<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 7, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TELIGENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE 4812 54-1866562
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
------------------
8065 LEESBURG PIKE
VIENNA, VA 22182
(703) 762-5100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
LAURENCE E. HARRIS
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
TELIGENT, INC.
8065 LEESBURG PIKE
VIENNA, VA 22182
(703) 762-5100
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
Copies to:
<TABLE>
<S> <C>
MARK C. SMITH ROBERT EVANS III
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP SHEARMAN & STERLING
919 THIRD AVENUE 599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10022
(212) 735-3000 (212) 848-4000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Senior Notes due 2007....................................... $ 250,000,000 $ 75,758
Senior Discount Notes due 2007.............................. $ 150,000,000 $ 45,455
Total....................................................... $ 400,000,000 $ 121,213
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD
NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE
ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 7, 1997
PROSPECTUS
$400,000,000 GROSS PROCEEDS
TELIGENT, INC. [LOGO]
$ % SENIOR NOTES DUE 2007
$ % SENIOR DISCOUNT NOTES DUE 2007
------------------------
Teligent, Inc. ('Teligent' or the 'Company') is offering (the 'Notes
Offering') $ million aggregate principal amount of its % Senior
Notes due 2007 (the 'Senior Notes') and $ million aggregate principal
amount at maturity of its % Senior Discount Notes due 2007 (the 'Senior
Discount Notes' and, together with the Senior Notes, the 'Notes'). Upon the
closing of the Notes Offering, the Company will use approximately $
million of the net proceeds to purchase Pledged Securities (as defined herein)
(in such amount as will be sufficient to provide for payment in full of the
interest due on the Senior Notes through , 2000) that will be pledged
as security for repayment of the Senior Notes. See 'Use of Proceeds.' The Senior
Discount Notes will be issued at a discount to their aggregate principal amount
at maturity to generate gross proceeds to the Company of approximately
$ million. The yield to maturity of the Senior Discount Notes is %
(computed on a semi-annual bond equivalent basis), calculated from ,
1997. See 'Certain Federal Income Tax Considerations.'
Interest on the Senior Notes will accrue at a rate of % per annum and
will be payable in cash semi-annually on and , commencing on
, 1998. Cash interest will not accrue on the Senior Discount Notes
prior to , 2002. Thereafter, interest on the Senior Discount Notes will
accrue at a rate of % per annum and will be payable in cash semi-annually on
and , commencing on , 2002.
On or after , 2002, the Notes will be redeemable at the option of
the Company, in whole at any time or in part from time to time, at the
redemption prices set forth herein, together with interest accrued to the
redemption date. In addition, at any time on or prior to , 2000, the
Company may redeem up to 35% of the originally issued principal amount of Senior
Notes and up to 35% of the originally issued principal amount at Stated Maturity
(as defined herein) of Senior Discount Notes, at a redemption price of % of
the principal amount, plus accrued and unpaid interest thereon, if any, to the
redemption date, in the case of the Senior Notes, and % of the Accreted Value
(as defined herein) at the redemption date, in the case of the Senior Discount
Notes, with the net cash proceeds of (a) one or more Public Equity Offerings (as
defined herein) of Common Stock (as defined herein) of the Company (other than
the Equity Offerings) or (b) a sale or series of related sales by the Company of
its Common Stock to one or more Strategic Equity Investors (as defined herein)
(other than the Transactions (as defined herein)); provided, that at least 65%
of the originally issued principal amount of Senior Notes and at least 65% of
the originally issued principal amount at Stated Maturity of Senior Discount
Notes remains outstanding immediately after giving effect to such redemption.
(continued on next page)
SEE 'RISK FACTORS' BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS IN EVALUATING AN INVESTMENT
IN THE NOTES.
------------------------
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>
PRINCIPAL AMOUNT PRICE TO UNDERWRITING PROCEEDS TO
AT MATURITY PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
<S> <C> <C> <C> <C>
Per Senior Note.................... 100% % % %
Total.............................. $ $ $ $
Per Senior Discount Note........... 100% % % %
Total.............................. $ $ $ $
</TABLE>
(1) Plus accrued interest, if any, in the case of the Senior Notes, and accrued
original issue discount, if any, in the case of the Senior Discount Notes,
from , 1997.
(2) The Company has agreed to indemnify the Underwriters (as defined herein)
against certain liabilities, including liabilities under the Securities Act
of 1933, as amended. See 'Underwriting.'
(3) Before deducting expenses payable by the Company estimated at $ .
------------------------
The Notes are offered by the Underwriters, subject to prior sale, when, as
and if issued to and accepted by the Underwriters, and subject to the 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 Notes will be made through the book-entry facilities of The
Depository Trust Company on or about , 1997.
------------------------
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
TD SECURITIES
GOLDMAN, SACHS & CO.
------------------------
The date of this Prospectus is , 1997.
<PAGE>
(continued from previous page)
The Notes will be senior unsecured (except, in the case of the Senior Notes,
for the pledge by the Company of the Pledged Securities) obligations of the
Company. The Notes will rank pari passu in right of payment with all other
existing and future senior unsecured indebtedness of the Company. The Company
expects to incur substantial additional indebtedness (including secured
indebtedness) following the Notes Offering. Such indebtedness, if incurred, will
effectively rank senior to the Notes with respect to the assets securing such
indebtedness. In addition, the Notes will be effectively subordinated to all
liabilities of each subsidiary of the Company to its respective creditors. See
'Risk Factors--Substantial Leverage; Ability to Service Indebtedness' and
'Description of the Notes--General.'
Upon the occurrence of a Change of Control (as defined herein), unless the
Company has given a notice of redemption, each Holder (as defined herein) will
have the right to require the Company to repurchase all or any part of such
Holder's Notes at a purchase price in cash equal to 101% of the principal amount
thereof (in the case of the Senior Notes) or 101% of the Accreted Value thereof
(in the case of the Senior Discount Notes) on any Change of Control Payment Date
(as defined herein) occurring prior to , 2002 plus any accrued and
unpaid cash interest not otherwise included in Accreted Value to such Change of
Control Payment Date, or 101% of the principal amount thereof at Stated Maturity
on any Change of Control Payment Date occurring on or after , 2002,
plus accrued and unpaid interest, if any, to such Change of Control Payment
Date. There can be no assurance that the Company will have sufficient funds to
pay the purchase price for all of the Notes that might be delivered by Holders
upon a Change of Control.
The Company has also filed a registration statement with respect to the
offering of shares of Class A Common Stock of the Company (the 'Class
A Common Stock'), with shares being offered in the United States and
Canada (the 'U.S. Offering') and shares being offered in a concurrent
offering outside the United States and Canada (the 'International Offering' and,
together with the U.S. Offering, the 'Equity Offerings'), which Equity Offerings
will be made by separate prospectuses. The Notes Offering and the Equity
Offerings are collectively referred to herein as the 'Offerings.' The Offerings
are expected to be consummated simultaneously. See 'Certain Transactions--The
Equity Offerings.'
The Company is currently a wholly owned subsidiary of Teligent, L.L.C.
Immediately prior to the consummation of the Offerings, Teligent, L.L.C. will
merge with and into the Company (the 'Reorganization'), with the Company
surviving the merger. Pursuant to the Reorganization, all Teligent, L.L.C.
member interests will be converted into common stock of the Company and the
Company will succeed to the business and assets of Teligent, L.L.C. See 'Certain
Transactions--The Reorganization.' In addition, prior to the consummation of the
Offerings, the existing members of Teligent, L.L.C. will contribute to Teligent,
L.L.C. $60 million in cash (the 'Additional Sponsor Cash Contributions') and the
business and operations of a wireless competitive access provider in Los
Angeles, California (together with the Additional Sponsor Cash Contributions,
the 'Additional Sponsor Equity Contributions'). See 'Certain Transactions--The
Additional Sponsor Equity Contributions.' Pursuant to a Securities Purchase
Agreement, Nippon Telegraph and Telephone Corporation ('NTT') has agreed,
subject to certain conditions, to invest $100 million in the Company (the
'Strategic Equity Investment'). See 'Certain Transactions--The Strategic Equity
Investment.'
The Notes will not be listed on any securities exchange, and there can be no
assurance that there will be a secondary market therefor.
CERTAIN PERSONS PARTICIPATING IN THE NOTES OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE
NOTES, INCLUDING PURCHASES OF THE NOTES TO STABILIZE THEIR MARKET PRICE,
PURCHASES OF THE NOTES TO COVER SOME OR ALL OF A SHORT POSITION IN THE NOTES
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE 'UNDERWRITING.'
<PAGE>
[DIAGRAM SHOWING TELIGENT NETWORK ARCHITECTURE]
3
<PAGE>
FORWARD LOOKING STATEMENTS
Certain statements contained in this Prospectus under 'Prospectus Summary,'
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and 'Business,' in addition to certain statements contained
elsewhere in this Prospectus, are 'forward looking statements' within the
meaning of the Private Securities Litigation Reform Act of 1995. Such forward
looking statements can be identified by the use of forward looking terminology
such as 'believes,' 'expects,' 'may,' 'intends,' 'will,' 'should' or
'anticipates' or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy. No assurance can be given that the
future results covered by the forward looking statements will be achieved. Such
statements are subject to risks, uncertainties and other factors which could
cause actual results to differ materially from future results expressed or
implied by such forward looking statements. The most significant of such risks,
uncertainties and other factors are discussed under the heading 'Risk Factors,'
beginning on page 16 of this Prospectus, and prospective investors are urged to
carefully consider such factors.
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the 'Exchange Act'). Upon
completion of the Offerings the Company will be subject to the informational
requirements of the Exchange Act, and in accordance therewith, will be required
to file periodic reports and other information with the Securities and Exchange
Commission (the 'Commission'). Such information can be inspected without charge
after the Offerings at the public reference facilities of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the
regional offices of the Commission located at Suite 1400, Northwest Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material may also
be obtained at prescribed rates from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also
maintains a web site (http://www.sec.gov) that will contain all information
filed electronically by the Company with the Commission.
This Prospectus, which constitutes a part of a Registration Statement on
Form S-1 (the 'Registration Statement') filed by the Company with the Commission
under the Securities Act of 1933, as amended (the 'Securities Act'), does not
contain all of the information set forth in the Registration Statement,
including the exhibits and schedules thereto. For further information with
respect to the Company and the Notes offered hereby, reference is made to the
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and, with respect to each such contract
or document, reference is made to the copy of such contract or document, and
each such statement is qualified in all respects by such reference. A copy of
the Registration Statement, including the exhibits and schedules thereto, may be
inspected and copies thereof may be obtained as described in the preceding
paragraph with respect to periodic reports and other information to be filed by
the Company under the Exchange Act.
4
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified by, and should be read in conjunction
with, the more detailed information and the financial statements of the Company
and notes thereto contained elsewhere in this Prospectus (the 'Financial
Statements'). Unless otherwise indicated, the information in this Prospectus
assumes (i) consummation of the Strategic Equity Investment; (ii) consummation
of the Reorganization; (iii) consummation of the Additional Sponsor Equity
Contributions; (iv) the assignment of certain licenses held by certain of the
Company's members to the Company and the granting by the FCC of pending
applications to provide 24 GHz wireless services in Boston, MA and New York, NY
(collectively, the 'License Transactions'); and (v) no exercise by the
underwriters in the Equity Offerings of over-allotment options granted by the
Company to purchase additional shares of Class A Common Stock in the Equity
Offerings. See 'Certain Transactions.' Unless otherwise indicated, references in
this Prospectus to 'Teligent' or the 'Company' mean, at all times prior to the
consummation of the Reorganization, Teligent, L.L.C. and, at all times
thereafter, Teligent, Inc. Capitalized terms used in this Prospectus, which are
not otherwise defined herein, have the respective meanings ascribed to them in
the Glossary included as Annex A hereto.
THE COMPANY
Teligent intends to be a premier provider of high quality, low cost voice,
data and video telecommunications services primarily to small and medium-sized
businesses through its own fixed local wireless point-to-multipoint broadband
networks and leased long distance facilities. Teligent anticipates offering an
integrated package of services including local and long distance telephone
services, high speed data connectivity, Internet access and videoconferencing.
Teligent holds 24 GHz fixed wireless licenses in 74 of the most populous U.S.
metropolitan market areas, covering over 50% of the nation's business telephone
lines and a population of approximately 130 million. The Company intends to
offer its integrated package of services in at least 10 market areas by the end
of 1998 and 30 by the end of 1999, and subsequently in all of its 74 currently
licensed market areas. The Company currently provides commercial Internet access
through a fixed wireless point-to-point broadband system in 31 market areas and
is currently deploying a point-to-multipoint system in Richardson, TX on a trial
basis. Teligent was founded in 1996 as a joint venture between a subsidiary of
The Associated Group, Inc. ('Associated') and an affiliate of Telcom Ventures,
L.L.C. ('Telcom Ventures'), both of which have extensive experience in
pioneering wireless telecommunications businesses. The Company's Chairman and
Chief Executive Officer is Alex J. Mandl, formerly President and Chief Operating
Officer of AT&T Corporation. On September 30, 1997, Nippon Telegraph and
Telephone Corporation ('NTT'), the world's largest telecommunications carrier,
agreed to make a strategic equity investment of $100 million in the Company.
Prior to the consummation of the Offerings, the existing members of Teligent,
L.L.C. will contribute to the Company $60 million in cash and Associated will
contribute to the Company the business and operations of its wireless
competitive access provider in Los Angeles, CA.
Teligent believes that it is well positioned to capture revenues in the
estimated $110 billion business telecommunications market. The Company intends
to focus particularly on the estimated $47 billion business local exchange
market, which is currently one of the most profitable segments in the
telecommunications industry. Local exchange services have historically been
provided by regional monopolies known as incumbent local exchange carriers
('ILECs') that have typically utilized copper wire-based 'legacy' networks. The
ILECs' legacy networks, faced with the increasing demand from businesses for
cost-effective capacity to support bandwidth-intensive applications such as
Internet access, have created a 'last mile bottleneck' in the local loop between
the customer premise and the ILEC network switch. In addition, Teligent's market
research indicates that the ILECs have been unable to satisfy customer demands
for cost-effective, flexible and responsive service and that a significant
portion of Teligent's target customer base is currently dissatisfied with its
ILEC service. The potential revenue opportunity in this market, coupled with
changes in the regulatory environment designed to enable facilities-based
competition, have created opportunities for competitive local exchange carriers
('CLECs'). The Company intends to alleviate this last mile local bottleneck and
gain market share by deploying technologically advanced, high bandwidth digital
wireless technology complemented by superior customer service and competitive
pricing.
5
<PAGE>
Teligent expects to provide local coverage throughout its market areas with
lower capital requirements than either fiber-based or point-to-point wireless
CLECs, enabling it to offer its services to a broader customer base more quickly
and at a lower cost. Wireless point-to-multipoint broadband networks allow
transmissions between multiple customer antennas and a single base station
antenna, thereby allowing Teligent to share the same spectrum among its
customers and reducing its capital expenditures. The Company believes that a
significant portion of small and medium-sized businesses are located in
buildings that are not economically attractive to fiber-based providers.
Teligent's capital expenditures will be largely incremental or success-based,
thereby minimizing the risk of deploying network equipment not associated with
revenues.
TELIGENT'S COMPETITIVE ADVANTAGES
Teligent believes that a number of factors will provide it with significant
competitive advantages in offering telecommunications services, including lower
network cost, success-based capital expenditures, speed to market, high
bandwidth capacity and flexibility, high quality service and network control,
flexible information systems and experienced management and sponsors.
Lower Network Cost. Teligent expects that its incremental capital required
for launching service in a market and for connecting each customer will be lower
than that of its competitors. Unlike copper- and fiber-based systems that
require installation and maintenance of a significant amount of wire and cable,
the Company's system will have no physical wires to install and maintain between
the customer's radio equipment and the base station. As a result, Teligent
expects to enjoy a lower network cost structure than these systems. The majority
of Teligent's capital expenditures will consist of electronics, which tend to
decline in cost through time as economies of scale are achieved. Teligent
expects to benefit from its radio frequency band (24 GHz), which allows
communication with customer premise equipment at a greater distance than higher
frequency bands. In addition, point-to-multipoint networks provide more
efficient equipment utilization than the point-to-point systems currently used
by other fixed wireless providers, as transmissions from multiple customer
antennas can be concentrated at a single base station. The Company expects that
its average coverage radius of a base station will be approximately three miles
(five kilometers), depending on local conditions. Teligent also believes that
its anticipated lower cost structure should allow it to economically access
smaller buildings and more customers than fiber-based systems, and enjoy more
pricing flexibility than copper-based systems.
Success-Based Capital. Teligent's network is designed to be not only lower
cost, but also lower risk, due to the significant variable component of the
Company's planned capital expenditures. Teligent expects to minimize the
deployment of network equipment not associated with revenues since (i) a
significant portion of its planned capital expenditures will be the purchase and
installation of customer premise equipment and switch electronics, which are
generally deployed only when customers are acquired, (ii) Teligent's system does
not need to cover an entire market prior to initiating service in that market
and (iii) Teligent's equipment can be rapidly redeployed to meet changing
customer requirements.
Speed to Market. Teligent believes that its license coverage and network
characteristics will allow it to (i) enter a significant number of markets and
(ii) maximize coverage within each market area, in each case more quickly than
other new entrants. In entering numerous markets, Teligent will benefit from its
existing licenses in 74 market areas covering over 700 municipalities in the
United States. By utilizing its own facilities, Teligent expects to be able to
provide last mile services to customers within three to five days after
obtaining building access. Teligent believes that speed to market will allow it
to establish a sustainable customer base, develop brand recognition and gain
market share.
High Bandwidth Capacity and Flexibility. Teligent's high capacity local
network will be designed to alleviate the last mile local bottleneck and
accommodate the increasing demand for bandwidth-intensive applications. This
network, which includes 320-400 MHz of spectrum in 27 of the 35 most populous
market areas in the United States, and at least 80 MHz of spectrum in 47 other
major market areas, is expected to provide each customer with two-way data
transfer rates up to 20 Mbps, which is significantly more than the 1.5 Mbps
capacity currently available on conventional T-1 lines. A single Teligent base
station is designed to provide 200 T-1 lines, the equivalent of 4,800 dedicated
telephone lines, while each building's radio/antenna unit will be initially
designed to provide up to 13 T-1 lines or 312 dedicated telephone lines. The
Company believes that in the future radio equipment vendors will make available
radio/antenna units with greater capacity.
6
<PAGE>
High Quality Service and Network Control. Teligent plans to engineer its
network architecture to provide a minimum of 99.99% availability, a quality
level comparable to fiber-based networks. Teligent also intends to provide high
quality and value-added customer care service including integrated billing
(consolidating multiple services into one statement), customized pricing and
cross-marketing of services. The Company believes that its ability to provide
last mile local loop service through its own network will enhance its ability to
ensure high quality service by minimizing its reliance on the ILEC for service
deployment, maintenance and equipment upgrades. The Company believes that this
ability will represent an additional advantage relative to fiber-based CLECs
which frequently resell the last mile local loop from the ILEC.
Flexible Information Systems. Teligent is designing, acquiring and
integrating advanced flexible information systems to support billing, customer
care, provisioning and maintenance operations. These information systems will be
based on current technologies and platforms to meet current and anticipated
customer demands, including service bundling, integrated billing and flexible
pricing. Teligent expects that its information systems will give it the
capability to adapt quickly and flexibly to changing market conditions and new
customer requirements. The Company believes that legacy systems have
historically constrained the industry's ability to provide customized offerings
and new service features to customers on a timely basis.
Experienced Management and Sponsors. Teligent's management team, led by
Alex J. Mandl, formerly President and Chief Operating Officer of AT&T
Corporation ('AT&T'), has significant senior management experience at leading
telecommunications companies including MCI Communications Corporation, PCS
PrimeCo, L.P., MFS Communications Company, Inc. and UUNET Technologies, Inc. as
well as other competitive providers and start-up businesses. This includes
extensive experience in the operational, technical, sales, marketing, financial
and regulatory areas. Teligent believes that its senior management team has been
and will be critical in attracting high quality managers, salespeople and
engineers needed to execute its business plan. See 'Management.' Teligent's
sponsors, Associated and Telcom Ventures, both have extensive experience in
pioneering wireless telecommunications businesses. NTT, the world's largest
telecommunications carrier, has extensive local telecommunications and wireless
network experience and has agreed to enter into a technical services agreement
with Teligent to assist Teligent in designing and managing its network and
deploying advanced services.
BUSINESS STRATEGY
Teligent's goal is to be a premier facilities-based provider of voice,
data, video and Internet services to small and medium-sized businesses. The
Company intends to leverage its ability to provide cost-effective, high
bandwidth connectivity in order to offer an integrated package of local and long
distance telephone service, high-speed data connectivity, Internet access and
videoconferencing. The Company is implementing the following initiatives to
achieve this objective:
Target Small and Medium-Sized Businesses. Teligent plans to focus its
primary marketing efforts on small and medium-sized businesses with 5 to 350
telephone lines. The Company expects to attract these customers through both a
direct sales effort and indirect sales channels by offering (i) an integrated
package of telecommunications services, (ii) competitive pricing, (iii) high
quality and responsive customer service and (iv) high bandwidth services which
may be difficult to obtain from other telecommunications providers. Teligent
also intends to selectively pursue sales opportunities with larger businesses
when its value proposition and its service offerings are competitively
advantaged.
End User Focus. Teligent intends to approach its target market by offering
services directly to end users, as opposed to positioning itself as a 'carrier's
carrier' offering wholesale network capacity. By deriving the majority of its
revenues from providing local switched voice and data communications services
directly to end user customers, Teligent believes that it will (i) establish a
sustainable and broad base of its own customers, thereby minimizing the risk of
generating substantial revenues from a limited number of sources, (ii) maximize
revenues and profitability by accessing the higher priced retail market and
(iii) achieve competitive differentiation based on high quality service that is
responsive to the customer.
Develop Brand Awareness. Teligent will seek to position itself as a high
quality service provider by offering network reliability complemented by quality
customer support. The Company is designing its marketing campaign to reflect
these objectives and intends to build its reputation by (i) working closely with
its customers
7
<PAGE>
to develop services tailored to their particular needs and (ii) targeting
advertising and promotion efforts in its coverage areas, gradually expanding to
mass media with market-wide and potentially nationwide coverage. The Company
also believes that its speed to market advantage will assist its branding
campaign, by enabling it to be one of the first widely available
facilities-based competitors in a market.
Achieve Market Share Via Competitive Pricing. As a new market entrant,
Teligent's strategy will be to price its services competitively to gain market
share early. For switched voice services and other services already provided by
the ILEC, the Company expects to price at a discount. For certain data and
bandwidth-intensive services that may not be provided by competitors or for
which there may exist an underserved market demand, the Company may be able to
price its services at a premium. The Company anticipates that some ILECs may
reduce their prices as increased competition begins to erode their market share.
The Company believes that it will be able to remain competitive if market prices
decline because of its lower expected network cost. The Company also expects to
price its bundled long distance service at a discount to market prices as a
further incentive to attract potential customers and to broaden its revenue
base.
Rapid Deployment. Teligent intends to take advantage of its network
flexibility and lower incremental capital requirements in order to quickly
roll-out and penetrate its market areas. Teligent believes that this rapid
deployment should allow it to become one of the first significant
facilities-based competitors in many parts of its market areas. The Company
believes that this rapid deployment should enable it to establish a level of
market penetration which will further enhance the Company's relative cost
advantage, attract additional customers and further enhance its brand
reputation.
Exploit Future Growth Opportunities. Teligent intends to continue building
on the capabilities of its network to expand its target market and service
offerings. Such expansion may include targeting residential customers in
multiple dwelling units as well as international opportunities, either through
joint ventures or by direct entry.
COMMERCIAL ROLL-OUT
Teligent is preparing to offer an integrated package of services including
local and long distance telephone services, high speed data connectivity,
Internet access and videoconferencing. Teligent is licensed by the FCC to
operate point-to-point and point-to-multipoint 24 GHz fixed wireless local
systems in 74 market areas, covering over 700 municipalities in the United
States, which licenses include 320-400 MHz of spectrum in 27 of the 35 most
populous market areas in the United States, and at least 80 MHz of spectrum in
47 other major market areas. See 'Risk Factors--Relocation of Licenses to 24
GHz; Pending FCC Petitions' and 'Regulation.' The Company intends to deploy its
24 GHz fixed wireless point-to-multipoint broadband networks to provide last
mile connectivity in these licensed market areas. These networks may also
include point-to-point links and resold local loops where economically
attractive or strategically desirable. The Company is currently deploying a
point-to-multipoint system in Richardson, TX on a trial basis.
The Company plans to begin Phase I Deployment efforts in Dallas, TX, Los
Angeles, CA and Washington, DC during the fourth quarter of 1997. The objectives
of Phase I Deployment will involve the deployment and testing of equipment from
multiple network equipment providers, including Northern Telecom, Inc.
('Nortel'), Lucent Technologies, Inc. ('Lucent'), P-Com Inc. ('P-Com'), Netro
Corporation ('Netro') and Broadband Networks Inc. ('BNI'). At the same time, the
Company will continue to be engaged in acquiring building access rights,
obtaining interconnection agreements, deploying switches, commencing marketing
activities and making other operational arrangements for commencing commercial
service in other markets. Phase I Deployment is currently targeted for
completion late in the second quarter of 1998.
Following Phase I Deployment, Teligent plans to begin rolling-out
commercial service. The Company intends to offer commercial service in at least
10 market areas by the end of 1998 and 30 by the end of 1999, and subsequently
in all of its 74 currently licensed market areas. The Company's ability to
provide commercial service on a widespread basis and to generate positive
operating cash flow will depend on its ability to, among other things, (i)
develop its operational and support systems, (ii) acquire building access for
its operations, (iii) obtain state authorizations to operate as a CLEC and an
IXC in its market areas and any other required local authorizations, (iv)
commercialize its 24 GHz point-to-multipoint technology on a market-by-market
basis, (v) attract and retain an adequate customer base, (vi) raise additional
capital, (vii) attract personnel and
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(viii) enter into and implement interconnection agreements with ILECs. Teligent
intends to prioritize markets for roll-out based on a variety of factors
including (i) market size, demographics and topography, (ii) expected market
competition and pricing, (iii) proximity to other markets and (iv) local
regulatory environment.
Teligent has the ability to source key network components from a number of
equipment vendors. Unlike many cellular and PCS networks, fixed local wireless
networks can be constructed using equipment from different manufacturers
utilizing different technologies because customers do not roam between base
stations. Teligent believes that the flexibility provided by vendor diversity
will assist in ensuring an adequate and prompt supply of equipment at attractive
prices.
CERTAIN TRANSACTIONS
The Reorganization. The Company is currently a wholly owned subsidiary of
Teligent, L.L.C. and was organized in September 1997 for the purpose of
succeeding to the business of Teligent, L.L.C. Immediately prior to the
consummation of the Notes Offering and the Equity Offerings (the 'Offerings'),
Teligent, L.L.C. will merge with and into the Company, with the Company
surviving the merger. The Company has not conducted, and prior to the
Reorganization will not conduct, any business other than in connection with the
Offerings and the other transactions described herein. As a result of the
Reorganization, all Teligent, L.L.C. member interests will be converted into and
become shares of Common Stock of the Company. See 'Certain Transactions--The
Reorganization' and 'Description of Capital Stock.'
The Additional Sponsor Equity Contributions. Prior to consummation of the
Offerings, the existing members of Teligent, L.L.C. will make capital
contributions to Teligent, L.L.C. in the aggregate amount of $60 million (the
'Additional Sponsor Cash Contributions'). In addition, at or prior to the
consummation of the Offerings, Associated will contribute Associated
Communications of Los Angeles ('ACLA'), a wireless competitive access provider,
to Teligent, L.L.C. (the 'ACLA Contribution' and, together with the Additional
Sponsor Cash Contributions, the 'Additional Sponsor Equity Contributions').
The Strategic Equity Investment. The Company and NTT entered into a
Securities Purchase Agreement on September 30, 1997 (the 'NTT Purchase
Agreement'), providing for NTT to make the Strategic Equity Investment. The NTT
Purchase Agreement provides for the Strategic Equity Investment to close in two
stages. At the first closing (the 'First Closing'), NTT will purchase for $40
million a 5% member interest in Teligent, L.L.C. (calculated as of the date of
the NTT Purchase Agreement after giving pro forma effect to the FirstMark
Acquisition (as defined below) and the Additional Sponsor Equity Contributions).
At the second closing, (the 'Second Closing'), NTT will purchase for $60 million
a 7.5% equity interest in the Company (calculated as of the date of the NTT
Purchase Agreement after giving pro forma effect to the FirstMark Acquisition
and the Additional Sponsor Equity Contributions and subject to upward adjustment
based on the price per share in the Equity Offerings). Consummation of the
Strategic Equity Investment is subject to the satisfaction or waiver of certain
conditions, including, in the case of the Second Closing, the termination or
expiration of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvement Act of 1976, as amended (the 'HSR Act'). The First Closing
is expected to occur at or prior to the consummation of the Offerings, and the
Second Closing is expected to occur at or shortly after the consummation of the
Offerings. See 'Certain Transactions--The Strategic Equity Investment.'
The FirstMark Acquisition. In October 1997, pursuant to a Stock
Contribution Agreement dated as of March 10, 1997 (the 'FirstMark Agreement')
among Teligent, L.L.C., FirstMark Communications, Inc. ('FirstMark') and the
sole stockholder of FirstMark (the 'FirstMark Sole Stockholder'), the Company
acquired all of the outstanding stock of FirstMark for an aggregate purchase
price of approximately $10.5 million in cash and a 5% member interest in
Teligent, L.L.C. (before giving effect to the Strategic Equity Investment) (the
'FirstMark Acquisition'). FirstMark holds licenses for fixed wireless channels
in the Los Angeles and San Francisco, CA and New York, NY markets.
Vendor Financing. The Company is considering financing proposals from
vendors (the 'Vendor Financing'). Prior to the consummation of the Offerings,
the Company expects to receive commitments with respect to an aggregate amount
in excess of $500 million of Vendor Financing from one or more vendors. The
Company expects that the closing and funding of any such commitments will be
subject to certain conditions. See 'Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and
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Capital Resources--Vendor Financing.' The proceeds of such facilities will be
used to finance both the purchase of equipment and services as well as general
working capital.
Equity Offerings. Concurrent with the Notes Offering, the Company is
offering shares of Class A Common Stock in the Equity Offerings by separate
prospectuses. The net proceeds to the Company in the Equity Offerings are
estimated to be $ (assuming an initial public offering price of $ per
share, the midpoint of the initial public offering price range in the Equity
Offerings, and after deducting estimated underwriting discounts and offering
expenses). Following the consummation of the Equity Offerings, a subsidiary of
Associated, an affiliate of Telcom Ventures and NTT will own %, % and
%, respectively, of the Company's outstanding Common Stock.
FINANCING PLAN
The development of the Company's business and deployment of its services
and systems will require significant capital to fund capital expenditures,
working capital, debt service and operating losses. The Company's principal
capital expenditure requirements involve the purchase and installation of
customer premise equipment, base stations, network switches and switch
electronics and network operations center expenditures. The Company intends to
offer commercial service in at least 10 market areas by the end of 1998 and 30
by the end of 1999, and subsequently in all of its 74 currently licensed market
areas. See '--Commercial Roll-Out.' The Company currently forecasts that its
capital requirements (including capital expenditures, working capital, debt
service and operating losses) from March 5, 1996 (inception) through December
2000 will be approximately $1 billion. Actual capital requirements may vary
based upon the timing and success of the Company's roll-out. If demand for the
Company's services is lower than expected, the Company expects to be able to
reduce demand-driven capital expenditures such as customer premise equipment and
switch electronics.
Based on the Company's current business plan, the Company estimates that
the net proceeds of the Offerings, the Additional Sponsor Cash Contributions,
the Strategic Equity Investment and anticipated Vendor Financing will be
sufficient to satisfy its capital requirements through December 2000.
The Company expects that its capital requirements after December 2000 will
require it to obtain additional financing, which may include commercial bank
borrowings, additional vendor financing or the sale or issuance of equity and
debt securities either through one or more offerings or to one or more strategic
investors. There can be no assurance that the Company will be successful in
raising sufficient additional capital at all or on terms acceptable to the
Company. See 'Risk Factors--Significant Capital Requirements.'
Because the Company's cost of rolling-out its networks and operating its
business, as well as the Company's revenues, will depend on a variety of factors
(including the ability of the Company to meet its roll-out schedules, the
ability of the Company to negotiate favorable prices for purchases of capital
equipment, the number of customers and the services for which they subscribe,
the nature and penetration of new services that may be offered by the Company,
regulatory changes and changes in technology), actual costs and revenues will
vary from expected amounts, possibly to a material degree, and such variations
are likely to affect the Company's future capital requirements. Accordingly,
there can be no assurance that the Company's actual capital requirements will
not exceed the anticipated amounts described above. Further, the exact amount of
the Company's future capital requirements will depend upon many factors,
including the cost of the development of its networks in each of its markets,
the extent of competition and pricing of telecommunications services in its
markets and the acceptance of the Company's services.
COMPANY HISTORY AND SPONSORSHIP
The Company was founded as a joint venture in March 1996 by Microwave
Services Inc. ('MSI'), a subsidiary of Associated, and Digital Services
Corporation ('DSC'), an affiliate of Telcom Ventures. MSI and DSC began the
process of applying for fixed wireless licenses in 1993 prior to the FCC's
implementation of spectrum auctions. In September 1996, Alex J. Mandl, formerly
President and Chief Operating Officer of AT&T joined the Company as Chairman of
the Board and Chief Executive Officer. MSI and DSC transferred their fixed
wireless licenses to Teligent in October 1997. Associated is a publicly traded
company principally engaged in the operation of communications businesses, which
have historically included cellular, cable television and radio broadcasting. In
December 1994, Associated was spun off from Associated Communications
Corporation, which
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was subsequently sold to SBC Communications, Inc. for approximately $700
million. The management of Associated Communications Corporation remained as the
management of Associated, and Associated retained a variety of communications
assets and businesses, including the fixed wireless licenses contributed to the
Company. Associated's other businesses include TruePosition, Inc., a provider of
wireless location services. Telcom Ventures is a privately held company owned by
the family of Dr. Rajendra Singh, an investor in wireless technologies and
network design, and The Carlyle Group, a Washington, DC private investment firm.
Telcom Ventures is engaged in investing in international wireless opportunities
and developing, building and deploying emerging wireless technologies.
The principal place of business of Teligent is 8065 Leesburg Pike, Vienna,
VA 22182 and its telephone number is (703) 762-5100.
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PRO FORMA CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997 (i) on an actual basis, (ii) on a pro forma basis to show adjustments
resulting from the FirstMark Acquisition, the Additional Sponsor Equity
Contributions, the License Transactions, the Strategic Equity Investment, and
the Reorganization (collectively, the 'Transactions'), (iii) on a pro forma
basis to show adjustments resulting from the Offerings and the application of
the net proceeds therefrom as described under 'Use of Proceeds' and (iv) on a
pro forma basis as adjusted to give effect to the Transactions and the Offerings
and the application of the net proceeds therefrom as described under 'Use of
Proceeds,' in each case as if the same occurred on June 30, 1997. This table
should be read in conjunction with 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' and the Financial Statements
contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
------------------------------------------------------------------
ADJUSTMENTS FOR
ADJUSTMENTS FOR THE THE AS
ACTUAL TRANSACTIONS(1) OFFERINGS(2) ADJUSTED(3)
--------- ------------------- --------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash and cash equivalents.......................... $ 1,656 $ 131,423 $ $
--------- ------------------- --------------- -----------
--------- ------------------- --------------- -----------
Restricted cash(4)................................. $ -- $ -- $ $
--------- ------------------- --------------- -----------
--------- ------------------- --------------- -----------
Revolving line of credit(5)........................ $ 25,000 $ (25,000) $ -- $ --
Senior Notes due 2007.............................. -- -- 250,000 250,000
Senior Discount Notes due 2007..................... -- -- 150,000 150,000
Stockholders' equity
Common stock..................................... --
Additional paid-in capital(6).................... 9,058 198,334
Deficit accumulated during development stage..... (61,759) 22,151 -- (39,608)
--------- ------------------- --------------- -----------
Total stockholders' equity......................... (52,701) 220,485
--------- ------------------- --------------- -----------
Total capitalization............................... $ (27,701) $ 195,485 $ $
--------- ------------------- --------------- -----------
--------- ------------------- --------------- -----------
</TABLE>
- ------------------
(1) Reflects pro forma adjustments to give effect to the Transactions, net of
transaction fees (including pro forma adjustments for Company Appreciation
Rights ('CARs')), and the application of a portion of the Additional Sponsor
Cash Contributions to repay indebtedness outstanding under the Revolving
Credit Agreement, as described under 'Use of Proceeds.'
(2) Reflects pro forma adjustments to give effect to the Offerings, net of
transaction fees, and the application of a portion of the net proceeds
therefrom to purchase the Pledged Securities, as described under 'Use of
Proceeds.'
(3) As adjusted on a pro forma basis to give effect to the Transactions, the
Offerings, net of transaction fees, and the application of a portion of the
net proceeds of the Transactions to repay the indebtedness outstanding under
the Revolving Credit Agreement and a portion of the net proceeds of the
Offerings to purchase the Pledged Securities, as described under 'Use of
Proceeds.'
(4) The adjustment to restricted cash to give effect to the Offerings consists
of the Pledged Securities in an amount sufficient to provide for payment in
full of the interest due on the Senior Notes through , 2000, at an
assumed interest rate of % per annum.
(5) Borrowings under the Revolving Credit Agreement amounted to $25.0 million at
June 30, 1997. Immediately prior to the effective date of the
Reorganization, the Company may have up to $50.0 million outstanding under
the Revolving Credit Agreement, which amount will be repaid with a portion
of the Additional Sponsor Cash Contributions as described under 'Use of
Proceeds.'
(6) Additional paid-in capital on an actual basis as of June 30, 1997 consists
of $9.1 million in cash member contributions to Teligent, L.L.C. classified
as additional paid-in capital for presentation purposes. The adjustment to
additional paid-in capital and common stock to give effect to the
Transactions reflects the following additional amounts: $31.5 million
reflecting the FirstMark Acquisition, $61.1 million reflecting the
Additional Sponsor Equity Contributions, $6.7 million reflecting the License
Transactions, $100.0 million reflecting the Strategic Equity Investment and
$ million of gross proceeds from the Equity Offerings, less aggregate
transaction fees with respect to the Equity Offerings and Strategic Equity
Investment of $ million.
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THE NOTES OFFERING
<TABLE>
<S> <C>
Issuer.................................... Teligent, Inc.
Securities Offered........................ $ aggregate principal amount of % Senior Notes due 2007
(the 'Senior Notes').
$ aggregate principal amount at maturity of % Senior
Discount Notes due 2007 (the 'Senior Discount Notes' and, together
with Senior Notes, the 'Notes'). The Senior Discount Notes will be
issued at a discount to their aggregate principal amount at maturity
to generate gross proceeds to the Company of approximately
$ million. The yield to maturity of the Senior Discount
Notes is % (computed on a semi-annual bond equivalent basis),
calculated from , 1997. See 'Certain Federal Income Tax
Considerations.'
Maturity Date:
Senior Notes......................... , 2007.
Senior Discount Notes................ , 2007.
Security for the Senior Notes............. Upon the closing of the Notes Offering, the Company will use
approximately $ million of the net proceeds to purchase
Pledged Securities in such amount as will be sufficient to provide
for payment in full of the interest due on the Senior Notes through
, 2000, and that will also be pledged as security for
repayment of the Senior Notes. The Pledged Securities will be pledged
by the Company to the Senior Notes Trustee (as defined herein) for
the benefit of the Holders of Senior Notes pursuant to the Pledge
Agreement (as defined herein) and will be held by the Senior Notes
Trustee in the Pledge Account. See 'Description of the
Notes--Security for the Senior Notes.'
Ranking................................... The Notes will be senior unsecured obligations of the Company
(except, in the case of the Senior Notes, for the pledge by the
Company of the Pledged Securities). The Notes will rank pari passu in
right of payment with all other existing and future senior unsecured
indebtedness of the Company. The Company expects to incur substantial
additional indebtedness (including secured indebtedness) following
the Notes Offering. Such indebtedness, if incurred, will effectively
rank senior to the Notes with respect to the assets securing such
indebtedness. In addition, the Notes will be effectively subordinated
to all liabilities of each subsidiary of the Company to its
respective creditors. See 'Risk Factors--Substantial Leverage;
Ability to Service Indebtedness' and 'Description of the
Notes--General.'
Interest Rate and Payment Dates:
Senior Notes......................... Interest on the Senior Notes will accrue at a rate of % per annum
and will be payable in cash semi-annually on and ,
commencing on , 1998.
Senior Discount Notes................ Cash interest will not accrue on the Senior Discount Notes prior to
, 2002. Thereafter, interest on the Senior Discount Notes
will accrue at a rate of % per annum and will be payable in cash
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
semi-annually on and , commencing on , 2002.
Original Issue Discount................... For federal income tax purposes, the Senior Discount Notes will be
treated as having been issued with an 'original issue discount' equal
to the difference between the issue price of the Senior Discount
Notes and the sum of all cash payments (whether denominated as
principal or interest) to be made thereon. Each holder of a Senior
Discount Note must include as gross income for federal income tax
purposes a portion of such original issue discount for each day
during each taxable year in which a Senior Discount Note is held even
though no cash interest payments will be received prior
to , 2002. See 'Certain Federal Income Tax Considerations.'
Optional Redemption....................... On or after , 2002, the Notes will be redeemable at the
option of the Company, in whole at any time or in part from time to
time, at the redemption prices set forth herein, together with
interest accrued to the redemption date. In addition, at any time on
or prior to , 2000, the Company may redeem up to 35% of the
originally issued principal amount of Senior Notes and up to 35% of
the originally issued principal amount at Stated Maturity of Senior
Discount Notes, at a redemption price of % of the principal
amount, plus accrued and unpaid interest thereon, if any, to the
redemption date, in the case of the Senior Notes, and % of the
Accreted Value at the redemption date, in the case of the Senior
Discount Notes, with the net cash proceeds of (a) one or more Public
Equity Offerings of Common Stock of the Company (other than the
Equity Offerings) or (b) a sale or series of related sales by the
Company of its Common Stock to one or more Strategic Equity Investors
(other than the Transactions); provided that at least 65% of the
originally issued principal amount of Senior Notes and at least 65%
of the originally issued principal amount at Stated Maturity of
Senior Discount Notes remains outstanding immediately after giving
effect to such redemption. See 'Description of the Notes--Optional
Redemption.'
Change of Control......................... Upon the occurrence of a Change of Control, unless the Company has
given a notice of redemption, each Holder will have the right to
require the Company to repurchase all or any part of such Holder's
Notes at a purchase price in cash equal to 101% of the principal
amount thereof (in the case of the Senior Notes) or 101% of the
Accreted Value thereof (in the case of the Senior Discount Notes) on
any Change of Control Payment Date occurring prior to ,
2002, plus any accrued and unpaid cash interest not otherwise
included in Accreted Value to such Change of Control Payment Date, or
101% of the principal amount thereof at Stated Maturity on any Change
of Control Payment Date occurring on or after , 2002, plus
accrued and unpaid interest, if any, to such Change of Control
Payment Date. There can be no assurance that the Company will have
sufficient funds to pay the purchase price for all of the Notes that
might be delivered by Holders upon a Change of Control. See
'Description of the Notes--Change of Control.'
</TABLE>
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<TABLE>
<S> <C>
Certain Covenants......................... The Indentures (as defined herein) contain certain covenants,
including covenants with respect to the following: (i) a limitation
on debt, (ii) a limitation on debt securities of, and guarantees by,
certain subsidiaries, (iii) a limitation on liens, (iv) a limitation
on restricted payments, (v) a limitation on dividend and other
payment restrictions affecting certain subsidiaries, (vi) a
limitation on issuances and sales of capital stock in certain
subsidiaries, (vii) a limitation on asset sales and (viii) a
limitation on transactions with affiliates. See 'Description of the
Notes--Certain Covenants.'
Use of Proceeds........................... The net proceeds to Teligent from the Notes Offering are estimated to
be approximately $ million, and the net proceeds to
Teligent from the Equity Offerings are estimated to be approximately
$ million, ($ million if the underwriters'
over-allotment options are exercised in full), assuming an initial
public offering price of $ per share, the midpoint of the
price range in the Equity Offerings, in each case after deducting
estimated underwriting discounts and offering expenses. Upon the
closing of the Notes Offering, the Company will use approximately
$ million of the net proceeds to purchase Pledged
Securities (in such amount as will be sufficient to provide for
payment in full of the first six interest payments on the Senior
Notes) that will be pledged as security for repayment of the Senior
Notes. The Company intends to use $ of the Additional Sponsor
Cash Contributions, to repay all outstanding amounts under the
Revolving Credit Agreement. The Company intends to use the balance of
the net proceeds of the Offerings and the Additional Sponsor Cash
Contributions, together with the Strategic Equity Investment, for the
development of the Company's business and deployment of its services
and systems in multiple markets and the general development and
growth of its telecommunications operations, including (i) the
development of operating and management systems, (ii) capital
expenditures and (iii) other operating expenses, including the hiring
of sales, marketing, engineering and customer service personnel. See
'Use of Proceeds.'
