives,
and for the benefit of no other person, firm or corporation. No purchaser of
Securities from any U.S. Underwriter shall be deemed to be a successor by reason
merely of such purchase.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED
----------------------
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT
AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY
TIME.
SECTION 15. Effect of Headings. The Article and Section headings
------------------
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the U.S. Underwriters and the Company in accordance with its terms.
Very truly yours,
TELEPORT COMMUNICATIONS GROUP INC.
By: ______________________
Name:
Title:
CONTINENTAL HOLDING
COMPANY
By: ______________________
Name:
Title: Trustee
<PAGE>
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
LEHMAN BROTHERS INC.
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
BEAR, STEARNS & CO. INC.
DEUTSCHE MORGAN GRENFELL INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
By
----------------------------------
Authorized Signatory
For themselves and as U.S. Representatives of the other U.S. Underwriters named
in Schedule A hereto.
<PAGE>
EXHIBIT A(i)
November __, 1997
Merrill Lynch & Co.
Merrill Lynch, Pierce,
Fenner & Smith Incorporated
Lehman Brothers Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
Bear, Stearns & Co. Inc.
Deutsche Morgan Grenfell Inc.
c/o Merrill Lynch, Pierce,
Fenner & Smith, Incorporated
World Financial Center
North Tower
New York, NY 10281-1229
Merrill Lynch International
Lehman Brothers International (Europe)
Cazenove & Co.
Morgan Grenfell & Co. Limited
UBS Limited
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
England
Ladies and Gentlemen:
This opinion is being delivered to you pursuant to Section 5(b) of the U.S.
Purchase Agreement dated November __, 1997 (the "U.S. Purchase Agreement") and
Section 5(b) of the International Purchase Agreement dated November __, 1997
(the "International Purchase Agreement" and, together with the U.S. Purchase
Agreement, the "Purchase Agreements") among you, Teleport Communications Group
Inc. (the "Company") and Continental Holding Company (the "Selling
Shareholder"), providing for the sale to you on this date of an aggregate of
__________ shares of the Class A Common Stock, par value $0.01 per share, of the
Company (the "Securities"). I am the General Counsel of the Company. Capitalized
terms used herein that are not otherwise defined herein shall have the same
meaning as in the Purchase Agreements.
<PAGE>
In this connection, I have examined:
(a) the Registration Statement on Form S-3 (No. 333-37597) relating to the
Securities filed with the Securities and Exchange Commission (the
"Commission") on October 10, 1997, under the 1933 Act, Amendment No. 1
thereto filed with the Commission on October 17, 1997, and Amendment No. 2
thereto filed with the Commission on November __, 1997 (such Registration
Statement, as so amended at the time when it became effective and including
the Rule 430A Information, and also including the Incorporated Documents
(as defined below), being hereinafter referred to as the "Registration
Statement");
(b) the final prospectus, dated November __, 1997, filed with the
Commission on November __, 1997, relating to the offering of the Securities
in the United States and Canada (including the Incorporated Documents, the
"U.S. Prospectus") and the final prospectus, dated November __, 1997, filed
with the Commission on November __, 1997, relating to the offering of the
Securities outside the United States and Canada (including the Incorporated
Documents, the "International Prospectus" and, together with the U.S.
Prospectus, the "Prospectuses"), both filed pursuant to Rule 424(b);
(c) the Purchase Agreements; and
(d) the Company's Annual Report on Form 10-K for the year ended December
31, 1996, as amended; the Company's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1997, and June 30, 1997; the Company's Current
Reports on Form 8-K dated January 13, 1997, February 4, 1997, February 26,
1997, March 3, 1997, March 7, 1997, March 11, 1997, March 20, 1997 (as
amended), April 29, 1997, July 29, 1997, October 10, 1997, and October __,
1997; and the description of the Company's Class A Common Stock set forth
in the registration statement on Form 8-A filed pursuant to the Exchange
Act on June 21, 1996 (collectively, the "Incorporated Documents").
On _______, 1997, I was informed by telephone by a member of the staff of
the Commission that the Registration Statement had become effective under the
1933 Act at ______, New York City time, on that date.
I have also examined originals or copies, certified or otherwise identified
to my satisfaction, of all such records of the Company and all such agreements,
certificates of public officials, certificates of officers or representatives of
the Company and others, and such other documents, certificates and corporate or
other records as I have deemed necessary or
- 2 -
<PAGE>
appropriate as a basis for the opinions set forth herein. In my examination I
have assumed the genuineness of all signatures, the legal capacity of natural
persons, the authenticity of all documents submitted to me as originals, the
conformity to original documents of all documents submitted to me as certified
or photostatic copies and the authenticity of the originals of such latter
documents and the due, binding and valid authorization, execution and delivery
pursuant to lawful power and legal right of applicable instruments and documents
on behalf of persons and entities other than the Company.
As to matters of law set forth below, my opinion is limited to matters of
law under the laws of the State of New York, the laws of the United States, to
the extent applicable hereto, and the Delaware General Corporation Law (the
"DGCL"), and I express no opinion as to conflicts of law rules, or the laws of
any states or jurisdictions other than as specified above.
Based upon the foregoing and subject to the other qualifications stated
herein, I am of the opinion that:
1. The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
2. Each Subsidiary has been duly incorporated or formed, as applicable,
and is validly existing as a corporation or a partnership in good standing (with
respect to a Subsidiary that is a corporation) under the laws of the
jurisdiction in which it has been incorporated or formed, as applicable, has the
necessary corporate or partnership power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectuses and
(with respect to a Subsidiary that is a corporation) is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a Material
Adverse Effect; except as otherwise disclosed in the Registration Statement or
in Schedule C to each of the Purchase Agreements, all of the issued and
outstanding capital stock of each Subsidiary has been duly authorized and
validly issued, is fully paid and non-assessable and all the issued and
outstanding capital stock of each such Subsidiary which is a corporation and all
the existing partnership interests of each such Subsidiary which is a
partnership, to the best of my knowledge and information, is owned by the
Company, directly or through subsidiaries, free and
- 3 -
<PAGE>
clear of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity; none of the outstanding shares of capital stock of any Subsidiary which
is a corporation was issued in violation of the preemptive rights of any
securityholder of such Subsidiary arising under the DGCL, the certificate of
incorporation or bylaws of such Subsidiary or any agreement to which such
Subsidiary is a party.
3. The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectuses in the column entitled "Actual" under the
caption "Capitalization" (except for subsequent issuances, if any, pursuant to
the U.S. Purchase Agreement and the International Purchase Agreement or pursuant
to reservations, agreements or employee benefit plans referred to in the
Prospectuses or pursuant to the exercise of convertible securities or options
referred to in the Prospectuses); the shares of issued and outstanding capital
stock, including the Securities to be purchased from the Selling Shareholder,
have been duly authorized and validly issued and are fully paid and non-
assessable; and none of the outstanding shares of capital stock of the Company
was issued in violation of the preemptive rights of any securityholder of the
Company arising under the DGCL, the Company's certificate of incorporation or
bylaws or any agreement to which the Company is a party.
4. The issuance of the Securities by the Company is not subject to
preemptive rights of any securityholder of the Company arising under the DGCL,
the Company's certificate of incorporation or bylaws or any agreement to which
the Company is a party.
5. To the best of my knowledge, there are no actions, suits, proceedings,
inquiries or investigations before or brought by any court or governmental
agency or body, domestic or foreign, now pending or threatened, against or
affecting the Company or any Subsidiary, which is required to be disclosed in
the Registration Statement, or which, in the aggregate, might reasonably be
expected to result in a Material Adverse Effect, or which, in the aggregate,
might reasonably be expected to materially and adversely affect the properties
or assets thereof or the consummation of the transactions contemplated in the
U.S. Purchase Agreement and the International Purchase Agreement or the
performance by the Company of its obligations thereunder.
6. The information in the Prospectuses under "Business," to the extent
that it constitutes matters of law, summaries of legal matters, the Company's
certificate of incorporation and bylaws or legal proceedings, or legal
conclusions, has been reviewed by me and is correct in all material respects.
- 4 -
<PAGE>
7. To the best of my knowledge, there are no statutes or regulations that
are required under the 1933 Act or the 1933 Act Regulations to be described in
the Prospectuses that are not described as required.
8. All descriptions in the Registration Statement of contracts and other
documents to which the Company or the Subsidiaries are a party are accurate in
all material respects; to the best of my knowledge, there are no franchises,
contracts, indentures, mortgages, loan agreements, notes, leases or other
instruments required to be described or referred to in the Registration
Statement, the Prospectuses or the Incorporated Documents or to be filed as
exhibits thereto other than those described or referred to therein or filed as
exhibits thereto, and the descriptions thereof or references thereto are correct
in all material respects.
9. To the best of my knowledge, neither the Company nor any Subsidiary is
in violation of its charter or bylaws or partnership agreement, as the case may
be, and no default by the Company or any Subsidiary exists in the due
performance or observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement, note,
lease or other agreement or instrument that is described or referred to in the
Registration Statement or the Prospectuses or filed as an exhibit to the
Registration Statement except for such violations or defaults that would not
reasonably be expected to result in a Material Adverse Effect.
10. The execution, delivery and performance by the Company of the Purchase
Agreements, the consummation by the Company of the transactions contemplated in
the Purchase Agreements and the issuance and sale by the Company of the
Securities being sold by it do not and will not, whether with or without the
giving of notice or lapse of time or both, conflict with or constitute a breach
of, or default or Repayment Event (as defined in Section 1(a)(xi) of the
Purchase Agreements) under or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
Subsidiary pursuant to any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or other agreement or instrument, known to me, to
which the Company or any Subsidiary is a party or by which it or any of them may
be bound, or to which any of the property or assets of the Company or any
Subsidiary is subject (except for such conflicts, breaches or defaults or liens,
charges or encumbrances that would not reasonably be expected to have a Material
Adverse Effect).
11. To the best of my knowledge, except as described in the Registration
Statement, the Company has not granted any registration rights or other similar
rights to have any
- 5 -
<PAGE>
securities registered pursuant to the Registration Statement or otherwise
registered by the Company under the 1933 Act.
12. The Company and the Subsidiaries possess the Governmental Licenses and
are in compliance with the terms and conditions of all such Governmental
Licenses, except where the failure to so comply would not reasonably be expected
to, singly or in the aggregate, have a Material Adverse Effect, and all of the
Governmental Licenses are valid and in full force and effect, except when the
invalidity of such Governmental Licenses or the failure of such Governmental
Licenses to be in full force and effect would not reasonably be expected to have
a Material Adverse Effect.
13. There is no outstanding adverse judgement, decree or order that has
been issued by the FCC or any of the Local Authorities against the Company and
the Subsidiaries which, singly or in the aggregate, would reasonably be expected
to result in a Material Adverse Effect and, to the best of my knowledge, neither
the Company nor any of the Subsidiaries is the object of, or threatened by, any
proceedings relating to the revocation or modification of any such Governmental
License or that would otherwise affect the operation of the Company or any of
the Subsidiaries, which, singly or in the aggregate, would reasonably be
expected to result in a Material Adverse Effect.
14. The Incorporated Documents (other than the financial statements and
supporting schedules included therein or omitted therefrom, as to which I
express no opinion), when they were filed with the Commission complied as to
form in all material respects with the requirements of the 1933 Act, the 1933
Act Regulations, the 1934 Act and the 1934 Act Regulations.
Attorneys on my staff and I have participated in the preparation of the
Incorporated Documents. In the course of the preparation of the Registration
Statement and the Prospectuses, I participated in conferences with officers and
other representatives of the Company, representatives of the independent
certified public accountants of the Company, your representatives and your
counsel, at which conferences the contents of the Registration Statement and the
Prospectuses and related matters were discussed and, although I am not passing
upon and do not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement and the
Prospectuses or the documents incorporated by reference in the Registration
Statement and the Prospectuses (except as expressly provided in paragraph 6) and
have not made an independent investigation, check or verification of facts for
the purpose of rendering this opinion, on the basis of my and my staff's
participation in the conferences referred to above and our examination of the
Registration Statement and the
- 6 -
<PAGE>
Prospectuses and the Incorporated Documents, I advise you that nothing has come
to my attention that leads me to believe (i) that the Registration Statement or
any amendment thereto (except for financial statements and schedules and other
financial [and statistical] data included or incorporated by reference therein
or omitted therefrom, as to which I make no statement), at the time the
Registration Statement or any such amendment became effective, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
(ii) that the Prospectuses or any amendment or supplement thereto (except for
financial statements and other financial [and statistical] data included or
incorporated by reference therein or omitted therefrom), at the time the
Prospectuses were issued, at the time any such amended or supplemented
prospectuses were issued or at the Closing Time, included or includes an untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading or (iii) that the
Registration Statement, the Prospectuses and each amendment or supplement to the
Registration Statement and the Prospectuses, excluding in each case the
documents incorporated by reference therein, as of their respective effective or
issue dates (other than the financial statements and other financial [and
statistical] data included therein or omitted therefrom, as to which I make no
statement) did not comply as to form in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations.
The opinions set forth above are subject to the following qualifications:
(i) the enforceability of agreements, documents and instruments is subject
to general principles of equity, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, and the discretion of
the court before which any proceeding therefor may be brought, regardless of
whether enforcement is sought in a proceeding in equity or at law, and
bankruptcy, reorganization, insolvency, fraudulent conveyance or transfer,
moratorium (whether general or specific) and other laws affecting creditors'
rights or the relief of debtors generally.
(ii) I express no opinion concerning the enforceability of (a) waivers of
notice or of any other constitutional, statutory or common law rights, (b)
matters deemed to violate public policy, and (c) submissions to the personal
jurisdiction of any particular court.
(iii) For purposes of this opinion, any statement contained in a document
incorporated by reference into the Registration
- 7 -
<PAGE>
Statement or the Prospectuses shall be deemed to be incorporated by reference in
the Registration Statement and the Prospectuses and to be a part thereof from
the date of filing of such document. Any statement contained in the
Registration Statement or the Prospectuses or in a document incorporated by
reference in the Registration Statement or the Prospectuses shall be deemed to
be modified or superseded for purposes thereof to the extent that a statement
contained therein, or in any other subsequently filed document which also is or
is deemed to be incorporated by reference therein, modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of the Registration Statement
or the Prospectuses.
This opinion is furnished by me as General Counsel to the Company in
connection with the closing of the above-referenced public offering occurring
today. I assume no obligation to advise you of changes which may thereafter be
brought to my attention. My opinion is based upon statutory laws and judicial
decisions in effect at the date hereof, and I do not opine with respect to any
laws, regulation, rule or governmental policy which may be enacted or adopted
after the date hereof, nor assume any responsibility to advise you of future
changes in my opinion. The opinion is solely for your benefit and is not to be
used, circulated, quoted or otherwise referred to for any other purpose, and may
not be relied upon by any other person, without my express prior written
permission.
--------------------------------
W. Terrell Wingfield, Jr.,
General Counsel, Teleport
Communications Group Inc.
- 8 -
<PAGE>
EXHIBIT A(ii)
November __, 1997
Merrill Lynch & Co.
Merrill Lynch, Pierce,
Fenner & Smith Incorporated
Lehman Brothers Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
Bear, Stearns & Co. Inc.
Deutsche Morgan Grenfell Inc.
c/o Merrill Lynch, Pierce,
Fenner & Smith, Incorporated
World Financial Center
North Tower
New York, NY 10281-1229
Merrill Lynch International
Lehman Brothers International (Europe)
Cazenove & Co.
Morgan Grenfell & Co. Limited
UBS Limited
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
England
Ladies and Gentlemen:
This opinion is being delivered to you pursuant to Section 5(b) of the U.S.
Purchase Agreement dated November __, 1997 (the "U.S. Purchase Agreement") and
Section 5(b) of the International Purchase Agreement dated November __, 1997
(the "International Purchase Agreement" and, together with the U.S. Purchase
Agreement, the "Purchase Agreements") among you, Teleport Communications Group
Inc. (the "Company") and Continental Holding Company (the "Selling
Shareholder"), providing for the sale to you on this date of an aggregate of
__________ shares of the Class A Common Stock, par value $0.01 per share, of the
Company (the "Securities"). We have served as counsel to the Company in
connection with the issuance and sale of the Securities. Capitalized terms used
herein that are not otherwise defined herein shall have the same meaning as in
the Purchase Agreements.
In this connection, we have examined:
<PAGE>
-2-
(a) the Registration Statement on Form S-3 (No. 333-37597) relating to the
Securities filed with the Securities and Exchange Commission (the
"Commission") on October 10, 1997, under the 1933 Act, Amendment No. 1
thereto filed with the Commission on October 17, 1997, and Amendment No. 2
thereto filed with the Commission on November __, 1997 (such Registration
Statement, as so amended at the time when it became effective and including
the Rule 430A Information, and also including the documents which are
expressly listed in clauses (a) through (d) under the caption
"Incorporation of Certain Documents by Reference" in the Prospectuses as
being incorporated by reference therein (the "Incorporated Documents"),
being hereinafter referred to as the "Registration Statement");
(b) the final prospectus, dated November __, 1997, filed with the
Commission on November __, 1997, relating to the offering of the Securities
in the United States and Canada (including the Incorporated Documents, the
"U.S. Prospectus") and the final prospectus, dated November __, 1997, filed
with the Commission on November __, 1997, relating to the offering of the
Securities outside the United States and Canada (including the Incorporated
Documents, the "International Prospectus" and, together with the U.S.
Prospectus, the "Prospectuses"), both filed pursuant to Rule 424(b); and
(c) the Purchase Agreements.
On _______, 1997, we were informed by telephone by a member of the staff of
the Commission that the Registration Statement had become effective under the
1933 Act at ______, New York City time, on that date.
We have also examined originals or copies, certified or otherwise
identified to our satisfaction, of all such records of the Company and all such
agreements, certificates of public officials, certificates of officers or
representatives of the Company and others, and such other documents,
certificates and corporate or other records as we have deemed necessary or
appropriate as a basis for the opinions set forth herein. In our examination we
have assumed the genuineness of all signatures, the legal capacity of natural
persons, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies and the authenticity of the originals of such latter
documents and the due, binding and valid authorization, execution and delivery
pursuant to lawful power and legal right of applicable instruments and documents
on behalf of persons and entities other than the Company. As to any facts
material to the opinions expressed herein, we have relied upon statements and
representations of officers and other representatives of the Company and others.
<PAGE>
-3-
As to matters of law set forth below, our opinion is limited to matters of
law under the laws of the State of New York, the laws of the United States to
the extent applicable hereto and the Delaware General Corporation Law, and we
express no opinion as to conflicts of law rules, or the laws of any States or
jurisdictions other than as specified above.
Based upon the foregoing and subject to the other qualifications stated
herein, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
2. The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectuses and to enter into and perform its obligations under the Purchase
Agreements.
3. The Securities to be purchased by the U.S. Underwriters and the
International Managers from the Company have been duly authorized for issuance
and sale to the Underwriters pursuant to the U.S. Purchase Agreement and the
International Purchase Agreement, respectively, and, when issued and delivered
by the Company pursuant to the U.S. Purchase Agreement and the International
Purchase Agreement, respectively, against payment of the consideration set forth
in the U.S. Purchase Agreement and the International Purchase Agreement,
respectively, will be validly issued, fully paid and non-assessable, and no
holder of the Securities in its capacity as such a holder will be subject to
personal liability for the payment of the Company's debts, except (i) as such
holder may be liable by reason of its own conduct or acts, (ii) as provided by
the Delaware General Corporation Law and (iii) for any liability that may arise
upon application of any fraudulent conveyance or transfer or other insolvency
law.
4. The Purchase Agreements have been duly authorized, executed and
delivered by the Company.
5. The Registration Statement has been declared effective under the 1933
Act; any required filing of the Prospectuses pursuant to Rule 424(b) has been
made in the manner and within the time period required by Rule 424(b); and, to
the best of our knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued under the 1933 Act and no proceedings for
that purpose have been instituted or are pending or threatened by the
Commission.
6. The form of certificate used to evidence the Securities complies in
all material respects with all applicable requirements of the certificate of
incorporation and by-laws of the Company.
<PAGE>
-4-
7. The information in the Prospectuses under the captions "Description of
Capital Stock," "Certain United States Federal Income Tax Consequences to Non-
United States Holders of Common Stock," "Risk Factors -- Federal and State
Regulation," "Risk Factors -- Governmental and Other Authorizations" and
"Business -- Regulatory and Governmental Matters" and in the Registration
Statement under Item 15, to the extent that it constitutes matters of law,
summaries of legal matters, the Company's certificate of incorporation and
bylaws or legal proceedings, or legal conclusions has been reviewed by us and is
correct in all material respects.
8. No filing with, or authorization, approval, consent, license, order,
registration, qualification or decree of, any court or governmental authority or
agency (other than under the 1933 Act and the 1933 Act Regulations, which have
been obtained, or as may be required under the securities or blue sky laws of
the various states, as to which we express no opinion) is necessary or required
in connection with the due authorization, execution and delivery of the Purchase
Agreements or for the offering, issuance, sale or delivery of the Securities,
except for notice filings where the failure to make such filings would not
materially adversely affect the performance by the Company of its obligations
under the Purchase Agreements.
9. The execution, delivery and performance by the Company of the Purchase
Agreements, the consummation by the Company of the transactions contemplated in
the Purchase Agreements and the issuance and sale by the Company of the
Securities being sold by it do not and will not, whether with or without the
giving of notice or lapse of time or both, conflict with or constitute a breach
of, or default or Repayment Event (as defined in Section 1(a)(xi) of the
Purchase Agreements) under or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
Subsidiary pursuant to any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or other agreement or instrument that has been
filed or incorporated by reference as an exhibit to the Registration Statement
(except for such conflicts, breaches, defaults, Repayment Events, liens, charges
or encumbrances that would not reasonably be expected to result in a Material
Adverse Effect), nor will such actions result in any violation of the provisions
of the certificate of incorporation or by-laws or partnership agreement, as the
case may be, of the Company or any Subsidiary, or any applicable law, statute,
rule, regulation, judgment, order, writ or decree, known to us of any
government, government instrumentality or court having jurisdiction over the
Company or any Subsidiary or any of their respective properties, assets or
operations, except for such violations that would not reasonably be expected to
result in a Material Adverse Effect.
10. The Company is not an "investment company" or an entity "controlled"
by an "investment company," as such terms are defined in the Investment Company
Act of 1940.
<PAGE>
-5-
In the course of the preparation of the Registration Statement and the
Prospectuses (other than the Incorporated Documents), we participated in
conferences with officers and other representatives of the Company,
representatives of the independent certified public accountants of the Company,
your representatives and your counsel, at which conferences the contents of the
Registration Statement and the Prospectuses and related matters were discussed.
We have not participated in the preparation of any of the Incorporated Documents
or any other items or information incorporated by reference in the Registration
Statement or the Prospectuses. Although we are not passing upon and do not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectuses (except
as expressly provided in subparagraph 7) or the documents incorporated by
reference in the Registration Statement and the Prospectuses and have not made
an independent investigation, check or verification of facts for the purpose of
rendering this opinion, on the basis of the foregoing, we advise you that,
nothing has come to our attention that leads us to believe (i) that the
Registration Statement or any amendment thereto (except for financial statements
and schedules and other financial [and statistical] data included or
incorporated by reference therein or omitted therefrom, as to which we make no
statement), at the time the Registration Statement or any such amendment became
effective, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) that the Prospectuses or any amendment
or supplement thereto (except for financial statements and schedules and other
financial [and statistical] data included or incorporated by reference therein
or omitted therefrom, as to which we make no statement), at the time the
Prospectuses were issued, at the time any such amended or supplemented
prospectus was issued or at the Closing Time, included or includes an untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading or (iii) that the
Registration Statement, the Prospectuses and each amendment or supplement to the
Registration Statement and the Prospectuses, excluding in each case the
documents incorporated by reference therein as of their respective effective or
issue dates (other than the financial statements and schedules and other
financial [and statistical] data included or incorporated by reference therein
or omitted therefrom, as to which we make no statement) did not comply as to
form in all material respects with the requirements of the 1933 Act and the 1933
Act Regulations.
The opinions set forth above are subject to the following qualifications:
(i) The enforceability of agreements, documents and instruments is subject
to general principles of equity, including, without limitation, concepts of
materiality,
<PAGE>
-6-
reasonableness, good faith and fair dealing, and the discretion of the court
before which any proceeding therefor may be brought, regardless of whether
enforcement is sought in a proceeding in equity or at law, and bankruptcy,
reorganization, insolvency, fraudulent conveyance or transfer, moratorium
(whether general or specific) and other laws affecting creditors' rights or the
relief of debtors generally.
(ii) We express no opinion concerning the enforceability of (a) waivers of
notice or of any other constitutional, statutory or common law rights, (b)
matters deemed to violate public policy, and (c) submissions to the personal
jurisdiction of any particular court.
(iii) We express no opinion as to any New York state or local laws, rules
or regulations relating to the regulation of telecommunications.
(iv) For purposes of this opinion, any statement contained in a document
incorporated by reference into the Registration Statement or the Prospectuses
shall be deemed to be incorporated by reference in the Registration Statement
and the Prospectuses and to be a part thereof from the date of filing of such
document. Any statement contained in the Registration Statement or the
Prospectuses or in a document incorporated by reference in the Registration
Statement or the Prospectuses shall be deemed to be modified or superseded for
purposes thereof to the extent that a statement contained therein, or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference therein, modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of the Registration Statement or the Prospectuses.
This opinion is furnished by us as counsel to the Company in connection
with the closing of the above-referenced public offering occurring today. The
information set forth herein is as of the date hereof. We assume no obligation
to advise you of changes which may thereafter be brought to our attention. Our
opinion is based upon statutory laws and judicial decisions in effect at the
date hereof, and we do not opine with respect to any law, regulation, rule or
governmental policy which may be enacted or adopted after the date hereof, nor
assume any
<PAGE>
-7-
responsibility to advise you of future changes in our opinion. This opinion is
solely for your benefit and is not to be used, circulated, quoted or otherwise
referred to for any other purpose, and may not be relied upon by any other
person, without our express prior written permission.
Very truly yours,
DOW, LOHNES & ALBERTSON, PLLC
By:
----------------------------
Timothy J. Kelley, Member
<PAGE>
EXHIBIT 1.2
TELEPORT COMMUNICATIONS GROUP INC.
(a Delaware corporation)
_____Shares of Class A Common Stock
(Par Value $.01 Per Share)
INTERNATIONAL PURCHASE AGREEMENT
--------------------------------
______, 1997
Merrill Lynch International
Lehman Brothers International (Europe)
Cazenove & Co.
Morgan Grenfell & Co. Limited
UBS Limited
as Lead Managers of the several International Managers
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
England
Ladies and Gentlemen:
Teleport Communications Group Inc., a Delaware corporation (the "Company"),
-------
and Continental Holding Company, a Massachusetts business trust (the "Selling
-------
Shareholder"), confirm their respective agreements with Merrill Lynch
- -----------
International ("Merrill Lynch") and each of the other International Managers
-------------
named in Schedule A hereto (collectively, the "International Managers," which
----------------------
term shall also include any underwriter substituted as hereinafter provided in
Section 10 hereof), for which Merrill Lynch and Lehman Brothers International
(Europe), Cazenove & Co., Morgan Grenfell & Co. Limited and UBS Limited are
acting as representatives (in such capacity, the "Lead Managers"), with respect
-------------
to (i) the sale by the Company and the Selling Shareholder acting severally and
not jointly, and the purchase by the International Managers, acting severally
and not jointly, of the respective numbers of shares of Class A Common Stock,
par value $.01 per share, of the Company ("Class A Common Stock") set forth in
--------------------
Schedule A hereto, and (ii) the grant by the Company to the International
Managers, acting severally and not jointly, of the option described in Section
2(b) hereof to purchase all or any part of _____________ additional shares of
Class A Common Stock to cover over-allotments, if any. The aforesaid
_____________ shares of
<PAGE>
2
Class A Common Stock (the "Initial International Securities") to be purchased by
--------------------------------
the International Managers and all or any part of the ________________ shares of
Class A Common Stock subject to the option described in Section 2(b) hereof (the
"International Option Securities") are hereinafter called, collectively, the
-------------------------------
"International Securities."
- -------------------------
It is understood that the Company and the Selling Shareholder are
concurrently entering into an agreement dated the date hereof (the "U.S.
----
Purchase Agreement") providing for the offering by the Company and the Selling
- ------------------
Shareholder of an aggregate of _______________ shares of Class A Common Stock
(the "Initial U.S. Securities") through arrangements with certain underwriters
-----------------------
in the United States and Canada (the "U.S. Underwriters") for which Merrill
-----------------
Lynch, Pierce, Fenner & Smith Incorporated, Lehman Brothers Inc., Donaldson,
Lufkin & Jenrette Securities Corporation, Bear, Stearns & Co., Inc. and Deutsche
Morgan Grenfell Inc. are acting as representatives (the "U.S. Representatives")
--------------------
and the grant by the Company to the U.S. Underwriters, acting severally and not
jointly, of an option to purchase all or any part of the U.S. Underwriters' pro
rata portion of up to _____________ additional shares of Class A Common Stock
solely to cover over-allotments, if any (the "U.S. Option Securities" and,
----------------------
together with the International Option Securities, the "Option Securities").
-----------------
The Initial U.S. Securities and the U.S. Option Securities are hereinafter
called the "U.S. Securities."
---------------
It is understood that the Company and the Selling Shareholder are not
obligated to sell and the International Managers are not obligated to purchase,
any Initial International Securities unless all of the Initial U.S. Securities
are contemporaneously purchased by the U.S. Underwriters.
The International Managers and the U.S. Underwriters are hereinafter
collectively called the "Underwriters," the Initial International Securities and
------------
the Initial U.S. Securities are hereinafter collectively called the "Initial
-------
Securities," and the International Securities and the U.S. Securities are
- ----------
hereinafter collectively called the "Securities."
----------
The Underwriters will concurrently enter into an Intersyndicate Agreement
of even date herewith (the "Intersyndicate Agreement") providing for the
------------------------
coordination of certain transactions among the Underwriters under the direction
of Merrill Lynch (in such capacity, the "Global Coordinator").
------------------
The Company and the Selling Shareholder understand that the International
Managers propose to make a public offering of the International Securities as
soon as the Lead Managers deem advisable after this Agreement has been executed
and delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-37597) and ____
- -----------
amendment[s] thereto covering the registration of the Securities under the
Securities Act of 1933, as
<PAGE>
3
amended (the "1933 Act"), including the related preliminary prospectus or
--------
prospectuses. Promptly after execution and delivery of this Agreement, the
Company will either (i) prepare and file a prospectus in accordance with the
provisions of Rule 430A ("Rule 430A") of the rules and regulations of the
---------
Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b) of
--------------------
Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the Company has
-----------
elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare
--------
and file a term sheet (a "Term Sheet") in accordance with the provisions of Rule
----------
434 and Rule 424(b). Two forms of prospectus are to be used in connection with
the offering and sale of the Securities: one relating to the International
Securities (the "Form of International Prospectus") and one relating to the U.S.
--------------------------------
Securities (the "Form of U.S. Prospectus"). The Form of International
-----------------------
Prospectus is identical to the Form of U.S. Prospectus, except for the front
cover and back cover pages and the information under the caption "Underwriting."
The information included in any such prospectus, if any, or in any such Term
Sheet, as the case may be, that was omitted from such registration statement at
the time it became effective but that is deemed to be part of such registration
statement at the time it became effective (a) pursuant to paragraph (b) of Rule
430A is referred to as "Rule 430A Information" or (b) pursuant to paragraph (d)
---------------------
of Rule 434 is referred to as "Rule 434 Information." Each Form of
--------------------
International Prospectus and Form of U.S. Prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
----------------------
statement, including the exhibits, schedules and amendment(s) thereto, if any,
and the documents incorporated by reference pursuant to Item 12 of Form S-3
under the 1933 Act, at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, if and as applicable, is herein called
the "Registration Statement." Any registration statement filed pursuant to Rule
----------------------
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
-----------
Registration Statement," and after such filing the term "Registration Statement"
- ---------------------- ----------------------
shall include the Rule 462(b) Registration Statement. The final Form of
International Prospectus and the final Form of U.S. Prospectus, including the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the 1933 Act, in the forms first furnished to the Underwriters for use in
connection with the confirmation of sales of the Securities are herein called
the "International Prospectus" and the "U.S. Prospectus," respectively, and
------------------------ ---------------
collectively, the "Prospectuses." If Rule 434 is relied on, the terms
------------
"International Prospectus" and "U.S. Prospectus" shall refer to the preliminary
- ------------------------- ---------------
International Prospectus dated ____________, 1997 and preliminary U.S.
Prospectus dated ____________, 1997, respectively, each together with the
applicable Term Sheet and all references in this Agreement to the date of such
Prospectuses shall mean the date of the applicable Term Sheet. For purposes of
this Agreement, all references to the Registration Statement, any preliminary
prospectus, the International Prospectus, the U.S. Prospectus or any Term Sheet
or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").
-----
<PAGE>
4
All references in this Agreement to financial statements and schedules and
other information which is "contained," "included," "referred to" or "stated" in
the Registration Statement, any preliminary prospectus or the Prospectuses (or
other references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, any preliminary prospectus or the
Prospectuses, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement, any preliminary
prospectus or the Prospectuses shall be deemed to mean and include the filing of
any document under the Securities Exchange Act of 1934 (the "1934 Act") that is
--------
incorporated by reference in the Registration Statement, such preliminary
prospectus or the Prospectuses, as the case may be.
SECTION 1. Representations and Warranties. (a) Representations and
------------------------------
Warranties by the Company. The Company represents and warrants to each
International Manager and to the Selling Shareholder, and agrees with each
International Manager and the Selling Shareholder, as follows:
(i) Compliance with Registration Requirements. The Company meets the
-----------------------------------------
requirements for use of Form S-3 under the 1933 Act. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no proceedings for that
purpose have been instituted and are pending or, to the knowledge of the
Company, are contemplated by the Commission, and any request on the part of
the Commission for additional information has been complied with.
At the respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (and, if any International Option
Securities are purchased, at the Date of Delivery), the Registration
Statement, the Rule 462(b) Registration Statement and any amendments and
supplements thereto complied and will comply in all material respects with
the requirements of the 1933 Act and the 1933 Act Regulations and did not
and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading. Neither of the Prospectuses nor any
amendments or supplements thereto, at the time the Prospectuses or any
amendments or supplements thereto were issued and at the Closing Time (and,
if any International Option Securities are purchased, at the Date of
Delivery), included or will include an untrue statement of a material fact
or omitted or will omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. If Rule 434 is used, the Company will comply
with the requirements of Rule 434 and the Prospectuses shall not be
<PAGE>
5
"materially different," as such term is used in Rule 434, from the
prospectuses included in the Registration Statement at the time it became
effective. The representations and warranties in this subsection shall not
apply to statements in or omissions from the Registration Statement or the
Prospectuses made in reliance upon and in conformity with information
furnished to the Company in writing by any Underwriter through the Lead
Managers or the U.S. Representatives expressly for use in the Registration
Statement or the Prospectuses.
(ii) Incorporated Documents. The documents incorporated or deemed to
----------------------
be incorporated by reference in the Registration Statement and the
Prospectuses, when they became effective or at the time they were or
hereafter are filed with the Commission, complied and will comply in all
material respects with the requirements of the 1933 Act and the 1933 Act
Regulations or the 1934 Act and the rules and regulations of the Commission
thereunder (the "1934 Act Regulations"), as applicable, and, when read
--------------------
together with the other information in the Prospectuses, at the time the
Registration Statement became effective, at the time the Prospectuses were
issued and at the Closing Time (and, if any Option Securities are
purchased, at the Date of Delivery), did not and will not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading.
(iii) Independent Accountants. The accountants who certified the
-----------------------
financial statements and supporting schedules included in the Registration
Statement are independent public accountants as required by the 1933 Act
and the 1933 Act Regulations.
(iv) Financial Statements. The combined balance sheets of the Company
--------------------
and its subsidiaries and TCG Partners, a New York general partnership
(collectively, "TCG"), as of December 31, 1995 and the related combined
---
statements of operations, changes in stockholders' equity and partners'
capital (deficit), and cash flows for the years ended December 31, 1994 and
1995 and the combined balance sheet of TCG as of June 30, 1996 and the
related combined statements of operations and cash flows for the six month
period ended June 30, 1996 included in the Registration Statement and the
Prospectuses, together with the related schedules and notes, present fairly
the combined financial position of TCG at the dates indicated and the
combined results, of TCG's operations and TCG's cash flows for the periods
specified; said financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") applied on a consistent
----
basis throughout the periods involved. The consolidated balance sheet of
the Company and its subsidiaries as of December 31, 1996 and the related
consolidated statements of operations, changes in stockholders' equity and
partners' capital (deficit) and cash flows for the year ended December 31,
1996 and the consolidated balance sheet of the Company as of June 30,
<PAGE>
6
1997 and the related consolidated statements of operations and cash flows
for the six months ended June 30, 1997 included in the Registration
Statement and the Prospectuses, together with the related schedules and
notes, present fairly the consolidated financial position of the Company
and its consolidated subsidiaries at the dates indicated and the statements
of operations, changes in stockholders' equity and partners' capital
(deficit) and cash flows of the Company and its consolidated subsidiaries
for the periods specified; said financial statements have been prepared in
conformity with GAAP applied on a consistent basis throughout the periods
involved. The supporting schedules, if any, included in the Registration
Statement present fairly in accordance with GAAP the information required
to be stated therein. The selected financial data and the summary
financial information included in the Prospectuses present fairly the
information shown therein and have been compiled on a basis consistent with
that of the audited financial statements included in the Registration
Statement.
(v) No Material Adverse Change in Business. Since the respective
--------------------------------------
dates as of which information is given in the Registration Statement and
the Prospectuses, except as otherwise stated therein, (A) there has been no
material adverse change or no development involving a prospective material
adverse change, in the condition, financial or otherwise, or in the
earnings or business affairs of the Company and its Subsidiaries considered
as one enterprise, whether or not arising in the ordinary course of
business (a "Material Adverse Effect"), (B) there have been no transactions
-----------------------
entered into by the Company or any of its Subsidiaries, other than those in
the ordinary course of business, which are material with respect to the
Company and its Subsidiaries considered as one enterprise and which are
required to be disclosed in the Registration Statement or which would have
been required to be disclosed in the Registration Statement prior to its
effectiveness, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(vi) Good Standing of the Company. The Company has been duly
----------------------------
organized and is validly existing as a corporation in good standing under
the laws of the State of Delaware and has corporate power and authority to
own, lease and operate its properties and to conduct its business as
described in the Prospectuses and to enter into and perform its obligations
under this Agreement; and the Company is duly qualified as a foreign
corporation to transact business and is in good standing in each other
jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not result
in a Material Adverse Effect.
<PAGE>
7
(vii) Good Standing of Subsidiaries. Schedule C lists each
-----------------------------
"significant subsidiary" of the Company (as such term is defined in Rule 1-
02 of Regulation S-X) and other subsidiaries not deemed "significant" but
nonetheless material (each a "Subsidiary" and, collectively, the
----------
"Subsidiaries"). Each Subsidiary has been duly organized or formed and is
-------------
validly existing as a corporation, a partnership or a limited partnership
in good standing (with respect to a Subsidiary that is a corporation or
limited partnership) under the laws of the jurisdiction in which it has
been incorporated or formed, as applicable, has the necessary corporate or
partnership power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectuses and (with
respect to a Subsidiary that is a corporation or a limited partnership) is
duly qualified as a foreign corporation or limited partnership to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify
or to be in good standing would not result in a Material Adverse Effect;
except as otherwise disclosed in the Registration Statement or on Schedule
C hereof, all of the issued and outstanding capital stock of each such
Subsidiary which is a corporation has been duly authorized and validly
issued, is fully paid and non-assessable and all the issued and outstanding
capital stock of each such Subsidiary which is a corporation and all the
existing partnership interests of such Subsidiary which is a partnership or
a limited partnership are owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge,
lien, encumbrance, claim or equity; and none of the outstanding shares of
capital stock of any Subsidiary which is a corporation was issued in
violation of the preemptive rights of any securityholder of such
Subsidiary.
(viii) Capitalization. The authorized, issued and outstanding
--------------
capital stock of the Company is as set forth in the Prospectuses in the
column entitled "Actual" under the caption "Capitalization" (except for
subsequent issuances, if any, pursuant to this Agreement, pursuant to
reservations, agreements or employee benefit plans referred to in the
Prospectuses or pursuant to the exercise of convertible securities or
options referred to in the Prospectuses). The shares of issued and
outstanding capital stock of the Company, including the Securities to be
purchased by the International Managers and the U.S. Underwriters from the
Selling Shareholder, have been duly authorized and validly issued and are
fully paid and non-assessable; none of the outstanding shares of capital
stock of the Company, including the Securities to be purchased by the
International Managers and the U.S. Underwriters from the Selling
Shareholder, was issued in violation of the preemptive rights of any
securityholder of the Company arising under the Delaware General
Corporation Law (the "DGCL"), the Company's certificate of incorporation or
----
bylaws or any agreement to which the Company is a party.
<PAGE>
8
(ix) Authorization of Agreement. This Agreement and the U.S. Purchase
--------------------------
Agreement have been duly authorized, executed and delivered by the Company.
