<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1997
REGISTRATION NO. 333-37373
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
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(2)
<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.
(2) Previously paid.
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 PROS[HO]PECTUS 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 30, 1997
PROSPECTUS
$400,000,000 GROSS PROCEEDS
TELIGENT, INC. [LOGO]
$250,000,000 % SENIOR NOTES DUE 2007
$ % SENIOR DISCOUNT NOTES DUE 2007
------------------------
Teligent, Inc. ('Teligent' or the 'Company') is offering (the 'Notes
Offering') $250,000,000 aggregate principal amount of its % Senior Notes due
2007 (the 'Senior Notes') and $ 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 $69.0 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 $150.0 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 , 2003.
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.
[CAPTION]
<TABLE>
PRINCIPAL AMOUNT PRICE TO UNDERWRITING PROCEEDS TO
AT MATURITY PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
<S> <C> <C> <C> <C>
Per Senior Note.................... % % % %
Total.............................. $ $ $ $
Per Senior Discount Note........... % % % %
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 several 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 several Underwriters, subject to prior sale,
when, as and if issued to and accepted by them, 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 in New York, New York, 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 5,500,000 shares of Class A Common Stock of the Company (the 'Class
A Common Stock'), with 4,400,000 shares being offered in the United States and
Canada (the 'U.S. Offering') and 1,100,000 shares being offered in a concurrent
offering outside the United States and Canada (the 'International Offering' and,
together with the U.S. Offering, the '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. $60.0 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 $100.0 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.
[TELIGENT LOGO]
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>
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 thereto. For further information with respect to the
Company and the Notes offered hereby, reference is made to the Registration
Statement and the exhibits 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 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.
3
<PAGE>
[This page intentionally left blank]
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; and (iv) no exercise by the underwriters in the Equity Offerings
of over-allotment options granted by the Company to purchase 825,000 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
has deployed 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 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, has 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.
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
5
<PAGE>
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 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 of
up to 40 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. The
Company believes that in the future, radio equipment vendors will make available
radio/antenna units with even 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
6
<PAGE>
ability to provide last mile local loop service through its own networks 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 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.
7
<PAGE>
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 networks 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 has deployed a point-to-
multipoint system in Richardson, TX on a trial basis.
The Company plans to begin 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 its
integrated package of services. The Company intends to offer such 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 (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.
8
<PAGE>
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. The Company has entered into a letter of intent with Nortel, which
outlines the principal terms and conditions for the purchase of certain
telecommunications equipment, software and services. See 'Description of Certain
Indebtedness.'
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 original 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 consummation of
the FirstMark Acquisition (as defined below) and the Additional Sponsor Equity
Contributions, but before giving effect to the consummation of the Equity
Offerings and the conversion of existing equity incentive awards into stock
options in connection with the Reorganization). 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 consummation of the FirstMark Acquisition and the
Additional Sponsor Equity Contributions, but before giving effect to the
consummation of the Equity Offerings and the conversion of existing equity
incentive awards into stock options in connection with the Reorganization).
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'),
which termination has occurred. 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 immediately prior to 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 24 GHz band (which were relocated from the 18 GHz band) in the Los
Angeles and San Francisco, CA and New York, NY markets. See 'Risk
Factors--Relocation of Licenses to 24 GHz; Pending FCC Petitions' and
'Regulation--Relocation of Licenses to 24 GHz.'
9
<PAGE>
Vendor Financing. The Company has entered into a commitment letter with
Nortel setting forth the anticipated terms and conditions under which Nortel
will provide loans in an aggregate amount of up to $780.0 million which will be
used to finance the purchase of certain telecommunications equipment, software
and services pursuant to the definitive agreement contemplated by the Equipment
Purchase Letter of Intent (as defined) and to provide working capital (the
'Vendor Financing'). The obligation of Nortel to provide the Vendor Financing is
subject to numerous conditions, including the negotiation, execution and
delivery of definitive documentation relating to the Vendor Financing. There can
be no assurance that the parties will be able to reach agreement on the terms of
such definitive documentation. See 'Description of Certain Indebtedness.'
Equity Offerings. Concurrent with the Notes Offering, the Company is
offering 5,500,000 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 $103.6 million (assuming an initial public offering price of
$20.50 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
41.4%, 33.2% and 11.2%, 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 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. 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 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.
10
<PAGE>
COMPANY HISTORY AND SPONSORSHIP
The Company was founded in March 1996 as a joint venture 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 ownership and operation of communications
assets and businesses, which have historically included cellular, cable
television and radio broadcasting. In December 1994, Associated was spun off
from Associated Communications Corporation and Associated Communications
Corporation was acquired immediately thereafter by 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 subsequently 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 investment
partnerships formed by 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.