</TABLE>
RISK FACTORS
An investment in the Notes involves certain risks, and prospective
purchasers of the Notes should consider all of the information contained in this
Prospectus before making an investment in the Notes. In particular, prospective
purchasers should consider the factors set forth herein under 'Risk Factors.'
15
<PAGE>
RISK FACTORS
An investment in the Notes is subject to a number of risks. Prospective
purchasers should consider carefully all the information set forth herein and,
in particular, the following risks, before making an investment in the Notes.
DEVELOPMENT STAGE COMPANY; LIMITED HISTORY OF OPERATIONS;
NEGATIVE CASH FLOW AND OPERATING LOSSES
The Company's business commenced in March 1996, and the Company has
generated operating losses and negative cash flow from operating activities to
date. The Company's primary activities have focused on the acquisition of
licenses, the acquisition of building access rights, the hiring of management
and other key personnel, the raising of capital, the acquisition of equipment,
the development of operating systems and the negotiating of interconnection
agreements. Prospective investors have limited operating and financial data
about the Company upon which to base an evaluation of the Company's performance
and an investment in the Notes offered hereby. The Company's ability to provide
commercial service on a widespread basis and to generate positive operating cash
flow will depend on its ability to, among other things, (i) develop its
operational and support systems, (ii) acquire appropriate building access for
its operations, (iii) obtain state authorizations to operate as a CLEC and an
IXC in its market areas and any other required local authorizations, (iv)
commercialize its 24 GHz point-to-multipoint technology on a market-by-market
basis, (v) attract and retain an adequate customer base, (vi) raise additional
capital, (vii) attract personnel and (viii) enter into and implement
interconnection agreements with ILECs. See 'Business--Business Strategy.' Given
the Company's limited operating history, there can be no assurance that it will
be able to achieve these goals, generate sufficient revenues to make principal
and interest payments on its indebtedness, including the Notes, or compete
successfully in the telecommunications industry.
The development of the Company's business and the deployment of its
services and systems will require significant capital expenditures, a
substantial portion of which will need to be incurred before the realization of
significant revenues. Together with the start-up operating expenses, these
capital expenditures will result in negative cash flow until an adequate
revenue-generating customer base is established. From inception (March 5, 1996)
through December 31, 1996, the Company had net losses of $12.6 million, of which
$2.8 million resulted from a non-cash expense relating to Company Appreciation
Rights ('CARs'). During the six months ended June 30, 1997, the Company had net
losses of $49.1 million, of which $37.9 million resulted from a non-cash expense
relating to the CARs and the Long-Term Incentive Plan. See 'Management's
Discussion and Analysis of Financial Condition and Results of Operations.' The
Company expects to continue to generate significant operating and net losses for
at least the next several years. There can be no assurance that the Company will
achieve or sustain profitability or generate sufficient positive cash flow to
make principal and interest payments on its indebtedness, including the Notes.
See '--Substantial Leverage; Ability to Service Indebtedness.'
SIGNIFICANT CAPITAL REQUIREMENTS
The development of the Company's business and deployment of its services
and systems will require significant capital to fund capital expenditures,
working capital, debt service and operating losses. The Company's principal
capital expenditure requirements involve the purchase and installation of
customer premise equipment ('CPE'), base stations, network switches and switch
electronics and network operations center expenditures. The Company intends to
offer commercial service in at least 10 market areas by the end of 1998 and 30
by the end of 1999, and subsequently in all of its 74 currently licensed market
areas. The Company currently forecasts that its capital requirements (including
capital expenditures, working capital, debt service and operating losses) from
March 5, 1996 (inception) through December 2000 will be approximately $1
billion. Actual capital requirements may vary based upon the timing and success
of the Company's roll-out. If demand for the Company's services is lower than
expected, the Company expects to be able to reduce demand-driven capital
expenditures such as CPE and switch electronics.
Based on the Company's current business plan, the Company believes that the
net proceeds of the Offerings, the Additional Sponsor Cash Contributions, the
Strategic Equity Investment and anticipated Vendor Financing will be sufficient
to satisfy its capital requirements through December 2000.
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<PAGE>
The Company expects that its capital requirements after December 2000 will
require it to obtain additional financing, which may include commercial bank
borrowings, additional vendor financing or the sale or issuance of equity and
debt securities either through one or more offerings or to one or more strategic
investors. In addition, if (i) the Company's development plans or projections
change or prove to be inaccurate, (ii) the net proceeds of the Offerings, the
Additional Sponsor Cash Contributions, the Strategic Equity Investment and
anticipated Vendor Financing, together with other, then-existing, financial
resources, prove to be insufficient to satisfy the Company's capital
requirements through December 2000, (iii) the Company purchases spectrum at
auction or makes any acquisitions or (iv) the Company accelerates implementation
of its network roll-out, the Company may be required to obtain additional
financing earlier than anticipated.
There can be no assurance that the Company will be successful in raising
sufficient additional capital on terms that it will consider acceptable, that
the terms of such indebtedness or other capital will not impair the Company's
ability to develop its business, or that the Company's liquid capital from all
of its sources will be available in sufficient amounts to service its debt.
Failure to raise sufficient funds may require the Company to modify, delay or
abandon some of its planned future expansion or expenditures, which could have a
material adverse effect on the Company's business, financial condition and
results of operations, including the Company's ability to make principal and
interest payments on its indebtedness, including the Notes. In addition, the
Indentures will contain, and other debt instruments governing existing and
future indebtedness contain, or may contain, covenants that limit the
operational and financial flexibility of the Company. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources.'
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
The Company will be highly leveraged following the Offerings. On a pro
forma basis after giving effect to the Offerings, the Additional Sponsor Equity
Contributions and the Strategic Equity Investment and the application of net
proceeds therefrom as if they occurred on , 1997, the Company would have
had approximately $ million of outstanding indebtedness as of ,
1997, the Company's total debt as a percentage of capitalization, excluding the
value of the licenses contributed pursuant to the License Transactions and
excluding the ACLA Contribution, would have been % as of , 1997 and
the Company would have had a deficiency of earnings to fixed charges of
$ million for the six months ended June 30, 1997. See
'Capitalization.' In addition, the Indentures permit, and the Company's future
credit facilities and vendor credit facilities are expected to permit, the
incurrence of additional indebtedness. The Company expects to incur substantial
additional indebtedness (including secured indebtedness) following the Offerings
for the construction or acquisition and expansion of networks, the purchase of
transmission and switching equipment, the introduction of new service offerings
and the development and implementation of its information technology platform.
The Notes will be effectively subordinated to such additional indebtedness to
the extent of the assets, if any, securing such indebtedness. In addition, the
Notes will be effectively subordinated to all liabilities of each subsidiary of
the Company to its respective creditors. See '--Significant Capital
Requirements.'
The Company's ability to make principal and interest payments on the Notes
will be dependent upon, among other things, the Company's future operating
performance and anticipated cash flow and its ability to obtain additional debt
or equity financing, which are themselves dependent upon a number of factors,
many of which are out of the Company's control. These factors include prevailing
economic, financial, competitive and regulatory conditions and other factors
affecting the Company's business and operations, including the Company's ability
to complete the roll-out of its networks on a timely and cost-effective basis.
There can be no assurance that the Company will have adequate sources of
liquidity to make required payments of principal and interest on its
indebtedness (including the Notes), whether at or prior to maturity, finance
anticipated capital expenditures and fund working capital requirements. If the
Company does not have sufficient available resources to repay its outstanding
indebtedness when it becomes due and payable, the Company may find it necessary
to refinance such indebtedness, and there can be no assurance that refinancing
will be available, or available on reasonable terms. If the Company were unable
to obtain adequate financing or refinancing on satisfactory terms, it would have
to consider various other options such as the sale of certain assets or
additional equity to meet its debt service requirements or other options
available to it under law.
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The Company's high degree of leverage could have important consequences,
including, but not limited to, the following: (i) a substantial portion of the
Company's sources of capital and cash flow from operations must be dedicated to
debt service payments, thereby reducing the funds available to the Company for
other purposes; (ii) the Company's ability to obtain additional debt financing
in the future for working capital, capital expenditures, acquisitions, repayment
of indebtedness or other purposes may be impaired, whether as a result of the
covenants and other terms of its debt instruments or otherwise; (iii) the
Company is substantially more leveraged than certain of its competitors, which
may place the Company at a competitive disadvantage; (iv) the Company's high
degree of leverage may limit its ability to expand capacity and otherwise meet
its growth objectives; and (v) the Company's high degree of leverage may hinder
its ability to adjust rapidly to changing market conditions and could make it
more vulnerable in the event of a downturn in general economic conditions or its
business.
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends, in large part, upon the continuing
contributions of its key technical, marketing, sales and management personnel.
The loss of the services of several key people within a short period of time
could have a material adverse effect upon the business, financial condition and
results of operations of the Company. The Company's future success is also
dependent upon its continuing ability to attract and retain other highly
qualified personnel. Competition for such personnel is intense, and the
Company's inability to attract and retain additional key employees could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that such key personnel will
continue to be employed by the Company or that the Company will be able to
attract and retain qualified personnel in the future. See 'Management.'
MANAGEMENT OF GROWTH
The Company's business plan will, if successfully implemented, result in
rapid expansion of its operations and the provision of broadband wireless local
loop services on a widespread basis. Rapid expansion of the Company's operations
may place a significant strain on the Company's management, financial and other
resources. The Company's ability to manage future growth, should it occur, will
depend upon its ability to monitor operations, control costs, maintain
regulatory compliance, maintain effective quality controls and significantly
expand the Company's internal management, technical, information and accounting
systems and to attract, assimilate and retain additional qualified personnel.
See '--Dependence on Key Personnel.' Furthermore, as the Company's business
develops and expands, the Company will need additional facilities for its
growing work force. There can be no assurance that the Company will successfully
implement and maintain such operational and financial systems or successfully
obtain, integrate and utilize the employees and management, operational and
financial resources necessary to manage a developing and expanding business in
an evolving, highly regulated and increasingly competitive industry. Any failure
to expand these areas and to implement and improve such systems, procedures and
controls in an efficient manner at a pace consistent with the growth of the
Company's business could have a material adverse effect on the business,
financial condition and results of operations of the Company and the ability of
the Company to make principal and interest payments on its indebtedness,
including the Notes.
If the Company were unable to hire staff, expand such facilities, retain
labor, purchase adequate supplies of transmission or base station equipment,
increase the capacity of its information systems and/or successfully manage and
integrate such additional resources, customers could experience delays in
connection of service and/or lower levels of customer service. Failure by the
Company to meet the demands of customers and to manage the expansion of its
business and operations could have a material adverse effect on the Company's
business, financial condition and results of operations.
LACK OF DEPLOYMENT; RELIANCE ON EQUIPMENT SUPPLIERS
Although fixed wireless point-to-point technology has been in use for a
significant period of time, two-way point-to-multipoint technology has only been
deployed on a limited basis and not at all at the 24 GHz frequency. The Company
has selected point-to-multipoint technology because the Company believes it will
offer several
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advantages over other technologies. However, the Company's point-to-multipoint
technology has not been tested on a commercial basis and may not perform as
expected or provide the advantages expected by the Company.
The Company currently plans to source equipment from multiple vendors. Any
reduction or interruption in supply from any of its suppliers could have a
disruptive effect on the Company. Although multiple manufacturers currently
produce or are developing equipment that will meet the Company's current and
anticipated requirements, no industry standard or uniform protocol currently
exists for 24 GHz point-to-multipoint equipment. Further, the Company does not
manufacture, nor does it have the capability to manufacture, nor does it
anticipate establishing the capacity to manufacture, any of its
telecommunications equipment. Additionally, there can be no assurance that the
Company's suppliers will be able to manufacture and deliver the amount of
equipment ordered or that such supply will in fact be sufficient to meet initial
demand.
EMERGING MARKET; UNCERTAIN COMMERCIAL ACCEPTANCE OF 24 GHZ SERVICES
The Company has not begun to market its fixed wireless broadband services
to potential customers and has generated only nominal revenues to date. The
provision of fixed wireless broadband services in the 24 GHz frequency band
represents an emerging sector of the telecommunications industry, and the demand
for such services is uncertain. Market acceptance may be adversely affected by
historical perceptions of the unreliability and lack of security of previous
wireless technologies using frequencies other than 24 GHz as well as the lack of
wireless services previously provided over 24 GHz frequencies. The Company
expects that substantial marketing effort, time and expense will be required to
stimulate initial demand for the Company's fixed wireless broadband services.
There can be no assurance that substantial markets will develop for 24 GHz fixed
wireless broadband services, or, if such markets were to develop, that the
Company would be able to attract and maintain a sufficient revenue-generating
customer base or operate profitably.
The Company's success in providing fixed wireless broadband services will
be subject to certain factors beyond the Company's control. These factors
include, without limitation, changes in general and local economic conditions,
availability of equipment, changes in telecommunications service rates charged
by other service providers, changes in the supply and demand for local exchange
services, competition from wireline and wireless operators in the same market
areas, changes in federal, state and local regulations affecting the operation
of local telephone networks or fixed wireless broadband systems (including the
enactment of new statutes and the promulgation of changes in the interpretation
or enforcement of existing or new rules and regulations) and changes in
technology that have the potential of rendering obsolete the Company's fixed
wireless broadband equipment. In addition, the extent of the potential demand
for fixed wireless broadband services in the Company's market areas cannot be
estimated with certainty. There can be no assurance that one or more of these
factors will not have a material adverse effect on the Company's business,
financial condition and results of operations.
In addition, the Company has incurred and will continue to incur
significant operating expenses, has made, and will continue to make, significant
capital investments, has entered and plans to enter into operating leases,
equipment supply contracts and service arrangements, and is attempting to secure
financing, in each case based upon certain expectations as to the anticipated
market acceptance of, and customer demand for, the Company's services in the
market. Lack of acceptance of the Company's services in the market would have a
material adverse effect on the Company's business, financial condition and
results of operations. See '--Significant Capital Requirements' and
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.'
DISTANCE AND WEATHER LIMITATIONS; LINE OF SIGHT; BUILDING ACCESS
Wireless broadband services require a direct line of sight between two
antennas comprising a link and are subject to distance and rain attenuation. The
Company expects that its average coverage radius of a base station will be
approximately three miles (five kilometers), depending on local conditions, and
it is expected that the Company's base stations will utilize power control to
increase signal strength and mitigate the effects of rain attenuation. In areas
of heavy rainfall, transmission links will be engineered for shorter distances
and greater power to maintain transmission quality. The reduction of path link
distances to maintain transmission quality may
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increase the cost of service coverage. While these increased costs may not be
significant in all cases, such costs may render wireless broadband services
uneconomical in certain circumstances.
Due to line of sight limitations, the Company currently plans to install
its transceivers and antennas on the rooftops of buildings and on other tall
structures. Line of sight and distance limitations generally do not present
problems in urban areas, provided that suitable roof rights can be obtained, due
to the existence of unobstructed structures from which to transmit and the
concentration of customers within a limited area. Line of sight and distance
limitations in non-urban areas can arise due to lack of structures with
sufficient height to clear local obstructions. The Company expects generally to
be able to construct intermediate links or use other means to resolve line of
sight and distance issues. However, these limitations may render
point-to-multipoint links uneconomical in certain locations. In such cases, the
Company may (i) decide to provide services that are uneconomical in the short
term, (ii) use alternative methods of transmission to provide services on a more
economical basis, or (iii) decide not to provide services to potential customers
in these locations. There can be no assurance that such limitations will not
have a material adverse effect on the Company's business, financial condition
and results of operations.
In order to obtain the necessary access to install its transceivers and
antennas and connect its intended customers, the Company must secure roof and
other building access rights (or rights to access other line of sight
locations), including access to conduits and wiring from the owners of each
building or other structure on which it proposes to install its equipment, and
may require construction or other governmental permits. There can be no
assurance that the Company will succeed in obtaining the roof rights and
building access necessary to establish wireless broadband services to all or
most potential customers in its market areas at reasonable cost or on favorable
terms, or at all, or that delays in obtaining such rights will not have a
material adverse effect on the Company's business, financial condition and
results of operations.
RELOCATION OF LICENSES TO 24 GHZ; PENDING FCC PETITIONS
The FCC issued an Order (the 'Relocation Order') on March 14, 1997
providing for the relocation of certain fixed wireless licensees in the 18 GHz
band to a reallocated portion of the 24 GHz band. The FCC implemented this
relocation without notice and comment procedures in order to give effect to the
request of the National Telecommunications and Information Administration
('NTIA'), acting on behalf of the Department of Defense, which sought to protect
national military satellite operations from harmful interference from 18 GHz
fixed wireless stations. The Relocation Order provided for the relocation of
these licenses from 100 MHz over five channels in the 18 GHz band to 400 MHz
over five corresponding channels in the 24 GHz band. On June 24, 1997, the FCC
issued a subsequent order (the 'Modification Order') that implemented the
Relocation Order by modifying the affected 18 GHz licenses, including those held
by the Company, to authorize operations in the 24 GHz band. Pursuant to the
Relocation Order, the 18 GHz fixed wireless operators in the Washington, DC and
Denver, CO areas (including the Company's Washington, DC, Baltimore, MD and
Denver, CO facilities) were required to relocate to corresponding channels in
the 24 GHz band no later than June 5, 1997, with affected 18 GHz fixed wireless
licensees in all other areas required to relocate to the 24 GHz band no later
than January 1, 2001. See 'Regulation.'
A number of parties have filed with the FCC petitions seeking
reconsideration or review of one or both of these orders and the modification or
revocation of the Company's licenses, contending, among other things, that the
FCC's allocation of 400 MHz of 24 GHz spectrum for licenses was unnecessary and
that the FCC should not have relocated the fixed wireless licensees without
first conducting a notice and comment rulemaking proceeding. See 'Regulation.'
In addition, one of these parties, DirecTV Enterprises, Inc. ('DirecTV') has
filed a petition for rulemaking with the FCC requesting permission for the
construction and operation of broadcast satellite uplink facilities in areas of
the 24 GHz band allocated to the former 18 GHz fixed wireless licensees. The
Company has filed timely oppositions to all of these petitions.
The Company cannot determine how the FCC will resolve the petitions for
reconsideration or review of the Relocation Order and the Modification Order and
the DirecTV rulemaking petition. Thus, any construction or operation at 24 GHz
prior to the final resolution of these petitions is at the Company's risk and
expense. If the Relocation Order or Modification Order were subsequently
modified or reversed, such a modification or reversal could have a material
adverse effect on the Company's business, financial condition and results of
operations. In
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particular, it cannot be determined whether, under a modified license
relocation, the Company's equipment would be rendered unusable or usable only
after significant expense and delay.
Grant of the DirecTV rulemaking petition could materially and adversely
affect the Company's business, financial condition and results of operations. If
implemented, DirecTV's proposals could result in the construction and operation
of satellite uplink facilities on 24 GHz frequencies currently allocated to
fixed wireless services, which could interfere with the Company's operations in
the vicinity of these facilities. In addition, in the Relocation Order the FCC
announced that it will commence a rulemaking proceeding to address future fixed
wireless licensing in the 24 GHz band. There can be no assurance that the
Company's point-to-point and point-to-multipoint equipment as currently designed
will comply with the rules ultimately adopted by the FCC.
The FCC's decisions upon reconsideration will be subject to judicial appeal
to a U.S. court of appeals. There can be no assurance that the FCC will be able
to defend any such litigation successfully. The court may affirm the Relocation
Order or any order made by the FCC upon reconsideration, vacate and remand the
matter to the FCC for initiation of a rulemaking proceeding, or make any other
ruling. If the matter is remanded, the FCC could decide to afford the same
substantive relief or make another ruling, which may be adverse to the Company.
Failure by the court to affirm the terms of the Relocation Order or the
Modification Order could have a material adverse effect on the Company's
business, financial condition and results of operations.
Uncertainty during an appeal period regarding the Company's prospects and
the implications of the result of such litigation may adversely affect the
market price of the Notes. In addition, such uncertainty may disrupt the
Company's relationships with actual and potential customers, equipment vendors,
lenders or other parties, which would have a material adverse effect on the
Company's business, financial condition and results of operations.
CHANGES IN TECHNOLOGY, SERVICES AND INDUSTRY STANDARDS
The telecommunications industry has been characterized by rapid
technological advances, changes in end user requirements, frequent new service
introductions, evolving industry standards and decreases in the cost of
equipment. The Company expects these changes to continue, and believes that its
long-term success will increasingly depend on its ability to offer services that
exploit advanced technologies and anticipate or adapt to evolving industry
standards. There can be no assurance that (i) the Company's wireless broadband
services will not be economically or technically outmoded by technology or
services now existing or developed and implemented in the future, (ii) the
Company will have sufficient resources to develop or acquire new technologies or
to introduce new services capable of competing with future technologies or
service offerings, (iii) the Company's inventory of equipment will not be
rendered obsolete or (iv) the cost of 24 GHz equipment will decline as rapidly
as that of competitive alternatives. For example, there are several technologies
that allow the transmission of high bandwidth data over existing copper lines.
The occurrence of any of the events described above may have a material adverse
effect on the operations of the Company and the ability of the Company to make
principal and interest payments on its outstanding indebtedness, including the
Notes. See 'Business-- Competition in the Telecommunications Industry' and
'Telecommunications Industry Overview.'
COMPETITION
The telecommunications services industry is highly competitive. The Company
has not begun to market its point-to-multipoint wireless local broadband
services to potential customers on a widespread basis and is currently providing
point-to-point services on a limited basis. The Company has not obtained
significant market share in any of the areas where it offers its services or
intends to offer services, nor does it expect to do so in the near future given
the size of the local telecommunications market, the intense competition therein
and the diversity of customer requirements. In each market area in which the
Company is authorized to provide services, the Company competes or will compete
with several other service providers and technologies. Many of the Company's
competitors have long-standing relationships with customers and suppliers in
their respective industries, greater name recognition and significantly greater
financial, technical and marketing resources than the Company. The Company
expects to compete on the basis of local service features, quality, price,
reliability, customer service and rapid response to customer needs while
bundling local, resold long distance and Internet services. The Company faces
significant competition from ILECs, such as the Regional Bell Operating
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Companies ('RBOCs'). The Company may or will also compete with other fixed
wireless service providers, CLECs, IXCs, cable television operators, ILECs
operating outside their current local service areas, satellite licensees and
Internet service providers ('ISPs'). There can be no assurance that the Company
will be able to compete effectively in any of its market areas. See
'Business--Competition in the Telecommunications Industry' and
'Telecommunications Industry Overview.'
A number of companies are developing enhancements to increase the
performance of ILECs' copper wire-based legacy networks. These generally consist
of digital subscriber line products, such as ADSL (asymmetrical digital
subscriber line), HDSL (high-speed digital subscriber line) and VDSL (video
digital subscriber line). There can be no assurance that the Company will be
able to compete effectively with these enhancements.
The Company also faces potential competition from new entrants to the 24
GHz fixed wireless market, including ILECs, CLECs and other leading
telecommunications companies. In the Relocation Order, the FCC announced that it
will conduct a rulemaking proceeding to devise rules for the issuances of
licenses for up to five 80 MHz channels in the 24 GHz spectrum band in each
market except for those licenses already issued to the Company and other
relocated 18 GHz licensees. See 'Regulation.' The grant of additional fixed
wireless authorizations by the FCC in the 24 GHz band could result in increased
competition and diminish the value of the Company's existing fixed wireless
authorizations. The Company believes that any additional 24 GHz licenses will be
available through an auction. The Company believes that, assuming that
additional authorizations are made available by the FCC, additional entities
having greater resources than the Company could acquire authorizations at
auctions from the FCC to provide telecommunications services in the 24 GHz band.
See 'Regulation.'
The Company will also face competition from other terrestrial fixed
wireless services, including Multichannel Multipoint Distribution Service
('MMDS'), 28 GHz Local Multipoint Distribution Service ('LMDS') and 38 GHz
wireless communications systems, 2.8 GHz Wireless Communications Service
('WCS'), FCC Part 15 unlicensed wireless radio devices, and other services that
use existing point-to-point wireless channels on other frequencies.
Additionally, other companies have filed applications for global broadband
satellite systems proposed to be used for broadband voice and data services. If
developed, these systems could also present significant competition to the
Company.
The FCC has announced plans to hold an auction for LMDS licenses in all
markets for the provision of high capacity, wide-area fixed wireless
point-to-multipoint systems. In addition, the FCC proposed rules to auction
geographical area wide licenses for the operation of fixed wireless
point-to-point communications services in the 38 GHz band, although many 38 GHz
licenses have already been issued nationwide. The LMDS auction is scheduled to
begin in December 1997 and the 38 GHz auction is expected to occur in 1998. The
MMDS service, also known as 'wireless cable,' also currently competes for
metropolitan wireless broadband services. At present, wireless cable licenses
are used primarily for the distribution of video programming and have only a
limited capability to provide two-way communications needed for wireless
broadband telecommunications services, but there can be no assurance that this
will continue to be the case. The FCC has initiated a proceeding to determine
whether to provide wireless cable operators with greater technical flexibility
to offer two-way services. Cellular, PCS and other mobile service providers may
also offer fixed services over their licensed frequencies. Finally, the FCC has
allocated a number of spectrum blocks for use by wireless devices that do not
require site or network licensing. A number of vendors have developed such
devices that may provide competition to the Company, in particular for certain
low data-rate transmission services. See 'Business-- Competition in the
Telecommunications Industry.'
The Company will also face both local and long distance competition from
AT&T and other IXCs. The Company may face competition from electric utilities
(several of whom have secured the necessary authorizations to provide local
telephone service and are reportedly in various stages of perfecting and
implementing their business plans), ILECs operating outside their current local
service areas, other IXCs such as MCI and Sprint (each of which has significant
investment from or has entered into agreements to be acquired by international
telecommunications carriers with significant financial resources), and other
providers. These entities provide transmission services using technologies which
may enjoy a greater degree of market acceptance than the Company's wireless
broadband technology in the provision of last mile broadband services.
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The long distance market has relatively insignificant barriers to entry,
numerous entities competing for the same customers and a high (and increasing)
average churn rate as customers frequently change long distance providers in
response to the offering of lower rates or promotional incentives by
competitors. With respect to long distance services, the Company will compete
with major carriers such as AT&T, MCI, Sprint and WorldCom, as well as other
national and regional long distance carriers and resellers, many of whom own
substantially all of their own facilities and are able to provide services at
costs lower than the Company's current costs since the Company will generally
lease its access facilities. The Company believes that the RBOCs also will
become significant competitors in the long distance telecommunications industry.
See 'Business-- Competition in the Telecommunications Industry.'
TRANSFER OF CONTROL OF WIRELESS LICENSES; NON-RENEWAL AND FLUCTUATION IN VALUE
Pursuant to Teligent, L.L.C.'s Amended and Restated Limited Liability
Company Agreement dated October 1, 1997 (the 'LLCA'), MSI and DSC contributed
their fixed wireless licenses to the Company. Pursuant to the FirstMark
Acquisition, the Company acquired additional licenses in two SMSAs. The
assignment or transfer of control of licenses issued by the FCC (including pro
forma assignments and transfers) is subject to the prior consent of the FCC,
which consent generally turns on a number of factors including the identity,
background and the legal and financial qualifications of the assignee and the
satisfaction of certain other regulatory requirements. The FCC granted the
application for the transfer of control of FirstMark's fixed wireless licenses
to the Company in July 1997. The FCC granted the applications to assign the MSI
and DSC licenses to the Company in October 1997. There were no petitions to deny
filed against the FirstMark transfer of control application and the FCC grant
thereof has become final. There were no petitions to deny filed against the MSI
and DSC assignment applications. See 'Regulation--FCC Licensing.'
The FCC's current policy is to align the expiration dates of all fixed
wireless licenses of a particular service such that they mature concurrently
and, upon expiration, to renew all such licenses for ten years. The initial term
of most currently outstanding fixed wireless licenses, including the Company's
licenses, expires on January 1, 2001. While FCC custom and practice establishes
a presumption granting renewal of licenses to licensees, such presumption
requires that the licensee substantially comply with its regulatory obligations
during the license period. The FCC's failure to renew one or more licenses could
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company's licenses are integral assets of the Company, the value of
which will depend significantly upon the success of the Company's wireless
telecommunications operations and the future direction of the wireless
telecommunications segment of the telecommunications industry. The value of
licenses to provide wireless services also may be affected by fluctuations in
the level of supply and demand for such licenses. Any assignment of a license or
transfer of control by an entity holding a license is subject to certain
limitations relating to the identity and qualifications of the transferee and
requires prior FCC approval (and in some instances state regulatory approval as
it relates to the provision of telecommunications services in that state),
thereby possibly diminishing the value of the licenses.
RESTRICTIONS ON FOREIGN OWNERSHIP
Under the Communications Act, the FCC may, if it finds the public interest
will be served, refuse to grant common carrier licenses to (or may revoke the
licenses of) an entity directly or indirectly controlled by non-U.S. citizens or
by a corporation, the capital stock of which is more than 25% owned or voted by
non-U.S. citizens or companies. The Communications Act also prohibits any
entity, more than 20% of whose capital stock is owned or voted by non-U.S.
citizens or companies, from receiving a license for common carrier services.
After January 1, 1998, the FCC will no longer prohibit greater than 25% indirect
ownership or control of a common carrier licensee by citizens or companies from
a country (including Japan) that is a signatory to the Telecommunications Annex
to the World Trade Organization General Agreement on Trade in Services ('WTO
Agreement'), but the 20% restriction on direct ownership will remain. The
Company believes that foreign ownership of its Common Stock after completion of
the Offerings will not cause it to be in violation of the Communications Act.
However, a significant amount of Associated's common stock is held in nominee
name and, accordingly, the Company is not aware of the citizenship of the actual
beneficial owners of such shares. See 'Regulation--Alien Ownership.'
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If the FCC were to determine that the foreign ownership in the Company
exceeded the Communications Act's foreign ownership limits, it could revoke the
Company's licenses, require the Company to take actions necessary to reduce such
foreign ownership so as not to exceed the statutory limits, or determine that it
was in the public interest to allow the Company to maintain such foreign
ownership levels. The Company's certificate of incorporation authorizes the
Board of Directors to redeem equity securities owned by non-U.S. citizens and
companies at their then-current market value in order to ensure compliance with
the Communications Act and the FCC's rules. There can be no guarantee that the
Company will remain in compliance with the Communications Act's foreign
ownership limits or that such limits would not adversely affect the Company's
ability to attract equity financing from entities that are from countries that
are not signatories to the WTO Agreement.
Based on currently available information, the Company estimates that its
foreign ownership, after giving effect to the Strategic Equity Investment and
the Offerings, will be approximately %. However, this percentage is subject
to change at any time upon any transfer of direct or indirect ownership of the
Company's Common Stock. These restrictions on foreign ownership could also
adversely affect the ability of the Company to attract additional equity
financing from entities that are, or are owned by, non-U.S. persons.
Under the Stockholders Agreement, if the Company is required by a change in
law or other circumstance to reduce the level of foreign ownership of the
Company, the Company will have the right, and will be required at NTT's option,
to refuse to sell stock in the Company to any Foreign Owner (as defined) if such
a transaction would adversely impact NTT's ability to hold its then existing
share ownership in the Company, and to repurchase shares first from all other
Foreign Owners and then from NTT at the fair market value thereof based on the
Company's then public trading value.
GOVERNMENT REGULATION
The Company's telecommunications services are subject to varying degrees of
federal, state and local regulation. Generally, the FCC exercises jurisdiction
over all telecommunications services providers to the extent such services
involve the provision of jurisdictionally interstate or international
telecommunications. The Telecommunications Act expanded the FCC's jurisdiction
to include certain interconnection and related issues that traditionally have
been considered subject primarily to state regulation. The state regulatory
commissions also retain jurisdiction over significant aspects of the provision
of intrastate telecommunications services.
The Telecommunications Act is intended ultimately to permit service
providers in the long distance and local telecommunications services markets, as
well as cable television providers, to compete freely in all telecommunication
markets. For example, the Telecommunications Act will permit the RBOCs
eventually to compete fully in the provision of long distance services upon the
satisfaction of certain statutorily mandated criteria. The Telecommunications
Act generally requires ILECs to provide competitors with interconnection and
nondiscriminatory access to the local exchange network on more favorable terms
than have been available in the past. Such interconnection and the terms thereof
are subject to negotiation with each ILEC, however, which may involve
considerable delays. Moreover, such interconnection may not necessarily be
obtained on terms and conditions that are favorable to the Company. Although the
Company may petition the proper state regulatory agency to arbitrate disputed
issues, there can be no assurance that the Company will be able to obtain
favorable interconnection agreements. Also, there can be no assurance that any
interconnection agreements will actually be implemented or enforced in a
favorable manner. To date, the Company has successfully negotiated comprehensive
interconnection agreements with five ILECs and a Resale Agreement with another
for an additional state. In addition, it is currently negotiating comprehensive
interconnection agreements with these and several other ILECs for numerous
states. The Company has not resorted to arbitration with respect to its
interconnection negotiations as of this date.
As required by the Telecommunications Act, the FCC adopted in August 1996
new rules implementing the interconnection and resale provisions of the
Telecommunications Act (the 'Interconnection Order'), which are intended to
remove or minimize regulatory, economic and operational impediments to full
competition for local services, including switched local exchange service. A
number of parties appealed the Interconnection Order in Federal court seeking to
vacate some or all of the rules adopted therein. In a July 18, 1997 decision,
the United States Court of Appeals for the Eighth Circuit vacated significant
portions of the Interconnection Order, including its provisions governing the
pricing of local telecommunications services and unbundled network
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<PAGE>
elements, certain of its unbundling requirements and its 'pick and choose'
provision (which enabled a telecommunications carrier to demand any term of an
ILEC's interconnection contract with another carrier). See
'Business--Regulation.' The FCC or other parties may seek review of this
decision by the U.S. Supreme Court. Although the Company believes that the final
outcome of the Eighth Circuit decision including any further proceedings or a
Supreme Court appeal will not materially adversely affect its operations, there
can be no certainty in this regard. See 'Business--Competition in the
Telecommunications Industry,' 'Telecommunications Industry Overview' and
'Regulation.'
In addition, pursuant to the Telecommunications Act, the FCC issued new
regulations in 1997 regarding the implementation of the universal service
program and the assessment of access charges on carriers obtaining access to
local exchange networks. As a result of these changes, the costs of business and
multiple residential telephone lines are expected to increase. Several parties
have sought FCC reconsideration or have appealed various parts of the new FCC
rules. The Company is unable to predict the final formula for universal service
contribution or its own level of contribution. See 'Regulation.'
The Company is unable to predict what effect the Telecommunications Act
will have on the telecommunications industry in general and on the Company in
particular. Numerous FCC, state and local regulatory decisions are expected
regarding issues that may materially affect the Company, including but not
limited to preemption of barriers to competition and access to rights of way. No
assurance can be given that any regulation will broaden the opportunities
available to the Company or will not have a material adverse effect on the
Company's business, financial condition and results of operations. Further,
there can be no assurance that the Company will be able to comply with
additional applicable laws, regulations and licensing requirements or have
sufficient resources to take advantage of the opportunities which may arise from
this dynamic regulatory environment.
RADIO FREQUENCY EMISSION CONCERNS
The use of wireless equipment may pose health risks to humans due to radio
frequency ('RF') emissions from the radio/antenna unit. Any allegations of
health risks, if proven, could result in liability on the part of the Company.
If Teligent were held liable in any product liability suit, such liability could
have a material adverse effect on the financial condition of the Company,
including its ability to make principal and interest payments on its
indebtedness, including the Notes. Concerns over RF emissions also may have the
effect of discouraging the use of wireless communications devices, such as the
radio/antenna unit to be used with the Company's systems. See '--Emerging
Market; Uncertain Commercial Acceptance of 24 GHz Services.' These concerns
could have a material adverse effect on the Company's business, financial
condition and results of operations. The FCC recently adopted new guidelines and
methods for evaluating the environmental effects of RF emissions from
FCC-regulated transmitters, including wireless antennas. The updated guidelines
and methods generally are more stringent than those previously in effect. The
Company expects that the wireless equipment to be provided by its vendors will
comply with applicable FCC guidelines. The FCC also incorporated into its rules
provisions of the Telecommunications Act which preempt state or local government
regulation of personal wireless services facilities based on RF environmental
effects, to the extent such facilities comply with the FCC's rules concerning
such RF emissions.
CONTROL BY PRINCIPAL STOCKHOLDER; POTENTIAL CONFLICTS OF INTEREST
After giving effect to the Transactions and the Offerings, Associated will
own % of the Company's outstanding Common Stock and will have the right to
elect a majority of the members of the Company's Board, subject to its ownership
of the Company's outstanding Common Stock not falling below 20% and its
obligations under the Members Agreement. As a result, Associated, through its
Common Stock holdings and representation on the Company's Board, will be able to
exercise control over the policies and direction of the Company. The interests
of Associated as a Common Stock holder may differ from the interests of the
holders of the Notes. See 'Certain Relationships and Related
Transactions--Members Agreement,' 'Security Ownership of Certain Beneficial
Owners and Management' and 'Description of Capital Stock.'
25
<PAGE>
LIMITED INTELLECTUAL PROPERTY PROTECTION
The Company relies upon a combination of licenses, confidentiality
agreements and other contractual covenants to establish and protect its
technology and other intellectual property rights. The Company currently has no
patents or patent applications pending. There can be no assurance that the steps
taken by the Company will be adequate to prevent misappropriation of its
technology or other intellectual property or that the Company's competitors will
not independently develop technologies that are substantially equivalent or
superior to the Company's technology. Moreover, although the Company believes
that its business as currently conducted does not infringe upon the valid
proprietary rights of others, there can be no assurance that third parties will
not assert infringement claims against the Company and that, in the event of an
unfavorable ruling on any such claim, a license or similar agreement to utilize
technology relied upon by the Company in the conduct of its business will be
available to the Company on reasonable terms. Loss of such rights or failure to
obtain similar licenses or agreements may have a material adverse effect on the
Company's business, financial condition and results of operations. Also, there
can be no assurance that the intellectual property that ILECs or others claim to
hold and that may be necessary for the Company to provide its services will be
available on reasonable terms. See 'Business--Intellectual Property.'
ORIGINAL ISSUE DISCOUNT CONSEQUENCES
The Senior Discount Notes will be issued with original issue discount for
United States federal income tax purposes. As a result, holders of Senior
Discount Notes will be required to include such original issue discount in gross
income for federal income tax purposes as it accrues, in advance of the receipt
of the cash attributable to such income. See 'Certain Federal Income Tax
Considerations.'
LACK OF PUBLIC MARKET FOR THE NOTES; VOLATILITY
There is no existing trading market for the Notes and there can be no
assurance regarding the future development of a market for the Notes or the
ability of holders of the Notes to sell their Notes or the price of any such
sale. The Company does not intend to apply for listing or quotation of the Notes
on any securities exchange or inter-dealer quotation system. If such a market
were to develop, the Notes could trade at prices that may be higher or lower
than the initial offering price of the Notes. Prevailing market prices from time
to time will depend on many factors, including then existing interest rates, the
Company's operating results and cash flow and the market for similar securities.
The Underwriters have advised the Company that they currently intend to make a
market in the Notes after the consummation of the Notes Offering. The
Underwriters are not obligated to do so, however, and any market-making with
respect to the Notes may be discontinued at any time without notice.
Accordingly, even if a trading market for the Notes does develop, there can be
no assurance as to the liquidity of that market. See 'Underwriting.'
In addition, the liquidity of and trading markets for the Notes may be
adversely affected by declines in the market for high-yield securities
generally. Such a decline may adversely affect liquidity and trading markets
independent of the financial performance of and prospects for the Company.
RISK OF INABILITY TO SATISFY CHANGE OF CONTROL OFFER
Upon the occurrence of a Change of Control, unless the Company has given a
notice of redemption, each Holder will have the right to require the Company to
repurchase all or any part of such Holder's Notes at a purchase price in cash
equal to 101% of the principal amount thereof (in the case of the Senior Notes)
or 101% of the Accreted Value thereof (in the case of the Senior Discount Notes)
on any Change of Control Payment Date occurring prior to , 2002, plus
any accrued and unpaid cash interest not otherwise included in Accreted Value to
such Change of Control Payment Date, or 101% of the principal amount thereof at
Stated Maturity on any Change of Control Payment Date occurring on or after
, 2002, plus accrued and unpaid interest, if any, to such Change of
Control Payment Date. In the event a Change in Control occurs at a time when the
Company is unable to purchase the Notes, the Company could seek to refinance the
Notes. If the Company is unsuccessful in refinancing the Notes, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the Indentures. See 'Description of the Notes--Change of Control.'
26
<PAGE>
INVESTMENT COMPANY ACT CONSIDERATIONS
After giving effect to the Additional Sponsor Equity Contributions, the
Strategic Equity Investment and the Offerings, the Company will have substantial
cash, cash equivalents and short-term investments. See 'Capitalization' and 'Use
of Proceeds.' Such amount may be invested from time to time in investment
securities, which may result in the Company being treated as an 'investment
company' under the Investment Company Act of 1940 (the '1940 Act'). The 1940 Act
requires the registration of, and imposes various substantive restrictions on,
certain companies ('investment companies') that are, or hold themselves out as
being, engaged primarily, or propose to engage primarily in, the business of
investing, reinvesting or trading in securities, or that fail certain
statistical tests regarding composition of assets and sources of income and are
not primarily engaged in businesses other than investing, reinvesting, owning,
holding or trading securities.
The Company believes that it is primarily engaged in a business other than
investing, reinvesting, owning, holding or trading securities and, therefore, is
not an investment company within the meaning of the 1940 Act. If the Company is
found to be an investment company, the Company currently intends to rely upon an
exemption from the 1940 Act for certain 'transient' or temporary investment
companies. However, such exemption is only available for one year.
If the Company were required to register as an investment company under the
1940 Act, it would become subject to substantial regulation with respect to its
capital structure, management, operations, transactions with affiliated persons
(as defined in the 1940 Act) and other matters. Application of the provisions of
the 1940 Act to the Company would have a material adverse effect on the
Company's business, financial condition and results of operations.
27
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Notes Offering are estimated to be
approximately $ million, and the net proceeds to the Company from the
Equity Offerings are estimated to be approximately $ million
($ if the underwriters' over-allotment options are exercised in full),
assuming an initial public offering price of $ per share, representing the
midpoint of the price range in the Equity Offerings, in each case after
deducting estimated discounts and offering expenses.
Upon the closing of the Notes Offering, the Company will use approximately
$ million of the net proceeds to purchase Pledged Securities (in such
amount as will be sufficient to provide for payment in full of the interest due
on the Senior Notes through , 2000) that will be pledged as security
for repayment of the Senior Notes.
Immediately prior to the Reorganization, the Company intends to use
approximately $ of the Additional Sponsor Cash Contributions to repay all
outstanding amounts under the Loan Agreement between the Company, as borrower,
and the Toronto Dominion Bank (Texas), Inc., as lender, dated December 24, 1996
(the 'Revolving Credit Agreement'). The Revolving Credit Agreement will
thereupon be terminated. The interest rate on all indebtedness outstanding under
the Revolving Credit Agreement as of September 30, 1997 was approximately 8.44%
and the indebtedness thereunder matures on December 19, 1997. The amounts that
will be repaid were used for expansion and development of the Company's network
and for general corporate purposes.
The Company intends to use the balance of the net proceeds of the Offerings
and the Additional Sponsor Cash Contributions, together with the Strategic
Equity Investment, for the development of the Company's business and deployment
of its services and systems in multiple markets and the general development and
growth of its telecommunications operations, including (i) the development of
operating and management systems, (ii) capital expenditures and (iii) other
operating expenses, including the hiring of sales, marketing, engineering and
customer service personnel.
Based on the Company's current business plan, the Company believes that the
net proceeds of the Offerings, the Additional Sponsor Cash Contributions, the
Strategic Equity Investment and anticipated Vendor Financing will be sufficient
to satisfy its capital requirements through December 2000.
The Company expects that its capital requirements after December 2000 will
require it to obtain additional financing, which may include commercial bank
borrowings, additional vendor financing or the sale or issuance of equity and
debt securities either through one or more offerings or to one or more strategic
investors. There can be no assurance that the Company will be successful in
raising sufficient additional capital at all or on terms acceptable to the
Company. See 'Risk Factors--Significant Capital Requirements.'
Pending the foregoing uses, the net proceeds of the Offerings will be
invested in short-term, interest-bearing investment-grade securities.
28
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
The unaudited pro forma balance sheet set forth below is presented as of
June 30, 1997 (i) on an actual basis, (ii) on a pro forma basis to show
adjustments resulting from the Transactions and the application of net proceeds
therefrom as described under 'Use of Proceeds,' (iii) on a pro forma basis to
show adjustments resulting from the Offerings and the application of the net
proceeds therefrom as described under 'Use of Proceeds,' and (iv) on a pro forma
basis as adjusted to give effect to the Transactions, and the Offerings and the
application of the net proceeds therefrom as described under 'Use of Proceeds,'
in each case as if the same occurred on June 30, 1997, subject to the
assumptions and adjustments in the accompanying notes to the unaudited pro forma
balance sheet.