(x) Authorization and Description of Securities. The Securities to be
-------------------------------------------
purchased by the International Managers and the U.S. Underwriters from the
Company have been duly authorized for issuance and sale to the
International Manager pursuant to this Agreement and the U.S. Underwriters
pursuant to the U.S. Purchase Agreement, respectively, and, when issued and
delivered by the Company pursuant to this Agreement and the U.S. Purchase
Agreement, respectively, against payment of the consideration set forth
herein and the U.S. Purchase Agreement, respectively, will be validly
issued, fully paid and non-assessable; the Class A Common Stock conforms to
all statements relating thereto contained in the Prospectuses and such
description conforms to the rights set forth in the instruments defining
the same; no holder of the Securities will be subject to personal liability
for the payment of the Company's debts except as they may be liable by
reason of their own conduct or acts and except as holders of the Securities
may be liable pursuant to Section 282 of the DGCL; and the issuance of the
Securities is not subject to preemptive or other similar rights of any
securityholder of the Company arising under the DGCL, the Company's
certificate of incorporation or bylaws or any agreement to which the
Company is a party.
(xi) Absence of Defaults and Conflicts. Neither the Company nor any
---------------------------------
Subsidiary is in violation of its charter or by-laws or partnership
agreement, as the case may be, or in default in the performance or
observance of any obligation, agreement, covenant or condition contained in
any contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or other agreement or instrument to which the Company or any
Subsidiary is a party or by which it or any of them may be bound, or to
which any of the property or assets of the Company or any Subsidiary is
subject (collectively, "Agreements and Instruments") except for such
--------------------------
violations or defaults that would not reasonably be expected to result in a
Material Adverse Effect; and the execution, delivery and performance of
this Agreement and the U.S. Purchase Agreement and the consummation of the
transactions contemplated in this Agreement and the U.S. Purchase
Agreement, the issuance and sale of the Securities and the use of the
proceeds from the sale of the Securities as described in the Prospectuses
under the caption "Use of Proceeds" and compliance by the Company with its
---------------
obligations under this Agreement and the U.S. Purchase Agreement have been
duly authorized by all necessary corporate action and do not and will not,
whether with or without the giving of notice or passage of time or both,
conflict with or constitute a breach of, or default or Repayment Event (as
defined below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
Subsidiary pursuant to the Agreements and Instruments (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that
would not
<PAGE>
9
reasonably be expected to result in a Material Adverse Effect), nor will
such actions result in any violation of the provisions of the charter or
by-laws or partnership agreement, as the case may be, of the Company or any
Subsidiary or any applicable law (including the Communications Act of 1934,
as amended, and the Telecommunications Act of 1996, as amended (the "1996
----
Act"), and the rules, regulations and policies of the Federal
---
Communications Commission (the "FCC") and the public utilities laws of the
---
various states in which the Company and the Subsidiaries do business and
the ordinances, rules and regulations of the various local governments in
which the Company and the Subsidiaries do business), statute, rule,
regulation, judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having jurisdiction over the
Company or any Subsidiary or any of their assets, properties or operations
(except for such violations that would not reasonably be expected to result
in a Material Adverse Effect). As used herein, a "Repayment Event" means
---------------
any event or condition which gives the holder of any note, debenture or
other evidence of indebtedness for borrowed money in principal amount in
excess of $10 million (or any person acting on such holder's behalf) the
right to require the repurchase, redemption or repayment of all or a
portion of such indebtedness by the Company or any Subsidiary.
(xii) Absence of Labor Dispute. No labor dispute with the employees
------------------------
of the Company or any Subsidiary exists or, to the knowledge of the
Company, is imminent, and the Company is not aware of any existing or
imminent labor disturbance by the employees of any of its or any
Subsidiary's principal suppliers, manufacturers, customers or contractors,
which, in either case, may reasonably be expected to result in a Material
Adverse Effect.
(xiii) Absence of Proceedings. There is no action, suit, proceeding,
----------------------
inquiry or investigation before or brought by any court or governmental
agency or body, domestic or foreign, now pending, or, to the knowledge of
the Company, threatened, against or affecting the Company or any Subsidiary
(or any of the properties or assets thereof), which is required to be
disclosed in the Registration Statement (other than as disclosed therein),
or which might reasonably be expected to result in a Material Adverse
Effect, or which might reasonably be expected to materially and adversely
affect the consummation of the transactions contemplated in this Agreement
and the U.S. Purchase Agreement or the performance by the Company of its
obligations hereunder or thereunder; the aggregate of all pending legal or
governmental proceedings to which the Company or any Subsidiary is a party
or of which any of their respective properties or assets is the subject
which are not described in the Registration Statement, including ordinary
routine litigation incidental to the business, could not reasonably be
expected to result in a Material Adverse Effect.
<PAGE>
10
(xiv) Accuracy of Exhibits. There are no contracts or documents that
--------------------
are required by the 1993 Act, the 1933 Act Regulations, the 1934 Act or the
1934 Act Regulations to be described in the Registration Statement, the
Prospectuses or the documents incorporated by reference therein or to be
filed as exhibits thereto that have not been so described and filed as
required.
(xv) Possession of Intellectual Property. The Company and the
-----------------------------------
Subsidiaries own or possess, or can acquire on reasonable terms, adequate
patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures),
trademarks, service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on the business
---------------------
now operated by them, and neither the Company nor any of the Subsidiaries
has received any notice or is otherwise aware of any infringement of or
conflict with asserted rights of others with respect to any Intellectual
Property or of any facts or circumstances which would render any
Intellectual Property invalid or inadequate to protect the interest of the
Company or any of the Subsidiaries therein, and which infringement or
conflict (if the subject of any unfavorable decision, ruling or finding) or
invalidity or inadequacy, singly or in the aggregate, would reasonably be
expected to result in a Material Adverse Effect.
(xvi) Absence of Further Requirements. No filing with, or
-------------------------------
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or agency
is necessary or required for the performance by the Company of its
obligations hereunder, in connection with the offering, issuance or sale of
the Securities under this Agreement and the U.S. Purchase Agreement or the
consummation of the transactions contemplated by this Agreement and the
U.S. Purchase Agreement, (i) except such as have been already obtained or
as may be required under the 1933 Act or the 1933 Act Regulations and
foreign or state securities or blue sky laws and (ii) except for notice
filings where the failure to make such filing would not materially
adversely affect the performance by the Company of its obligations
hereunder, in connection with the offering, issuance or sale of the
Securities under this Agreement and the U.S. Purchase Agreement or the
consummation of the transactions contemplated by this Agreement and the
U.S. Purchase Agreement.
(xvii) Possession of Licenses and Permits. The Company and the
----------------------------------
Subsidiaries possess all permits, licenses, approvals, consents and other
authorizations issued by the appropriate federal, state, local or foreign
regulatory agencies or bodies (including the FCC, the public utilities
commission, or any equivalent body, of each state in which the Company and
its Subsidiaries do business and any other relevant state and local
authorities (the "Local Authorities")) required for the conduct of the
-----------------
<PAGE>
11
business now operated by them (collectively, "Governmental Licenses"),
---------------------
except where the failure to possess any such permit, license, approval,
consent or authorization would not reasonably be expected to result in a
Material Adverse Effect; the Company and the Subsidiaries are in compliance
with the terms and conditions of all such Governmental Licenses, except
where the failure so to comply would not reasonably be expected to, singly
or in the aggregate, have a Material Adverse Effect; all of the
Governmental Licenses are (except for the effects of the 1996 Act as
described in the Prospectuses) valid and in full force and effect, except
where the invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not reasonably
be expected to have a Material Adverse Effect; there is no outstanding
adverse judgment, decree or order that has been issued by the FCC or any of
the Local Authorities against the Company or any of the Subsidiaries and
which, singly or in the aggregate, would reasonably be expected to result
in a Material Adverse Effect; and neither the Company nor any of the
Subsidiaries has received any notice of or is aware of proceedings relating
to the revocation or modification of any such Governmental Licenses or that
would otherwise affect the operations of the Company or the Subsidiaries
and which, singly or in the aggregate, would reasonably be expected to
result in a Material Adverse Effect.
(xviii) Title to Property. The Company and the Subsidiaries have
-----------------
good and marketable title to all real property owned by the Company and the
Subsidiaries and good title to all other properties owned by them, in each
case, free and clear of all mortgages, pledges, liens, security interests,
claims, restrictions or encumbrances of any kind except such as (a) are
described in the Prospectuses, (b) are "Permitted Liens" under the 1996
Indentures and the Revolving Credit Agreement (as such terms are defined in
the Prospectuses) or (c) would not reasonably be expected to, singly or in
the aggregate, result in a Material Adverse Effect; and all of the leases
and subleases material to the business of the Company and the Subsidiaries,
considered as one enterprise, and under which the Company or any of the
Subsidiaries holds properties described in the Prospectuses, are in full
force and effect, and neither the Company nor any Subsidiary has any notice
of any claim of any sort that has been asserted by anyone adverse to the
rights of the Company or any Subsidiary under any of the leases or
subleases mentioned above, or affecting or questioning the rights of the
Company or such Subsidiary to the continued possession of the leased or
subleased premises under any such lease or sublease except for such claims
that would not reasonably be expected to result in a Material Adverse
Effect.
(xix) Investment Company Act. The Company is not, and upon the
----------------------
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the Prospectuses
will not be, an "investment
<PAGE>
12
company" or an entity "controlled" by an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended (the "1940
----
Act").
---
(xx) Environmental Laws. Except as described in the Registration
------------------
Statement and except as would not, singly or in the aggregate, result in a
Material Adverse Effect, (A) neither the Company nor any of the
Subsidiaries is in violation of any federal, state, local or foreign
statute, law, rule, regulation, ordinance or code or any judicial or
administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to pollution or
protection of human health, the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata)
or wildlife, including, without limitation, laws and regulations relating
to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum or
petroleum products (collectively, "Hazardous Materials") or to the
-------------------
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials (collectively, "Environmental
-------------
Laws"), (B) the Company and its Subsidiaries have all permits,
----
authorizations and approvals required under any applicable Environmental
Laws and are each in compliance with their requirements, (C) there are no
pending or, to the Company's knowledge, threatened administrative,
regulatory or judicial actions, suits, demands, demand letters, claims,
liens, notices of noncompliance or violation, investigation or proceedings
relating to any Environmental Law against the Company or any of its
Subsidiaries and (D) there are no events or circumstances that might
reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any of its
Subsidiaries relating to Hazardous Materials or the violation of
Environmental Laws.
(xxi) Registration Rights. Except as described in the Registration
-------------------
Statement, the Company has not granted any registration rights or other
similar rights to have any securities registered pursuant to the
Registration Statement or otherwise registered by the Company under the
1933 Act.
(b) Representations and Warranties by the Selling Shareholder. The
Selling Shareholder represents and warrants to each International Manager and to
the Company, and agrees with each International Manager and the Company, as
follows:
(i) Accurate Disclosure. The Selling Shareholder has reviewed and is
-------------------
familiar with the Registration Statement and the Prospectuses and neither
the Prospectuses nor any amendments or supplements thereto includes any
untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and the Selling
Shareholder is not prompted to sell the
<PAGE>
13
Securities to be sold by the Selling Shareholder hereunder by any
information concerning the Company or any subsidiary of the Company which
is not set forth in the Prospectuses.
(ii) Authorization of Agreements. The Selling Shareholder has the
---------------------------
full right, power and authority to enter into this Agreement and the U.S.
Purchase Agreement and to sell, transfer and deliver the Securities to be
sold by the Selling Shareholder hereunder and thereunder. The execution
and delivery of this Agreement and the U.S. Purchase Agreement and the sale
and delivery of the Securities to be sold by the Selling Shareholder and
the consummation of the transactions contemplated herein and compliance by
the Selling Shareholder with its obligations hereunder and under the U.S.
Purchase Agreement have been duly authorized by all necessary action of the
Selling Shareholder and do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or constitute a
breach of, or default under, or result in the creation or imposition of any
tax, lien, charge or encumbrance upon the Securities to be sold by the
Selling Shareholder or any property or assets of the Selling Shareholder
pursuant to any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, license, lease or other agreement or instrument to
which the Selling Shareholder is a party or by which the Selling
Shareholder may be bound, or to which any of the property or assets of the
Selling Shareholder is subject except for such conflicts, breaches or
defaults or liens, charges or encumbrances upon any property or assets of
the Selling Shareholder that would not reasonably be expected to result in
a material adverse change or development involving a material adverse
change, in the condition, financial or otherwise, or in the earnings or
business affairs of the Selling Shareholder, whether or not arising in the
ordinary course of business, or in its ability to perform its obligations
hereunder or under the U.S. Purchase Agreement nor will such action result
in any violation of the provisions of the organizational instrument of the
Selling Shareholder, if applicable, or any applicable treaty, law, statute,
rule, regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having
jurisdiction over the Selling Shareholder or any of its properties.
(iii) Good and Marketable Title. The Selling Shareholder has and
-------------------------
will at the Closing Time have good and marketable title to the Securities
to be sold by the Selling Shareholder hereunder, free and clear of any
security interest, mortgage, pledge, lien, charge, claim, equity or
encumbrance of any kind, other than pursuant to this Agreement and the U.S.
Purchase Agreement; and upon delivery of such Securities and payment of the
purchase price therefor as herein contemplated, assuming each such
Underwriter has no notice of any adverse claim, each of the Underwriters
will receive good and marketable title to the Securities purchased by it
<PAGE>
14
from the Selling Shareholder, free and clear of any security interest,
mortgage, pledge, lien, charge, claim, equity or encumbrance of any kind.
(iv) Absence of Manipulation. The Selling Shareholder has not taken,
-----------------------
and will not take, directly or indirectly, any action which is designed to
or which has constituted or which might reasonably be expected to cause or
result in stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
(v) Absence of Further Requirements. No filing with, or consent,
-------------------------------
approval, authorization, order, registration, qualification or decree of,
any court or governmental authority or agency, domestic or foreign, is
necessary or required for the performance by the Selling Shareholder of its
obligations hereunder, or in connection with the sale and delivery of the
Securities hereunder or the consummation of the transactions contemplated
by this Agreement and the U.S. Purchase Agreement, except (a) for the
approval pursuant to the Final Judgement (as such term is defined in the
Prospectuses), which has been obtained and (b) such as may have previously
been made or obtained or as may be required under the 1933 Act or the 1933
Act Regulations or state securities laws.
(vi) Certificates Suitable for Transfer. Certificates for all of the
----------------------------------
Securities to be sold by the Selling Shareholder pursuant to this Agreement
and the U.S. Purchase Agreement, in suitable form for transfer by delivery
or accompanied by duly executed instruments of transfer or assignment in
blank with signatures guaranteed, have been placed in custody with the
Custodian with irrevocable conditional instructions to deliver such
Securities to the Underwriters pursuant to this Agreement and the U.S.
Purchase Agreement.
(vii) No Association with NASD. Neither the Selling Shareholder nor
------------------------
any of its affiliates directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control
with, or has any other association with (within the meaning of Article I,
Section 1(m) of the By-laws of the National Association of Securities
Dealers, Inc. ("NASD")), any member firm of the NASD.
----
(c) Officer's Certificates. Any certificate signed by any officer of
the Company or any of the Subsidiaries delivered to the Global Coordinator, the
Lead Managers or to counsel for the Lead Managers pursuant to this Agreement or
otherwise in connection with the offering of the Securities shall be deemed a
representation and warranty by the Company to each International Manager as to
the matters covered thereby; and any certificate signed by or on behalf of the
Selling Shareholder as such and delivered to the Global Coordinator, the Lead
Managers or to counsel for the Lead Managers pursuant to the terms
<PAGE>
15
of this Agreement shall be deemed a representation and warranty by the Selling
Shareholder to each International Manager as to the matters covered thereby.
SECTION 2. Sale and Delivery to International Managers; Closing. (a)
----------------------------------------------------
Initial Securities. On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
and the Selling Shareholder, severally and not jointly, agree to sell to each
International Manager, severally and not jointly, and each International
Manager, severally and not jointly, agrees to purchase from the Company and the
Selling Shareholder, at the price per share set forth in Schedule B, that
proportion of the number of Initial International Securities to be sold by the
Company or the Selling Shareholder, as the case may be, which the number of
Initial International Securities set forth in Schedule A opposite the name of
such U.S. Underwriter, plus any additional number of Initial International
Securities which such Underwriter may become obligated to purchase pursuant to
the provisions of Section 10 hereof, bears to the total number of Initial
International Securities, subject, in each case, to such adjustments among the
International Managers as the Lead Managers in their sole discretion shall make
to eliminate any sales or purchases of fractional securities.
(b) Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
International Managers, severally and not jointly, to purchase up to an
additional _____________ shares of Class A Common Stock at the price per share
set forth in Schedule B. The option hereby granted will expire 30 days after
the date hereof and may be exercised in whole or in part from time to time only
for the purpose of covering over-allotments which may be made in connection with
the offering and distribution of the Initial International Securities upon
notice by the Global Coordinator to the Company setting forth the number of
International Option Securities as to which the several International Managers
are then exercising the option and the time and date of payment and delivery for
such International Option Securities. Any such time and date of delivery for
the International Option Securities (a "Date of Delivery") shall be determined
----------------
by the Global Coordinator, but shall not be later than seven full business days
after the exercise of said option, nor in any event prior to the Closing Time,
as hereinafter defined. If the option is exercised as to all or any portion of
the International Option Securities, each of the International Managers, acting
severally and not jointly, will purchase that proportion of the total number of
International Option Securities then being purchased which the number of Initial
International Securities set forth in Schedule A opposite the name of such
International Manager bears to the total number of Initial International
Securities, subject in each case to such adjustments as the Global Coordinator
in its discretion shall make to eliminate any sales or purchases of fractional
shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
Shearman & Sterling, 599
<PAGE>
16
Lexington Avenue, New York, NY 10022, or at such other place as shall be agreed
upon by the Global Coordinator and the Company and the Selling Shareholder, at
9:00 A.M. (Eastern time) either on the third (fourth if the pricing occurs after
4:30 P.M. (Eastern time) on any given day) business day after the date hereof
(unless postponed in accordance with the provisions of Section 10 hereof), or
such other time not later than ten business days after such date as shall be
agreed upon by the Global Coordinator and the Company and the Selling
Shareholder (such time and date of payment and delivery being herein called the
"Closing Time").
------------
In addition, in the event that any or all of the International Option
Securities are purchased by the International Managers, payment of the purchase
price for, and delivery of certificates for, such International Option
Securities shall be made at the above-mentioned offices, or at such other place
as shall be agreed upon by the Global Coordinator and the Company, on each Date
of Delivery as specified in the notice from the Global Coordinator to the
Company.
Payment shall be made to the Company and the Selling Shareholder by
wire transfer of immediately available funds to separate bank accounts
designated by each of the Company and the Selling Shareholder against delivery
to the Lead Managers for the respective accounts of the International Managers
of certificates for the International Securities to be purchased by them. It is
understood that each International Manager has authorized the Lead Managers, for
its account, to accept delivery of, receipt for, and make payment of the
purchase price for, the Initial International Securities and the International
Option Securities, if any, which it has agreed to purchase. Merrill Lynch,
individually and not as representative of the International Managers, may (but
shall not be obligated to) make payment of the purchase price for the Initial
International Securities or the International Option Securities, if any, to be
purchased by any International Manager whose funds have not been received by the
Closing Time or the relevant Date of Delivery, as the case may be, but such
payment shall not relieve such International Manager from its obligations
hereunder.
(d) Denominations; Registration. Certificates for the Initial
International Securities and the International Option Securities, if any, shall
be in such denominations and registered in such names as the Lead Managers may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
International Securities and the International Option Securities, if any, will
be made available for examination and packaging by the Lead Managers in The City
of New York not later than 9:00 A.M. (Eastern Time) on the business day prior to
the Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with each
------------------------
International Manager as follows:
<PAGE>
17
(a) Compliance with Securities Regulations and Commission Requests.
The Company will comply with the requirements of Rule 430A or Rule 434, as
applicable, and will notify the Global Coordinator immediately, and confirm
the notice in writing, (i) when any post-effective amendment to the
Registration Statement, shall have become effective, or any supplement to
the Prospectuses or any amended Prospectuses shall have been filed, (ii) of
the receipt of any comments from the Commission relating to the
Registration Statement or the Prospectuses, or any amendment or supplement
thereto, (iii) of any request by the Commission for any amendment to the
Registration Statement or any amendment or supplement to the Prospectuses
or for additional information relating to the offering of the Securities,
and (iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing or
suspending the use of any preliminary prospectus, or of the suspension of
the qualification of the Securities for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceedings for
any of such purposes. The Company will promptly effect the filings
necessary, if any, pursuant to Rule 424(b) and will take such steps as it
deems necessary to ascertain promptly whether the form of prospectus
transmitted for filing under Rule 424(b) was received for filing by the
Commission and, in the event that it was not, it will promptly file such
prospectus. The Company will make every reasonable effort to prevent the
issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest practicable moment.
(b) Filing of Amendments. The Company will give the Global Coordinator
notice of its intention to file or prepare any amendment to the
Registration Statement (including any filing under Rule 462(b)), any Term
Sheet or any amendment, supplement or revision to either the prospectuses
included in the Registration Statement at the time it became effective or
to the Prospectuses, whether pursuant to the 1933 Act, the 1934 Act or
otherwise, will furnish the Global Coordinator with copies of any such
documents a reasonable amount of time prior to such proposed filing or use,
as the case may be, and will not file or use any such document to which the
Global Coordinator or counsel for the International Managers shall
reasonably object.
(c) Delivery of Registration Statements. The Company has furnished or
will deliver to the Global Coordinator and counsel for the International
Managers, without charge, signed copies of the Registration Statement as
originally filed and of each amendment thereto (and copies of exhibits
filed therewith or incorporated by reference therein and documents
incorporated or deemed to be incorporated by reference therein) whether
filed before or after the Registration Statement became effective, and
signed copies of all consents and certificates of experts, and will also
deliver to the Lead Managers, without charge, a conformed copy of the
Registration Statement as originally filed and of each amendment thereto
(without exhibits) for
<PAGE>
18
each of the International Managers. If applicable, the copies of the
Registration Statement and each amendment thereto furnished to the
International Managers will be identical to the electronically transmitted
copies thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered to each
International Manager, without charge, as many copies of each preliminary
prospectus as such International Manager reasonably requested, and the
Company hereby consents to the use of such copies for purposes permitted by
the 1933 Act. The Company will furnish to each International Manager,
without charge, during the period when the U.S. Prospectus is required to
be delivered under the 1933 Act or the 1934 Act such number of copies of
the U.S. Prospectus (as amended or supplemented) as such U.S. Underwriter
may reasonably request. If applicable, the U.S. Prospectus and any
amendments or supplements thereto furnished to the International Managers
will be identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company will
comply with the 1933 Act and the 1933 Act Regulations and the 1934 Act and
the 1934 Act Regulations so as to permit the completion of the distribution
of the Securities as contemplated in this Agreement, the U.S. Purchase
Agreement and in the Prospectuses. If at any time when a prospectus is
required by the 1933 Act to be delivered in connection with sales of the
Securities, any event shall occur or condition shall exist as a result of
which it is necessary, in the opinion of counsel for the Lead Managers or
for the Company, to amend the Registration Statement or amend or supplement
either of the Prospectuses in order that the Prospectuses will not include
any untrue statements of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the
light of the circumstances existing at the time it is delivered to a
purchaser, or if it shall be necessary, in the opinion of such counsel, at
any such time to amend the Registration Statement or amend or supplement
either of the Prospectuses in order to comply with the requirements of the
1933 Act or the 1933 Act Regulations, the Company will promptly prepare and
file with the Commission, subject to Section 3(b) hereof, such amendment or
supplement as may be necessary to correct such statement or omission or to
make the Registration Statement or the Prospectuses comply with such
requirements, and the Company will furnish to the International Managers
such number of copies of such amendment or supplement as the International
Managers may reasonably request.
(f) Foreign Qualifications. The Company will use its best efforts, in
cooperation with the Underwriters, to qualify the Securities for offering
and sale
<PAGE>
19
under the applicable securities laws of such foreign jurisdictions as the
Lead Managers may designate and to maintain such qualifications in effect
for a period of not less than one year from the later of the effective date
of the Registration Statement and any Rule 462(b) Registration Statement;
provided, however, that the Company shall not be obligated to file any
-------- -------
general consent to service of process or to qualify as a foreign
corporation or as a dealer in securities in any jurisdiction in which it is
not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject. In
each jurisdiction in which the Securities have been so qualified, the
Company will file such statements and reports as may be required by the
laws of such jurisdiction to continue such qualification in effect for a
period of not less than one year from the effective date of the
Registration Statement and any Rule 462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports pursuant to
the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earning statement for the
purposes of, and to provide the benefits contemplated by, the last
paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds received
by it from the sale of the Securities in the manner specified in the
Prospectuses under "Use of Proceeds."
(i) Listing. The Company will use its best efforts to effect and
maintain the quotation of the Securities on the Nasdaq National Market and
will file with the Nasdaq National Market all documents and notices
required by the Nasdaq National Market to be filed by companies that have
securities that are traded in the over-the-counter market and quotations
for which are reported by the Nasdaq National Market.
(j) Restriction on Sale of Securities. During a period of 90 days
from the date of the Prospectuses, the Company will not, without the prior
written consent of the Global Coordinator, (i) directly or indirectly,
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant to purchase or otherwise transfer or dispose of any share of
Class A Common Stock or any securities convertible into or exercisable or
exchangeable for Class A Common Stock or file any registration statement
under the 1933 Act with respect to any of the foregoing or (ii) enter into
any swap or any other agreement or any transaction that transfers, in whole
or in part, directly or indirectly, the economic consequence of ownership
of the Class A Common Stock, whether any such swap or transaction described
in clause (i) or (ii) above is to be settled by delivery of Class A Common
Stock or such other securities, in cash or otherwise. The foregoing
sentence shall not apply to (A) the Securities to be sold hereunder and
under the International Purchase Agreement, (B) any shares of Class A
Common
<PAGE>
20
Stock issued or options to purchase Class A Common Stock granted pursuant
to existing employee benefit plans of the Company referred to in the
Prospectuses or (C) any shares of Class A Common Stock issued pursuant to
any non-employee director stock plan or dividend reinvestment plan.
(k) Reporting Requirements. The Company, during the period when the
Prospectuses are required to be delivered under the 1933 Act or the 1934
Act, will file all documents required to be filed with the Commission
pursuant to the 1934 Act within the time periods required by the 1934 Act
and the 1934 Act Regulations.
SECTION 4. Payment of Expenses. (a) Expenses. The Company and the
-------------------
Selling Shareholder will pay or cause to be paid, pro rata, based of the number
of Securities being sold by each, all expenses incident to the performance of
their obligations under this Agreement, including (i) the preparation, printing
and filing of the Registration Statement (including financial statements and
exhibits) as originally filed and of each amendment thereto, (ii) the printing
and delivery to the Underwriters of this Agreement and any Agreement among
Underwriters, (iii) the preparation, issuance and delivery of the certificates
for the Securities to the Underwriters, including any stock or other transfer
taxes and any stamp or other duties payable upon the sale, issuance or delivery
of the Securities to the Underwriters, and the transfer of the Securities
between the U.S. Underwriters and International Managers, (iv) the fees and
disbursements of the Company's counsel, accountants and other advisors, (v) the
reasonable fees and disbursements of counsel for the Underwriters in connection
with the preparation of the Blue Sky Survey and any supplement thereto, (vi) the
printing and delivery to the Underwriters of copies of each preliminary
prospectus, any Term Sheets and of the Prospectuses and any amendments or
supplements thereto, (vii) the preparation, printing and delivery to the
Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii)
the fees and expenses of any transfer agent or registrar for the Securities,
(ix) the filing fees incident to, and the reasonable fees and disbursements of
counsel to the Underwriters in connection with, the review by the NASD of the
terms of the sale of the Securities, (x) the fees and expenses incurred in
connection with the inclusion of the Securities in The Nasdaq National Market
and (xi) all reasonable costs and expenses of the Underwriters.
(b) Expenses of the Selling Shareholder. The Selling Shareholder will
pay all expenses incident to the performance of its obligations under, and the
consummation of the transactions contemplated by this Agreement, including (i)
any stamp duties, capital duties and stock transfer taxes, if any, payable upon
the sale of the Securities to the Underwriters, and their transfer between the
Underwriters pursuant to an agreement between such Underwriters, and (ii) the
fees and disbursements of its counsel and accountants.
(c) Termination of Agreement. If this Agreement is terminated by the
Lead Managers in accordance with the provisions of Section 5, Section 9(a)(i) or
Section 11
<PAGE>
21
hereof, the Company and the Selling Shareholder shall reimburse the
International Managers for all of their reasonable out-of-pocket expenses
incurred in connection with the offering and sale of the Securities, including
the reasonable fees and disbursements of counsel for the International Managers.
(d) Allocation of Expenses. The provisions of this Section shall not
affect any agreement that the Company and the Selling Shareholder may make for
the sharing of such costs and expenses.
SECTION 5. Conditions of International Managers' Obligations. The
-------------------------------------------------
obligations of the several International Managers hereunder are subject to the
accuracy as of the Closing Time of the representations and warranties of the
Company and the Selling Shareholder contained in Section 1 hereof or in
certificates of any officer of the Company or any Subsidiary of the Company or
on behalf of the Selling Shareholder delivered pursuant to the provisions
hereof, to the performance by the Company and the Selling Shareholder of their
respective covenants and other obligations hereunder, and to the following
further conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at the Closing Time no stop order suspending the
effectiveness of the Registration Statement shall have been issued under
the 1933 Act or proceedings therefor initiated or threatened by the
Commission, and any request on the part of the Commission for additional
information from the Company or its agents shall have been complied with to
the reasonable satisfaction of counsel to the International Managers.
Prospectuses containing the Rule 430A Information shall have been filed
with the Commission in accordance with Rule 424(b) (or a post-effective
amendment providing such information shall have been filed and declared
effective in accordance with the requirements of Rule 430A) or, if the
Company has elected to rely upon Rule 434, a Term Sheet shall have been
filed with the Commission in accordance with Rule 424(b).
(b) Opinions of Counsel for the Company. At the Closing Time, the
Lead Managers shall have received the favorable opinions, dated as of the
Closing Time, of (i) the General Counsel of the Company and (ii) Dow,
Lohnes & Albertson, PLLC, counsel for the Company, together with signed or
reproduced copies of such letters for each of the other U.S. Underwriters
substantially in the form set forth in Exhibits A(i) and A(ii) hereto,
respectively, and to such further effect, arising as a result of changed
circumstances between the date hereof and the Closing Time, as counsel to
the International Managers may reasonably request. In giving such opinions
such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York, the federal law
of the United States and the
<PAGE>
22
General Corporation Law of the State of Delaware, upon the opinions of
counsel reasonably satisfactory to the Lead Managers. Such counsel may
also state that, insofar as such opinions involve factual matters, they
have relied, to the extent they deem proper, upon certificates of officers
of the Company and its Subsidiaries and certificates of public officials.
Such opinions shall not state that they are to be governed or qualified by,
or that they are otherwise subject to, any treatise, written policy or
other document relating to legal opinions, including without limitation,
the Legal Opinion Accord of the ABA Section of Business Law (1991).
(c) Opinion of Counsel for the Selling Shareholder. At the Closing
Time, the Lead Managers shall have received the favorable opinion, dated as
of the Closing Time, of Steven Miller, Esq., counsel for the Selling
Shareholder, together with signed or reproduced copies of such letter for
each of the other International Managers substantially in the form set
forth in Exhibit B hereto and to such further effect, arising as a result
of changed circumstances between the date hereof and the Closing Time as
counsel to the Lead Managers may reasonably request.
(d) Opinion of Counsel for International Managers. At the Closing
Time, the Lead Managers shall have received the favorable opinion, dated as
of the Closing Time, of Shearman & Sterling, counsel for the International
Managers, together with signed or reproduced copies of such letter for each
of the other International Managers with respect to the matters set forth
in clauses (4) (solely as to preemptive rights arising under the DGCL or
the Company's certificate of incorporation or bylaws) and (14) of the form
of opinion of the General Counsel of the Company in Exhibit A(i) hereto and
with respect to the matters set forth in clauses (1), (2), (3), (4) and (7)
(solely as to the information in the Prospectuses under "Description of
Capital -- Common Stock") and clause (iii) of the paragraph immediately
following clause (10) of the form of opinion of Dow, Lohnes & Albertson,
PLLC in Exhibit A(ii) hereto. In giving such opinion such counsel may
rely, as to all matters governed by the laws of jurisdictions other than
the law of the State of New York, the federal law of the United States and
the General Corporation Law of the State of Delaware, upon the opinions of
counsel satisfactory to the Lead Managers. Such counsel may also state
that, insofar as such opinion involves factual matters, they have relied,
to the extent they deem proper, upon certificates of officers of the
Company and its Subsidiaries and certificates of public officials.
(e) Officers' Certificate. At the Closing Time, (i) the Registration
Statement and the Prospectuses, as they may then be amended or
supplemented, shall contain all statements that are required to be stated
therein under the 1933 Act and the 1933 Act Regulations and in all material
respects shall conform to the requirements of the 1933 Act and the 1933 Act
Regulations, (ii) the Company shall have complied in all material respects
with Rule 430A (if it shall have elected to rely thereon) and
<PAGE>
23
neither the Registration Statement nor the Prospectuses, as they may then
be amended or supplemented, shall contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and (iii) there
shall not have been, since the date hereof or since the respective dates as
of which information is given in the Prospectuses, any material adverse
change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its Subsidiaries
considered as one enterprise, whether or not arising in the ordinary course
of business, and the Lead Managers shall have received a certificate of the
Company, signed by the President or a Vice President of the Company and by
the chief financial or chief accounting officer of the Company, dated as of
the Closing Time, to such effect, with respect to clause (i), and to the
effect that (A) there has been no such material adverse change, (B) the
representations and warranties in Section 1(a) hereof are true and correct
with the same force and effect as though expressly made at and as of the
Closing Time, (C) the Company has complied with all agreements and
satisfied all conditions herein on its part to be performed or satisfied at
or prior to the Closing Time, and (D) no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or, to the
knowledge of the Company, are contemplated by the Commission.
(f) Certificate of Selling Shareholder. At the Closing Time, the Lead
Managers shall have received a certificate of the Selling Shareholder,
dated as of the Closing Time, to the effect that (i) the representations
and warranties of the Selling Shareholder contained in Section 1(b) hereof
are true and correct in all respects with the same force and effect as
though expressly made at and as of the Closing Time and (ii) the Selling
Shareholder has complied in all material respects with all agreements and
all conditions on its part to be performed under this Agreement at or prior
to the Closing Time.
(g) Accountant's Comfort Letter. At the time of the execution of this
Agreement, the Lead Managers shall have received from Deloitte & Touche LLP
a letter dated such date, in form and substance satisfactory to the Lead
Managers, together with signed or reproduced copies of such letter for each
of the other International Managers containing statements and information
of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectuses.
(h) Bring-down Comfort Letter. At the Closing Time the Lead Managers
shall have received from Deloitte & Touche LLP a letter, dated as of the
Closing Time, to the effect that they reaffirm the statements made in the
letter furnished
<PAGE>
24
pursuant to subsection (g) of this Section, except that the specified date
referred to shall be a date not more than three business days prior to the
Closing Time.
(i) Approval of Listing. At the time of effectiveness of the
Registration Statement, the Securities shall have been approved for
inclusion in The Nasdaq National Market, subject only to official notice of
issuance.
(j) No Objection. The NASD shall not have raised any objection with
respect to the fairness and reasonableness of the underwriting terms and
arrangements.
(k) Lock-up Agreements. At the date of this Agreement, the Lead
Managers shall have received an agreement substantially in the form of
Exhibit C hereto signed by the persons listed on Schedule D hereto.
(l) Purchase of Initial U.S. Securities. Contemporaneously with the
purchase by the International Managers of the Initial International
Securities under this Agreement, the U.S. Underwriters shall have purchased
the Initial U.S. Securities under the U.S. Purchase Agreement.
(m) Conditions to Purchase of International Option Securities. In the
event that the International Managers exercise their option provided in
Section 2(b) hereof to purchase all or any portion of the International
Option Securities, the representations and warranties of the Company
contained herein and the statements in any certificates furnished by the
Company or any Subsidiary of the Company hereunder shall be true and
correct as of each Date of Delivery and, at the relevant Date of Delivery,
the Lead Managers shall have received:
(i) Company Officers' Certificate. A certificate of the Company,
-----------------------------
dated such Date of Delivery, signed by the President or a Vice
President of the Company and by the chief financial or chief
accounting officer of the Company, confirming that the certificate
delivered at the Closing Time pursuant to Section 5(e) hereof remains
true and correct as of such Date of Delivery.
(ii) Opinions of Counsel for Company. The favorable opinions of
-------------------------------
(A) the General Counsel of the Company and (B) Dow, Lohnes &
Albertson, PLLC, counsel for the Company, described in Section 5(b)
hereof, each in form and substance reasonably satisfactory to counsel
for the Underwriters, dated such Date of Delivery, relating to the
International Option Securities to be purchased on such Date of
Delivery and otherwise to the same effect as the opinions required by
Section 5(b) hereof.
<PAGE>
25
(iii) Opinion of Counsel for International Managers. The
---------------------------------------------
favorable opinion of Shearman & Sterling, counsel for the
International Managers, dated such Date of Delivery, relating to the
International Option Securities to be purchased on such Date of
Delivery and otherwise to the same effect as the opinion required by
Section 5(d) hereof.
(iv) Bring-down Comfort Letter. A letter from Deloitte & Touche
-------------------------
LLP, in form and substance satisfactory to the Lead Managers and dated
such Date of Delivery, substantially in the same form and substance as
the letter furnished to the Lead Managers pursuant to Section 5(h)
hereof, except that the "specified date" in the letter furnished
pursuant to this paragraph shall be a date not more than five days
prior to such Date of Delivery.
(n) Additional Documents. At the Closing Time and at each Date of
Delivery, counsel for the International Managers shall have been furnished
with such documents as they may reasonably require for the purpose of
enabling them to pass upon the issuance and sale of the Securities as
herein contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company and the Selling
Shareholder in connection with the issuance and sale of the Securities as
herein contemplated shall be reasonably satisfactory in form and substance
to the Lead Managers and counsel for the International Managers.
(o) Termination of Agreement. If any condition specified in this
Section shall not have been fulfilled when and as required to be fulfilled,
this Agreement, or, in the case of any condition to the purchase of
International Option Securities on a Date of Delivery which is after the
Closing Time, the obligations of the several International Managers to
purchase the relevant Option Securities, may be terminated by the Lead
Managers by notice to the Company at any time at or prior to the Closing
Time or such Date of Delivery, as the case may be, and such termination
shall be without liability of any party to any other party except as
provided in Section 4 hereof and except that Sections 1, 6, 7 and 8 hereof
shall survive any such termination and remain in full force and effect.
SECTION 6. Indemnification. (a) Indemnification of International
---------------
Managers. The Company agrees to indemnify and hold harmless each International
Manager, its directors, officers and employees, and each person, if any, who
controls any International Manager within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act to the extent and in the manner set forth in
clauses (i), (ii), and (iii) below. In addition, the Selling Shareholder agrees
to indemnify and hold harmless each Underwriter and each person, if any, who
controls any Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
<PAGE>
26
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(or any amendment thereto), including any Rule 430A Information and any
Rule 434 Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to
make the statements therein not misleading or arising out of any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus or the Prospectuses (or any amendment or supplement
thereto), or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever, in any such case, based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided that
(subject to Section 6(d) below) any such settlement is effected with the
written consent of the Company and the Selling Shareholder; and
(iii) against any and all expense whatsoever, as incurred (including
the reasonable fees and disbursements of counsel chosen by Merrill Lynch),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or (ii)
above;
provided, however, that this indemnity agreement shall not apply to any loss,
- -------- -------
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
International Manager through the Lead Managers expressly for use in the
Registration Statement (or any amendment thereto), including any Rule 430A
Information and any Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectuses (or any amendment or supplement thereto); and
provided further that, with respect to the Selling Shareholder, this indemnity
- -------- -------
agreement shall apply only to any loss, liability, claim, damage or expense to
the extent arising out of any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and conformity with information
furnished to the Company by the Selling Shareholder expressly for use in the
Registration Statement (or any amendment thereto), including any Rule 430A
Information and any Rule 434 Information, if applicable, or preliminary
prospectus or the Prospectuses (or any amendment or supplement thereto). The
foregoing
<PAGE>
27
indemnity agreement with respect to any preliminary prospectus or any Prospectus
(or amendments or supplement thereto) shall not inure to the benefit of any
International Manager from whom the person asserting any such loss, liability,
claim, damage or expense purchased Securities (or any director, officer or
employee of such International Manager, or any person who controls such
International Manager within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act) if a copy of the applicable Prospectus (as then
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such International
Manager to such person, if such is required by law, at or prior to the written
confirmation of the sale of such Securities to such person and if such
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, liability, claim, damage or expense.
(b) Indemnification of Company, Directors and Officers and Selling
Shareholder. Each International Manager severally agrees to indemnify and hold
harmless the Company, its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, and the
Selling Shareholder and each person, if any, who controls the Selling
Shareholder within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act, against any and all loss, liability, claim, damage and expense
described in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including any Rule 430A Information and any Rule 434
Information, if applicable, or any preliminary prospectus or the U.S. Prospectus
(or any amendment or supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such International Manager
through the Lead Managers expressly for use in the Registration Statement (or
any amendment thereto) or such preliminary prospectus or the Prospectuses (or
any amendment or supplement thereto).
(c) Actions Against Parties; Notification. Each indemnified party
shall give notice as promptly as reasonably practicable to each indemnifying
party of any action commenced against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve such indemnifying party from any liability hereunder to the extent it is
not materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to Section
6(a) above, counsel to the indemnified parties shall be selected by Merrill
Lynch, and, in the case of parties indemnified pursuant to Section 6(b) above,
counsel to the indemnified parties shall be selected by the Company. If it so
elects within a reasonable time after receipt of the notice mentioned above from
an indemnified party, an indemnifying party, jointly with any other indemnifying
parties receiving such notice, may assume the defense of such action with
counsel chosen by it and reasonably satisfactory to the indemnified parties
defendant in such
<PAGE>
28
action, unless such indemnified parties reasonably object to such assumption on
the ground that there may be legal defenses available to them which are
different from or in addition to those available to such indemnifying party. If
an indemnifying party assumes the defense of such action, the indemnifying party
shall not be liable for any fees and expenses of counsel for the indemnified
parties incurred thereafter in connection with such action. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. No indemnifying party shall, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 6 or Section 7 hereof (whether
or not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) Settlement Without Consent if Failure to Reimburse. If at any
time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel, such
indemnifying party agrees that it shall be liable for any settlement of the
nature contemplated by Section 6(a)(ii) hereof effected without its written
consent if (i) such settlement is entered into more than 45 days after receipt
by such indemnifying party of the aforesaid request, (ii) such indemnifying
party shall have received notice of the terms of such settlement at least 30
days prior to such settlement being entered into and (iii) such indemnifying
party fails, prior to the date of such settlement, to both reimburse such
indemnified party in accordance with such request to the extent it considers
such request to be reasonable and to provide written notice to the indemnified
party substantiating any unpaid balance as unreasonable.
(e) Limitation of Selling Shareholder's Liability. The Selling
Shareholder shall not be responsible for the payment of an amount, pursuant to
this Section 6 and Section 6 of the U.S. Purchase Agreement, which exceeds the
gross proceeds (after deducting the Underwriters' discount but before deducting
expenses) received by the Selling Shareholder from the sale of the Securities by
the Selling Shareholder hereunder and under the U.S. Purchase Agreement.
(f) Other Agreements with Respect to Indemnification. The provisions
of this Section shall not affect any agreement between the Company and the
Selling Shareholder with respect to indemnification.
<PAGE>
29
SECTION 7. Contribution. If the indemnification provided for in
------------
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Shareholder on the one hand and the International
Managers on the other hand from the offering of the Securities pursuant to this
Agreement or (ii) if the allocation provided by clause (i) is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company and the Selling Shareholder on the one hand and of the International
Managers on the other hand in connection with the statements or omissions, which
resulted in such losses, liabilities, claims, damages or expenses, as well as
any other relevant equitable considerations.
The relative benefits received by the Company and the Selling
Shareholder on the one hand and the International Managers on the other hand in
connection with the offering of the International Securities pursuant to this
Agreement shall be deemed to be in the same respective proportions as the total
net proceeds from the offering of the International Securities pursuant to this
Agreement (before deducting expenses but after deducting the underwriting
discount) received by the Company and the Selling Shareholder and the total
underwriting discount received by the International Underwriters, in each case
as set forth on the cover of the International Prospectus, or, if Rule 434 is
used, the corresponding location on the Term Sheet, bear to the aggregate
initial public offering price of the International Securities as set forth on
such cover.
The relative fault of the Company and the Selling Shareholder on the
one hand and the International Managers on the other hand shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company or by the Selling
Shareholder or by the International Managers and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company, the Selling Shareholder and the International Managers
agree that it would not be just and equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation (even if the International
Managers were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 7. The aggregate amount of losses, liabilities,
claims, damages and expenses incurred by an indemnified party and referred to
above in this Section 7 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in investigating, preparing or
defending
<PAGE>
30
against any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based upon any
such untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no International
Manager shall be required to contribute any amount in excess of the amount by
which the total price at which the International Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such International Manager has otherwise been required to pay
by reason of any such untrue or alleged untrue statement or omission or alleged
omission.
No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
International Manager within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
International Manager, and each director of the Company, each officer of the
Company who signed the Registration Statement, and each person, if any, who
controls the Company or the Selling Shareholder within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as the Company or the Selling Shareholder, as the case may be. The
International Managers' respective obligations to contribute pursuant to this
Section 7 are several in proportion to the number of Initial International
Securities set forth opposite their respective names in Schedule A hereto and
not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
-----------------------------------------------------
Delivery. All representations, warranties and agreements contained in this
- --------
Agreement or in certificates of the Company or the Selling Shareholder submitted
pursuant hereto, shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of any International Manager or
controlling person, or by or on behalf of the Company or the Selling
Shareholder, and shall survive delivery of the International Securities to the
International Managers; provided, however, that in no event shall this Section 8
-------- -------
be construed as a waiver by the Company or the Selling Shareholder of any
statute of limitations applicable to any such representation, warranty or
agreement.
SECTION 9. Termination of Agreement. (a) Termination; General. The
------------------------
Lead Managers may terminate this Agreement, by notice to the Company and the
Selling Shareholder, at any time at or prior to the Closing Time (i) if there
has been, since the time of execution of this Agreement or since the respective
dates as of which information is given in the U.S. Prospectus, any material
adverse change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its Subsidiaries
<PAGE>
31
considered as one enterprise, whether or not arising in the ordinary course of
business, or (ii) if there has occurred any material adverse change in the
financial markets in the United States or the international financial markets,
any outbreak of hostilities or escalation thereof or other calamity or crisis or
any change or development involving a prospective change in national or
international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the Lead Managers,
impracticable to market the Securities or to enforce contracts for the sale of
the Securities, or (iii) if trading in any securities of the Company has been
suspended or limited by the Commission or The Nasdaq National Market, or if
trading generally on the American Stock Exchange or the New York Stock Exchange
or in The Nasdaq National Market has been suspended or limited, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices have
been required, by any of said exchanges or by such system or by order of the
Commission, the NASD or any other governmental authority, or (iv) if a banking
moratorium has been declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6 and 7 hereof shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the International Managers. If
----------------------------------------------------
one or more of the International Managers shall fail at the Closing Time or a
Date of Delivery to purchase the Securities which it or they are obligated to
purchase under this Agreement (the "Defaulted Securities"), the Lead Managers
--------------------
shall have the right, within 24 hours thereafter, to make arrangements for one
or more of the non-defaulting International Managers, or any other underwriters,
to purchase all, but not less than all, of the Defaulted Securities in such
amounts as may be agreed upon and upon the terms herein set forth; if, however,
the Lead Managers shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of Securities to be purchased on such date, each of the non-
defaulting International Managers shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting International Managers, or
(b) if the number of Defaulted Securities exceeds 10% of the number of
Securities to be purchased on such date, this Agreement or, with respect to
any Date of Delivery which occurs after the Closing Time, the obligation of
the Underwriters to purchase and of the Company to sell the Option
Securities to be purchased and sold on such Date of Delivery shall
terminate without liability on the part of any non-defaulting International
Manager.
<PAGE>
32
No action taken pursuant to this Section shall relieve any defaulting
International Manager from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement or, in the case of a Date of Delivery which is
after the Closing Time, which does not result in a termination of the obligation
of the International Managers to purchase and the Company to sell the relevant
International Option Securities, as the case may be, either the Lead Managers or
the Company shall have the right to postpone the Closing Time or the relevant
Date of Delivery, as the case may be, for a period not exceeding seven days in
order to effect any required changes in the Registration Statement or the
Prospectuses or in any other documents or arrangements. As used herein, the
term "International Manager" includes any person substituted for a U.S.
Underwriter under this Section 10.
SECTION 11. Default by the Selling Shareholder or the Company. (a)
-------------------------------------------------
If the Selling Shareholder shall fail at Closing Time or at a Date of Delivery
to sell and deliver the number of Securities which the Selling Shareholder is
obligated to sell hereunder, then the International Managers may, at the option
of the Lead Managers, by notice from the Lead Managers to the Company, either
(a) terminate this Agreement without any liability on the part of any non-
defaulting party except that the provisions of Sections 1, 4, 6 and 7 shall
remain in full force and effect or (b) elect to purchase the Securities which
the Company has agreed to sell hereunder. No action taken pursuant to this
Section shall relieve the Selling Shareholder from liability in respect of such
default.
In the event of a default by the Selling Shareholder as referred to in
this Section, each of the Lead Managers and the Company shall have the right to
postpone the Closing Time or the relevant Date of Delivery for a period not
exceeding seven days in order to effect any required change in the Registration
Statement or Prospectus or in any other documents or arrangements.
(b) If the Company shall fail at the Closing Time or at a Date of
Delivery to sell the number of Securities that it is obligated to sell
hereunder, then this Agreement shall terminate without any liability on the part
of any non-defaulting party; provided, however, that the provisions of Sections
-------- -------
1, 4, 6 and 7 shall remain in full force and effect. No action taken pursuant
to this Section shall relieve the Company from liability in respect of such
default.
SECTION 12. Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed to have been duly given if delivered by
overnight courier or transmitted by any standard form of telecommunication.
Notices to the International Managers shall be directed to the Lead Managers at
Ropemaker Place, 25 Ropemaker Street, London EC2Y 9LY, England; notices to the
Company shall be directed to it at One Teleport Drive, Staten Island, New York,
New York 10311, Attention: John W. Thomson, Esq.; and
---------
<PAGE>
33
notices to the Selling Shareholder shall be directed to Continental Holding
Company, c/o US WEST, Inc., 7800 E. Orchard Drive - Suite 480, Englewood,
Colorado 80111, attention of Steven Miller, Esq.
SECTION 13. Parties. This Agreement shall inure to the benefit of
-------
and be binding upon the International Managers, the Company and the Selling
Shareholder and their respective successors. Nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any person, firm or
corporation, other than the International Managers, the Company and the Selling
Shareholder and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 hereof and their heirs
and legal representatives, any legal or equitable right, remedy or claim under
or in respect of this Agreement or any provision herein contained. This
Agreement and all conditions and provisions hereof are intended to be for the
sole and exclusive benefit of the International Managers, the Company and the
Selling Shareholder and their respective successors, and said controlling
persons and officers and directors and their heirs and legal representatives,
and for the benefit of no other person, firm or corporation. No purchaser of
Securities from any International Manager shall be deemed to be a successor by
reason merely of such purchase.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED
----------------------
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. EXCEPT
AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY
TIME.
SECTION 15. Effect of Headings. The Article and Section headings
------------------
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the International Managers and the Company in accordance with its terms.
Very truly yours,
TELEPORT COMMUNICATIONS
GROUP INC.
By: ______________________
Name:
Title:
CONTINENTAL HOLDING
COMPANY
By: ______________________
Name:
Title: Trustee
<PAGE>
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL
LEHMAN BROTHERS INTERNATIONAL (EUROPE)
CAZENOVE & CO.
MORGAN GRENFELL & CO. LIMITED
UBS LIMITED
By: MERRILL LYNCH INTERNATIONAL
By
----------------------------------
Authorized Signatory
For themselves and as Lead Managers of the other International Managers named in
Schedule A hereto.
<PAGE>
EXHIBIT A(i)
November __, 1997
Merrill Lynch & Co.
Merrill Lynch, Pierce,
Fenner & Smith Incorporated
Lehman Brothers Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
Bear, Stearns & Co. Inc.
Deutsche Morgan Grenfell Inc.
c/o Merrill Lynch, Pierce,
Fenner & Smith, Incorporated
World Financial Center
North Tower
New York, NY 10281-1229
Merrill Lynch International
Lehman Brothers International (Europe)
Cazenove & Co.
Morgan Grenfell & Co. Limited
UBS Limited
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
England
Ladies and Gentlemen:
This opinion is being delivered to you pursuant to Section 5(b) of the U.S.
Purchase Agreement dated November __, 1997 (the "U.S. Purchase Agreement") and
Section 5(b) of the International Purchase Agreement dated November __, 1997
(the "International Purchase Agreement" and, together with the U.S. Purchase
Agreement, the "Purchase Agreements") among you, Teleport Communications Group
Inc. (the "Company") and Continental Holding Company (the "Selling
Shareholder"), providing for the sale to you on this date of an aggregate of
__________ shares of the Class A Common Stock, par value $0.01 per share, of the
Company (the "Securities"). I am the General Counsel of the Company. Capitalized
terms used herein that are not otherwise defined herein shall have the same
meaning as in the Purchase Agreements.
<PAGE>
In this connection, I have examined:
(a) the Registration Statement on Form S-3 (No. 333-37597) relating to the
Securities filed with the Securities and Exchange Commission (the
"Commission") on October 10, 1997, under the 1933 Act, Amendment No. 1
thereto filed with the Commission on October 17, 1997, and Amendment No. 2
thereto filed with the Commission on November __, 1997 (such Registration
Statement, as so amended at the time when it became effective and including
the Rule 430A Information, and also including the Incorporated Documents
(as defined below), being hereinafter referred to as the "Registration
Statement");
(b) the final prospectus, dated November __, 1997, filed with the
Commission on November __, 1997, relating to the offering of the Securities
in the United States and Canada (including the Incorporated Documents, the
"U.S. Prospectus") and the final prospectus, dated November __, 1997, filed
with the Commission on November __, 1997, relating to the offering of the
Securities outside the United States and Canada (including the Incorporated
Documents, the "International Prospectus" and, together with the U.S.
Prospectus, the "Prospectuses"), both filed pursuant to Rule 424(b);
(c) the Purchase Agreements; and
(d) the Company's Annual Report on Form 10-K for the year ended December
31, 1996, as amended; the Company's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1997, and June 30, 1997; the Company's Current
Reports on Form 8-K dated January 13, 1997, February 4, 1997, February 26,
1997, March 3, 1997, March 7, 1997, March 11, 1997, March 20, 1997 (as
amended), April 29, 1997, July 29, 1997, October 10, 1997, and October __,
1997; and the description of the Company's Class A Common Stock set forth
in the registration statement on Form 8-A filed pursuant to the Exchange
Act on June 21, 1996 (collectively, the "Incorporated Documents").
On _______, 1997, I was informed by telephone by a member of the staff of
the Commission that the Registration Statement had become effective under the
1933 Act at ______, New York City time, on that date.
I have also examined originals or copies, certified or otherwise identified
to my satisfaction, of all such records of the Company and all such agreements,
certificates of public officials, certificates of officers or representatives of
the Company and others, and such other documents, certificates and corporate or
other records as I have deemed necessary or
- 2 -
<PAGE>
appropriate as a basis for the opinions set forth herein. In my examination I
have assumed the genuineness of all signatures, the legal capacity of natural
persons, the authenticity of all documents submitted to me as originals, the
conformity to original documents of all documents submitted to me as certified
or photostatic copies and the authenticity of the originals of such latter
documents and the due, binding and valid authorization, execution and delivery
pursuant to lawful power and legal right of applicable instruments and documents
on behalf of persons and entities other than the Company.
As to matters of law set forth below, my opinion is limited to matters of
law under the laws of the State of New York, the laws of the United States, to
the extent applicable hereto, and the Delaware General Corporation Law (the
"DGCL"), and I express no opinion as to conflicts of law rules, or the laws of
any states or jurisdictions other than as specified above.
Based upon the foregoing and subject to the other qualifications stated
herein, I am of the opinion that:
1. The Company is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not result in a Material Adverse Effect.
2. Each Subsidiary has been duly incorporated or formed, as applicable,
and is validly existing as a corporation or a partnership in good standing (with
respect to a Subsidiary that is a corporation) under the laws of the
jurisdiction in which it has been incorporated or formed, as applicable, has the
necessary corporate or partnership power and authority to own, lease and operate
its properties and to conduct its business as described in the Prospectuses and
(with respect to a Subsidiary that is a corporation) is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a Material
Adverse Effect; except as otherwise disclosed in the Registration Statement or
in Schedule C to each of the Purchase Agreements, all of the issued and
outstanding capital stock of each Subsidiary has been duly authorized and
validly issued, is fully paid and non-assessable and all the issued and
outstanding capital stock of each such Subsidiary which is a corporation and all
the existing partnership interests of each such Subsidiary which is a
partnership, to the best of my knowledge and information, is owned by the
Company, directly or through subsidiaries, free and
- 3 -
<PAGE>
clear of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity; none of the outstanding shares of capital stock of any Subsidiary which
is a corporation was issued in violation of the preemptive rights of any
securityholder of such Subsidiary arising under the DGCL, the certificate of
incorporation or bylaws of such Subsidiary or any agreement to which such
Subsidiary is a party.
3. The authorized, issued and outstanding capital stock of the Company is
as set forth in the Prospectuses in the column entitled "Actual" under the
caption "Capitalization" (except for subsequent issuances, if any, pursuant to
the U.S. Purchase Agreement and the International Purchase Agreement or pursuant
to reservations, agreements or employee benefit plans referred to in the
Prospectuses or pursuant to the exercise of convertible securities or options
referred to in the Prospectuses); the shares of issued and outstanding capital
stock, including the Securities to be purchased from the Selling Shareholder,
have been duly authorized and validly issued and are fully paid and non-
assessable; and none of the outstanding shares of capital stock of the Company
was issued in violation of the preemptive rights of any securityholder of the
Company arising under the DGCL, the Company's certificate of incorporation or
bylaws or any agreement to which the Company is a party.
4. The issuance of the Securities by the Company is not subject to
preemptive rights of any securityholder of the Company arising under the DGCL,
the Company's certificate of incorporation or bylaws or any agreement to which
the Company is a party.
5. To the best of my knowledge, there are no actions, suits, proceedings,
inquiries or investigations before or brought by any court or governmental
agency or body, domestic or foreign, now pending or threatened, against or
affecting the Company or any Subsidiary, which is required to be disclosed in
the Registration Statement, or which, in the aggregate, might reasonably be
expected to result in a Material Adverse Effect, or which, in the aggregate,
might reasonably be expected to materially and adversely affect the properties
or assets thereof or the consummation of the transactions contemplated in the
U.S. Purchase Agreement and the International Purchase Agreement or the
performance by the Company of its obligations thereunder.
6. The information in the Prospectuses under "Business," to the extent
that it constitutes matters of law, summaries of legal matters, the Company's
certificate of incorporation and bylaws or legal proceedings, or legal
conclusions, has been reviewed by me and is correct in all material respects.
- 4 -
<PAGE>
7. To the best of my knowledge, there are no statutes or regulations that
are required under the 1933 Act or the 1933 Act Regulations to be described in
the Prospectuses that are not described as required.
8. All descriptions in the Registration Statement of contracts and other
documents to which the Company or the Subsidiaries are a party are accurate in
all material respects; to the best of my knowledge, there are no franchises,
contracts, indentures, mortgages, loan agreements, notes, leases or other
instruments required to be described or referred to in the Registration
Statement, the Prospectuses or the Incorporated Documents or to be filed as
exhibits thereto other than those described or referred to therein or filed as
exhibits thereto, and the descriptions thereof or references thereto are correct
in all material respects.
9. To the best of my knowledge, neither the Company nor any Subsidiary is
in violation of its charter or bylaws or partnership agreement, as the case may
be, and no default by the Company or any Subsidiary exists in the due
performance or observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement, note,
lease or other agreement or instrument that is described or referred to in the
Registration Statement or the Prospectuses or filed as an exhibit to the
Registration Statement except for such violations or defaults that would not
reasonably be expected to result in a Material Adverse Effect.
10. The execution, delivery and performance by the Company of the Purchase
Agreements, the consummation by the Company of the transactions contemplated in
the Purchase Agreements and the issuance and sale by the Company of the
Securities being sold by it do not and will not, whether with or without the
giving of notice or lapse of time or both, conflict with or constitute a breach
of, or default or Repayment Event (as defined in Section 1(a)(xi) of the
Purchase Agreements) under or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
Subsidiary pursuant to any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or other agreement or instrument, known to me, to
which the Company or any Subsidiary is a party or by which it or any of them may
be bound, or to which any of the property or assets of the Company or any
Subsidiary is subject (except for such conflicts, breaches or defaults or liens,
charges or encumbrances that would not reasonably be expected to have a Material
Adverse Effect).
11. To the best of my knowledge, except as described in the Registration
Statement, the Company has not granted any registration rights or other similar
rights to have any
- 5 -
<PAGE>
securities registered pursuant to the Registration Statement or otherwise
registered by the Company under the 1933 Act.
12. The Company and the Subsidiaries possess the Governmental Licenses and
are in compliance with the terms and conditions of all such Governmental
Licenses, except where the failure to so comply would not reasonably be expected
to, singly or in the aggregate, have a Material Adverse Effect, and all of the
Governmental Licenses are valid and in full force and effect, except when the
invalidity of such Governmental Licenses or the failure of such Governmental
Licenses to be in full force and effect would not reasonably be expected to have
a Material Adverse Effect.
13. There is no outstanding adverse judgement, decree or order that has
been issued by the FCC or any of the Local Authorities against the Company and
the Subsidiaries which, singly or in the aggregate, would reasonably be expected
to result in a Material Adverse Effect and, to the best of my knowledge, neither
the Company nor any of the Subsidiaries is the object of, or threatened by, any
proceedings relating to the revocation or modification of any such Governmental
License or that would otherwise affect the operation of the Company or any of
the Subsidiaries, which, singly or in the aggregate, would reasonably be
expected to result in a Material Adverse Effect.
14. The Incorporated Documents (other than the financial statements and
supporting schedules included therein or omitted therefrom, as to which I
express no opinion), when they were filed with the Commission complied as to
form in all material respects with the requirements of the 1933 Act, the 1933
Act Regulations, the 1934 Act and the 1934 Act Regulations.
Attorneys on my staff and I have participated in the preparation of the
Incorporated Documents. In the course of the preparation of the Registration
Statement and the Prospectuses, I participated in conferences with officers and
other representatives of the Company, representatives of the independent
certified public accountants of the Company, your representatives and your
counsel, at which conferences the contents of the Registration Statement and the
Prospectuses and related matters were discussed and, although I am not passing
upon and do not assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration Statement and the
Prospectuses or the documents incorporated by reference in the Registration
Statement and the Prospectuses (except as expressly provided in paragraph 6) and
have not made an independent investigation, check or verification of facts for
the purpose of rendering this opinion, on the basis of my and my staff's
participation in the conferences referred to above and our examination of the
Registration Statement and the
- 6 -
<PAGE>
Prospectuses and the Incorporated Documents, I advise you that nothing has come
to my attention that leads me to believe (i) that the Registration Statement or
any amendment thereto (except for financial statements and schedules and other
financial [and statistical] data included or incorporated by reference therein
or omitted therefrom, as to which I make no statement), at the time the
Registration Statement or any such amendment became effective, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
(ii) that the Prospectuses or any amendment or supplement thereto (except for
financial statements and other financial [and statistical] data included or
incorporated by reference therein or omitted therefrom), at the time the
Prospectuses were issued, at the time any such amended or supplemented
prospectuses were issued or at the Closing Time, included or includes an untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading or (iii) that the
Registration Statement, the Prospectuses and each amendment or supplement to the
Registration Statement and the Prospectuses, excluding in each case the
documents incorporated by reference therein, as of their respective effective or
issue dates (other than the financial statements and other financial [and
statistical] data included therein or omitted therefrom, as to which I make no
statement) did not comply as to form in all material respects with the
requirements of the 1933 Act and the 1933 Act Regulations.
The opinions set forth above are subject to the following qualifications:
(i) the enforceability of agreements, documents and instruments is subject
to general principles of equity, including, without limitation, concepts of
materiality, reasonableness, good faith and fair dealing, and the discretion of
the court before which any proceeding therefor may be brought, regardless of
whether enforcement is sought in a proceeding in equity or at law, and
bankruptcy, reorganization, insolvency, fraudulent conveyance or transfer,
moratorium (whether general or specific) and other laws affecting creditors'
rights or the relief of debtors generally.
(ii) I express no opinion concerning the enforceability of (a) waivers of
notice or of any other constitutional, statutory or common law rights, (b)
matters deemed to violate public policy, and (c) submissions to the personal
jurisdiction of any particular court.
(iii) For purposes of this opinion, any statement contained in a document
incorporated by reference into the Registration
- 7 -
<PAGE>
Statement or the Prospectuses shall be deemed to be incorporated by reference in
the Registration Statement and the Prospectuses and to be a part thereof from
the date of filing of such document. Any statement contained in the
Registration Statement or the Prospectuses or in a document incorporated by
reference in the Registration Statement or the Prospectuses shall be deemed to
be modified or superseded for purposes thereof to the extent that a statement
contained therein, or in any other subsequently filed document which also is or
is deemed to be incorporated by reference therein, modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of the Registration Statement
or the Prospectuses.
This opinion is furnished by me as General Counsel to the Company in
connection with the closing of the above-referenced public offering occurring
today. I assume no obligation to advise you of changes which may thereafter be
brought to my attention. My opinion is based upon statutory laws and judicial
decisions in effect at the date hereof, and I do not opine with respect to any
laws, regulation, rule or governmental policy which may be enacted or adopted
after the date hereof, nor assume any responsibility to advise you of future
changes in my opinion. The opinion is solely for your benefit and is not to be
used, circulated, quoted or otherwise referred to for any other purpose, and may
not be relied upon by any other person, without my express prior written
permission.
--------------------------------
W. Terrell Wingfield, Jr.,
General Counsel, Teleport
Communications Group Inc.
- 8 -
<PAGE>
EXHIBIT A(ii)
November __, 1997
Merrill Lynch & Co.
Merrill Lynch, Pierce,
Fenner & Smith Incorporated
Lehman Brothers Inc.
Donaldson, Lufkin & Jenrette
Securities Corporation
Bear, Stearns & Co. Inc.
Deutsche Morgan Grenfell Inc.
c/o Merrill Lynch, Pierce,
Fenner & Smith, Incorporated
World Financial Center
North Tower
New York, NY 10281-1229
Merrill Lynch International
Lehman Brothers International (Europe)
Cazenove & Co.
Morgan Grenfell & Co. Limited
UBS Limited
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
England
Ladies and Gentlemen:
This opinion is being delivered to you pursuant to Section 5(b) of the U.S.
Purchase Agreement dated November __, 1997 (the "U.S. Purchase Agreement") and
Section 5(b) of the International Purchase Agreement dated November __, 1997
(the "International Purchase Agreement" and, together with the U.S. Purchase
Agreement, the "Purchase Agreements") among you, Teleport Communications Group
Inc. (the "Company") and Continental Holding Company (the "Selling
Shareholder"), providing for the sale to you on this date of an aggregate of
__________ shares of the Class A Common Stock, par value $0.01 per share, of the
Company (the "Securities"). We have served as counsel to the Company in
connection with the issuance and sale of the Securities. Capitalized terms used
herein that are not otherwise defined herein shall have the same meaning as in
the Purchase Agreements.
In this connection, we have examined:
<PAGE>
-2-
(a) the Registration Statement on Form S-3 (No. 333-37597) relating to the
Securities filed with the Securities and Exchange Commission (the
"Commission") on October 10, 1997, under the 1933 Act, Amendment No. 1
thereto filed with the Commission on October 17, 1997, and Amendment No. 2
thereto filed with the Commission on November __, 1997 (such Registration
Statement, as so amended at the time when it became effective and including
the Rule 430A Information, and also including the documents which are
expressly listed in clauses (a) through (d) under the caption
"Incorporation of Certain Documents by Reference" in the Prospectuses as
being incorporated by reference therein (the "Incorporated Documents"),
being hereinafter referred to as the "Registration Statement");
(b) the final prospectus, dated November __, 1997, filed with the
Commission on November __, 1997, relating to the offering of the Securities
in the United States and Canada (including the Incorporated Documents, the
"U.S. Prospectus") and the final prospectus, dated November __, 1997, filed
with the Commission on November __, 1997, relating to the offering of the
Securities outside the United States and Canada (including the Incorporated
Documents, the "International Prospectus" and, together with the U.S.
Prospectus, the "Prospectuses"), both filed pursuant to Rule 424(b); and
(c) the Purchase Agreements.
On _______, 1997, we were informed by telephone by a member of the staff of
the Commission that the Registration Statement had become effective under the
1933 Act at ______, New York City time, on that date.
We have also examined originals or copies, certified or otherwise
identified to our satisfaction, of all such records of the Company and all such
agreements, certificates of public officials, certificates of officers or
representatives of the Company and others, and such other documents,
certificates and corporate or other records as we have deemed necessary or
appropriate as a basis for the opinions set forth herein. In our examination we
have assumed the genuineness of all signatures, the legal capacity of natural
persons, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies and the authenticity of the originals of such latter
documents and the due, binding and valid authorization, execution and delivery
pursuant to lawful power and legal right of applicable instruments and documents
on behalf of persons and entities other than the Company. As to any facts
material to the opinions expressed herein, we have relied upon statements and
representations of officers and other representatives of the Company and others.
<PAGE>
-3-
As to matters of law set forth below, our opinion is limited to matters of
law under the laws of the State of New York, the laws of the United States to
the extent applicable hereto and the Delaware General Corporation Law, and we
express no opinion as to conflicts of law rules, or the laws of any States or
jurisdictions other than as specified above.
Based upon the foregoing and subject to the other qualifications stated
herein, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
2. The Company has the corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectuses and to enter into and perform its obligations under the Purchase
Agreements.
3. The Securities to be purchased by the U.S. Underwriters and the
International Managers from the Company have been duly authorized for issuance
and sale to the Underwriters pursuant to the U.S. Purchase Agreement and the
International Purchase Agreement, respectively, and, when issued and delivered
by the Company pursuant to the U.S. Purchase Agreement and the International
Purchase Agreement, respectively, against payment of the consideration set forth
in the U.S. Purchase Agreement and the International Purchase Agreement,
respectively, will be validly issued, fully paid and non-assessable, and no
holder of the Securities in its capacity as such a holder will be subject to
personal liability for the payment of the Company's debts, except (i) as such
holder may be liable by reason of its own conduct or acts, (ii) as provided by
the Delaware General Corporation Law and (iii) for any liability that may arise
upon application of any fraudulent conveyance or transfer or other insolvency
law.
4. The Purchase Agreements have been duly authorized, executed and
delivered by the Company.
5. The Registration Statement has been declared effective under the 1933
Act; any required filing of the Prospectuses pursuant to Rule 424(b) has been
made in the manner and within the time period required by Rule 424(b); and, to
the best of our knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued under the 1933 Act and no proceedings for
that purpose have been instituted or are pending or threatened by the
Commission.
6. The form of certificate used to evidence the Securities complies in
all material respects with all applicable requirements of the certificate of
incorporation and by-laws of the Company.
<PAGE>
-4-
7. The information in the Prospectuses under the captions "Description of
Capital Stock," "Certain United States Federal Income Tax Consequences to Non-
United States Holders of Common Stock," "Risk Factors -- Federal and State
Regulation," "Risk Factors -- Governmental and Other Authorizations" and
"Business -- Regulatory and Governmental Matters" and in the Registration
Statement under Item 15, to the extent that it constitutes matters of law,
summaries of legal matters, the Company's certificate of incorporation and
bylaws or legal proceedings, or legal conclusions has been reviewed by us and is
correct in all material respects.
8. No filing with, or authorization, approval, consent, license, order,
registration, qualification or decree of, any court or governmental authority or
agency (other than under the 1933 Act and the 1933 Act Regulations, which have
been obtained, or as may be required under the securities or blue sky laws of
the various states, as to which we express no opinion) is necessary or required
in connection with the due authorization, execution and delivery of the Purchase
Agreements or for the offering, issuance, sale or delivery of the Securities,
except for notice filings where the failure to make such filings would not
materially adversely affect the performance by the Company of its obligations
under the Purchase Agreements.
9. The execution, delivery and performance by the Company of the Purchase
Agreements, the consummation by the Company of the transactions contemplated in
the Purchase Agreements and the issuance and sale by the Company of the
Securities being sold by it do not and will not, whether with or without the
giving of notice or lapse of time or both, conflict with or constitute a breach
of, or default or Repayment Event (as defined in Section 1(a)(xi) of the
Purchase Agreements) under or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
Subsidiary pursuant to any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or other agreement or instrument that has been
filed or incorporated by reference as an exhibit to the Registration Statement
(except for such conflicts, breaches, defaults, Repayment Events, liens, charges
or encumbrances that would not reasonably be expected to result in a Material
Adverse Effect), nor will such actions result in any violation of the provisions
of the certificate of incorporation or by-laws or partnership agreement, as the
case may be, of the Company or any Subsidiary, or any applicable law, statute,
rule, regulation, judgment, order, writ or decree, known to us of any
government, government instrumentality or court having jurisdiction over the
Company or any Subsidiary or any of their respective properties, assets or
operations, except for such violations that would not reasonably be expected to
result in a Material Adverse Effect.
10. The Company is not an "investment company" or an entity "controlled"
by an "investment company," as such terms are defined in the Investment Company
Act of 1940.
<PAGE>
-5-
In the course of the preparation of the Registration Statement and the
Prospectuses (other than the Incorporated Documents), we participated in
conferences with officers and other representatives of the Company,
representatives of the independent certified public accountants of the Company,
your representatives and your counsel, at which conferences the contents of the
Registration Statement and the Prospectuses and related matters were discussed.
We have not participated in the preparation of any of the Incorporated Documents
or any other items or information incorporated by reference in the Registration
Statement or the Prospectuses. Although we are not passing upon and do not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement and the Prospectuses (except
as expressly provided in subparagraph 7) or the documents incorporated by
reference in the Registration Statement and the Prospectuses and have not made
an independent investigation, check or verification of facts for the purpose of
rendering this opinion, on the basis of the foregoing, we advise you that,
nothing has come to our attention that leads us to believe (i) that the
Registration Statement or any amendment thereto (except for financial statements
and schedules and other financial [and statistical] data included or
incorporated by reference therein or omitted therefrom, as to which we make no
statement), at the time the Registration Statement or any such amendment became
effective, contained an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) that the Prospectuses or any amendment
or supplement thereto (except for financial statements and schedules and other
financial [and statistical] data included or incorporated by reference therein
or omitted therefrom, as to which we make no statement), at the time the
Prospectuses were issued, at the time any such amended or supplemented
prospectus was issued or at the Closing Time, included or includes an untrue
statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading or (iii) that the
Registration Statement, the Prospectuses and each amendment or supplement to the
Registration Statement and the Prospectuses, excluding in each case the
documents incorporated by reference therein as of their respective effective or
issue dates (other than the financial statements and schedules and other
financial [and statistical] data included or incorporated by reference therein
or omitted therefrom, as to which we make no statement) did not comply as to
form in all material respects with the requirements of the 1933 Act and the 1933
Act Regulations.
The opinions set forth above are subject to the following qualifications:
(i) The enforceability of agreements, documents and instruments is subject
to general principles of equity, including, without limitation, concepts of
materiality,
<PAGE>
-6-
reasonableness, good faith and fair dealing, and the discretion of the court
before which any proceeding therefor may be brought, regardless of whether
enforcement is sought in a proceeding in equity or at law, and bankruptcy,
reorganization, insolvency, fraudulent conveyance or transfer, moratorium
(whether general or specific) and other laws affecting creditors' rights or the
relief of debtors generally.
(ii) We express no opinion concerning the enforceability of (a) waivers of
notice or of any other constitutional, statutory or common law rights, (b)
matters deemed to violate public policy, and (c) submissions to the personal
jurisdiction of any particular court.
(iii) We express no opinion as to any New York state or local laws, rules
or regulations relating to the regulation of telecommunications.
(iv) For purposes of this opinion, any statement contained in a document
incorporated by reference into the Registration Statement or the Prospectuses
shall be deemed to be incorporated by reference in the Registration Statement
and the Prospectuses and to be a part thereof from the date of filing of such
document. Any statement contained in the Registration Statement or the
Prospectuses or in a document incorporated by reference in the Registration
Statement or the Prospectuses shall be deemed to be modified or superseded for
purposes thereof to the extent that a statement contained therein, or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference therein, modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of the Registration Statement or the Prospectuses.
This opinion is furnished by us as counsel to the Company in connection
with the closing of the above-referenced public offering occurring today. The
information set forth herein is as of the date hereof. We assume no obligation
to advise you of changes which may thereafter be brought to our attention. Our
opinion is based upon statutory laws and judicial decisions in effect at the
date hereof, and we do not opine with respect to any law, regulation, rule or
governmental policy which may be enacted or adopted after the date hereof, nor
assume any
<PAGE>
-7-
responsibility to advise you of future changes in our opinion. This opinion is
solely for your benefit and is not to be used, circulated, quoted or otherwise
referred to for any other purpose, and may not be relied upon by any other
person, without our express prior written permission.
Very truly yours,
DOW, LOHNES & ALBERTSON, PLLC
By:
----------------------------
Timothy J. Kelley, Member
<PAGE>
Exhibit 5
November 3, 1997
Teleport Communications Group Inc.
437 Ridge Road
Executive Building 3
Dayton, New Jersey 08810
Re: Registration Statement on Form S-3
(Registration No. 333-37597)
----------------------------------
Ladies and Gentlemen:
We have acted as special counsel for Teleport Communications Group
Inc., a Delaware corporation ("TCG"), in connection with the preparation of the
subject registration statement, as amended (the "Registration Statement"), filed
with the Securities and Exchange Commission (the "Commission") pursuant to the
Securities Act of 1933, as amended (the "Act"), to register the public offering
of 17,250,000 shares (assuming exercise of the underwriters' over-allotment
option) of the Class A Common Stock, $0.01 par value per share, of TCG (the
"Class A Common Stock"), of which 7,304,408 shares (assuming exercise of the
underwriters' over-allotment option) will be sold by TCG and 9,945,592 shares
will be sold by Continental Holding Company, a Massachusetts business trust (the
"Selling Stockholder"). The shares of Class A Common Stock to be sold under the
Registration Statement are referred to herein as the "Shares."
In preparing this opinion, we have made such investigations of law as
we have considered necessary or appropriate to render the opinions expressed
below and have reviewed (a) the Registration Statement; (b) TCG's Certificate of
Incorporation and Bylaws; (c) the proposed form of Purchase Agreement to be
entered into by and among TCG, the Selling Stockholder, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Lehman Brothers Inc., Donaldson, Lufkin & Jenrette
Securities Corporation, Bear, Stearns & Co. Inc., and Deutsche Morgan Grenfell
Inc., as U.S. Representatives of the several U.S. Underwriters, (the "U.S.
Purchase Agreement"); (d) the proposed form of Purchase Agreement to be entered
into by and among TCG, the Selling Stockholder, Merrill Lynch International,
Lehman Brothers International (Europe), Cazenove & Co., Morgan Grenfell & Co.
Limited, and UBS Limited, as International Representatives
<PAGE>
Teleport Communications Group Inc.
November 3, 1997
Page 2
of the several International Managers (the "International Purchase Agreement"
and together with the U.S. Purchase Agreement, the "Purchase Agreements"); and
(e) such other documents, corporate records, certificates of public officials,
certificates of officers of TCG and other instruments relating to the
authorization and issuance of the Class A Common Stock as we deemed relevant or
necessary for opinions herein expressed.
As to matters of fact relevant to our opinion, we have relied upon
certificates of officers of TCG without further investigation. With respect to
the foregoing documents, we have assumed (i) the authenticity of all documents
submitted to us as originals, the conformity with authentic original documents
of all documents submitted to us as copies or forms, the genuineness of all
signatures and the legal capacity of natural persons, and (ii) that the
foregoing documents, in the forms thereof submitted for our review, have not
been altered, amended or repealed in any respect material to our opinion as
stated herein. We have not reviewed any documents other than the documents
listed above for purposes of rendering our opinion as expressed herein, and we
assume that there exists no provision of any such other document that bears upon
or is inconsistent with our opinion as expressed herein. We have conducted no
independent factual investigation of our own but rather have relied solely upon
the foregoing documents, the statements and information set forth therein and
the additional matters recited or assumed herein, all of which we assume to be
true, complete and accurate in all material respects.
Our opinion is limited to matters of law of the District of Columbia,
the General Corporation Law of the State of Delaware, and the law of the United
States of America, insofar as such laws apply, and we express no opinion as to
conflicts of law rules, or the laws of any states or jurisdictions, including
federal laws, regulating securities or other federal laws, or the rules and
regulations of stock exchanges or any other regulatory body, other than as
specified above.
Based upon and subject to the foregoing and any other qualifications
stated herein, we are of the opinion that the Shares, when and to the extent
issued in accordance with the provisions of the Purchase Agreements, or, in the
case of Shares issued upon the conversion by the Selling Stockholder of shares
of Class B Common Stock of TCG, upon such conversion being duly effected in
accordance with the Certificate of Incorporation of TCG, will be legally issued,
fully paid and non-assessable.
<PAGE>
Teleport Communications Group Inc.
November 3, 1997
Page 3
We hereby consent to the use of this opinion as Exhibit 5 to the
Registration Statement and to all references to our firm in the Registration
Statement and any and all amendments thereto (including, without limitation,
post-effective amendments and any subsequent registration statements filed
pursuant to Rule 462(b) under the Act); provided, however, that in giving such
-------- -------
consent we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Act or the Rules and Regulations of
the Commission thereunder. Except as provided for hereinabove, without our
prior written consent, this opinion may not be furnished or quoted to, or relied
upon by, any other person or entity for any purpose.