The unaudited pro forma balance sheet should be read in conjunction with
the financial data appearing under 'Selected Financial Data,' the Financial
Statements contained elsewhere herein and the discussion of the Transactions
under 'Certain Transactions.' The unaudited pro forma balance sheet does not
purport to be indicative of the financial position of the Company that might
have been obtained had these events actually then occurred or of the Company's
future financial position.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
--------------------------------------------------------------
ADJUSTMENTS ADJUSTMENTS
FOR THE FOR THE
ACTUAL TRANSACTIONS(1) OFFERINGS(2) AS ADJUSTED(3)
-------- ------------------- ------------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 1,656 $ 131,423 $ $
Other current assets................................... 3,640 (1,341) -- 2,299
-------- ------------------- ------------ --------------
Total current assets..................................... 5,296 130,082 416,000 551,378
Restricted cash(4)....................................... -- --
Property and equipment, net.............................. 6,847 721 -- 7,568
Licenses................................................. -- 48,365 -- 48,365
Payment to wireless communications company(5)............ 5,570 (5,570) -- --
Other assets............................................. 369 (169) 15,000 15,200
-------- ------------------- ------------ --------------
TOTAL ASSETS............................................. $ 18,082 $ 173,429 $ $
-------- ------------------- ------------ --------------
-------- ------------------- ------------ --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued payroll and other current
liabilities......................................... $ 4,400 $ 95 $ -- $ 4,495
Revolving line of credit(6)............................ 25,000 (25,000) -- --
Accrued company appreciation rights.................... 14,948 (1,325) -- 13,623
-------- ------------------- ------------ --------------
Total current liabilities................................ 44,348 (26,230) -- 18,118
Accrued company appreciation rights...................... 25,704 (20,826) -- 4,878
Senior Notes............................................. -- -- 250,000 250,000
Senior Discount Notes.................................... -- -- 150,000 150,000
Other liabilities........................................ 731 -- -- 731
Stockholders' equity:
Common Stock........................................... --
Additional paid-in capital(7).......................... 9,058 198,334
Deficit accumulated during the development stage....... (61,759) 22,151 -- (39,608)
-------- ------------------- ------------ --------------
Total Stockholders' Equity............................... (52,701) 220,485
-------- ------------------- ------------ --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............... $ 18,082 $ 173,429 $ $
-------- ------------------- ------------ --------------
-------- ------------------- ------------ --------------
</TABLE>
29
<PAGE>
- ------------------
(1) Reflects pro forma adjustments to give effect to the Transactions, net of
transaction fees (including pro forma adjustment for the CARs) and the
application of a portion of the Additional Sponsor Cash Contributions to
repay the Revolving Credit Agreement, as described under 'Use of Proceeds.'
(2) Reflects pro forma adjustments to give effect to the Offerings, net of
transaction fees, and the application of a portion of the net proceeds
therefrom to purchase the Pledged Securities, as described under 'Use of
Proceeds.'
(3) As adjusted on a pro forma basis to give effect to the Transactions, net of
transaction fees, the Offerings and the application of a portion of the net
proceeds therefrom to repay the Revolving Credit Agreement and to purchase
the Pledged Securities, as described under 'Use of Proceeds.'
(4) The adjustment to restricted cash to give effect to the Offerings consists
of the Pledged Securities in an amount sufficient to provide for payment in
full of the interest due on the Senior Notes through , 2000, at
an assumed interest rate of % per annum.
(5) During the six months ended June 30, 1997, pursuant to the FirstMark
Agreement, the Company paid $5.6 million to FirstMark. Upon closing of the
FirstMark Acquisition, this amount was allocated to Licenses.
(6) Borrowings under the Revolving Credit Agreement amounted to $25.0 million at
June 30, 1997. Immediately prior to the effective date of the
Reorganization, the Company may have up to $50.0 million outstanding under
the Revolving Credit Agreement, which amount will be repaid with a portion
of the Additional Sponsor Cash Contributions as described under 'Use of
Proceeds.'
(7) Additional paid-in capital on an actual basis as of June 30, 1997 consists
of $9.1 million in member contributions to Teligent, L.L.C. classified as
additional paid-in capital for presentation purposes. The adjustment to
additional paid-in capital and common stock to give effect to the
Transactions reflects the following additional amounts: $31.5 million
reflecting the FirstMark Acquisition, $61.1 million reflecting the
Additional Sponsor Equity Contributions, $6.7 million reflecting the License
Transactions, $100.0 million reflecting the Strategic Equity Investment and
$ million as a result of the Equity Offerings, less aggregate
transaction fees with respect to the Equity Offerings and Strategic Equity
Investment of $ million.
30
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below as of and for the period from
March 5, 1996 (date of inception) to December 31, 1996 are derived from and are
qualified by reference to the Financial Statements contained elsewhere in this
Prospectus. The financial statements for the period from March 5, 1996 (date of
inception) to December 31, 1996 have been audited by Ernst & Young LLP,
independent certified public accountants. The selected financial data presented
below as of and for the six months ended June 30, 1997, and as of and for the
period March 5, 1996 (date of inception) to June 30, 1997, have been derived
from the unaudited financial statements of the Company which, in the opinion of
management, 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 for such periods. Operating results for the six months
ended June 30, 1997 and for the period March 5, 1996 (date of inception) to June
30, 1997 are not necessarily indicative of the results that may be expected for
the full year, although the Company will continue to be a development stage
company and anticipates a net loss for the year. Historical per share data for
earnings and dividends have not been presented as the Company was not
publicly-held during the periods presented below. The following financial data
should be read in conjunction with 'Management's Discussion and Analysis of
Financial Condition and Results of Operations' and the Financial Statements
contained elsewhere in this Prospectus.
31
<PAGE>
<TABLE>
<CAPTION>
MARCH 5, 1996 SIX MONTHS MARCH 5, 1996
(DATE OF INCEPTION) TO ENDED (DATE OF INCEPTION) TO
DECEMBER 31, 1996 JUNE 30, 1997 JUNE 30, 1997
---------------------- ------------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................. $ 1,386 $ 1,714 $ 3,100
Costs and expenses:
Cost of wireless communications services............... 1,625 1,718 3,343
Sales, general and administrative...................... 8,582 10,604 19,186
Company appreciation rights............................ 2,778(1) 37,873(1) 40,651(1)
Depreciation and amortization.......................... 164 162 326
---------- ------------- ----------
Total costs and expenses............................ 13,149 50,357 63,506
---------- ------------- ----------
Operating loss........................................... (11,763) (48,643) (60,406)
Interest expense and loan fees, net...................... (869) (483) (1,352)
---------- ------------- ----------
Net loss................................................. $(12,632)(1) $ (49,126)(1) $(61,758)(1)
---------- ------------- ----------
---------- ------------- ----------
<CAPTION>
DECEMBER 31, 1996 JUNE 30, 1997
---------------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash..................................................... $ 1,303 $ 1,656
Property and equipment, net.............................. 3,545 6,847
Total assets............................................. 5,145 18,082
Revolving line of credit................................. 2,000 25,000
Accrued company appreciation rights...................... 2,778 40,652
Members' deficit:
Capital contributions.................................. 9,058 9,058
Deficit accumulated during development stage........... (12,633) (61,759)
---------- -------------
Total members' deficit.............................. $ (3,575) $ (52,701)
---------- -------------
---------- -------------
<CAPTION>
MARCH 5, 1996 SIX MONTHS MARCH 5, 1996
(DATE OF INCEPTION) TO ENDED (DATE OF INCEPTION) TO
DECEMBER 31, 1996 JUNE 30, 1997 JUNE 30, 1997
---------------------- ------------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OTHER DATA:
EBITDA(2)................................................ $ (8,821) $ (10,608) $(19,429)
Ratio of earnings to fixed charges(3).................... -- -- --
</TABLE>
- ------------------
(1) The net loss for the period March 5, 1996 (date of inception) to December
31, 1996, the six months ended June 30, 1997, and for the period March 5,
1996 (date of inception) to June 30, 1997 includes noncash CARs expense of
$2,778,000, $37,873,000, and $40,651,000, respectively. Such expense is
required under generally accepted accounting principles due to the variable
nature of the underlying employee compensation plan and may not reflect the
actual amount of compensation due at vesting due to changes in the fair
market value of Teligent, actual employee vesting, and dilution. If
compensation expense was not recognized relating to CARs, the net loss for
the period March 5, 1996 (date of inception) to December 31, 1996, the six
months ended June 30, 1997, and the period March 5, 1996 (date of inception)
to June 30, 1997 would have been $9,854,000, $11,253,000 and $21,107,000,
respectively.
(2) EBITDA consists of operating loss before depreciation and amortization,
interest expense and loan fees, net, and CARs. EBITDA is a measure commonly
used in the telecommunications industry and is presented to assist in
understanding the Company's operating results. Additionally, certain
covenants contained in the Indentures will be calculated based on EBITDA.
Although EBITDA should not be construed as a substitute for operating income
determined in accordance with generally accepted accounting principles, it
is included
(Footnotes continued on next page)
32
<PAGE>
(Footnotes continued from previous page)
herein to provide additional information with respect to the ability of the
Company to meet future debt service, capital expenditures and working
capital requirements. See the Financial Statements contained elsewhere in
this Prospectus.
(3) 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 period March 5, 1996
(date of inception) to December 31, 1996, the six months ended June 30, 1997
and the period March 5, 1996 (date of inception) to June 30, 1997, earnings
were insufficient to cover fixed charges by $12.3 million, $48.5 million and
$60.1 million, respectively.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis is based upon the financial
statements of the Company from its inception on March 5, 1996 to June 30, 1997
and should be read in conjunction with the Financial Statements and notes
thereto contained elsewhere in this Prospectus. Certain statements set forth
below constitute 'forward-looking statements' within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Given
these uncertainties, prospective investors are cautioned not to place undue
reliance on such forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to those discussed
in 'Risk Factors' and 'Business.'
OVERVIEW
Teligent intends to capitalize on a convergence of technological,
regulatory and market developments to capture revenues in the estimated $110
billion business telecommunications market. Teligent's goal is to be a premier
facilities-based provider of telecommunications solutions to small and
medium-sized businesses. The Company intends to provide cost-effective, high
bandwidth connectivity in order to offer an integrated package of local and long
distance telephone service, high-speed data connectivity, Internet access and
videoconferencing.
The Company's business commenced on March 5, 1996, and the Company has
generated only nominal revenues from operations to date. Prior to the transfer
by MSI and DSC of their fixed wireless licenses to the Company, revenues and
cash flows associated with customers using the fixed wireless licenses were
accounted for by MSI and DSC. Accordingly, Teligent's historic revenues only
reflect certain management and administration services to MSI and DSC in
connection with the development, construction and operation of their 18 GHz and
subsequently 24 GHz fixed wireless networks. The Company's primary activities
have focused on the acquisition of licenses, the acquisition of building access
rights, the hiring of management and other key personnel, the raising of
capital, the acquisition of equipment, the development of operating systems and
the negotiating of interconnection agreements.
The Company has experienced significant operating and net losses and
negative operating cash flow to date and expects to continue to experience
operating and net losses and negative operating cash flow until such time as it
develops a revenue-generating customer base sufficient to fund operating
expenses. See 'Risk Factors-- Development Stage Company; Limited History of
Operations; Negative Cash Flow and Operating Losses,' '--Significant Capital
Requirements' and '--Substantial Leverage; Ability to Service Indebtedness.'
After the Company initiates service in a significant number of markets, the
Company expects to achieve positive operating margins over time by increasing
the number of revenue-generating customers and providing additional capacity for
its customers without significantly increasing related capital expenditures,
costs of building access rights and other operating costs. Over time, the
Company believes that its cost structure will be further enhanced as the
majority of its network deployment costs will consist of electronics, which tend
to decline in price through time as economies of scale are achieved. The Company
expects that operating and net losses and negative operating cash flow will
increase significantly as the Company implements its growth strategy. See
'--Liquidity and Capital Resources.'
FACTORS AFFECTING FUTURE OPERATIONS
REVENUES
Target Market and Penetration. Teligent's wireless licenses cover
approximately 3.7 million U.S. businesses and 26.7 million business lines in 74
of the most populous U.S. metropolitan market areas. The Company intends to
focus its marketing efforts on small and medium-sized businesses with 5 to 350
telephone
34
<PAGE>
lines. Teligent's market research indicates that a significant portion of its
target customer base is currently dissatisfied with its ILEC service. To address
this market opportunity, Teligent plans to initially focus its sales efforts on
business customers whose needs are not well served by fiber-based services and
whose bandwidth needs are not adequately met by copper-based services.
The Company has compiled geographic databases of commercial buildings,
business establishments and multi-tenant units. These databases will be used to
optimize network deployment as well as target sales and marketing efforts in
order to maximize capital efficiency. In addition, by using this data, the
Company plans to measure its performance by market segment as it grows and then
use this analysis to optimize deployment of its network in the future.
Service Offering. Teligent initially intends to derive the majority of its
revenues from local switched voice and data communications services directly
provided to end user customers. Teligent also intends to offer an integrated
package of local and long distance telephone services, value-added services,
high speed data connectivity, Internet access and videoconferencing. As a result
of regulatory constraints, local and long distance services have historically
been purchased separately. Due to changes in the regulatory environment, the
Company believes business customers will increasingly seek to purchase local and
long distance service from the same provider. Where economically attractive, the
Company may also enter into arrangements through which other carriers could
resell Teligent's services to their own customers.
Pricing. Teligent's pricing structures will vary according to service.
Switched voice service revenues will typically consist of two types of charges:
a fixed charge for access to the network and additional charges based on actual
usage. Data service revenues will more commonly consist solely of fixed charges
as the result of the current industry practice of providing service on a
dedicated basis. In the future, the Company believes that its wireless local
networks will be able to offer advanced functions, which would enable data
services to be provided on an as-needed basis instead of on a dedicated basis.
As a result, Teligent expects to be able to price its data services on a usage
basis, which may prove more economical and attractive to potential customers
than dedicated pricing, enabling Teligent to differentiate itself in the
marketplace.
As a new market entrant, Teligent's strategy will be to price its services
competitively to gain market share early. For switched voice services and other
services already provided by the ILEC, the Company expects to price at a
discount. For certain data and bandwidth-intensive services that may not be
provided by competitors or for which there may exist an underserved market
demand, the Company may be able to price its services at a premium. The Company
anticipates that some ILECs may reduce their prices as increased competition
begins to erode their market share. The Company believes that it will be able to
remain competitive if market prices decline because of its lower expected
network cost. The Company also expects to price its bundled long distance
service at a discount to market prices as a further incentive to attract
potential customers and to broaden its revenue base.
Churn. Similar to other telecommunications providers, the Company expects
to encounter customer churn as its customer base grows. The Company believes
that it will be able to mitigate churn through its competitive pricing, ability
to provide last mile local loop service through its own networks, which will
enhance its ability to ensure high quality service by minimizing its reliance on
the ILEC for maintenance or equipment upgrades, and its bundled service
offering. In the event of customer churn, the Company's customer premise
equipment will be able to be redeployed at other customer premises thereby
reducing the risk of stranded assets.
NETWORK RELATED COSTS
In addition to the capital expenditures described below, additional costs
are required to operate and maintain the networks, including: real estate leases
for switching centers, base station sites and customer sites; preparation,
installation, operation and maintenance of switching centers, base station sites
and individual customer radio links, as well as customer premise equipment;
leasing of backhaul facilities between base station sites and switching centers;
network operation center facility expense; the cost to interconnect and
terminate traffic with other network providers; software licensing fees; and
network design and base station configuration planning.
Site Leases. Site lease costs, particularly customer rooftop lease costs,
may represent a substantial ongoing operating expense. Teligent has developed a
detailed strategy to minimize these costs. First, as part of its sales strategy,
the Company will focus its marketing efforts in targeted buildings where site
leases are being or have
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already been acquired. Multiple customers located in the same building can
therefore share a single rooftop antenna, as opposed to having individual
customers dispersed across multiple buildings, each of which would require an
individual antenna and a rooftop lease. Second, Teligent is exploring
alternative approaches to building access.
Base Station Sites. Base station sites will be primarily located on
rooftops of existing buildings or towers. The Company anticipates that it will
be able to utilize existing structures more frequently than PCS and cellular
providers, which cover areas that Teligent does not intend to prioritize, such
as highways and residential streets, where there may be a lack of suitable
existing structures. Rather, the Company expects that most of its target
customers will be located in business districts which contain existing
commercial buildings suitable for base station sites, thereby minimizing site
construction costs.
Installation and Maintenance. The Company will require a significant
number of network installation and maintenance personnel for each market. As the
Company's customer base grows, so will its utilization of switching centers, the
base station to switch transport network and base station sites, all of which
require regular maintenance. While certain customer premise maintenance will be
simple enough for customers to perform themselves, Company technicians will
still be required to perform customer site maintenance and service changes.
Base Station to Switch Transport. Traffic between base station sites and
the Company's switching centers will be carried over a combination of
Company-owned 24 GHz wireless links as well as hybrid fiber optic transmission
facilities, where appropriate. While the Company may build its own fiber optic
facilities in certain areas, it expects to work primarily with other hybrid
fiber network providers, either through leasing arrangements or partnerships.
Additionally, as customers are added and the base station to switch transport
capacity requirements increase, some of the wireless links initially deployed
may be replaced with additional fiber-based facilities. In such cases, the
wireless equipment may be redeployed elsewhere in the network, in order to
reduce stranded assets.
Interconnection Costs. Because the vast majority of local
telecommunications users are currently served by ILECs, local calls originating
on Teligent's network will most likely be to other parties served by an ILEC. In
such cases, Teligent will be required to pay interconnection fees to connect
calls to subscribers on the ILEC's network. Additionally, the Company expects to
lease capacity from other network providers to carry much of its long distance
and Internet traffic. As a facilities-based local access provider, Teligent will
earn access charges for long distance services it provides to local customers on
its network, thereby significantly enhancing its operating margins. The Company
believes that this will become an added competitive advantage as it expands its
revenue base by providing an increasing portion of long distance services.
COST OF OPERATIONS
Teligent will incur operating costs common to all telecommunications
providers including customer service and technical support, information systems,
billing and collections, general management and overhead expense, office leases,
bad debt expense and administrative functions. Those functional areas driven by
headcount, such as customer service, will increase gradually as required by
customer demand. Other areas, particularly information and billing systems, may
require significant upfront capital expenditures to the extent that the Company
purchases or creates its own infrastructure. Because Teligent lacks any legacy
systems, the Company believes that it has the opportunity to develop systems
that provide greater functionality and flexibility than many existing operators.
The Company's experienced management team has demonstrated past success in
building and managing each of these functional areas. Company management is
currently designing, developing and hiring the necessary staff for all of its
operational departments. Management anticipates that centralized staff and
operations will decrease as a portion of the Company's operating expenses over
time. As the Company commercializes more markets and the customer base grows,
the number of market-specific workers is expected to grow to represent the
majority of the Company's employees. However, certain functions such as customer
service call centers, network operations monitoring and billing and site
planning are likely to remain centralized in order to achieve economies of
scale.
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Sales and Marketing Costs. Teligent intends to employ a significant direct
sales force to focus on the end user. The salespeople will have performance
incentives through a structure that will link a significant portion of each
person's compensation to the actual revenue produced by that individual.
Particularly in the first few years, the sales force will target the specific
geographic areas covered by newly constructed base station sites. As the
network's geographic coverage expands, Teligent expects it will broaden its
marketing and advertising activities. In addition, to enhance profitability and
maximize benefits of network architecture, salespeople will be encouraged to
maximize penetration in 'on net' buildings that already have installed CPE. The
Company also intends to use alternate or indirect channels of distribution,
including a sales agent program.
Software and Development Costs. The Company expects to incur significant
costs for rights to the software used within the wireless local loop, switching
and network management portions of its network. The Company will incur
significant software-related costs as it builds and maintains its advanced
information systems to support functions such as billing and customer care.
DEPRECIATION AND AMORTIZATION
The Company depreciates and amortizes its property and equipment using the
straight line method over the estimated useful life of the assets ranging from
five to ten years for equipment and the lesser of seven years or the lease term
for leasehold improvements. Licenses are amortized over a period up to fifteen
years.
CAPITAL EXPENDITURES
The Company's principal capital expenditure requirements involve the
purchase and installation of CPE, base stations, network switches and switch
electronics and network operations center expenditures.
Customer Premise Equipment. The purchase and installation of CPE is the
largest single capital expense component in Teligent's business plan, and
represents a success-based capital expenditure. Success-based capital
expenditures afford Teligent greater flexibility in its business plan and reduce
the risk of deploying equipment and capital which are not associated with
customers and revenues. While a certain amount of equipment must initially be
installed at each base station, the majority of the equipment (and cost) will
depend upon the number of customers acquired. As more customers are loaded onto
a given base station area, the initial base station equipment will be augmented
with additional sectors, radios, antennas and modems to meet customer demand.
The Company's CPE costs include an integrated radio/antenna unit, modem(s),
power supply, multiplexer and router equipment, line interface cards, and cables
and installation materials. Portions of the CPE costs can also be shared among
multiple customers in the same building, thereby reducing the capital
expenditures required per customer. In addition, in the event of customer churn,
the Company's CPE can be redeployed at other customer premises thereby reducing
stranded assets.
Base Station Site. A base station will be able to serve customers within a
360-degree coverage area, subject to lines of sight. Teligent expects its
average coverage radius will be approximately three miles (five kilometers),
depending on local conditions. A base station will typically comprise four to
eight sectors, each of which cover a radial section of the service area
depending on coverage and capacity requirements. Each sector requires one or
more radio/antenna units and modems, depending on the system deployed.
Construction costs per base station are typically higher than are construction
costs per customer site. The Company expects that its sites will typically be
built on top of buildings as opposed to towers constructed by the Company.
Base Station to Switch Transport. Teligent will transport traffic between
its base stations and switching sites. To the extent the Company uses wireless
transport rather than leased fiber, it will incur capital expenditures as
opposed to operating costs.
Switching. Switching costs include traditional circuit-based switches,
line cards for interfacing with the backhaul networks and with the networks of
other carriers, packet- and cell-based switching systems, such as ATM and Frame
Relay switches, power systems, and environmental maintenance equipment. The
Company expects to eventually deploy a switch in each of its markets and be able
to add increased switching capacity by adding more ports. Accordingly, the cost
structure for switches is expected to have both a fixed and variable cost
component.
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BUSINESS DEVELOPMENT, CAPITAL EXPENDITURES AND ACQUISITIONS
From inception through June 30, 1997, expenditures for property and
equipment have totalled $7.2 million. In addition, the Company has incurred
significant other costs and expenses in the development of its business and has
recorded cumulative losses from inception through June 30, 1997 of approximately
$61.8 million. This amount includes $40.7 million of non-cash compensation,
consisting of expenses associated with the CARs for the Chairman and Chief
Executive Officer as well as the Long Term Incentive Compensation Plan for all
other employees. In October 1997, the Company consummated the FirstMark
Acquisition, whereby it acquired all of the capital stock of FirstMark, which
holds additional FCC authorizations and licenses, for an aggregate purchase
price (before related expenses) of $10.5 million in cash (of which $5.6 million
was paid as of June 1997 and $4.9 million was paid at the closing) and a 5%
member interest in Teligent, L.L.C. The Company may, when and if the opportunity
arises, acquire other spectrum rights or related businesses, incur expenses in
the development of new technologies and expand its fixed wireless broadband
services into new market areas.
RESULTS OF OPERATIONS
Prior to the transfer by MSI and DSC of their fixed wireless licenses to
the Company, revenues and cash flows associated with customers using the fixed
wireless licenses were accounted for by MSI and DSC. Accordingly, the Company's
historic revenues only reflect certain management and administration services to
MSI and DSC in connection with the development, construction and operation of
their 18 GHz and subsequently 24 GHz fixed wireless networks. Additionally,
Teligent has been or will be reimbursed by MSI and DSC for the cost of certain
services provided by Teligent prior to the transfer by MSI and DSC of their
fixed wireless licenses to Teligent, in connection with the construction and
operation of the fixed wireless links related to the 18 GHz and 24 GHz licenses.
SIX MONTHS ENDED JUNE 30, 1997
For the six months ended June 30, 1997, the Company generated revenues of
$1.7 million from services provided to MSI and DSC, including $1.4 million of
other services, $60,000 of management fees and $0.2 million from equipment
leases.
In the same period, the Company incurred operating expenses (other than
interest expense) of approximately $50.4 million, including $1.7 million
relating to the cost of wireless communications services, $10.6 million of
sales, general and administrative expenses, primarily due to payroll and
consulting costs relating to the commencement of operations of the Company, and
$37.9 million of non-cash expense associated with the CARs. Interest expense for
the six months ended June 30, 1997 was $0.5 million, due to borrowings under the
Revolving Credit Agreement.
MARCH 5, 1996 (INCEPTION) TO DECEMBER 31, 1996
From inception through December 31, 1996, the Company generated revenue of
$1.4 million from services provided to MSI and DSC including $1.1 million of
other services, $0.1 million of management fees and $0.2 million from equipment
leases.
In the same period, the Company incurred operating expenses (other than
interest expense) of approximately $13.1 million, including $1.6 million
relating to the cost of wireless communication services and $8.6 million of
sales, general and administrative expenses, primarily due to payroll and
consulting costs relating to the commencement of operations of the Company and
$2.8 million of non-cash expense associated with CARs. Interest expense and debt
origination fees for the period ending December 31, 1996 was $0.9 million,
primarily due to the loan structuring fee for the Revolving Credit Agreement.
The Company expects to generate significant operating and net losses for the
next several years. See 'Risk Factors--Development Stage Company; Limited
History of Operations; Negative Cash Flow and Operating Losses.'
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LIQUIDITY AND CAPITAL RESOURCES
Unlike other new wireless entrants that have expended considerable capital
to acquire licenses, the majority of Teligent's licensed spectrum was
contributed by MSI and DSC, and Teligent has no outstanding balance sheet
liabilities for license purchases. The development of the Company's business and
deployment of its services and systems will require significant capital to fund
capital expenditures, working capital, debt service and operating losses. The
Company's principal capital expenditure requirements involve the purchase and
installation of CPE, base stations, network switches and switch electronics and
network operations center expenditures. The Company intends to offer commercial
service in at least 10 market areas by the end of 1998 and 30 by the end of
1999, and subsequently in all of its 74 currently licensed market areas. The
Company currently forecasts that its capital requirements from March 5, 1996
(inception) through December 2000 will be approximately $1 billion. Actual
capital requirements may vary based upon the timing and success of the Company's
roll-out. If demand for the Company's services is lower than expected, the
Company expects to be able to reduce demand-driven capital expenditures such as
CPE and switch electronics.
Based on the Company's current business plan, the Company believes that the
net proceeds of the Offerings, the Additional Sponsor Cash Contributions, the
Strategic Equity Investment and anticipated Vendor Financing will be sufficient
to satisfy its capital requirements through December 2000.
The Company expects that its capital requirements after December 2000 will
require it to obtain additional financing, which may include commercial bank
borrowings, additional vendor financing or the sale or issuance of equity and
debt securities either through one or more offerings or to one or more strategic
investors. There can be no assurance that the Company will be successful in
raising sufficient additional capital at all or on terms acceptable to the
Company. See 'Risk Factors--Significant Capital Requirements.'
Because the Company's cost of rolling-out its networks and operating its
business, as well as the Company's revenues, will depend on a variety of factors
(including the ability of the Company to meet its roll-out schedules, the
ability of the Company to negotiate favorable prices for purchases of network
equipment, the number of customers and the services for which they subscribe,
the nature and penetration of new services that may be offered by the Company,
regulatory changes and changes in technology), actual costs and revenues will
vary from expected amounts, possibly to a material degree, and such variations
are likely to affect the Company's future capital requirements. Accordingly,
there can be no assurance that the Company's actual capital requirements will
not exceed the anticipated amounts described above. Further, the exact amount of
the Company's future capital requirements will depend upon many factors,
including the cost of the development of its networks in each of its markets,
the extent of competition and pricing of telecommunication services in its
markets, the acceptance of the Company's services and the development of new
products.
VENDOR FINANCING
Teligent has the ability to source key network components from a number of
equipment vendors. Unlike many cellular and PCS networks, fixed wireless
networks can be constructed using equipment from different manufacturers because
customers do not roam between base stations. Teligent believes that the
flexibility provided by vendor diversity will assist in ensuring an adequate and
prompt supply of equipment at attractive prices.
The Company is considering financing proposals from vendors. Prior to the
consummation of the Offerings, the Company expects to receive commitments with
respect to an aggregate amount in excess of $500 million of Vendor Financing
from one or more vendors. The Company expects that the closing and funding of
any such commitments will be subject to certain conditions, as described below.
The proceeds of such facilities will be used to finance both the purchase of
equipment and services as well as general working capital.
The Company expects that borrowings under the Vendor Financing arrangements
will be secured by a perfected first priority lien (the 'Shared Lien') on all
existing and future assets of the Company and its subsidiaries. The Company
expects that the Shared Lien will be available to secure equally and ratably any
subsequent bank credit facility, Vendor Financing, and certain other
indebtedness of Teligent for borrowed money and any refinancing of the foregoing
(collectively, the 'Secured Debt'). The Company anticipates that
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the indebtedness outstanding pursuant to the Vendor Financing will be
unconditionally guaranteed by substantially all of the Company's subsidiaries.
The Company expects that it will be able to draw under the Vendor Financing
over a multi-year period following closing thereof. The Company anticipates that
under the Vendor Financing, subject to certain conditions, it will be required
to make mandatory prepayments of 100% of the net cash proceeds of any sale or
disposition of any material assets that are not reinvested in the Company's
business payable on a pro-rata basis to all lenders of the Secured Debt.
The Company expects that it will be able to elect that all or a portion of
the borrowings under the Vendor Financing bear interest at a rate per annum
equal to the Eurodollar rate (LIBOR) plus an applicable margin and that the
Vendor Financing will include various arrangements, structuring, commitment and
ongoing fees customary for such facilities.
The Company anticipates that the Vendor Financing may require, as a
condition to funding, the commitment of additional sources of capital. The
Company expects that the consummation of the Offerings, the consummation of the
Additional Sponsor Equity Contributions and consummation of the Strategic Equity
Investment will satisfy any such conditions.
The Company expects that the Vendor Financing will contain a number of
significant covenants that, among other things, limit the ability of the Company
to incur additional indebtedness (beyond specified amounts), create liens and
other encumbrances, make guarantee obligations, make certain payments and
investments, sell or otherwise dispose of assets, make capital expenditures,
make distributions to stockholders and repurchases of equity, make acquisitions,
investments, loans and advances, merge or consolidate with another entity or
engage in any business other than the telecommunications business and related
businesses as well as restrictions on the ability of the Company's subsidiaries
to incur liabilities or engage in non-designated activities. In addition, the
Vendor Financing is expected to require the maintenance of certain specified
financial and operating covenants, including, without limitation, ratios of
total debt to total capitalization, total debt to EBITDA, EBITDA to interest
expense and capital expenditure limitations.
The Company expects that the Vendor Financing will contain representations,
warranties, covenants, conditions and events of default customary for such
senior credit facilities of similar size and nature. In addition, the Vendor
Financing will contain change of control provisions regarding the ownership of
the Company.
In addition to the conditions described above, availability of the Vendor
Financing will be subject to the negotiation and execution of definitive
documentation with respect to the financing and the purchase of equipment from
the particular vendor.
HISTORICAL CASH FLOWS
To develop its networks, the Company has historically relied upon several
sources for its cash flow. The Company received cash contributions of
approximately $9.0 million from MSI and DSC. MSI and DSC also lent $15.0 million
to Alex J. Mandl in connection with his employment by the Company for the
Company's benefit. As of October 6, 1997, the Company had outstanding borrowings
of $39.5 million under the Revolving Credit Agreement. Borrowings under the
Revolving Credit Agreement will be repaid in full with a portion of the
Additional Sponsor Cash Contributions immediately prior to the Reorganization.
From inception through June 30, 1997, the Company used $19.5 million of
cash in its operating activities and $13.0 million of cash in its investing
activities. These cash outflows were financed primarily through capital
contributions from MSI and DSC and funds borrowed under the Revolving Credit
Agreement. At June 30, 1997, the Company had a working capital deficit of $39.1
million and cash of $1.7 million, as compared to a working capital deficit of
$6.9 million and cash of $1.3 million at December 31, 1996. The increase in the
working capital deficit from December 31, 1996 to June 30, 1997 is primarily a
result of the current liabilities related to the CARs and the outstanding
indebtedness under the Revolving Credit Agreement. The buildout of the Company's
networks and the marketing of its services will require significant capital and
operating expenditures. See 'Risk Factors--Significant Capital Requirements.'
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In December 1996, the Company received $2.0 million in cash and as of June
30, 1997 the Company received $25.0 million in cash (out of a total of $50.0
million) pursuant to the Revolving Credit Agreement. See 'Description of Certain
Indebtedness.'
The Company's total assets increased from $5.1 million as of December 31,
1996 to $18.1 million at June 30, 1997. Property and equipment, net of
accumulated depreciation, comprised $3.5 million of total assets at December 31,
1996 and $6.8 million at June 30, 1997.
The Company used cash in operations of $6.0 million for the period March 5,
1996 through December 31, 1996 primarily due to the loss from operations for the
period offset by the current liabilities at December 31, 1996. For the six
months ended June 30, 1997 the Company used cash in operations of $13.4 million.
The Company used cash in investing activities of $3.7 million for the
period March 5, 1996 to December 31, 1996 relating to the purchase of property
and equipment. For the six month period ended June 30, 1997, the Company used
$9.2 million in investing activities, consisting of $3.5 million relating to the
purchase of property and equipment and $5.6 million of payments relating to the
FirstMark Acquisition.
The Company's cash flows provided by financing activities for the period
March 5, 1996 to December 31, 1996 were $11.0 million, consisting of capital
contributions from MSI and DSC of $9.0 million and borrowings under the
Revolving Credit Agreement of $2.0 million. Cash flows provided by financing
activities for the six month period ended June 30, 1997 amounted to $23.0
million relating to borrowings under the Revolving Credit Agreement.
INFLATION
Management does not believe that its business is impacted by inflation to a
significantly different extent than is the general economy.
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BUSINESS
THE COMPANY
Teligent intends to be a premier provider of high quality, low cost voice,
data and video telecommunications services primarily to small and medium-sized
businesses through its own fixed local wireless point-to-multipoint broadband
networks and leased long distance facilities. Teligent anticipates offering an
integrated package of services including local and long distance telephone
services, high speed data connectivity, Internet access and videoconferencing.
Teligent holds 24 GHz fixed wireless licenses in 74 of the most populous U.S.
metropolitan market areas, covering over 50% of the nation's business telephone
lines and a population of approximately 130 million. The Company intends to
offer its integrated package of services in at least 10 market areas by the end
of 1998 and 30 by the end of 1999, and subsequently in all of its 74 currently
licensed market areas. The Company currently provides commercial Internet access
through a fixed wireless point-to-point broadband system in 31 market areas and
is currently deploying a point-to-multipoint system in Richardson, TX on a trial
basis. Teligent was founded in 1996 as a joint venture between a subsidiary of
Associated and an affiliate of Telcom Ventures, both of which have extensive
experience in pioneering wireless telecommunications businesses. The Company's
Chairman and Chief Executive Officer is Alex J. Mandl, formerly President and
Chief Operating Officer of AT&T. On September 30, 1997, NTT, the world's largest
telecommunications carrier, agreed to make a strategic equity investment of $100
million in the Company. Prior to the consummation of the Offerings, the existing
members of Teligent, L.L.C. will contribute to the Company $60 million in cash
and Associated will contribute to the Company the business and operations of its
wireless competitive access provider in Los Angeles, CA.
Teligent believes that it is well positioned to capture revenues in the
estimated $110 billion business telecommunications market. The Company intends
to focus particularly on the estimated $47 billion business local exchange
market, which is currently one of the most profitable segments in the
telecommunications industry. Local exchange services have historically been
provided by regional monopolies known as ILECs that have typically utilized
copper wire-based 'legacy' networks. The ILECs' legacy networks, faced with the
increasing demand from businesses for cost-effective capacity to support
bandwidth-intensive applications such as Internet access, have created a 'last
mile bottleneck' in the local loop between the customer premise and the ILEC
network switch. In addition, Teligent's market research indicates that the ILECs
have been unable to satisfy customer demands for cost-effective, flexible and
responsive service and that a significant portion of Teligent's target customer
base is currently dissatisfied with its ILEC service. The potential revenue
opportunity in this market, coupled with changes in the regulatory environment
designed to enable facilities-based competition, have created opportunities for
CLECs. The Company intends to alleviate this last mile local bottleneck and gain
market share by deploying technologically advanced, high bandwidth digital
wireless technology complemented by superior customer service and competitive
pricing.
Teligent expects to provide local coverage throughout its market areas with
lower capital requirements than either fiber-based or point-to-point wireless
CLECs, enabling it to offer its services to a broader customer base more quickly
and at a lower cost. Wireless point-to-multipoint broadband networks allow
transmissions between multiple customer antennas and a single base station
antenna, thereby allowing Teligent to share the same spectrum among its
customers and reducing its capital expenditures. The Company believes that a
significant portion of small and medium-sized businesses are located in
buildings that are not economically attractive to fiber-based providers.
Teligent's capital expenditures will be largely incremental or success-based,
thereby minimizing the risk of deploying network equipment not associated with
revenues.
COMPANY BACKGROUND
The Company was founded as a joint venture in March 1996 by MSI, a
subsidiary of Associated, and DSC, an affiliate of Telcom Ventures. MSI and DSC
began the process of applying for fixed wireless licenses in 1993 prior to the
FCC's implementation of spectrum auctions. In September 1996, Alex J. Mandl,
formerly President and Chief Operating Officer of AT&T, joined the Company as
Chairman of the Board and Chief Executive Officer. MSI and DSC transferred their
fixed wireless licenses to Teligent in October 1997. Associated is a publicly
traded company principally engaged in the operation of communications
businesses, which have historically included cellular, cable television and
radio broadcasting. In December 1994, Associated was spun
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off from Associated Communications Corporation, which was subsequently sold to
SBC Communications, Inc. for approximately $700 million. The management of
Associated Communications Corporation remained as the management of Associated,
and Associated retained a variety of communications assets and businesses,
including the fixed wireless licenses contributed to the Company. Associated's
other businesses include TruePosition, Inc., a provider of wireless location
services. Telcom Ventures is a privately held company owned by the family of Dr.
Rajendra Singh, an investor in wireless technologies and network design, and The
Carlyle Group, a Washington, DC private investment firm. Telcom Ventures is
engaged in investing in international wireless opportunities and developing,
building and deploying emerging wireless technologies.
Prior to the Company's formation, MSI had applied for and received 18 GHz
licenses for between one and four fixed wireless channels in 29 markets and DSC
had applied for and received 18 GHz licenses for a single fixed wireless channel
in 26 markets. All but two of DSC's licenses were for SMSAs in which MSI also
acquired 18 GHz fixed wireless licenses. MSI and DSC assigned those licenses to
the Company in October 1997. In July 1997, the Company's applications for
licenses in 42 additional markets (including one market in which DSC had already
acquired a license) were granted and in September 1997 its applications for
Buffalo and Rochester, NY were granted.
On March 14, 1997, the FCC issued a Relocation Order providing for the
relocation of certain fixed wireless licensees in the 18 GHz band to a
reallocated portion of the 24 GHz band, pursuant to a request of the NTIA acting
on behalf of the Department of Defense. The Relocation Order provided for the
relocation of these licenses from 100 MHz over 5 corresponding channels in the
18 GHz band to 400 MHz over 5 corresponding channels in the 24 GHz band. On June
24, 1997, the FCC issued the Modification Order, which implemented the
Relocation Order by modifying the affected 18 GHz licenses, including those held
by the Company, to authorize operations at 24 GHz. Pursuant to the Relocation
Order, these 18 GHz fixed wireless operators with facilities in the Washington,
DC and Denver, CO areas (including the Company's Washington, Baltimore, MD and
Denver, CO facilities) were required to relocate those facilities to
corresponding channels in the 24 GHz band by no later than June 5, 1997. The
Relocation Order and the Modification Order require these 18 GHz fixed wireless
licensees in all other areas to relocate to corresponding channels in the 24 GHz
band by no later than January 1, 2001. Although the Company is permitted to
continue operations in the 18 GHz band outside of the Washington, DC and Denver,
CO areas until that date, its intention is to convert all of its facilities to
24 GHz band operation as soon as possible.
BUSINESS STRATEGY
Teligent's goal is to be a premier facilities-based provider of voice,
data, video and Internet services to small and medium-sized businesses. The
Company intends to leverage its ability to provide cost-effective, high
bandwidth connectivity in order to offer an integrated package of local and long
distance telephone service, high-speed data connectivity, Internet access and
videoconferencing. The Company is implementing the following initiatives to
achieve this objective:
Target Small and Medium-Sized Businesses. Teligent plans to focus its
primary marketing efforts on small and medium-sized businesses with 5 to 350
telephone lines. The Company expects to attract these customers through both a
direct sales effort and indirect sales channels by offering (i) an integrated
package of telecommunications services, (ii) competitive pricing, (iii) high
quality and responsive customer service and (iv) high bandwidth services which
may be difficult to obtain from other telecommunications providers. Teligent
also intends to selectively pursue sales opportunities with larger businesses
when its value proposition and its service offerings are competitively
advantaged.
End User Focus. Teligent intends to approach its target market by offering
services directly to end users, as opposed to positioning itself as a 'carrier's
carrier' offering wholesale network capacity. By deriving the majority of its
revenues from providing local switched voice and data communications services
directly to end user customers, Teligent believes that it will (i) establish a
sustainable and broad base of its own customers, thereby minimizing the risk of
generating substantial revenues from a limited number of sources, (ii) maximize
revenues and profitability by accessing the higher priced retail market and
(iii) achieve competitive differentiation based on high quality service that is
responsive to the customer.
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Develop Brand Awareness. Teligent will seek to position itself as a high
quality service provider by offering network reliability complemented by quality
customer support. The Company is designing its marketing campaign to reflect
these objectives and intends to build its reputation by (i) working closely with
its customers to develop services tailored to their particular needs and (ii)
targeting advertising and promotion efforts in its coverage areas, gradually
expanding to mass media with market-wide and potentially nationwide coverage.
The Company also believes that its speed to market advantage will assist its
branding campaign, by enabling it to be one of the first widely available
facilities-based competitors in a market.
Achieve Market Share Via Competitive Pricing. As a new market entrant,
Teligent's strategy will be to price its services competitively to gain market
share early. For switched voice services and other services already provided by
the ILEC, the Company expects to price at a discount. For certain data and
bandwidth-intensive services that may not be provided by competitors or for
which there may exist an underserved market demand, the Company may be able to
price its services at a premium. The Company anticipates that some ILECs may
reduce their prices as increased competition begins to erode their market share.
The Company believes that it will be able to remain competitive if market prices
decline because of its lower expected network cost. The Company also expects to
price its bundled long distance service at a discount to market prices as a
further incentive to attract potential customers and to broaden its revenue
base.
Rapid Deployment. Teligent intends to take advantage of its network
flexibility and lower incremental capital requirements in order to quickly
roll-out and penetrate its market areas. Teligent believes that this rapid
deployment should allow it to become one of the first significant
facilities-based competitors in many parts of its market areas. The Company
believes that this rapid deployment should enable it to establish a level of
market penetration which will further enhance the Company's relative cost
advantage, attract additional customers and further enhance its brand
reputation.
Exploit Future Growth Opportunities. Teligent intends to continue building
on the capabilities of its network to expand its target market and service
offerings. Such expansion may include targeting residential customers in
multiple dwelling units as well as international opportunities, either through
joint ventures or by direct entry.
TELIGENT'S COMPETITIVE ADVANTAGES
Teligent believes that a number of factors will provide it with significant
competitive advantages in offering telecommunications services, including lower
network cost, success-based capital expenditures, speed to market, high
bandwidth capacity and flexibility, high quality service and network control,
flexible information systems and experienced management and sponsors.
Lower Network Cost. Teligent expects that its incremental capital required
for launching service in a market and for connecting each customer will be lower
than that of its competitors. Unlike copper- and fiber-based systems that
require installation and maintenance of a significant amount of wire and cable,
the Company's system will have no physical wires to install and maintain between
the customer's radio equipment and the base station. As a result, Teligent
expects to enjoy a lower network cost structure than these systems. The majority
of Teligent's capital expenditures will consist of electronics, which tend to
decline in cost through time as economies of scale are achieved. Teligent
expects to benefit from its radio frequency band (24 GHz), which allows
communication with customer premise equipment at a greater distance than higher
frequency bands. In addition, point-to-multipoint networks provide more
efficient equipment utilization than the point-to-point systems currently used
by other fixed wireless providers, as transmissions from multiple customer
antennas can be concentrated at a single base station. The Company expects that
its average coverage radius of a base station will be approximately three miles
(five kilometers), depending on local conditions. Teligent also believes that
its anticipated lower cost structure should allow it to economically access
smaller buildings and more customers than fiber-based systems, and enjoy more
pricing flexibility than copper-based systems.