DOW, LOHNES & ALBERTSON, PLLC
By: /s/ Timothy J. Kelley
-----------------------------------
Timothy J. Kelley
Member
<PAGE>
EXHIBIT 10.11
AMENDED AND RESTATED
LOAN AGREEMENT
AMONG
TCG NEW YORK, INC.;
THE FINANCIAL INSTITUTIONS WHOSE NAMES APPEAR AS BANKS ON THE
SIGNATURE PAGES HEREOF (COLLECTIVELY, THE "BANKS");
CHASE SECURITIES, INC. (FORMERLY KNOWN AS CHEMICAL SECURITIES,
INC.) AND TORONTO-DOMINION SECURITIES, (USA) INC.,
AS CO-SYNDICATION AGENTS AND CO-ARRANGERS HEREUNDER
(COLLECTIVELY, THE "CO-SYNDICATION AGENTS");
TORONTO DOMINION (TEXAS), INC., AS ADMINISTRATIVE AGENT
FOR THE BANKS (THE "ADMINISTRATIVE AGENT"); AND
THE CHASE MANHATTAN BANK (FORMERLY CHEMICAL BANK),
AS DOCUMENTATION AGENT FOR THE BANKS (THE "DOCUMENTATION AGENT")
INDEX
-----
<TABLE>
<CAPTION>
Page
- --------------------------------------------------------------------
<S> <C> <C>
ARTICLE 1 Definitions..................................... 1
ARTICLE 2 Loans........................................... 22
Section 2.1 The Loans. 22
Section 2.2 Manner of Borrowing and Disbursement............ 22
Section 2.3 Interest........................................ 25
Section 2.4 Fees 27
Section 2.5 Mandatory Commitment Reductions................. 27
Section 2.6 Voluntary Commitment Reductions................. 28
Section 2.7 Payments and Repayments......................... 29
Section 2.8 Notes; Loan Accounts............................ 30
Section 2.9 Manner of Payment............................... 30
Section 2.10 Reimbursement................................... 32
Section 2.11 Pro Rata Treatment.............................. 33
Section 2.12 Capital Adequacy................................ 33
Section 2.13 Bank Tax Forms.................................. 34
Section 2.14 Incremental Facility Advances................... 35
ARTICLE 3 Conditions Precedent............................ 36
Section 3.1 Conditions Precedent to Effectiveness of
Agreement.................................... 36
Section 3.2 Conditions Precedent to Each Advance............ 38
ARTICLE 4 Representations and Warranties.................. 39
Section 4.1 Representations and Warranties.................. 39
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 4.2 Survival of Representations and Warranties,
etc.......................................... 47
ARTICLE 5 General Covenants............................... 47
Section 5.1 Preservation of Existence and Similar Matters... 47
Section 5.2 Business; Compliance with Applicable Law........ 47
Section 5.3 Maintenance of Properties....................... 48
Section 5.4 Accounting Methods and Financial Records........ 48
Section 5.5 Insurance....................................... 48
Section 5.6 Payment of Taxes and Claims..................... 49
Section 5.7 Compliance with ERISA........................... 49
Section 5.8 Visits and Inspections.......................... 51
Section 5.9 Payment of Indebtedness; Loans.................. 52
Section 5.10 Use of Proceeds................................. 52
Section 5.11 Real Estate 52
Section 5.12 Indemnity....................................... 53
Section 5.13 Covenants Regarding Formation of Restricted
Subsidiaries and Acquisitions; Partnership,
Restricted Subsidiaries...................... 54
Section 5.14 Payment of Wages................................ 54
Section 5.15 Further Assurances.............................. 55
ARTICLE 6 Information Covenants........................... 55
Section 6.1 Quarterly Financial Statements and
Information.................................. 55
Section 6.2 Annual Financial Statements and Information..... 56
Section 6.3 Performance Certificates........................ 56
Section 6.4 Copies of Other Reports......................... 57
Section 6.5 Notice of Litigation and Other Matters.......... 57
ARTICLE 7 Negative Covenants.............................. 59
Section 7.1 Indebtedness for Money Borrowed of the
Borrower and its Subsidiaries................ 59
Section 7.2 Limitation on Liens............................. 60
Section 7.3 Amendment and Waiver............................ 60
Section 7.4 Liquidation, Merger, or Disposition of Assets... 60
Section 7.5 Limitation on Guaranties........................ 61
Section 7.6 Investments and Acquisitions.................... 61
Section 7.7 Restricted Payments and Purchases............... 62
Section 7.8 Fixed Charge Coverage Ratio..................... 63
Section 7.9 Leverage Ratio.................................. 63
Section 7.10 Annualized Operating Cash Flow to Total Cash
Interest Expense............................. 63
Section 7.11 Affiliate Transactions.......................... 64
Section 7.12 Real Estate 64
Section 7.13 ERISA Liabilities............................... 64
Section 7.14 Limitation on Upstream Dividends by
Restricted Subsidiaries...................... 64
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE 8 Default 65
Section 8.1 Events of Default............................... 65
Section 8.2 Remedies........................................ 68
Section 8.3 Payments Subsequent to Declaration of Event
of Default................................... 70
ARTICLE 9 The Agents...................................... 71
Section 9.1 Appointment and Authorization................... 71
Section 9.2 Interest Holders................................ 71
Section 9.3 Consultation with Counsel....................... 71
Section 9.4 Documents....................................... 72
Section 9.5 Administrative Agent, the Documentation Agent
and Affiliates............................... 72
Section 9.6 Responsibility of the Administrative Agent...... 72
Section 9.7 Action by the Administrative Agent.............. 73
Section 9.8 Notice of Default or Event of Default........... 73
Section 9.9 Responsibility Disclaimed....................... 74
Section 9.10 Indemnification................................. 74
Section 9.11 Credit Decision................................. 75
Section 9.12 Successor Administrative Agent and
Documentation Agent.......................... 75
Section 9.13 Delegation of Duties............................ 76
ARTICLE 10 Change in Circumstances Affecting LIBOR Advances 76
Section 10.1 LIBOR Basis Determination Inadequate............ 76
Section 10.2 Illegality 77
Section 10.3 Increased Costs................................. 77
Section 10.4 Effect On Other Advances........................ 79
Section 10.5 Claims for Increased Costs and Taxes............ 79
ARTICLE 11 Miscellaneous................................... 80
Section 11.1 Notices......................................... 80
Section 11.2 Expenses........................................ 82
Section 11.3 Waivers......................................... 83
Section 11.4 Set-Off......................................... 83
Section 11.5 Assignment 84
Section 11.6 Accounting Principles........................... 87
Section 11.7 Counterparts.................................... 87
Section 11.8 Governing Law................................... 87
Section 11.9 Severability.................................... 87
Section 11.10 Interest 87
Section 11.11 Table of Contents and Headings.................. 88
Section 11.12 Amendment and Waiver............................ 88
Section 11.13 Entire Agreement 89
Section 11.14 Other Relationships............................. 89
Section 11.15 Directly or Indirectly.......................... 89
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C> <C>
Section 11.16 Reliance on and Survival of Various
Provisions................................... 89
Section 11.17 Senior Debt 89
Section 11.18 Obligations Several............................. 90
Section 11.19 Confidentiality 90
ARTICLE 12 Waiver of Jury Trial............................ 90
Section 12.1 Waiver of Jury Trial............................ 90
</TABLE>
EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Exhibit A --Form of Assignment of Rights by Partner
Exhibit B --Form of Certificate of Financial Condition
Exhibit C --Form of Note
Exhibit D --Form of Notice of Incremental Facility
Commitment
Exhibit E --Form of Request for Advance
Exhibit F --Form of Subsidiary Pledge Agreement
Exhibit G --Form of Incremental Facility Note
Exhibit H --Form of Acknowledgement of Guarantors
Exhibit I --Form of Opinion of Regulatory Counsel to the
Borrower
Exhibit J --Form of Opinion of General Counsel to the
Borrower
Exhibit K --Form of Opinion of In-House Counsel
Exhibit L --Form of Borrower's Loan Certificate
Exhibit M --Form of Restricted Subsidiary Loan Certificate
Exhibit N --Form of Subsidiary Guaranty
Exhibit O --Form of Borrower's Pledge Agreement
Exhibit P --Form of Performance Certificate
Exhibit Q --Form of Assignment and Assumption Agreement
</TABLE>
SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
Schedule 1 -- Licenses
Schedule 2 -- Trademarks
Schedule 3 -- Exceptions to Due Authorizations
Schedule 4 -- Subsidiaries
Schedule 5 -- Litigation
Schedule 6 -- Affiliate Transactions
</TABLE>
-iv-
<PAGE>
AMENDED AND RESTATED LOAN AGREEMENT
This Amended and Restated Loan Agreement (the "Agreement"), made as of this
28th day of July, 1997, by and among TCG NEW YORK, INC., a Delaware corporation,
the financial institutions party hereto as Banks (together with such other
financial institutions as may hereafter become Banks hereunder, the "Banks"),
TORONTO DOMINION (TEXAS), INC., as Administrative Agent (the "Administrative
Agent"), and THE CHASE MANHATTAN BANK (formerly Chemical Bank), as Documentation
Agent (the "Documentation Agent").
ARTICLE 1
Definitions
-----------
Section 1.1 Defined Terms. The following terms when used in this Agreement
-------------
shall have the following meanings:
"Acquisition" shall mean (whether by purchase, lease, exchange, issuance of
-----------
stock or other equity or debt securities, merger, reorganization or any other
method) (i) any acquisition by the Borrower or any of its Restricted
Subsidiaries of any other Person, which Person shall then become consolidated
with the Borrower or any such Restricted Subsidiary in accordance with GAAP or
(ii) any acquisition by the Borrower or any of its Restricted Subsidiaries of
all or any substantial part of the assets of any other Person.
"Administrative Agent" shall mean Toronto Dominion (Texas), Inc. in its
--------------------
capacity as Administrative Agent for the Banks or any successor Administrative
Agent appointed pursuant to Section 9.12 of this Agreement.
"Administrative Agent's Office" shall mean the office of the Administrative
-----------------------------
Agent located at 909 Fannin Street, Suite 1700, Houston, Texas 77010, or such
other office as may be designated pursuant to the provisions of Section 11.1 of
this Agreement.
"Advance" shall mean amounts advanced by the Banks to the Borrower pursuant to
-------
Article 2 hereof on the occasion of any borrowing; and "Advances" shall mean
--------
more than one Advance.
"Affiliate" shall mean, with respect to a Person, any other Person directly or
---------
indirectly controlling, controlled by, or under common control with, such first
Person. For purposes of this definition, "control" when used with respect to
-------
any Person includes, without limitation, the direct or indirect beneficial
ownership of more than ten percent (10%) of the voting securities or voting
equity of such Person or the power to direct or cause
<PAGE>
the direction of the management and policies of such Person whether by contract
or otherwise. TCG Partners, a New York general partnership, and each local
partnership in which TCGI, TCG Partners or any of their Subsidiaries has a
partnership interest and which is managed by TCGI or TCG Partners pursuant to a
management services agreement shall be deemed to be Affiliates of the Borrower
and the Restricted Subsidiaries.
"Agreement" shall mean this Amended and Restated Loan Agreement, as amended,
---------
supplemented, restated or otherwise modified from time to time.
"Agreement Date" shall mean July 28, 1997.
--------------
"Annualized Operating Cash Flow" shall mean the product of (a) Operating Cash
------------------------------
Flow for the two (2) fiscal quarters immediately preceding the calculation date,
times (b) two (2).
- -----
"Applicable Law" shall mean, in respect of any Person, all provisions of
--------------
constitutions, laws, statutes, rules, regulations, codes and orders of
governmental bodies or regulatory agencies applicable to such Person, including,
without limiting the foregoing, the Material Licenses, the Communications Act
and all Environmental Laws, and all orders, decisions, judgments and decrees of
all courts and arbitrators in proceedings or actions to which the Person in
question is a party or by which it or its properties or assets are bound.
"Applicable Margin" shall mean the interest rate margin applicable to Base
-----------------
Rate Advances and LIBOR Advances, as the case may be, in each case determined in
accordance with Section 2.3(f) hereof.
"Assignment of Intercompany Indebtedness" shall mean that certain Assignment
---------------------------------------
of Intercompany Indebtedness dated as of December 19, 1995 between the Borrower
and the Administrative Agent, pursuant to which the Borrower has assigned to the
Administrative Agent, on behalf of the Banks, all Indebtedness for Money
Borrowed owed to it by its Affiliates.
"Assignment of Rights by Partner" shall mean, collectively, any Assignment of
-------------------------------
Rights by Partner between the Borrower, or any Restricted Subsidiary which holds
partnership interests in a Restricted Subsidiary, on the one hand, and the
Administrative Agent, on the other hand, each substantially in the form of
Exhibit A attached hereto.
- ---------
"Authorized Signatory" shall mean such senior personnel of a Person as may be
--------------------
duly authorized and designated in writing by such Person to execute documents,
agreements and instruments on behalf of such Person.
-2-
<PAGE>
"Banks" shall mean the Persons whose names appear as "Banks" on the signature
----- -----
pages hereof and any other Person which becomes a "Bank" hereunder after the
----
Agreement Date; and "Bank" shall mean any one of the foregoing Banks.
----
"Base Rate" shall mean, as of any date, a fluctuating interest rate per annum
---------
equal to the higher of (a) the Prime Rate, and (b) the sum of (i) the Federal
Funds Rate, plus (ii) one-half of one percent (1/2%). The Base Rate shall be
----
adjusted automatically as of the opening of business on the effective date of
each change in the Prime Rate or the Federal Funds Rate, as the case may be.
Interest on Base Rate Advances shall be subject to adjustment as provided in
Section 2.3(f).
"Base Rate Advance" shall mean an Advance which the Borrower requests to be
-----------------
made as a Base Rate Advance or is reborrowed as a Base Rate Advance, in
accordance with the provisions of Section 2.2 hereof, and which shall be in a
principal amount of at least $500,000, and in an integral multiple of $250,000;
except for a Base Rate Advance which is an amount equal to the unused
Commitment, which Advance may be in such amount.
"Base Rate Basis" shall mean a simple per annum interest rate equal to the sum
---------------
of (i) the Base Rate and (ii) the Applicable Margin. The Base Rate Basis shall
be adjusted automatically as of the opening of business on the effective date of
each change in the Base Rate to account for such change, and shall also be
changed as and when provided in Section 2.3(f) to reflect changes in the
Applicable Margin.
"Borrower" shall mean TCG New York, Inc., a Delaware corporation.
--------
"Borrower's Pledge Agreement" shall mean that certain Borrower's Pledge
---------------------------
Agreement dated as of December 19, 1995 between the Borrower and the
Administrative Agent, pursuant to which the Borrower has pledged to the
Administrative Agent all of the Borrower's stock ownership in the Restricted
Subsidiaries.
"Business Day" shall mean a day on which banks and foreign exchange markets
------------
are open for the transaction of business required for this Agreement in Houston,
Texas; New York, New York and London, England, as relevant to the determination
to be made or the action to be taken.
"Capital Expenditures" shall mean, in respect of any Person, expenditures for
--------------------
the purchase of assets of long-term use which would be required to be
capitalized on the balance sheet of such Person in accordance with GAAP.
-3-
<PAGE>
"Capital Stock" shall mean, as applied to any Person, any capital stock of
-------------
such Person, regardless of class or designation, and all warrants, options,
purchase rights, conversion or exchange rights, voting rights, calls or claims
of any character with respect thereto.
"Capitalized Lease Obligation" shall mean that portion of any obligation of a
----------------------------
Person as lessee under a lease which at the time would be required to be
capitalized on the balance sheet of such lessee in accordance with GAAP.
"Certificate of Financial Condition" shall mean a certificate, substantially
----------------------------------
in the form of Exhibit B attached hereto, signed by the chief financial officer
---------
of the Borrower, together with any schedules, exhibits or annexes appended
thereto.
"Change of Control" shall mean, as applied to the Borrower, any change in the
-----------------
ownership of the Capital Stock of the Borrower that results in less than fifty
and one-tenth of one percent (50.1%) of all voting rights (after giving effect
to any shareholder's agreement or voting trust agreements and assuming that the
voting rights applicable to any stock subject to any Lien are held by the holder
of such Lien other than a Lien in favor of the Agents and the Banks) with
respect to the Capital Stock of the Borrower (including, without limitation,
warrants, options, conversion rights, voting rights and calls or claims of any
character with respect thereto, to the extent exercisable prior to repayment in
full of the Obligations) being owned directly or indirectly by (a) any one or
more of the Shareholders, (b) any of the Shareholders and Sprint or (c) a Person
owned by Sprint and any one or more of the Shareholders.
"COBRA" shall mean Title X of the Consolidated Omnibus Budget Reconciliation
-----
Act of 1985 and any amendments thereto.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time to
----
time.
"Collateral" shall mean any property of any kind constituting collateral for
----------
the Obligations under any of the Security Documents.
"Comcast" shall mean Comcast Corporation, a Pennsylvania corporation.
-------
"Commitment" shall mean the several obligations of the Banks to fund their
----------
respective portion of the Loans to the Borrower in accordance with their
respective Commitment Ratios in the aggregate sum of $400,000,000 pursuant to
the terms hereof, as
-4-
<PAGE>
such obligations may be reduced from time to time pursuant to the terms hereof.
"Commitment Ratios" shall mean the percentages in which the Banks are
-----------------
severally bound to fund their respective portions of Advances to the Borrower
under the Commitment, which are set forth below (together with dollar amounts)
as of the Agreement Date:
-5-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
DOLLAR
BANK PERCENTAGE COMMITMENT
- --------------------------------- -------------- ---------------
<S> <C> <C>
Toronto Dominion (Texas), Inc. 6.250000000% $25,000,000.00
The Chase Manhattan Bank 6.250000000% $25,000,000.00
(formerly Chemical Bank)
Bank of America National Trust 5.000000000% $20,000,000.00
and Savings Association
Bank of Hawaii 3.750000000% $15,000,000.00
Bank of Montreal Chicago Branch 5.000000000% $20,000,000.00
The Bank of New York Company, 5.000000000% $20,000,000.00
Inc.
The Bank of Nova Scotia 5.000000000% $20,000,000.00
Bank of Tokyo-Mitsubishi Trust 5.000000000% $20,000,000.00
Company
CoreStates Bank, N.A. 5.000000000% $20,000,000.00
Credit Lyonnais New York Branch 5.000000000% $20,000,000.00
Fleet National Bank 5.000000000% $20,000,000.00
Goldman Sachs Credit 5.000000000% $20,000,000.00
Partners L.P.
Lehman Commercial Paper Inc. 5.000000000% $20,000,000.00
The Long-Term Credit Bank 5.000000000% $20,000,000.00
of Japan, Limited
Mellon Bank, N.A. 5.000000000% $20,000,000.00
Morgan Guaranty Trust Company 3.750000000% $15,000,000.00
of New York
NationsBank of Texas, N.A. 5.000000000% $20,000,000.00
PNC Bank, National Association 5.000000000% $20,000,000.00
Royal Bank of Canada 5.000000000% $20,000,000.00
Societe Generale, 5.000000000% $20,000,000.00
New York Branch
TOTAL 100.000000000% $ 400,000,000
</TABLE>
-6-
<PAGE>
"Communications Act" shall mean the Communications Act of 1934, and
------------------
any similar or successor federal statute, and the rules and regulations of the
FCC thereunder, all as the same may be in effect from time to time.
"Continental" shall mean Continental Cablevision, Inc., a Delaware
-----------
corporation.
"Cox" shall mean Cox Communications, Inc., a Delaware corporation.
---
"Default" shall mean any Event of Default, and any of the events
-------
specified in Section 8.1, regardless of whether there shall have occurred any
passage of time or giving of notice, or both, that would be necessary in order
to constitute such event an Event of Default.
"Default Rate" shall mean a simple per annum interest rate equal to
------------
the sum of the otherwise applicable Interest Rate Basis plus two percent (2%),
or if no Interest Rate Basis is otherwise applicable, a simple per annum
interest rate equal to the sum of the Base Rate Basis plus two percent (2%).
"Documentation Agent" shall mean The Chase Manhattan Bank (formerly
-------------------
Chemical Bank) in its capacity as Documentation Agent or any successor
Documentation Agent appointed pursuant to Section 9.12 of this Agreement.
"Employee Pension Plan" shall mean any Plan which (a) is maintained by
---------------------
the Borrower or any ERISA Affiliate and (b) is subject to Part 3 of Title I of
ERISA.
"Environmental Laws" shall mean all applicable federal, state or local
------------------
laws, statutes, rules, regulations or ordinances, codes, common law, consent
agreements to which the Borrower or any Restricted Subsidiary is a party,
orders, decrees, judgments or injunctions issued, promulgated, approved or
entered thereunder relating to the pollution or protection of the environment,
including, without limitation, those relating to releases, discharges,
emissions, spills, leaching, or disposals to air, water, land or ground water,
to the withdrawal or use of ground water, to the use, handling or disposal of
polychlorinated biphenyls, asbestos or urea formaldehyde, to the treatment,
storage, disposal or management of hazardous substances (including, without
limitation, petroleum, crude oil or any fraction thereof, or other
hydrocarbons), pollutants or contaminants, to exposure to toxic, hazardous or
other controlled, prohibited, or regulated substances, including, without
limitation, any such provisions under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980,
-7-
<PAGE>
as amended (42 U.S.C. (S) 9601 et seq.), or the Resource Conservation and
Recovery Act of 1976, as amended (42 U.S.C. (S) 6901 et seq.) or any
environmental laws relating to public health and safety.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as in effect from time to time.
"ERISA Affiliate" shall mean any Person, including a Subsidiary or an
---------------
Affiliate of the Borrower, that is a member of any group of organizations
(within the meaning of Code Sections 414(b), 414(c), 414(m), or 414(o)) of which
the Borrower is a member.
"Event of Default" shall mean any of the events specified in Section
----------------
8.1 hereof, provided that any requirement for notice or lapse of time has been
satisfied.
"FCC" shall mean the Federal Communications Commission, or any other
---
similar or successor agency of the federal government administering the
Communications Act.
"Federal Funds Rate" shall mean, as of any date, the weighted average
------------------
of the rates on overnight federal funds transactions with the members of the
Federal Reserve System arranged by federal funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by the Administrative Agent from three (3) federal
funds brokers of recognized standing selected by the Administrative Agent.
"Fixed Charge Coverage Ratio" shall mean, for every four (4) calendar
---------------------------
quarter period, the ratio of (a) the sum of (i) Annualized Operating Cash Flow
as of the last day of such period, (ii) the arithmetic average of the daily
unborrowed portion of the Commitment (together with the Incremental Facility
Commitment to the extent such commitment is in effect hereunder) available for
borrowing during such period (after giving effect to the permitted Leverage
Ratio), and (iii) (A) the arithmetic average of the daily cash on hand for the
Borrower and the Restricted Subsidiaries, for such period less (B) the lesser of
----
(1) $1,000,000 and (2) the amount in clause (A) hereof; to (b) the sum of (i)
Total Cash Interest Expense during such period, (ii) Scheduled Principal
Payments during such period, (iii) all scheduled payments by the Borrower and
the Restricted Subsidiaries, of principal on Indebtedness for Money Borrowed
(other than the Loans) for such period, (iv) (A) aggregate Capital Expenditures
made by the Borrower and the Restricted
-8-
<PAGE>
Subsidiaries, during such period (other than from the proceeds of casualty
insurance) less (B) all cash payments of capital contributions made directly or
indirectly by TCGI or the shareholders of TCGI to the Borrower and the
Restricted Subsidiaries, during such period, and (v) the amount of all
Restricted Payments made pursuant to Section 7.7 hereof during such period.
"GAAP" shall mean, as in effect from time to time, generally accepted
----
accounting principles in the United States, consistently applied.
"Guaranty" or "Guaranteed," as applied to an obligation, shall mean
-------- ----------
and include (a) a guaranty, direct or indirect, in any manner, of all or any
part of such obligation, and (b) any agreement, direct or indirect, contingent
or otherwise, the practical effect of which is to assure in any way the payment
or performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, any
reimbursement obligations as to amounts drawn down by beneficiaries of
outstanding letters of credit or capital call requirements.
"Incremental Facility Advance" shall mean an Advance made by any Bank
----------------------------
under any Incremental Facility Commitment pursuant to Section 2.14 hereof.
"Incremental Facility Commitment" shall mean the commitment of any
-------------------------------
Bank or Banks to make advances to the Borrower in accordance with Section 2.14
hereof. The Borrower may obtain Incremental Facility Commitments from more than
one Bank, which commitments shall be the several obligations of each such Bank.
"Incremental Facility Commitment Ratios" shall mean the percentages in
--------------------------------------
which the applicable Banks are severally bound to fund their respective portions
of Advances to the Borrower under the Incremental Facility Commitment which are
set forth in the Notice of Incremental Facility Commitment.
"Incremental Facility Notes" shall mean those certain Incremental
--------------------------
Facility Notes described in Section 2.14 hereof.
"Indebtedness" shall mean, with respect to any Person, and without
------------
duplication, (a) all items, except items of shareholders' and partners' equity
or capital stock or surplus or general contingency or deferred tax liabilities,
which in accordance with GAAP would be included in determining total liabilities
as shown on the liability side of a balance sheet of such Person, including,
without limitation, to the extent of the higher of the book value or fair market
value of the property or asset securing such obligation (if less than the amount
of such obligation),
-9-
<PAGE>
secured non-recourse obligations of such Person, (b) all direct or indirect
obligations of any other Person secured by any Lien to which any property or
asset owned by such Person is subject, but only to the extent of the higher of
the fair market value or the book value of the property or asset subject to such
Lien (if less than the amount of such obligation) if the obligation secured
thereby shall not have been assumed, (c) to the extent not otherwise included,
all Capitalized Lease Obligations of such Person and all obligations of such
Person with respect to leases constituting part of a sale and lease-back
arrangement to the extent such lease is considered a Capitalized Lease
Obligation in accordance with GAAP, (d) all reimbursement obligations with
respect to outstanding letters of credit, (e) to the extent not otherwise
included, all obligations subject to Guaranties of such Person or its
Subsidiaries, and (f) all obligations of such Person under Interest Hedge
Agreements.
"Indebtedness for Money Borrowed" shall mean, with respect to any
-------------------------------
Person, Indebtedness for money borrowed and Indebtedness represented by notes
payable and drafts accepted representing extensions of credit, all obligations
evidenced by bonds, debentures, notes or other similar instruments, all
Indebtedness upon which interest charges are customarily paid, all Capitalized
Lease Obligations, all reimbursement obligations with respect to outstanding
letters of credit, all Indebtedness issued or assumed as full or partial payment
for property or services (other than trade payables arising in the ordinary
course of business, but only if and so long as such accounts are payable on
customary trade terms), whether or not any such notes, drafts, obligations or
Indebtedness represent Indebtedness for money borrowed, and, without
duplication, Guaranties of any of the foregoing. For purposes of this
definition, interest which is accrued but not paid on the scheduled due date for
such interest shall be deemed Indebtedness for Money Borrowed.
"Indemnitee" shall have the meaning ascribed thereto in Section
----------
5.12 hereof.
"Interest Hedge Agreements" shall mean the obligations of any Person
-------------------------
pursuant to (a) any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount or (b) interest rate swaps, caps, floors, collars and similar
agreements.
"Interest Period" shall mean in connection with any LIBOR Advance, the
---------------
term of such Advance selected by the Borrower or otherwise determined in
accordance with this Agreement.
-10-
<PAGE>
Notwithstanding the foregoing, however, (i) any applicable Interest Period which
would otherwise end on a day which is not a Business Day shall be extended to
the next succeeding Business Day unless, such Business Day falls in another
calendar month, in which case such Interest Period shall end on the next
preceding Business Day, (ii) any applicable Interest Period which begins on a
day for which there is no numerically corresponding day in the calendar month
during which such Interest Period is to end shall (subject to clause (i) above)
end on the last day of such calendar month, and (iii) the Borrower shall not
select an Interest Period which extends beyond the Maturity Date or such earlier
date as would interfere with the Borrower's repayment obligations under Section
2.7 hereof. Interest shall be due and payable with respect to any Advance as
provided in Section 2.3 hereof.
"Interest Rate Basis" shall mean the Base Rate Basis or the LIBOR
-------------------
Basis, as appropriate.
"known to the Borrower" or "to the knowledge of the Borrower" shall
--------------------- --------------------------------
mean known by or reasonably should have been known by the chief executive
officer, the chief financial officer, the general counsel, or any senior vice
president of the Borrower.
"Leverage Ratio" shall mean, as of any date, the ratio of (a) the
--------------
Total Debt on such date, to (b) Annualized Operating Cash Flow for the calendar
quarter end being tested or the most recently completed calendar quarter, as the
case may be.
"LIBOR" shall mean, for any Interest Period, the interest rate per
-----
annum equal to the offered rate for deposits in United States Dollars for an
amount approximately equal to the principal amount of, and for a length of time
approximately equal to the Interest Period for, the LIBOR Advance sought by the
Borrower, which rate appears on the Reuter's Screen LIBO Page (or such other
page as may replace that page in that service) at approximately 11:00 a.m.
(London time) two (2) Business Days before the first day of such Interest
Period; provided, that (i) if more than one such offered rate appears on the
--------
Reuter's Screen, LIBOR shall be the arithmetic average (rounded upward to the
nearest one-sixteenth (1/16) of one percent (1%)) of such offered rates, or (ii)
if the Reuter's Screen is not available, LIBOR shall be the average offered to
the Administrative Agent (or an affiliate thereof) by two (2) leading banks
(rounded upward to the nearest one-sixteenth (1/16) of one percent (1%)) of the
interest rates per annum at which deposits in United States Dollars for such
Interest Period are offered to the Administrative Agent in the London eurodollar
interbank borrowing market at approximately 11:00 a.m. (London time) two (2)
Business Days before the first day of such Interest Period, in an amount
-11-
<PAGE>
approximately equal to the principal amount of, and for a length of time
approximately equal to the Interest Period for, the LIBOR Advance sought by the
Borrower.
"LIBOR Advance" shall mean an Advance which the Borrower requests to
-------------
be made as a LIBOR Advance or which is reborrowed as a LIBOR Advance, in
accordance with the provisions of Section 2.2 hereof, and which shall be in a
principal amount of at least $500,000 and in an integral multiple of $250,000,
except for a LIBOR Advance which is in an amount equal to the unused amount of
the Commitment, which Advance may be in such amount.
"LIBOR Basis" shall mean a simple per annum interest rate equal to the
-----------
sum of (a) the quotient of (i) LIBOR divided by (ii) one minus the LIBOR Reserve
Percentage, stated as a decimal, plus (b) the Applicable Margin. The LIBOR
Basis shall be rounded upward to the nearest one-hundredth of one percent
(1/100%) and shall apply to Interest Periods of one (1), two (2), three (3), and
six (6) months, and, subject to the second to the last sentence of this
definition, nine (9) and twelve (12) months, and, once determined, shall be
subject to Article 10 hereof and shall remain unchanged during the applicable
Interest Period. The Borrower may not select an Interest Period for a LIBOR
Advance in excess of six (6) months unless the Administrative Agent has notified
the Borrower that each of the Banks has consented to such Interest Period.
Interest on LIBOR Advances shall also be subject to adjustment as provided in
Section 2.3(f) hereof.
"LIBOR Reserve Percentage" shall mean the percentage which is in
------------------------
effect from time to time under Regulation D of the Board of Governors of the
Federal Reserve System, as such regulation may be amended from time to time, as
the actual reserve requirement applicable with respect to Eurocurrency
Liabilities (as that term is defined in Regulation D).
"Licenses" shall mean any telephone, microwave, personal
--------
communications or other license, authorization, certificate of compliance,
franchise, approval or permit, granted or issued to the Borrower or a Restricted
Subsidiary by a government agency or authority which enables any of the
Restricted Subsidiaries to engage in its existing telecommunications business,
including operating as a competitive access provider and investing in other
Persons who operate as competitive access providers, all of which Licenses are
listed as of the Agreement Date on Schedule 1 hereto.
----------
"Lien" shall mean, with respect to any property, any mortgage, lien,
----
pledge, assignment, charge, security interest, title retention agreement, levy,
execution, seizure, attachment, garnishment or other encumbrance of any kind in
respect of such
-12-
<PAGE>
property, whether created by statute, contract, the common law or otherwise, and
whether or not choate, vested or perfected.
"Loan Documents" shall mean this Agreement, the Notes, the Incremental
--------------
Facility Notes, the Security Documents, all fee letters, all Requests for
Advance, all Interest Hedge Agreements between the Borrower, on the one hand,
and the Administrative Agent and the Banks, or any of them, on the other hand,
and all other documents and agreements executed or delivered in connection with
or contemplated by this Agreement.
"Loans" shall mean, collectively, the amounts advanced by the Banks to
-----
the Borrower under the Commitment, not to exceed the Commitment (and, if
applicable, the Incremental Facility Commitment), and evidenced by the Notes
(and shall include Incremental Facility Advances).
"Majority Banks" shall mean Banks the total of whose (a) Commitment
--------------
Ratios (or, if the Commitment has been terminated, portion of the Loans under
the Commitment) and (b) Incremental Facility Commitment Ratios (or, if the
Incremental Facility Commitment has been terminated, portion of the Loans under
the Incremental Facility Commitment) equals or exceeds fifty-one percent (51%)
of the sum of the Commitment Ratios (or, if the Commitment has been terminated,
the Loans under the Commitment) and Incremental Facility Commitment Ratios (or,
if the Incremental Facility Commitment has been terminated, the Loans under the
Incremental Facility Commitment) of all Banks entitled to vote hereunder.
"Material Licenses" shall mean those Licenses without which the
-----------------
Borrower and its Restricted Subsidiaries would no longer be able to operate
their business or any portion thereof and retain the revenue received therefrom,
and the overall effect of the termination, revocation or failure to renew or
replace such Licenses would be to reduce annual Operating Cash Flow (determined
as at the last day of the most recently ended fiscal year of the Borrower) by
ten percent (10%) or more.
"Materially Adverse Effect" shall mean (a) any material adverse effect
-------------------------
upon the business, assets, liabilities, financial condition, results of
operations, properties, or, in the reasonable opinion of the Administrative
Agent and the Majority Banks, business prospects of the Borrower and its
Subsidiaries on a consolidated basis, taken as a whole, or (b) a material
adverse effect upon the binding nature, validity, or enforceability of this
Agreement and the Notes, or upon the ability of the Borrower and its Restricted
Subsidiaries to perform the payment obligations or other material obligations
under this Agreement or any other Loan Document, or upon the value of the
Collateral or upon the rights, benefits or interests of the Banks in and to the
-13-
<PAGE>
Loans or the rights of the Administrative Agent and the Banks in the Collateral;
in either case, whether resulting from any single act, omission, situation,
status, event or undertaking, or taken together with other such acts, omissions,
situations, statuses, events or undertakings.
"Maturity Date" shall mean March 31, 2006, or as the case may be, such
-------------
earlier date as payment of the Obligations shall be due (whether by
acceleration, reduction of the Commitment to zero or otherwise).
"Multiemployer Plan" shall mean a multiemployer pension plan as
------------------
defined in Section 3(37) of ERISA to which the Borrower or any ERISA Affiliate
is or has been required to contribute subsequent to September 25, 1980.
"Necessary Authorizations" shall mean all approvals and licenses from,
------------------------
and all filings and registrations with, any governmental or other regulatory
authority, including, without limiting the foregoing, the Material Licenses and
all approvals, licenses, filings and registrations under the Communications Act
and any other applicable federal, state, or local law, regulation or other
provision, necessary in order to enable the Restricted Subsidiaries to engage in
their existing telecommunications business, including operating as a competitive
access provider and investing in other Persons who operate as competitive access
providers.
"Net Income" shall mean, for the Borrower and the Restricted
----------
Subsidiaries, on a consolidated basis, for any period, net income determined in
accordance with GAAP.
"Net Proceeds" shall mean, with respect to any sale, transfer or other
------------
disposition of (A) ownership interests in any of the Restricted Subsidiaries by
the Borrower, or (B) assets by any of its Restricted Subsidiaries, the aggregate
amount of cash received for such assets (including, without limitation, any
payments received for non-competition covenants, consulting or management fees
in connection with such sale, and any portion of the amount received evidenced
by a promissory note or other evidence of Indebtedness issued by the purchaser),
net of (i) amounts reserved, if any, for taxes payable with respect to any such
sale (after application of any available losses, credits or other offsets), (ii)
reasonable and customary transaction costs properly attributable to such
transaction and payable by the Borrower or any of its Restricted Subsidiaries
(other than to an Affiliate) in connection with such sale, lease, transfer or
other disposition of assets, including, without limitation, commissions, (iii)
until actually received by the Borrower or any of its Restricted Subsidiaries,
any portion of the amount received held in escrow or evidenced by a promissory
note or
-14-
<PAGE>
other evidence of Indebtedness issued by a purchaser or non-compete agreement or
covenant or otherwise for which compensation is paid over time, (iv) reasonable
and customary amounts, if any, reserved for indemnification claims payable with
respect to any such sale, and (v) the amounts, if any, of any purchase money
debt, with respect to the assets sold, owed by the Borrower or a Restricted
Subsidiary, and repaid with the proceeds of such sale. Upon receipt by the
Borrower or any of its Restricted Subsidiaries of (A) amounts referred to in
item (iii) of the preceding sentence, or (B) if there shall occur any reduction
in the reserves referred to in items (i) and (iv) of the preceding sentence
resulting in a payment to the Borrower or the Restricted Subsidiary, such
amounts shall then be deemed to be "Net Proceeds."
"Notes" shall mean, collectively, those certain promissory notes in
-----
the aggregate original principal amount of $400,000,000, and issued to each of
the Banks by the Borrower, each one substantially in the form of Exhibit C
---------
attached hereto, any other promissory note issued by the Borrower to evidence
the Loans pursuant to this Agreement, and any extensions, renewals, or
amendments to, or replacements of, the foregoing.
"Notice of Incremental Facility Commitment" shall mean the notice by
-----------------------------------------
the Borrower of the Incremental Facility Commitment, which notice shall be
substantially in the form of Exhibit D attached hereto and shall be delivered to
---------
the Administrative Agent, the Documentation Agent and the Banks.
"Obligations" shall mean all payment and performance obligations of
-----------
every kind, nature and description of the Borrower, its Restricted Subsidiaries,
and any other obligors to the Banks, the Documentation Agent, or the
Administrative Agent, or any of them, under this Agreement and the other Loan
Documents (including any interest, fees and other charges on the Loans or
otherwise under the Loan Documents that would accrue but for the filing of a
bankruptcy action with respect to the Borrower, whether or not a claim for such
amounts is allowed in such bankruptcy action and including Obligations to the
Banks pursuant to Section 5.12 hereof) as they may be amended from time to time,
or as a result of making the Loans, whether such obligations are direct or
indirect, absolute or contingent, due or not due, contractual or tortious,
liquidated or unliquidated, arising by operation of law or otherwise, now
existing or hereafter arising.
"Operating Cash Flow" shall mean as of the end of any period, on a
-------------------
consolidated basis, (a) Net Income of the Borrower and the Restricted
Subsidiaries, for such period (after eliminating any extraordinary gains and
losses and excluding any interest income of such Persons from any loans to any
Affiliates of such Persons), plus (b) to the extent deducted in determining
----
-15-
<PAGE>
Net Income, the sum of the following for such period: (i) depreciation and
amortization expense, (ii) interest with respect to Indebtedness for Money
Borrowed, (iii) tax expense, and (iv) all other non-cash items.
"Payment Date" shall mean the last day of each calendar quarter for
------------
Base Rate Advances and, subject to Section 2.3(b) hereof, the last day of each
Interest Period for LIBOR Advances.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
----
successor thereto.
"Permitted Asset Sales" shall mean (a) sales, transfers or other
---------------------
dispositions of assets by the Borrower or any Restricted Subsidiary in bona fide
arms' length transactions which do not generate, in any calendar year, Net
Proceeds in excess of $5,000,000 in the aggregate, (b) the disposition in the
ordinary course of business of assets which are no longer used or useful in the
business of the Borrower or the Restricted Subsidiaries, (c) the sales,
transfers or other dispositions of assets which are exchanged for, or the Net
Proceeds of which are used to procure or acquire, similar assets of equal or
greater value within twelve (12) months from receipt of such Net Proceeds by the
Borrower or any Restricted Subsidiary, and (d) the transfer of assets (including
cash or cash equivalents) among the Borrower and its Restricted Subsidiaries or
the transfer of assets (including cash or cash equivalents but excluding the
Licenses) between or among Restricted Subsidiaries so long as in each case, such
assets remain assets of the Borrower or the Restricted Subsidiaries.
"Permitted Liens" shall mean, as applied to any Person:
---------------
(a) Any Lien in favor of the Administrative Agent given to
secure the Obligations;
(b) (i) Liens on real estate or other property for taxes,
assessments, governmental charges or levies not yet delinquent and
(ii) Liens for taxes, assessments, judgments, governmental charges or
levies or claims the non-payment of which is being diligently
contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP have been set aside on such
Person's books, but only so long as no foreclosure, distraint, sale or
similar proceedings have been commenced with respect thereto;
(c) Liens of carriers, warehousemen, mechanics, landlords,
laborers and materialmen and other statutory Liens incurred in the
ordinary course of business for sums not yet due or being diligently
contested in good
-16-
<PAGE>
faith, if reserves or appropriate provisions shall have been made
therefor in accordance with GAAP;
(d) Liens incurred in the ordinary course of business in
connection with worker's compensation and unemployment insurance or
other social security obligations which are not overdue for more than
ninety (90) days;
(e) Restrictions on the transfer of, or other Liens upon, the
Licenses or assets of the Borrower or its Subsidiaries imposed by
Applicable Law or the Licenses;
(f) Easements, rights-of-way, zoning restrictions and other
similar encumbrances on the use of real property and minor
imperfections of title which do not materially interfere with the
ordinary conduct of the business of such Person or the use of such
property;
(g) Purchase money security interests to the extent such
security interests secure Indebtedness permitted pursuant to Section
7.1(f)(1) hereof;
(h) Liens reflected by Uniform Commercial Code financing
statements filed in respect of Capitalized Lease Obligations permitted
pursuant to Section 7.1(f)(2) hereof and true leases of the Borrower
or any of its Subsidiaries;
(i) Liens granted to secure the performance of letters of
credit, bids, tenders, contracts, leases, public or statutory
obligations, surety, customs, appeal and performance bonds and other
similar obligations to the extent otherwise permitted under this
Agreement and not incurred in connection with Indebtedness for Money
Borrowed, the obtaining of advances or the payment of the deferred
purchase price of any property and which do not exceed $20,000,000 in
the aggregate outstanding from time to time;
(j) Liens of utility companies and other Persons pursuant to
pole attachment agreements and restrictions on the transfer of rights
under pole attachment agreements; and
(k) 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 of
business and consistent with the Borrower's past practice.