Success-Based Capital. Teligent's network is designed to be not only lower
cost, but also lower risk, due to the significant variable component of the
Company's planned capital expenditures. Teligent expects to minimize the
deployment of network equipment not associated with revenues since (i) a
significant portion of its planned capital expenditures will be the purchase and
installation of customer premise equipment and switch electronics, which are
generally deployed only when customers are acquired, (ii) Teligent's system does
not need
44
<PAGE>
to cover an entire market prior to initiating service in that market and (iii)
Teligent's equipment can be rapidly redeployed to meet changing customer
requirements.
Speed to Market. Teligent believes that its license coverage and network
characteristics will allow it to (i) enter a significant number of markets and
(ii) maximize coverage within each market area, in each case more quickly than
other new entrants. In entering numerous markets, Teligent will benefit from its
existing licenses in 74 market areas covering over 700 municipalities in the
United States. By utilizing its own facilities, Teligent expects to be able to
provide last mile services to customers within three to five days after
obtaining building access. Teligent believes that speed to market will allow it
to establish a sustainable customer base, develop brand recognition and gain
market share.
High Bandwidth Capacity and Flexibility. Teligent's high capacity local
network will be designed to alleviate the last mile local bottleneck and
accommodate the increasing demand for bandwidth-intensive applications. This
network, which includes 320-400 MHz of spectrum in 27 of the 35 most populous
market areas in the United States, and at least 80 MHz of spectrum in 47 other
major market areas, is expected to provide each customer with two-way data
transfer rates up to 20 Mbps, which is significantly more than the 1.5 Mbps
capacity currently available on conventional T-1 lines. A single Teligent base
station is designed to provide 200 T-1 lines, the equivalent of 4,800 dedicated
telephone lines, while each building's radio/antenna units will be initially
designed to provide up to 13 T-1 lines or 312 dedicated telephone lines. The
Company believes that in the future radio equipment vendors will make available
radio/antenna units with greater capacity.
High Quality Service and Network Control. Teligent plans to engineer its
network architecture to provide a minimum of 99.99% availability, a quality
level comparable to fiber-based networks. Teligent also intends to provide high
quality and value-added customer care service including integrated billing
(consolidating multiple services into one statement), customized pricing and
cross-marketing of services. The Company believes that its ability to provide
last mile local loop service through its own network will enhance its ability to
ensure high quality service by minimizing its reliance on the ILEC for service
deployment, maintenance and equipment upgrades. The Company believes that this
ability will represent an additional advantage relative to fiber-based CLECs
which frequently resell the last mile local loop from the ILEC.
Flexible Information Systems. Teligent is designing, acquiring and
integrating advanced flexible information systems to support billing, customer
care, provisioning and maintenance operations. These information systems will be
based on current technologies and platforms to meet current and anticipated
customer demands, including service bundling, integrated billing and flexible
pricing. Teligent expects that its information systems will give it the
capability to adapt quickly and flexibly to changing market conditions and new
customer requirements. The Company believes that legacy systems have
historically constrained the industry's ability to provide customized offerings
and new service features to customers on a timely basis.
Experienced Management and Sponsors. Teligent's management team, led by
Alex J. Mandl, formerly President and Chief Operating Officer of AT&T, has
significant senior management experience at leading telecommunications companies
including MCI Communications Corporation, PCS PrimeCo, L.P., MFS Communications
Company, Inc. and UUNET Technologies, Inc. as well as other competitive
providers and start-up businesses. This includes extensive experience in the
operational, technical, sales, marketing, financial and regulatory areas.
Teligent believes that its senior management team has been and will be critical
in attracting high quality managers, salespeople and engineers needed to execute
its business plan. See 'Management.' Teligent's sponsors, Associated and Telcom
Ventures, both have extensive experience in pioneering wireless
telecommunications businesses. NTT, the world's largest telecommunications
carrier, has extensive local telecommunications and wireless network experience
and has agreed to enter into a technical services agreement with Teligent to
assist Teligent in designing and managing its network and deploying advanced
services.
TELIGENT'S NETWORK ARCHITECTURE
The Company intends to deploy its own 24 GHz fixed wireless
point-to-multipoint broadband local networks to provide last mile connectivity
in its licensed market areas. Prior to commercial deployment of the
point-to-multipoint networks, and where otherwise economically attractive, the
networks may also include point-to-point links and resold local services. The
Company believes that this flexibility will allow it to accommodate new
customers quickly, as well as expand its addressable customer base. Teligent
also expects to offer long
45
<PAGE>
distance service on a resale basis, and intends to connect each local exchange
network to an IXC's point of presence.
[DIAGRAM SHOWING NETWORK]
The network equipment will use digital wireless technology to deliver high
quality voice, data and videoconferencing services that Teligent believes will
provide comparable performance to that of fiber optic-based systems. The
Company's networks will also incorporate encryption and authentication to
increase privacy and reduce the potential for fraud. Each market area is
expected to be served by a voice switching and data routing center. The Company
will use a combination of wired and wireless facilities to connect the center to
the base stations distributed throughout the market area. The base stations will
transmit to and receive signals from wireless equipment at a customer premise,
allowing transmissions between multiple customer antennas and a single base
station antenna. The customer premise equipment includes two components: (i) an
integrated antenna/radio unit installed either on the roof, an exterior wall or
inside a window of the customer's building and (ii) the indoor customer
interface equipment installed within the building. The radio/antenna unit will
communicate with the base station via microwave signal operating within the 24
GHz band. The base stations will have an average service radius of approximately
three miles (five kilometers) away, depending on a number of factors such as
power levels used, customer density, local weather environment and network
design. A base station will have the capability to support customers in every
direction within a 360 degree coverage area. The modular design of the CPE is
intended to make equipment installation easier and ensure short service
activation intervals.
The Company's point-to-multipoint hardware and network capacity are
expected to be shared among all the customers within the coverage area of a base
station sector. A key feature of the Company's network architecture will be the
future capability to allocate and share network capacity on an as-needed basis.
In the future, Teligent's system is intended to dynamically allocate spectral
bandwidth, and therefore capacity, among the several customers served by a base
station sector based on individual customer demand enabling a customer to
instantaneously increase or decrease the capacity required.
Traffic between base station sites and the Company's switching centers will
be carried over a backhaul network that will be a combination of Company-owned
24 GHz wireless links as well as fiber optic transmission facilities, where
appropriate. While the Company may build its own fiber optic facilities in
certain areas, it expects to work primarily with other fiber network providers,
through leasing arrangements or partnerships. Additionally, as customers are
added and the backhaul capacity requirements increase, some of the wireless
links initially deployed may be replaced with additional fiber-based facilities.
In such cases, the wireless equipment may be redeployed elsewhere in the
network, in order to reduce stranded assets.
Teligent expects to deploy digital voice switches and data switches in each
of its principal market areas. Such voice and data switches will consist of
traditional circuit-based systems as well as more advanced packet and cell-based
switching systems. These switching systems will be engineered to provide
interconnection of customer traffic with other local exchange networks, long
distance networks and the Internet, as well as with other locations the customer
may have within the Teligent network.
The Company plans to have a central Network Operation Center ('NOC') which
will monitor its network 24 hours a day, seven days a week and provide real-time
alarm, status and performance information. The Company intends to build a
back-up NOC facility to further enhance network reliability. The NOC will
provide customers remote circuit provisioning to ensure service availability. At
the NOC, the network will be managed and maintained on an end-to-end basis using
an integrated Network Management System ('NMS'). The NMS will allow the Company
to monitor various network elements to ensure consistent and reliable
performance. This monitoring capability will be designed to allow the Company to
plan for and conduct preventative maintenance activities in order to avoid
network outages and to respond promptly to any network disruption that might
occur. Teligent's NOC will be designed to permit enhancements such as providing
end customers with the capability to manage their segments of the network.
46
<PAGE>
DEPLOYMENT STRATEGY
Teligent intends to build out and commercialize its network based upon the
following strategy:
Integrated Market Research and Base Station Site Optimization. Within each
market area, Teligent will conduct market research and identify and target
specific geographic areas with favorable customer characteristics. Such areas
need not be contiguous or centrally located since Teligent's stand-alone base
stations are intended to be able to serve geographically dispersed pockets of
businesses.
Base Station Site Construction. The Company intends to determine which
potential base station sites offer the best lines of sight, gain access to those
sites on a cost-effective basis and prepare installation to coincide with
customer activations.
Initiate Sales. As base station sites are identified, Teligent's sales
force will target those buildings accessible by line of sight, prioritize
buildings based upon their revenue potential, and then begin selling Teligent's
voice and data services within each building. This should allow the Company to
deploy CPE in most cases only after signing a customer.
Customer Premise Equipment Installation. When Teligent acquires customers
in a building, two additional sets of equipment will be deployed. First, a
radio/antenna unit (and related equipment) will be installed on the roof of the
customer's building, which will transmit and receive all of that building's
communications back and forth from a base station site. Due to the small size of
the radio/antenna unit (less than two feet long) and ease of installation, the
Company believes customer installation can be accomplished within three to five
days. Second, equipment will be deployed at each customer's premise to connect
their phone system or PBX to the radio on the roof. The Company may, however,
utilize unbundled local loops on an opportunistic basis to complement the
Company's core wireless local loop deployment strategy.
Leverage Capital Deployed. Teligent plans to maximize the return on its
infrastructure in two ways. First, the sales force will be encouraged to acquire
additional customers in 'on net' buildings, which have already installed
customer units. Additionally, the Company will seek to sell incremental products
to existing customers.
SALES AND MARKETING
Overview. Teligent plans to address its initial target markets as a high
quality and lower-cost single source provider of telephony services. To develop
the market potential of its fixed local wireless network, the Company has
organized its operations into two geographic regions. Each region will have its
own Division President in charge of operations, field service, site acquisition,
proactive customer service and sales and marketing. Teligent believes that the
reputation and quality of its senior management will afford it a critical
advantage in attracting the highest quality sales people as it builds its sales
force throughout its market areas. The extent of sales activity in each market
will depend upon a number of factors including (i) number of license areas, (ii)
geographic size of license areas, (iii) end user density within license areas
and (iv) competitive landscape. In order to gain market share, the Company
intends to competitively price its service by leveraging the network cost
advantages which it expects to achieve as it acquires customers. Over time, if
and when Teligent builds market share and develops its brand, the Company plans
to increase its emphasis on the value of a single source provider and the
quality of its customer care.
Sales Force/Customer Care. Teligent's goal is to complement its full array
of services for small to medium-sized businesses with a level of customer
service and sales professionalism significantly higher than that of its
principal competitors. The Company seeks to recruit salespeople with successful
experience in competitive telephony businesses, including individuals with
backgrounds in CLECs, competitive long distance, telecommunications equipment
and data services. The salespeople will have performance incentives through a
structure that ties a significant portion of their compensation to the actual
revenue they produce. In addition, salespeople will be encouraged to maximize
penetration in 'on net' buildings. The sales force will be trained to sell the
Company's full product line of local, long distance, Internet and data services.
This ability to bundle multiple services is intended to attract customers
looking for a single point of contact for their telecommunications needs.
Teligent will emphasize responsive, proactive service allowing small and medium-
sized businesses access to seven day, 24 hour in-house technical support.
47
<PAGE>
Marketing. The Company plans to supplement its direct sales force through
various marketing plans, including direct mail, partnership marketing (in
specific buildings or associated properties) and targeted advertising and
promotion efforts in Teligent's coverage areas. In addition, the Company intends
to use alternate or indirect channels of distribution, including an active sales
agent program. Efforts in the initial years are expected to consist of direct
mailings, highly localized advertising, inbound telemarketing, an Internet web
page and select promotional events. Teligent anticipates that, over time,
marketing and advertising will be expanded to mass media with market-wide and
potentially nationwide coverage, outbound telemarketing and select indirect
sales channels such as resellers, agents and other partnerships.
The Company is in the process of creating a centralized marketing group
responsible for developing the Teligent product line and for ensuring that each
of its components and overall package of services are competitive. Teligent's
initial focus is on local exchange service where it believes it has a
significant advantage, but the Company expects that where demand exists, it will
bundle additional product lines, such as resold long distance and Internet, with
its local service.
Teligent intends to offer multiple product service packages to business
customers. Teligent believes that it should have a significant advantage in the
marketing of its product lines because it will be able to combine multiple
services without the constraints of inflexible existing systems or
product-specific boundaries. By offering services both as a bundled package and
on a component basis (i.e., local, long distance or Internet service,
individually), Teligent intends to capitalize upon the potential revenue
opportunities in the marketplace. Teligent believes that this flexible sales
strategy should help reduce switching barriers for those customers who may
initially be reluctant to switch all of their services and vendors at once or
for those who have existing contracts.
The Company is compiling geographic databases of commercial buildings and
business establishments, which it anticipates using to optimize network
deployment, as well as to target sales and marketing efforts, in order to
maximize capital efficiency. In addition, the Company plans to use this data to
measure its performance by market segment as it grows and to use this
information to optimize deployment of its networks going forward.
SERVICE OFFERINGS
The Company intends to deploy its networks on an initial basis to support a
comprehensive and fully integrated product line that is designed to meet the
broad telecommunications needs of small and medium-sized business customers.
These services will typically include the basic telephone services, including
local and long distance, and data services that customers have today. Over time,
the Company also expects to offer high-speed data connectivity required for new
applications, such as high-speed Internet access, multimedia, virtual
workgroups, application and document sharing, and two-way videoconferencing.
Teligent intends to address customer demand for bundled service offerings to
provide the convenience of dealing with a single telecommunications provider.
Teligent intends to provide its local retail services to end users using
its own broadband wireless local networks. However, the Company will also
provide its local retail product offering on a case by case basis using other
telecommunications carriers' transport facilities, such as unbundled local loops
from ILECs or facilities from other CLECs where it can use such facilities to
penetrate the market more quickly and/or cost efficiently. As the Company
extends its wireless local service to such buildings, it intends to migrate
these customers to its own facilities.
The Company plans to begin Phase I Deployment efforts in Dallas, TX, Los
Angeles, CA and Washington, DC during the fourth quarter of 1997. The Company
currently provides commercial Internet access through a fixed wireless
point-to-point broadband system in 31 markets and is currently deploying a
point-to-multipoint system in Richardson, TX on a trial basis.
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END USER SERVICES
The Company plans to offer an integrated package of services including
local and long distance services (domestic and international) as well as
Internet services, frame relay, voice mail, conference bridges,
videoconferencing, advanced fax management, integrated single number service,
call screening, call forwarding and other advanced telecommunications services.
Local Exchange Services. Teligent intends to provide a complete range of
local exchange services by developing and implementing its own nationwide
network of central office class switches and related hardware and software.
These services are expected to include basic local services, access to long
distance and intra-LATA switched and dedicated lines, direct inward dialing
('DID'), Digital PBX, Centrex and custom calling services.
Long Distance. As a complement to its local exchange services, Teligent
also plans to offer long distance services as part of a product bundle to its
customers through resale agreements with national long distance companies. These
long distance services will include domestic intrastate, interstate and
international calling, toll-free services (800, 888), calling card, and
conference call bridging and other enhanced services. When the Company's
coverage area spans multiple LATAs, it plans to use its own facilities to
provide inter-LATA long distance service.
Internet and Data Services. The Company intends to offer transport for
Internet services from the customer premise to an Internet access point in each
city, using the high bandwidth capacity of its 24 GHz networks. It also intends
to offer Internet access through resale, partnership or outsourcing, as a part
of a bundled offering under the Teligent brand name. These Internet services are
expected to include routing, addressing, DNS, registration services, network
security and fire walls, intranet services, e-mail, news servers, hosting and
peering.
Dedicated Private Line. Teligent intends to provide local dedicated data
access circuits as well as the long distance portion of those circuits on a
resale basis. These lines, which link customers' LANs together to create MANs
and WANs, are used by banks, billing clearinghouses, advertising agencies,
hospitals and other businesses to exchange large data files as well by any
business to connect offices for file sharing, e-mail and workgroup applications.
WHOLESALE TRANSPORT
The Company believes it is also well positioned to capitalize on the
opportunity to provide flexible high bandwidth telecommunications transport
services to other carriers including IXCs, ISPs, CAPs, CLECs, and ILECs. The
marketplace demand for such telecommunications transport services is
experiencing substantial growth as a result of the increased acceptance and
reliance on the Internet by business users as well as the emergence of bandwidth
intensive applications such as videoconferencing, Internet telephony, and large
data file transfers. Although not its core strategy, after penetrating a market
area, the Company may sell excess capacity to generate additional revenue and
increase local network utilization. The Company may also offer wireless backhaul
services to connect the cell sites of cellular and PCS companies to their mobile
switching centers.
49
<PAGE>
24 GHZ WIRELESS LICENSES
The Company is licensed by the FCC to operate point-to-point and
point-to-multipoint 24 GHz fixed wireless systems in 74 Standard Metropolitan
Statistical Areas ('SMSAs'), covering over 700 municipalities in the United
States, including 320-400 MHz of spectrum in 27 of the 35 most populous market
areas in the United States, and at least 80 MHz of spectrum in 47 other major
market areas. See 'Risk Factors--Relocation of Licenses to 24 GHz; Pending FCC
Petitions.' The following chart lists the Company's license areas in descending
order of size based on the estimated 1994 population of the market (based on
U.S. Census Bureau data and Claritas Inc. data), the Company's licensed spectrum
bandwidth in each market area and the estimated 1994 number of business
employees in each market area (based on American Business Information Inc.
data).
<TABLE>
<CAPTION>
BUSINESS
SMSA BANDWIDTH EMPLOYEES IN
RANK MARKET AREAS (MHZ) POPULATION MARKET AREA
- ---- ------------------- --------- ----------- ------------
<S> <C> <C> <C> <C>
1 New York, NY 400 9,434,000 3,597,000
2 Los Angeles, CA 400 9,132,000 3,229,000
3 Chicago, IL 400 7,538,000 3,113,000
4 Philadelphia, PA 320 4,913,000 1,701,000
5 Detroit, MI 400 4,322,000 1,517,000
6 Dallas, TX 400 4,302,000 1,729,000
7 Houston, TX 400 3,925,000 1,471,000
8 Washington, DC 400 3,850,000 1,693,000
9 San Francisco, CA 320 3,814,000 1,629,000
10 Boston, MA 400 3,194,000 1,436,000
12 Atlanta, GA 400 3,015,000 1,236,000
13 San Diego, CA 320 2,674,000 908,000
15 Minneapolis, MN 400 2,586,000 1,271,000
17 St. Louis, MO 400 2,473,000 893,000
18 Baltimore, MD 320 2,435,000 762,000
19 Phoenix, AZ 400 2,309,000 894,000
20 Seattle, WA 400 2,135,000 894,000
21 Pittsburgh, PA 400 2,100,000 665,000
22 Denver, CO 80 2,069,000 890,000
23 Miami, FL 400 2,058,000 768,000
24 Tampa, FL 400 2,016,000 698,000
26 Cleveland, OH 320 1,848,000 803,000
27 Portland, OR 320 1,573,000 618,000
28 San Jose, CA 240 1,541,000 643,000
29 Cincinnati, OH 240 1,510,000 578,000
30 Kansas City, MO 320 1,509,000 643,000
31 Sacramento, CA 320 1,482,000 442,000
32 Milwaukee, WI 320 1,469,000 660,000
33 San Antonio, TX 320 1,402,000 435,000
35 Indianapolis, IN 320 1,333,000 551,000
36 Columbus, OH 160 1,302,000 586,000
37 Salt Lake City, UT 80 1,214,000 499,000
38 Orlando, FL 80 1,206,000 573,000
39 Buffalo, NY 80 1,201,000 442,000
40 New Orleans, LA 80 1,178,000 469,000
41 Hartford, CT 80 1,154,000 540,000
43 Nashville, TN 80 1,060,000 508,000
44 Norfolk, VA 80 1,040,000 321,000
45 Rochester, NY 80 1,038,000 444,000
46 Memphis, TN 80 1,034,000 470,000
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
BUSINESS
SMSA BANDWIDTH EMPLOYEES IN
RANK MARKET AREAS (MHZ) POPULATION MARKET AREA
- ---- ------------------- --------- ----------- ------------
<S> <C> <C> <C> <C>
47 Jacksonville, FL 80 1,009,000 433,000
48 Oklahoma City, OK 80 977,000 434,000
49 Greensboro, NC 80 963,000 486,000
50 Louisville, KY 80 931,000 414,000
51 West Palm Beach, FL 80 931,000 316,000
52 Las Vegas, NV 80 931,000 445,000
53 Birmingham, AL 80 905,000 386,000
54 Austin, TX 80 884,000 396,000
55 Honolulu, HI 80 881,000 344,000
56 Dayton, OH 80 864,000 389,000
57 Albany, NY 80 851,000 377,000
58 Charlotte, NC 80 840,000 467,000
60 Richmond, VA 80 792,000 369,000
61 Tulsa, OK 80 788,000 321,000
62 Raleigh, NC 80 788,000 385,000
63 Fresno, CA 80 734,000 240,000
65 Tucson, AZ 80 717,000 280,000
66 Allentown, PA 80 713,000 269,000
68 Ventura, CA 80 694,000 223,000
69 Syracuse, NY 80 681,000 298,000
70 Akron, OH 80 680,000 284,000
71 Greenville, SC 80 674,000 301,000
72 El Paso, TX 80 663,000 209,000
75 Omaha, NE 80 631,000 304,000
78 Wilmington, DE 80 609,000 291,000
79 Albuquerque, NM 80 592,000 272,000
80 Springfield, MA 80 581,000 235,000
82 Baton Rouge, LA 80 562,000 218,000
84 Charleston, SC 80 545,000 197,000
86 New Haven, CT 80 528,000 227,000
87 Stockton, CA 80 522,000 165,000
97 Newport News, VA 80 470,000 170,000
120 Santa Barbara, CA 80 378,000 134,000
135 Trenton, NJ 80 330,000 165,000
TOTAL 130,027,000 51,663,000
</TABLE>
COMPETITION IN THE TELECOMMUNICATIONS INDUSTRY
LOCAL TELECOMMUNICATIONS MARKET
Competition from ILECs. The local telecommunications market is intensely
competitive for newer entrants and currently is dominated by the RBOCs and other
ILECs. The Company has not begun to market its point-to-multipoint wireless
local broadband services to potential customers on a widespread basis and is
currently providing point-to-point services on a limited basis. The Company has
not obtained significant market share in any of the areas where it offers its
services or intends to offer services, nor does it expect to do so in the near
future given the size of the local telecommunications market, the intense
competition therein and the diversity of customer requirements. In each market
area in which the Company is authorized to provide services, the Company
competes or will compete with several other service providers and technologies.
Many of the Company's competitors have long-standing relationships with
customers and suppliers in their respective industries, greater name recognition
and significantly greater financial, technical and marketing resources than the
Company. The Company expects to compete on the basis of local service features,
quality, price, reliability,
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<PAGE>
customer service and rapid response to customer needs while bundling local
resold long distance and Internet. The Company faces significant competition
from ILECs, such as the RBOCs. The ILECs have long standing relationships with
their customers, have significant name recognition and financial resources, have
the potential to subsidize competitive services with revenues from a variety of
business services, and benefit from existing state and federal regulations that
favor the ILECs over the Company in certain respects. Regulatory decisions and
recent legislation, such as the Telecommunications Act, have reduced barriers to
entry into new segments of the industry. In particular, the Telecommunications
Act, among other things, (i) enhances local exchange competition by preempting
laws prohibiting, or that have the effect of prohibiting, competition in the
local exchange market, by requiring ILECs to provide fair and equal standards
for interconnection and by requiring ILECs to unbundle their facilities and
services and (ii) permits an RBOC to compete in the inter-LATA long distance
service market outside of its local territory immediately, and within its local
service territory on a state-by-state basis once certain market-opening
requirements are implemented and entry is determined to be in the public
interest. The Company believes that these requirements of the Telecommunications
Act promote greater competition and will help provide opportunities for broader
entrance into the local exchange markets. However, as ILECs face increased
competition, regulatory decisions are likely to provide them with increased
pricing flexibility, which in turn may result in increased price competition.
There can be no assurance that such increased price competition will not have a
material adverse effect on the Company's business, financial condition and
results of operations. Nor can there be any assurance that substantial local
exchange competition will develop in the near future.
A number of companies are developing enhancements to increase the
performance of ILECs' copper wire based legacy networks. These generally consist
of digital subscriber line products, such as ADSL, HDSL and VDSL. There can be
no assurance that the Company will be able to compete effectively with these
enhancements.
Competition from New 24 GHz and Other Fixed Wireless Service
Providers. The Company also faces potential competition from new entrants to
the 24 GHz fixed wireless market, including ILECs, CLECs and other leading
telecommunications companies. In the Relocation Order, the FCC announced that it
will conduct a rulemaking proceeding to devise rules for the issuance of
licenses for to five 80 MHz channels in the 24 GHz spectrum band in each market
except for those licenses already issued to the Company and other previous 18
GHz licensees. See 'Regulation.' The grant of additional fixed wireless
authorizations by the FCC in the 24 GHz band could result in increased
competition and diminish the value of the Company's existing fixed wireless
authorizations. The Company believes that any additional 24 GHz licenses will be
made available through an auction. The Company believes that, assuming that
additional authorizations are made available by the FCC, additional entities
having greater resources than the Company could acquire authorizations at
auctions from the FCC to provide telecommunications services in the 24 GHz band.
See 'Regulation.'
The Company will also face competition from other terrestrial fixed
wireless services, including 28 GHz LMDS and 38 GHz wireless communications
systems, 2.8 GHz Wireless Communications Service ('WCS'), FCC Part 15 unlicensed
wireless radio devices, and other services that use existing point-to-point
wireless channels on other frequencies. Additionally, other companies have filed
applications for global broadband satellite systems proposed to be used for
broadband voice and data services. If developed, these systems could also
present significant competition to the Company.
The Company faces competition from entities which offer, or are licensed to
offer, 38 GHz services, such as Advanced Radio Telecommunications, Inc. ('ART'),
WinStar Communications, Inc. ('WinStar') and BizTel, Inc. ('BizTel'). Teligent
could also face competition in certain aspects of its existing and proposed
businesses from competitors providing wireless services in other portions of the
radio spectrum, such as CAI Wireless Systems Inc. a provider of wireless
Internet access services, and CellularVision, a provider of wireless television
services which, in the future, also may provide wireless Internet access and
other local telecommunications services. In many instances, these service
providers hold licenses for other frequencies (such as 28 GHz) that enable them
to provide comparable telecommunications services to those of the Company in
geographic areas which encompass or overlap the Company's market areas.
Additionally, some of these entities include among their stockholders major
telecommunications entities, such as Ameritech with respect to ART, AT&T with
respect to WinStar, and Teleport Communications Group, Inc. ('Teleport') with
respect to BizTel. Teleport has announced its exercise of an option to acquire
BizTel, subject to FCC and other regulatory approvals. Due to the relative ease
and speed of deployment of fixed wireless-based technologies, the Company could
face intense
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price competition from these and other wireless-based service providers. The
Company believes that additional entities having greater resources than the
Company could acquire licenses to provide 38 GHz, MMDS, LMDS, WCS, DEMS or other
fixed wireless services.
The FCC has announced plans to hold an auction for 28 GHz LMDS licenses in
all markets for the provision of high capacity, wide-area fixed wireless
point-to-multipoint systems. In addition, the FCC has proposed rules to auction
geographical wide area licenses for the operation of fixed wireless
point-to-point communications services in the 38 GHz band, although many 38 GHz
licenses have already been issued nationwide. The 28 GHz LMDS auction is
scheduled to begin in December 1997 and the 38 GHz auction is expected to occur
in 1998. The MMDS service, also known as 'wireless cable,' also currently
competes for metropolitan wireless broadband services. At present, wireless
cable licenses are used primarily for the distribution of video programming and
have only a limited capability to provide two-way communications needed for
wireless broadband telecommunications services, but there can be no assurance
that this will continue to be the case. The FCC has initiated a proceeding to
determine whether to provide wireless cable operators with greater technical
flexibility to offer two-way services. Cellular, PCS and other mobile service
providers may also offer fixed services over their licensed frequencies.
Finally, the FCC has allocated a number of spectrum blocks for use by wireless
devices that do not require site or network licensing. A number of vendors have
developed such devices that may provide competition to the Company, in
particular for certain low data-rate transmission services.
Other Competitors. The Company will also face both local and long distance
competition from AT&T and other IXCs. The Company may face competition from
electric utilities (several of whom have secured the necessary authorizations to
provide local telephone service and are reportedly in various stages of
perfecting and implementing their business plans), ILECs operating outside their
current local service areas, other IXCs such as MCI and Sprint (each of which
has significant investment from or has entered into agreements to be acquired by
international telecommunications carriers with significant financial resources),
and other providers. These entities provide transmission services using
technologies which may enjoy a greater degree of market acceptance than the
Company's wireless broadband technology in the provision of last mile broadband
services. Moreover, the consolidation of telecommunications companies and the
formation of business alliances within the telecommunications industry, which
are expected to accelerate as a result of the passage of the Telecommunications
Act, could give rise to significant new or stronger competitors to the Company.
There can be no assurance that the Company will be able to compete effectively
in any of its markets.
The Company's Internet access services also are likely to face significant
competition from other ISPs as well as from cable television operators deploying
cable modems, which provide high speed data capability over installed coaxial
cable television networks and there can be no assurance that such competition
will not be significant. Although cable modems currently are not widely
available and do not provide for data transfer rates that are as rapid as those
which can be provided by the Company's services, the Company believes that the
cable industry may support the deployment of cable modems to residential cable
customers through methods such as price subsidies. Notwithstanding the cable
industry's interest in rapid deployment of cable modems, the Company believes
that in order to provide broadband capacity to a significant number of business
and government users, cable operators will be required to spend significant time
and capital in order to upgrade their existing networks to a more advanced
hybrid fiber coaxial network architecture. However, there can be no assurance
that cable modems will not emerge as a source of competition to the Company's
Internet business. Further, Internet access services based on existing
technologies such as ISDN and, in the future, on such technologies as ADSL and
HDSL will likely provide additional sources of competition to the Company's
Internet access services. Additionally, the Company believes that many ILECs and
CLECs already are promoting other Internet access services.
LONG DISTANCE TELECOMMUNICATIONS MARKET
The long distance market has relatively insignificant barriers to entry,
numerous entities competing for the same customers and a high (and increasing)
average churn rate as customers frequently change long distance providers in
response to the offering of lower rates or promotional incentives by
competitors. The Company will compete with major carriers such as AT&T, MCI,
Sprint and WorldCom, as well as other national and regional long distance
carriers and resellers, many of whom own substantially all of their own
facilities and are able to provide services at costs lower than the Company's
expected costs since the Company will generally lease its
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access facilities. The Company believes that the RBOCs also will become
significant competitors in the long distance telecommunications industry after
1998. See 'Regulation--Federal Legislation.' ISPs also will compete in this
market. The Company believes that the principal competitive factors affecting
its market share will be pricing, customer service, accurate billing, clear
pricing policies and, to a lesser extent, variety of services. The ability of
the Company to compete effectively will depend upon its ability to maintain high
quality, market-driven services at prices generally perceived to be equal to or
below those charged by its competitors. To maintain its competitive posture, the
Company believes that it must be in a position to reduce its prices in order to
meet reductions in rates, if any, by others. Any such reductions could adversely
affect the Company. In addition, ILECs have been obtaining additional pricing
flexibility. This may enable ILECs to grant volume discounts to larger long
distance companies, which also would put the Company's long distance business at
a disadvantage in competing with larger providers.
VENDOR EVALUATION
The Company has the ability to source key network components from a number
of equipment vendors. The Company has initiated a process of evaluating
competing products of several vendors. In July 1997, the Company issued a
Request for Proposal for the Company's 24 GHz telecommunications network,
including radio access and transmission equipment, switching and network
management products and services. The Company has received and is evaluating
proposals from several telecommunication infrastructure integrators and
manufacturers, including Nortel, Lucent, Ericsson and Hughes Network Systems. In
support of this effort, the Company has entered into agreements with
manufacturers specializing in radio access and transmission equipment, including
P-Com, Netro and BNI, and is in discussions with Bosch, to provide technology
trials of 24 GHz point-to-multipoint equipment. These trials will form part of
the Company's Phase I Deployment during the fourth quarter of 1997 and the first
and second quarter of 1998.
INTELLECTUAL PROPERTY
The Company uses the name 'Teligent' as its primary business name and
servicemark. It is the owner of U.S. Reg. No, 1,893,005 - TELIGENT, which was
issued on May 9, 1995, to Creative Integrated Systems, Inc. for various items of
communication equipment, based on use in commerce since January 6, 1994. The
Company has licensed Creative Integrated Systems, Inc. to continue using the
mark in connection with communications equipment.
On April 7, 1997, the Company filed applications to register its name and
logo design in the United States Patent and Trademark Office for 'land based and
satellite communications services.' First action on the applications is expected
in late 1997 or early 1998. The Company reasonably believes that the
applications will mature to registration, but there is no assurance until the
registrations actually issue.
The Company relies upon a combination of licenses, confidentiality
agreements and other contractual covenants, to establish and protect its
technology and other intellectual property rights. The Company currently has no
patents or patent applications pending. There can be no assurance that the steps
taken by the Company will be adequate to prevent misappropriation of its
technology or other intellectual property or that the Company's competitors will
not independently develop technologies that are substantially equivalent or
superior to the Company's technology. Moreover, although the Company believes
that its business as currently conducted does not infringe upon the valid
proprietary rights of others, there can be no assurance that third parties will
not assert infringement claims against the Company or that, in the event of an
unfavorable ruling on any such claim, a license or similar agreement to utilize
technology relied upon by the Company in the conduct of its business will be
available to the Company on reasonable terms.
EMPLOYEES
As of September 30, 1997, the Company had a total of 108 employees. The
Company is not a party to any collective bargaining agreements. The Company
believes its relations with its employees to be good.
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PROPERTIES
Teligent's principal executive offices consist of approximately 53,000
square feet held under a lease, located in Vienna, VA. The lease expires on
March 1, 2002. Teligent has exercised an option to add an additional 22,000
square feet. The Company believes that these facilities are adequate for the its
needs at the present time.
The Company will lease the space necessary to site equipment to provide its
wireless broadband services in and around each of its licensed areas. See 'Risk
Factors--Distance and Weather Limitations; Line of Sight; Building Access' and
'--Management of Growth.'
See Note 5 to the Financial Statements for additional information regarding
future minimum lease commitments.
LEGAL PROCEEDINGS
Other than license and regulatory proceedings described under 'Risk
Factors--Government Regulation' and 'Regulation,' the Company is not currently a
party to any legal proceedings, which, individually or in the aggregate, the
Company believes will have a material adverse effect on the Company's financial
condition or results of operations.
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TELECOMMUNICATIONS INDUSTRY OVERVIEW
The current telecommunications landscape is being reshaped by the
convergence of at least four major trends: (i) deregulation of the growing $100
billion market for business and residential and exchange services; (ii)
increasing customer demand for high speed, broadband services, driven by the
creation of bandwidth-intensive applications such as the Internet, data networks
and videoconferencing, (iii) growing customer desire to bundle the billing,
pricing and customer care across a proliferating set of telecom services and
(iv) technological advances. The growth in demand for high speed digital
telecommunications services is being driven by the revolution in microprocessor
power and advances in new multimedia and on-line applications such as the
Internet. The ability to access and distribute information quickly has become
critical to business and government users of telecommunications services. The
rapid growth of LANs, Internet services, videoteleconferencing and other data
intensive applications is significantly increasing the volume of broadband
telecommunications traffic. This increasing demand, together with changes in the
regulatory environment, is creating an opportunity for competitive
telecommunications service providers such as the Company to offer
cost-effective, high-capacity last mile access using both wireline and wireless
solutions.
The present structure of the United States telecommunications industry was
shaped principally by the 1984 court-directed divestiture of the Bell System
(the 'Divestiture'). As part of the Divestiture, seven RBOCs were created and
separated from the long distance service provider, AT&T, resulting in two
distinct telecommunications service industries: local exchange and interexchange
(commonly known as long distance). Local exchange services typically involve the
carriage of telecommunications within defined local calling areas, known as
LATAs, and the provision of access, or connections, between ILECs and IXCs for
the completion of long-distance calls.
Since the Divestiture, the interexchange business has become increasingly
competitive, but the local exchange segment of the telecommunications market has
remained the domain of ILECs. Recently, however, regulatory policy has shifted
away from monopoly protection of the ILECs. U.S. court decisions, FCC actions,
and, most recently, the Telecommunications Act have dramatically changed the
regulatory environment. These changes have permitted increased competition in
the local exchange market and created opportunities for new companies.
In the late 1980s, competitive access providers ('CAPs') emerged to compete
with ILECs by providing dedicated private line transmission and access services.
Beginning in 1994, a few states permitted CAPs to also operate as CLECs, by
providing local exchange services to business customers in addition to
transmission and access services. These CAP/CLEC networks typically consist of
fiber optic facilities connecting IXC POPs with customer locations and ILEC
switches within a limited metropolitan area. Initially, demand for alternative
local access was driven by access charges of approximately 40% to 45% of the
cost of a long-distance call levied by ILECs on the IXCs. In addition to
providing lower access charges, CAP/CLEC fiber optic services, where available,
have generally been considered to provide superior quality and higher capability
services than those available from ILECs' legacy copper wire networks. It is
estimated that in 1996, CAP/CLECs captured over $2 billion of revenues generated
by the business communication market, and as a result of increased competition
and growth of enhanced services, CAP/CLECs' revenues continue to grow
significantly.
The Company believes that continued growth in the quality and number of
competitors in the local telecommunications market will be driven principally by
(i) the growing interest among business customers for an alternative to the ILEC
networks in order to obtain higher capacity and better pricing, (ii) the
increases in data applications and capacity requirements for local and wide area
network connections, high speed Internet access and videoconferencing, (iii) the
ILECs' inability to upgrade their copper networks quickly, (iv) growing customer
desire for facilities-based network redundancy, integrated and bundled services,
and for higher quality, more responsive customer care, and (v) new state and
federal legislation mandating interconnection and competition in the local
exchange market.
The Company believes that local wireless broadband telecommunications
services will be developing rapidly to handle these growing needs for
alternative local access. In particular, the Company believes that deployment of
terrestrial fixed, wide area wireless system links by the Company and others
will enable the provision of greater capacity and reliability at a lower cost
per customer than traditional copper wire networks primarily to those customers
where fiber is not economical.
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REGULATION
OVERVIEW
The Company's fixed wireless broadband services are subject to regulation
by federal, state and local governmental agencies. The Company has obtained all
authorizations and approvals necessary and appropriate to conduct its operations
as currently conducted and believes that it is in compliance with all laws,
rules and regulations governing its current operations. See 'Risk
Factors--Relocation of 24 GHz Licenses; Pending FCC Petitions.' Nevertheless,
changes in existing laws and regulations, including those relating to the
provision of wireless local telecommunications services via 24 GHz fixed
wireless licenses and/or the future granting of 24 GHz fixed wireless
authorizations, or any failure or significant delay in obtaining necessary
future regulatory approvals, could have a material adverse effect on the
Company's business, financial condition and results of operations.
At the federal level, the FCC has jurisdiction over the use of the
electromagnetic spectrum (i.e., wireless services) and has exclusive
jurisdiction over all interstate telecommunications services, that is, those
that originate in one state and terminate in another state. State regulatory
commissions have jurisdiction over intrastate communications, that is, those
that originate and terminate in the same state. Municipalities and other local
jurisdictions may regulate limited aspects of the Company's business by, for
example, imposing zoning and franchise requirements and requiring installation
permits. The Company also is subject to taxation at the federal and state levels
and may be subject to varying taxes and fees from local jurisdictions.
FEDERAL LEGISLATION
The Telecommunications Act. The Telecommunications Act, enacted on
February 8, 1996, substantially departs from prior legislation in the
telecommunications industry by establishing local exchange competition as a
national policy through the removal of state regulatory barriers to competition
and the preemption of laws restricting competition in the local exchange market.
The Telecommunications Act, among other things, mandates that ILECs (i) permit
resale of their services and facilities on reasonable and nondiscriminatory
terms and at wholesale rates, (ii) allow customers to retain the same telephone
number ('number portability') when they switch local service providers, (iii)
permit interconnection by competitors to an ILEC's network at any technically
feasible point that is at least equal in quality to that which the local
exchange carrier provides to itself and pursuant to reasonable and
nondiscriminatory rates and terms, (iv) unbundle their network services and
facilities at any technically feasible point and permit competitors and others
to use these facilities at cost-based and nondiscriminatory rates and (v) ensure
that an end user does not have to dial any more digits to reach customers of
local competitors than to reach the ILEC's customers to the extent technically
feasible ('dialing parity'). The Telecommunications Act also allows RBOCs to
provide in-region inter-LATA services on a state-by-state basis once certain
market-opening requirements are implemented and entry is determined to be in the
public interest. The provisions of the Telecommunications Act are designed to
ensure that RBOCs take affirmative steps to level the playing field for their
competitors so that others can compete effectively before the RBOC secures
in-region long-distance entry. The FCC, in consultation with the United States
Department of Justice and the states, is given jurisdiction to determine whether
to approve applications for long distance entry. There can be no assurance,
however, that the states and the FCC will implement the Telecommunications Act
in a manner favorable to the Company and its customers.
Under the Telecommunications Act, states have begun and, in a number of
cases, completed regulatory proceedings to determine the pricing of unbundled
network elements and services, and the results of these proceedings will
determine whether it is economically attractive to use these elements.
The RBOCs, but not other ILECs, have an added incentive to open their local
exchange networks to facilities-based competition because Section 271 of the
Telecommunications Act provides for the removal of the current ban on RBOC
provision of in-region inter-LATA toll service and equipment and manufacturing
only after meeting certain requirements. This ban will be removed only after the
RBOC demonstrates to the FCC, which must consult with the Department of Justice
and the relevant state commissions, that the RBOC has (i) met the requirements
of the Telecommunications Act's 14-point competitive checklist and fully
implemented an approved interconnection agreement with one or more unaffiliated,
facilities-based competitors providing
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business and residential service somewhere in the state (or that by a date
certain no such competitors have 'requested' interconnection as defined in the
Telecommunications Act and the RBOC is offering all of the elements in the
competitive checklist); (ii) demonstrated that it will provide in-region
inter-LATA toll services through a separate affiliate, which is required for
three years, unless extended by the FCC; and (iii) demonstrated that entry is
consistent with the public interest.
FEDERAL REGULATION
The Telecommunications Act Regulations. The Telecommunications Act in some
sections is self-executing, but in most cases the FCC must issue regulations
that identify specific requirements before the Company and its competitors can
proceed to implement the changes the Telecommunications Act prescribes. The
Company actively monitors all pertinent FCC proceedings and has participated in
some of these proceedings. The outcome of these various ongoing FCC rulemaking
proceedings or judicial appeals of such proceedings could materially affect the
Company's business, financial condition and results of operations.
As required by the Telecommunications Act, the FCC adopted, in August 1996,
new rules implementing the interconnection and resale provisions of the
Telecommunications Act (the 'Interconnection Order') which are intended to
remove or minimize regulatory, economic and operational impediments to full
competition for local services, including switched local exchange service. A
number of parties filed an appeal against the Interconnection Order in Federal
court seeking to vacate certain of the rules adopted therein. In a July 18,
1997, decision, the United States Court of Appeals for the Eighth Circuit
vacated significant portions of the Interconnection Order, including its
provisions governing the pricing of local telecommunications services and
unbundled network elements, its unbundling requirements and its 'pick and
choose' provision (which enabled a telecommunications carrier to demand any term
of an ILEC's interconnection contract with another carrier). See 'Regulation'.
The FCC or other parties may seek review of this decision by the U.S. Supreme
Court. Although the Company believes that the final outcome of the Eighth
Circuit decision, including any further proceedings or a Supreme Court appeal,
will not have a material adverse affect on its operations, there can be no
certainty in this regard. To date, three RBOCs have filed an application with
the FCC for 'in-region' long distance authority. The FCC denied the application
of SBC Communications, Inc. ('SBC') with respect to Oklahoma in June 1997;
denied the application of Ameritech in August 1997 with respect to Michigan; and
has not yet addressed an application recently filed by BellSouth. Several
entities have sought reconsideration of the FCC's Michigan decision and some
have initiated litigation claiming, among other things, that Section 271 of the
Telecommunications Act is unconstitutional, that the FCC has exceeded its
jurisdiction, and that the FCC has violated the Eighth Circuit's ruling on the
Interconnection Order by effectively promulgating national pricing standards and
in other ways violated the Court's ruling. See 'Business--Competition in the
Telecommunications Industry,' 'Telecommunications Industry Overview' and
'Regulation.'
In July 1996, the FCC mandated that over the course of the next year
responsibility for administering and assigning local telephone numbers be
transferred from the RBOCs and a few other ILECs to a neutral entity. In August
1996, the FCC issued regulations which address certain of these issues, but
leave others for decision by the states and the still-to-be selected neutral
numbering plan administrator. In August 1997, the FCC designated two neutral
numbering plan administrators and the process of transferring numbering
administration to these entities is underway. The new FCC numbering regulations
(a) prohibit states from creating new area codes that could unfairly hinder ILEC
competitors (including the Company) by requiring their customers to use 10 digit
dialing while existing ILEC customers use 7 digit dialing, and (b) prohibit
ILECs (which are still administering central office numbers pending selection of
the neutral administrator) from charging 'code opening' fees to competitors
(such as the Company) unless they charge the same fee to all carriers including
themselves. In addition, each carrier is required to contribute to the cost of
numbering administration through a formula based on net telecommunications
revenues. In July 1996, the FCC released rules to permit both residential and
business customers to retain their telephone numbers when switching from one
local service provider to another (known as 'number portability'). RBOCs are
required to implement number portability in the top 100 markets by October 1,
1997 and to complete it by December 31, 1998. In smaller markets, RBOCs must
implement number portability within six months of a request therefore commencing
December 31, 1998. Other ILECs are required to implement number portability by
October 31, 1997 only in those of the top 100 markets where the feature is
required by another ILEC. Non-RBOC ILECs are not required to implement number
portability in any additional markets until December 31, 1998, and then only in
markets where the feature is requested by another ILEC.