-17-
<PAGE>
"Person" shall mean an individual, corporation, limited liability company,
------
association, partnership, joint venture, trust or estate, an unincorporated
organization, a government or any agency or political subdivision thereof, or
any other entity.
"Plan" shall mean an employee benefit plan within the meaning of Section
----
3(3) of ERISA or any other employee benefit plan maintained or contributed to by
the Borrower or any ERISA Affiliate.
"Prime Rate" shall mean, at any time, the rate of interest adopted by The
----------
Toronto-Dominion Bank, at its main office in New York, New York, as its
reference rate for the determination of interest rates for loans of varying
maturities in United States dollars to United States residents of varying
degrees of creditworthiness and being quoted at such time by such bank as its
"prime rate." The Prime Rate is not necessarily the lowest rate of interest
charged to borrowers of The Toronto-Dominion Bank.
"Reportable Event" shall mean, with respect to any Employee Pension Plan,
----------------
an event described in Section 4043(b) of ERISA, excluding, however, such events
(i) as to which the PBGC by regulation has waived the requirement of Section
4043(a) of ERISA that it be notified within thirty (30) days of the occurrence
of such event or (ii) which could not reasonably be expected to have a Material
Adverse Effect.
"Request for Advance" shall mean a certificate designated as a "Request for
-------------------
Advance," signed by an Authorized Signatory of the Borrower requesting an
Advance hereunder, which shall be in substantially the form of Exhibit E
---------
attached hereto, and shall, among other things, (i) specify the date of the
Advance, which shall be a Business Day, the amount of the Advance, the type of
Advance (LIBOR or Base Rate), and, with respect to LIBOR Advances, the Interest
Period selected by the Borrower, (ii) state that there shall not exist, on the
date of the requested Advance and after giving effect thereto, a Default, as of
the date of such Advance and after giving effect thereto, and (iii) the
Applicable Margin.
"Restricted Payment" shall mean any direct or indirect distribution,
------------------
dividend or other payment to any Person (other than to the Borrower or any
wholly-owned Subsidiary of the Borrower) on account of any general or limited
partnership interest in, or shares of Capital Stock or other securities of, the
Borrower or any of its Restricted Subsidiaries (other than dividends payable
solely in stock of the Borrower or such Restricted Subsidiary, as applicable,
and stock splits), including, without limitation, any direct or indirect
distribution, dividend or other payment to any Person (other than to the
Borrower or any Subsidiary of the
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<PAGE>
Borrower) on account of any warrants or other rights or options to acquire
shares of capital stock of the Borrower or any of its Restricted Subsidiaries
and payments on Indebtedness for Money Borrowed owed to TCGI by the Borrower.
The foregoing to the contrary notwithstanding, any payments to employees in
respect of any employee stock option plan or equity incentive plan shall not be
deemed to be a Restricted Payment or a Restricted Purchase.
"Restricted Purchase" shall mean any payment (including, without
-------------------
limitation, any sinking fund payment, prepayment or installment payment) on
account of the purchase, redemption or other acquisition or retirement of any
general or limited partnership interest in, or shares of capital stock or other
securities of the Borrower or any of the Restricted Subsidiaries, including,
without limitation, any warrants or other rights or options to acquire shares of
capital stock of the Borrower or any of the Restricted Subsidiaries or any
release or forgiveness of Indebtedness by the Borrower or its Restricted
Subsidiaries to any partner, shareholder or Affiliate of any such Person. The
foregoing to the contrary notwithstanding, any payments to employees in respect
of any employee stock option plan or equity incentive plan shall not be deemed
to be a Restricted Payment or a Restricted Purchase.
"Restricted Subsidiaries" shall mean, collectively, TC New York Holdings I,
-----------------------
Inc., TC New York Holdings II, Inc., TC Systems, Inc., Teleport Communications
New York and TCG Payphones, Inc., each of which is wholly-owned directly or
indirectly by the Borrower, and shall include, without limitation, any future
Subsidiaries of the foregoing, the Port Authority Maintenance Division and the
5ESS Facilities Services Division of the Borrower.
"Scheduled Principal Payments" shall mean, with respect to the Loans for
----------------------------
any period, the excess, if any, of (a) the sum of the highest aggregate
principal amount of the Loans outstanding during such period over (b) the lowest
amount of the Commitment during such period.
"Security Documents" shall mean the Assignment of Rights by Partner, the
------------------
Borrower's Pledge Agreement, the Subsidiary Guaranty, the Subsidiary Pledge
Agreements, the Assignment of Intercompany Indebtedness, any other agreement or
instrument providing collateral for the Obligations whether now or hereafter in
existence, and any filings, instruments, agreements, and documents related
thereto or to this Agreement, and providing the Administrative Agent, for the
benefit of the Banks, with Collateral for the Obligations.
"Security Interest" shall mean all Liens in favor of the Administrative
-----------------
Agent, for the benefit of the Banks, or in favor
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<PAGE>
of any Bank created hereunder or under any of the Security Documents to secure
the Obligations.
"Shareholders" shall mean collectively, Cox, TCI, Comcast and Continental,
------------
any Subsidiary of any of the foregoing Persons as to which such Person has
voting and economic control, and any of their respective successors or assigns
approved by the Banks.
"Sprint" shall mean, collectively, Sprint Corporation, a Kansas
------
corporation, and any Subsidiary of the foregoing as to which Sprint Corporation
has voting and economic control.
"Subsidiary" shall mean, as applied to any Person, any corporation of which
----------
more than fifty percent (50%) of the outstanding stock (other than directors'
qualifying shares) having ordinary voting power to elect a majority of its board
of directors, regardless of the existence at the time of a right of the holders
of any class or classes of securities of such corporation to exercise such
voting power by reason of the happening of any contingency, or any partnership
of which more than fifty percent (50%) of the outstanding partnership interests,
is at the time owned directly or indirectly by such Person, or by one or more
Subsidiaries of such Person, or by such Person and one or more Subsidiaries of
such Person.
"Subsidiary Guaranty" shall mean that certain Master Subsidiary Guaranty
-------------------
dated as of May 22, 1995 in favor of the Administrative Agent for the benefit of
the Banks, given by the Restricted Subsidiaries.
"Subsidiary Pledge Agreement" shall mean each Subsidiary Pledge Agreement
---------------------------
between any Restricted Subsidiary having one (1) or more of its own
Subsidiaries, on the one hand, and the Administrative Agent, on the other hand,
each substantially in the form of Exhibit F attached hereto.
---------
"TCGI" shall mean Teleport Communications Group Inc., a Delaware
----
corporation.
"TCI" shall mean Tele-Communications, Inc., a Delaware corporation.
---
"Total Cash Interest Expense" shall mean, as of any calculation date, for
---------------------------
the twelve (12) calendar months immediately preceding the calculation date,
without duplication, (a) the sum of (i) all interest paid with respect to the
Loans after giving effect to any Interest Hedge Agreements; (ii) the interest
portion of payments with respect to Capitalized Lease Obligations and
Indebtedness for Money Borrowed of the Borrower and the Restricted Subsidiaries;
and (iii) the net expense incurred (A) by the Borrower with respect to Interest
Hedge Agreements in
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<PAGE>
respect of the Loans and (B) by any Restricted Subsidiary with respect to
Interest Hedge Agreements, minus (b) the amount of cash interest received by the
-----
Borrower and the Restricted Subsidiaries in respect of Indebtedness for Money
Borrowed owed to such Persons by Affiliates of such Persons in an amount not to
exceed twenty-five percent (25%) of clause (a) of this definition.
"Total Debt" shall mean, as of any date, the sum (without duplication) of
----------
(a) the outstanding principal amount of the Loans, (b) the aggregate Capitalized
Lease Obligations and Indebtedness for Money Borrowed for the Borrower and all
Restricted Subsidiaries (other than Indebtedness permitted under Section 7.1(e)
hereof), and (c) the aggregate Guarantees for the Borrower and all Restricted
Subsidiaries.
"Trademarks" shall mean all registered trademarks and pending applications
----------
for trademarks of the Restricted Subsidiaries which are more fully described on
Schedule 2 hereto.
- ----------
"Unrestricted Subsidiaries" shall mean all Subsidiaries of TCGI other than
-------------------------
the Borrower and the Restricted Subsidiaries.
"Upstream Dividends" shall have the meaning set forth in Section 7.14
------------------
hereof.
Section 1.2 Interpretation. Each definition of an agreement in this
--------------
Article 1 shall, unless otherwise specified, include such agreement as modified,
amended, restated or supplemented from time to time in accordance herewith, and
except where the context otherwise requires, the singular shall include the
plural and vice versa. Except where otherwise specifically restricted,
reference to a party to this Agreement or any other Loan Document includes that
party and its successors and assigns. All capitalized terms used herein which
are defined in Article 9 of the Uniform Commercial Code in effect in the State
of New York on the date hereof and which are not otherwise defined herein shall
have the same meanings herein as set forth therein.
Section 1.3 Cross References. Unless otherwise specified, references in
----------------
this Agreement and in each other Loan Document to any Article or Section are
references to such Article or Section of this Agreement or such other Loan
Document, as the case may be, and, unless otherwise specified, references in any
Article, Section or definition to any clause are references to such clause in
such Article, Section or definition.
-21-
<PAGE>
ARTICLE 2
Loans
-----
Section 2.1 The Loans. The Banks agree, severally, in accordance
---------
with their respective Commitment Ratios and not jointly, upon the terms and
subject to the conditions of this Agreement, to lend and re-lend to the
Borrower, prior to the Maturity Date, an amount not at any one time outstanding
to exceed, in the aggregate, the Commitment. Subject to the terms and
conditions hereof, Advances under the Commitment may be repaid and reborrowed
from time to time on a revolving basis.
Section 2.2 Manner of Borrowing and Disbursement.
------------------------------------
(a) Choice of Interest Rate, Etc. Any Advance shall, at the option of
----------------------------
the Borrower, be made as a Base Rate Advance or a LIBOR Advance; provided,
--------
however, that at such time as there shall have occurred and be continuing a
- -------
Default hereunder, the Borrower shall not have the right to receive a LIBOR
Advance, convert an Advance to a LIBOR Advance or continue an existing LIBOR
Advance at the end of its Interest Period. Any notice given to the
Administrative Agent in connection with a requested Advance hereunder shall be
given to the Administrative Agent prior to 11:00 a.m. (New York time) in order
for such Business Day to count toward the minimum number of Business Days
required.
(b) Base Rate Advances.
------------------
(i) Advances. The Borrower shall give the Administrative Agent
--------
in the case of Base Rate Advances at least one (1) Business Day's
irrevocable prior written notice in the form of a Request for Advance,
telephonic or telecopied notice followed immediately by a Request for
Advance; provided, however, that the Borrower's failure to confirm any
-------- -------
telephonic or telecopied notice with a Request for Advance shall not
invalidate any notice so given if acted upon by the Administrative Agent.
Upon receipt of such notice from the Borrower, the Administrative Agent
shall promptly notify each Bank by telephone or telecopy of the contents
thereof.
(ii) Repayments and Conversions. The Borrower may (A) repay or
--------------------------
prepay a Base Rate Advance at any time upon at least one (1) Business Day's
irrevocable prior written notice, or (B) upon at least three (3) Business
Days' irrevocable prior written notice, convert all or a portion of the
principal thereof as one or more LIBOR Advances. On the date indicated by
the Borrower, such Base Rate Advance shall be so repaid or, as applicable,
converted.
-22-
<PAGE>
(c) LIBOR Advances.
--------------
(i) Advances. The Borrower shall give the Administrative Agent
--------
in the case of LIBOR Advances at least three (3) Business Days' irrevocable
written notice in the form of a Request for Advance, or notice by telephone
or telecopy followed immediately by a Request for Advance; provided,
--------
however, that the failure of the Borrower to confirm any notice by
-------
telephone or telecopy with a Request for Advance shall not invalidate any
notice so given if acted upon by the Administrative Agent. The
Administrative Agent, whose determination shall be conclusive absent
manifest error, shall determine the available LIBOR Bases and shall notify
the Borrower of such LIBOR Bases. The Borrower shall promptly notify the
Administrative Agent by telecopy or by telephone, and shall immediately
confirm any such telephonic notice in writing, of its selection of a LIBOR
Basis and Interest Period for such Advance. Upon receipt of such notice
from the Borrower, the Administrative Agent shall promptly notify each Bank
by telephone or telecopy of the contents thereof.
(ii) Repayments and Conversions. At least three (3) Business
--------------------------
Days prior to each Payment Date for a LIBOR Advance, subject to Sections
2.2(a) and 2.3(f) hereof, the Borrower shall give the Administrative Agent
written notice specifying whether all or a portion of any LIBOR Advance
outstanding on the Payment Date (a) is to be continued in whole or in part
as a LIBOR Advance, or (b) is to be converted in whole or in part as one or
more Base Rate Advances, or (c) subject to Section 2.7 hereof, is to be
repaid and not continued or converted. Upon such Payment Date such LIBOR
Advance will, subject to the provisions hereof, be so continued or
converted or repaid. If the Borrower fails to give any such notice, such
LIBOR Advance will be converted to a Base Rate Advance.
(d) Notification of Banks. Upon receipt of a Request for Advance, or
---------------------
a notice from the Borrower with respect to any outstanding LIBOR Advance prior
to the Payment Date for such Advance, the Administrative Agent shall promptly
but no later than the close of business on the day of the Administrative Agent's
receipt of such notice notify each Bank (or, in the case of an Incremental
Facility Advance, each Bank having an Incremental Facility Commitment) by
telephone or telecopy of the contents thereof and the amount of such Bank's
portion of the Advance. Each Bank (or, in the case of an Incremental Facility
Advance, each Bank having an Incremental Facility Commitment) shall, not later
than 12:00 noon (New York time) on the date of borrowing specified in such
notice, make available to the Administrative Agent at the Administrative Agent's
Office, or at
-23-
<PAGE>
such account as the Administrative Agent shall designate, the amount of its
portion of any Advance which represents an additional borrowing hereunder in
immediately available funds.
(e) Disbursement.
------------
(i) Prior to 2:00 p.m. (New York time) on the date of an Advance
hereunder, the Administrative Agent shall, subject to the satisfaction of
the conditions set forth in Article 3 hereof, disburse the amounts made
available to the Administrative Agent by the Banks by (a) transferring the
amounts so made available by wire transfer pursuant to the Borrower's
instructions, or (b) in the absence of such instructions, crediting the
amounts so made available to the account of the Borrower maintained with
the Administrative Agent.
(ii) Unless the Administrative Agent shall have received notice
from a Bank prior to 12:00 noon (New York time) on the date of any Advance
that such Bank will not make available to the Administrative Agent such
Bank's ratable portion of such Advance, the Administrative Agent may assume
that such Bank has made or will make such portion available to the
Administrative Agent on the date of such Advance and the Administrative
Agent may in its sole discretion and in reliance upon such assumption, make
available to the Borrower on such date a corresponding amount. If and to
the extent the Bank does not make such ratable portion available to the
Administrative Agent, such Bank agrees to repay to the Administrative Agent
on demand such corresponding amount together with interest thereon, for
each day from the date such amount is made available to the Borrower until
the date such amount is repaid to the Administrative Agent, at the Federal
Funds Rate.
(iii) If such Bank shall repay to the Administrative Agent such
corresponding amount, such amount so repaid shall constitute such Bank's
portion of the applicable Advance for purposes of this Agreement. If such
Bank does not repay such corresponding amount immediately upon the
Administrative Agent's demand therefor, the Administrative Agent shall
notify the Borrower and the Borrower shall immediately pay such
corresponding amount to the Administrative Agent, with interest at the
Federal Funds Rate. The failure of any Bank to fund its portion of any
Advance shall not relieve any other Bank of its obligation, if any,
hereunder to fund its respective portion of the Advance on the date of such
borrowing, but no Bank shall be responsible for any such failure of any
other Bank.
-24-
<PAGE>
(iv) In the event that, at any time when the Borrower is not in
Default and has otherwise satisfied each of the conditions in Section 3.2
hereof, a Bank for any reason fails or refuses to fund its portion of an
Advance and such failure shall continue for a period in excess of thirty
(30) days, then, until such time as such Bank has funded its portion of
such Advance (which late funding shall not absolve such Bank from any
liability it may have to the Borrower), or all other Banks have received
payment in full from the Borrower (whether by repayment or prepayment) or
otherwise of an amount equal to the principal and interest due in respect
of such Advance, such non-funding Bank shall not have the right (A) to vote
regarding any issue on which voting is required or advisable under this
Agreement or any other Loan Document, and such Bank's portion of the Loans
shall not be counted as outstanding for purposes of determining "Majority
Banks" hereunder, and (B) to receive payments of principal, interest or
fees from the Borrower, the Administrative Agent or the other Banks in
respect of its portion of the Loans.
Section 2.3 Interest.
--------
(a) On Base Rate Advances. Interest on each Base Rate Advance shall
---------------------
be computed on the basis of a year of 365/366 days for the actual number of days
elapsed and shall be payable at the Base Rate Basis for such Advance, in arrears
on the applicable Payment Date. Interest on Base Rate Advances then outstanding
shall also be due and payable on the Maturity Date.
(b) On LIBOR Advances. Interest on each LIBOR Advance shall be
-----------------
computed on the basis of a 360-day year for the actual number of days elapsed
and shall be payable at the LIBOR Basis for such Advance, in arrears on the
applicable Payment Date, and, in addition, if the Interest Period for a LIBOR
Advance exceeds three (3) months, interest on such LIBOR Advance shall also be
due and payable in arrears on every three-month anniversary of the beginning of
such Interest Period. Interest on LIBOR Advances then outstanding shall also be
due and payable on the Maturity Date.
(c) Interest if no Notice of Selection of Interest Rate Basis. If the
---------------------------------------------- ----------
Borrower fails to give the Administrative Agent timely notice of its selection
of a LIBOR Basis, or if for any reason (other than the failure of the
Administrative Agent to take any action required of it hereunder) a
determination of a LIBOR Basis for any Advance is not timely concluded, the Base
Rate Basis shall apply to such Advance.
(d) Interest Upon Default. Immediately upon the occurrence of an
---------------------
Event of Default described in Section 8.1(b)
-25-
<PAGE>
hereof, the outstanding principal balance of the Loans shall bear interest at
the Default Rate. Such interest shall be payable on demand by the Majority
Banks and shall accrue until the earlier of (i) waiver or cure of the applicable
Event of Default, (ii) agreement by the Majority Banks to rescind the charging
of interest at the Default Rate, or (iii) payment in full of the Obligations.
(e) LIBOR Rate Contracts. At no time may the number of outstanding
--------------------
LIBOR Advances exceed eight (8).
(f) Applicable Margin. With respect to any Advance, the Applicable
-----------------
Margin shall be as set forth in a certificate of the chief financial officer of
the Borrower delivered to the Administrative Agent based upon the Leverage Ratio
for the most recent fiscal quarter end, effective as of the fifth (5th) Business
Day after the financial statements referred to in Section 6.1, or Section 6.2
hereof, as the case may be, are required to be furnished by the Borrower to the
Administrative Agent and each Bank for the fiscal quarter most recently ended,
expressed as a per annum rate of interest as follows:
<TABLE>
<CAPTION>
Leverage Ratio Base Rate Advance LIBOR Advance
- ------------------------ Applicable Margin Applicable Margin
------------------ ------------------
<S> <C> <C>
6.50:1 or greater 0.750% 1.750%
6.00:1 or greater, but 0.500% 1.500%
less than 6.50:1
5.50:1 or greater, but 0.250% 1.250%
less than 6.00:1
5.00:1 or greater, but 0.000% 1.000%
less than 5.50:1
4.50:1 or greater, but 0.000% 0.875%
less than 5.00:1
Less than 4.50:1 0.000% 0.750%
</TABLE>
The Borrower may, at its option, provide financial statements for any quarter
ending December 31 (which financial statements shall be prepared in accordance
with the standards governing financial statements required to be delivered
pursuant to Section 6.1 hereof) for purposes of determining the Applicable
Margin, which financial statements may be used for purposes of this Section in
lieu of financial statements required by Section 6.2 hereof. In the event that
the Borrower fails to timely provide the financial statements referred to above
in accordance with the terms of Section 6.1 or 6.2 hereof, as applicable, and
without prejudice to any additional rights under Section 8.2 hereof, any
increase
-26-
<PAGE>
in the Applicable Margin due to any increase in the Leverage Ratio as reflected
in such financial statements shall be effective retroactively as of the fifth
(5th) Business Day after the date on which such financial statements were due,
but any decrease in the Applicable Margin due to any decrease in the Leverage
Ratio shall be effective as of the fifth (5th) Business Day after such financial
statements are delivered.
(g) Interest Calculation. In calculating interest hereunder,
--------------------
interest shall be calculated to, but not including, the date of payment.
Section 2.4 Fees. In addition, the Borrower agrees to pay the
----
Administrative Agent on behalf of each of the Banks, in accordance with their
respective Commitment Ratios, a commitment fee on the aggregate unborrowed
balance of the Commitment, for each day from the Agreement Date until the
Maturity Date, at a rate of three-eighths of one percent (3/8%) per annum. Such
commitment fee shall be computed on the basis of a year of 365/366 days for the
actual number of days elapsed, shall be payable quarterly in arrears on the last
day of each calendar quarter, and shall be fully earned when due, and shall be
non-refundable when paid. A final payment of any commitment fee then payable
shall also be due and payable on the Maturity Date.
Section 2.5 Mandatory Commitment Reductions.
-------------------------------
(a) Scheduled Reductions. Commencing March 31, 2000, and at the end
--------------------
of each calendar quarter thereafter, the Commitment (based upon the Commitment
as of January 1, 2000) shall be automatically and permanently reduced as set
forth below (which reductions are in addition to those set forth in Section
2.5(b) and Section 2.6 hereof):
-27-
<PAGE>
Quarterly Percentage
of Reduction of
Commitment
Dates of Commitment Reduction as of January 1, 2000
----------------------------- ----------------------
March 31, 2000, June 30, 2000,
September 30, 2000 and December 31, 2000 0.78125%
March 31, 2001, June 30, 2001,
September 30, 2001 and December 31, 2001 2.18750%
March 31, 2002, June 30, 2002,
September 30, 2002 and December 31, 2002 3.43750%
March 31, 2003, June 30, 2003,
September 30, 2003 and December 31, 2003 4.37500%
March 31, 2004, June 30, 2004,
September 30, 2004 and December 31, 2004 5.62500%
March 31, 2005, June 30, 2005,
September 30, 2005 and December 31, 2005 6.25000%
March 31, 2006 9.37500%
(b) Reduction From Asset Sales. Except with respect to Permitted
--------------------------
Asset Sales, on the Business Day of the receipt by the Borrower or any
Restricted Subsidiary of any Net Proceeds with respect to any sale of any equity
ownership in or assets of any Restricted Subsidiary, the Commitment shall be
automatically and permanently reduced by an amount equal to the Net Proceeds of
such sale. Reductions of the Commitment under this Section shall be done pro
rata to the Loans under the Commitment and the Loans under the Incremental
Facility Commitment and, to the extent applicable, shall be credited against the
reductions set forth in Section 2.5(a) hereof in inverse chronological order.
Section 2.6 Voluntary Commitment Reductions. The Borrower shall have
-------------------------------
the right, at any time and from time to time after the Agreement Date and prior
to the Maturity Date, upon at least three (3) Business Days' prior written
notice to the Administrative Agent to cancel or reduce permanently all or a
portion of the Commitment (or the Incremental Facility Commitment), on a pro
rata basis among the Banks, provided, however, that any such partial reduction
-------- -------
shall be made in an amount not less than $5,000,000 and in integral multiples of
not less than $1,000,000. As of the date of cancellation or reduction set forth
in such notice, the Commitment (or the Incremental Facility Commitment) shall be
permanently reduced to the amount stated in the Borrower's notice for all
purposes herein. Reductions in the Commitment pursuant to this Section
-28-
<PAGE>
shall be credited against the then remaining reductions set forth in Section
2.5(a) in inverse chronological order.
Section 2.7 Payments and Repayments.
------------------------
(a) Repayment Prior to Payment Date. The principal amount of any Base
-------------------------------
Rate Advance may be repaid in full or ratably among the Banks in part at any
time, without penalty. LIBOR Advances may be prepaid in full, or ratably among
the Banks in part prior to the applicable Payment Date, upon two (2) Business
Days' prior written notice to the Administrative Agent, provided that the
Borrower shall reimburse the Banks, on demand by the applicable Bank or the
Administrative Agent, for any loss or out-of-pocket expense incurred by any Bank
in connection with such prepayment, as set forth in Section 2.10 hereof. Any
prepayment hereunder shall be in amounts of not less than $500,000 and in
integral multiples of $250,000 or, if less, the remaining outstanding balance of
any Base Rate Advance or LIBOR Advance.
(b) Loans in Excess of Commitment and/or Incremental Facility
---------------------------------------------------------
Commitment. If, at any time, the amount of the Loans then outstanding under the
- ----------
Commitment shall exceed the Commitment, the Borrower shall, on such date and
subject to Sections 2.10 and 2.11 hereof, make a repayment of the principal
amount of the Loans in an amount equal to such excess, together with any accrued
interest and fees with respect thereto. If, at any time, the amount of the
Loans then outstanding under the Incremental Facility Commitment shall exceed
the Incremental Facility Commitment, the Borrower shall, on such date and
subject to Sections 2.10 and 2.11 hereof, make a repayment of the principal
amount of the Loans in an amount equal to such excess, together with any accrued
interest and fees with respect thereto.
(c) Repayment Upon Sales of Assets. Except with respect to Permitted
------------------------------
Asset Sales, the Borrower shall, on the Business Day of the receipt by the
Borrower or any Restricted Subsidiary of any Net Proceeds with respect to any
sale of any equity ownership in or assets of any Restricted Subsidiary, make a
repayment of principal of the Loans then outstanding in an amount equal to the
Net Proceeds of such sale (which amount shall be applied pro rata to the Loans
under the Commitment and to the Loans under the Incremental Facility
Commitment).
(d) Maturity Date. In addition to the foregoing, a final payment of
-------------
all Obligations then outstanding shall be due and payable on the Maturity Date.
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<PAGE>
Section 2.8 Notes; Loan Accounts.
--------------------
(a) The Loans shall be repayable in accordance with the terms and
provisions set forth herein and shall be evidenced by the Notes (and, if
applicable, the Incremental Facility Notes). One Note shall be payable to the
order of each Bank, in accordance with such Bank's respective Commitment Ratio.
The Notes shall be issued by the Borrower to the Banks and shall be duly
executed and delivered by one or more Authorized Signatories.
(b) Each Bank may open and maintain on its books in the name of the
Borrower a loan account with respect to its portion of the Loans and interest
thereon. Each Bank which opens such a loan account shall debit such loan
account for the principal amount of its portion of each Advance made by it and
accrued interest thereon, and shall credit such loan account for each payment on
account of principal of or interest on its Loans. The records of a Bank with
respect to the loan account maintained by it shall be prima facie evidence of
----- -----
its portion of the Loans and accrued interest thereon absent manifest error, but
the failure of any Bank to make any such notations or any error or mistake in
such notations shall not affect the Borrower's repayment obligations with
respect to such Loans.
Section 2.9 Manner of Payment.
-----------------
(a) Each payment (including any prepayment) by the Borrower on account
of the principal of or interest on the Loans, commitment fees and any other
amount owed to the Banks or the Administrative Agent or any of them under this
Agreement or the Notes shall be made not later than 1:00 p.m. (New York time) on
the date specified for payment under this Agreement to the Administrative Agent
at the Administrative Agent's Office, for the account of the Banks or the
Administrative Agent, as the case may be, in lawful money of the United States
of America in immediately available funds. Any payment received by the
Administrative Agent after 1:00 p.m. (New York time) shall be deemed, solely for
the purpose of the calculation of interest, received on the next Business Day.
Receipt by the Administrative Agent of any payment intended for any Bank or
Banks hereunder prior to 1:00 p.m. (New York time) on any Business Day shall be
deemed to constitute receipt by such Bank or Banks on such Business Day. In the
case of a payment for the account of a Bank, the Administrative Agent will
promptly, but no later than the close of business on the date such payment is
deemed received, thereafter distribute the amount so received in like funds to
such Bank. If the Administrative Agent shall not have received any payment from
the Borrower as and when due, the Administrative Agent will promptly notify the
Banks accordingly. In the event that the Administrative Agent shall fail to
make
-30-
<PAGE>
distribution to any Bank as required under this Section 2.9, the Administrative
Agent agrees to pay such Bank interest from the date such payment was due until
paid at the Federal Funds Rate.
(b) The Borrower agrees to pay principal, interest, fees and all other
amounts due hereunder, under the Notes or under any other Loan Document without
set-off or counterclaim or any deduction whatsoever and free and clear of all
taxes, levies and withholding other than taxes on the revenues or net income of
any Bank and except as provided in Section 2.13. If the Borrower is required by
Applicable Law to deduct any taxes from or in respect of any sum payable to the
Administrative Agent or any Bank hereunder, under any Note or under any other
Loan Document: (i) the sum payable hereunder or thereunder, as applicable,
shall be increased to the extent necessary to provide that, after making all
required deductions (including deductions applicable to additional sums payable
under this Section 2.9(b)), the Administrative Agent or such Bank, as
applicable, receives an amount equal to the sum it would have received had no
such deductions been made; (ii) the Borrower shall make such deductions from
such sums payable hereunder or thereunder, as applicable, and pay the amount so
deducted to the relevant taxing authority as required by Applicable Law; and
(iii) the Borrower shall provide the Administrative Agent or such Bank, as
applicable, with evidence satisfactory to the Administrative Agent or such Bank,
as applicable, that such deducted amounts have been paid to the relevant taxing
authority.
(c) Prior to the acceleration of the Loans under Section 8.2 hereof,
if some but less than all amounts due from the Borrower are received by the
Administrative Agent or any of the Banks with respect to the Obligations, such
amounts shall be paid to the Administrative Agent, and the Administrative Agent
shall distribute such amounts in the following order of priority, all on a pro
rata basis to the Banks: (i) to the payment on a pro rata basis of any fees or
expenses then due and payable to the Administrative Agent, the Banks, or any of
them; (ii) to the payment of interest then due and payable on the Loans (except
as provided in Section 2.2(e) hereof); (iii) to the payment of all other amounts
not otherwise referred to in this Section 2.9(c) then due and payable to the
Administrative Agent or the Banks, or any of them, hereunder or under the Notes
or any other Loan Document; and (iv) to the payment of principal then due and
payable on the Loans (and, for purposes of this clause (iv), Obligations under
Interest Hedge Agreements, to the extent the Administrative Agent has received
notice that such Obligations are then due and payable, shall be paid on a pro
rata basis with the Loans).
(d) Subject to any contrary provisions in the definition of Interest
Period, if any payment under this
-31-
<PAGE>
Agreement or any of the other Loan Documents is specified to be made on a day
which is not a Business Day, it shall be made on the next Business Day, and such
extension of time shall in such case be included in computing interest and fees,
if any, in connection with such payment.
Section 2.10 Reimbursement.
-------------
(a) Whenever any Bank shall sustain or incur any losses or out-of-
pocket expenses in connection with (i) failure by the Borrower to borrow any
LIBOR Advance, convert an outstanding Base Rate Advance to a LIBOR Advance or to
continue any outstanding LIBOR Advance after having given notice of its
intention to borrow, continue or convert in accordance with Section 2.2 hereof
(whether by reason of the Borrower's election not to proceed or the non-
fulfillment of any of the conditions set forth in Article 3), or (ii) prepayment
on other than a Payment Date (or failure to prepay after giving notice thereof)
of any LIBOR Advance in whole or in part for any reason, the Borrower agrees to
pay to such Bank, upon such Bank's demand, an amount sufficient to compensate
such Bank for all such losses and out-of-pocket expenses. Any Bank claiming
compensation under this Section 2.10 shall notify the Borrower of any event
occurring after the Agreement Date entitling such Bank to such compensation as
promptly as practicable, but in any event within forty-five (45) days, after
such Bank obtains actual knowledge thereof; provided that if such Bank fails to
--------
give such notice within forty-five (45) days after it obtains actual knowledge
of such an event, such Bank shall, with respect to such compensation in respect
of any costs resulting from such event, only be entitled to payment under this
Section 2.10 for costs incurred from and after the date forty-five (45) days
prior to the date that such Bank does give such notice. Such Bank's good faith
determination of the amount of such losses or out-of-pocket expenses, as set
forth in writing and accompanied by calculations in reasonable detail
demonstrating the basis for its demand, shall be presumptively correct absent
manifest error.
(b) Losses subject to reimbursement hereunder shall include, without
limiting the generality of the foregoing, but without duplication, expenses
incurred by any Bank or any participant of such Bank permitted hereunder in
connection with the re-employment of funds prepaid, paid, repaid, not borrowed,
not converted or not paid, as the case may be, and will be payable whether the
Maturity Date is changed by virtue of an amendment hereto (unless such amendment
expressly waives such payment) or as a result of acceleration of the Obligations
and whether such Bank has a "matched funding" of such Advance.
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<PAGE>
Section 2.11 Pro Rata Treatment.
------------------
(a) Advances. Each Advance from the Banks hereunder, shall be made
--------
pro rata on the basis of the respective Commitment Ratios (or, if applicable,
the Incremental Facility Commitment Ratios) of the Banks.
(b) Payments. Each payment and prepayment of principal of the Loans,
--------
and, except as provided in Section 2.2(e) and Article 10 hereof, each payment of
interest on the Loans, shall be made to the Banks pro rata on the basis of their
respective unpaid principal amounts outstanding under the Notes (and, if
applicable, the Incremental Facility Notes) immediately prior to such payment or
prepayment. If any Bank shall obtain any payment (whether involuntary, through
the exercise of any right of set-off, or otherwise) on account of the Loans in
excess of its ratable share of the Loans under its Commitment Ratio, such Bank
shall forthwith purchase from the other Banks such participations in the portion
of the Loans made by them as shall be necessary to cause such purchasing Bank to
share the excess payment ratably with each of them; provided, however, that if
-------- -------
all or any portion of such excess payment is thereafter recovered from such
purchasing Bank, such purchase from each Bank shall be rescinded and such Bank
shall repay to the purchasing Bank the purchase price to the extent of such
recovery. The Borrower agrees that any Bank so purchasing a participation from
another Bank pursuant to this Section 2.11(b) may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Bank were the
direct creditor of the Borrower in the amount of such participation.
Section 2.12 Capital Adequacy. If after the date hereof, the
----------------
adoption of any Applicable Law regarding the capital adequacy of banks or bank
holding companies, or any change in Applicable Law (whether adopted before or
after the Agreement Date) or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by such Bank
with any directive regarding capital adequacy (whether or not having the force
of law) of any such governmental authority, central bank or comparable agency,
has or would have the effect of reducing the rate of return on any Bank's
capital as a consequence of its obligations hereunder with respect to the Loans
and the Commitment to a level below that which it could have achieved but for
such adoption, change or compliance (taking into consideration such Bank's
policies with respect to capital adequacy immediately before such adoption,
change or compliance and assuming that such Bank's capital was fully utilized
prior to such adoption, change or compliance) by an amount reasonably deemed by
such Bank to be material, then, upon demand by such
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<PAGE>
Bank, the Borrower shall promptly pay to such Bank such additional amounts as
shall be sufficient to compensate such Bank for such reduced return, together
with interest on such amount from the fifteenth (15th) day after the date of
demand or the Maturity Date, as applicable, until payment in full thereof at the
Default Rate. Any Bank claiming compensation under this Section 2.12 shall
notify the Borrower of any event occurring after the date of this Agreement
entitling such Bank to such compensation as promptly as practicable, but in any
event within forty-five (45) days, after such Bank obtains actual knowledge
thereof; provided that if such Bank fails to give such notice within forty-five
--------
(45) days after it obtains actual knowledge of such an event, such Bank shall,
with respect to such compensation in respect of any costs resulting from such
event, only be entitled to payment under this Section 2.12 for costs incurred
from and after the date forty-five (45) days prior to the date that such Bank
does give such notice. A certificate of such Bank setting forth the amount to
be paid to such Bank by the Borrower as a result of any event referred to in
this paragraph and supporting calculations in reasonable detail shall be
presumptively correct absent manifest error.
Section 2.13 Bank Tax Forms. On or prior to the Agreement Date and,
--------------
so long as a change in law does not prevent it from doing so, on or prior to the
first Business Day of each calendar year thereafter, each Bank which is
organized in a jurisdiction other than the United States shall provide each of
the Administrative Agent and the Borrower with a properly executed original of
Forms 4224 or 1001 (or any successor form) prescribed by the Internal Revenue
Service or other documents satisfactory to the Borrower and the Administrative
Agent, and properly executed Internal Revenue Service Forms W-8 or W-9, as the
case may be, certifying (i) as to such Bank's status for purposes of determining
exemption from United States withholding taxes with respect to all payments to
be made to such Bank hereunder and under the Notes or (ii) that all payments to
be made to such Bank hereunder and under the Notes are subject to such taxes at
a rate reduced to zero by an applicable tax treaty. Each such Bank agrees to
provide the Administrative Agent and the Borrower with new forms prescribed by
the Internal Revenue Service upon the expiration or obsolescence of any
previously delivered form, or after the occurrence of any event requiring a
change in the most recent forms delivered by it to the Administrative Agent and
the Borrower, unless a change in law prevents it from delivering such form or
making such certification.
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<PAGE>
Section 2.14 Incremental Facility Advances.
-----------------------------
(a) Subject to the terms and conditions of this Agreement, the
Borrower may request on or prior to December 31, 1998, the Incremental Facility
Commitment on any Business Day; provided, however, that the Borrower may not
-------- -------
request the Incremental Facility Commitment or an Incremental Facility Advance
after the occurrence or during the existence of an Event of Default and
provided, further, that the Borrower may request only one Incremental Facility
- -------- -------
Commitment (although such commitment may be from more than one Bank). The
aggregate amount of the Incremental Facility Commitment shall be (i) in a
minimum amount of $10,000,000 and (ii) in an integral multiple of $1,000,000.
The aggregate amount of the Incremental Facility Commitment and outstanding
Incremental Facility Advances shall not exceed $100,000,000. The maturity date
for the Incremental Facility Advances shall be no earlier than the Maturity
Date. The decision of any Bank to make an Incremental Facility Commitment to
the Borrower shall be at such Bank's sole discretion. The Incremental Facility
Commitment shall be (x) on a revolving credit basis, (y) have scheduled
commitment reductions in the aggregate from the effective date thereof no
greater than the scheduled reductions for the Commitment in the aggregate from
the Agreement Date and (z) governed by this Agreement on terms and conditions no
more restrictive than those set forth for the Commitment and Loans in this
Agreement and the other Loan Documents (including, but not limited to, sharing
on a pari passu basis the guaranties and Security Interests granted under the
---- -----
Loan Documents but excluding the Commitment reductions set forth in Section
2.5(a) hereof).
(b) Prior to the effectiveness of the Incremental Facility Commitment,
the Borrower shall (i) deliver to the Administrative Agent and the Banks a
Notice of Incremental Facility Commitment and (ii) provide revised projections
to the Documentation Agent, the Administrative Agent and the Banks which shall
be in form and substance reasonably satisfactory to the Administrative Agent and
the Documentation Agent and shall demonstrate the Borrower's ability to timely
repay such Incremental Facility Commitment and any Incremental Facility Advances
thereunder and to comply with the covenants contained in Sections 7.8, 7.9 and
7.10 of this Agreement.
(c) No Incremental Facility Commitment shall by itself result in any
reduction of the Commitment or of the Commitment Ratio of the Bank making such
Incremental Facility Commitment.
(d) Incremental Facility Advances (i) shall bear interest at the Base
Rate Basis or the LIBOR Basis; (ii) subject to Section 2.14(a) hereof, shall be
repaid as agreed to by the Borrower and the Bank making such Incremental
Facility Advances;
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<PAGE>
(iii) shall for all purposes be Loans and Obligations hereunder and under the
Loan Documents; (iv) shall be represented by an Incremental Facility Note in
substantially the form of Exhibit G attached hereto; and (v) shall rank pari
--------- ----
passu with the other Loans for purposes of Sections 2.9(c) and 8.2 hereof.
- -----
Incremental Facility Advances may not be made until the Commitment is fully
drawn.
(e) Incremental Facility Advances shall be requested by the Borrower
pursuant to a request (which shall be in substantially the form of a Request for
Advance) delivered in the same manner as a Request for Advance, but shall be
funded pro rata only by those Banks holding the Incremental Facility Commitment.