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The FCC recently authorized cellular and other commercial mobile radio
service ('CMRS') to provide for other wireless services to fixed locations
(rather than to mobile customers), including offering wireless local loop
service in whatever capacity such provider determines. Previously, many CMRS
providers could provide fixed services on only an ancillary or incidental basis.
Moreover, in August 1996 the FCC promulgated regulations that classify CMRS
providers as telecommunications carriers, thus giving them the same rights to
interconnection and reciprocal compensation under the Telecommunications Act as
other non-LEC telecommunications carriers, including the Company.
In addition pursuant to the Telecommunications Act, the FCC issued new
regulations in 1997 regarding the implementation of the universal service
program and the assessment of access charges on carriers obtaining access to
local exchange networks. Both the access charge and universal service regimes
were substantially revised. As a result of these changes, the costs of business
and multiple residential lines are expected to increase. Several parties have
sought FCC reconsideration or appealed various parts of the new FCC rules,
including the revenue basis on which universal service contributions are
determined. The Company is unable to predict the final formula for universal
service contribution or its own level of contribution.
FCC Licensing. The Communications Act of 1934 (the 'Communications Act')
imposes certain requirements relating to licensing, common carrier obligations,
reporting and treatment of competition. Under current FCC rules, the recipient
of an authorization for fixed wireless microwave facilities, including the
Company is required to construct facilities to place the station 'in operation'
within 18 months of the date of grant of the authorization. In the event that
the recipient fails to comply with the construction deadline, the license is
terminated absent an extension of the deadline. Except for those facilities for
which the 18-month deadline has not passed, the Company or its
predecessor-in-license constructed facilities in each of their licensed markets
to satisfy this construction deadline. In addition, if a station does not
transmit operational traffic for a consecutive period of twelve months at any
time after construction is complete, or if removal of equipment or facilities
renders the station incapable of providing service, the license is subject to
forfeiture, absent a waiver of the FCC's rules.
The FCC's current policy is to align the expiration dates of all fixed
wireless licenses of a particular service such that they mature concurrently
and, upon expiration, to renew all such licenses for ten years. The initial term
of most currently outstanding fixed wireless licenses, including the Company's
licenses, expires on January 1, 2001. While FCC custom and practice establishes
a presumption granting the renewal of licenses to licensees, such presumption
requires that the licensee substantially comply with its regulatory obligations
during its license period. The FCC's failure to renew one or more licenses could
have a material adverse effect on the Company's business, financial condition
and results of operations. See 'Risk Factors--Transfer of Control of Wireless
Licenses; Non-Renewal and Fluctuation in Value.'
Under the terms of its licenses, the Company is classified as a common
carrier, and as such is required to offer service on a non-discriminatory basis
at just and reasonable rates to anyone reasonably requesting such service.
Although the Communications Act prohibits the Company from unjustly or
unreasonably discriminating among its customers, the statute, as currently
interpreted by the FCC, does permit the Company to reasonably classify its
customers and reasonably discriminate among such classifications. Under the
FCC's streamlined regulation of non-dominant carriers, the Company, as a
non-dominant carrier, is not subject to rate regulation. The FCC has recently
issued regulations pursuant to which the Company does not need to file tariffs
setting forth its rates, terms, and conditions of service for interstate
exchange access service ('permissive detariffing') and is currently conducting a
rulemaking in which it has proposed prohibiting tariff filing for such services
('mandatory detariffing'). The FCC had previously issued mandatory detariffing
regulations for interstate interexchange service; however, various carriers have
filed suit to overturn these FCC regulations and the U.S. Court of Appeals for
the D.C. Circuit has stayed the mandatory detariffing rules as they apply to
interexchange carriers pending its decision in that appeal. The Company's
provision of intrastate services, including local exchange service if the
Company should offer it, is subject to regulation by each state in which the
Company provides intrastate services.
Transfer of Control of Wireless Licenses. Pursuant to the LLCA, MSI and
DSC contributed their fixed wireless licenses to the Company. Pursuant to the
FirstMark Acquisition, the Company acquired additional licenses in two SMSAs.
The assignment or transfer of control of licenses issued by the FCC (including
pro forma assignments and transfers) is subject to the prior consent of the FCC,
which consent generally turns on a number
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of factors including the identity, background and the legal and financial
qualifications of the assignee and the satisfaction of certain other regulatory
requirements. The FCC granted the application for the transfer of control of
FirstMark's fixed wireless licenses to the Company in July 1997 and such grant
has become final. The FCC granted the applications to assign the MSI and DSC
licenses to the Company in October 1997. There were no petitions to deny filed
against the FirstMark transfer of control applications and the FCC grant thereof
has become final. There were no petitions to deny filed against the MSI and DSC
assignment applications.
Relocation of Licenses to 24 GHz. The FCC issued an Order (the 'Relocation
Order') on March 14, 1997 providing for the relocation of certain fixed wireless
licensees in the 18 GHz band to a reallocated portion of the 24 GHz band,
pursuant to a request of the National Telecommunications and Information
Administration ('NTIA') acting on behalf of the Department of Defense. The
Relocation Order provided for the relocation of these licenses from 100 MHz over
5 corresponding channels in the 18 GHz band to 400 MHz over 5 corresponding
channels in the 24 GHz band. On June 24, 1997, the FCC issued a subsequent order
(the 'Modification Order') that implemented the Relocation Order by modifying
the affected 18 GHz licenses, including those held by the Company, to authorize
operations at 24 GHz. Pursuant to the Relocation Order, those 18 GHz fixed
wireless operators in the Washington, DC and Denver, CO areas (including the
Company's Washington, DC, Baltimore, MD and Denver, CO facilities) were required
to relocate to corresponding channels in the 24 GHz band no later than June 5,
1997. The Relocation Order, the Modification Order and the June 1997
authorizations require these 18 GHz fixed wireless licensees in all other areas
to relocate to corresponding channels in the 24 GHz band no later than January
1, 2001. Although the Company is permitted to continue operations in the 18 GHz
band outside of the Washington, DC and Denver, CO areas until that date, its
intention is to convert all of its facilities to 24 GHz band operation as soon
as possible.
The FCC implemented this relocation without notice and comment procedures
in order to give effect to NTIA's request on behalf of the Department of Defense
to protect national security satellite operations from harmful interference from
18 GHz license stations. A number of parties have filed petitions with the FCC
seeking a number of remedies including either partial or full reconsideration or
review of one or both of these orders and modification or revocation of the
Company's licenses. These parties argued, among other things, that the FCC
decision should be reversed because the FCC's allocation of 400 MHz of 24 GHz
spectrum for licenses was unnecessary and that the FCC should not have so
relocated the fixed wireless licensees without conducting prior notice and
comment rulemaking proceedings. The Company filed timely responses with the FCC
opposing the petitions and continues to buildout its networks as permitted under
its licenses, the Relocation Order and the Modification Order. In addition, one
of these parties, DirecTV, has filed a petition for rulemaking with the FCC
requesting that the FCC grant permission for DirecTV and others to construct and
operate broadcast satellite uplink facilities in certain areas on a portion of
the 24 GHz band allocated and granted to the former 18 GHz fixed wireless
licensees. The Company has filed a timely opposition to this rulemaking
petition.
The Company cannot determine how the FCC will resolve the petitions for
reconsideration or review of the Relocation Order and the Modification Order and
the DirecTV rulemaking petition. Thus, any construction or operation at 24 GHz
prior to the final resolution of these petitions is at the Company's risk and
expense. If the Relocation Order or Modification Order were subsequently
modified or reversed, such a modification or reversal could have a material
adverse effect on the Company's business, financial condition and results of
operations. In particular, it cannot be determined whether, under a modified
license relocation, the Company's equipment would be rendered unusable or usable
only after significant expense and delay.
Grant of the DirecTV rulemaking petition could materially and adversely
affect the Company's business, financial condition and results of operations. If
implemented, DirecTV's proposals could result in the construction and operation
of satellite uplink facilities on 24 GHz frequencies currently allocated to
fixed wireless services, which could interfere with the Company's operations in
the vicinity of these facilities. In addition, in the Relocation Order the FCC
announced that it will commence a rulemaking proceeding to address future fixed
wireless licensing in the 24 GHz band, which may include proposals to auction
available spectrum and to adopt service rules for 24 GHz operations. There can
be no assurance that the Company's point-to-point and point-to-multipoint
equipment as currently designed will comply with the service rules ultimately
adopted by the FCC.
The FCC's decisions upon reconsideration will be subject to judicial appeal
to a U.S. court of appeals. There can be no assurance that the FCC will be able
to defend any such litigation successfully. The court may affirm the
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Relocation Order or any order made by the FCC upon reconsideration, vacate and
remand the matter to the FCC for initiation of a rulemaking proceeding, or make
any other ruling. If the matter is remanded, the FCC could decide to afford the
same substantive relief or make another ruling, which may be adverse to the
Company. Failure by the court to affirm the terms of the Relocation Order or the
Modification Order could have a material adverse effect on the Company's
business, financial condition and results of operations.
Uncertainty during an appeal period regarding the Company's prospects and
the implications of the result of such litigation may disrupt the Company's
relationships with actual and potential customers, equipment vendors, lenders or
other parties, which could have a material adverse effect on the Company's
business, financial condition and results of operations.
Teledesic. On September 6, 1996, Teledesic Corporation ('Teledesic') filed
a petition seeking the dismissal of then-pending applications for additional
transmission (nodal) stations in seven licensed MSI fixed wireless markets, and
the rescission of existing licenses, then held by or belonging to MSI or DSC. In
its petition, Teledesic claimed that its then-proposed satellite system was
incompatible with existing licensed terrestrial networks in the 18 GHz band,
that the Commission's initial grants of the fixed wireless licenses to MSI and
DSC was inappropriate, and that MSI and DSC had failed to construct and operate
their licensed facilities in compliance with the FCC's rules. The Company, MSI
and DSC opposed Teledesic's petition in their respective pleadings filed with
the FCC.
In November and December 1996, the Commission inspected each of the MSI and
DSC fixed wireless facilities and determined that the companies had complied
with all applicable construction and operational requirements. In letters dated
April 2, 1997, and April 8, 1997, the Commission notified MSI and DSC,
respectively, that the Commission 'concluded its inquiry' and 'determined not to
take any further action' in connection with the investigation. Moreover, on
February 24, 1997, the Company, MSI and DSC entered into an agreement pursuant
to which Teledesic agreed to withdraw its petition and bear some of the cost of
relocating MSI's, DSC's and the Company's 18 GHz fixed wireless systems to the
24 GHz band, conditioned upon the FCC's relocation of 18 GHz fixed wireless
licensees to the 24 GHz band.
In their petitions for reconsideration of the Relocation Order, a number of
parties raised substantially similar arguments to those initially raised by
Teledesic against the validity of the licenses now held by, and the constructed
fixed wireless facilities now owned by, the Company. The Company, MSI and DSC
have opposed those claims.
On March 21, 1997, Teledesic withdrew its petition against MSI's pending
applications and MSI's and DSC's licenses.
Alien Ownership. Under the Communications Act, the FCC may, if it finds
the public interest will be served, refuse to grant common carrier licenses to
(or may revoke the licenses of) an entity directly or indirectly controlled by
non-U.S. citizens or by a corporation, the capital stock of which is more than
25% owned or voted by non-U.S. citizens or companies. The Communications Act
also prohibits any entity, more than 20% of whose capital stock is owned or
voted by non-U.S. citizens or companies, from receiving a license for common
carrier services. After January 1, 1998, the FCC will no longer prohibit greater
than 25% indirect ownership or control of a common carrier licensee by citizens
or companies from a country that is a signatory to the Telecommunications Annex
to the World Trade Organization General Agreement on Trade in Services ('WTO
Agreement'), but the 20% restriction on direct ownership will remain. The
Company is not aware of alien ownership of its outstanding stock that would
cause it to be in violation of the Communications Act. However, a significant
amount of Associated's Common Stock is held in nominee name and, accordingly,
the Company is not aware of the citizenship of the actual beneficial owners of
such shares.
The FCC has tentatively concluded that after January 1, 1998, with regard
to investors from countries that are not signatories to the WTO Agreement, it
will continue to apply an 'effective competitive opportunities' test in the
exercise of its statutory discretion to permit indirect alien ownership of more
than a 25% interest in a common carrier licensee. The FCC is expected to adopt
rules governing investments from entities from non-WTO Agreement countries
before the end of 1997. If U.S. investors are permitted to own an interest
greater than 25% in a communications carrier offering similar services in the
alien investor's home market and such market satisfies certain other open
competition criteria, the FCC will generally permit that alien to own an
equivalent interest in a U.S.-licensed common carrier. Other factors, such as
the promotion of competition in the U.S. market and U.S. national security
concerns, may affect this determination.
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STATE REGULATION
Many of the Company's services will be classified as intrastate services
subject to state regulation. All of the states where the Company operates, or
will operate, require some degree of state regulatory commission approval to
provide certain intrastate services. In most states, intrastate tariffs are also
required for various intrastate services, although the Company is not typically
subject to price or rate of return regulation for tariffed intrastate services.
MSI and DSC have previously obtained the required state approvals to provide the
full range of intrastate services that the Company will provide, including
facilities-based local services, in a number of states. Applications to assign
those approvals to the Company or to obtain initial Company certification have
been filed or are in the process of being filed in those states. The Company has
already received authorization in Texas, Georgia and Maryland to provide the
full range of services and is in the process of obtaining authorization in those
states where it currently holds FCC licenses and where MSI or DSC either did not
hold FCC licenses for facilities-based services or had not yet obtained
authorization for the full range of intrastate service offerings.
The Telecommunications Act requires each state to remove barriers to entry
and barriers to competition for ILEC competitors. While no assurance can be
given as to how quickly and how effectively each state will act to implement
this legislation, many state authorization processes are being streamlined and
the authorization time frames shortened considerably. Not all states have a
streamlined process and in some jurisdictions the Company, MSI and DSC may
experience delays. In states where the Company's intrastate authorizations are
pending, prior to grant thereof service is or will be offered through MSI or
DSC, via their state authorizations, and, to the extent required, state-filed
tariffs, on behalf of the Company.
Under the Telecommunications Act, if a request is made by the Company,
ILECs have a statutory duty to negotiate interconnection and access arrangements
in good faith for the Company's provision of local service. The Company has
reached a comprehensive negotiated interconnection, unbundled element, and
resale agreement with Pacific Bell for California, with Ameritech for Illinois,
with Bell Atlantic for Washington, D.C., Maryland and Virginia and a resale
agreement with Southwestern Bell for Texas. It is in the process of negotiating
comprehensive interconnection agreements with numerous ILECs.
During these negotiations, the Company or the ILEC may submit disputes to
the state regulatory commissions for mediation and, after the expiration of the
statutory negotiation period set forth in the Telecommunications Act, the
parties may submit outstanding disputes to the states for arbitration. To date
the Company has not submitted any disputes to the states for mediation or
arbitration. The Company has been working with state regulatory commissions, as
well as the FCC, to encourage the adoption of rules facilitating roof top and
building access for competitive carriers.
LOCAL REGULATION
The Company will need to interact with local governments in a variety of
ways. How diverse local governments exercise traditional functions, including
zoning, permitting and management of rights of ways, and address the expansion
of telecommunications competition and varying means of entry in particular is
uncertain. The kinds and timing of approvals required to install antennas and
conduct other aspects of the Company's business varies among local governments
and may also vary with the specific technology or equipment configuration used
by the Company.
While the Telecommunications Act of 1996 permits local governments to
manage rights of way, the scope of that authority, including the circumstances
when fees can be charged and the amount of such charges has already been the
subject of numerous disputes between telecommunications carriers and such local
governments. In addition, some local governments have been requiring substantial
filings and review before telecommunications carriers can operate in their
licensed areas and have also required the payment of significant franchise fees
or taxes. Some of these disputes involving licensing of telecommunications
carriers, antenna siting, and rights of way are in litigation and more
administrative and court litigation is likely. The prohibition of entry barriers
set forth in the Telecommunications Act and the FCC's power to prevent such
barriers has been implicated in such litigation. The FCC has recently preempted,
and thereby prevented enforcement of, certain state and local regulations that
had the effect of inhibiting local competition. Any inability or unwillingness
by the FCC to preempt additional state and local regulations in a timely fashion
could have a material adverse impact on the Company.
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MANAGEMENT
DIRECTORS AND OFFICERS
Set forth below is certain information regarding the directors, executive
officers and certain other officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICES
- ------------------------------------------------ ---- ------------------------------------------------
<S> <C> <C>
Alex J. Mandl................................... 53 Chairman of the Board and Chief Executive
Officer
Kirby G. Pickle, Jr............................. 41 President and Chief Operating Officer
Laurence E. Harris.............................. 61 Senior Vice President, General Counsel and
Assistant Secretary
Abraham L. Morris............................... 38 Senior Vice President, Chief Financial Officer
and Treasurer
Steven F. Bell.................................. 47 Senior Vice President for Human Resources
Richard J. Hanna................................ 41 Senior Vice President for Sales and Marketing
Keith W. Kaczmarek.............................. 41 Senior Vice President for Engineering and
Operations
David S. Turetsky............................... 40 Vice President for Law and Regulatory Affairs
Cindy L. Tallent................................ 40 Vice President and Controller
Philip C. McKinney.............................. 37 Vice President for Information Technology
Robert H. Schwartz.............................. 31 Vice President for Corporate Development and
Strategy
Scott G. Bruce.................................. 36 Secretary
Myles P. Berkman................................ 60 Director
David J. Berkman................................ 36 Director
William H. Berkman.............................. 32 Director
Rajendra Singh.................................. 43 Director
</TABLE>
Alex J. Mandl has been Chairman and Chief Executive Officer since September
1996. Prior to joining Teligent, Mr. Mandl served as President and Chief
Operating Officer of AT&T. As President and Chief Operating Officer, Mr. Mandl
oversaw AT&T's operations including its long-distance, wireless and local
communications services, in addition to its credit card and Internet businesses.
As Chief Financial Officer from 1991 to 1993, Mr. Mandl directed AT&T's
financial strategy, policy and operations, and managed the acquisition of McCaw
Cellular Communications, Inc. Earlier, Mr. Mandl served as Chairman and CEO of
Sea-Land Services, Inc., an ocean transportation and distribution services
company. Mr. Mandl serves on the boards of the Warner-Lambert Company, Forstmann
Little & Co. and NextLevel Corporation.
Kirby G. Pickle, Jr., has served as President and Chief Operating Officer
since February 1997. Prior to that, Mr. Pickle served as Executive Vice
President of MFS Communications Company, Inc. and President and Chief Operating
Officer of one of its subsidiaries, UUNET Technologies, Inc. Earlier, as
President and COO of MFS Intelenet, Inc. Mr. Pickle managed three businesses
that generated a majority of MFS' revenues. Prior to his service for MFS, Mr.
Pickle was a Vice President at US Sprint (now known as Sprint), a regional sales
manager for MCI Communications Corporation, Inc. and held various management
positions at AT&T.
Laurence E. Harris has been Senior Vice President and General Counsel since
December 1996. Prior to joining the Company, Mr. Harris served as Senior Vice
President of Law and Public Policy for MCI Communications Corporation. Earlier,
Mr. Harris was President and Chief Operating Officer of Metromedia
Telecommunications, Inc. and CRICO Communications, a privately-held paging
company. Mr. Harris also served as chief of the FCC's Mass Media Bureau where he
was responsible for regulation and policy for cable,
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<PAGE>
television and radio broadcasting. Mr. Harris was also responsible for
regulatory and antitrust activities at MCI before serving at the FCC.
Abraham L. Morris joined Teligent in April 1997 as Senior Vice President,
Chief Financial Officer and Treasurer. Prior to which, he served as Senior Vice
President for Operations Support at MFS Communications Company, Inc., where he
was involved in business development, revenue assurance and co-carrier/local
service activities. Prior to that, Mr. Morris was Vice President and Chief
Transition Officer for MFS Intelenet, Inc. and earlier was Treasurer of MFS. Mr.
Morris was involved in MFS' capital raising activities, including its initial
public offering. Before joining MFS, Mr. Morris served as General Manager,
Mergers and Acquisitions at Peter Kiewit Sons', Inc., a diversified industrial
services company.
Steven F. Bell assumed the position of Senior Vice President for Human
Resources in April 1997. Prior to joining Teligent, Mr. Bell served as Vice
President for Human Resources and Organization Development at COMSAT Corporation
where he was responsible for executive and staff recruitment and development at
the 4,000-employee satellite communications company. Earlier, Mr. Bell was Vice
President, Human Resources for the worldwide technologies division of American
Express Corporation.
Richard J. Hanna joined Teligent in April 1997 as Senior Vice President for
Sales and Marketing. Prior to joining Teligent, Mr. Hanna served as President
and Chief Executive Officer of MFS Intelenet, Inc. Prior to that, he served as
Vice President of Sales and Marketing for AT&T where he was responsible for
developing its commercial sales channel. Mr. Hanna has also served in senior
sales and marketing positions at MCI Communications Corporation and Sprint.
Keith W. Kaczmarek joined Teligent in May 1997 as Senior Vice President of
Engineering and Operations. Prior to which, he served as Vice President of
Engineering and Operations for AirTouch/PCS PrimeCo, where he managed the
development and installation of PCS deployment of CDMA wireless technology.
Between 1993 and 1995, as Vice President of Technology Development and Product
Development for Nextel Communications, Mr. Kaczmarek managed technology
development for the company's digital mobile wireless networks. He has also held
senior positions at AirTouch Communications, GTE Corp. and GTE Mobilnet, Inc.
David S. Turetsky joined Teligent in May 1997 as Vice President for Law and
Regulatory Affairs. He served in the Antitrust Division of the U.S. Department
of Justice as Deputy Assistant Attorney General for Civil and Regulatory Affairs
and originally as senior counsel to the Assistant Attorney General. He assisted
in developing the Clinton Administration's telecommunications policy, including
the Telecommunications Act of 1996, and was responsible for the Division's
telecommunications work. While at the U.S. Department of Justice, he represented
the United States in international telecommunications and antitrust matters and
assisted in overseeing a telecommunications services accord through the World
Trade Organization. Earlier, he was a partner in the law offices of LeBoeuf,
Lamb, Leiby & MacRae.
Cindy L. Tallent joined Teligent in September 1997 as Vice President and
Controller. Prior to joining the Company, Ms. Tallent was the Senior Vice
President, Finance for Global TeleSystems Group, Inc. There she was involved in
establishing and managing international joint ventures, securing financing and
implementing systems and controls. Ms. Tallent also held various finance
positions at GTE where she was employed for ten years and was the Vice President
and Chief Financial Officer for GTE Spacenet when she left in 1995. Prior to
GTE, Ms. Tallent was a senior accountant with Price Waterhouse LLP.
Philip C. McKinney joined Teligent in March 1997 as Vice President for
Information Technology. Prior to joining the Company, Mr. McKinney was Director
of Consulting Services for Computer Sciences Corporation where he oversaw client
engagements for start-up and established providers in the communication
industry. Earlier, Mr. McKinney was Director of Operations where he managed
customer care, billing and information technology outsourcing services to
telecommunication clients in North America.
Robert H. Schwartz joined Teligent upon inception in March 1996 as Vice
President of Corporate Development and Strategy. Previously, Mr. Schwartz served
as Director of Corporate Development for Nextel where he was involved in
strategic planning, mergers and acquisitions and various investment transactions
including public fundraising activities. Prior to that, Mr. Schwartz performed
consulting work in the communications industry including satellite, cable
television, and wireless telecommunications companies.
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<PAGE>
Scott G. Bruce has been Secretary of the Company since its inception in
March 1996. Mr. Bruce is also General Counsel and Secretary of Associated and
served as the Company's General Counsel until December 1996. Mr. Bruce has
experience in the fields of corporate mergers and acquisitions and securities
law. Between 1987 and 1992, he was a corporate attorney at Wolf, Block, Schorr
and Solis-Cohen in Philadelphia. Earlier, he worked in the New York office of
Touche Ross & Co., the predecessor to Deloitte & Touche LLP.
Myles P. Berkman has been a Director of the Company since its inception in
March 1996. Mr. Berkman is Chairman, President and Chief Executive Officer of
Associated, positions he has held since 1994. In addition to owning a majority
interest in the Company through MSI, Associated is engaged in the development of
wireless location services, and has operations and interests in international
wireless telephony, radio broadcasting and cable television. From 1979 to 1994,
Mr. Berkman was the President and Chief Operating Officer of Associated
Communications Corporation ('ACC'), the parent corporation of Associated prior
to 1995, and a publicly traded company. Mr. Berkman developed ACC into one of
the largest U.S. cellular operators at the time of its sale to SBC
Communications, Inc. Mr. Berkman is the father of William H. Berkman and David
J. Berkman, each of whom is also a Director of the Company.
David J. Berkman has been a Director of Teligent since its inception in
March 1996. Since 1994, Mr. Berkman has served as the Executive Vice President
and a Director of Associated. From 1993 to 1994, Mr. Berkman was Executive Vice
President and a member of the Board of Directors of ACC. Prior to 1994, Mr.
Berkman was Vice President of ACC. He is a member of the board of directors of
Teletrac, Inc. and a former member of both the Board of Directors and the
Executive Committee of the Cellular Telephone Industry Association. Mr. Berkman
also serves as Vice Chairman of the Board of Directors of Portatel del Sureste,
S.A. de C.V., a Mexican cellular telephone company controlled by Associated.
David J. Berkman is the son of Myles P. Berkman and the brother of William H.
Berkman, each of whom is also a Director of the Company.
William H. Berkman has been a Director of Teligent since its inception in
March 1996. Mr. Berkman is currently President of MSI, a subsidiary of
Associated. Since June 5, 1997, Mr. Berkman has served as an Assistant Secretary
of Associated. Before joining Associated, Mr. Berkman held several executive
positions at The News Corporation, Ltd. William H. Berkman is the son of Myles
P. Berkman and the brother of David J. Berkman, each of who is also a Director
of the Company.
Dr. Rajendra Singh has been a Director of Teligent since its inception in
March 1996. Since December 1993, Dr. Singh has served as President and Chief
Executive Officer of Telcom Ventures, L.L.C. Dr. Singh also serves as President
and Treasurer of DSC. Dr. Singh founded Telcom Ventures in 1993 and, together
with his family, is one of the principal owners of that company. He also serves
as Chairman of the Board of LCC International, Inc., a worldwide provider of
wireless engineering and design services and related products, which
he co-founded in 1983 and which is an affiliate of Telcom Ventures. The Singh
family and The Carlyle Group are the principal owners of Telcom Ventures. Dr.
Singh has created widely-used standards of system design and methodology in the
cellular industry. Dr. Singh organized and participated in the Cellular
Telephone Industry Association's scientific panel which investigated time
dispersion for Time Division Multiple Access and Frequency Division Multiple
Access wireless technologies.
Upon the consummation of the First Closing, NTT will be entitled to elect a
director to the Company's Board. Additionally, once the NTT director is elected,
Associated will be entitled to elect an additional director to the Company's
Board so that its designees will continue to constitute a majority thereof.
BOARD OF DIRECTORS
Election of Directors. Following the Offerings, pursuant to the Company's
Amended and Restated Certificate of Incorporation (the 'Certificate of
Incorporation'), until the number of shares held by holders of the respective
series of Class B Common Stock fall below certain thresholds, such holders will
have the right to elect directors to the Company's Board of Directors as
follows: a majority of directors will be elected by the holders of Series B-1
Common Stock (as defined below), one director will be elected by the holders of
Series B-2 Common Stock and one director will be elected by the holders of
Series B-3 Common Stock. Upon the consummation of the Offerings, all of the
Series B-1 Common Stock, Series B-2 Common Stock and Series B-3 Common Stock
will be held by MSI, DSC (or other affiliate of Telcom Ventures) and NTT,
respectively. The holders of the Class A Common Stock and Class B Common Stock,
voting as a single class, will have the right to
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<PAGE>
elect a number of directors equal to the total number of directors less the
number of directors elected by the holders of Series B Common Stock. See
'Description of Capital Stock.' Immediately upon consummation of the Offerings,
the Board will consist of seven directors, comprised of those listed above, one
additional director elected by Associated as the holder of Series B-1 Common
Stock and one director elected by NTT as the holder of Series B-3 Common Stock
(as defined below). After consummation of the Offerings, the Company intends to
expand its Board of Directors to the extent necessary under the rules of the
Nasdaq National Market or otherwise to maintain the requisite number of
directors who are not officers of or perform other duties for the Company (other
than serving as such directors). Upon any such expansion, the Board will be
further increased and additional individuals elected by Associated as the holder
of Series B-1 Common Stock so that its designees will continue to constitute a
majority of the Board.
Limitation of Liability and Indemnification. The Certification of
Incorporation will eliminate, to the fullest extent permitted by law, the
liability of directors to the Company and its stockholders for monetary damages
for breach of directors' fiduciary duty. This provision is intended to afford
the Company's directors the benefit of the Delaware General Corporation Law (the
'DGCL'), which provides that directors of Delaware corporations may be relieved
of monetary liability for breach of their fiduciary duty of care, except under
certain circumstances involving breach of a director's duty of loyalty, acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation of law or any transaction from which the director derived an improper
personal benefit. In addition, the Certificate of Incorporation will provide
that the Company will indemnify its directors and officers to the fullest extent
authorized or permitted by law.
Committees of the Board of Directors; Compensation Committee Interlocks and
Insider Participation. Following the Offerings, the Board of Directors will
establish an audit committee (the 'Audit Committee') and a compensation
committee (the 'Compensation Committee'). Prior to the Offerings, the entire
Board of Teligent, L.L.C. made all decisions with respect to the compensation of
executive officers and the establishment of compensation and benefit plans.
The Audit Committee will review the scope and approach of the annual audit,
the annual financial statements of the Company and the auditors' report thereon
and the auditors' comments relative to the adequacy of the Company's system of
internal controls and accounting systems. The Audit Committee will also
recommend to the Board of Directors the appointment of independent public
accountants for the following year.
The Compensation Committee will review management compensation levels and
provide recommendations to the Board of Directors regarding salaries and other
compensation for the Company's executive officers, including bonuses and
incentive programs.
Compensation of Directors. Certain directors of Teligent, L.L.C. were
granted Appreciation Units (as defined below) under Teligent's Long-Term
Incentive Compensation Plan during 1996. See 'Security Ownership of Certain
Beneficial Owners and Management.' Directors of the Company are currently not
reimbursed for their out-of-pocket expenses incurred in connection with
attendance at meetings of, and other activities relating to serving on, the
Board of Directors and any committees thereof. The Company may consider
additional compensation arrangements for its directors from time to time.
EXECUTIVE COMPENSATION
The following table sets forth compensation paid during the fiscal year
ended December 31, 1996 to the Chief Executive Officer of the Company (the
'Named Executive Officer'). There were no other executive officers of the
Company whose annual salary and bonus exceeded $100,000 for all services
rendered to the Company during such fiscal year.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------
NAME AND PRINCIPAL POSITION YEAR(1) SALARY BONUS
- -------------------------------------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Alex J. Mandl .................................................................. 1996 $165,753 $166,667
Chairman of the Board
and Chief Executive Officer
</TABLE>
- ------------------
(1) Alex J. Mandl's employment with the Company began on September 1, 1996.
THE MANDL EMPLOYMENT AGREEMENT
The Mandl Employment Agreement took effect September 1, 1996 and expires on
September 1, 2002, unless further extended pursuant to its terms. Under the
Mandl Employment Agreement, Mr. Mandl is entitled to a minimum salary of
$500,000 per annum (which may be increased from time to time at the discretion
of the Board after the first two years) and an annual bonus of $500,000 per
annum for the first three fiscal years of employment, subject to increase after
three years at the discretion of the Board. After such period, Mr. Mandl shall
also be entitled to participate in all annual non-equity-based executive
compensation plans. Pursuant to the Mandl Employment Agreement, Mr. Mandl (a)
has received a $15 million recourse loan from MSI and DSC (see 'Certain
Relationships and Related Transactions--Employment Agreement') and (b) will be
entitled to a $5 million special payment upon the fifth anniversary of his
employment. The recourse loan will be automatically forgiven (i) twenty percent
in year one, twenty percent in year two, and sixty percent in year five, (ii)
upon the termination of his employment by him for Good Reason (as defined in the
Mandl Employment Agreement) or by the Company without Cause (as defined in the
Mandl Employment Agreement) or (iii) his death or disability.
The Mandl Employment Agreement provides that if either MSI or DSC sells any
of their respective member interests in the Company to a third party, such
seller shall be obligated to require the purchaser of such interests to
purchase, and may require Mr. Mandl to sell to such third party, a proportionate
percentage of the vested equity interest represented by Mr. Mandl's CARs valued
as of the date of such purchase, at the same price paid by the third party for
the interests of such seller. The Mandl Employment Agreement also provides for a
right of first refusal on the part of MSI and DSC with respect to the
disposition by Mr. Mandl of an equity interest in the Company. In the event of a
Change in Control of the Company (as defined in the Mandl Employment Agreement,
all CARs shall vest immediately, the principal balance remaining on the $15
million loan shall be immediately forgiven and the remainder of the $5 million
fifth anniversary special payment shall be paid.
In addition, in the Mandl Employment Agreement the Company has granted Mr.
Mandl certain registration rights with respect to the shares of Class A Common
Stock which will be subject to the options into which the CARs will be converted
pursuant to the Conversion described under 'Conversion of CARs and Appreciation
Units into Stock Options' (such shares as to which such registration rights
apply being referred to as 'Mandl Registrable Securities', and the number of
such shares as of the date Teligent, L.L.C. is converted to a corporation (the
'Conversion Date'), as adjusted for splits, combinations and the like, being
referred to as the 'Maximum Amount'). Under the Mandl Employment Agreement, the
Company is required, if requested by Mr. Mandl, to use its reasonable best
efforts to cause to be included in any registration statement with respect to a
public offering of shares of Class A Common Stock, a number of shares of Mandl
Registrable Securities proportionate to the number of shares of Common Stock
then owned by MSI and the Telcom Stockholder which are included in such
registration statement (based on the total number of shares of Common Stock then
owned by MSI and the Telcom Stockholder, and the Maximum Amount, respectively).
Because no shares of Common Stock are being sold by MSI or the Telcom
Stockholder in the Equity Offerings, Mr. Mandl has no right to sell any Mandl
Registrable Securities in the Equity Offerings. In addition, in each of four
twelve-month periods, the first of which commences on the Conversion Date and
each of the remaining three of which commences on each of the remaining three
respective subsequent anniversaries thereof, the Company is required, if
requested by Mr. Mandl (which request may not be made prior to six months after
consummation of the Equity Offerings), to use its reasonable best efforts to
promptly cause to be registered under the Securities Act for public sale by Mr.
Mandl a number of Mandl Registrable Securities constituting at least 25% of the
Maximum Amount (the 'Maximum Annual Amount'), provided that in no event may Mr.
Mandl sell publicly more than the Maximum Annual Amount in any such twelve-month
period.
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The Mandl Employment Agreement (other than certain restrictive covenants of
Mr. Mandl and certain severance obligations of the Company) may be terminated
(a) by the Company (i) without Cause by giving 30-days notice or (ii) for Cause
upon the Board's confirmation that the employee has failed to cure the grounds
for termination within ten days after notice thereof by the Company and (b) by
Mr. Mandl (i) without Good Reason by giving a 120-day notice or (ii) for Good
Reason upon the Company's failure to cure the grounds for termination within 20
days after notice thereof by Mr. Mandl. The Mandl Employment Agreement prohibits
disclosure by Mr. Mandl of any Company confidential information at any time. In
addition, while he is employed by the Company and for two years thereafter, Mr.
Mandl is prohibited from engaging or significantly investing in competing
business activities and from soliciting any Company employee to be employed
elsewhere.
COMPANY APPRECIATION RIGHTS
On September 1, 1996, pursuant to the terms of the Employment Agreement
between the Company and Alex J. Mandl (the 'Mandl Employment Agreement'), six
separate Company Appreciation Rights ('CARs') were granted to Mr. Mandl, as
follows:
<TABLE>
<CAPTION>
UNADJUSTED
CAR(1) VESTING DATE TARGET VALUE
- ------- ------------------ --------------
<S> <C> <C>
No. 1 September 1, 1997 $ 200,000,000
No. 2 September 1, 1998 250,000,000
No. 3 September 1, 1999 325,000,000
No. 4 September 1, 2000 425,000,000
No. 5 September 1, 2001 500,000,000
No. 6 September 1, 2002 2,750,000,000
</TABLE>
- ------------------
(1) For each CAR, Mr. Mandl is entitled to receive, as soon as practicable after
the 'settlement date,' as defined in the Mandl Employment Agreement, an
amount equal to a percentage (initially 3%) of the excess of Teligent,
L.L.C.'s fair market value over the target value for that CAR. Teligent,
L.L.C.'s Board of Directors, in its sole discretion, shall determine if the
CAR is to be settled with cash, equity securities of Teligent, L.L.C. a
combination thereof, or any other form of consideration as the Board of
Directors may determine. The CAR percentage and target values are subject to
adjustment for equity contributions and other transactions of the Company,
as defined in the Mandl Employment Agreement, and expire ten years after the
grant date. In general, upon termination of the Mr. Mandl's employment,
nonvested CARs shall be forfeited.
In connection with the Reorganization, the CARs will be converted,
effective as of the consummation of the Offerings, into options to purchase
shares of Class A Common Stock, which options will be granted pursuant to the
Stock Plan. See 'Conversion of CARs and Appreciation Units into Stock Options.'
LONG-TERM INCENTIVE COMPENSATION PLAN AWARDS
The Company has adopted a Long-Term Incentive Compensation Plan (the
'Long-Term Incentive Compensation Plan') under which an aggregate of 1,600,000
appreciation units ('Appreciation Units') may be granted to employees,
directors, and consultants of the Company. Each Appreciation Unit represents a
right to receive consideration equal to .00001% of the appreciation of the value
of Teligent, L.L.C. from and after the date of grant of the Appreciation Unit
until the settlement date. There are no minimum or maximum amounts payable in
respect of an Appreciation Unit and no specified performance targets need to be
reached. Appreciation Units generally vest at the rate of 20% per year. The
Long-Term Incentive Compensation Plan provides that, in the event that any
equity securities of Teligent, L.L.C. become listed and traded on a national
securities exchange or on the Nasdaq National Market, the Board of Directors may
make such equitable changes or adjustments or take such other actions that it
deems necessary or appropriate with respect to the terms of any outstanding
Appreciation Units (including cancelling outstanding Appreciation Units in
exchange on an equitable basis for replacement awards). In connection with the
Reorganization, all Appreciation Units will be converted, effective as of the
consummation of the Reorganization, into options to purchase Class A Common
Stock, which options will be governed by and subject to the terms of the 1997
Stock Incentive Plan (the 'Stock Plan'). See 'Conversion of CARs and
Appreciation Units into Stock Options.' No Appreciation Units were granted to
the Named Executive Officer during 1996.
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CONVERSION OF CARS AND APPRECIATION UNITS INTO STOCK OPTIONS
The Mandl Employment Agreement provides, in effect, that upon consummation
of the Equity Offerings, the Company's Board shall effect as promptly as
practicable the conversion of each outstanding CAR (whether or not vested) into
a stock option, effective as of the date of such consummation, having the same
vesting schedule,
vesting rights (including upon termination of employment) and term as the CAR
being converted. The Long-Term Incentive Compensation Plan authorizes the Board,
in the event equity securities of the Company become listed or traded on the
Nasdaq National Market (which will occur upon consummation of the Equity
Offerings), to make such equitable changes or adjustments in the terms of
Appreciation Units as the Board determines in its sole discretion, including
cancelling Appreciation Units in exchange on an equitable basis for replacement
awards (including without limitation stock options). The Company and Mr. Mandl
have agreed, and as contemplated by the Long-Term Incentive Compensation Plan,
the Board of Teligent, L.L.C. has determined, that to enable Mr. Mandl and the
holders of Appreciation Units, to retain, through Company stock options, the
value and continuing equity incentive represented by outstanding CARs and
Appreciation Units, effective upon consummation of the Equity Offerings,
outstanding CARs and Appreciation Units will be converted (the 'Conversion')
into and will become options (the 'Conversion Options') to purchase a number of
shares of Class A Common Stock at respective exercise prices such that the value
of such CARs and Appreciation Units immediately prior to consummation of Equity
Offerings will be reflected in the initial 'spread value' of (and the number of
shares of Class A Common Stock subject to) the Conversion Options, based on (x)
in the case of the CARs, the average closing price per share of Class A Common
Stock on the Nasdaq National Market over the first 20 days of public trading
commencing upon consummation of the Equity Offerings (the 'Conversion Trading
Price') and (y) in the case of the Appreciation Units, the initial per share
offering price of the Class A Common Stock in the Equity Offerings (the
'Offering Price'). The Conversion Options will be governed by and subject to the
terms of the Stock Plan (see '1997 Stock Incentive Plan' below) and have the
same vesting schedule, vesting rights and terms as the applicable CAR or
Appreciation Units which was converted.
Assuming shares of Common Stock outstanding upon consummation of
the Equity Offerings and a Conversion Trading Price and an Offering Price of
$ (the midpoint of the initial public offering price range in the
Equity Offerings), pursuant to the Conversion Mr. Mandl and all directors and
executive officers of the Company as a group ( persons) would receive
Conversion Options to purchase and shares of Class A Common
Stock, respectively (representing approximately % and %, respectively,
of all outstanding shares of Common Stock) immediately after consummation of the
Equity Offerings, at weighted average exercise prices per share of Class A
Common Stock of $ and $ , respectively. There can be no assurance
as to the actual Conversion Trading Price and, accordingly, the actual number of
shares of Class A Common Stock subject to Conversion Options (and the respective
exercise prices thereof) received by the named persons and by all directors and
executive officers of the Company as a group, and the actual respective
percentages of all outstanding shares of Common Stock represented by such
shares, may be materially higher or lower than described above.
1997 STOCK INCENTIVE PLAN
The Company anticipates that prior to the consummation of the Offerings,
the Company and its stockholders will approve the Teligent, Inc. 1997 Stock
Incentive Plan (the 'Stock Plan') in order to facilitate the ownership of the
Company's stock by such individuals, thereby aligning their interests with those
of the Company's stockholders and to assist the Company in attracting and
retaining officers and other key employees with experience and ability.
shares of Class A Common Stock will initially be reserved for
issuance pursuant to awards under the Stock Plan, including shares issuable
upon exercise of the Conversion Options (See 'Conversion of CARs and
Appreciation Units into Stock Options.') Shares to be issued pursuant to the
exercise or vesting of awards granted under the Stock Plan may be authorized but
unissued shares or treasury shares of Class A Common Stock. The Stock Plan
provides that no participant can receive awards thereunder (excluding Conversion
Options) that relate to shares of Class A Common Stock which in the aggregate
exceed 20% of the total number of shares of Common Stock reserved for issuance
under the Stock Plan. The Stock Plan provides that the Board of Directors or the
Committee (as defined below) may amend, suspend or terminate the Stock Plan at
any time; provided, however, that no amendment that requires stockholder
approval under applicable law in order for the Stock Plan to comply with Section
162(m) of the Internal Revenue Code of 1986, as amended (the 'Code') shall be
effective unless the same shall be approved by the stockholders of the
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Company. The Stock Plan will be administered by a committee (the 'Committee') of
the Board of Directors consisting solely of two or more non-employee directors
of the Company who are 'outside directors' within the meaning of Section 162(m)
of the Code, and 'non-employee directors' within the meaning of Rule 16b-3
promulgated under Section 16 of the Exchange Act.
The Stock Plan provides for the granting of options intended to be
'incentive stock options' within the meaning of Section 422 of the Code ('ISOs')
and options which do not qualify as ISOs ('Options'). Options granted under the
Stock Plan (other than the Conversion Options) may be accompanied by stock
appreciation rights ('SARs'). The Stock Plan provides that Options generally are
granted with an exercise price equal to 100% of the fair market value of the
Class A Common Stock on the date of grant. The Stock Plan also provides for the
grant of restricted stock awards, which may be subject to such restrictions as
the Committee in its sole discretion may deem appropriate; such restrictions may
include (without limitation) achievement of certain performance goals relating
to the Company's return on assets, return on equity or earnings per share.
Upon the exercise of any Option, the purchase price must be fully paid.
Such purchase price may be paid in cash (including without limitation cash
borrowed from the Company), by delivery of Class A Common Stock equal in market
value to the exercise price, a combination thereof or, in the sole discretion of
the Committee, through a cashless exercise procedure. The Stock Plan provides
that the Company has the right to require a participant to satisfy the tax
withholding requirements arising with respect to awards granted thereunder. Such
obligation may be satisfied by a cash payment, by authorizing the Company to
withhold from the shares of Class A Common Stock or cash otherwise payable a
number of shares or cash, as applicable, equal to such obligation, or delivery
of Class A Common Stock equal in market value to such obligation.