ARTICLE 3
Conditions Precedent
--------------------
Section 3.1 Conditions Precedent to Effectiveness of Agreement. The
--------------------------------------------------
obligation of the Banks to undertake the Commitment and the effectiveness of
this Agreement are subject to the prior or contemporaneous fulfillment of each
of the following conditions:
(a) The Administrative Agent shall have received each of the
following on behalf of the Banks:
(i) duly executed Notes;
(ii) duly executed Acknowledgement of Guarantors by each
Restricted Subsidiary in substantially the form of Exhibit H attached
---------
hereto;
(iii) copies of insurance binders or certificates covering the
assets of the Borrower and its Restricted Subsidiaries, and otherwise
meeting the requirements of Section 5.5 hereof;
(iv) legal opinions of (A) Roland, Fogel, Koblenz & Carr, New
York regulatory counsel to the Borrower; (B) Dow, Lohnes & Albertson,
special counsel to the Borrower; and (C) John Thomson, Esq., in-house
counsel to the Borrower, each as counsel to the Borrower and the Restricted
Subsidiaries, addressed to each Bank and the Administrative Agent, and
dated as of the Agreement Date substantially in the form of Exhibits I, J
---------- -
and K attached hereto;
-
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<PAGE>
(v) duly executed Certificate of Financial Condition for the
Borrower and the Restricted Subsidiaries on a consolidated and
consolidating basis, given by the chief financial officer of the Borrower
certifying the absence of a Default or Event of Default;
(vi) any required consents to the closing of this Agreement or to
the execution, delivery and performance of this Agreement and the other
Loan Documents, each of which shall be in form and substance satisfactory
to the Administrative Agent and the Banks;
(vii) the loan certificate of the Borrower dated as of the
Agreement Date, in substantially the form attached hereto as Exhibit L,
---------
including a certificate of incumbency with respect to each Authorized
Signatory of such Person, together with the following items: (A) a true,
complete and correct copy of the Certificate/Articles of Incorporation and
By-laws of the Borrower as in effect on the Agreement Date, (B)
certificates of good standing for the Borrower issued by the Secretary of
State or similar state official for the state of incorporation of the
Borrower and for the States of New York and New Jersey, and (C) a true,
complete and correct copy of the corporate resolutions of the Borrower
authorizing the Borrower to execute, deliver and perform this Agreement and
the other Loan Documents to which it is a party;
(viii) a loan certificate from each of the Restricted
Subsidiaries in substantially the form attached hereto as Exhibit M,
---------
including a certificate of incumbency with respect to each Authorized
Signatory of such Person, together with the following items: (A) a copy of
the Certificate of Incorporation of each such Subsidiary, certified to be
true, complete and correct by the Secretary of State from the jurisdiction
of incorporation of such Subsidiary, (B) certificates of good standing for
such Subsidiary, issued by the Secretary of State or similar state official
for each state in which such Subsidiary is incorporated or qualified to do
business, (C) a true, complete and correct copy of the By-Laws of such
Subsidiary, as in effect on the Agreement Date, and (D) a true, complete
and correct copy of the resolutions of such Subsidiary authorizing it to
execute, deliver and perform the Loan Documents to which it is a party;
(ix) receipt by the Administrative Agent on behalf of each Bank
and the Documentation Agent of all fees payable to such Persons on the
Agreement Date; and
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<PAGE>
(x) all such other documents as the Administrative Agent may
reasonably request, certified by an appropriate governmental official or an
Authorized Signatory if so requested.
(b) The Administrative Agent shall have received evidence satisfactory
to it that all material Necessary Authorizations, including all necessary
consents to the closing of this Agreement, have been obtained or made, are in
full force and effect and are not subject to any pending or, to the knowledge of
the Borrower, threatened reversal or cancellation, and the Administrative Agent
shall have received a certificate of an Authorized Signatory so stating.
(c) The Borrower shall certify to the Administrative Agent and the
Banks that each of the representations and warranties in Article 4 hereof are
true and correct in all material respects as of the Agreement Date and that no
Default or Event of Default then exists or is continuing.
Section 3.2 Conditions Precedent to Each Advance. The obligation of
------------------------------------
the Banks to make each Advance after the Agreement Date which, if funded, would
increase the principal amount of the Loans outstanding hereunder, is subject to
the fulfillment of each of the following conditions immediately prior to or
contemporaneously with such Advance:
(a) All of the representations and warranties of the Borrower under
this Agreement and the other Loan Documents (including, without limitation, all
representations and warranties with respect to the Restricted Subsidiaries),
which, pursuant to Section 4.2 hereof, are made at and as of the time of such
Advance, shall be true and correct at such time in all material respects, both
before and after giving effect to the application of the proceeds of such
Advance, and after giving effect to any updates to information provided to the
Banks in accordance with the terms of such representations and warranties, and
no Default or Event of Default shall then exist or be caused thereby;
(b) The Administrative Agent shall have received a duly executed
Request for Advance;
(c) With respect to any Advance relating to any Acquisition or the
formation of any Restricted Subsidiary which is permitted hereunder, the
Administrative Agent and the Banks shall have received such documents and
instruments relating to such Acquisition or formation of a new Restricted
Subsidiary as are described in Section 5.13 hereof or otherwise required herein;
and
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<PAGE>
(d) No Materially Adverse Effect shall have occurred.
ARTICLE 4
Representations and Warranties
------------------------------
Section 4.1 Representations and Warranties. The Borrower hereby
------------------------------
agrees, represents and warrants, upon the Agreement Date, and at all times
thereafter as required pursuant to the terms hereof, in favor of the
Administrative Agent and each Bank that:
(a) Organization; Ownership; Power; Qualification. The Borrower is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Borrower has the corporate power and authority to
own its properties and to carry on its business as now being and as proposed
hereafter to be conducted. Except as set forth on Schedule 3, each Restricted
----------
Subsidiary is a corporation or partnership duly organized, validly existing and
in good standing under the laws of the state of its incorporation or formation,
as the case may be, and has the corporate or partnership power, as the case may
be, and authority to own its properties and to carry on its business as now
being and as proposed hereafter to be conducted. The Borrower and each of the
Restricted Subsidiaries are duly qualified, in good standing and authorized to
do business in each jurisdiction in which the character of their respective
properties or the nature of their respective businesses requires such
qualification or authorization except where failure to so qualify and be
qualified could not reasonably be expected to have a Materially Adverse Effect.
(b) Authorization; Enforceability. The Borrower has the corporate
-----------------------------
power and has taken all necessary corporate action to authorize it to borrow
hereunder, to execute, deliver and perform this Agreement and each of the other
Loan Documents to which it is a party in accordance with their respective terms,
and to consummate the transactions contemplated hereby and thereby. This
Agreement has been duly executed and delivered by the Borrower and is, and each
of the other Loan Documents to which the Borrower is party is, a legal, valid
and binding obligation of the Borrower enforceable against the Borrower in
accordance with its respective terms, subject, as to enforcement of remedies, to
the following qualifications: (i) an order of specific performance and an
injunction are discretionary remedies and, in particular, may not be available
where damages are considered an adequate remedy at law, and (ii) enforcement may
be limited by bankruptcy, insolvency, liquidation, reorganization,
reconstruction and other similar laws affecting enforcement of creditors' rights
generally (insofar as any such law relates to the bankruptcy, insolvency or
similar event of the Borrower).
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<PAGE>
(c) Restricted Subsidiaries: Authorization; Enforceability. The
-------------------------------------------------------
Restricted Subsidiaries and the Borrower's direct and indirect ownership thereof
as of the Agreement Date are as set forth on Schedule 4 attached hereto, and to
----------
the extent such Restricted Subsidiaries are corporations, the Borrower has the
unrestricted right to vote the issued and outstanding shares of the Restricted
Subsidiaries shown thereon and such shares of such Restricted Subsidiaries have
been duly authorized and issued and are fully paid and nonassessable. Each
Restricted Subsidiary has the corporate or partnership power and has taken all
necessary corporate or partnership action to authorize it to execute, deliver
and perform each of the Loan Documents to which it is a party in accordance with
their respective terms and to consummate the transactions contemplated by this
Agreement and by such Loan Documents. Each of the Loan Documents to which any
Restricted Subsidiary is party is a legal, valid and binding obligation of such
Restricted Subsidiary enforceable against such Restricted Subsidiary in
accordance with its terms, subject, as to enforcement of remedies, to the
following qualifications: (i) an order of specific performance and an
injunction are discretionary remedies and, in particular, may not be available
where damages are considered an adequate remedy at law, and (ii) enforcement may
be limited by bankruptcy, insolvency, liquidation, reorganization,
reconstruction and other similar laws affecting enforcement of creditors' rights
generally (insofar as any such law relates to the bankruptcy, insolvency or
similar event of any such Restricted Subsidiary). The Borrower's ownership
interest in each of the Restricted Subsidiaries represents a direct or indirect
controlling interest of such Restricted Subsidiary for purposes of directing or
causing the direction of the management and policies of each Restricted
Subsidiary.
(d) Compliance with Other Loan Documents and Contemplated
-----------------------------------------------------
Transactions. The execution, delivery and performance, in accordance with their
respective terms, by the Borrower of this Agreement and the Notes, and by the
Borrower and the Restricted Subsidiaries of each of the other Loan Documents to
which they are respectively party, and the consummation of the transactions
contemplated hereby and thereby, do not and will not (i) require any consent or
approval, governmental or otherwise, not already obtained other than consents
and approvals that may be required from the issuers of Licenses in connection
with the exercise by the Administrative Agent or the Banks of certain of their
remedies under the Loan Documents, (ii) violate any Applicable Law respecting
the Borrower or any Restricted Subsidiary, (iii) conflict with, result in a
breach of, or constitute a default under the certificate or articles of
incorporation or by-laws or partnership agreements, as the case may be, as
amended, of the Borrower or of any Restricted Subsidiary, or under any material
indenture, agreement, or other
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<PAGE>
instrument, including without limitation the Material Licenses, to which the
Borrower or any of the Restricted Subsidiaries is a party or by which any of
them or their respective properties may be bound, or (iv) result in or require
the creation or imposition of any Lien upon or with respect to any property now
owned or hereafter acquired by the Borrower or any of the Restricted
Subsidiaries, except for Permitted Liens.
(e) Business. The Borrower, together with the Restricted
--------
Subsidiaries, is engaged in providing a variety of telecommunications services,
including operating a telecommunications infrastructure for an office park and
satellite earth station complex, operating a regional switched
telecommunications network, providing public pay telephone service, providing
private line services and serving as a competitive access provider and local
exchange carrier for local telephone service.
(f) Licenses, etc. The Material Licenses have been duly issued and
--------------
are in full force and effect. The Borrower and the Restricted Subsidiaries are
in compliance in all material respects with all of the provisions thereof. The
Borrower and the Restricted Subsidiaries have secured all material Necessary
Authorizations and all such Necessary Authorizations are in full force and
effect. Neither any Material License nor any material Necessary Authorization
is the subject of any pending or, to the best of the Borrower's knowledge,
threatened revocation. The Licenses of the Borrower and the Restricted
Subsidiaries as of the Agreement Date are set forth on Schedule 1 hereto.
----------
(g) Compliance with Law. The Borrower and the Restricted Subsidiaries
-------------------
are in substantial compliance with all material Applicable Law.
(h) Title to Assets. The Borrower has good and legal title to, or a
---------------
valid leasehold interest in, all of its assets. Each of the Restricted
Subsidiaries has good and legal title to, or a valid leasehold interest in, all
of its assets. None of such properties or assets is subject to any Liens,
except for Permitted Liens. Except for financing statements evidencing
Permitted Liens, no financing statement under the Uniform Commercial Code as in
effect in any jurisdiction and no other filing which names the Borrower or any
of the Restricted Subsidiaries as debtor or which covers or purports to cover
any of the assets of the Borrower or any of the Restricted Subsidiaries is
currently effective and on file in any state or other jurisdiction, and neither
the Borrower nor any of the Restricted Subsidiaries has signed any such
financing statement or filing or any security agreement authorizing any secured
party thereunder to file any such financing statement or filing.
-41-
<PAGE>
(i) Litigation. There is no action, suit, proceeding or investigation
----------
pending against, or, to the knowledge of the Borrower, threatened against the
Borrower or any of the Restricted Subsidiaries or any of their respective
properties, including without limitation the Material Licenses, in any court or
before any arbitrator of any kind or before or by any governmental body
(including without limitation the FCC), except as set forth on Schedule 5
----------
attached hereto, which (i) calls into question the validity of this Agreement or
any other Loan Document, or (ii) individually or collectively involves the
possibility of any judgment or liability not fully covered by insurance (subject
to applicable deductibles), as to which, in any such case, there is a reasonable
possibility of an adverse determination and which, if determined adversely to
the Borrower or any of the Restricted Subsidiaries, could reasonably be expected
to have a Materially Adverse Effect.
(j) Taxes. All federal, state and other tax returns of the Borrower
-----
and each of the Restricted Subsidiaries required by law to be filed have been
duly filed and all federal, state and other taxes, including, without
limitation, withholding taxes, assessments and other governmental charges or
levies required to be paid by the Borrower or any of the Restricted Subsidiaries
or imposed upon the Borrower or any of the Restricted Subsidiaries or any of
their respective properties, income, profits or assets, which are due and
payable, have been paid, except any such taxes (i) (x) the payment of which the
Borrower or any Restricted Subsidiary is diligently contesting in good faith by
appropriate proceedings, (y) for which adequate reserves to the extent required
by GAAP have been provided on the books of the Borrower or the Restricted
Subsidiary involved, and (z) as to which no Lien other than a Permitted Lien has
attached and no foreclosure, distraint, sale or similar proceedings have been
commenced, or (ii) which may result from audits not yet conducted. The charges,
accruals and reserves on the books of the Borrower and each Restricted
Subsidiary in respect of taxes are, in the judgment of the Borrower, adequate.
(k) Financial Statements. The Borrower has furnished or caused to be
--------------------
furnished to the Administrative Agent and the Banks the audited financial
statements for the Borrower and the Restricted Subsidiaries on a consolidated
basis for the fiscal year ended December 31, 1996, all of which have been
prepared in accordance with GAAP and present fairly in all material respects the
financial position of the Borrower and the Restricted Subsidiaries on a
consolidated and consolidating basis, as the case may be, on and as at such
dates and the results of operations for the periods then ended (subject, in the
case of unaudited financial statements, to normal year-end and audit adjustments
and the absence of footnotes). As of the Agreement Date, neither the Borrower
nor any of the Restricted Subsidiaries
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<PAGE>
has any material liabilities, contingent or otherwise, other than as disclosed
in the financial statements referred to in the preceding sentence or as set
forth or referred to in this Agreement, or as incurred in the ordinary course of
business since the date of such financial statements, and there are no material
unrealized losses of the Borrower or any of the Restricted Subsidiaries and no
material anticipated losses of the Borrower or any of the Restricted
Subsidiaries other than those which have been previously disclosed in writing to
the Administrative Agent and the Banks and identified as such.
(l) No Material Adverse Change. There has occurred no event since
--------------------------
December 31, 1996 which has or which could reasonably be expected to have a
Materially Adverse Effect.
(m) ERISA. The Borrower and each ERISA Affiliate and each of their
-----
respective Plans are in material compliance with ERISA and the Code and neither
the Borrower nor any of its ERISA Affiliates has incurred any accumulated
funding deficiency with respect to any such Plan within the meaning of ERISA or
the Code which has not been corrected. The Borrower and each ERISA Affiliate
have complied in all material respects with all requirements of COBRA. Neither
the Borrower nor any of its Restricted Subsidiaries has made any promises of
retirement or other benefits to employees, except as set forth in the Plans, in
written agreements with such employees, or in the Borrower's employee handbook
and memoranda to employees. Neither the Borrower nor any of its ERISA
Affiliates has incurred any material liability to PBGC in connection with any
such Plan. The assets of each such Plan which is subject to Title IV of ERISA
are sufficient to provide for the payment of all "benefit liabilities" (within
the meaning of Section 4041 of ERISA) due under the Plan upon termination except
to the extent that any such failure to maintain sufficient assets would not
result in any Materially Adverse Effect. No Reportable Event has occurred and
is continuing with respect to any such Plan. Neither the Borrower nor any ERISA
Affiliate has engaged in any "prohibited transaction" (as such term is defined
in Section 406 of ERISA or Section 4975 of the Code) which would subject the
Borrower or any such ERISA Affiliate to any material tax or penalty on
prohibited transactions imposed by ERISA Section 502 or Code Section 4975.
Neither the Borrower nor any ERISA Affiliate has withdrawn from or caused a
partial withdrawal to occur with respect to any Plan which is a Multiemployer
Plan and neither the Borrower nor any ERISA Affiliate knows, has reason to know
or has received notice that any such Plan is in reorganization (as defined in
Code Section 418 or Title IV of ERISA) (which reorganization or withdrawal could
reasonably be expected to have a Materially Adverse Effect). As of the date
hereof, neither the Borrower nor any ERISA Affiliate has any material obligation
or material liability to contribute to any Multiemployer Plan. No withdrawal
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<PAGE>
liability to any Multiemployer Plan has been or is expected to be incurred which
would result in a Materially Adverse Effect. Neither the Borrower nor any ERISA
Affiliate has engaged in any transaction which could subject it to any liability
under Section 4096 or Section 4212 of ERISA.
(n) Compliance with Regulations G, T, U and X. Neither the Borrower
-----------------------------------------
nor any of its Subsidiaries is engaged principally or as one of its important
activities in the business of extending credit for the purpose of purchasing or
carrying, and neither the Borrower nor any of its Subsidiaries owns or presently
intends to acquire, any "margin security" or "margin stock" as defined in
Regulations G, T, U, and X (12 C.F.R. Parts 207, 220, 221 and 224) of the Board
of Governors of the Federal Reserve System (herein called "margin stock"). None
------------
of the proceeds of the Loans will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin stock or for the purpose of
reducing or retiring any Indebtedness which was originally incurred to purchase
or carry margin stock or for any other purpose which might constitute this
transaction a "purpose credit" within the meaning of said Regulations G, T, U,
and X. The Borrower has not taken, caused or authorized to be taken, and will
not take any action which might cause this Agreement or the Notes to violate
Regulation G, T, U, or X or any other regulation of the Board of Governors of
the Federal Reserve System or to violate the Securities Exchange Act of 1934, in
each case as now in effect or as the same may hereafter be in effect. If so
requested by the Administrative Agent, the Borrower will furnish the
Administrative Agent with (i) a statement or statements in conformity with the
requirements of Federal Reserve Forms G-3 and/or U-1 referred to in Regulations
G and U of said Board of Governors and (ii) other documents evidencing its
compliance with the margin regulations, reasonably requested by the
Administrative Agent. Neither the making of the Loans nor the use of proceeds
thereof will violate, or be inconsistent with, the provisions of Regulation G,
T, U, or X of said Board of Governors.
(o) Investment Company Act. Neither the Borrower nor any of its
----------------------
Subsidiaries is required to register under the provisions of the Investment
Company Act of 1940, as amended, and neither the entering into or performance by
the Borrower and its Subsidiaries of this Agreement and the Loan Documents to
which they are respectively party nor the issuance of the Notes violates any
provision of such Act or requires any consent, approval or authorization of, or
registration with, the Securities and Exchange Commission or any other
governmental or public body or authority pursuant to any provisions of such Act.
(p) Governmental Regulation. Neither the Borrower nor any of the
-----------------------
Restricted Subsidiaries is required to obtain any
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<PAGE>
consent, approval, authorization, permit or license which has not already been
obtained from, or effect any filing or registration which has not already been
effected with, any federal, state or local regulatory authority in connection
with the performance, in accordance with their respective terms, of this
Agreement or any other Loan Document the failure of which to obtain could
reasonably be expected to have a Materially Adverse Effect.
(q) Absence of Default, Etc. The Borrower and the Restricted
------------------------
Subsidiaries are in compliance in all material respects with all of the
provisions of their respective partnership agreements, Certificates or Articles
of Incorporation and By-Laws, as the case may be, and no event has occurred or
failed to occur (including, without limitation, any matter which could create a
Default hereunder by cross-default) which has not been remedied or waived, the
occurrence or non-occurrence of which constitutes a Default. Neither the
Borrower nor any of the Restricted Subsidiaries is a party to or bound by any
contract or agreement continuing after the Agreement Date, or bound by any
Applicable Law, that could reasonably be expected to have a Materially Adverse
Effect or result in the loss of any Material License.
(r) Accuracy and Completeness of Information. All information,
----------------------------------------
reports, prospectuses and other papers and data relating to the Borrower or any
of its Subsidiaries and furnished by or on behalf of the Borrower or any of its
Subsidiaries to the Administrative Agent or the Banks were, at the time
furnished, true, complete and correct in all material respects to the extent
necessary to give the Administrative Agent and the Banks true and accurate
knowledge of the subject matter as of such date.
(s) Agreements with Affiliates. Except for agreements or arrangements
--------------------------
with Affiliates wherein the Borrower or one or more of the Restricted
Subsidiaries provides goods or services to or receives goods or services from
such Affiliates for fair consideration or which are set forth on Schedule 6
----------
attached hereto, neither the Borrower nor any of the Restricted Subsidiaries has
(i) any written agreements or binding arrangements of any kind with any
Affiliate or (ii) any management or consulting agreements of any kind with any
Affiliate.
(t) Payment of Wages. The Borrower and each of the Restricted
----------------
Subsidiaries are in compliance with the Fair Labor Standards Act, as amended, in
all material respects, and to the knowledge of the Borrower and each of the
Restricted Subsidiaries, such Persons have paid all minimum and overtime wages
required by law to be paid to their respective employees.
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<PAGE>
(u) Priority. The Security Interest is a valid and to the extent
--------
required by Applicable Law, upon the filing of appropriate financing statements,
perfected first priority security interest in the Collateral in favor of the
Administrative Agent, for the benefit of itself and the Banks, securing, in
accordance with the terms of the Security Documents, the Obligations, and the
Collateral is subject to no Liens other than Permitted Liens.
(v) Solvency. As of the Agreement Date, after giving effect to the
--------
transactions contemplated by the Loan Documents (i) the property of the
Borrower, at a fair valuation, will exceed its debt; (ii) the capital of the
Borrower will not be unreasonably small to conduct its business; (iii) the
Borrower will not have incurred debts, or have intended to incur debts, beyond
its ability to pay such debts as they mature; and (iv) the present fair salable
value of the assets of the Borrower will be greater than the amount that will be
required to pay its probable liabilities (including debts) as they become
absolute and matured. For purposes of this Section, "debt" means any liability
on a claim, and "claim" means (i) the right to payment, whether or not such
right is reduced to judgment, liquidated, unliquidated, fixed, contingent,
matured, unmatured, undisputed, legal, equitable, secured or unsecured, or (ii)
the right to an equitable remedy for breach of performance if such breach gives
rise to a right to payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured, unmatured, undisputed, secured
or unsecured.
(w) Patents, Trademarks, etc. The Borrower and each of the Restricted
-------------------------
Subsidiaries owns, possesses or has the right to use all material licenses and
rights to all material patents, Trademarks, trademark rights, trade names, trade
name rights, service marks, and copyrights, and rights with respect thereto,
necessary to conduct its business in all material respects as now conducted,
without known conflict with any patent, Trademark, trade name, service mark,
license or copyright of any other Person, and in each case, with respect to
patents, Trademarks, trademark rights, trade names, trade name and copyrights
and licenses with respect thereto owned by Borrower or the Restricted
Subsidiaries, subject to no mortgage, pledge, lien, lease, encumbrance, charge,
security interest, title retention agreement or option except for Permitted
Liens. All such licenses and rights with respect to patents, Trademarks,
trademark rights, trade names, trade name rights, service marks and copyrights
are in full force and effect, and to the extent applicable, the Borrower and the
Restricted Subsidiaries are in compliance in all material respects with all of
the provisions thereof. No such material patent, Trademark, trademark rights,
trade names, trade name rights, service marks, copyrights or licenses is subject
to
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<PAGE>
any pending or, to the best of the Borrower's knowledge, threatened attack or
revocation.
Section 4.2 Survival of Representations and Warranties, etc. All
------------------------------------------- ---
representations and warranties made under this Agreement and any other Loan
Document shall be deemed to be made, and shall be true and correct, at and as of
the Agreement Date and on the date of each Advance except to the extent
previously modified or waived in accordance with the terms hereof and to the
extent relating specifically to the Agreement Date or some other date. All
representations and warranties made under this Agreement and the other Loan
Documents shall survive, and not be waived by, the execution hereof by the Banks
and the Administrative Agent, any investigation or inquiry by any Bank or the
Administrative Agent or the making of any Advance under this Agreement.
ARTICLE 5
General Covenants
-----------------
So long as any of the Obligations is outstanding and unpaid or the Banks
have an obligation to fund Advances hereunder (whether or not the conditions to
borrowing have been or can be fulfilled), and unless the Majority Banks, or such
greater number of Banks as may be expressly provided herein, shall otherwise
consent in writing:
Section 5.1 Preservation of Existence and Similar Matters. The
---------------------------------------------
Borrower will, and will cause each of the Restricted Subsidiaries to:
(i) except as permitted in Section 7.4 hereof, preserve and
maintain its existence, and its material rights, franchises, licenses and
privileges in the state of its incorporation, including, without limiting
the foregoing, the Material Licenses and all other material Necessary
Authorizations; and
(ii) qualify and remain qualified and authorized to do business
in each jurisdiction in which the character of its properties or the nature
of its business requires such qualification or authorization except where
the failure to so qualify and be authorized could not reasonably be
expected to have a Materially Adverse Effect.
Section 5.2 Business; Compliance with Applicable Law. The Borrower
----------------------------------------
will, and will cause each of the Restricted Subsidiaries to, (a) engage in the
business described in Section 4.1(e) hereof and related businesses and no
unrelated activities,
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and (b) comply in all material respects with the requirements of all Applicable
Law.
Section 5.3 Maintenance of Properties. The Borrower will, and will
-------------------------
cause each of the Restricted Subsidiaries to, maintain or cause to be maintained
in the ordinary course of business in good repair, working order and condition
(reasonable wear and tear excepted) all properties used in their respective
businesses (whether owned or held under lease), other than obsolete equipment or
unused assets and from time to time make or cause to be made all needed and
appropriate repairs, renewals, replacements, additions, betterments and
improvements thereto.
Section 5.4 Accounting Methods and Financial Records. The Borrower
----------------------------------------
will, and will cause each of its Subsidiaries on a consolidated and
consolidating basis to, maintain a system of accounting established and
administered in accordance with GAAP, keep adequate records and books of account
in which complete entries will be made in accordance with GAAP and reflecting
all transactions required to be reflected by GAAP and keep accurate and complete
records of their respective properties and assets. The Borrower and its
Subsidiaries will maintain a fiscal year ending on December 31.
Section 5.5 Insurance.
---------
(a) The Borrower will, and will cause each of the Restricted
Subsidiaries to:
(i) Maintain insurance including, but not limited to, business
interruption coverage and public liability coverage insurance from
responsible companies in such amounts and against such risks to the
Borrower and each of the Restricted Subsidiaries as is prudent for
similarly situated companies engaged in the telecommunications industry;
and
(ii) Keep their respective assets insured against loss or damage
by fire, theft, burglary, loss in transit, explosions and hazards by
extended coverage, in amounts which are prudent for the telecommunications
industry; all premiums thereon to be paid by or on behalf of the Borrower
and its Restricted Subsidiaries.
(b) In the event that the Borrower or any of the Restricted
Subsidiaries receives the proceeds in respect of any of the assets of any of the
Restricted Subsidiaries of any insurance maintained pursuant to Section
5.5(a)(ii) hereof in excess of $5,000,000 in any calendar year, which proceeds
are not committed to be used within twelve (12) calendar months from receipt
thereof by the Borrower or the Restricted Subsidiaries,
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<PAGE>
as the case may be, to obtain replacement assets, the Borrower shall make a
principal payment of the Loans in an amount equal to the amount of such
proceeds. Any payment hereunder shall be deemed to be Net Proceeds and applied
in accordance with, and subject to, Section 2.7(c) hereof, and shall permanently
reduce the Commitment in accordance with Section 2.5(b) hereof.
Section 5.6 Payment of Taxes and Claims. The Borrower will, and will
---------------------------
cause each of the Restricted Subsidiaries to, pay and discharge all material
taxes, including, without limitation, withholding taxes, assessments and
governmental charges or levies required to be paid by them or imposed upon them
or their income or profits or upon any properties belonging to them, prior to
the date on which penalties attach thereto, and all lawful claims for labor,
materials and supplies which, if unpaid, might become a Lien or charge upon any
of their properties; except that no such tax, assessment, charge, levy or claim
need be paid which is being diligently contested in good faith by appropriate
proceedings and for which adequate reserves to the extent required by GAAP shall
have been set aside on the appropriate books, but only so long as such tax,
assessment, charge, levy or claim does not become a Lien or charge other than a
Permitted Lien and no foreclosure, distraint, sale or similar proceedings shall
have been commenced. The Borrower will, and will cause each of the Restricted
Subsidiaries to, timely file all information returns required by federal, state
or local tax authorities. The Borrower will at all times during the term of
this Agreement remain part of the affiliated group filing a consolidated return
of which TCGI is a member for federal income tax paying purposes.
Section 5.7 Compliance with ERISA.
---------------------
(a) The Borrower shall, and shall cause the Restricted Subsidiaries
to, make all contributions to any Employee Pension Plan when such contributions
are due and not incur any "accumulated funding deficiency" within the meaning of
Section 412(a) of the Code, whether or not waived, and will otherwise comply
with the requirements of the Code and ERISA with respect to the operation of all
Plans, except to the extent that the failure to so comply could not reasonably
be expected to have a Materially Adverse Effect.
(b) The Borrower shall, and shall cause the Restricted Subsidiaries
to, comply in all respects with the requirements of COBRA with respect to any
Plans subject to the requirements thereof, except to the extent that the failure
to so comply could not reasonably be expected to have a Materially Adverse
Effect.
-49-
<PAGE>
(c) The Borrower shall furnish to the Administrative Agent (i) within
thirty (30) days after any officer of the Borrower obtains knowledge that a
"prohibited transaction" (within the meaning of Section 406 of ERISA or Section
4975 of the Code) has occurred with respect to any Plan of the Borrower or its
ERISA Affiliates that any Reportable Event with respect to which the reporting
requirement under ERISA Section 4043 has not been waived or which could result
in a Materially Adverse Effect has occurred with respect to any Employee Pension
Plan or that PBGC has instituted or will institute proceedings under Title IV of
ERISA to terminate any Employee Pension Plan or to appoint a trustee to
administer any Employee Pension Plan, a statement setting forth the details as
to such prohibited transaction, Reportable Event or termination or appointment
proceedings and the action which it (or any other Employee Pension Plan sponsor
if other than the Borrower) proposes to take with respect thereto, together with
a copy of the notice of such Reportable Event given to PBGC if a copy of such
notice is available to the Borrower or any of its ERISA Affiliates, (ii)
promptly after receipt thereof, a copy of any material notice the Borrower or
any of its ERISA Affiliates receives from PBGC, or the Internal Revenue Service
or the Department of Labor which sets forth or proposes any action or
determination with respect to such Plan, (iii) promptly after the filing
thereof, any annual report required to be filed pursuant to ERISA in connection
with each Plan maintained by the Borrower or any of its ERISA Affiliates,
including only the Restricted Subsidiaries, and (iv) promptly upon the
Administrative Agent's request therefor, such additional information concerning
any such Plan as may be reasonably requested by the Administrative Agent.
(d) The Borrower will promptly notify the Administrative Agent of any
material excise taxes which have been assessed or which the Borrower or any of
its ERISA Affiliates has reason to believe may be assessed against the Borrower
or any of its ERISA Affiliates by the Internal Revenue Service or the Department
of Labor with respect to any Plan of the Borrower or its ERISA Affiliates.
(e) Within the time required for notice to the PBGC under Section
302(f)(4)(A) of ERISA, the Borrower will notify the Administrative Agent of any
lien arising under Section 302(f) of ERISA in favor of any Plan of the Borrower
or its ERISA Affiliates.
(f) The Borrower will notify the Administrative Agent within thirty
(30) days after Borrower or any ERISA Affiliate has any material present or
future obligation to make or to contribute to a Multiemployer Plan, and such
notification will include the projected contributions for the next twelve (12)
months. The Borrower will notify the Administrative Agent within
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thirty (30) days after the Borrower or any ERISA Affiliate knows that any
Multiemployer Plan under which the Borrower or any such ERISA Affiliate is an
employer, is in reorganization, as defined in Code Section 418 or Title IV of
ERISA, or is insolvent. The Borrower will promptly notify the Administrative
Agent of any withdrawal liability imposed upon the Borrower or any ERISA
Affiliate under ERISA Section 420(1)(a) with respect to any Plan.
(g) The Borrower will not, and will not permit any of its ERISA
Affiliates to take any of the following actions or permit any of the following
events to occur if such action or event together with all other such actions or
events would subject the Borrower or any of its ERISA Affiliates to any tax,
penalty, or other liabilities which could reasonably be expected to have a
Materially Adverse Effect:
(i) engage in any transaction in connection with which the
Borrower or any ERISA Affiliate could be subject to either a civil penalty
assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section
4975 of the Code;
(ii) terminate any Employee Pension Plan in a manner, or take any
other action, which could result in any liability of the Borrower or any
ERISA Affiliate to the PBGC;
(iii) fail to make full payment when due of all amounts which,
under the provisions of any Plan, the Borrower or any ERISA Affiliate is
required to pay as contributions thereto, or permit to exist any
accumulated funding deficiency within the meaning of Section 412(a) of the
Code, whether or not waived, with respect to any Employee Pension Plan; or
(iv) permit the present value of all benefit liabilities under
all Employee Pension Plans which are subject to Title IV of ERISA to exceed
the present value of the assets of such Plans allocable to such benefit
liabilities (within the meaning of Section 4041 of ERISA), except as may be
permitted under actuarial funding standards adopted in accordance with
Section 412 of the Code.
Section 5.8 Visits and Inspections. The Borrower will, and will
----------------------
cause each of the Restricted Subsidiaries to, permit representatives of the
Administrative Agent and after the occurrence of a Default, any of the Banks,
upon reasonable notice, to (i) visit and inspect the properties of the Borrower
or any of the Restricted Subsidiaries during business hours, (ii) inspect and
make extracts from and copies of their respective books and records, and (iii)
discuss with their
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respective principal officers their respective businesses, assets, liabilities,
financial positions, results of operations and business prospects. The Borrower
and each of the Restricted Subsidiaries will also permit representatives of the
Administrative Agent to discuss with their respective accountants the Borrower's
and the Restricted Subsidiaries' businesses, assets, liabilities, financial
positions, results of operations and business prospects.
Section 5.9 Payment of Indebtedness; Loans. Subject to any
------------------------------
provisions herein or in any other Loan Document, the Borrower will, and will
cause each of the Restricted Subsidiaries to, pay any and all of their
respective Indebtedness when and as it becomes due or to the extent of trade
payables of such Persons otherwise in accordance with ordinary business
practices customary for similarly situated companies in the telecommunications
industry, other than amounts diligently disputed in good faith and for which
adequate reserves have been set aside in accordance with GAAP.
Section 5.10 Use of Proceeds. The Borrower may only use the
---------------
aggregate proceeds of all Advances directly or indirectly: (a) to fund Capital
Expenditures; (b) for working capital needs and for general corporate purposes,
including, without limitation, advances and loans to Affiliates; (c) for
distributions through TCGI to make interest payments on public Indebtedness For
Money Borrowed of TCGI and (d) for Acquisitions and investments permitted
hereunder. No proceeds of Advances hereunder shall be used for the purchase or
carrying or the extension of credit for the purpose of purchasing or carrying,
any margin stock within the meaning of Regulations G, T, U, and X of the Board
of Governors of the Federal Reserve System.
Section 5.11 Real Estate. Subject to Section 7.12 hereof, the
-----------
Borrower will, and will cause the Restricted Subsidiaries to, grant a mortgage
to the Administrative Agent securing the Obligations or such amount thereof as
is equal to the fair market value of such real estate, in form and substance
reasonably satisfactory to the Administrative Agent, covering (a) any parcel of
real estate owned by the Borrower or any Restricted Subsidiary not subject to a
Permitted Lien described in clause (i) of the definition thereof having a fair
market value, exclusive of equipment acquired by the Borrower or any of the
Restricted Subsidiaries after the Agreement Date, the value of which exceeds
$5,000,000 individually, and (b) all parcels of real estate owned by the
Borrower and the Restricted Subsidiaries not subject to a Permitted Lien
described in clause (i) of the definition thereof at such time as the aggregate
fair market value of all such real estate equals or exceeds $10,000,000. The
Borrower will, and will cause the Restricted Subsidiaries to, deliver to the
Administrative Agent all documentation, including opinions of
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counsel and policies of title insurance, which in the reasonable opinion of the
Administrative Agent are appropriate with each such grant, including any phase I
environmental audit reasonably requested by the Majority Banks.
Section 5.12 Indemnity. The Borrower agrees to indemnify and hold
---------
harmless each Bank and the Administrative Agent, and each of their respective
affiliates, employees, representatives, shareholders, officers and directors
(any of the foregoing shall be an "Indemnitee") from and against any and all
----------
claims, liabilities, losses, damages, actions, reasonable attorneys' fees and
expenses (as such fees and expenses are incurred) and demands by any party,
including the costs of investigating and defending such claims, whether or not
the Borrower, any Subsidiary or the Person seeking indemnification is the
prevailing party (a) resulting from any breach or alleged breach by the Borrower
or any Subsidiary of the Borrower of any representation or warranty made
hereunder; or (b) otherwise arising out of (i) the Commitment or otherwise under
this Agreement, any Loan Document or any transaction contemplated hereby or
thereby, including, without limitation, the use of the proceeds of Loans
hereunder in any fashion by the Borrower or the performance of their respective
obligations under the Loan Documents by the Borrower or any of the Restricted
Subsidiaries, (ii) allegations of any participation by the Banks or the
Administrative Agent, or any of them, in the affairs of the Borrower or any of
its Subsidiaries, or allegations that any of them has any joint liability with
the Borrower or any of its Subsidiaries for any reason, (iii) any claims against
the Banks or the Administrative Agent, or any of them, by any shareholder or
other investor in or lender to the Borrower or any Subsidiary, by any brokers or
finders or investment advisers or investment bankers retained by the Borrower or
by any other third party, arising out of the Commitment or otherwise under this
Agreement or any other Loan Document; or (c) in connection with taxes (not
including federal or state income taxes or other taxes based solely upon the
revenues of such Persons), fees, and other charges payable in connection with
the Loans, or the execution, delivery, and enforcement of this Agreement, the
Security Documents, the other Loan Documents, and any amendments thereto or
waivers of any of the provisions thereof; unless the Person seeking
indemnification hereunder is determined in such case to have acted with gross
negligence or willful misconduct, in any case, by a final, non-appealable
judicial order. The obligations of the Borrower under this Section 5.12 are in
addition to, and shall not otherwise limit, any liabilities which the Borrower
might otherwise have in connection with any warranties or similar obligations of
the Borrower in any other Loan Document.
Section 5.13 Covenants Regarding Formation of Restricted Subsidiaries
--------------------------------------------------------
and Acquisitions; Partnership, Restricted
- -----------------------------------------
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<PAGE>
Subsidiaries. At the time of (i) any Acquisition by a Restricted Subsidiary,
- ------------
(ii) any Acquisition of a Person which becomes a Restricted Subsidiary, or (iii)
the formation of any new Restricted Subsidiary which is permitted under this
Agreement, the Borrower will, and will cause the Restricted Subsidiaries, as
appropriate, to (a) provide to the Administrative Agent an executed Subsidiary
Guaranty for such new Restricted Subsidiary (subject to receipt of any Necessary
Authorizations), in substantially the form of Exhibit N attached hereto, which
---------
shall constitute both a Security Document and a Loan Document for purposes of
this Agreement, as well as a loan certificate for such new Restricted
Subsidiary, substantially in the form of Exhibit M attached hereto, together
---------
with appropriate attachments; (b) pledge to the Administrative Agent all of the
stock or partnership interests (or other instruments or securities evidencing
ownership) of such Restricted Subsidiary which is acquired or formed,
beneficially owned by the Borrower or any of the Restricted Subsidiaries, as the
case may be, as additional Collateral for the Obligations to be held by the
Administrative Agent in accordance with the terms of an extant Borrower Pledge
Agreement, an extant Subsidiary Pledge Agreement, or a new Borrower Pledge
Agreement or Subsidiary Pledge Agreement in substantially the forms of Exhibits
--------
O and F, respectively, attached hereto, or an Assignment of Rights by Partner in
- - -
substantially the form attached hereto as Exhibit A, and execute and deliver to
---------
the Administrative Agent all such documentation for such pledge as, in the
reasonable opinion of the Administrative Agent, is appropriate; (c) upon
reasonable request by the Administrative Agent, provide revised financial
projections for the remainder of the fiscal year and for each subsequent year
until the Maturity Date which reflect such Acquisition or formation (to the
extent the value of such Acquisition or formation equals or exceeds $5,000,000),
certified by the Chief Financial Officer of the Borrower, together with a
statement by such Person that no Default exists or would be caused by such
Acquisition or formation, (d) obtain all material Necessary Authorizations for
the execution and delivery of the foregoing documents, and (e) all other
documentation, including one or more opinions of counsel, reasonably
satisfactory to the Administrative Agent which in its reasonable opinion is
appropriate with respect to such Acquisition or the formation of such Restricted
Subsidiary. Any document, agreement or instrument executed or issued pursuant
to this Section 5.13 shall be a "Loan Document" for purposes of this Agreement.
Section 5.14 Payment of Wages. The Borrower shall and shall cause
----------------
each of the Restricted Subsidiaries to at all times comply, in all material
respects, with the requirements of the Fair Labor Standards Act, as amended,
including, without limitation, the provisions of such Act relating to the
payment of
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minimum and overtime wages as the same may become due from time to time.
Section 5.15 Further Assurances. The Borrower will promptly cure, or
------------------
cause to be cured, defects in the creation and issuance of any of the Notes and
the execution and delivery of any of the Loan Documents (including this
Agreement), resulting from any acts or failure to act by the Borrower or any of
the Restricted Subsidiaries or any employee or officer thereof. The Borrower at
its expense will promptly execute and deliver to the Administrative Agent and
the Banks, or cause to be executed and delivered to the Administrative Agent and
the Banks, all such other and further documents, agreements, and instruments in
compliance with or accomplishment of the covenants and agreements of the
Borrower in the Loan Documents, including this Agreement, or more fully to state
the obligations set out herein or in any of the Loan Documents, or to obtain any
consents, all as may be necessary or appropriate in connection therewith and as
may be reasonably requested.