In the event of a Change in Control of the Company (as defined in the Stock
Plan), all Options under the Stock Plan will become immediately exercisable in
full and all restrictions with respect to restricted stock awards shall lapse.
The Company intends to file a registration statement on Form S-8 to
register shares of Class A Common Stock reserved or to be available for issuance
under the Stock Plan.
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CERTAIN TRANSACTIONS
THE REORGANIZATION
The Company is currently a wholly owned subsidiary of Teligent, L.L.C.
Immediately prior to the consummation of the Offerings, Teligent L.L.C. will
merge with and into the Company with the Company surviving the merger. The
Company was organized in September 1997 for the purpose of succeeding to the
business of Teligent, L.L.C. The Company has not conducted, and prior to the
Reorganization will not conduct, any business other than in connection with the
Offerings and the other transactions described herein. In connection with the
Reorganization, the Company's Certificate of Incorporation and By-laws will be
amended in their entirety. See 'Description of Capital Stock' for a description
of the Certificate of Incorporation and By-laws of the Company that will be in
effect at the time of the consummation of the Offerings.
As a result of the Reorganization, all of Teligent, L.L.C.'s member
interests will be converted into and become shares of Common Stock of the
Company, as follows: (i) the interest of MSI will be converted into shares of
Series B-1 Common Stock; (ii) the interest of Telcom-DTS, L.L.C., an affiliate
of Telcom Ventures which is expected, at or prior to the Second Closing, to hold
the member interest in Teligent, L.L.C. currently held by DSC (the 'Telcom
Stockholder'), will be converted into shares of Series B-2 Common Stock; (iii)
the interest of NTT (or an affiliate thereof) will be converted into shares of
Series B-3 Common Stock (defined below); and (iv) the interest of the FirstMark
Sole Stockholder will be converted into shares of Class A Common Stock.
THE ADDITIONAL SPONSOR EQUITY CONTRIBUTIONS
Prior to consummation of the Offerings, the existing members of Teligent,
L.L.C. will make a capital contribution to Teligent, L.L.C. in the aggregate
amount of $60 million. In addition, at or prior to the consummation of the
Offerings, Associated intends to make the ACLA Contribution.
THE STRATEGIC EQUITY INVESTMENT
NTT Purchase Agreement. The Company and NTT entered into the NTT Purchase
Agreement on September 30, 1997 providing for NTT to make the Strategic Equity
Investment. The NTT Purchase Agreement provides for the Strategic Equity
Investment to close in two stages. At the First Closing, NTT will purchase for
$40 million a 5% member interest in Teligent, L.L.C. (calculated as of the date
of the NTT Purchase Agreement after giving pro forma effect to the FirstMark
Acquisition and the Additional Sponsor Equity Contributions). The First Closing
is subject to the satisfaction or waiver of certain conditions, including (i)
the consummation of the Additional Sponsor Cash Contributions; (ii) the
consummation of the transfer by MSI and DSC of their fixed wireless licenses to
Teligent, L.L.C.; (iii) NTT having filed notification of its investment in the
Company with the Japanese Ministry of Finance (the 'MOF') and the waiting period
with respect thereto having expired without MOF objecting to the Strategic
Equity Investment; (iv) the obtaining of all necessary consents and approvals
from governmental authorities, including the FCC; and (vi) Teligent, L.L.C.
having entered into the Technical Services Agreement (described below) with NTT
for NTT to provide assistance to Teligent, L.L.C. on certain technical matters.
The First Closing is expected to occur at or prior to the consummation of the
Offerings.
At the Second Closing, NTT will purchase for $60 million a 7.5% equity
interest in the Company (calculated as of the date of the NTT Purchase Agreement
after giving pro forma effect to the FirstMark Acquisition and the Additional
Sponsor Cash Contributions); provided, however, that if the price per share in
the Equity Offerings is less than NTT's price per share would be in the Second
Closing, then NTT is entitled to receive an additional equity interest in the
Company such that its price per share in the Second Closing equals the price per
share in the Equity Offerings. The Second Closing is subject to the satisfaction
or waiver of certain conditions, including the termination or expiration of the
applicable waiting period, including any extension thereof, under the HSR Act.
The NTT Purchase Agreement provides that the Second Closing will occur upon
consummation of the Equity Offerings.
The NTT Purchase Agreement may be terminated at any time prior to the First
Closing (i) by mutual consent of NTT and the Company; (ii) by either the Company
or NTT if the First Closing shall not have occurred by December 31, 1997
(subject to extension to March 31, 1998 if the failure to consummate is due to a
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governmental intervention or the failure to obtain a necessary governmental
consent, so long as the failure to consummate by December 31, 1997 is not a
result of the terminating party's failure to perform its obligations or breach
of its representations and warranties under the NTT Purchase Agreement and (iii)
by either the Company or NTT if any court or governmental agency of competent
jurisdiction shall have issued an order, decree or ruling or taken other action
restricting, enjoining or otherwise prohibiting the Strategic Equity Investment
and such order, decree or ruling shall have become final and unappealable. The
NTT Purchase Agreement may be terminated at any time after the First Closing and
prior to the Second Closing (i) by NTT within thirty days after the second year
anniversary of the First Closing; (ii) by either NTT or the Company within
thirty days after the third year anniversary of the First Closing; (iii) by
mutual consent of NTT and the Company; and (iv) by either the Company or NTT if
any court or governmental agency of competent jurisdiction shall have issued an
order, decree or ruling or taken other action restricting, enjoining or
otherwise prohibiting the Strategic Equity Investment and such order, decree or
ruling shall have become final and unappealable. If the Purchase Agreement is
terminated as provided in the previous two sentences, then the maximum liability
of a party for breaches of its representations and warranties in the NTT
Purchase Agreement is $500,000.
It is anticipated that concurrently with the consummation of the Equity
Offerings, the Company will enter into a Stockholders Agreement with NTT (or an
affiliate thereof which holds Common Stock upon such consummation) and some or
all of the other stockholders of the Company immediately prior to consummation
of the Equity Offerings providing for certain rights and obligations with
respect to the ownership and governance of the Company. See 'Certain
Relationships and Related Transactions--Stockholders Agreement.' The
Stockholders Agreement will also provide for certain rights and obligations of
the Company and NTT relating to the Company's compliance with the foreign
ownership restrictions under the Communications Act of 1934 and the rules,
regulations and decisions of the FCC. See 'Description of Capital
Stock--Restriction on Foreign Ownership'.
Registration Rights Agreement. Teligent, L.L.C. and NTT have entered into
a Registration Rights Agreement dated as of September 30, 1997 (the
'Registration Rights Agreement'). The Registration Rights Agreement provides
that NTT may demand registration (each, a 'Demand Registration') of the shares
of Common Stock received by NTT pursuant to the Reorganization ('NTT Registrable
Securities') at any time after the six month anniversary after the consummation
of the Equity Offerings (subject to a maximum of three Demand Registrations in
total), provided such demand is (i) made by holders of at least 20% of the
outstanding NTT Registrable Securities or (ii) with respect to NTT Registrable
Securities the aggregate offering price of which, net of underwriting discounts
and commissions, is not less than $20 million. Upon such request, the Company is
required to use its reasonable best efforts to register under the Securities
Act, subject to certain holdback periods, NTT Registrable Securities held by the
requesting holders and any other holders who desire to sell Common Stock
pursuant to such Demand Registration. In addition, the Registration Rights
Agreement provides that, subject to certain limitations, holders of NTT
Registrable Securities may participate in any registration of Common Stock by
the Company under the Securities Act (other than on Form S-4 or S-8 under the
Securities Act) (each, a 'Piggyback Registration'). Holders of NTT Registrable
Securities also have the right, subject to certain holdback periods and other
limitations, after the six month anniversary of the consummation of the Equity
Offerings to demand that the Company effect a registration on Form S-3 under the
Securities Act, if available, (a 'Form S-3 Registration') of all or part of
their NTT Registrable Securities, so long as the anticipated aggregate offering
price for such NTT Registrable Securities is in excess of $10 million.
Under the Registration Rights Agreement, the Company is required to pay all
registration expenses (other than underwriting discounts and commissions and
fees and disbursements of counsel of the selling stockholders) with respect to
all required Demand Registrations and Form S-3 Registrations and up to three
Piggyback Registrations. Under the Registration Rights Agreement, the Company is
required to indemnify the selling stockholders, and the Company may request as a
condition to effecting any registration indemnification from the selling
stockholders, against certain liabilities in respect of any registration
statement covered by the agreement.
NTT is permitted under the Registration Rights Agreement to assign its
rights thereunder to any person to which it transfers no less than 20% of the
NTT Registrable Securities. The Registration Rights Agreement terminates with
respect to particular NTT Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities have been disposed of
under such registration statement, (ii) such securities have been transferred
pursuant to Rule 144,
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(iii) such securities have been otherwise transferred or disposed of, and new
certificates therefor not bearing a legend restricting further transfer shall
have been delivered by the Company, and subsequent transfer or disposition of
them does not require registration or qualification under the Securities Act or
any similar state law then in force, or (iv) such securities have ceased to be
outstanding.
Technical Services Agreement. Pursuant to the terms of the NTT Purchase
Agreement, as a condition to the First Closing the Company is required to enter
into a technical services agreement (the 'TSA') with NTT, under which NTT shall
provide certain technical services to the Company relating to network design and
implementation. The TSA shall commence on the later of December 1, 1997 and the
date of the First Closing, and shall terminate on the fifth anniversary of the
commencement date (the 'Term'). Thereafter, the TSA shall renew automatically
from year to year until terminated by either party upon notice given, if at all,
within sixty days of the then applicable termination date. During the first two
years of the Term (the 'Initial Phase'), the Company shall pay to NTT a fee in
the amount of $4 million per year. The fees payable by the Company to NTT during
each of the remaining three years of the Term shall be negotiated annually based
upon the scope of technical services to be provided under an annual work plan
(the 'Work Plan') to be prepared by the Company and NTT. The parties have the
right to terminate the TSA in the event they cannot agree on any annual Work
Plan or the fees payable therefor.
THE FIRSTMARK ACQUISITION
In October 1997, pursuant to the FirstMark Acquisition, the Company
acquired all of the stock of FirstMark for an aggregate purchase price of
approximately $10.5 million in cash and a 5% member interest in Teligent, L.L.C.
FirstMark holds licenses for fixed wireless channels in the Los Angeles and San
Francisco, CA and New York, NY markets.
VENDOR FINANCING
Teligent has the ability to source key network components from a number of
equipment vendors. Unlike cellular and PCS networks, fixed wireless networks can
be constructed using equipment from different manufacturers because customers do
not roam between base stations. Teligent believes that the flexibility provided
by vendor diversity will assist in ensuring an adequate and prompt supply of
equipment at attractive prices.
The Company is considering financing proposals from vendors. Prior to the
consummation of the Offerings, the Company expects to receive commitments with
respect to an aggregate amount in excess of $500 million of Vendor Financing
from one or more vendors. The Company expects that the closing and funding of
any such commitments will be subject to certain conditions, as described below.
The proceeds of such facilities will be used to finance both the purchase of
equipment and services as well as general working capital.
The Company expects that borrowings under the Vendor Financing arrangements
will be secured by a perfected first priority lien (the 'Shared Lien') on all
existing and future assets of the Company and its subsidiaries. The Company
expects that the Shared Lien will be available to secure equally and ratably any
subsequent bank credit facility, Vendor Financing and certain other indebtedness
of Teligent for borrowed money and any refinancing of the foregoing
(collectively, the 'Secured Debt'). The Company anticipates that the
indebtedness outstanding pursuant to the Vendor Financing will be
unconditionally guaranteed by substantially all of the Company's subsidiaries.
The Company expects that it will be able to draw under the Vendor Financing
over a multi-year period following closing thereof. The Company anticipates that
under the Vendor Financing, subject to certain conditions, it will be required
to make mandatory prepayments of 100% of the net cash proceeds of any sale or
disposition of any material assets that are not reinvested in the Company's
business payable on a pro-rata basis to all lenders of the Secured Debt.
The Company expects that it will be able to elect that all or a portion of
the borrowings under the Vendor Financing bear interest at a rate per annum
equal to the Eurodollar rate (LIBOR) plus an applicable margin and that the
Vendor Financing will include various arrangements, structuring, commitment and
ongoing fees customary for such facilities.
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The Company anticipates that the Vendor Financing may require, as a
condition to funding, the commitment of additional sources of capital. The
Company expects that consummation of the Offerings, the consummation of the
Additional Sponsor Equity Contributions and consummation of the Strategic Equity
Investment will satisfy any such conditions. Availability of the Vendor
Financing will be subject to the negotiation and execution of definitive
documentation with respect thereto.
The Company expects that the Vendor Financing will contain a number of
significant covenants that, among other things, limit the ability of the Company
to incur additional indebtedness (beyond specified amounts), create liens and
other encumbrances, make guarantee obligations, make certain payments and
investments, sell or otherwise dispose of assets, make capital expenditures,
make distributions to stockholders and repurchases of equity, make acquisitions,
investments, loans and advances, merge or consolidate with another entity or
engage in any business other than the telecommunications business and related
businesses as well as restrictions on the ability of the Company's subsidiaries
to incur liabilities or engage in non-designated activities. In addition, the
Vendor Financing is expected to require the maintenance of certain specified
financial and operating covenants, including, without limitation, ratios of
total debt to total capitalization, total debt to EBITDA, EBITDA to interest
expense and capital expenditure limitations.
The Company expects that the Vendor Financing will contain representations,
warranties, covenants, conditions and events of default customary for such
senior credit facilities of similar size and nature. In addition, the Vendor
Financing will contain change of control provisions regarding the ownership of
the Company.
In addition to the conditions described above, availability of the Vendor
Financing will be subject to the negotiation and execution of definitive
documentation with respect thereto.
EQUITY OFFERINGS
Concurrent with the Notes Offering, the Company is offering shares of
Class A Common Stock in the Equity Offerings by separate prospectuses. The net
proceeds to the Company in the Equity Offerings are estimated to be $
(assuming an initial public offering price of $ per share, the midpoint of
the initial public offering price range in the Equity Offerings, and after
deducting estimated underwriting discounts and offering expenses).
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MEMBERS AGREEMENT
On September 29, 1997, the Company, MSI, Associated and DSC entered into an
agreement (the 'Members Agreement') whereby the Company granted to DSC certain
registration rights substantially similar to those granted to NTT (see 'Certain
Transactions--Strategic Equity Investment--Registration Rights Agreement') with
respect to Common Stock held by DSC at the time of consummation of the Equity
Offerings. In addition, Associated and MSI agreed with DSC that upon a 'Change
in Control' (as defined in the Members Agreement) of Associated or MSI, (i)
Associated will immediately convert, and cause its controlled affiliates to
immediately convert, all of the Series B-1 Common Stock owned by them into Class
A Common Stock such that, under the Company's Certificate of Incorporation as
then in effect, Associated, alone or together with its controlled affiliates,
will no longer have the right to elect a majority of the Company's Board, (ii)
MSI will cause its designees on the Company's Board to cause the Board to
convene a meeting of the Company's stockholders and (iii) promptly after taking
the action described in (ii) immediately above, MSI will cause such number of
its designees on the Company's Board to resign so that such designees no longer
constitute a majority thereof. Under the Members Agreement, in order for a
'Change in Control' of Associated or MSI to occur, in addition to certain
changes in equity ownership or board composition of Associated or MSI as set
forth in the Members Agreement, the Telcom Stockholder and its affiliates must
own shares of Series B-2 Common Stock representing at least 10% of all then
outstanding shares of Common Stock and must continue to be controlled by
Rajendra Singh, Neera Singh, any estates or trusts of which such persons are
executors, trustees or beneficiaries and any entities controlled by such
persons. In the Members Agreement, each of Associated and MSI also agreed with
DSC that it will not transfer control of any entity which holds Class B Common
Stock of the Company to any third party (other than an affiliate of Associated,
provided such affiliate agrees to be bound by the provisions of the Members
Agreement applicable to MSI) without the consent of DSC unless, concurrentlly
with or prior to such transfer, AGI and MSI take the actions described in
clauses (i) through (iii) above.
STOCKHOLDERS AGREEMENT
As contemplated by the Amended and Restated Limited Liability Company
Agreement of Teligent, L.L.C. which will be entered into at the First Closing
under the NTT Purchase Agreement (the 'Amended LLCA'), it is anticipated that
concurrently with the consummation of the Equity Offerings, the Company will
enter into a Stockholders Agreement (the 'Stockholders Agreement') with NTT (or
an affiliate thereof) and some or all of the other stockholders of the Company
immediately prior to the consummation of the Equity Offerings (the 'Pre-IPO
Stockholders'). Pursuant to the Stockholders Agreement, NTT and the Telcom
Stockholder will continue to have certain rights and obligations with respect to
their ownership interest in, and the governance of, the Company, as were
applicable under the Amended LLCA, including, so long as the Telcom Stockholder
and NTT, respectively, have the right to elect a member of the Company's Board,
the right of such respective directors to approve (i) any amendment to the
Company's Certificate of Incorporation which materially and adversely affects
the rights of NTT or the Telcom Stockholder, respectively, in a discriminatory
manner vis-a-vis one or more of the other Pre-IPO Stockholders, (ii) any
transaction between the Company and any Pre-IPO Stockholder or its affiliates
involving an amount in excess of $150,000, except as contemplated by the Amended
LLC Agreement, the NTT Purchase Agreement and the Technical Services Agreement,
(iii) the appointment of any independent accountants, other than a nationally
recognized accounting firm, to serve as the Company's auditors and (iv) any
action by the Company seeking protection under any bankruptcy or insolvency law.
The Stockholders Agreement will also provide that so long as the Telcom
Stockholder and NTT, respectively, have the right to elect a member of the
Company's Board, the Company will afford to representatives of the Telcom
Stockholder and NTT, respectively, certain business consultation rights,
including with respect to any action (each a 'Consultation Event') which (i)
materially changes the fundamental character of the Company's business, (ii)
replaces the Company's Chief Executive Officer or Chief Operating Officer, (iii)
involves the sale or pledge by the Company of a substantial portion of its
assets or any acquisition, divestiture or merger of the Company with another
entity or any joint venture outside the ordinary course of the Company's
business or (iv) involves an investment in the Company (other than through
public market purchases) by any telecommunications carrier. With respect to any
Consultation Event, the Company will be required to provide reasonable advance
notice to NTT and the Telcom Stockholder and, in the case of the Consultation
Event referred to in clause (iv) of the immediately preceding
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sentence, to give due consideration to their objections. Under the Stockholders
Agreement, so long as NTT and the Telcom Stockholder, respectively, have the
right to elect a member of the Company's Board, (i) such respective members of
the Company's Board or their designated representative will have visitation
rights at meetings of all significant internal operating committees and of each
committee of the Board which is established of which such respective Board
members are not members, and (ii) such respective members of the Company's Board
will be members of any technical, compensation or audit committees or any other
committee of the Board authorized to negotiate any Consultation Event. Pursuant
to the Stockholders Agreement, so long as NTT is entitled to elect a member of
the Company's Board, NTT will have the right, at its expense, to secund to the
Company employees of NTT or its affiliates (not exceeding a total of five such
employees in any three month period) to observe the Company's operations,
including its technical and marketing activities (such secunded employees being
referred to as the 'Secunded Employees'). NTT's right to elect a director to the
Company's Board will terminate (as a result of the automatic conversion of all
Series B-3 Common Stock into Class A Common Stock), thereby terminating NTT's
rights under the Stockholders Agreement as described above if at any time the
number of issued and outstanding shares of Series B-3 Common Stock is less than
the Series B-3 Threshold Amount (as defined under 'Description of Capital
Stock--Common Stock') or if NTT or any of its affiliates engage in certain
activities which are competitive with the Company. The Telcom Stockholder's
right to elect a director to the Company's Board will terminate (as a result of
the automatic conversion of all Series B-2 Common Stock into Class A Common
Stock), thereby terminating the Telcom Stockholder's rights under the
Stockholders Agreement as described above, if at any time the number of issued
and outstanding shares of Series B-2 Common Stock is less than 10% of the
aggregate number of issued and outstanding shares of Common Stock (exclusive of
shares held in the Company's treasury). See 'Description of Capital
Stock--Common Stock.'
To enable NTT to benefit from secunding the Secunded Employees, in the
Stockholders Agreement the Company will grant to NTT and its affiliates a
non-exclusive, perpetual, irrevocable, royalty free right and license to use,
solely in the business of NTT and its affiliates outside the United States, such
product, service, marketing, operational and technical information of the
Company as shall be learned or obtained by the Seconded Employees. Such right
and license will not include any specific patent, copyright, trademark,
tradename or similar property rights of the Company and will not be assignable
to any third party.
The Stockholders Agreement will also provide that until the second
anniversary of the First Closing under the NTT Purchase Agreement, each Pre-IPO
Stockholder which is a party to the Stockholders Agreement will hold at least
one-half of the shares of Common Stock held by such Pre-IPO Stockholder as of
the Second Closing under the NTT Purchase Agreement, except that such
requirement will lapse automatically as to NTT and the Telcom Stockholder,
respectively, if a Consultation Event occurs even though NTT or the Telcom
Stockholder, respectively, has objected thereto.
EMPLOYMENT AGREEMENT
Pursuant to the Mandl Employment Agreement, Mr. Mandl is currently indebted
to MSI and DSC in the form of a $15 million recourse loan, (which shall be
automatically forgiven (i) twenty percent in year one and year two and sixty
percent in year five, (ii) upon the termination of his employment by him for
good reason or by the Company without Cause or (iii) upon his death or
disability). See 'Management--Mandl Employment Agreement.'
LOANS TO OTHER OFFICERS
Each of Messrs. Pickle, Harris, Morris and Bell is obligated to the Company
in the form of a loan in the aggregate principal amount of $1 million, $600,000,
$1 million and $1 million, respectively.
FIRSTMARK AGREEMENT
Pursuant to the FirstMark Agreement, the Company has granted the FirstMark
Sole Stockholder certain registration rights with respect to the shares of Class
A Common Stock into which the Firstmark Sole Stockholder's member interest in
Teligent, L.L.C. will be converted pursuant to the Reorganization (the
'FirstMark Sole Stockholder Registrable Securities'). Such registration rights
include 'piggyback' rights substantially similar to those granted to Mr. Mandl
pursuant to the Mandl Employment Agreement. Such 'piggy-
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back' rights are subject to a customary underwriter's 'cutback' whereby all
shares of Common Stock to be sold by the Company will first be included in the
applicable registration statement and thereafter all other shares requested to
be included in such registration statement will be subject to exclusion on a pro
rata basis. The FirstMark Sole Stockholder will have no right to sell any
FirstMark Sole Stockholder Registrable Securities in the Equity Offerings.
Commencing on the first anniversary of the consummation of the Equity Offerings,
the FirstMark Sole Stockholder is entitled to one demand registration under the
Securities Act in respect of FirstMark Sole Stockholder Registrable Securities,
provided such demand registration right shall apply only if the amount of
FirstMark Sole Stockholder Registrable Securities to be registered constitutes
at least 50% of the greatest amount of FirstMark Sole Stockholder Registrable
Securities owned by the FirstMark Sole Stockholder at any time and has an
anticipated aggregate offering price (before underwriters' fees, commissions and
discounts) of at least $10,000,000. In the FirstMark Agreement, the FirstMark
Sole Stockholder has agreed not to engage, directly or indirectly, in any
business which provides or proposes to provide in the United States digital
electronic message services in the 18 GHz frequency band or such other frequency
band to which digital electronic message services are relocated by the FCC, or
which provides fixed wireless voice, video or data transmission services in any
frequency band in Canada.
ASSOCIATED
Associated owns, operates and invests in a variety of communications
activities and enterprises that may be in competition with the Company. At or
prior to the consummation of the Offerings, Associated intends to effect the
ACLA Contribution. There can be no assurance that Associated's current or future
business activities will not be in competition with the Company's business. In
addition, Associated provides certain general and administrative services to
Teligent for a monthly fee of approximately $150,000. The Company expects to
enter into an agreement with Associated after the Offerings for Associated to
continue to provide such services for the same fee.
On March 5, 1996, the Company entered into an Administration and Management
Services Agreement (the 'Management Agreements') with each of MSI and DSC to
provide administrative and management services in connection with the
commercialization of MSI's and DSC's fixed wireless licenses. The Company's
services to MSI and DSC included, among other things, network design, purchase
of equipment, deployment and maintenance of network infrastructure, securing of
site leases and marketing of services to potential customers. Upon consummation
of the License Transactions, the Company and MSI and DSC intend to terminate the
Management Agreements.
NTT
The Company intends to enter into the Technical Services Agreement with
NTT. See 'Certain Transactions--The Strategic Equity Investment--Technical
Services Agreement.'
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of August 30, 1997,
on a pro forma basis after giving effect to the Transactions, with respect to
the beneficial ownership of each class of the Company's Common Stock, before and
after giving effect to the Equity Offerings, by (i) each person known by the
Company to own 5% of any class of the Company's Common Stock, (ii) each director
of the Company, (iii) the Named Executive Officer and (iv) all directors and
executive officers as a group. The address for directors and executive officers
of the Company is Teligent, Inc., 8065 Leesburg Pike, Vienna, VA 22182.
<TABLE>
<CAPTION>
PERCENTAGE OF
CLASS A COMMON STOCK CLASS B COMMON STOCK VOTING
----------------------------------- ----------------------------------- POWER
OUTSTANDING(9)
BEFORE OFFERING AFTER OFFERING BEFORE OFFERING AFTER OFFERING -------------------
NAME AND ADDRESS OF BENEFICIAL ---------------- ---------------- ---------------- ---------------- BEFORE AFTER
OWNER NUMBER(8) %(9) NUMBER(8) %(9) NUMBER(8) %(9) NUMBER(8) %(9) OFFERING OFFERING
- ---------------------------------- --------- ---- --------- ---- --------- ---- --------- ---- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
The Associated Group, Inc.(1) ....
200 Gateway Towers
Pittsburgh, PA 15222
Telcom Ventures, L.L.C.(2) .......
211 N. Union Street
Suite 300
Alexandria, VA 22201
Lynn Forester ....................
c/o FirstMark Holdings
527 Madison Avenue
New York, NY 10022
Nippon Telegraph and Telephone
Corporation ....................
Tokyo Opera City Tower
20-2 Nishi-Shinjuku 3-chome
Shinjuku-ku, Tokyo 163-14
Japan
Alex J. Mandl(3)..................
Myles P. Berkman..................
David J. Berkman(4)...............
William H. Berkman(5).............
Rajendra Singh(6).................
All directors and executive
officers as a group (
persons)(7)
</TABLE>
- ------------------
* Less than 1%.
(1) All shares shown are held of record by Microwave Services Inc., a wholly
owned subsidiary of The Associated Group, Inc.
(2) All shares shown are held of record by Digital Services Corporation., a
corporation controlled by Telcom Ventures L.L.C.
(3) Includes shares of Class A Common Stock subject to currently exercisable
Conversion Options.
(4) Includes shares of Class A Common Stock subject to currently
exercisable Conversion Options.
(5) Includes shares of Class A Common Stock subject to currently
exercisable Conversion Options.
(6) Includes shares of Class A Common Stock subject to currently exercisable
Conversion Options.
(7) Includes shares of Class A Common Stock subject to currently exercisable
Conversion Options held by all directors and executive officers as a group.
(8) Unless otherwise indicated, each beneficial owner has both sole voting and
sole investment power with respect to the shares beneficially owned by such
person, entity or group. The number of shares shown as beneficially owned
include all options, warrants and convertible securities held by such
person, entity or group which are exercisable or convertible within 60 days.
(9) The percentages of beneficial ownership as to each person, entity or group
assume the exercise or conversion of all options, warrants and convertible
securities held by such person, entity or group which are exercisable or
convertible within 60 days, but not the exercise or conversion of options,
warrants and convertible securities held by others shown in the table.
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DESCRIPTION OF THE NOTES
The Senior Notes will be issued under an Indenture (the 'Senior Notes
Indenture') to be dated as of , 1997 between the Company and
, as trustee (in such capacity, the 'Senior Notes
Trustee'). The Senior Discount Notes will be issued under an Indenture (the
'Senior Discount Notes Indenture' and, together with the Senior Notes Indenture,
the 'Indentures') to be dated as of , 1997 between the Company
and , as trustee (in such capacity, the 'Senior Discount
Notes Trustee' and, together with the Senior Notes Trustee, the 'Trustee'). The
Senior Notes and the Senior Discount Notes are referred to together herein as
the 'Notes'. Copies of the Indentures are filed as exhibits to the Registration
Statement of which this Prospectus is a part.
The terms of the Notes include those stated in the Indentures and those
made a part of the Indentures by reference to the Trust Indenture Act of 1939,
as amended (the 'Trust Indenture Act'). The Notes are subject to all such terms,
and Holders of the Notes are referred to the Indentures and the Trust Indenture
Act for a statement of those terms. The statements and definitions of terms
under this caption relating to the Notes and the Indentures are summaries and do
not purport to be complete. Such summaries make use of certain terms defined in
the Indentures and are qualified in their entirety by express reference to the
Indentures. Certain terms used herein are defined below under '--Certain
Definitions'. For purposes of the description of the Notes, the term 'Company'
refers to Teligent, Inc. and does not include its subsidiaries except for
purposes of financial data determined on a consolidated basis.
GENERAL
The Senior Notes will be senior unsecured (except for the pledge by the
Company of the Pledged Securities) obligations of the Company limited in
aggregate principal amount to $ million and will mature on ,
2007. The Senior Notes will rank pari passu in right of payment with all other
existing and future senior unsecured indebtedness of the Company. The Senior
Notes will be effectively subordinated to all liabilities of each subsidiary of
the Company to its respective creditors.
Interest on the Senior Notes will accrue at a rate of % per annum and
will be payable in cash semi-annually on and ,
commencing on , 1998 to Holders of record on the immediately
preceding and , respectively. Interest will be
computed on the basis of a 360-day year of twelve 30-day months.
The Senior Discount Notes will be senior unsecured obligations of the
Company limited in aggregate principal amount to $ million and will mature
on , 2007. The Senior Discount Notes will rank pari passu in right
of payment with all other existing and future senior unsecured indebtedness of
the Company. The Senior Discount Notes will be effectively subordinated to all
liabilities of each subsidiary of the Company to its respective creditors.
The Senior Discount Notes will be issued at a discount to their aggregate
principal amount at maturity to generate gross proceeds to the Company of
approximately $ million. The Senior Discount Notes will accrete at a rate of
% compounded semi-annually, to an aggregate principal amount of $ million
by , 2002. Cash interest will not accrue on the Senior Discount
Notes prior to , 2002. Thereafter, interest on the Senior
Discount Notes will accrue at a rate of % per annum and will be payable in
cash semi-annually on and , commencing on
, 2003 to Holders of record on the immediately preceding
and , respectively. Interest will be computed on
the basis of a 360-day year of twelve 30-day months.
Principal of, premium, if any, and interest on the Notes will be payable at
the office or agency of the Company in The City of New York maintained for such
purposes (which, unless otherwise designated by the Company, will be the office
of the Trustee), but, at the option of the Company, interest may be paid by
check mailed to the registered Holders at their registered addresses. The Notes
will be issued without coupons and in fully registered form only, in
denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
Optional Redemption of Senior Notes. Except as set forth below, the Senior
Notes will not be redeemable at the option of the Company prior to
, 2002. On or after , 2002, the Senior Notes will be redeemable
at the option of the Company, in whole at any time or in part from time to time,
at the
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following prices (expressed as percentages of the principal amount thereof), if
redeemed during the twelve months beginning of the years indicated
below, in each case together with interest accrued to the redemption date
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------------ ----------
<S> <C>
2002.............................................................. %
2003.............................................................. %
2004.............................................................. %
2005 and thereafter............................................... 100%
</TABLE>
In addition, at any time on or prior to , 2000, the Company
may redeem up to 35% of the originally issued principal amount of Senior Notes
at a redemption price of % of the principal amount of the Senior Notes so
redeemed, plus accrued and unpaid interest thereon, if any, to the redemption
with the net cash proceeds of (a) one or more Public Equity Offerings of Common
Stock of the Company (other than the Equity Offerings) or (b) a sale or series
of related sales by the Company of its Common Stock to one or more Strategic
Equity Investors resulting in gross proceeds of not less than $65 million (other
than the Transactions and other than in connection with a Change of Control);
provided that at least 65% of the originally issued principal amount of Senior
Notes remains outstanding immediately after giving effect to such redemption.
Optional Redemption of Senior Discount Notes. Except as set forth below,
the Senior Discount Notes will not be redeemable at the option of the Company
prior to , 2002. On or after , 2002, the Senior
Discount Notes will be redeemable at the option of the Company, in whole at any
time or in part from time to time, at the following prices (expressed as
percentages of the principal amount thereof at Stated Maturity), if redeemed
during the twelve months beginning of the years indicated below,
in each case together with interest accrued to the redemption date (subject to
the right of Holders of record on the relevant record date to receive interest
due on the relevant interest payment date):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------------ ----------
<S> <C>
2002.............................................................. %
2003.............................................................. %
2004.............................................................. %
2005 and thereafter............................................... 100%
</TABLE>
In addition, at any time on or prior to , 2000, the Company
may redeem up to 35% of the originally issued principal amount at Stated
Maturity of Senior Discount Notes at a redemption price of % of the Accreted
Value at the redemption date of the Senior Discount Notes so redeemed with the
net cash proceeds of (a) one or more Public Equity Offerings of Common Stock of
the Company (other than the Equity Offerings) or (b) a sale or series of related
sales by the Company of its Common Stock to one or more Strategic Equity
Investors resulting in gross proceeds of not less than $65 million (other than
the Transactions and other than in connection with a Change of Control);
provided that at least 65% of the originally issued principal amount at Stated
Maturity of Senior Discount Notes remains outstanding immediately after giving
effect to such redemption.
A 'Public Equity Offering' means an underwritten primary public offering of
Common Stock of the Company pursuant to an effective registration statement
filed under the Securities Act; provided, that the first public equity offering
pursuant to which the Company redeems Notes pursuant to either the second
paragraph under '--Optional Redemption of Senior Notes' or the second paragraph
under '--Optional Redemption of Senior Discount Notes' shall have resulted in
gross proceeds to the Company of not less than $65 million. Such a primary
offering may be undertaken either independently or in conjunction with any
secondary offering of securities of the Company. A 'Strategic Equity Investor'
means any Person with, a controlled Affiliate of any Person with, or a
controlling Affiliate of any Person with, in each case, an equity market
capitalization or annual revenues of at least $1.0 billion that owns and
operates businesses in the telecommunications or related industries; provided
that the Permitted Holders, NTT and their respective Affiliates shall be
excluded from this definition.
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SELECTION AND NOTICE OF REDEMPTION
If less than all of the Senior Notes or Senior Discount Notes are to be
redeemed, the Trustee will select the particular Notes or portions thereof to be
redeemed in compliance with the requirements of the principal national
securities exchange, if any, on which the Notes are listed or, if the Notes are
not listed on a securities exchange, pro rata, by lot or by any other method
that the Trustee shall deem fair and appropriate. Notice of redemption will be
mailed at least 30 days but no more than 60 days before the redemption date to
each Holder of Notes to be redeemed at its registered address. On or after the
redemption date, the Notes shall cease to accrue interest, if the Company makes
the redemption payment.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder will have the right
to require the Company to repurchase all or any part of such Holder's Notes (the
'Change of Control Offer') at a purchase price (the 'Purchase Price') in cash
equal to 101% of the principal amount thereof (in the case of the Senior Notes)
or 101% of the Accreted Value thereof (in the case of the Senior Discount Notes)
on any Change of Control Payment Date (as defined below) occurring prior to
, 2002, plus any accrued and unpaid cash interest not otherwise
included in the Accreted Value to such Change of Control Payment Date, or 101%
of the principal amount thereof at Stated Maturity on any Change of Control
Payment Date occurring on or after , 2002, plus accrued and unpaid
interest, if any, to such Change of Control Payment Date, in accordance with the
procedures set forth in the Indentures.
Within 30 days following the Change of Control, the Company will mail a
notice to each Holder and to the Trustee stating, among other things, (i) that a
Change of Control has occurred and a Change of Control Offer is being made as
described in this provision, and that, although Holders are not required to
tender their Notes, all Notes that are timely tendered will be accepted for
payment; (ii) the circumstances and relevant facts regarding the Change of
Control; (iii) the Purchase Price and the date of purchase, which will be no
earlier than 30 days and no later than 60 days after the date such notice is
mailed (the 'Change of Control Payment Date'); (iv) that, unless the Company
defaults in making such purchases, any Note accepted for payment pursuant to the
Change of Control Offer will cease to accrete or accrue interest after the
Change of Control Payment Date; and (v) the instructions and any other
information necessary to enable Holders to tender their Notes and have such
Notes purchased pursuant to this covenant. The Company will comply with any
applicable tender offer rules (including, without limitation, any applicable
requirements of Rule 14e-1 under the Exchange Act) in connection with any Change
of Control Offer.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered under the Change of Control Offer and not
withdrawn.
The existence of a Holder's right to require, subject to certain
conditions, the Company to repurchase its Notes upon a Change of Control may
deter a third party from acquiring the Company in a transaction that constitutes
a Change of Control. If a Change of Control Offer is made, there can be no
assurance that the Company will have sufficient funds to pay the Purchase Price
for all of the Notes that might be delivered by Holders seeking to accept the
Change of Control Offer. In addition, instruments governing other Debt of the
Company may prohibit the Company from purchasing any Notes prior to their Stated
Maturity, including pursuant to a Change of Control Offer. In the event that a
Change of Control Offer occurs at a time when the Company does not have
available funds sufficient to pay the Purchase Price, or at a time when the
Company is prohibited from purchasing the Notes (and the Company is unable
either to obtain the consent of such holders of other Debt or to repay such
other Debt), an Event of Default would occur under the applicable Indenture. In
addition, one of the events that constitutes a Change of Control under the
Indentures is a sale, conveyance, transfer or lease of all or substantially all
of the property of the Company. The Indentures will be governed by New York law,
and there is no established quantitative definition under New York law of
'substantially all' of the assets of a corporation. Accordingly, if the Company
were to engage in a transaction in which it disposed of less than all of its
assets, a question of interpretation could arise as to whether such disposition
was of 'substantially all' of its assets and whether the Company was required to
make a Change of Control Offer.
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CERTAIN COVENANTS
The Indentures contain certain covenants, including covenants with respect
to the following: (i) a limitation on debt, (ii) a limitation on debt and
preferred stock of certain subsidiaries, (iii) a limitation on liens, (iv) a
limitation on restricted payments, (v) a limitation on dividend and other
payment restrictions affecting certain subsidiaries, (vi) a limitation on
issuances and sales of capital stock in certain subsidiaries, (vii) a limitation
on asset sales and (viii) a limitation on transactions with affiliates.
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
The Company will not, in any transaction or series of transactions,
consolidate with or merge into any other Person (other than a merger of a
Restricted Subsidiary into the Company in which the Company is the continuing
corporation), or sell, convey, assign, transfer, lease or otherwise dispose of
all or substantially all of the Property and assets of the Company and its
Restricted Subsidiaries taken as a whole to any other Person, and the Company
will not permit any of its Restricted Subsidiaries to enter into any such
transaction or series of related transactions if such transaction or series of
related transactions, in the aggregate, would result in a sale, assignment,
transfer, lease, conveyance or other disposition of all or substantially all of
the Property and assets of the Company and its Restricted Subsidiaries, taken as
a whole, to another Person, unless:
(a) either (i) the Company shall be the continuing corporation or (ii)
the corporation (if other than the Company) formed by such consolidation or
into which the Company is merged, or the Person that acquires, by sale,
assignment, conveyance, transfer, lease or disposition, all or
substantially all of the Property and assets of the Company and its
Restricted Subsidiaries taken as a whole (such corporation or Person, the
'Surviving Entity'), shall be a corporation organized and validly existing
under the laws of the United States of America, any political subdivision
thereof or any state thereof or the District of Columbia, and shall
expressly assume, by a supplemental indenture, the due and punctual payment
of the principal of (and premium, if any) and interest on all the Notes and
the performance of the Company's covenants and obligations under the
Indentures;
(b) immediately before and after giving effect to such transaction or
series of transactions on a pro forma basis (including, without limitation,
any Debt incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), no Default or Event
of Default shall have occurred and be continuing or would result therefrom;
and
(c) immediately after giving effect to any such transaction or series
of transactions on a pro forma basis (including, without limitation, any
Debt incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), as if such
transaction or series of transactions had occurred on the first day of the
determination period, the Company (or the Surviving Entity if the Company
is not continuing) would be permitted to incur $1.00 of additional Debt
pursuant to clause (m) of the definition of 'Permitted Debt'.
Notwithstanding the foregoing, the Company may merge with an Affiliate
incorporated or organized for the sole purpose of reincorporating or
reorganizing the Company in another jurisdiction to realize tax or other
benefits provided such merger meets the requirements of clauses (a) and (b) of
the preceding paragraph.
Upon any transaction or series of transactions that are of the type
described in, and are effected in accordance with, the foregoing paragraphs, the
Surviving Entity (if other than the Company) shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indentures and the Notes with the same effect as if such Surviving Entity
had been named as the Company in the Indentures; and when a Surviving Person
duly assumes all of the obligations and covenants of the Company pursuant to the
Indentures and the Notes, except in the case of a lease, the predecessor Person
shall be relieved of all such obligations.
EVENTS OF DEFAULT
Each of the following is an 'Event of Default' under each of the
Indentures:
(a) default in the payment of any installment of interest on the
Senior Discount Notes when it becomes due and payable and the continuance
of such default for a period of 30 days, or default in the payment of any
installment of interest in a timely manner on the Senior Notes through
2000, with no grace or cure period, and thereafter the
continuance of such default for a period of 30 days;
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(b) default in the payment of the principal of (or premium, if any,
on) any Note at its Maturity, upon repurchase, acceleration, optional
redemption, required repurchase (including pursuant to a Change of Control
Offer or an Asset Sale Offer) or otherwise, or the failure to make an offer
to purchase as therein required;
(c) the Company fails to perform or comply with the provisions of the
Indentures described under 'Consolidation, Merger, Conveyance, Transfer or
Lease';
(d) default in the performance, or breach, of any covenant or warranty
of the Company in the applicable Indenture (other than a covenant or
warranty a default in whose performance or whose breach is specifically
dealt with in (a), (b) or (c) above) and continuance of such default or
breach for a period of 60 days after specified written notice thereof has
been given to the Company by the Trustee or to the Company and the Trustee
by the Holders of at least 25% of the aggregate principal amount of the
Senior Notes or Holders of at least 25% of the aggregate principal amount
at Stated Maturity of the Senior Discount Notes, as the case may be, then
outstanding;
(e) Debt of the Company or any Restricted Subsidiary of the Company is
not paid when due within the applicable grace period, if any, or is
accelerated by the holders thereof and, in either case, the principal
amount of such unpaid or accelerated Debt exceeds $10.0 million;
(f) the entry by a court of competent jurisdiction of one or more
judgments or orders against the Company or any Restricted Subsidiary of the
Company in an uninsured or unindemnified aggregate amount in excess of
$10.0 million, which remains undischarged, unwaived, unstayed, unbonded or
unsatisfied for a period of 60 consecutive days;
(g) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Company, or any Significant
Restricted Subsidiary of the Company in an involuntary case or proceeding
under U.S. bankruptcy laws, as now or hereafter constituted, or any other
applicable federal, state, or foreign bankruptcy, insolvency, or other
similar law or (ii) a decree or order adjudging the Company, or any
Significant Restricted Subsidiary of the Company a bankrupt or insolvent,
or approving as properly filed a petition seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company, or
any Significant Restricted Subsidiary of the Company under U.S. bankruptcy
laws, as now or hereafter constituted, or any other applicable federal,
state, or foreign bankruptcy, insolvency, or similar law, or appointing a
custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company, or any Significant Restricted Subsidiary
of the Company or of any substantial part of the Property or assets of the
Company or any Significant Restricted Subsidiary of the Company, or
ordering the winding up or liquidation of the affairs of the Company or any
Significant Restricted Subsidiary of the Company, and the continuance of
any such decree or order for relief or any such other decree or order
unstayed and in effect for a period of 60 consecutive days; or
(h) (i) the commencement by the Company or any Significant Restricted
Subsidiary of the Company of a voluntary case or proceeding under U.S.
bankruptcy laws, as now or hereafter constituted, or any other applicable
federal, state, or foreign bankruptcy, insolvency or other similar law or
of any other case or proceeding to be adjudicated a bankrupt or insolvent,
or (ii) the consent by the Company or any Significant Restricted Subsidiary
of the Company to the entry of a decree or order for relief in respect of
the Company or any Significant Restricted Subsidiary of the Company in an
involuntary case or proceeding under U.S. bankruptcy laws, as now or
hereafter constituted, or any other applicable federal, state or foreign
bankruptcy, insolvency, or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against the Company or any
Significant Restricted Subsidiary of the Company, or (iii) the filing by
the Company or any Significant Restricted Subsidiary of the Company of a
petition or answer or consent seeking reorganization or relief under U.S.
bankruptcy laws, as now or hereafter constituted, or any other applicable
federal, state, or foreign bankruptcy, insolvency or other similar law, or
(iv) the consent by the Company or any Significant Restricted Subsidiary of
the Company to the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Company or any Significant
Restricted Subsidiary of the Company or of any substantial part of the
Property or assets of the Company or any Significant Restricted Subsidiary
of the Company, or the making by the Company or any Significant Restricted
Subsidiary of the Company of an assignment for the benefit of creditors, or
(v) the admission by the Company or any Significant Restricted
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Subsidiary of the Company in writing of its inability to pay its debts
generally as they become due, or (vi) the taking of corporate action by the
Company or any Significant Restricted Subsidiary of the Company in
furtherance of any such action.