ARTICLE 6
Information Covenants
---------------------
So long as any of the Obligations is outstanding and unpaid or the Banks
have an obligation to fund Advances hereunder (whether or not the conditions to
borrowing have been or can be fulfilled) and unless the Majority Banks shall
otherwise consent in writing, the Borrower will furnish or cause to be furnished
to each Bank and the Administrative Agent, at their respective offices:
Section 6.1 Quarterly Financial Statements and Information. Within
----------------------------------------------
forty-five (45) days after the last day of each of the first three (3) quarters
of each fiscal year of the Borrower, the balance sheet of the Borrower and the
Restricted Subsidiaries as at the end of such quarter and as of the end of the
preceding fiscal year, and the related statements of operations and the related
statements of cash flows of the Borrower and of the Restricted Subsidiaries for
such quarter and for the elapsed portion of the year ended with the last day of
such period, which shall set forth in comparative form such figures as at the
end of and for such period and appropriate prior period and shall be certified
by the chief financial officer of the Borrower to have been prepared in
accordance with GAAP and to present fairly in all material respects the
financial position of the Borrower and the Restricted Subsidiaries as at the end
of such period and the results of operations for such period, and for the
elapsed portion of the year ended with the
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last day of such period, subject only to normal year-end and audit adjustments
and the absence of footnotes.
Section 6.2 Annual Financial Statements and Information. Within
-------------------------------------------
ninety (90) days after the end of each fiscal year of the Borrower, the audited
balance sheet of the Borrower and its Subsidiaries as of the end of such fiscal
year and the related audited statements of operations for such fiscal year and
for the previous fiscal year, the related audited statements of cash flows and
stockholders' equity for such fiscal year and for the previous fiscal year, all
in reasonable detail, and in each case prepared in accordance with GAAP
throughout the periods involved and shall be certified by independent certified
public accountants of recognized national standing which certification shall (i)
be accompanied by the opinion of such accountants without reservation or
exception as to the scope of their audit, (ii) state that the examination by
such accountants in connection with the financial statements has been made in
accordance with generally accepted auditing standards, (iii) include the opinion
of such accountants that such financial statements have been prepared in
accordance with GAAP, except as otherwise specified in such opinion, (iv)
include an expression of their opinion as to whether the computations by the
Borrower in connection with the certificate delivered pursuant to Section 6.3
hereof show compliance with Sections 7.8, 7.9 and 7.10 hereof; and (v) stating
that, in making the examination necessary for their audit of the financial
statements of the Borrower for such year, nothing came to their attention of a
financial or accounting nature that caused them to believe that the Borrower was
not in compliance with the terms, covenants, provisions or conditions of this
Agreement, or that there shall have occurred any condition or event which would
constitute a Default or, if so, specifying all such instances of non-compliance
and of each condition or event that would constitute a Default and the nature
and status thereof.
Section 6.3 Performance Certificates. At the time the financial
------------------------
statements are furnished pursuant to Sections 6.1 and 6.2, a certificate of the
president or chief financial officer of the Borrower as to its financial
performance, in substantially the form attached hereto as Exhibit P:
---------
(a) setting forth as and at the end of such quarterly period or fiscal
year, as the case may be, the arithmetical calculations required to establish
(i) any adjustment to the Applicable Margins, as provided for in Section 2.3(f),
and (ii) whether or not the Borrower was in compliance with the requirements of
Sections 7.8, 7.9 and 7.10 hereof; and
(b) stating that the signer has reviewed the terms of this Agreement
and that in the course of the performance of his
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or her duties, he or she would normally have knowledge of any condition or event
which would constitute a Default and certifying that, to the best of his or her
knowledge, no Default or Event of Default has occurred as at the end of such
quarter or year, as the case may be, or, if a Default or an Event of Default has
occurred, disclosing each such Default or Event of Default and its nature, when
it occurred, whether it is continuing, and the steps being taken by the Borrower
with respect to such Default or Event of Default.
Section 6.4 Copies of Other Reports.
-----------------------
(a) Promptly upon receipt thereof, copies of all reports, if any,
submitted to the Borrower by the Borrower's independent public accountants
regarding the Borrower or any Restricted Subsidiary.
(b) Promptly upon receipt thereof, copies of any material adverse
notice or report regarding any Material License.
(c) From time to time and promptly upon each request, such data,
certificates, reports, statements, documents or further information regarding
the business, assets, liabilities, financial position, projections, results of
operations or business prospects of the Borrower or any of the Restricted
Subsidiaries, as the Administrative Agent may reasonably request.
(d) Annually, certificates of insurance indicating that the
requirements of Section 5.5 hereof remain satisfied for such fiscal year, and
upon reasonable request by the Administrative Agent, copies of any new or
replacement insurance policies obtained during such year.
(e) Any annual budget for the Borrower and the Restricted
Subsidiaries, ordinary forecasts of the income statement, the balance sheet and
a cash flow statement for such year, as may be approved by the Borrower's Board
of Directors.
(f) Promptly after the sending thereof, copies of all statements,
reports and other information which the Borrower or any of the Restricted
Subsidiaries sends to security holders of the Borrower generally or files with
the Securities and Exchange Commission or any national securities exchange.
Section 6.5 Notice of Litigation and Other Matters. Notice
--------------------------------------
specifying the nature and status of any of the following events, promptly, but
in any event not later than fifteen (15) days after the occurrence of any of the
following events becomes known to the Borrower:
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(i) the commencement of all actions, proceedings and
investigations by or before any governmental body and all actions and
proceedings in any court or before any arbitrator against, the Borrower or
any Restricted Subsidiary, or any of their respective properties, assets or
businesses or any License which could reasonably be expected to have a
Materially Adverse Effect;
(ii) any material adverse change with respect to the business,
assets, liabilities, financial position, results of operations or business
prospects of the Borrower or any Restricted Subsidiary other than changes
in the ordinary course of business which have not had and would not
reasonably be expected to have a Materially Adverse Effect;
(iii) any Default or the occurrence or non-occurrence of any
event (A) which constitutes, or which with the passage of time or giving of
notice or both would constitute a default by the Borrower or any Restricted
Subsidiary under any material agreement other than this Agreement and the
other Loan Documents to which the Borrower or any Restricted Subsidiary is
party or by which any of their respective properties may be bound, and (B)
which could reasonably be expected to have a Materially Adverse Effect,
giving in each case the details thereof and specifying the action proposed
to be taken with respect thereto;
(iv) the occurrence of any Reportable Event or a "prohibited
transaction" (as such term is defined in Section 406 of ERISA or Section
4975 of the Code) with respect to any Plan of the Borrower or the
institution or threatened institution by PBGC of proceedings under ERISA to
terminate or to partially terminate any such Plan or the commencement or
threatened commencement of any litigation regarding any such Plan or naming
it or the trustee of any such Plan with respect to such Plan or any action
taken by the Borrower or any ERISA Affiliate of the Borrower to withdraw or
partially withdraw from any Plan or to terminate any Plan; and
(v) the occurrence of any event subsequent to the Agreement Date
which, if such event had occurred prior to the Agreement Date, would have
constituted an exception to the representation and warranty in Section
4.1(m) of this Agreement.
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ARTICLE 7
Negative Covenants
------------------
So long as any of the Obligations is outstanding and unpaid or the Banks
have an obligation to fund Advances hereunder (whether or not the conditions to
borrowing have been or can be fulfilled) and unless the Majority Banks, or such
greater number of Banks as may be expressly provided herein, shall otherwise
give their prior consent in writing:
Section 7.1 Indebtedness for Money Borrowed of the Borrower and its
-------------------------------------------------------
Subsidiaries. The Borrower shall not, and shall not permit any of its
- ------------
Subsidiaries to, create, assume, incur or otherwise become or remain obligated
in respect of, or permit to be outstanding, any Indebtedness for Money Borrowed
except:
(a) the Obligations;
(b) operating accounts payable, accrued expenses and customer advance
payments incurred in the ordinary course of business and taxes, assessments,
governmental charges or similar claims;
(c) Indebtedness secured by Permitted Liens;
(d) Obligations under Interest Hedge Agreements in respect of the
Loans;
(e) unsecured Indebtedness of the Borrower owed to TCGI which is
subordinated to the Obligations pursuant to the Subordination Agreement dated as
of June 7, 1996, among the Borrower, TCGI and the Administrative Agent.
(f) Indebtedness for Money Borrowed which does not exceed $10,000,000
in the aggregate at any one time outstanding; provided such Indebtedness for
Money Borrowed is (1) purchase money Indebtedness that is incurred or assumed to
finance part or all of (but not more than) the purchase price of a tangible
asset in which neither the Borrower nor such Restricted Subsidiary had at any
time prior to such purchase any interest other than a security interest or an
interest as lessee under an operating lease, (2) Capitalized Lease Obligations,
or (3) reimbursement obligations with respect to letters of credit;
(g) Guaranties by the Borrower or any Restricted Subsidiary of
Indebtedness of any other Restricted Subsidiary and letters of credit and
performance bonds, real estate leases or trade credit for which any Restricted
Subsidiary is the obligor which do not exceed $20,000,000 in the aggregate at
any time outstanding; and
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(h) loans from the Borrower to its Affiliates so long as such loans
are subject to the Assignment of Intercompany Indebtedness.
Section 7.2 Limitation on Liens. The Borrower (to the extent any of
-------------------
the following assets or properties are used in the business or operations of the
Restricted Subsidiaries) shall not, and shall not permit any of the Restricted
Subsidiaries to, create, assume, incur or permit to exist or to be created,
assumed, incurred or permitted to exist, directly or indirectly, any Lien on any
of its properties or assets (including, without limitation, transmitting or
receiving equipment of any type, fiber or any other type of interconnection
media, telephone switches of any type, Licenses, or any contract (whether in the
name of the Borrower or otherwise) pursuant to which the Restricted Subsidiary
provides local competitive access service or any other type of
telecommunications service), used in the business or operations of the
Restricted Subsidiaries whether now owned or hereafter acquired, except for
Permitted Liens, and shall not, after the Agreement Date, undertake, covenant or
agree with any other Person that it will not create, assume, incur or permit to
exist or to be created, assumed, incurred or permitted to exist any first
priority lien by the Administrative Agent (for the benefit of the Banks) on any
of such assets (other than in connection with service arrangements entered into
with customers of the Borrower and the Restricted Subsidiaries in the ordinary
course of business).
Section 7.3 Amendment and Waiver. The Borrower shall not, and shall
--------------------
not permit any of the Restricted Subsidiaries to, enter into any amendment of,
or agree to or accept or consent to any waiver of any of the material provisions
of its articles or certificate of incorporation or partnership agreement, as
appropriate, except as may be required in connection with the acquisition by
Sprint of an ownership interest in TCGI.
Section 7.4 Liquidation, Merger, or Disposition of Assets.
---------------------------------------------
(a) Disposition of Assets. The Borrower shall not, and shall not
---------------------
permit any of the Restricted Subsidiaries to, at any time sell, lease, abandon,
or otherwise dispose of any assets (other than assets disposed of or leased in
the ordinary course of business) without the prior written consent of the
Majority Banks; provided, however, that the prior written consent of the
-------- -------
Majority Banks shall not be required for Permitted Asset Sales.
(b) Liquidation or Merger. The Borrower shall not, and shall not
---------------------
permit any of the Restricted Subsidiaries to, at any time liquidate or dissolve
itself (or suffer any liquidation or dissolution) or otherwise wind up, or enter
into any merger,
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other than (i) a merger or consolidation among the Borrower and one or more
Restricted Subsidiaries, provided the Borrower is the surviving corporation, or
--------
(ii) a merger between or among two or more Restricted Subsidiaries, or (iii) in
connection with an Acquisition permitted hereunder effected by a merger in which
the Borrower or, in a merger in which the Borrower is not a party, its
Subsidiary is the surviving corporation.
Section 7.5 Limitation on Guaranties. The Borrower shall not, and
------------------------
shall not permit any of the Restricted Subsidiaries to, at any time Guaranty,
assume, be obligated with respect to, or permit to be outstanding any Guaranty
of, any obligation of any other Person other than (a) a guaranty by endorsement
of negotiable instruments for collection in the ordinary course of business, (b)
obligations under agreements of the Borrower or any of its Subsidiaries entered
into in connection with leases of real property or the acquisition of services,
supplies and equipment in the ordinary course of business of the Borrower or any
of its Subsidiaries or other Affiliates, (c) Guaranties of Indebtedness incurred
as permitted pursuant to Section 7.1(g) hereof, or (d) as may be contained in
any Loan Document including, without limitation, the Subsidiary Guaranty.
Section 7.6 Investments and Acquisitions. The Borrower shall not,
----------------------------
and shall not permit any of the Restricted Subsidiaries to, directly or
indirectly make any loan or advance, or otherwise acquire for consideration
evidences of Indebtedness, capital stock or other securities of any Person or
other assets or property (other than assets or property (i) acquired in the
ordinary course of business, (ii) received in connection with a capital
contribution from a stockholder or partner or (iii) received in connection with
a Permitted Asset Sale), or make any Acquisition, except that so long as no
Default then exists or would be caused thereby:
(a) The Borrower and the Restricted Subsidiaries may, directly or
through a brokerage account (i) purchase marketable, direct obligations of the
United States of America, its agencies and instrumentalities maturing within
three hundred sixty-five (365) days of the date of purchase, (ii) purchase
commercial paper issued by corporations, each of which shall have a combined net
worth of at least $100 million and each of which conducts a substantial part of
its business in the United States of America, maturing within two hundred
seventy (270) days from the date of the original issue thereof, and rated "P-2"
or better by Moody's Investors Service, Inc. or "A-2" or better by Standard and
Poor's Corporation, and (iii) purchase repurchase agreements, bankers'
acceptances, and certificates of deposit maturing within three hundred sixty-
five (365) days of the date of purchase which are issued by, or time deposits
maintained with, a United States national or state bank the deposits of which
are insured by the
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Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance
Corporation and having capital, surplus and undivided profits totaling more than
$100 million and rated "A" or better by Moody's Investors Service, Inc. or
Standard and Poor's Corporation;
(b) Subject to compliance with Section 5.13 hereof (to the extent
applicable), the Borrower or any of its Restricted Subsidiaries may make
Acquisitions;
(c) The Borrower and the Restricted Subsidiaries may make loans and
advances to their employees in the ordinary course of business in an amount not
to exceed $1,000,000 for all such loans; and
(d) The Borrower and the Restricted Subsidiaries may make capital
contributions, loans or advances to Unrestricted Subsidiaries and other
Affiliates, so long as (i) all such loans or advances are subject to the
Assignment of Intercompany Indebtedness and (ii) all equity interests
representing such capital contributions to Restricted Subsidiaries are pledged
to the Administrative Agent as collateral for the Obligations.
Section 7.7 Restricted Payments and Purchases. The Borrower shall
---------------------------------
not, and shall not permit any of the Restricted Subsidiaries to, directly or
indirectly declare or make any Restricted Payment or Restricted Purchase, except
that so long as no Default hereunder then exists or would be caused thereby:
(a) so long as a Restricted Subsidiary is not obligated on any
Indebtedness to the Borrower or a Subsidiary of the Borrower, such
Subsidiary may make distributions to (i) any partner or shareholder of
such Subsidiary holding a minority position with respect to such
Subsidiary, so long as such Subsidiary makes a contemporaneous pro
rata distribution to the Borrower or any of the Restricted
Subsidiaries or (ii) the Borrower or any of the Restricted
Subsidiaries; and
(b) after June 30, 1999, so long as the Leverage Ratio is less
than 5.00 to 1.00 for two (2) consecutive quarters, the Borrower may
make Restricted Payments and Restricted Purchases; provided that the
--------
Borrower provides to the Administrative Agent and the Banks a
certificate signed by an Authorized Signatory of the Borrower
demonstrating compliance with Sections 7.8, 7.9 and 7.10 hereof both
before and after giving effect to such payment and stating that there
does not exist a Default or Event of Default hereunder; and provided,
--------
further, that such Restricted Payments and Restricted Purchases are
-------
not made with any portion of the Net
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Proceeds of any asset sale by the Borrower or any Restricted
Subsidiary required to repay the Loans pursuant to Section 2.7 hereof.
Section 7.8 Fixed Charge Coverage Ratio. The Borrower shall not at
---------------------------
any time after December 31, 1999 permit the Fixed Charge Coverage Ratio to be
less than 1.00:1.00.
Section 7.9 Leverage Ratio. (a) As of the end of any calendar
--------------
quarter, and (b) at the time of any Advance hereunder (after giving effect to
such Advance), the Borrower shall not permit its Leverage Ratio to exceed the
ratios set forth below during the periods indicated:
Period Ratio
- ------------------------------ ------
Agreement Date through
December 31, 1998 7.00:1
January 1, 1999 through
December 31, 1999 6.00:1
January 1, 2000 through
June 30, 2000 5.50:1
July 1, 2000 through
December 31, 2000 5.00:1
January 1, 2001 through
June 30, 2001 4.50:1
July 1, 2001 through
December 31, 2001 4.00:1
January 1, 2002 and
thereafter 3.00:1
Section 7.10 Annualized Operating Cash Flow to Total Cash Interest
-----------------------------------------------------
Expense. (a) As of the end of any calendar quarter, and (b) at the time of any
- -------
Advance hereunder (after giving effect to such Advance), the Borrower shall not
permit the ratio of Annualized Operating Cash Flow to its Total Cash Interest
Expense to be less than the ratios set forth below during the periods indicated:
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Period Ratio
------ -----
Agreement Date through
December 31, 1998 1.35:1
January 1, 1999 and
thereafter 2.00:1
Section 7.11 Affiliate Transactions. Except as specifically provided
----------------------
herein (including, without limitation, Sections 7.4, 7.6 and 7.7 hereof) and as
may be described on Schedule 6 attached hereto, the Borrower shall not, and
----------
shall not permit any of the Restricted Subsidiaries to, at any time engage in
any transaction with an Affiliate, or make an assignment or other transfer of
any of its properties or assets to any Affiliate, on terms less advantageous to
the Borrower or such Restricted Subsidiary than would be the case if such
transaction had been effected with a non-Affiliate.
Section 7.12 Real Estate. Subject to Section 5.11 hereof, the
-----------
Borrower and the Restricted Subsidiaries may purchase real estate solely for use
in the business of the Borrower and the Restricted Subsidiaries.
Section 7.13 ERISA Liabilities. The Borrower shall not, and shall
-----------------
cause each of its ERISA Affiliates not to, permit the assets of any of their
respective Plans to be less than the amount necessary to provide all accrued
benefits under such Plans to the extent that any such failure to maintain
sufficient assets could reasonably be expected to result in a Materially Adverse
Effect.
Section 7.14 Limitation on Upstream Dividends by Restricted
----------------------------------------------
Subsidiaries. The Borrower shall not permit any Restricted Subsidiary to enter
- ------------
into or agree, or otherwise become subject, to any agreement, contract or other
arrangement with any Person pursuant to the terms of which (a) such Restricted
Subsidiary is or would be prohibited from declaring or paying any cash dividends
or distributions on any class of its stock or any partnership interests owned
directly or indirectly by the Borrower or from making any other distribution on
account of any class of any such stock or any such partnership interests (herein
referred to as "Upstream Dividends") or (b) the declaration or payment of
------------------
Upstream Dividends by a Restricted Subsidiary to the Borrower or to another
Restricted Subsidiary, on an annual or cumulative basis, is or would be
otherwise limited or restricted.
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ARTICLE 8
Default
-------
Section 8.1 Events of Default. Each of the following shall constitute
-----------------
an Event of Default, whatever the reason for such event and whether it shall be
voluntary or involuntary or be effected by operation of law or pursuant to any
judgment or order of any court or any order, rule or regulation of any
governmental or non-governmental body:
(a) Any representation or warranty made under this Agreement or any
other Loan Document shall prove to have been incorrect or misleading in any
material respect as of the time it was made or deemed to be made pursuant to
Section 4.2 hereof;
(b) The Borrower shall default in the payment of: (i) any interest
under any of the Notes or Incremental Facility Notes or fees or other amounts
payable to the Banks and the Administrative Agent under any of the Loan
Documents, or any of them, when due and such Default shall not be cured by
payment in full within five (5) Business Days from the due date; or (ii) any
principal under any of the Notes or Incremental Facility Notes when due;
(c) The Borrower shall default in the performance or observance of any
agreement or covenant contained in: (i) Sections 6.1 or 6.2 hereof and such
default shall not be cured within ten (10) Business Days from the occurrence of
such default; or (ii) Sections 5.2(a), 5.10, 7.1, 7.2, 7.4, 7.5, 7.6, 7.7, 7.8,
7.9, 7.10, 7.11 or 7.13 hereof;
(d) The Borrower shall default in the performance or observance of any
other agreement or covenant contained in this Agreement not specifically
referred to elsewhere in this Section 8.1, and such default shall not be cured
within a period of thirty (30) days from the occurrence of such default;
(e) There shall occur any default in the performance or observance of
any agreement or covenant or breach in any material respect of any
representation or warranty contained in any of the Loan Documents (other than
this Agreement or as otherwise provided in Section 8.1 of this Agreement) by the
Borrower, any of its Restricted Subsidiaries, or any other obligor thereunder,
which shall not be cured within a period of thirty (30) days from the occurrence
of such default;
(f) There shall be entered and remain unstayed a decree or order for
relief in respect of the Borrower or any of the Restricted Subsidiaries under
Title 11 of the United States Code, as now constituted or hereafter amended, or
any other
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applicable Federal or state bankruptcy law or other similar law, or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or similar
official of the Borrower or any of the Restricted Subsidiaries, or of any
substantial part of their respective properties, or ordering the winding-up or
liquidation of the affairs of the Borrower, or any of the Restricted
Subsidiaries; or an involuntary petition shall be filed against the Borrower or
any of the Restricted Subsidiaries, and a temporary stay entered, and (i) such
petition and stay shall not be diligently contested, or (ii) any such petition
and stay shall continue undismissed for a period of sixty (60) consecutive days;
(g) The Borrower or any of the Restricted Subsidiaries shall file a
petition, answer or consent seeking relief under Title 11 of the United States
Code, as now constituted or hereafter amended, or any other applicable Federal
or state bankruptcy law or other similar law, or the Borrower or any of the
Restricted Subsidiaries shall consent to the institution of proceedings
thereunder or to the filing of any such petition or to the appointment or taking
of possession of a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Borrower or any of the Restricted
Subsidiaries or of any substantial part of their respective properties, or the
Borrower or any of the Restricted Subsidiaries shall fail generally to pay their
respective debts as they become due or shall be adjudicated insolvent; the
Borrower shall suspend or discontinue its business; the Borrower or any of the
Restricted Subsidiaries shall have concealed, removed any of its property with
the intent to hinder or defraud its creditors or shall have made a fraudulent or
preferential transfer under any applicable fraudulent conveyance or bankruptcy
law, or the Borrower or any of the Restricted Subsidiaries shall take any action
in furtherance of any such action;
(h) A judgment not covered by insurance (subject to applicable
deductibles) shall be entered by any court against the Borrower or any of the
Restricted Subsidiaries for the payment of money which exceeds singly or in the
aggregate with other such judgments, $5,000,000, or a warrant of attachment or
execution or similar process shall be issued or levied against property of the
Borrower or any of the Restricted Subsidiaries which, together with all other
such property of the Borrower or any of the Restricted Subsidiaries subject to
other such process, exceeds in value $5,000,000 in the aggregate, if, in any
such case, within thirty (30) days after the entry, issue or levy thereof, such
judgment, warrant or process shall not have been paid or discharged or stayed
pending appeal or removed to bond, or if, after the expiration of any such stay,
such judgment, warrant or process shall not have been paid or discharged or
removed to bond;
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(i) There shall be at any time any "accumulated funding deficiency,"
as defined in ERISA or in Section 412 of the Code, with respect to any Plan
maintained by the Borrower or any ERISA Affiliate, or to which the Borrower or
any ERISA Affiliate has any liabilities, or any trust created thereunder to the
extent that such accumulated funding deficiency would have a Materially Adverse
Effect; or, with respect to any Plan (other than a Multiemployer Plan), a
trustee shall be appointed by a United States District Court to administer any
such Plan; PBGC shall institute proceedings to terminate any such Plan, or the
Borrower or any ERISA Affiliate shall incur any liability to the PBGC in
connection with any such Plan; or, with respect to any Plan that is a
Multiemployer Plan, a trustee shall be appointed by a United States District
Court to administer any such Multiemployer Plan to the extent that such
appointment could reasonably be expected to have a Materially Adverse Effect;
PBGC shall institute proceedings to terminate any such Multiemployer Plan to the
extent that the institution of such proceedings could reasonably be expected to
have a Materially Adverse Effect; or the Borrower or any ERISA Affiliate shall
incur any liability to PBGC in connection with the termination of any such Plan
which liability could reasonably be expected to have a Materially Adverse
Effect; or the Borrower or any ERISA Affiliate shall engage in a "prohibited
transaction" (as such term is defined in Section 406 of ERISA or Section 4975 of
the Code) which would subject the Borrower or any ERISA Affiliate to any
material tax or penalty on "prohibited transactions" imposed by Section 502 of
ERISA or Section 4975 of the Code;
(j) There shall occur (i) any acceleration of the maturity of any
Indebtedness for Money Borrowed of the Borrower or any of the Restricted
Subsidiaries in an aggregate principal amount exceeding $5,000,000; (ii) any
event which would permit (A) such acceleration or (B) the holder of such
Indebtedness for Money Borrowed to require the purchase or redemption of such
Indebtedness for Money Borrowed and which event has not been cured within any
applicable cure period or waived in writing prior to any declaration of an Event
of Default or acceleration of the Loans hereunder; or (iii) any material default
under any Interest Hedge Agreements which would permit the obligation of the
Borrower or any of the Restricted Subsidiaries to make payments to the
counterparties thereunder in an amount exceeding $5,000,000 in aggregate to be
then due and payable;
(k) The FCC shall deliver to the Borrower or any of its Restricted
Subsidiaries an order to show cause why an order of revocation should not be
issued based upon any alleged attribution of alien ownership (within the meaning
of 47 U.S.C. (S) 310(b) and any interpretation of the FCC thereunder) to the
Borrower or any of its Restricted Subsidiaries and (i) such order shall not have
been rescinded within thirty (30) days after such
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delivery or (ii) in the reasonable judgment of the Majority Banks, proceedings
by or before the FCC related to such order are reasonably likely to result in
one or more orders of revocation and would constitute an Event of Default under
Section 8.1(m) hereof;
(l) Any Loan Document or any material provision thereof, shall at any
time and for any reason be declared by a court of competent jurisdiction to be
null and void, or a proceeding shall be commenced by the Borrower or any of its
Subsidiaries or by any governmental authority having jurisdiction over the
Borrower or any of its Subsidiaries seeking to establish the invalidity or
unenforceability thereof (exclusive of questions of interpretation of any
provision thereof), or the Borrower or any of the Restricted Subsidiaries shall
deny that it has any liability or obligation for the payment of principal or
interest purported to be created under any Loan Document;
(m) One or more Material Licenses shall be terminated or revoked or
any such Material License shall fail to be renewed at the stated expiration
thereof without obtaining a replacement License to the extent required for the
continued unimpaired conduct of the applicable business;
(n) Any Security Document shall for any reason, fail or cease (except
by reason of lapse of time) to create a valid and perfected and first-priority
Lien on or Security Interest in any portion of the Collateral purported to be
covered thereby and such failure shall not be cured within thirty (30) days from
delivery of notice of such failure to the Borrower by the Administrative Agent;
(o) There shall occur any Change of Control; or
(p) There shall occur any default in payment of any sums due under any
Indebtedness for Money Borrowed of TCGI in excess of $50,000,000, or the holders
of such Indebtedness for Money Borrowed shall elect to accelerate (or otherwise
demand payment in full) the obligations thereunder.
Section 8.2 Remedies.
--------
(a) If an Event of Default specified in Section 8.1 (other than an
Event of Default under Section 8.1(f) or Section 8.1(g)) shall have occurred and
shall be continuing, the Administrative Agent, at the request of the Majority
Banks subject to Section 9.7(a) hereof, shall (i) terminate the Commitment and
the Incremental Facility Commitment, and/or (ii) declare all or a portion of the
principal of and interest on the Loans and the Notes and the Incremental
Facility Notes and all other amounts owed to the Banks and the Administrative
Agent
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under this Agreement, the Notes and any other Loan Documents to be forthwith due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived, anything in this Agreement, the Notes
or any other Loan Document to the contrary notwithstanding, and the Commitment
and the Incremental Facility Commitment shall thereupon forthwith terminate.
(b) Upon the occurrence and continuance of an Event of Default
specified in Section 8.1(f) or Section 8.1(g), all principal, interest and other
amounts due hereunder and under the Notes and the Incremental Facility Notes,
and all other Obligations, shall thereupon and concurrently therewith become due
and payable and the Commitment and the Incremental Facility Commitment shall
forthwith terminate and the principal amount of the Loans outstanding hereunder
shall bear interest at the Default Rate, all without any action by the
Administrative Agent or the Banks or the Majority Banks or any of them and
without presentment, demand, protest or other notice of any kind, all of which
are expressly waived, anything in this Agreement or in the other Loan Documents
to the contrary notwithstanding.
(c) Upon acceleration of the Loans, as provided in subsection (a) or
(b) of this Section 8.2, above, the Administrative Agent and the Banks shall
have all of the post-default rights granted to them, or any of them, as
applicable under the Loan Documents and under Applicable Law.
(d) Notwithstanding anything in this Agreement or in any of the Loan
Documents to the contrary, the Administrative Agent's and the Banks' remedies
hereunder and under the Loan Documents are subject to compliance with the
Communications Act, to all applicable rules, regulations and policies of the
FCC, to the Licenses and the Necessary Authorizations and to applicable statutes
governing, and the rules and regulations of, issuers of the Licenses and
Necessary Authorizations, and the Administrative Agent and the Banks will not
take any action pursuant to this Agreement and any of the Loan Documents that
will constitute or result in any assignment of a License or Necessary
Authorization or any change of control of the Borrower or any of its
Subsidiaries or any transfer of any shares of or partnership interests in the
Borrower or any of its Subsidiaries if such assignment of License or Necessary
Authorization or change of control or transfers of shares or partnership
interests would require under then existing law (including the written rules and
regulations promulgated by the FCC and the issuers of the Licenses and Necessary
Authorizations), the prior approval of the FCC or such other issuers, without
first obtaining such approval of the FCC and such other issuers. This
Agreement, the Loan Documents and the transactions contemplated hereby and
thereby do not and will not constitute, create, or have the effect of
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constituting or creating, directly or indirectly, actual or practical ownership
of the Borrower or any of its Subsidiaries by the Administrative Agent or the
Banks or control, affirmative or negative, direct or indirect, of the Borrower
or any of its Subsidiaries by the Administrative Agent or the Banks, over the
management or any other aspect of the operation of the Borrower or any of its
Subsidiaries, which ownership and control remain exclusively and at all times in
the Borrower and its shareholders until such time as the Administrative Agent
and the Banks have complied with such law, rules, regulations and policies.
(e) Upon acceleration of the Loans, as provided in subsection (a) or
(b) of this Section 8.2, the Administrative Agent, upon request of the Majority
Banks, shall subject to compliance with Applicable Law have the right to the
appointment of a receiver for the properties and assets of the Borrower and its
Restricted Subsidiaries, and the Borrower, for itself and on behalf of its
Restricted Subsidiaries, hereby consents to such rights and such appointment and
hereby waives any objection the Borrower or any Restricted Subsidiary may have
thereto or the right to have a bond or other security posted by the
Administrative Agent, on behalf of the Banks, in connection therewith. The
rights of the Administrative Agent under this Section 8.2(e) shall be subject to
its prior compliance with the Communications Act and the FCC rules and policies
promulgated thereunder and the terms and conditions of the Licenses, and the
applicable statutes governing, and the rules and regulations of, issuers of the
Licenses and the Necessary Authorizations to the extent applicable to the
exercise of such rights.
(f) The rights and remedies of the Administrative Agent and the Banks
hereunder shall be cumulative, and not exclusive.
Section 8.3 Payments Subsequent to Declaration of Event of Default.
------------------------------------------------------
Subsequent to the acceleration of the Loans under Section 8.2 hereof, payments
and prepayments under this Agreement made to any of the Administrative Agent and
the Banks or otherwise received by any of such Persons (from realization on
Collateral for the Obligations or otherwise) shall be paid over to the
Administrative Agent (if necessary) and distributed by the Administrative Agent
as follows: first, to the Administrative Agent's reasonable costs and expenses,
-----
if any, incurred in connection with the collection of such payment or
prepayment, including, without limitation, any reasonable costs incurred by it
in connection with the sale or disposition of any Collateral for the Obligations
and all amounts under Section 11.2(b) and (c); second, to the Banks or the
------
Administrative Agent for any fees hereunder or under any of the other Loan
Documents then due and payable; third, to the Banks, pro rata on the basis of
-----
their respective unpaid principal amounts (except as provided in
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Section 2.2(e) hereof), for the payment of any unpaid interest which may have
accrued on the Obligations; fourth, to the Banks pro rata until all Loans have
------
been paid in full (and, for purposes of this clause, obligations under Interest
Hedge Agreements with the Banks or any of them shall be paid on a pro rata basis
with the Loans); fifth, to the Banks pro rata on the basis of their respective
-----
unpaid amounts, to the payment of any other unpaid Obligations; and sixth, to
-----
the Borrower or as otherwise required by law.
ARTICLE 9
The Agents
----------
Section 9.1 Appointment and Authorization. Each Bank hereby irrevocably
-----------------------------
appoints and authorizes, and hereby agrees that it will require any transferee
of any of its interest in its portion of the Loans and in its Note irrevocably
to appoint and authorize, the Administrative Agent and the Documentation Agent
to take such actions as its agents on its behalf and to exercise such powers
hereunder and under the other Loan Documents as are delegated by the terms
hereof and thereof, together with such powers as are reasonably incidental
thereto. Neither the Administrative Agent nor the Documentation Agent, nor any
of their respective directors, officers, employees or agents, shall be liable
for any action taken or omitted to be taken by it or them hereunder or in
connection herewith, except for its or their own gross negligence or willful
misconduct as determined by a final, non-appealable judicial order of a court of
competent jurisdiction.
Section 9.2 Interest Holders. The Administrative Agent may treat each
----------------
Bank, or the Person designated in the last notice filed with the Administrative
Agent, as the holder of all of the interests of such Bank in its portion of the
Loans and in its Note until written notice of transfer, signed by such Bank (or
the Person designated in the last notice filed with the Administrative Agent)
and by the Person designated in such written notice of transfer, in form and
substance satisfactory to the Administrative Agent, shall have been filed with
the Administrative Agent.
Section 9.3 Consultation with Counsel. The Administrative Agent and the
-------------------------
Documentation Agent may consult with Powell, Goldstein, Frazer & Murphy,
Atlanta, Georgia, special counsel to the Administrative Agent and the
Documentation Agent, or with other legal counsel selected by them and shall not
be liable for any action taken or suffered by them in good faith in consultation
with the Majority Banks and in reasonable reliance on such consultations.
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Section 9.4 Documents. The Administrative Agent and the Documentation
---------
Agent shall be under no duty to examine, inquire into, or pass upon the
validity, effectiveness or genuineness of this Agreement, any Note, any other
Loan Document, or any instrument, document or communication furnished pursuant
hereto or in connection herewith, and the Administrative Agent and the
Documentation Agent shall be entitled to assume that they are valid, effective
and genuine, have been signed or sent by the proper parties and are what they
purport to be.
Section 9.5 Administrative Agent, the Documentation Agent and Affiliates.
------------------------------------------------------------
With respect to the Commitment, the Incremental Facility Commitment and the
Loans, the Administrative Agent and the Documentation Agent shall have the same
rights and powers hereunder as any other Bank and the Administrative Agent and
the Documentation Agent and Affiliates of each may accept deposits from, lend
money to and generally engage in any kind of business with the Borrower, any of
its Subsidiaries or any Affiliates of, or Persons doing business with, the
Borrower, as if they were not affiliated with the Administrative Agent and the
Documentation Agent and without any obligation to account therefor. The
foregoing sentence shall apply with equal force to the Administrative Agent and
the Documentation Agent.
Section 9.6 Responsibility of the Administrative Agent. The duties and
------------------------------------------
obligations of the Administrative Agent under this Agreement are only those
expressly set forth in this Agreement. The Administrative Agent shall be
entitled to assume that no Default or Event of Default has occurred and is
continuing unless it has actual knowledge, or has been notified in writing by
the Borrower, of such fact, or has been notified by a Bank in writing that such
Bank considers that a Default or an Event of Default has occurred and is
continuing, and such Bank shall specify in detail the nature thereof in writing.
The Administrative Agent shall not be liable hereunder for any action taken or
omitted to be taken except for its own gross negligence or willful misconduct as
determined by a final, non-appealable judicial order of a court of competent
jurisdiction. The Administrative Agent shall provide each Bank with copies of
such documents received from the Borrower or any of the Restricted Subsidiaries
as such Bank may reasonably request. The Administrative Agent is hereby
authorized to act on behalf of the Banks, in its own capacity and through other
agents and sub-agents appointed by it, under the Security Documents, provided
that the Administrative Agent shall not agree to the release of any Collateral,
or any property encumbered by any mortgage, pledge or security interest, except
in compliance with Section 11.12 hereof.
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Section 9.7 Action by the Administrative Agent.
----------------------------------
(a) The Administrative Agent shall be entitled to use its discretion
with respect to exercising or refraining from exercising any rights which may be
vested in it by, and with respect to taking or refraining from taking any action
or actions which it may be able to take under or in respect of, this Agreement,
unless the Administrative Agent shall have been instructed by the Majority Banks
to exercise or refrain from exercising such rights or to take or refrain from
taking such action; provided that the Administrative Agent shall not exercise
--------
any rights under Section 8.2(a) of this Agreement without the request of the
Majority Banks (or, where expressly required, all the Banks) unless time is of
the essence, in which case, such action can be taken. The Administrative Agent
shall incur no liability under or in respect of this Agreement with respect to
anything which it may do or refrain from doing in the reasonable exercise of its
judgment or which may seem to it to be necessary or desirable in the
circumstances, except for its gross negligence or willful misconduct as
determined by a final, non-appealable judicial order of a court having
jurisdiction over the subject matter.
(b) The Administrative Agent shall not be liable to the Banks or to
any Bank or the Borrower or any of its Subsidiaries in acting or refraining from
acting under this Agreement or any other Loan Document in accordance with the
instructions of the Majority Banks (or, where expressly required, all the
Banks), and any action taken or failure to act pursuant to such instructions
shall be binding on all Banks. The Administrative Agent shall not be obligated
to take any action which is contrary to law or which would in its reasonable
opinion subject it to liability.
Section 9.8 Notice of Default or Event of Default. In the event that the
-------------------------------------
Administrative Agent or any Bank shall acquire actual knowledge, or shall have
been notified, of any Default or Event of Default, the Administrative Agent or
such Bank shall promptly notify the Banks and the Administrative Agent (provided
failure to give such notice shall not result in any liability on the part of
such Bank or Administrative Agent), and the Administrative Agent shall take such
action and assert such rights under this Agreement and the other Loan Documents
as the Majority Banks shall request in writing, and the Administrative Agent
shall not be subject to any liability by reason of its acting pursuant to any
such request. If the Majority Banks shall fail to request the Administrative
Agent to take action or to assert rights under this Agreement or any other Loan
Documents in respect of any Default or Event of Default within ten (10) days
after their receipt of the notice of any Default or Event of Default from the
Administrative Agent or any Bank, or shall
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request inconsistent action with respect to such Default or Event of Default,
the Administrative Agent may, but shall not be required to, take such action and
assert such rights (other than rights under Article 8 hereof) as it deems in its
discretion to be advisable for the protection of the Banks, except that, if the
Majority Banks have instructed the Administrative Agent not to take such action
or assert such right, in no event shall the Administrative Agent act contrary to
such instructions unless time is of the essence, in which case, the
Administrative Agent may act in accordance with its reasonable discretion.
Section 9.9 Responsibility Disclaimed. Neither the Administrative Agent
-------------------------
nor the Documentation Agent shall be under any liability or responsibility
whatsoever as Administrative Agent or Documentation Agent:
(a) To the Borrower or any other Person as a consequence of any
failure or delay in performance by or any breach by, any Bank or Banks (other
than itself) of any of its or their obligations under this Agreement;
(b) To any Bank or Banks, as a consequence of any failure or delay in
performance by, or any breach by, (i) the Borrower of any of its obligations
under this Agreement or the Notes or any other Loan Document, or (ii) any
Restricted Subsidiary or any other obligor under any other Loan Document;
(c) To any Bank or Banks, for any statements, representations or
warranties in this Agreement, or any other document contemplated by this
Agreement or any information provided pursuant to this Agreement, any other Loan
Document, or any other document contemplated by this Agreement, or for the
validity, effectiveness, enforceability or sufficiency of this Agreement, the
Notes, any other Loan Document, or any other document contemplated by this
Agreement; or
(d) To any Person for any act or omission other than that arising from
gross negligence or willful misconduct of such Administrative Agent or the
Documentation Agent, as the case may be as determined by a final, non-appealable
judicial order of a court of competent jurisdiction.