If any Event of Default (other than an Event of Default specified in
clauses (g) and (h) above with respect to the Company) occurs and is continuing,
then and in every such case the Trustee, the Holders of not less than 25% of the
outstanding aggregate principal amount of Senior Notes, or the Holders of at
least 25% of the outstanding aggregate principal amount at Stated Maturity of
the Senior Discount Notes, as the case may be, may declare the Default Amount
(as defined below) and any accrued and unpaid interest on all such Notes then
outstanding to be immediately due and payable, by a notice in writing to the
Company (and to the Trustee if given by Holders), and upon any such declaration,
such Default Amount and any accrued and unpaid interest will become and be
immediately due and payable. If any Event of Default specified in clause (g) or
(h) above with respect to the Company occurs, the Default Amount and any accrued
and unpaid interest on all such Notes then outstanding, shall become immediately
due and payable without any declaration or other act on the part of the Trustee
or any Holder. The Default Amount with respect to the Senior Notes shall equal
the principal amount of the Senior Notes. Prior to , 2002, the
Default Amount with respect to the Senior Discount Notes shall equal the
Accreted Value of the Senior Discount Notes as of such date. On or after
, 2002, the Default Amount with respect to the Senior Discount
Notes shall equal 100% of the principal amount at Stated Maturity of the Senior
Discount Notes. Under certain circumstances, the Holders of a majority in
principal amount of the outstanding Senior Notes or the Holders of a majority in
principal amount at Stated Maturity of the outstanding Senior Discount Notes, as
the case may be, may rescind an acceleration and its consequences by notice to
the Company and the Trustee.
AMENDMENT, SUPPLEMENT AND WAIVER
The Company and the Trustee, at any time and from time to time, without
notice or consent of any Holder, may amend, waive or supplement the Indentures,
the Pledge Agreement or the Notes (1) to evidence the succession of another
Person to the Company and the assumption by such successor of the covenants of
the Company under the Indentures and the Pledge Agreement and contained in the
Notes, (2) to add to the covenants of the Company, for the benefit of the
Holders, or to surrender any right or power conferred upon the Company by the
applicable Indenture, (3) to add any additional Events of Default, (4) to
provide for uncertificated Notes in addition to or in place of certificated
Notes, (5) to change or eliminate any of the provisions of the Indentures, the
Pledge Agreement or the Notes, provided that any such change or elimination will
become effective only when there is not outstanding any Note created prior to
the execution of such amendment, waiver or supplemental indenture that is
entitled to the benefit of such provision, (6) to evidence and provide for the
acceptance of appointment under the applicable Indenture by a successor Trustee,
(7) to secure the Notes, (8) to cure any ambiguity, to correct or supplement any
provision in the applicable Indenture, the Pledge Agreement or the Notes that
may be defective or inconsistent with any other provision therein or to add any
other provisions with respect to matters or questions arising under such
Indenture, the Pledge Agreement or the Notes; provided such actions will not
adversely affect the interests of the Holders in any material respect, or (9) to
comply with the requirements of the Commission in order to effect or maintain
the qualification of the Indentures under the Trust Indenture Act.
With the consent (including consents obtained with a purchase of, or a
tender or exchange offer for, Notes) of the Holders of not less than a majority
in principal amount of the outstanding Senior Notes or the Holders of not less
than a majority in principal amount at Stated Maturity of the outstanding Senior
Discount Notes, as the case may be, the Company and the Trustee may amend, waive
or supplement the applicable Indenture, the Pledge Agreement or the applicable
Notes for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions thereof or the modifying in any manner of the
rights of the Holders; provided, however, that no such amendment, waiver or
supplemental indenture will, without the consent of the Holder of each
outstanding Senior Note or Senior Discount Note, as applicable, (1) change the
Stated Maturity of the principal of, or any installment of interest on, any
Senior Note, or reduce the principal amount thereof (or premium, if any) or the
interest due and payable thereon, or reduce the Default Amount that would be due
and payable on acceleration of the Maturity thereof provided in the Senior Note
Indenture or change the place of payment where, or the coin or currency in
which, any Senior Note or any premium or interest thereon is payable, or impair
the right to institute suit for the enforcement of any such payment on or after
the Maturity thereof,
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(2) change the Stated Maturity of the principal of, or any installment of
interest on, any Senior Discount Note, or reduce the principal amount thereof
(or premium, if any), or the interest thereon that would be due and payable upon
Maturity thereof, or reduce the Default Amount that would be due and payable on
acceleration of the Maturity thereof provided in the Senior Discount Note
Indenture or change the place of payment where, or the coin or currency in
which, any Senior Discount Note or any premium or interest thereon is payable,
or impair the right to institute suit for the enforcement of any such payment on
or after the Stated Maturity thereof, (3) reduce the percentage in principal
amount of the outstanding Senior Notes or Senior Discount Notes, as applicable,
the consent of whose Holders is necessary for any such supplemental indenture or
required for any waiver of compliance with certain provisions of the Senior
Discount Notes Indenture or certain Defaults thereunder, (4) modify the
obligations of the Company to make offers to purchase Notes upon a Change of
Control or from the proceeds of Asset Sales, (5) subordinate in right of
payment, or otherwise subordinate, the Notes to any other indebtedness, (6)
modify any provisions of the Senior Discount Notes Indenture relating to the
calculation of Accreted Value, (7) release any Pledged Securities from the Lien
created by the Pledge Agreement, except in accordance with the terms thereof, or
(8) modify any of the provisions of this paragraph (except to increase any
percentage referred to herein).
The Holders of not less than a majority in principal amount of the
outstanding Senior Notes or the Holders of not less than a majority in principal
amount at Stated Maturity of the outstanding Senior Discount Notes, as the case
may be, may on behalf of the Holders of all such Notes waive (including by way
of consents obtained with a purchase of, or a tender offer or exchange offer
for, Notes) any past Default under the applicable Indenture and its
consequences, except for a Default (1) in the payment of the principal of (or
premium, if any) or interest on any such Note or (2) in respect of a covenant or
provision hereof which under the first proviso to the preceding paragraph cannot
be modified or amended without the consent of the Holder of each such
outstanding Note affected.
The Holders of a majority in aggregate principal amount of the outstanding
Senior Notes or Senior Discount Notes, as the case may be, may waive compliance
with certain restrictive covenants and provisions of the applicable Indenture.
SATISFACTION AND DISCHARGE OF THE INDENTURES, DEFEASANCE AND COVENANT DEFEASANCE
The Company may terminate its obligations under the Senior Notes Indenture
or the Senior Discount Notes Indenture, as the case may be, when (i) either (A)
all outstanding Notes thereunder (except lost, stolen or destroyed Notes which
have been replaced or paid) have been delivered to the Trustee for cancellation
or (B) all such Notes not theretofore delivered to the Trustee for cancellation
have become due and payable, will become due and payable within one year or are
to be called for redemption within one year under irrevocable arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company, and the Company has
irrevocably deposited or caused to be deposited with the Trustee United States
dollars in an amount sufficient to pay and discharge the entire indebtedness on
such Notes, not theretofore delivered to the Trustee for cancellation, for
principal of, premium, if any, and interest to the date of deposit or Stated
Maturity or date of redemption, respectively; (ii) the Company has paid or
caused to be paid all sums payable by the Company under the applicable
Indenture; and (iii) the Company has delivered an Officers' Certificate and an
Opinion of Counsel relating to compliance with the conditions set forth in the
applicable Indenture. Such Opinion of Counsel may, as to all matters of fact,
rely on, among other things, such Officers' Certificate.
The Company may, at its option and at any time, terminate the obligations
of the Company and any Guarantors with respect to the outstanding Senior Notes
or Senior Discount Notes, as the case may be ('defeasance'). Such defeasance
means that the Company will be deemed to have paid and discharged the entire
Debt on the outstanding Senior Notes or the Senior Discount Notes, as the case
may be, and the applicable Indenture shall cease to be of further effect as to
all such outstanding Notes except as to (i) rights of registration of transfer,
substitution and exchange of such Notes and the Company's right of optional
redemption, (ii) rights of Holders to receive, solely from the trust fund
described below, payments of principal of, premium, if any, and interest on such
Notes and any rights of the Holders with respect to such amounts, (iii) the
rights, obligations and immunities of the Trustee under the applicable Indenture
and (iv) certain other specified provisions in the applicable Indenture (the
foregoing exceptions (i) through (iv) are collectively referred to as the
'Reserved Rights'). In addition, the Company may, at its option and at any time,
terminate the obligations of the Company
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and any Guarantor with respect to certain covenants set forth in the Senior
Notes Indenture or the Senior Discount Notes Indenture, as the case may be, and
any omission to comply with such obligations will not constitute a Default or an
Event of Default with respect to the Senior Notes or the Senior Discount Notes,
as the case may be ('covenant defeasance').
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust for the benefit of
the Holders of the applicable Notes, at any time prior to the Stated Maturity of
such Notes, (A) money in an amount, (B) U.S. Government Obligations that,
through the payment of interest and principal, will provide, not later than one
day before the due date of payment in respect of such Notes, money in an amount,
or (C) a combination thereof, sufficient to pay and discharge the principal of
(premium, if any) and interest on such Notes to redemption or maturity, as the
case may be, then outstanding on the dates on which any such payments are due in
accordance with the terms of the applicable Indenture and of such Notes; (ii) no
Default or Event of Default will have occurred and be continuing on the date of
such deposit or, insofar as an event of bankruptcy under clauses (g) or (h) of
'Events of Default' above is concerned, at any time during the period ending on
the 123rd day after the date of such deposit; (iii) such defeasance or covenant
defeasance will not result in a breach or violation of, or constitute a default
under, the Senior Notes Indenture or Senior Discount Notes Indenture, as the
case may be, or any material agreement or instrument to which the Company or any
Guarantor is a party or by which it is bound; (iv) the Company shall have
delivered to the Trustee an opinion of outside counsel acceptable to the Trustee
(who may be counsel to the Company) to the effect that (a) in the event that the
defeasance or covenant defeasance, as the case may be, shall occur more than
twelve months prior to the Stated Maturity of the applicable Note, such
defeasance or covenant defeasance will not be deemed, or result in, a taxable
event for federal income tax purposes, with respect to Holders of the applicable
Note (and in the case of defeasance the Internal Revenue Service has provided a
ruling to the Company or published a ruling or there has been a change after the
Issue Date in applicable federal income tax law), (b) the Company's deposit will
not result in the trust or the Trustee being subject to regulation under the
Investment Company Act of 1940, and (c) after the 123rd day following the
Company's deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization, or similar laws affecting
creditors' rights generally; and (v) the Company shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each stating that
all conditions precedent provided in the applicable Indenture relating to either
defeasance or covenant defeasance, as the case may be, have been complied with.
SECURITY FOR THE SENIOR NOTES
The Senior Notes Indenture will provide that upon the closing of the Notes
Offering, the Company must purchase and pledge to the Senior Notes Trustee for
the benefit of the Holders of the Senior Notes, Pledged Securities in such
amount as will be sufficient upon receipt of scheduled interest and principal
payments of such securities, in the opinion of a nationally recognized firm of
independent public accountants selected by the Company, to provide for payment
in full of the first six scheduled interest payments due on the Senior Notes.
The Company expects to use approximately $ million of the net proceeds of
the Notes Offering to acquire the Pledged Securities; however, the precise
amounts of securities to the acquired will depend upon the interest rates on
U.S. Government Obligations prevailing at the time of the closing of the Notes
Offering. The Pledged Securities will be pledged by the Company to the Senior
Notes Trustee for the benefit of the Holders of Senior Notes pursuant to the
Pledge Agreement and will be held by the Senior Notes Trustee in the Pledge
Account. Pursuant to the Pledge Agreement, immediately prior to an interest
payment date on the Senior Notes, the Company may either deposit with the Senior
Notes Trustee from funds otherwise available to the Company cash sufficient to
pay the interest scheduled to be paid on such date or the Company may direct the
Senior Notes Trustee to release from the Pledge Account proceeds sufficient to
pay interest then due. In the event that the Company exercises the former
option, the Company may thereafter direct the Senior Notes Trustee to release to
the Company proceeds or Pledged Securities from the Pledge Account in like
amount. A failure by the Company to pay interest on the Senior Notes in a timely
manner through , 2000 will constitute an immediate Event of
Default under the Senior Notes Indenture, with no grace or cure period.
Interest earned on the Pledged Securities will be added to the Pledge
Account. In the event that the funds or Pledged Securities held in the Pledge
Account exceed the amount sufficient, in the opinion of a nationally recognized
firm of independent public accountants selected by the Company, to provide for
payment in full of the first six scheduled interest payments due on the Senior
Notes (or, in the event an interest payment or payments
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have been made, an amount sufficient to provide for payment in full of any
interest payments remaining, up to and including the sixth scheduled interest
payment), the Senior Notes Trustee will be permitted to release to the Company
at the Company's request any such excess amount. The Senior Notes will be
secured by a first priority security interest in the Pledged Securities and in
the Pledge Account and, accordingly, the Pledged Securities and the Pledge
Account will also secure repayment of the principal amount of the Senior Notes
to the extent of such security.
Under the Pledge Agreement, assuming that the Company makes the first six
scheduled interest payments on the Senior Notes in a timely manner, all of the
Pledged Securities will have been released from the Pledge Account and
thereafter the Senior Notes will be unsecured.
THE TRUSTEE
, the Trustee under the Indentures,
from time to time may extend credit to the Company in the ordinary course of
business. The Trustee's current address is .
Except during the continuance of an Event of Default, the Trustee will perform
only such duties as are specifically set forth in the applicable Indenture.
During the existence of an Event of Default, the Trustee will exercise such of
the rights and powers vested in it by the applicable Indenture, and use the same
degree of care and skill in their exercise as a prudent person would exercise or
use under the circumstances in the conduct of such person's own affairs.
The Indentures and the Trust Indenture Act contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company to obtain
payment of claims in certain cases, or to realize on certain property received
in respect of any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions; however, if it acquires any
'conflicting interest' (as defined in the Trust Indenture Act), it must
eliminate such conflict or resign.
The Holders of a majority in principal amount at Stated Maturity of the
outstanding Senior Notes or Senior Discount Notes, as applicable, will have the
right to direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee, subject to certain exceptions.
Each of the Indentures provides that, in case an Event of Default shall occur
(which has not been cured), the Trustee will be required to exercise such of the
rights and powers vested in it by the applicable Indenture, and use the same
degree of care and skill in their exercise as a prudent person would exercise or
use under the circumstances in the conduct of such person's own affairs. Subject
to such provisions, the Trustee will be under no obligation to exercise any of
its rights or powers under the applicable Indenture at the request of any Holder
of the applicable Notes, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
The Indentures will provide that no recourse for the payment of the
principal of, premium, if any, or interest on any of the Notes or for any claim
based thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indentures, or in any of
the Notes or because of the creation of any Debt represented thereby, shall be
had against any incorporator, stockholder officer, director, employee or
controlling person of the Company or any of its Restricted Subsidiaries or of
any successor Person thereof. Each Holder, by accepting the Notes, waives and
releases all such liability.
GOVERNING LAW
The Indentures and the Notes will be governed by, and construed in
accordance with, the laws of the State of New York.
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DESCRIPTION OF CAPITAL STOCK
The following summary description of the capital stock of the Company does
not purport to be complete and is subject to the provisions of the Certificate
of Incorporation and Bylaws, which are included as exhibits to the Registration
Statement of which this Prospectus forms a part, and to the provisions of
applicable law.
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
Upon consummation of the Offerings, the authorized capital stock of the
Company will consist of 265,000,000 shares of Common Stock and 10,000,000 shares
of Preferred Stock, par value $.01 per share (the 'Preferred Stock'). Of the
265,000,000 authorized shares of the Company's Common Stock, 200,000,000 shares
will be designated as Class A Common Stock and 65,000,000 shares will be
designated as Class B Common Stock, par value $.01 per share (the 'Class B
Common Stock'). Of the 65,000,000 authorized shares of Class B Common Stock,
30,000,000 shares will be designated as Class B, Series 1 (the 'Series B-1
Common Stock'), 25,000,000 shares will be designated as Class B, Series 2 (the
'Series B-2 Common Stock') and 10,000,000 shares will be designated as Class B,
Series 3 (the 'Series B-3 Common Stock'). As of September 30, 1997, after giving
effect to the Transactions and the Offerings, shares of Class A Common
Stock will be issued and outstanding, shares of Series B-1 Common Stock
will be issued and outstanding, held by one stockholder of record, shares
of Series B-2 Common Stock will be issued and outstanding, held by one
stockholder of record, and shares of Series B-3 Common Stock will be issued
and outstanding, held by one stockholder of record.
COMMON STOCK
Voting Rights. Except as otherwise required by law or, as described below,
by the Certificate of Incorporation, the holders of shares of Common Stock will
vote together as a single class. Each share of Common Stock will entitle the
registered holder thereof to one vote. There will be no cumulative voting.
Upon consummation of the Offerings, pursuant to the Certificate of
Incorporation, the holders of Series B-1 Common Stock, voting as a separate
class, will be entitled to elect that number of directors equal to the minimum
number necessary to constitute a majority of members of the Company's Board of
Directors (the 'Series B-1 Directors'); provided, however, that if at any time
the number of issued and outstanding shares of Series B-1 Common Stock
(exclusive of any shares held in the Company's treasury) is less than 20% of the
aggregate number of issued and outstanding shares of Common Stock (exclusive of
shares held in the Company's treasury) then, without any further action of any
party or the Company, all of such issued and outstanding shares of Series B-1
Common Stock will automatically and irrevocably be converted into an equal
number of shares of Class A Common Stock and the holders of Series B-1 Common
Stock so converted will no longer be entitled to elect Series B-1 Directors. See
'Risk Factors--Control by Principal Stockholder; Potential Conflicts of
Interest.'
The holders of Series B-2 Common Stock, voting as a separate class, will be
entitled to elect one member of the Company's Board of Directors (the 'Series
B-2 Director'); provided, however, that if at any time the number of issued and
outstanding shares of Series B-2 Common Stock (exclusive of any shares held in
the Company's treasury) is less than 10% of the aggregate number of issued and
outstanding shares of Common Stock (exclusive of shares held in the Company's
treasury) then, without any further action of any party or the Company, all of
such issued and outstanding shares of Series B-2 Common Stock will automatically
and irrevocably be converted into an equal number of shares of Class A Common
Stock and the holders of Series B-2 Common Stock so converted will no longer be
entitled to elect a Series B-2 Director.
The holders of Series B-3 Common Stock, voting as a separate class, will be
entitled to elect one member of the Company's Board of Directors (the 'Series
B-3 Director'); provided, however, that if at any time (A) the number of issued
and outstanding shares of Series B-3 Common Stock (exclusive of any shares held
in the Company's treasury) is less than (i) 3% of the aggregate number of issued
and outstanding shares of Common Stock (exclusive of shares held in the
Company's treasury) or (ii) 50% of the aggregate number of shares of Series B-3
Common Stock issued and outstanding (exclusive of any shares held in the
Company's treasury) immediately following the Reorganization (such number of
shares of Series B-3 Common Stock meeting both of the foregoing 3% and 50% tests
being referred to as the 'Series B-3 Threshold Amount') or (B) NTT or any person
or entity controlled by it chooses at any time to engage in, or make a material
investment in any person or
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entity whose principal business is, the provision in the United States of any
terrestrial fixed wireless local telecommunications services offered by the
Company in the same market segments (i.e. business or residential) then, without
any further action of any party or the Company, all of such issued and
outstanding shares of Series B-3 Common Stock will automatically and irrevocably
be converted into an equal number of shares of Class A Common Stock and the
holders of Series B-3 Common Stock so converted will no longer be entitled to
elect a Series B-3 Director. In the event of any stock split, reverse stock
split, stock dividend or similar transaction with respect to the Series B-3
Common Stock, the Series B-3 Threshold Amount will be appropriately adjusted.
The holders of Class A Common Stock and Class B Common Stock, voting
together as a single class, will be entitled to elect all members of the
Company's Board of Directors, other than any Series B-1 Directors, Series B-2
Director or Series B-3 Director (the 'Common Directors').
Any Series B-1 Director, Series B-2 Director or Series B-3 Director may be
removed with or without cause, but only by the affirmative vote of the holders
of a majority of the shares of the series of Class B Common Stock entitled to
elect such director, voting as a separate class. Any Common Director may be
removed with or without cause, but only by the affirmative vote of the holders
of a majority of the shares of Class A Common Stock and Class B Common Stock
voting together as a single class.
Any vacancy in the office of a director may be filled by a vote of holders
of, in the case of any Series B-1 Director, Series B-2 Director or Series B-3
Director, the series of Class B Common Stock entitled to elect such director
voting as a separate class and, in the case of any Common Director, the Class A
Common Stock and Class B Common Stock voting together as a single class;
provided, however, that any vacancy in the office of a Common Director may, in
the absence of a stockholder vote, be filled by the remaining directors or, if
there remains only one director, by such sole remaining director; provided,
further, however, that any vacancy in the office of a Series B-1 Director may,
in the absence of a stockholder vote, be filled by the remaining Series B-1
Directors or, if there remains only one Series B-1 Director, by such sole
remaining Series B-1 Director.
Transfers of Certain Common Stock. Upon consummation of the Offerings,
pursuant to the Certificate of Incorporation, no holder of shares of Class B
Common Stock may transfer, and the Company may not register (and may not permit
the transfer agent for such Common Stock to register) the transfer of, any
shares of Class B Common Stock or any interest therein, whether by sale,
assignment, gift, bequest, pledge, hypothecation, encumbrance, or any other
disposition, except to a Permitted Transferee (as defined below) of such holder.
If a holder of shares of Class B Common Stock transfers any such shares to any
person or entity other than a Permitted Transferee of such holder, such
transfer, without any further action of any party or the Company, will
automatically and irrevocably convert such shares into an equal number of shares
of Class A Common Stock from the date of such transfer. The Certificate of
Incorporation will define 'Permitted Transferee' to mean only: (i) in the case
of any holder of shares of Series B-1 Common Stock, Associated and any
corporation, partnership or other business entity directly or indirectly
controlled by Associated at the time of transfer; (ii) in the case of any holder
of shares of Series B-2 Common Stock, Dr. Rajendra Singh, Neera Singh and any
corporation, partnership or other business entity directly or indirectly
controlled by Dr. Rajendra Singh, Neera Singh or their respective executors (to
the extent acting in such capacity) or direct descendants; provided, however,
that if any holder of Series B-3 Common Stock ceases to be so controlled, then
any shares of Series B-2 Common Stock held by such holder will be deemed to have
been transferred to a person or entity other than a Permitted Transferee; and
(iii) in the case of any holder of shares of Series B-3 Common Stock, NTT and
any corporation, partnership or other business entity directly or indirectly
controlled by NTT at the time of transfer. Notwithstanding the foregoing, any
holder of shares of Class B Common Stock, or any Permitted Transferee of such
holder, will be permitted to grant a security interest in, or pledge, pursuant
to a bona fide financing arrangement involving such holder or Permitted
Transferee, all or any portion of such holder's or Permitted Transferee's shares
of Class B Common Stock, if (i) such grant or pledge does not require
registration or qualification pursuant to any federal or state securities laws
and (ii) the Company receives copies of any instruments evidencing such grant or
pledge and such secured party's or pledgee's written acknowledgment that it has
reviewed the terms of the Certificate of Incorporation. No such grant or pledge
will by itself cause the conversion of any such shares of Class B Common Stock
into shares of Class A Common Stock; provided, however, that if any such secured
party or pledgee (which is not a Permitted Transferee of the holder making such
grant or pledge) forecloses upon any such shares of Class B Common Stock, such
foreclosure, without any
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further action of any party or the Company, will automatically and irrevocably
convert such shares into an equal number of shares of Class A Common Stock from
the date of such foreclosure.
Conversion into Series A Common Stock. Upon consummation of the Offerings,
pursuant to the Certificate of Incorporation, each share of Class B Common Stock
will be convertible at any time, at the option of the registered holder thereof,
into one fully paid and nonassessable share of Class A Common Stock, subject to
adjustment for any stock split.
Liquidation. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, after distribution in full of the
preferential amounts, if any, to be distributed to holders of shares of
Preferred Stock, unless otherwise required by law, holders of shares of Common
Stock will be entitled to receive all the remaining assets of the Company of
whatever kind available for distribution to stockholders ratably in proportion
to the number of shares of Common Stock held by them. Pursuant to the
Certificate of Incorporation, the holders of Common Stock will participate in
such assets as if all classes and series of Common Stock constituted a single
class of stock.
Dividends. Subject to the preferential rights of holders of Preferred
Stock, if any, the holders of shares of Common Stock will be entitled to
receive, when, as and if declared by the Board of Directors, out of the assets
of the Company which are by law available therefor, dividends payable either in
cash, in property or in shares of capital stock. Pursuant to the Certificate of
Incorporation, no dividend will be declared or paid in respect of any class of
Common Stock by the Company unless the holders of all classes of Common Stock
receive the same per share dividend, payable in the same amount and type of
consideration, as if such classes constituted a single class, except that if any
dividend is declared that is payable in shares of Common Stock, or in
subscription or other rights to acquire shares of Common Stock, then (i) such
dividend will be declared and paid at the same rate per share with respect to
each class of Common Stock, (ii) the dividend payable on shares of Class A
Common Stock will be payable only in shares of, or in subscription or other
rights to acquire shares of, Class A Common Stock and (iii) the dividend payable
on shares of each series of Class B Common Stock will be payable only in shares
of, or in subscription or other rights to acquire shares of, the same series of
Class B Common Stock.
PREFERRED STOCK
Under the Certificate of Incorporation, the Board of Directors will be
expressly authorized to provide for the issuance of all or any shares of
Preferred Stock in one or more classes or series, and to fix for each such class
or series such voting powers, full or limited, or no voting powers, and such
distinctive designations, preferences and relative, participating, optional or
other special rights and such qualifications, limitations or restrictions
thereof, as shall be stated and expressed in the resolution or resolutions
adopted by the Board of Directors providing for the issuance of such class or
series and as may be permitted by the DGCL.
RESTRICTION ON FOREIGN OWNERSHIP
Upon consummation of the Offerings, pursuant to the Company's Certificate
of Incorporation, the Board of Directors of the Company shall have all powers
necessary to ensure compliance by the Company with the foreign ownership
restrictions (the 'Foreign Ownership Restrictions') under the Communications Act
of 1934, as amended, and the rules, regulations and decisions of the FCC
including, without limitation, the power to prohibit the transfer of any shares
of capital stock of the Company to any Foreign Owner (as hereinafter defined)
and to take or cause to be taken such action as it deems appropriate to
implement such prohibition. 'Foreign Owner' shall mean (a) any person who is a
citizen of a country other than the United States; (b) any corporation or other
legal entity organized under the laws of any government other than the
government of the United States or of any state, territory or possession of the
United States; (c) any government other than the government of the United States
or of any state, territory or possession of the United States; and (d) any
representative of any of the foregoing or any entity owned or whose capital was
contributed in whole or in part by, any of the foregoing.
Pursuant to the Certificate of Incorporation, any shares of capital stock
of the Company determined by the Board to be owned by any Foreign Owner will be
subject to redemption by action of the Board of Directors, to the extent
necessary in the sole judgment of the Board of Directors to comply with the
Foreign Ownership Restrictions. In such event, the redemption price of the
shares to be redeemed will be equal to the fair market value of such shares, as
determined by the Board in good faith. The redemption price of such shares may
be paid
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in cash, securities or any combination thereof. Such redemption will be upon
such other terms and conditions as the Board of Directors shall determine.
Under the Stockholders Agreement, if the Company is required by a change in
law or other circumstance to reduce the level of foreign ownership of the
Company, the Company will have the right, and will be required at NTT's option,
to refuse to sell stock in the Company to any Foreign Owner if such a
transaction would adversely impact NTT's ability to hold its then existing share
ownership in the Company, and to repurchase shares first from all other Foreign
Owners and then from NTT at the fair market value thereof based on the Company's
then public trading value.
ANTITAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND
BY-LAWS AND THE DGCL
Certificate of Incorporation and By-laws. The Certificate of Incorporation
will provide that stockholders are not entitled to call a special meeting of
stockholders, nor to require the Board of Directors to call such a meeting. The
Certificate of Incorporation will provide that stockholders will not be entitled
to act by written consent in lieu of a meeting; provided, however, that in
connection with the election of any Series B-1 Director, Series B-2 Director or
Series B-3 Director, the holders of the series of Class B Common Stock entitled
to elect such director voting as a separate class will be able to act by written
consent in lieu of a meeting. In addition, the By-laws of the Company will
contain certain advance notice requirements that must be complied with by any
stockholder who wishes to nominate any person for election to the Company's
Board of Directors or who otherwise wishes to properly bring business before an
annual meeting of the Company's stockholders. These provisions of the
Certificate of Incorporation, together with the ability of Associated, as the
holder of Series B-1 Common Stock, to elect a majority of the Company's Board,
could discourage potential acquisition proposals and could delay or prevent a
change of control of the Company. See 'Risk Factors--Control by Principal
Stockholders; Potential Conflicts of Interest.'
Delaware Takeover Statute. The Company is subject to Section 203 of the
DGCL ('Section 203'), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
(ii) upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (a) by persons who are directors and also
officers and (b) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.
Section 203 defines 'business combination' to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person. The restrictions on business combinations
contained in Section 203 would not apply to any business combination between MSI
or DSC, on the one hand, and the Company, on the other hand.
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LISTING
The Company has applied for the quotation of the Class A Common Stock on
The Nasdaq National Market under the symbol 'TGNT.'
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Class A Common Stock is
.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of certain United States federal income tax
considerations relevant to the purchase, ownership and disposition of the Notes
by persons acquiring Notes on original issuance for cash at the initial issue
price. This summary does not address all of the tax consequences that may be
relevant to investors that may be subject to special tax treatment (such as
financial institutions, tax-exempt organizations, real estate investment
companies, regulated investment companies, insurance companies, dealers in
securities or currencies or non-United States persons). This summary is limited
to persons who will hold the Notes as capital assets (generally, assets held for
investment). This summary is based upon the Internal Revenue Code of 1986, as
amended (the 'Code'), Treasury regulations, court decisions, published positions
of the Internal Revenue Service (the 'IRS') and other applicable authorities,
all as in effect on the date hereof and all of which are subject to change or
differing interpretation (possibly on a retroactive basis). Accordingly, each
prospective purchaser of Notes should consult its tax advisor with respect to
the particular federal income tax consequences of purchasing, owning and
disposing of Notes, including the application and effect of any state, local and
foreign tax laws.
SENIOR NOTES--INTEREST INCOME
Each Holder of Senior Notes will be required to include stated interest on
the Senior Notes in gross income in accordance with the holder's method of
accounting for federal income tax purposes.
SENIOR DISCOUNT NOTES--ORIGINAL ISSUE DISCOUNT
The Senior Discount Notes will be considered to be issued at an original
issue discount ('OID') for federal income tax purposes. In general, the amount
of OID with respect to a Senior Discount Note will be equal to the excess of the
'stated redemption price at maturity' of a Senior Discount Note over its issue
price. The stated redemption price at maturity of a Senior Discount Note will be
the sum of all payments required to be made on such Note, including all payments
of stated interest. Thus, the stated interest on the Senior Discount Notes will
not be included in the gross income of a holder when received or accrued, but
instead will be included in income under the OID accrual rules described below.
For federal income tax purposes, each holder (regardless of its accounting
method) must generally include in gross income a portion of the OID in each
taxable year during which a Senior Discount Note is held in an amount equal to
the OID that accrues during such period, determined by using a constant yield to
maturity method that reflects compounding of interest. This means that each
holder will be required to include amounts in gross income without a
corresponding receipt of cash attributable to such income.
A holder's adjusted tax basis in a Senior Discount Note will be equal to
the issue price of such Note, increased by OID included in gross income with
respect to such Note and decreased by payments of stated interest on such Note.
The Company is required to furnish certain information to the IRS, and will
furnish annually to record holders of Senior Discount Notes, information with
respect to OID accruing during the calendar year.
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SALE, EXCHANGE AND REDEMPTION OF NOTES
A sale, exchange or redemption of either a Senior Note or a Senior Discount
Note will result in taxable gain or loss equal to the difference between the
amount of cash or other property received for such Note and the holder's
adjusted tax basis in the Note. Such gain or loss will be a capital gain or
loss. In the case of noncorporate taxpayers, capital gains recognized on Notes
held (i) one year or less will be treated as short-term capital gains and taxed
at ordinary income tax rates, (ii) more than one year but 18 months or less will
be treated as mid-term capital gains and taxed at a maximum rate of 28% and
(iii) more than 18 months will be treated as long-term capital gains and taxed
at a maximum rate of 20%. In addition, holders should consult their own tax
advisers regarding the availability and effect of a certain tax election to
mark-to-market Notes held on January 1, 2001.
NON-U.S. HOLDERS
The following discussion is a summary of certain United States federal
income tax consequences to a Non-U.S. Holder that holds a Note. The term
'Non-U.S. Holder' is a holder which is not (i) a citizen or individual resident
of the United States for federal income tax purposes, (ii) a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, (iii) an estate the income
of which is includible in gross income for federal income tax purposes
regardless of its source or (iv) 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 fiduciaries have the authority to control all
substantial decisions of the trust.
A Non-U.S. Holder generally will not be subject to United States tax on
interest or OID on a Note, provided that (i) such Non-U.S. Holder does not
actually or constructively own 10% or more of the total combined voting power of
all classes of stock of the Company entitled to vote, (ii) such Non-U.S. Holder
is not a controlled foreign corporation with respect to which the Company is a
'related person' for United States federal income tax purposes and (iii) such
Non-U.S. Holder certifies, under penalty of perjury, that it is a Non-U.S.
Holder and provides its name and address.
A Non-U.S. Holder that does not qualify for the exception from tax
described above would be subject to United States withholding tax at a flat rate
of 30% (or a lower applicable treaty rate) on payments of interest or accrual of
OID.
In addition, gain recognized by a Non-U.S. Holder upon the sale, exchange
or redemption of a Note will not be subject to United States federal income tax
unless (i) the gain is effectively connected with the conduct of a trade or
business within the United States by the Non-U.S. Holder or (ii) the Non-U.S.
Holder is an individual present in the United States for 183 days or more during
the taxable year in which the Note is sold, exchanged or redeemed, and certain
other requirements are met.
A Note held by an individual who at the time of his or her death is not a
citizen or resident of the United States will not be includible in such
individual's gross estate subject to United States federal estate tax as a
result of such individual's death, provided that (i) the individual did not
actually or constructively own 10% or more of the total combined voting power of
all classes of stock of the Company entitled to vote and (ii) the interest or
OID on the Note would not have been U.S. trade or business income if it had been
received by such individual at the time of his or her death.
BACKUP WITHHOLDING
A holder of a Note may be subject to backup withholding at a 31% rate with
respect to interest, OID and gross proceeds received with respect to the Notes.
This withholding applies if the holder (i) fails to furnish his or her social
security or other taxpayer identification number ('TIN'), (ii) furnishes an
incorrect TIN, (iii) is notified by the IRS that he or she has failed to report
properly payments of interest and dividends and the IRS has notified the Company
that he or she is subject to backup withholding, or (iv) fails, under certain
circumstances, to provide a certified statement, signed under penalty of
perjury, that the TIN provided is his or her correct number and that he or she
is not subject to backup withholding. Backup withholding is not an additional
tax, and any amount so withheld is allowable as a credit against the holder's
federal income tax liability, provided that the required information is
furnished to the IRS.
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UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
'Notes Purchase Agreement') between the Company and each of the underwriters
named below (the 'Underwriters'), the Company has agreed to sell to each of the
Underwriters, and each of the Underwriters has severally agreed to purchase from
the Company, the aggregate principal amount of Notes set forth opposite its name
below.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
AT MATURITY
PRINCIPAL AMOUNT OF SENIOR
UNDERWRITERS OF SENIOR NOTES DISCOUNT NOTES
- ------------------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.........................................
Salomon Brothers Inc...............................................
TD Securities (USA) Inc............................................
Goldman, Sachs & Co................................................
---------------- ----------------
Total................................................
---------------- ----------------
---------------- ----------------
</TABLE>
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Brothers Inc.,
TD Securities (USA) Inc. and Goldman, Sachs & Co. are acting as representatives
(the 'Representatives') of the Underwriters.
The Underwriters have advised the Company that they propose initially to
offer the Notes to the public at the respective public offering prices set forth
on the cover page of this Prospectus and to certain dealers at such prices less
concessions not in excess of % of the principal amount of the Senior Notes
and % of the principal amount at maturity of the Senior Discount Notes. The
Underwriters may allow, and such dealers may reallow, discounts not in excess of
% of the principal amount of the Senior Notes and % of the principal
amount at maturity of the Senior Discount Notes on sales to certain other
dealers. After the initial public offering, the public offering prices,
concessions and discounts may be changed.
The several Underwriters have agreed, subject to the terms and conditions
set forth in the Notes Purchase Agreement, to purchase all of the Notes being
sold pursuant to such agreement if any of the Notes being sold pursuant to such
agreement are purchased. Under certain circumstances the commitments of
non-defaulting Underwriters may be increased.
The Underwriters have advised the Company that they do not intend to
confirm sales of Notes offered hereby to any accounts over which they exercise
discretionary authority.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act and other applicable
securities laws, or to contribute to payments the Underwriters may be required
to make in respect thereof. Under certain circumstances, the Company will
reimburse the Underwriters for certain of their expenses.
The Notes are a new issue of securities with no established trading market.
The Company does not intend to apply for listing of any of the Notes on any
securities exchange or for quotation of any of the Notes through any
inter-dealer quotation system. The Company has been advised by the Underwriters
that they presently intend to make a market in the Notes as permitted by
applicable laws and regulations. The Underwriters are not obligated, however, to
make a market in any of the Notes and any such marketmaking may be discontinued
at any time at the sole discretion of the Underwriters. No assurance can be
given as to the liquidity of, or the trading market for, the Notes.
In connection with the Notes Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Underwriters may overallot the offering, creating a
short position. In addition, the Underwriters may bid for, and purchase Notes in
the open market to cover short sales or to stabilize the price of the Notes.
Finally, the underwriting syndicate may reclaim selling concessions allowed for
distributing the Notes in the Notes Offering if the syndicate repurchases
previously distributed Notes in syndicate covering transactions, stabilization
transactions or otherwise. Any of these activities may stabilize or
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maintain the market price of the Notes above independent market levels. The
Underwriters are not required to engage in these activities and may end any of
these activities at any time.
Each Underwriter has represented and agreed that (i) it has not offered or
sold and, prior to the date six months after the date of issue of the Notes,
will not offer and sell any Notes to persons in the United Kingdom, except to
persons whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for the purposes of their
businesses, or otherwise in circumstances which 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 Notes 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 Notes to a person who is of a kind described in Article 11(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996, or to any person to whom the document may otherwise lawfully be issued or
passed on.
Certain of the 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.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the
Company by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York and for
the Underwriters by Shearman & Sterling, New York, New York.
EXPERTS
The financial statements of Teligent, L.L.C. (a development stage company)
(formerly Associated Communications, L.L.C.) at December 31, 1996, and for the
period March 5, 1996 (date of inception) to December 31, 1996 appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, and the information under the caption 'Selected Financial
Data' for the period March 5, 1996 (date of inception) to December 31, 1996,
appearing in this Prospectus and Registration Statement have been derived from
financial statements audited by Ernst & Young LLP, as set forth in their report
thereon appearing elsewhere herein.
Such financial statements and selected financial data are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
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ANNEX A
GLOSSARY
24 GHZ--The portion of the radio frequency spectrum in which fixed wireless
licensees may hold up to five 80 MHz channels located between 24.25 GHz and
24.45 GHz and 25.05 and 25.25 GHz.
ACCESS CHARGES--The fees paid by long distance carriers to LECs for
originating and terminating long distance calls on their local networks.
ADSL (ASYMMETRICAL DIGITAL SUBSCRIBERS LINE)--A technology designed for
conventional copper wire connections which provides a 1.5-8 Mbps downstream data
transfer rates, and 16-640 Kbps upstream data transfer rates. The speed of the
connection is limited by the distance the signal must travel.
ATM (ASYNCHRONOUS TRANSFER MODE)--ATM is packet-based switching and
transmission technology used to transmit voice, data and video.
BANDWIDTH--At any given level of compression, the amount of information
transportable over a link per unit of time. A single T-1 circuit will carry up
to 1,544,000 bits (or 1.544 megabits) per second.
BIT--A bit is the basic unit of information, yes-or-no, on-or-off, 1-or-0
in the binary (base 2) system which is the basis of digital computing. In
contrast, a voice telephone signal over a copper wire is analog, reflecting a
continuous range of vocal tone (frequency) and volume (amplitude).
BROADBAND--Data streams of at least 1.544 megabits per second. Broadband
communications systems can transmit large quantities of voice, data and video by
way of digital or analog signals. Examples of broadband communications systems
include DS-3 systems, which can transmit 672 simultaneous voice conversations,
or a broadcast television station signal that transmits high resolution audio
and video signals into the home. Broadband connectivity is an essential element
for interactive multimedia applications.
CAP (COMPETITIVE ACCESS PROVIDER)--A company that provides its customers
with an alternative to the local telephone company for local and interstate
transport of private line, special access and switched access telecommunications
services. CAPs are also referred to in the industry as competitive local
exchange carriers (CLECs), alternative local telecommunications service
providers (ALTs) and metropolitan area network providers (MANs) and were
formerly referred to as alternative access vendors (AAVs).
CELLULAR--Characterized by 'cells,' the area accessible by transceiver(s)
typically located at one site. A cellular phone connects to the transceiver in
its current cell, then the connection is handed-off when the user moves to any
other cell.
COMPRESSION--Any process that transforms a signal to a more compact form
(fewer bits) for easier transfer, and then restores the signal after transfer.
CLEC (COMPETITIVE LOCAL EXCHANGE CARRIER)--A company that provides local
exchange services in competition with the incumbent local exchange carrier.
CPE (CUSTOMER PREMISE EQUIPMENT)--Telecommunications equipment, such as
radio/antenna transceiver, which is installed on the customer premises.
COPPER WIRE--A shorthand reference to traditional telephone lines using
electric current to carry signals over copper wire.
DEMS (DIGITAL ELECTRONIC MESSAGE SERVICE)--A two-way, end-to-end digital
fixed microwave radio service utilizing both point-to-point and
point-to-multipoint equipment for the provision of telecommunications services.
DIALING PARITY--Dialing parity is one of the changes, required by the
Telecommunications Act, intended to level the competitive playing field. Dialing
parity when implemented will enable customers to dial only 1+ or 0+ for service
no matter which local or long distance carrier they choose.
DIGITAL--A method of storing, processing and transmitting information
through the use of distinct electronic or optical pulses that represent the
binary code digits 0 and 1. Digital transmission and switching technologies
employ a sequence of these pulses to represent information as opposed to the
continuously variable analog signal. Digital transmission and switching
technologies offer a threefold improvement in speed and capacity over analog
techniques, allowing much more efficient and cost-effective transmission of
voice, video, and data.
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DNS (DOMAIN NAME SYSTEM)--A general purpose, distributed, replicated, data
query service chiefly used on the Internet for translating host names into their
corresponding Internet addresses.
DS-0, DS-1, DS-3--Standard 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 45 megabits per second.
FCC--Federal Communications Commission.
FIBER OPTICS--Fiber optic cable largely immune to electrical interference
and environmental factors that affect copper wiring and satellite transmission.
Fiber optic technology involves sending laser light pulses across glass strands
in order to transmit digital information.
FRAME RELAY--A high speed data packet switching service used to tramsmit
data between computers. Frame Relay supports data units of variable lengths at
access speeds ranging from 56 kps to 1.5 mps.
GHZ (GIGAHERTZ)--Billions of hertz or cycles per second; a measure used to
characterize the frequency or amount of bandwidth of a radio frequency signal.
HDSL (HIGH DATA RATE DIGITAL SUBSCRIBER LINE)--A technology designed for
copper wire connections which provides, over limited distances (; 15,000 feet),
T1 data transfer rates for both the downstream and upstream connection.
HERTZ--Cycles per second. A Hertz is one full cycle (sine curve with one
peak and one valley).
INTER-LATA LONG DISTANCE--Inter-LATA long distance calls are calls that
pass from one LATA to another. Typically, these calls are simply referred to as
'long distance' calls although intra-LATA calls can also be long distance calls.
INTERNET--An array of interconnected networks using a common set of
protocols defining the information coding and processing requirements that can
communicate across hardware platforms and over many links now operated by a
consortium of telecommunications service providers and others.
ILEC (INCUMBENT LOCAL EXCHANGE CARRIER)--A company providing local exchange
services on the date of enactment of the Telecommunications Act. Traditional
local telephone companies including RBOCs and GTE.
ISDN--Integrated Services Digital Network, a standardized all-digital
network that integrates voice and data communications through existing copper
wiring.
ISP--Internet service provider.
IXC (INTER-EXCHANGE CARRIERS)--Usually referred to as long-distance service
providers. There are many facilities-based IXCs, including AT&T, MCI, WorldCom,
Sprint and Frontier.
KILOBIT--One thousand bits of information. The information-carrying
capacity (i.e., bandwidth) of a circuit may be measured in 'kilobits per
second.'
KBPS--Kilobits per second.
LANS (LOCAL AREA NETWORKS)--The interconnection of computers for the
purpose of sharing files, programs and various devices such as work stations,
printers and high-speed modems. LANs may include dedicated computers or file
servers that provide a centralized source of shared files and programs. Most
office computer networks use a LAN to share files, printers, modems and other
items. Where computers are separated by greater distances, a Metropolitan Area
Network (MAN) or other Wide Area Network (WAN) may be used.
LAST MILE--A shorthand reference to the last section of a
telecommunications path, to the ultimate end user, typically provided by a local
exchange carrier.
LATAS (LOCAL ACCESS AND TRANSPORT AREAS)--The geographically defined areas
in which RBOCs were authorized by the MFJ to provide local exchange services.
These LATAs roughly reflect the population density of their respective states
(California has 11 LATAs while Wyoming has only one). There are 163 LATAs in the
United States. LATAs have one or more area codes and may cross state lines.
LEC (LOCAL EXCHANGE CARRIER)--A company that provides local exchange
services; see ILEC, CAP and CLEC.
LEGACY NETWORK--Mature, proprietary network serviced by ILECs.
A-2
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LINE OF SIGHT--An unobstructed view between two transceivers.
LINK--A transmission link between two transceivers.
LMDS (LOCAL MULTIPOINT DISTRIBUTION SERVICE)--Digital wireless service in
the 28-30 GHz frequency band. The FCC plans to hold spectrum auctions in this
frequency band starting in December 1997.
MAN--Metropolitan Area Network; see LAN.
MARKET AREA--The geographic market boundaries of a wireless license. Each
license application as granted defines its own market area boundaries.
MBPS--Megabits per second.
MEGABIT--One million bits of information. The information-carrying capacity
(i.e. bandwidth) of a circuit may be measured in 'megabits per second.'
MFJ (MODIFIED FINAL JUDGMENT)--The MFJ was a settlement of an antitrust
suit reached made in 1982 between AT&T and the Department of Justice which
forced the breakup of the old Bell System. This judgment, also known as the
Divestiture of AT&T, established seven separate RBOCs and enhanced the
establishment of two distinct segments of telecommunications service; local and
long distance. This laid the groundwork for intense competition in the long
distance industry. The MFJ has been superseded by the Telecommunications Act of
1996.
MICROWAVE--A portion of the radio spectrum having radio waves that are
physically very short, ranging in length between about 30 cm and 0.3 cm and
generally used to refer to frequencies above 2 GHz.
MHZ (MEGAHERTZ)--Millions of hertz or cycles per second; a measure used to
characterize the frequency or amount of bandwidth of a radio frequency signal.
NTIA--National Telecommunications and Information Administration.
NUMBER PORTABILITY--The ability of an end user to change local exchange or
long distance carriers while retaining the same telephone number. If number
portability does not exist, customers will have to change phone numbers when
they change carriers.
SONET (SYNCHRONOUS OPTICAL NETWORK)--A set of standards of 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.
PCS (PERSONAL COMMUNICATIONS SERVICES)--Cellular-like services provided at
the 2 GHz band of the radio spectrum rather than 800 MHz. A type of wireless
telephone system that uses light, inexpensive handheld sets and communicates via
low power antennas.
POPS (POINTS OF PRESENCE)--Locations where a carrier has installed
transmission equipment in a service area that serves as, or relays calls to, a
network switching center of that carrier.
RBOCS (REGIONAL BELL OPERATING COMPANIES)--The holding companies owning LEC
affiliates of the old AT&T or Bell system.
RESELLERS--Companies which purchase telecommunications services wholesale
from underlying carriers and resell them to end users at retail rates.
ROOF RIGHTS--The legal right to locate, maintain and operate equipment
(most commonly antennas and transceivers) on the roofs of buildings, on special
structures or even on utility poles or pylons, each of which provides the
necessary line of sight location for wireless broadband transmission.
T1--Telecommunications industry standard data transfer rate of 1.544 Mbps.
VDSL (VERY HIGH DATA RATE DIGITAL SUBSCRIBER LINE)--A technology designed
for copper wire which provides downstream data transfer rates over limited
distance (1000-4500 feet) of 13-52 Mbps and upstream rates of 1.5-2.3 Mbps.
WAN--Wide Area Network; see LAN.
A-3
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Audited Financial Statements for the Period March 5, 1996 (date of inception) to
December 31, 1996
<TABLE>
<S> <C>
Report of Independent Auditors........................................................................ F-2
Balance Sheet......................................................................................... F-3
Statement of Operations............................................................................... F-4
Statement of Members' Deficit......................................................................... F-5
Statement of Cash Flows............................................................................... F-6
Notes to Financial Statements......................................................................... F-7
Unaudited Interim Condensed Financial Statements
Condensed Balance Sheet............................................................................... F-11
Condensed Statements of Operations.................................................................... F-12
Condensed Statement of Members' Deficit............................................................... F-13
Condensed Statements of Cash Flows.................................................................... F-14
Notes to Condensed Financial Statements............................................................... F-15
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Teligent, L.L.C.
We have audited the accompanying balance sheet of Teligent, L.L.C. (a
development stage company) (formerly Associated Communications, L.L.C.) (a
development stage company) as of December 31, 1996, and the related statements
of operations, members' deficit, and cash flows for the period March 5, 1996
(date of inception) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Teligent, L.L.C. (a development
stage company) at December 31, 1996, and the results of its operations and its
cash flows for the period March 5, 1996 (date of inception) to December 31,
1996, in conformity with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Pittsburgh, Pennsylvania
March 14, 1997
F-2
<PAGE>
TELIGENT, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash............................................................................................ $ 1,302,612
Accounts receivable............................................................................. 4,865
Due from related parties........................................................................ 38,253
Prepaid expenses and other assets............................................................... 151,182
------------
Total current assets......................................................................... 1,496,912
Property and equipment:
Operating equipment............................................................................. 1,999,690
Furniture and equipment......................................................................... 524,663
Leasehold improvements.......................................................................... 25,879
Systems in process.............................................................................. 1,158,768
------------
3,709,000
Accumulated depreciation and amortization....................................................... (164,051)
------------
Property and equipment, net..................................................................... 3,544,949
Management fees receivable........................................................................ 103,468
------------
Total assets................................................................................. $ 5,145,329
------------
------------
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Accounts payable................................................................................ $ 3,002,179
Employee compensation........................................................................... 462,667
Accrued company appreciation rights............................................................. 2,778,165
Payable to related parties...................................................................... 184,305
Revolving line of credit........................................................................ 2,000,000
------------
Total current liabilities.................................................................... 8,427,316
Deferred compensation............................................................................. 292,548
Members' deficit:
Capital contributions........................................................................... 9,058,158
Deficit accumulated during the development stage................................................ (12,632,693)
------------
Total members' deficit....................................................................... (3,574,535)
------------
Total liabilities and members' deficit.......................................................... $ 5,145,329
------------
------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
TELIGENT, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
PERIOD MARCH 5, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<S> <C>
Revenues:
Management fees................................................................................. $ 100,000
Equipment leases................................................................................ 165,560
Other services provided to members.............................................................. 1,120,782
------------
Total revenues.................................................................................... 1,386,342
Costs and expenses:
Cost of wireless communication services......................................................... 1,625,006
Sales, general and administrative............................................................... 8,582,637
Accrued company appreciation rights............................................................. 2,778,165
Depreciation and amortization................................................................... 164,051
------------
Total costs and expenses.......................................................................... 13,149,859
------------
Operating loss.................................................................................... (11,763,517)
Interest expense and loan fees.................................................................... (869,176)
------------
Net loss.......................................................................................... $(12,632,693)
------------
------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
TELIGENT, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF MEMBERS' DEFICIT
PERIOD MARCH 5, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
CAPITAL ACCUMULATED TOTAL
CONTRIBUTIONS DEFICIT DEFICIT
------------- ------------ -----------
<S> <C> <C> <C>
Balance at March 5, 1996 (date of inception)........................ $ -- $ -- $ --
Member capital contributions........................................ 9,058,158 -- 9,058,158
Net loss............................................................ -- (12,632,693) (12,632,693)
------------- ------------ -----------
Balance at December 31, 1996........................................ $ 9,058,158 $(12,632,693) $(3,574,535)
------------- ------------ -----------
------------- ------------ -----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
TELIGENT, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
PERIOD MARCH 5, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss.......................................................................................... $(12,632,693)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization................................................................... 164,051
Change in assets and liabilities:
Accounts receivable.......................................................................... (4,865)
Due from related parties..................................................................... (38,253)
Prepaid expenses and other assets............................................................ (151,182)
Management fees receivable................................................................... (103,468)
Accounts payable............................................................................. 3,002,179
Employee compensation........................................................................ 462,667
Accrued company appreciation rights.......................................................... 2,778,165
Payable to related parties................................................................... 184,305
Deferred compensation........................................................................ 292,548
------------
Net cash used in operating activities............................................................. (6,046,546)
Cash flows from investing activities:
Purchase of property and equipment.............................................................. (3,709,000)
------------
Net cash used in investing activities............................................................. (3,709,000)
Cash flows from financing activities:
Capital contributions by members................................................................ 9,058,158
Proceeds from borrowings........................................................................ 2,000,000
------------
Net cash provided by financing activities......................................................... 11,058,158
------------
Increase in cash.................................................................................. 1,302,612
Cash at beginning of period....................................................................... --
------------
Cash at end of period............................................................................. $ 1,302,612
------------
------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
TELIGENT, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. THE COMPANY
Teligent, L.L.C. ('Teligent' or the 'Company') is a limited liability
company formed on March 5, 1996 by Microwave Services, Inc. ('MSI') and Digital
Services Corporation ('DSC'). The Company changed its name from Associated
Communications, L.L.C. The Company is in the development stage. Membership
interests in Teligent are 55% and 45% for MSI and DSC, respectively. MSI and DSC
hold licenses from the Federal Communications Commission ('FCC') to provide
digital termination services ('DTS') at radio frequencies allocated pursuant to
the FCC's rules governing common carrier Digital Electronic Message Services
('DEMS') in 31 major markets across the United States, which can be used to
provide voice, high-speed data, Internet access, and videoconferencing services.
Teligent provides management and administrative services to MSI and DSC in
connection with the development, construction, and operation of their DTS
systems (the 'DTS Systems').
2. SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Property and Equipment
Property and equipment is recorded at cost. Depreciation and amortization
are computed on the straight-line method over the estimated useful lives of the
assets: 5-10 years for operating equipment, furniture and equipment, and the
lessor of 7 years or the lease term for leasehold improvements. Operating
equipment with a net book value of $1,870,641 as of December 31, 1996 is leased
to MSI and DSC under operating leases with four year lease terms.
Income Taxes
The Company is treated as a partnership for U.S. federal income tax
purposes. Income and losses are reported on the respective tax returns of MSI
and DSC. Therefore, no provision for income taxes has been made in these
financial statements.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, 'Accounting for Stock-Based
Compensation' ('FAS 123'). This new standard establishes financial accounting
and reporting standards for stock-based compensation plans and to transactions
in which an entity issues its equity instruments to acquire goods and services
from nonemployees. The new accounting standards prescribed by FAS 123 are
optional, and the Company has elected to account for its stock-based
compensation plans under Accounting Principals Board Opinion No. 25, 'Accounting
for Stock Issued to Employees' ('APB 25'). Compensation expense is recorded for
grants under variable award plans, based on the intrinsic value of the grant.
3. REVOLVING LINE OF CREDIT
In December 1996, the Company entered into a loan agreement with a bank
(the 'Lender') providing for a $50 million senior secured revolving credit
facility (the 'Credit Facility') which expires December 19, 1997. Borrowings
bear interest, at the option of the Company, at either i) the higher of the
Lender's prime rate plus
F-7
<PAGE>
TELIGENT, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
3. REVOLVING LINE OF CREDIT--(CONTINUED)
1.75% or the Fed Funds rate plus 2.25%, or ii) LIBOR plus 2.75%. The Company has
paid $875,000 to the lender for loan structuring fees, and will be required to
pay a quarterly facility fee of $250,000 as well as commitment fees of 1/2% of
the unused portion of the Credit Facility. All assets of the Company are pledged
as security under the loan agreement. The stock of MSI and DSC and their
membership interests in Teligent are also pledged.
4. DEFERRED COMPENSATION
An executive officer of the Company (the 'Executive') serves under an
employment agreement (the 'Agreement') that provides for, among other things, a
payment of $5,000,000 on the fifth anniversary of the Executive's employment, or
earlier in certain circumstances. In the event of termination prior to his fifth
anniversary, the Executive may receive the $5,000,000, or a pro rata portion
thereof, depending on the circumstances of his termination. The Company accrues
the present value of the payment due over the expected service period of five
years.
5. LEASES
The Company leases operating sites, storage, and administrative offices
under operating leases. Rent expense was $883,659 for the period March 5, 1996
(date of inception) to December 31, 1996. Future minimum lease payments by year
and in the aggregate, are as follows at December 31, 1996:
<TABLE>
<S> <C>
1997.......................................................... $ 63,813
1998.......................................................... 64,148
1999.......................................................... 48,000
--------
$175,961
--------
--------
</TABLE>
6. STOCK-BASED COMPENSATION
On September 1, 1996, six separate Company Appreciation Rights ('CARs')
were granted to the Executive under the Agreement. For each CAR, the Executive
is entitled to receive, as soon as practicable after the 'settlement date' as
defined in the Agreement, an amount equal to a percentage (initially 3%) of the
excess of the Company's fair market value over the target value for that CAR.
The Company's Board of Directors, in its sole discretion, shall determine if the
CAR amount is settled with cash, equity securities of the Company, a combination
thereof, or any other form of consideration as the Board may determine. The CAR
percentage and target values are subject to adjustment for equity contributions
and other transactions of the Company, as defined in the Agreement, and expire
ten years after the grant date. Upon termination of the Executive's employment,
nonvested CARs shall be forfeited. The vesting date and unadjusted target value
for each CAR granted is as follows:
<TABLE>
<CAPTION>
UNADJUSTED
CAR VESTING DATE TARGET VALUE
- -------------------------------------- ----------------- --------------
<S> <C> <C>
1................................ September 1, 1997 $ 200,000,000
2................................ September 1, 1998 250,000,000
3................................ September 1, 1999 325,000,000
4................................ September 1, 2000 425,000,000
5................................ September 1, 2001 500,000,000
6................................ September 1, 2002 2,750,000,000
</TABLE>
In addition, the Company has adopted a Long-Term Incentive Compensation
Plan (the 'Plan') under which an aggregate of 1,600,000 appreciation rights
('Rights') may be granted to employees, directors, and
F-8
<PAGE>
TELIGENT, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
6. STOCK-BASED COMPENSATION--(CONTINUED)
consultants of the Company. Each appreciation right represents .00001% (subject
to adjustment) of the Appreciation Value associated with that Right, as defined
in the Plan. In 1996, 562,000 Rights were granted for a term of ten years with a
five-year vesting period.
The Company has recognized compensation expense of $2,778,165 for the
period March 5, 1996 (date of inception) to December 31, 1996 under the
provisions of APB 25. Had compensation expense been determined based on the fair
value of the CARs and rights at the grant date consistent with the provisions of
FAS 123, the Company's net loss for the period March 5, 1996 (date of inception)
to December 31, 1996 would have been $11,483,967. The Black-Scholes
option-pricing model was used to determine the fair value of the CARs, with the
following assumptions: expected life of ten years, expected volatility of .34%,
no expected dividend yield, and a risk-free interest rate of 6.96%.
7. RELATED PARTY TRANSACTIONS
As discussed in Note 1, the Company was formed to provide certain
administrative services to MSI and DSC, its members, in connection with the
management and operation of the DTS Systems. Under the terms of the Company's
Administration and Management Services Agreements (the 'Service Agreements')
with MSI and DSC, the Company is entitled to a management fee of 15% of net
revenues from the operations of the DTS Systems, or $5,000 per month, whichever
is greater. Payment of the management fees and accrued interest thereon are
deferred until cash flow from the DTS Systems is sufficient to pay such fees and
interest.
Income from equipment leases represents lease revenue from MSI and DSC for
operating equipment purchased by the Company for operation of the DTS Systems
which is leased to MSI and DSC under the terms of the Service Agreements.
The Company leases certain operating sites from affiliates of MSI at cost.
Total rent expense for these leases for the period March 5, 1996 (date of
inception) to December 31, 1996 was $2,900.
During 1996 employees of the parent companies of MSI and DSC performed
administrative and management services on behalf of the Company. These services
were billed to the Company at estimated fair value for such services for the
period March 5, 1996 (date of inception) through August 31, 1996, and at amounts
which approximate cost for the four months ended December 31, 1996, and totaled
$1,493,652.
Employees of the Company are covered under certain health and benefit plans
of the parent company of MSI. The Company is billed for their pro rata cost of
these benefits.
Also during 1996, the Company contracted with LCC International, Inc., an
affiliate of DSC, for consulting and technical services totaling $553,015 for
the period March 5, 1996 (date of inception) to December 31, 1996.
8. COMMITMENTS AND CONTINGENCIES
The Company has entered into a purchase agreement with an equipment vendor
for the purchase of microwave equipment. Pursuant to the agreement, the parties
have a mutually agreed period of time to complete negotiations of certain
additional terms. If negotiations are not completed to the satisfaction of the
Company within the requisite period, the Company may terminate the agreement,
provided that, under certain circumstances of termination, the Company may be
required to reimburse the vendor for up to $4 million in research and
development costs. The outcome of the negotiation of the additional terms, and
their effect on other terms and conditions of the agreement, is uncertain.
F-9
<PAGE>
TELIGENT, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
9. SUBSEQUENT EVENTS
On March 10, 1997, Teligent entered into a Stock Contribution Agreement
(the 'Stock Agreement') with another DTS licensee and its sole shareholder (the
'Sole Shareholder') for the contribution of all of the stock of the licensee to
Teligent in exchange for an initial cash payment, and additional cash payments
and ownership interests in Teligent upon consummation of the transactions and
Teligent's acquisition of the stock and the licenses contemplated by the Stock
Agreement. Consummation of the transactions and transfer of these licenses is
subject to certain closing conditions and the receipt of all necessary
regulatory approvals, including approval by the FCC. The amount of the equity
interest in Teligent to be issued to the Sole Shareholder is dependent upon
certain conditions, but shall not exceed 5% determined as of the date of the
Stock Agreement. Subsequent to a closing the Sole Shareholder will have a full
member interest in Teligent pursuant to the Limited Liability Company Agreement,
to which MSI and DSC are parties.
On March 14, 1997, the FCC issued an Order (the 'Relocation Order')
providing for the relocation of DEMS licenses in the 18 GHz band to the 24 GHz
band. On June 24, 1997, the FCC issued a subsequent order (the 'Modification
Order'), which implemented the Relocation Order by modifying various DEMS
licenses, including those held by the Company, to authorize DEMS operations at
24 GHz.
The Relocation Order and the Modification Order were subject to an
administrative and judicial review period and, during this period, five parties
filed petitions with the FCC seeking either partial or full reconsideration or
review of one or both orders. The Company timely filed responses with the FCC
opposing the petitions and continues to build-out its networks as permitted
under its licenses, the Relocation Order and the Modification Order. In
addition, DirecTV Enterprises, Inc. has filed a petition for rulemaking with the
FCC, requesting permission to construct and operate satellite uplink facilities
in the 24 GHz frequencies allocated and granted to DEMS licensees. The Company
and its affiliates have filed a timely opposition to this rulemaking petition.
It cannot be determined when and how the FCC will rule on these petitions.
F-10
<PAGE>
TELIGENT, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEET (UNAUDITED)
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash............................................................................................. $ 1,656,275
Accounts receivable.............................................................................. 4,702
Employee loans and advances...................................................................... 1,984,992
Due from related parties......................................................................... 1,407,950
Prepaid expenses and other assets................................................................ 242,406
-----------
Total current assets.......................................................................... 5,296,325
Property and equipment:
Operating equipment.............................................................................. 4,068,213
Furniture and equipment.......................................................................... 1,078,919
Leasehold improvements........................................................................... 30,782
Systems in process............................................................................... 1,995,068
-----------
7,172,982
Accumulated depreciation and amortization.......................................................... (326,348)
-----------
Property and equipment--net........................................................................ 6,846,634
Payment to wireless communications company......................................................... 5,570,000
Investment in wireless communications business..................................................... 200,000
Management fees receivable......................................................................... 169,339
-----------
Total assets....................................................................................... $18,082,298
-----------
-----------
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Accounts payable................................................................................. $ 3,118,947
Employee compensation............................................................................ 927,120
Accrued expenses................................................................................. 354,095
Revolving line-of-credit......................................................................... 25,000,000
Accrued company appreciation rights--current..................................................... 14,947,500
-----------
Total current liabilities..................................................................... 44,347,662
Deferred compensation.............................................................................. 731,370
Accrued company appreciation rights--long-term..................................................... 25,704,141
Members' deficit:
Capital contributions............................................................................ 9,058,158
Deficit accumulated during the development stage................................................. (61,759,033)
-----------
Total members' deficit........................................................................ (52,700,875)
-----------
Total liabilities and members' deficit............................................................. $18,082,298
-----------
-----------
</TABLE>
See accompanying notes to unaudited condensed financial statements.
F-11
<PAGE>
TELIGENT, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
PERIOD
SIX MONTHS MARCH 5, 1996
ENDED (DATE OF INCEPTION) TO
JUNE 30, 1997 JUNE 30, 1997
------------- ----------------------
<S> <C> <C>
Revenues:
Management fees............................................................ $ 60,000 $ 160,000
Equipment leases........................................................... 246,360 411,920
Other services provided to members......................................... 1,407,578 2,528,360
------------- ----------------------
Total revenues.......................................................... 1,713,938 3,100,280
Costs and expenses:
Cost of wireless communication services.................................... 1,717,597 3,342,752
Sales, general and administrative.......................................... 10,603,602 19,186,090
Company appreciation rights................................................ 37,873,476 40,651,641
Depreciation and amortization.............................................. 162,297 326,348
------------- ----------------------
Total costs and expenses................................................ 50,356,972 63,506,831
------------- ----------------------
Operating loss............................................................... (48,643,034) (60,406,551)
Interest expense and loan fees............................................... (483,294) (1,352,482)
------------- ----------------------
Net loss..................................................................... $ (49,126,328) $(61,759,033)
------------- ----------------------
------------- ----------------------
</TABLE>
The net loss for the six months ended June 30, 1997 and the period March 5,
1996 (date of inception) to June 30, 1997 includes noncash company appreciation
rights expense of $37,873,476 and $40,651,641, respectively. Such expense is
required under generally accepted accounting principles due to the variable
nature of the underlying employee compensation plan and may not reflect the
actual amount of compensation due at vesting due to changes in the fair market
value of Teligent, actual employee vesting, and dilution. If compensation
expense was not recognized relating to company appreciation rights, the net loss
for the six months ended June 30, 1997 and the period March 5, 1996 (date of
inception) to June 30, 1997 would have been $11,252,852 and $21,107,392,
respectively.
See accompanying notes to unaudited condensed financial statements.
F-12
<PAGE>
TELIGENT, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENT OF MEMBERS' DEFICIT (UNAUDITED)
PERIOD MARCH 5, 1996 (DATE OF INCEPTION) TO JUNE 30, 1997
<TABLE>
<CAPTION>
CAPITAL ACCUMULATED TOTAL
CONTRIBUTION DEFICIT DEFICIT
------------ ------------ ------------
<S> <C> <C> <C>
Balance at March 5, 1996 (date of inception)........................ $ -- $ -- $ --
Member capital contributions...................................... 9,058,158 -- 9,058,158
Net loss.......................................................... -- (61,759,033) (61,759,033)
------------ ------------ ------------
Balance at June 30, 1997............................................ $ 9,058,158 $(61,759,033) $(52,700,875)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to unaudited condensed financial statements.
F-13
<PAGE>
TELIGENT, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
PERIOD
MARCH 5, 1996
SIX MONTHS (DATE OF
ENDED INCEPTION) TO
JUNE 30, 1997 JUNE 30, 1997
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................................................... $ (49,126,328) $(61,759,033)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization............................................... 162,297 326,348
Deferred compensation....................................................... 438,822 731,370
Company appreciation rights................................................. 37,873,476 40,651,641
Management fees............................................................. (65,871) (169,339)
Changes in current assets and current liabilities:
Accounts receivable......................................................... 163 (4,702)
Employee loans and advances................................................. (1,984,992) (1,984,992)
Due from related parties.................................................... (1,554,002) (1,407,950)
Prepaid expenses and other assets........................................... (91,224) (242,406)
Accounts payable............................................................ 116,768 3,118,947
Employee compensation....................................................... 464,453 927,120
Accrued expenses............................................................ 354,083 354,095
------------- --------------
Net cash used in operating activities....................................... (13,412,355) (19,458,901)
Cash flows from investing activities:
Purchase of property and equipment............................................. (3,463,982) (7,172,982)
Payments relating to wireless communications business.......................... (5,770,000) (5,770,000)
------------- --------------
Net cash used in investing activities.......................................... (9,233,982) (12,942,982)
Cash flows from financing activities:
Proceeds from bank borrowings.................................................. 23,000,000 25,000,000
Member contributions........................................................... -- 9,058,158
------------- --------------
Net cash provided by financing activities...................................... 23,000,000 34,058,158
------------- --------------
Net increase in cash........................................................... 353,663 1,656,275
Cash at beginning of period.................................................... 1,302,612 --
------------- --------------
Cash at end of period.......................................................... $ 1,656,275 $ 1,656,275
------------- --------------
------------- --------------
</TABLE>
See accompanying notes to unaudited condensed financial statements.
F-14
<PAGE>
TELIGENT, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only normal
recurring accruals, necessary for a fair presentation of the financial position
of Teligent, L.L.C. as of June 30, 1997, and the results of its operations and
cash flows for the six months ended June 30, 1997 and the period March 5, 1996
(date of inception) to June 30, 1997. These condensed financial statements are
unaudited, and do not include all related footnote disclosures. The results of
operations for the six months ended June 30, 1997 are not necessarily indicative
of the results of operations expected in the future, although the Company will
continue to be a development stage limited liability company and anticipates a
net loss for the year.
(2) PAYMENT TO WIRELESS COMMUNICATIONS COMPANY
The payment to wireless communications company of $5,570,000 at June 30,
1997 is in connection with the FirstMark acquisition and will be allocated to
licenses upon closing of the transaction.
(3) SUBSEQUENT EVENT
On September 30, 1997, the Company terminated a preexisting agreement with
an equipment vendor. In connection with this termination, the Company may be
required to reimburse the vendor for up to $4 million in research and
development costs.
F-15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY IN
ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward Looking Statements.................................. 4
Additional Information...................................... 4
Prospectus Summary.......................................... 5
Risk Factors................................................ 16
Use of Proceeds............................................. 28
Unaudited Pro Forma Balance Sheet........................... 29
Selected Financial Data..................................... 31
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 34
Business.................................................... 42
Telecommunications Industry Overview........................ 56
Regulation.................................................. 57
Management.................................................. 63
Certain Transactions........................................ 71
Certain Relationships and Related Transactions.............. 75
Security Ownership of Certain Beneficial Owners and
Management................................................ 78
Description of the Notes.................................... 79
Description of Capital Stock................................ 88
Certain Federal Income Tax Considerations................... 92
Underwriting................................................ 94
Legal Matters............................................... 95
Experts..................................................... 95
Glossary.................................................... A-1
Index to Financial Statements............................... F-1
</TABLE>
UNTIL , 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$400,000,000 GROSS PROCEEDS
[LOGO]
TELIGENT, INC.
$
% SENIOR NOTES DUE 2007
$
% SENIOR DISCOUNT NOTES
DUE 2007
---------------------------
PROSPECTUS
---------------------------
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
TD SECURITIES
GOLDMAN, SACHS & CO.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses expected to be
incurred in connection with the sale and distribution of the securities being
registered.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......................................... $121,213
NASD filing fee............................................................................. $ 30,500
Printing and engraving expenses............................................................. *
Blue Sky fees and expenses.................................................................. *
Legal fees and expenses..................................................................... *
Accounting fees and expenses................................................................ *
Trustee fees and expenses................................................................... *
Miscellaneous............................................................................... *
--------
Total.................................................................................. $ *
--------
--------
</TABLE>
- ------------------
* To be filled in by amendment.
All of the amounts shown are estimates except for the fee payable to the
Securities and Exchange Commission and the NASD filing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
DELAWARE GENERAL CORPORATION LAW (THE 'DGCL')
Section 145(a) of the DGCL provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person 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 such person's conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that such person did not act in good
faith and in a manner which such person 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 reasonable cause to believe that such
person's conduct was unlawful.
Section 145(b) of the DGCL states that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper.
II-1
<PAGE>
Section 145(c) of the DGCL provides that to the extent that a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by such person in connection
therewith.
Section 145(d) of the DGCL states that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances because such person has met the applicable standard of conduct
set forth in subsections (a) and (b) of Section 145. Such determination shall be
made (1) by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than a quorum, or (2) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (3) by the stockholders.
Section 145(f) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, the other subsections of
Section 145 shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in such person's official capacity and as to action in another
capacity while holding such office.
Section 145(g) of the DGCL provides that a corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against such person and incurred by such person
in any such capacity or arising out of such person's status as such, whether or
not the corporation would have the power to indemnify such person against such
liability under the provisions of Section 145.
Section 145(j) of the DGCL states that the indemnification and advancement
of expenses provided by, or granted pursuant to, Section 145 shall, unless
otherwise provided when authorized or ratified, continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
Article Eighth of the Company's Amended and Restated Certificate of
Incorporation will provide that the Company will indemnify its directors and
officers to the fullest extent authorized or permitted by law, as now or
hereafter in effect, and such right to indemnification will continue as to a
person who has ceased to be a director or officer of the Company and will inure
to the benefit of his or her heirs, executors and personal and legal
representatives; provided, however, that except for proceedings to enforce
rights to indemnification, the Company will not be obligated to indemnify any
director or officer (or his or her heirs, executors or personal or legal
representatives) in connection with a proceeding (or part thereof) initiated by
such person unless such proceeding (or part thereof) was authorized or consented
to by the Board of Directors. The right to indemnification conferred by Article
Eighth will include the right to be paid by the Company the expenses incurred in
defending or otherwise participating in any proceeding in advance of its final
disposition.
The rights to indemnification and to the advance of expenses conferred in
Article Eighth will not be exclusive of any other right which any person may
have or hereafter acquire under this Certificate of Incorporation, the By-Laws
of the Company, any statute, agreement, vote of stockholders or disinterested
directors or otherwise.
AMENDED AND RESTATED BY-LAWS
Section 1 of Article VIII of the By-laws will provide that subject to
Section 3 of Article VIII, the Company will indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Company) by reason
of the fact that such person is or was a director or officer of the Company, or
is or was a director or officer of the Company serving at the request of the
Company as a director or
II-2
<PAGE>
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, will not, of itself, create a
presumption that the person did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had reasonable
cause to believe that such person's conduct was unlawful.
Section 2 of Article VIII of the By-laws will provide that subject to
Section 3 of Article VIII, the Company will indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Company to procure a judgment
in its favor by reason of the fact that such person is or was a director or
officer of the Company, or is or was a director or officer of the Company
serving at the request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection with the defense or settlement
of such action or suit if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interests of the
Company; except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable to
the Company unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 3 of Article VIII of the By-laws will provide that any
indemnification under Article VIII (unless ordered by a court) will be made by
the Company only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Section 1 or Section 2 of Article VIII, as the case may be. Such determination
shall be made (i) by a majority vote of the directors who are not parties to
such action, suit or proceeding, even though less than a quorum, or (ii) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion or (iii) by the stockholders. To the extent,
however, that a director or officer of the Company has been successful on the
merits or otherwise in defense of any action, suit or proceeding described
above, or in defense of any claim, issue or matter therein, such person will be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by such person in connection therewith, without the necessity of
authorization in the specific case.
Section 5 of Article VIII of the By-laws will provide that, notwithstanding
any contrary determination in the specific case under Section 3 of Article VIII,
and notwithstanding the absence of any determination thereunder, any director or
officer may apply to the Court of Chancery in the State of Delaware for
indemnification to the extent otherwise permissible under Sections 1 and 2 of
Article VIII. The basis of such indemnification by a court will be a
determination by such court that indemnification of the director or officer is
proper in the circumstances because such person has met the applicable standards
of conduct set forth in Section 1 or 2 of Article VIII, as the case may be.
Neither a contrary determination in the specific case under Section 3 of Article
VIII nor the absence of any determination thereunder will be a defense to such
application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to Section 5 shall be given to the
Company promptly upon the filing of such application. If successful, in whole or
in part, the director or officer seeking indemnification will also be entitled
to be paid the expense of prosecuting such application.
Section 7 of Article VIII of the By-laws will provide that the
indemnification and advancement of expenses provided by or granted pursuant to
Article VIII will not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under the
Certificate of Incorporation, any By-Law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office, it being the policy of the
II-3
<PAGE>
Company that indemnification of the persons specified in Sections 1 and 2 of
Article VIII shall be made to the fullest extent permitted by law. The
provisions of Article VIII will not be deemed to preclude the indemnification of
any person who is not specified in Section 1 or 2 of Article VIII but whom the
Company has the power or obligation to indemnify under the provisions of the
DGCL, or otherwise.
Section 8 of Article VIII of the By-laws will provide that the Company may
purchase and maintain insur-ance on behalf of any person who is or was a
director or officer of the Company, or is or was a director or officer of the
Company serving at the request of the Company as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Company would have the power or the
obligation to indemnify such person against such liability under the provisions
of Article VIII.
Section 11 of Article VIII of the By-laws will provide that notwithstanding
anything contained in Article VIII to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5
thereof), the Company will not be obligated to indemnify any director or officer
in connection with a proceeding (or part thereof) initiated by such person
unless such proceeding (or part thereof) was authorized or consented to by the
Board of Directors of the Company.
INSURANCE
The directors and officers of the Company are covered by insurance policies
indemnifying against certain liabilities, including certain liabilities arising
under the Securities Act, which might be incurred by them in such capacities and
against which they cannot be indemnified by the Company.
UNDERWRITING AGREEMENT
The Underwriting Agreement will provide for the indemnification against
certain liabilities of the directors and officers of the Company and certain
controlling persons under certain circumstances, including certain liabilities
under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In September 1997, in connection with the Company's incorporation, the
Company issued 100 shares of Common Stock to Teligent, L.L.C. for consideration
of $10. Such issuance was exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof.
Pursuant to the Agreement and Plan of Merger dated as of October 6, 1997,
the Company will issue an aggregate of shares of Class A Common Stock and
shares of Class B Common Stock to holders of Teligent, L.L.C. member
interests. Such issuances will be exempt from the registration requirements of
the Securities Act pursuant to Section 4(2) thereof.
ITEM 16. EXHIBITS
(a) The following is a list of exhibits filed as part of this Registration
Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement.(2)
3.1 -- Amended and Restated Limited Liability Agreement, dated as of October 1, 1997, by and between
Microwave Services, Inc., Digital Services Corporation and Lynn Forester.(2)
3.2 -- Form of Certificate of Incorporation of Registrant.(2)
3.3 -- Form of Amended and Restated By-laws of Registrant.(2)
3.4 -- Form of Amended and Restated Limited Liability Company Agreement of Teligent, L.L.C., dated as of
, by and among Teligent, L.L.C., Microwave Services, Inc., Telecom-DTS, L.L.C. and
Nippon Telegraph and Telephone Corporation.(2)
4.1 -- Form of Stockholders Agreement.(2)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
4.2 -- Form of Indenture between the Registrant, as issuer, and , as Trustee, relating to
Registrant's Senior Notes due 2007, including form of Note.(2)
4.3 -- Form of Indenture between the Registrant, as issuer, and , as Trustee, relating to
Registrant's Senior Discount Notes due 2007, including form of Note.(2)
4.4 -- Form of Pledge Agreement between Registrant, as issuer, and , as Escrow Agent, relating
to Registrant's Senior Notes due 2007.(2)
5.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP relating to the legality of the Notes.(2)
10.1 -- Employment Agreement, dated August 19, 1996, between Associated Communications, L.L.C. and Alex J.
Mandl.(2)
10.2 -- Administration and Management Services Agreement, dated March 5, 1996, between DMT, L.L.C. and
Microwave Services, Inc.(2)
10.3 -- Administration and Management Services Agreement, dated March 5, 1996, between DMT, L.L.C. and
Digital Services Corporation.(2)
10.4 -- Loan Agreement, dated December 24, 1996 between Associated Communications, L.L.C. and the
Toronto Dominion Bank (Texas), Inc.(2)
10.5 -- Stock Contribution Agreement, dated as of March 10, 1997, among Associated Communications, L.L.C.,
Firstmark Communications, Inc. and Lynn Forester.(2)
10.6 -- Securities Purchase Agreement dated as of September 30, 1997, by and among Teligent, L.L.C.,
Microwave Services, Inc., Digital Services, Inc. and Nippon Telegraph and Telephone
Corporation.(2)
10.7 -- Form of Registration Rights Agreement, by and among Teligent, L.L.C., and Nippon Telegraph and
Telephone Corporation.(2)
10.8 -- Form of Technical Services Agreement, by and among Teligent, L.L.C., and NTT America Inc.(2)
10.9 -- Agreement dated September 29, 1997, among Teligent, L.L.C., Digital Services Corporation,
Microwave Services, Inc. and The Associated Group, Inc.(2)
10.10 -- Agreement and Plan of Merger, dated as of October 6, 1997 by and between Teligent, Inc. and
Teligent, L.L.C.(2)
11.1 -- Statement of Computation of Per Share Earnings.(2)
23.1 -- Consent of Ernst & Young LLP.(1)
23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP (to be contained in Exhibit 5).(2)
24.1 -- Power of Attorney (included on the signature page of this Registration Statement).(1)
</TABLE>
- ------------------
(1) Filed herewith.
(2) To be filed by amendment.
(b) Financial Data Schedules. All required information is set forth in the
financial statements included in the Prospectus constituting part of this
Registration Statement.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to 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
of 1933 and is, therefore, unenforceable. In the event
II-5
<PAGE>
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 of 1933 and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of Prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained
in a form of Prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be
deemed to be part of this Registration Statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, 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 that time shall be deemed to be the initial bona fide offering
thereof.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN VIRGINIA, ON OCTOBER 7, 1997.
TELIGENT, INC.
By: /s/ ALEX J. MANDL
-----------------------------------
Name: Alex J. Mandl
Title: Chairman of the Board
and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
EACH PERSON IN SO SIGNING, ALSO MAKES, CONSTITUTES AND APPOINTS ALEX J.
MANDL AND LAURENCE E. HARRIS, AND EACH OF THEM ACTING ALONE, HIS TRUE AND LAWFUL
ATTORNEY-IN-FACT, WITH FULL POWER OF SUBSTITUTION, TO EXECUTE AND CAUSE TO BE
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO THE REQUIREMENTS
OF THE SECURITIES ACT OF 1933, AS AMENDED (THE 'ACT'), ANY AND ALL AMENDMENTS
AND POST-EFFECTIVE AMENDMENTS TO THIS REGISTRATION STATEMENT, WITH EXHIBITS
THERETO AND OTHER DOCUMENTS IN CONNECTION THEREWITH, AND ANY RELATED
REGISTRATION STATEMENT AND ITS AMENDMENTS AND POST-EFFECTIVE AMENDMENTS FILED
PURSUANT TO RULE 462(B) UNDER THE ACT, WITH EXHIBITS THERETO AND OTHER DOCUMENTS
IN CONNECTION THEREWITH, AND HEREBY RATIFIES AND CONFIRMS ALL THAT SAID
ATTORNEY-IN-FACT OR HIS SUBSTITUTE OR SUBSTITUTES MAY DO OR CAUSE TO BE DONE BY
VIRTUE THEREOF.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ----------------------------------------------- -------------------
<S> <C> <C>
/s/ ALEX J. MANDL Chairman of the Board, Chief Executive Officer October 7, 1997
- ------------------------------------------ and Director
Alex J. Mandl
/s/ ABRAHAM L. MORRIS Senior Vice President and Chief Financial October 7, 1997
- ------------------------------------------ Officer (Principal Financial Officer)
Abraham L. Morris
/s/ CINDY L. TALLENT Vice President and October 7, 1997
- ------------------------------------------ Controller (Principal Accounting Officer)
Cindy L. Tallent
/s/ MYLES P. BERKMAN Director October 7, 1997
- ------------------------------------------
Myles P. Berkman
/s/ DAVID J. BERKMAN Director October 7, 1997
- ------------------------------------------
David J. Berkman
/s/ WILLIAM H. BERKMAN Director October 7, 1997
- ------------------------------------------
William H. Berkman
/s/ RAJENDRA SINGH Director October 7, 1997
- ------------------------------------------
Rajendra Singh
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION Page No.
- ---------- -------------------------------------------------------------------------------------------------------- --------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement.(2)
3.1 -- Amended and Restated Limited Liability Agreement, dated as of October 1, 1997, by and between
Microwave Services, Inc., Digital Services Corporation and Lynn Forester.(2)
3.2 -- Form of Certificate of Incorporation of Registrant.(2)
3.3 -- Form of Amended and Restated By-laws of Registrant.(2)
3.4 -- Form of Amended and Restated Limited Liability Company Agreement of Teligent, L.L.C., dated as of
, by and among Teligent, L.L.C., Microwave Services, Inc., Telecom-DTS, L.L.C. and
Nippon Telegraph and Telephone Corporation.(2)
4.1 -- Form of Stockholders Agreement.(2)
4.2 -- Form of Indenture between the Registrant, as issuer, and , as Trustee, relating to
Registrant's Senior Notes due 2007, including form of Note.(2)
4.3 -- Form of Indenture between the Registrant, as issuer, and , as Trustee, relating to
Registrant's Senior Discount Notes due 2007, including form of Note.(2)
4.4 -- Form of Pledge Agreement between Registrant, as issuer, and , as Escrow Agent, relating
to Registrant's Senior Notes due 2007.(2)
5.1 -- Opinion of Skadden, Arps, Slate, Meagher & Flom LLP relating to the legality of the Notes.(2)
10.1 -- Employment Agreement, dated August 19, 1996, between Associated Communications, L.L.C. and Alex J.
Mandl.(2)
10.2 -- Administration and Management Services Agreement, dated March 5, 1996, between DMT, L.L.C. and
Microwave Services, Inc.(2)
10.3 -- Administration and Management Services Agreement, dated March 5, 1996, between DMT, L.L.C. and
Digital Services Corporation.(2)
10.4 -- Loan Agreement, dated December 24, 1996 between Associated Communications, L.L.C. and the
Toronto Dominion Bank (Texas), Inc.(2)
10.5 -- Stock Contribution Agreement, dated as of March 10, 1997, among Associated Communications, L.L.C.,
Firstmark Communications, Inc. and Lynn Forester.(2)
10.6 -- Securities Purchase Agreement dated as of September 30, 1997, by and among Teligent, L.L.C.,
Microwave Services, Inc., Digital Services, Inc. and Nippon Telegraph and Telephone
Corporation.(2)
10.7 -- Form of Registration Rights Agreement, by and among Teligent, L.L.C., and Nippon Telegraph and
Telephone Corporation.(2)
10.8 -- Form of Technical Services Agreement, by and among Teligent, L.L.C., and NTT America Inc.(2)
10.9 -- Agreement dated September 29, 1997, among Teligent, L.L.C., Digital Services Corporation,
Microwave Services, Inc. and The Associated Group, Inc.(2)
10.10 -- Agreement and Plan of Merger, dated as of October 6, 1997 by and between Teligent, Inc. and
Teligent, L.L.C.(2)
11.1 -- Statement of Computation of Per Share Earnings.(2)
23.1 -- Consent of Ernst & Young LLP.(1)
23.2 -- Consent of Skadden, Arps, Slate, Meagher & Flom LLP (to be contained in Exhibit 5).(2)
24.1 -- Power of Attorney (included on the signature page of this Registration Statement).(1)
</TABLE>
- ------------------
(1) Filed herewith.
(2) To be filed by amendment.
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 14, 1997 of Teligent, L.L.C. (formerly Associated
Communications, L.L.C.), in the Registration Statement (Form S-1) and related
Prospectus for the issuance of Senior Notes and Senior Discount Notes of
Teligent, Inc.
/s/ Ernst & Young LLP
---------------------
Pittsburg, Pennsylvania
October 6, 1997