Section 9.10 Indemnification. The Banks agree to indemnify the
---------------
Administrative Agent and the Documentation Agent (to the extent not reimbursed
by the Borrower) pro rata according to their respective Commitment Ratios and
the Incremental Facility Commitment Ratios (in each case, as of the date of the
request for indemnification hereunder) and obligations under Interest Hedge
Agreements (as of the date of the request for indemnification) to the extent
such obligations constitute Obligations, from and against any and all
liabilities,
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obligations, losses (other than the loss of principal and interest hereunder in
the event of a bankruptcy or out-of-court `work-out' of the Loans), damages,
penalties, actions, judgments, suits, costs, expenses (including reasonable fees
and expenses of experts, agents, consultants and counsel), or disbursements of
any kind or nature whatsoever which may be imposed on, incurred by or asserted
against the Administrative Agent and/or the Documentation Agent in any way
relating to or arising out of this Agreement, any other Loan Document, or any
other document contemplated by this Agreement or any other Loan Document or any
action taken or omitted by the Administrative Agent or the Documentation Agent
under this Agreement, any other Loan Document, or any other document
contemplated by this Agreement, except that no Bank shall be liable to the
Administrative Agent or the Documentation Agent for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses, or disbursements resulting from the gross negligence or willful
misconduct of the Administrative Agent or the Documentation Agent as determined
by a final, non-appealable judicial order of a court having jurisdiction over
the subject matter. The foregoing sentence shall also apply to each of the
Administrative Agent or the Documentation Agent.
Section 9.11 Credit Decision. Each Bank represents and warrants to each
---------------
other and to the Administrative Agent and the Documentation Agent that:
(a) In making its decision to enter into this Agreement and to make
its portion of the Loans it has independently taken whatever steps it considers
necessary to evaluate the financial condition and affairs of the Borrower and
that it has made an independent credit judgment, and that it has not relied upon
the Administrative Agent or the Documentation Agent or information provided by
the Administrative Agent or the Documentation Agent (other than information
provided to the Administrative Agent or the Documentation Agent by the Borrower
and forwarded by the Administrative Agent or the Documentation Agent to the
Banks); and
(b) So long as any portion of the Loans remains outstanding or such
Bank has an obligation to make its portion of Advances hereunder, it will
continue to make its own independent evaluation of the financial condition and
affairs of the Borrower.
Section 9.12 Successor Administrative Agent and Documentation Agent.
------------------------------------------------------
Subject to the appointment and acceptance of a successor Administrative Agent or
Documentation Agent as provided below, the Administrative Agent or the
Documentation Agent may resign at any time by giving written notice thereof to
the Banks and the Borrower and may be removed at any time for
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cause by the Majority Banks. Upon any such resignation or removal, the Majority
Banks shall have the right to appoint a successor Administrative Agent or
Documentation Agent, as the case may be, which appointment shall, prior to a
Default, be subject to the consent of the Borrower, acting reasonably. If no
successor Administrative Agent or Documentation Agent shall have been so
appointed by the Majority Banks (and with the consent of the Borrower to the
extent required in the preceding sentence) and shall have accepted such
appointment within thirty (30) days after the retiring Administrative Agent or
Documentation Agent gave notice of resignation or the Majority Banks removed the
retiring Administrative Agent or Documentation Agent, then the retiring
Administrative Agent or Documentation Agent may, on behalf of the Banks, appoint
a successor Administrative Agent or Documentation Agent which shall be any Bank
or a commercial bank organized under the laws of the United States of America or
any political subdivision thereof which has combined capital and reserves in
excess of $500,000,000. Upon the acceptance of any appointment as
Administrative Agent or Documentation Agent hereunder by a successor
Administrative Agent or Documentation Agent, such successor Administrative Agent
or Documentation Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges, duties and obligations of the retiring
Administrative Agent or Documentation Agent and the retiring Administrative
Agent or Documentation Agent shall be discharged from its duties and obligations
hereunder and under the other Loan Documents. After any retiring Administrative
Agent's or Documentation Agent's resignation or removal hereunder as
Administrative Agent or Documentation Agent the provisions of this Article shall
continue in effect for its benefit in respect of any actions taken or omitted to
be taken by it while it was acting as the Administrative Agent or Documentation
Agent. In the event that any of the Documentation Agent, or the Administrative
Agent or any of their respective affiliates ceases to be a Bank hereunder, such
Person shall resign its agency hereunder.
Section 9.13 Delegation of Duties. The Administrative Agent or the
--------------------
Documentation Agent may execute any of its duties under the Loan Documents by or
through agents or attorneys selected by it using reasonable care, and shall be
entitled to advice of counsel concerning all matters pertaining to such duties.
ARTICLE 10
Change in Circumstances
Affecting LIBOR Advances
------------------------
Section 10.1 LIBOR Basis Determination Inadequate. If with respect to any
------------------------------------
proposed LIBOR Advance for any Interest Period,
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the Administrative Agent determines after consultation with the Banks that
deposits in United States dollars (in the applicable amount) are not being
offered to any of the Banks in the relevant market for such Interest Period, the
Administrative Agent shall forthwith give notice thereof to the Borrower and the
Banks, whereupon until the Administrative Agent notifies the Borrower that the
circumstances giving rise to such situation no longer exist, the obligations of
any affected Bank to make its portion of such type of LIBOR Advances shall be
suspended. The Administrative Agent shall promptly notify the Borrower after
the Administrative Agent becomes aware that circumstances set forth in the
preceding sentence no longer exist.
Section 10.2 Illegality. If after the date hereof, the adoption of any
----------
Applicable Law, or any change in any Applicable Law (whether adopted before or
after the Agreement Date), or any change in interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Bank
with any directive (whether or not having the force of law) of any such
authority, central bank or comparable agency, shall make it unlawful for any
Bank to make, maintain or fund its portion of LIBOR Advances, such Bank shall so
notify the Administrative Agent, and the Administrative Agent shall forthwith
give notice thereof to the other Banks and the Borrower. Before giving any
notice to the Administrative Agent pursuant to this Section 10.2, such Bank
shall designate a different lending office if such designation will avoid the
need for giving such notice and will not, in the reasonable judgment of such
Bank, be otherwise materially disadvantageous to such Bank. Upon receipt of
such notice, notwithstanding anything contained in Article 2 hereof, the then
outstanding principal amount of such Bank's portion of each affected LIBOR
Advance, together with accrued interest thereon, shall automatically be
converted to a Base Rate Advance on either (a) the last day of the then current
Interest Period applicable to such affected LIBOR Advances if such Bank may
lawfully continue to maintain and fund its portion of such LIBOR Advance to such
day or (b) immediately if such Bank may not lawfully continue to fund and
maintain its portion of such affected LIBOR Advances to such day.
Section 10.3 Increased Costs.
---------------
(a) If after the date hereof, the adoption of any Applicable Law, or
any change in any Applicable Law (whether adopted before or after the Agreement
Date), or any interpretation or change in interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof or compliance by any Bank with
any directive (whether or not
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having the force of law) of any such authority, central bank or comparable
agency:
(1) shall subject any Bank to any tax, duty or other charge with
respect to its obligation to make its portion of LIBOR Advances, or its
portion of existing LIBOR Advances, or shall change the basis of taxation
of payments to any Bank of the principal of or interest on its portion of
LIBOR Advances or in respect of any other amounts due under this Agreement
in respect of its portion of LIBOR Advances or its obligation to make its
portion of LIBOR Advances (except for changes in the rate or method of
calculation of tax on the overall net income of such Bank); or
(2) shall impose, modify or deem applicable any reserve
(including, without limitation, any imposed by the Board of Governors of
the Federal Reserve System, but excluding any included in an applicable
LIBOR Reserve Percentage), special deposit, capital adequacy, assessment or
other requirement or condition against assets of, deposits with or for the
account of, or commitments or credit extended by, any Bank or shall impose
on any Bank or the London interbank borrowing market any other condition
affecting its obligation to make its portion of such LIBOR Advances or its
portion of existing LIBOR Advances;
and the result of any of the foregoing is to increase the cost to such Bank of
making or maintaining any of its portion of LIBOR Advances, or to reduce the
amount of any sum received or receivable by such Bank under this Agreement or
under its Note with respect thereto, then, the Borrower agrees to pay to such
Bank such additional amount or amounts as will compensate such Bank for such
increased costs. Each Bank will promptly notify the Borrower and the
Administrative Agent of any event of which it has knowledge, occurring after the
date hereof, which will entitle such Bank to compensation pursuant to this
Section 10.3 and will designate a different lending office if such designation
will avoid the need for, or reduce the amount of, such compensation and will
not, in the reasonable judgment of such Bank made in good faith, be otherwise
disadvantageous to such Bank. Any Bank claiming compensation under this Section
10.3 shall notify the Borrower of any event occurring after the date of this
Agreement entitling such Bank to such compensation as promptly as practicable;
provided that if such Bank fails to give such notice within forty-five (45) days
- --------
after it obtains actual knowledge of such an event, such Bank shall, with
respect to such compensation in respect of any costs resulting from such event,
only be entitled to payment under this Section 10.3 for costs incurred from and
after the date forty-five (45) days prior to the date that such Bank does give
such notice.
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(b) Any Bank claiming compensation under this Section 10.3 shall
provide the Borrower with a written certificate setting forth the additional
amount or amounts to be paid to it hereunder and calculations therefor in
reasonable detail. Such certificate shall be presumptively correct absent
manifest error. In determining such amount, such Bank may use any reasonable
averaging and attribution methods. If any Bank demands compensation under this
Section 10.3, the Borrower may at any time, upon at least five (5) Business
Days' prior notice to such Bank, prepay in full such Bank's portion of the then
outstanding LIBOR Advances, together with accrued interest thereon to the date
of prepayment, along with any reimbursement required under Section 2.10 hereof.
Concurrently with prepaying such portion of LIBOR Advances the Borrower may
borrow a Base Rate Advance, or a LIBOR Advance not so affected, from such Bank,
and such Bank shall, if so requested, make such Advance in an amount such that
the outstanding principal amount of the affected Note or Notes held by such Bank
shall equal the outstanding principal amount of such Note or Notes immediately
prior to such prepayment.
Section 10.4 Effect On Other Advances. If notice has been given pursuant
------------------------
to Section 10.1, 10.2 or 10.3 suspending the obligation of any Bank to make its
portion of any type of LIBOR Advance, or requiring such Bank's portion of LIBOR
Advances to be repaid or prepaid, then, unless and until such Bank notifies the
Borrower that the circumstances giving rise to such repayment no longer apply,
all amounts which would otherwise be made by such Bank as its portion of LIBOR
Advances shall, unless otherwise notified by the Borrower, be made instead as
Base Rate Advances.
Section 10.5 Claims for Increased Costs and Taxes. In the event that any
------------------------------------
Bank shall decline to make LIBOR Advances pursuant to Section 10.1 or 10.2
hereof or shall have notified the Borrower that it is entitled to claim
compensation pursuant to Section 2.10, 2.12 or 10.3 hereof or is unable to
complete the form required or subject to withholding as provided in Section 2.13
hereof (each such Bank being an "Affected Bank"), the Borrower may designate a
-------------
replacement bank (a "Replacement Bank") to assume the Commitment (and/or
----------------
Incremental Facility Commitment) and the obligations of any such Affected Bank
hereunder, and to purchase the outstanding Note (and/or Incremental Facility
Commitment) of such Affected Bank and such Affected Bank's rights hereunder and
with respect thereto, without recourse upon, or warranty by, or expense to, such
Affected Bank, for a purchase price equal to the outstanding principal amount of
the Loans of such Affected Bank plus all interest accrued and unpaid thereon and
all other amounts owing to such Affected Bank hereunder, including without
limitation, any amount which would be payable to such Affected Bank pursuant to
Section 2.10, and upon such assumption and purchase by the Replacement Bank,
such Replacement
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Bank shall be deemed to be a "Bank" for purposes of this Agreement and such
Affected Bank shall cease to be a "Bank" for purposes of this Agreement and
shall no longer have any obligations or rights hereunder (other than any
obligations or rights which according to this Agreement shall survive the
termination of the Commitment). In the event any Bank receives a refund with
respect to withholding taxes paid by the Borrower, such Bank shall promptly
repay such amounts to the Borrower.
ARTICLE 11
Miscellaneous
-------------
Section 11.1 Notices.
-------
(a) Except as otherwise expressly provided herein, all notices and
other communications under this Agreement and the other Loan Documents (unless
otherwise specifically stated therein) shall be in writing and shall be deemed
to have been given three (3) Business Days after deposit in the mail, designated
as certified mail, return receipt requested, postage-prepaid, or one (1)
Business Day after being entrusted to a reputable commercial overnight delivery
service for next day delivery, or when sent on a Business Day prior to 5:00 p.m.
(New York time) or, if later, the next Business Day, by telecopy addressed to
the party to which such notice is directed at its address determined as provided
in this Section 11.1. All notices and other communications under this Agreement
shall be given to the parties hereto at the following addresses:
(i) If to the Borrower, to it at:
TCG New York, Inc.
c/o Teleport Communications Group Inc.
Princeton Technology Center
429 Ridge Road
Dayton, New Jersey 08810
Attention: John Scarpati
Telecopy No.: (908) 392-3600
With copies to:
Teleport Communications Group Inc.
Two Teleport Drive
Staten Island, New York 10311
Attention: John W. Thomson, Esq.
Telecopy No.: (718) 983-4343
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And:
Dow, Lohnes & Albertson PLLC
1200 New Hampshire Avenue, N.W.
Suite 800
Washington, D.C. 20036
Attention: Kevin F. Reed, Esq.
-------------------------------
Telecopy No.: (202) 776-2222
(ii) If to the Administrative Agent, to it at:
Toronto Dominion (Texas), Inc.
909 Fannin, Suite 1700
Houston, Texas 77010
Attn: Manager, Agency
Telecopy No.: (713) 951-9921
With a copy to:
Powell, Goldstein, Frazer & Murphy LLP
Sixteenth Floor
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attn: Douglas S. Gosden, Esq.
Telecopy No.: (404) 572-6999
(iii) If to the Documentation Agent, to it at:
The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attn: Ann B. Kerns, Vice President
Telecopy No.: (212) 270-4584
With copies to:
Powell, Goldstein, Frazer & Murphy
Sixteenth Floor
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Attn: Douglas S. Gosden, Esq.
Telecopy No.: (404) 572-6999
Toronto Dominion (Texas), Inc.
c/o The Toronto-Dominion Bank
909 Fannin, Suite 1700
Houston, Texas 77010
Attn: Manager, Agency
Telecopy No.: (713) 951-9921
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The Toronto-Dominion Bank
USA Division
31 West 52nd Street
New York, NY 10019-6101
Attn: Communications Finance Group
Telecopy No.: (212) 262-1928
(iv) If to the Banks, to them at the addresses set forth beside their
names on the signature pages hereof.
Copies shall be provided to persons other than parties hereto only in the case
of notices under Article 8 hereof and the failure to provide such copies shall
not affect the validity of the notice given to the primary recipient.
(b) Any party hereto may change the address to which notices shall be
directed under this Section 11.1 by giving ten (10) days' written notice of such
change to the other parties.
Section 11.2 Expenses. The Borrower will promptly pay, or reimburse:
--------
(a) all reasonable out-of-pocket expenses of the Administrative Agent
in connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Loan Documents, and the transactions contemplated
hereunder and thereunder and the making of the initial Advance hereunder
(whether or not such Advance is made), including, but not limited to, the
reasonable fees and disbursements of Powell, Goldstein, Frazer & Murphy, special
counsel for the Administrative Agent and the Documentation Agent;
(b) all reasonable out-of-pocket expenses of the Administrative Agent
and the Documentation Agent in connection with the restructuring and "work out"
of the transactions contemplated in this Agreement or the other Loan Documents,
and the preparation, negotiation, execution and delivery of any waiver,
amendment or consent by the Administrative Agent or the Documentation Agent and
the Banks, or any of them, relating to this Agreement or the other Loan
Documents, including, but not limited to, the reasonable fees and disbursements
of any experts, agents or consultants and of a single law firm acting as special
counsel for the Administrative Agent and the Documentation Agent; and
(c) all out-of-pocket costs and expenses of enforcement under this
Agreement or the other Loan Documents and all out-of-pocket costs and expenses
of collection if an Event of Default occurs in the payment of the Loans, which
in each case
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shall include reasonable fees and out-of-pocket expenses of respective counsel
for, or allocated costs of in-house counsel of, the Administrative Agent and the
Documentation Agent and the Banks.
Section 11.3 Waivers. The rights and remedies of the Administrative Agent,
-------
the Documentation Agent and the Banks under this Agreement and the other Loan
Documents shall be cumulative and not exclusive of any rights or remedies which
they would otherwise have. No failure or delay by the Administrative Agent, the
Documentation Agent, the Majority Banks, or the Banks, or any of them, in
exercising any right, shall operate as a waiver of such right. The
Administrative Agent, the Documentation Agent and the Banks expressly reserve
the right to require strict compliance with the terms of this Agreement in
connection with any future funding of a Request for Advance. In the event the
Banks decide to fund a Request for Advance at a time when the Borrower is not in
strict compliance with the terms of this Agreement, such decision by the Banks
shall not be deemed to constitute an undertaking by the Banks to fund any
further Request for Advance or preclude the Banks, the Documentation Agent or
the Administrative Agent from exercising any rights available under the Loan
Documents or at law or equity. Any waiver or indulgence granted by the
Administrative Agent, the Documentation Agent, the Banks, or the Majority Banks,
shall not constitute a modification of this Agreement or any other Loan
Document, except to the extent expressly provided in such waiver or indulgence,
or constitute a course of dealing at variance with the terms of this Agreement
or any other Loan Document such as to require further notice of their intent to
require strict adherence to the terms of this Agreement or any other Loan
Document in the future.
Section 11.4 Set-Off. In addition to any rights now or hereafter granted
-------
under Applicable Law and not by way of limitation of any such rights, upon the
occurrence of an Event of Default and during the continuation thereof, each of
the Administrative Agent or the Documentation Agent, and each of the Banks are
hereby authorized by the Borrower at any time or from time to time, without
notice to the Borrower or to any other Person, any such notice being hereby
expressly waived, to set off and to appropriate and to apply any and all
deposits (general or special, time or demand, including, but not limited to,
Indebtedness evidenced by certificates of deposit, in each case whether matured
or unmatured) and any other Indebtedness at any time held or owing by any Bank
or Administrative Agent or the Documentation Agent, to or for the credit or the
account of the Borrower or any of its Restricted Subsidiaries, against and on
account of the obligations and liabilities of the Borrower to the Banks and the
Administrative Agent or the Documentation Agent, including, but not limited to,
all Obligations and any other
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claims of any nature or description arising out of or connected with this
Agreement, the Notes or any other Loan Document, irrespective of whether (a) any
Bank or Administrative Agent or the Documentation Agent shall have made any
demand hereunder or (b) any Bank or Administrative Agent or the Documentation
Agent shall have declared the principal of and interest on the Loans and other
amounts due hereunder to be due and payable as permitted by Section 8.2 and
although such obligations and liabilities or any of them shall be contingent or
unmatured. Upon direction by the Administrative Agent, with the consent of the
Banks, each Bank holding deposits of the Borrower or any of its Restricted
Subsidiaries shall exercise its set-off rights as so directed; and, within one
(1) Business Day following any such setoff, the Administrative Agent shall give
notice thereof to the Borrower.
Section 11.5 Assignment.
----------
(a) The Borrower may not assign or transfer any of its rights or
obligations hereunder, under the Notes or under any other Loan Document without
the prior written consent of each Bank.
(b) Each Bank may sell assignments or participations of one hundred
percent (100%) (or, with the consent of the Borrower not to be unreasonably
withheld or delayed, a smaller percentage) of its Commitment and Incremental
Facility Commitment or Loans hereunder to (A) one or more wholly-owned
Affiliates of such Bank (provided that, if such Affiliate is not a financial
institution, such Bank shall be obligated to repurchase such assignment if such
Affiliate is unable to honor its obligations hereunder), or (B) any Federal
Reserve Bank as collateral security pursuant to Regulation A of the Board of
Governors of the Federal Reserve System and any Operating Circular issued by
such Federal Reserve Bank (no such assignment referred to in this clause (B)
shall relieve such Bank from its obligations hereunder).
(c) Each of the Banks may at any time enter into assignment agreements
or participations with one or more other banks or other financial institutions
pursuant to which each Bank may assign or participate its interest under this
Agreement and the other Loan Documents, including, its interest in any
particular Advance or portion thereof, provided, that (1) all assignments (other
--------
than assignments described in clause (b) hereof) shall be in minimum principal
amounts of $5,000,000, and (2) all assignments and participations (other than
assignments and participations described in clause (b) hereof) hereunder shall
be subject to the following additional terms and conditions to the extent
expressly applicable thereto:
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(i) No assignment shall be sold without the prior consent of the
Administrative Agent and, so long as a Default has not occurred and is
continuing, the Borrower, which consents shall not be unreasonably withheld
or delayed;
(ii) Any Person purchasing a participation or an assignment of
any portion of the Loans from any Bank shall be required to represent and
warrant that its purchase shall not constitute a "prohibited transaction"
(as defined in Section 4.1(m) hereof);
(iii) The Borrower, the Banks, and the Administrative Agent
agree that assignments permitted hereunder (including the assignment of any
Advance or portion thereof) may be made with all voting rights, and shall
be made pursuant to an Assignment and Assumption Agreement substantially in
the form of Exhibit Q attached hereto. An administrative fee of $3,500
---------
shall be payable to the Administrative Agent by the assigning Bank at the
time of any assignment under this Section 11.5(c);
(iv) No participation agreement shall confer any rights under
this Agreement or any other Loan Document to any purchaser thereof, or
relieve any Bank from any of its obligations under this Agreement, and all
actions hereunder shall be conducted as if no such participation had been
granted; provided, however, that any participation agreement may confer on
-------- -------
the participant the right to approve or disapprove decreases in the
interest rate, increases in or forgiveness of the principal amount of the
Loans participated in by such participant, decreases in fees, extensions of
the Maturity Date or other principal payment date for the Loans or of the
scheduled reduction of the Commitment and releases of Collateral or
guarantors, except for Collateral the sale or disposition of which is
permitted hereunder;
(v) Each Bank agrees to provide the Administrative Agent and the
Borrower with prompt written notice of any issuance of participations in or
assignments of its interests hereunder;
(vi) No assignment, participation or other transfer of any rights
hereunder or under the Notes shall be effected that would result in any
interest requiring registration under the Securities Act of 1933, as
amended, or qualification under any state securities law;
(vii) No such assignment may be made to any bank or other
financial institution (x) with respect to which a
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<PAGE>
receiver or conservator (including, without limitation, the Federal Deposit
Insurance Corporation, the Resolution Trust Company or the Office of Thrift
Supervision) has been appointed or (y) that with respect to any assignee
that is a bank, to the knowledge of the assignor after due inquiry, is not
"adequately capitalized" (as such term is defined in Section 131(b)(1)(B)
of the Federal Deposit Insurance Corporation Improvement Act as in effect
on the Agreement Date); and
(viii) If applicable, each Bank shall, and shall cause each of
its assignees to, provide to the Administrative Agent on or prior to the
effective date of any assignment an appropriate Internal Revenue Service
form as required by Applicable Law supporting such Bank's or assignee's
position that no withholding by the Borrower or the Administrative Agent
for U.S. income tax payable by such Bank or assignee in respect of amounts
received by it hereunder is required. For purposes of this Agreement, an
appropriate Internal Revenue Service form shall mean Form 1001 (Ownership
Exemption or Reduced Rate Certificate of the U.S. Department of Treasury),
or Form 4224 (Exemption from Withholding of Tax on Income Effectively
Connected with the Conduct of a Trade or Business in the United States), or
any successor or related forms adopted by the relevant U.S. taxing
authorities.
(d) Except as specifically set forth in Section 11.5(c) hereof,
nothing in this Agreement or the Notes, expressed or implied, is intended to or
shall confer on any Person other than the respective parties hereto and thereto
and their successors and assignees permitted hereunder and thereunder any
benefit or any legal or equitable right, remedy or other claim under this
Agreement or the Notes.
(e) In the case of any participation, all amounts payable by the
Borrower under the Loan Documents shall be calculated and made in the manner and
to the parties hereto as if no such participation had been sold.
(f) Except as specifically set forth in Section 11.5(c) hereof,
nothing in this Agreement or the Notes, expressed or implied, is intended to or
shall confer on any person other than the respective parties hereto and thereto
and their successors and assignees permitted hereunder and thereunder any
benefit or any legal or equitable right, remedy or other claim under this
Agreement or the Notes.
(g) The provisions of this Section 11.5 shall not apply to any
purchase of participations among the Banks pursuant to Section 2.11 hereof.
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Section 11.6 Accounting Principles. All references in this Agreement to
---------------------
GAAP shall be to such principles as in effect from time to time. All accounting
terms used herein without definition shall be used as defined under GAAP. All
financial or accounting calculations or determinations required pursuant to this
Agreement unless otherwise expressly provided shall be made in accordance with
GAAP and shall be made on a consolidated basis for the Borrower and the
Restricted Subsidiaries.
Section 11.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.
Section 11.8 Governing Law. This Agreement and the Notes shall be
-------------
construed in accordance with and governed by the internal laws of the State of
New York applicable to agreements made and to be performed in New York. If any
action or proceeding shall be brought by the Administrative Agent or the
Documentation Agent or any Bank hereunder or under any other Loan Document in
order to enforce any right or remedy under this Agreement or under any Note or
any other Loan Document, the Borrower hereby consents and will, and the Borrower
will cause each Restricted Subsidiary to, submit to the jurisdiction of any
state or federal court of competent jurisdiction sitting within the area
comprising the Southern District of New York on the date of this Agreement. The
Borrower, for itself and on behalf of its Restricted Subsidiaries, hereby agrees
that service of the summons and complaint and all other process which may be
served in any such suit, action or proceeding may be effected by mailing by
registered mail a copy of such process to the offices of the Borrower at the
address given in Section 11.1 hereof and that personal service of process shall
not be required. Nothing herein shall be construed to prohibit service of
process by any other method permitted by law, or the bringing of any suit,
action or proceeding in any other jurisdiction. The Borrower agrees that final
judgment in such suit, action or proceeding shall be conclusive and may be
enforced in any other jurisdiction by suit on the judgment or in any other
manner provided by Applicable Law.
Section 11.9 Severability. Any provision of this Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof in that jurisdiction or affecting the validity or
enforceability of such provision in any other jurisdiction.
Section 11.10 Interest.
--------
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<PAGE>
(a) In no event shall the amount of interest due or payable hereunder
or under the Notes exceed the maximum rate of interest allowed by Applicable
Law, and in the event any such payment is inadvertently made by the Borrower or
inadvertently received by the Administrative Agent or any Bank, then such excess
sum shall be credited as a payment of principal, unless the Borrower shall
notify the Administrative Agent or such Bank, in writing, that it elects to have
such excess sum returned forthwith. It is the express intent hereof that the
Borrower not pay and the Administrative Agent and the Banks not receive,
directly or indirectly in any manner whatsoever, interest in excess of that
which may legally be paid by the Borrower under Applicable Law.
(b) Notwithstanding the use by the Banks of the Base Rate and the
LIBOR Rate as reference rates for the determination of interest on the Loans,
the Banks shall be under no obligation to obtain funds from any particular
source in order to charge interest to the Borrower at interest rates related to
such reference rates.
Section 11.11 Table of Contents and Headings. The Table of Contents and
------------------------------
the headings of the various subdivisions used in this Agreement are for
convenience only and shall not in any way modify or amend any of the terms or
provisions hereof, nor be used in connection with the interpretation of any
provision hereof.
Section 11.12 Amendment and Waiver. Neither this Agreement nor any term
--------------------
hereof nor any Loan Document may be amended orally, nor may any provision hereof
be waived orally, but only by an instrument in writing signed by the Majority
Banks or the Borrower, as the case may be, and, in the case of an amendment, by
the Borrower and the Majority Banks, except that in the event of (a) any
increase in the amount of any Bank's portion of the Commitment, (b) any delay or
extension in the terms of repayment of the Loans or reduction of the Commitment
provided in Section 2.5 or 2.7 hereof, (c) any reduction in principal, interest
or fees due hereunder or postponement of the payment thereof without a
corresponding payment by the Borrower, (d) any release of any portion of the
Collateral for the Loans except for Collateral the sale or disposition of which
is permitted hereunder, (e) any waiver of any Default due to the failure by the
Borrower to pay any sum due to any of the Banks hereunder, (f) any release of
any Guaranty of all or any portion of the Obligations, except in connection with
a merger, sale or other disposition otherwise permitted hereunder (in which
case, such release shall require no further approval by the Banks), or (g) any
amendment of this Section 11.12, of the definition of Majority Banks, or of any
Section herein to the extent that such Section requires action by all Banks, any
amendment or waiver or
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<PAGE>
consent may be made only by an instrument in writing signed by each of the Banks
and, in the case of an amendment, by the Borrower. Any amendment to any
provision hereunder governing the rights, obligations, or liabilities of the
Administrative Agent or the Documentation Agent, in each case, in its capacity
as such, may be made only by an instrument in writing signed by such affected
Person and by each of the Banks.
Section 11.13 Entire Agreement. Except as otherwise expressly provided
----------------
herein, this Agreement and the other documents described or contemplated herein
will embody the entire agreement and understanding among the parties hereto and
thereto and supersede all prior agreements and understandings relating to the
subject matter hereof and thereof.
Section 11.14 Other Relationships. No relationship created hereunder or
-------------------
under any other Loan Document shall in any way affect the ability of the
Administrative Agent or the Documentation Agent and each Bank to enter into or
maintain business relationships with the Borrower or any of its Affiliates
beyond the relationships specifically contemplated by this Agreement and the
other Loan Documents.
Section 11.15 Directly or Indirectly. If any provision in this Agreement
----------------------
refers to any action taken or to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether such action
is taken directly or indirectly by such Person, whether or not expressly
specified in such provision; provided, however, that any action taken by an
-------- -------
Unrestricted Subsidiary shall not be deemed to have been taken by the Borrower
or any Restricted Subsidiary.
Section 11.16 Reliance on and Survival of Various Provisions. All
----------------------------------------------
covenants, agreements, statements, representations and warranties made herein or
in any certificate delivered pursuant hereto (i) shall be deemed to have been
relied upon by the Administrative Agent or the Documentation Agent and each of
the Banks notwithstanding any investigation heretofore or hereafter made by
them, and (ii) shall survive the execution and delivery of the Notes and shall
continue in full force and effect so long as any Note is outstanding and unpaid.
Any right to indemnification hereunder, including, without limitation, rights
pursuant to Sections 2.10, 2.12, 5.12, 10.3 and 11.2 hereof, shall survive the
termination of this Agreement and the payment and performance of all
Obligations.
Section 11.17 Senior Debt. The Obligations are secured by the Security
-----------
Documents and are intended by the parties hereto to be in parity with the
Interest Hedge Agreements and senior in right of payment to all other
Indebtedness of the Borrower except for Indebtedness secured by Permitted Liens
(to the extent such
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Liens are statutorily senior to the Liens securing the Obligations).
Section 11.18 Obligations Several. The obligations of the Administrative
-------------------
Agent and each of the Banks hereunder are several, not joint.
Section 11.19 Confidentiality. The Banks shall hold all non-public,
---------------
proprietary or confidential information (which has been identified as such by
the Borrower) obtained pursuant to the requirements of this Agreement in
accordance with their customary procedures for handling confidential information
of this nature and in accordance with safe and sound banking practices;
provided, however, the Banks may make disclosure of any such information to such
- -------- -------
of their examiners, Affiliates, outside auditors, counsel, consultants,
appraisers and other professional advisors as may be reasonably necessary in
connection with this Agreement or as reasonably required by any proposed
syndicate member or any proposed transferee or participant in connection with
the contemplated transfer of any Note or participation therein or as required or
requested by any governmental authority or representative thereof or in
connection with the enforcement hereof or of any Loan Document or related
document or pursuant to legal process or with respect to any litigation between
or among the Borrower and any of the Banks; provided, however, that, as a
-------- -------
condition to receipt of any such information, each such Affiliate, auditor,
counsel, consultant, appraiser, professional advisor, proposed transferee or
participant shall agree in writing to treat all such information as
confidential; and provided, further, that prior to any such disclosure to any
-------- -------
unrelated entity outside the ordinary course of business or pursuant to legal
process, the disclosing Bank shall give notice of such disclosure to the
Borrower and cooperate with the Borrower in any efforts to limit or restrict
such disclosure. In no event shall any Bank be obligated or required to return
any materials furnished to it by the Borrower. The foregoing provisions shall
not apply to a Bank with respect to information that (i) is or becomes generally
available to the public (other than through such Bank), (ii) is already in the
possession of such Bank on a nonconfidential basis, or (iii) comes into the
possession of such Bank in a manner not known to such Bank to involve a breach
of a duty of confidentiality owing to the Borrower.
ARTICLE 12
Waiver of Jury Trial
--------------------
Section 12.1 Waiver of Jury Trial. THE BORROWER, FOR ITSELF AND ON BEHALF
--------------------
OF THE RESTRICTED SUBSIDIARIES, THE ADMINISTRATIVE
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AGENT, THE DOCUMENTATION AGENT AND THE BANKS, HEREBY AGREE TO WAIVE AND HEREBY
WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY COURT AND IN ANY ACTION OR PROCEEDING
OF ANY TYPE IN WHICH THE BORROWER, ANY OF THE RESTRICTED SUBSIDIARIES, ANY OF
THE BANKS, THE ADMINISTRATIVE AGENT, THE DOCUMENTATION AGENT OR ANY OF THEIR
RESPECTIVE SUCCESSORS OR ASSIGNS IS A PARTY, AS TO ALL MATTERS AND THINGS
ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT, ANY OF THE NOTES OR THE
OTHER LOAN DOCUMENTS AND THE RELATIONS AMONG THE PARTIES LISTED IN THIS SECTION
12.1. EXCEPT AS PROHIBITED BY LAW, EACH PARTY TO THIS AGREEMENT WAIVES ANY
RIGHTS IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THIS
SECTION, ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY
DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. EACH PARTY TO THIS
AGREEMENT (i) CERTIFIES THAT NEITHER ANY REPRESENTATIVE, AGENT OR ATTORNEY OF
THE ADMINISTRATIVE AGENT, THE DOCUMENTATION AGENT OR ANY BANK HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT THE ADMINISTRATIVE AGENT, THE DOCUMENTATION AGENT
OR ANY BANK WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVERS AND (ii) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT AND EACH OTHER LOAN DOCUMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION. THE PROVISIONS OF THIS SECTION HAVE
BEEN FULLY DISCLOSED BY AND TO THE PARTIES AND THE PROVISIONS SHALL BE SUBJECT
TO NO EXCEPTIONS. NO PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY
OTHER PARTY THAT THE PROVISIONS OF THIS SECTION WILL NOT BE FULLY ENFORCED IN
ALL INSTANCES.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement or
caused it to be executed by their duly authorized officers, all as of the day
and year first above written.
BORROWER: TCG NEW YORK, INC., a Delaware corporation
By: Wayne G. Fox
-----------------------------------------------
Its: Vice President & Treasurer
-----------------------------------------------
ADMINISTRATIVE AGENT: TORONTO DOMINION (TEXAS), INC.
By: Jano Mott
-----------------------------------------------
Its: Vice President
-----------------------------------------------
DOCUMENTATION AGENT: THE CHASE MANHATTAN BANK (formerly Chemical Bank)
By: Ann B. Kerns
-----------------------------------------------
Its: Vice President
-----------------------------------------------
BANKS:
ADDRESS: TORONTO DOMINION (TEXAS), INC.
909 Fannin Street
Suite 1700 By: Jano Mott
Houston, Texas 77010 -----------------------------------------------
<PAGE>
Its: Vice President
-----------------------------------------------
with a copy to:
USA Division
31 West 52nd Street
New York, NY 10019-6101
ADDRESS: THE CHASE MANHATTAN BANK (formerly
Chemical Bank)
One Chase Manhattan Plaza
8th Floor By: Ann B. Kerns
New York, New York 10081 -----------------------------------------------
Telecopy No.: (212) 270-1204 Its: Vice President
-----------------------------------------------
ADDRESS: BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
555 S. California Street
San Francisco, CA 94104 By: R. Vernon Howard, Jr.
Telecopy No.: (415) 622-2514 ------------------------------------------------
Its: Managing Director
------------------------------------------------
ADDRESS: BANK OF HAWAII
Bancorp Tower
130 Merchant Street By: J. Bryan Scearce
Honolulu, HI 96813 ------------------------------------------------
Telecopy No.: (808) 537-8301 Its: Vice President
------------------------------------------------
ADDRESS: BANK OF MONTREAL CHICAGO BRANCH
430 Park Avenue
New York, New York 10022 By: W.T. Cobb
Telecopy No.: (212) 605-1648 ------------------------------------------------
Its:
------------------------------------------------
ADDRESS: THE BANK OF NEW YORK COMPANY, INC.
One Wall Street
16th Floor By: James Whitaker
New York, New York 10286 ------------------------------------------------
Telecopy No.: (212) 635-8593 Its: Authorized Signer
------------------------------------------------
<PAGE>
ADDRESS: THE BANK OF NOVA SCOTIA
One Liberty Plaza
New York, NY 10006 By: Vincent J. Fitzgerald, Jr.
Telecopy No.: (212) 225-5090 ------------------------------------------------
Its: Authorized Signatory
------------------------------------------------
ADDRESS: BANK OF TOKYO-MITSUBISHI TRUST COMPANY
1251 Avenue of the Americas
New York, New York 10020 By: John P. Judge
Telecopy No.: (212) 782-4935 ------------------------------------------------
Its: Vice President & Co-Head
------------------------------------------------
ADDRESS: CORESTATES BANK, N.A.
FC 1-8-11-28
1339 Chestnut Street By: Elizabeth Elmore
Philadelphia, PA 19101 ------------------------------------------------
Telecopy No.: (215) 786-7721 Its: Vice President
------------------------------------------------
ADDRESS: CREDIT LYONNAIS NEW YORK BRANCH
1301 Avenue of the Americas
18th Floor
New York, NY 10019 By: Stephen C. Levi
Telecopy No.: (212) 261-3288 ------------------------------------------------
Its: Vice President
------------------------------------------------
ADDRESS: FLEET NATIONAL BANK
One Federal Street
Boston, MA 02110 By: Vincent J. Rivers
Telecopy No.: (617) 346-4346 ------------------------------------------------
Its: Banking Officer
------------------------------------------------
ADDRESS: GOLDMAN SACHS CREDIT PARTNERS L.P.
85 Broad Street
26th Floor By: John E. Urban
New York, New York 10004 ------------------------------------------------
Telecopy No.: (212) 357-4451 Its: Authorized Signer
------------------------------------------------
<PAGE>
ADDRESS: LEHMAN COMMERCIAL PAPER INC.
3 World Financial Center
10th Floor By: Michele Swanson
New York, New York 10285 ------------------------------------------------
Telecopy No.: (212) 526-0819 Its: Authorized Signatory
------------------------------------------------
ADDRESS: THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED
165 Broadway, 49th Floor
New York, NY 10006 By: Shuichi Tajima
Telecopy No.: (212) 608-2371 ------------------------------------------------
Its: Deputy General Manager
------------------------------------------------
ADDRESS: MELLON BANK, N.A.
1735 Market Street
Room 750 By: G.L. Ashley
Philadelphia, PA 19103 ------------------------------------------------
Telecopy No.: (215) 553-4899 Its: First Vice President
------------------------------------------------
ADDRESS: MORGAN GUARANTY TRUST COMPANY OF NEW YORK
60 Wall Street
22nd Floor By: George J. Stapleton
New York, New York 10260 ------------------------------------------------
Telecopy No.: (212) 648-5014 Its: Vice President
------------------------------------------------
ADDRESS: NATIONSBANK OF TEXAS, N.A.
901 Main Street
Dallas, TX 75202 By: Jennifer Zydney
Telecopy No.: (214) 508-9390 ------------------------------------------------
Its: Vice President
------------------------------------------------
ADDRESS: PNC BANK, NATIONAL ASSOCIATION
Mail Stop F2-F070-21-1
1600 Market Street By: Scott C. Meves
21st Floor ------------------------------------------------
Philadelphia, PA 19103 Its: Senior Vice President
Telecopy No.: (215) 585-6680 ------------------------------------------------
<PAGE>
ADDRESS: ROYAL BANK OF CANADA
Grand Cayman (North
America No. 1) Branch By: Andy Cozewith
c/o New York Branch ------------------------------------------------
Financial Square, 23rd Floor Its: Manager
32 Old Slip ------------------------------------------------
New York, New York 10005-3531
Attention: Manager, Credit Administration
Telecopy No.: (212) 428-2372
with a copy to:
--------------
One Financial Square
24th Floor
New York, NY 10005
Attention: John P. Page
Telecopy No.: (212) 428-6460
ADDRESS: SOCIETE GENERALE, NEW YORK BRANCH
1221 Avenue of the Americas
New York, NY 10020 By: John Sadih-Khan
Telecopy No.: (212) 278-6240 ------------------------------------------------
Its: Vice President
------------------------------------------------
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement No. 333-37597 of Teleport Communications Group Inc.
(the "Company") of our report dated February 21, 1997 (February 28, 1997 and
March 1, 1997 as to Note 3), appearing in the Annual Report on Form 10-K of
the Company for the year ended December 31, 1996, as amended, and to the
reference to us under the headings "Summary Consolidated and Combined
Financial and Other Operating Data"; "Selected Consolidated and Combined
Financial Data"; and "Experts" in the Prospectus, which is part of this
Registration Statement.
Deloitte & Touche LLP
New York, New York
November 3, 1997