11
<PAGE>
PRO FORMA CAPITALIZATION
The following table sets forth (i) the capitalization of the Company as of
September 30, 1997 on an actual basis, (ii) pro forma adjustments resulting from
the FirstMark Acquisition, the Additional Sponsor Equity Contributions, the
assignment of certain licenses held by certain of the Company's members or
affiliates to the Company and the grant by the FCC of pending applications to
provide 24 GHz wireless services in Boston, MA and New York, NY (collectively,
the 'License Transactions'), the Strategic Equity Investment and the
Reorganization (collectively, the 'Transactions'), (iii) pro forma adjustments
resulting from the Offerings and the application of the net proceeds therefrom
as described under 'Use of Proceeds' and (iv) the capitalization of the Company
as of September 30, 1997 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
September 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 SEPTEMBER 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.......................... $ 5,808 $ 119,619 $ 419,550 $ 544,977
--------- ------------------- --------------- -----------
--------- ------------------- --------------- -----------
Restricted cash(4)................................. $ -- $ -- $ 69,000 $ 69,000
--------- ------------------- --------------- -----------
--------- ------------------- --------------- -----------
Debt
Revolving line of credit(5)...................... $ 38,500 $ (38,500) $ -- $ --
Senior Notes..................................... -- -- 250,000 250,000
Senior Discount Notes............................ -- -- 150,000 150,000
--------- ------------------- --------------- -----------
Total debt......................................... 38,500 (38,500) 400,000 400,000
Stockholders' equity
Common Stock..................................... -- 463 518
Additional paid-in capital(6).................... 9,058 199,871 103,495 312,424
Deficit accumulated during the development
stage......................................... (89,208) 21,680 -- (67,528)
--------- ------------------- --------------- -----------
Total Stockholders' equity......................... (80,150) 222,014 103,550 245,414
--------- ------------------- --------------- -----------
Total capitalization............................... $ (41,650) $ 183,514 $ 503,550 $ 645,414
--------- ------------------- --------------- -----------
--------- ------------------- --------------- -----------
</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 and the
Offerings, net of transaction fees, and the application of a portion of the
Additional Sponsor Cash Contributions to repay 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.
(5) Borrowings under the Revolving Credit Agreement amounted to $38.5 million at
September 30, 1997. Immediately prior to 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 September 30, 1997
consists of $9.1 million in member cash 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 and the Equity Offerings reflects the following additional
amounts: $31.5 million reflecting the FirstMark Acquisition, $61.6 million
reflecting the Additional Sponsor Equity Contributions, $8.2 million
reflecting the License Transactions, $100.0 million reflecting the Strategic
Equity Investment and $112.8 million of gross proceeds from the Equity
Offerings, less estimated aggregate transaction fees with respect to the
Equity Offerings and Strategic Equity Investment of $10.2 million and
$518,000 allocated to Common Stock.
12
<PAGE>
THE NOTES OFFERING
<TABLE>
<S> <C>
Issuer.................................... Teligent, Inc.
Gross Proceeds............................ $400,000,000
Securities Offered........................ $250,000,000 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
$150,000,000. 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 $69.0 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 precise amount of the Pledged
Securities to be acquired will depend upon interest rates prevailing
at the closing of the Notes Offering. 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.'
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
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
semi-annually on and , commencing on , 2003.
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
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
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
'Risk Factors--Risk of Inability to Satisfy Change of Control Offer'
and 'Description of the Notes--Change of Control.'
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 $385.0 million, and the net proceeds to Teligent
from the Equity Offerings are estimated to be approximately $103.6
million ($119.5 million if the underwriters' over-allotment options
are exercised in full), assuming an initial public offering price of
$20.50 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 $69.0 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 precise amount of the Pledged
Securities to be acquired will depend upon interest rates prevailing
at the closing of the Notes Offering. The Company intends to use up
to $50 million of the Additional Sponsor Cash Contributions to repay
all outstanding amounts under the Revolving Credit Agreement. Upon
such repayment, the Revolving Credit Agreement will be terminated.
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. 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 and authorizations, 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 nine months ended September 30, 1997, the Company
had net losses of $76.6 million, of which $51.9 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.
16
<PAGE>
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. 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 September 30, 1997, the Company would
have had approximately $400.0 million of outstanding indebtedness as of
September 30, 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 63% as of
September 30, 1997 and the Company would have had a deficiency of earnings to
fixed charges of $40.4 million for the nine months ended September 30, 1997. See
'Prospectus Summary--Pro Forma 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
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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.
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.
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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 the 24 GHz frequency (other than in
connection with the Company's trial in Richardson, TX). The Company has selected
point-to-multipoint technology because the Company believes it will offer
several 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.'
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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 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, zoning, franchises or other governmental permits.
There can be no assurance that the Company will succeed in obtaining the roof
rights and building access, including construction, zoning, franchises or other
governmental permits 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
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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 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 satellite uplink 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
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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 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 (very high
data rate 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.'
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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.
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 as of 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 three 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
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or voted by non-U.S. citizens or companies, from receiving a license for common
carrier services. After January 1, 1998, the FCC has proposed to apply a
rebuttable presumption that 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') serves the
public interest, 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.'
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 (assuming all 1.1 million shares of Class A Common Stock offered
in the International Equity Offering, and a nominal number of shares of Class A
Common Stock offered in the U.S. Equity Offering, are sold to non-U.S. citizens
or companies), will be approximately 20%. 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.
Upon consummation of the Offerings, pursuant to the Company's Certficate of
Incorporation, the Board of Directors of the Company is empowered to take all
actions which it deems appropriate to ensure compliance by the Company with
applicable foreign ownership restrictions. In addition, under a Stockholders
Agreement to be entered into by the Company and some or all of the members of
Teligent, L.L.C. at or prior to consummation of the Equity Offerings (see
'Certain Relationships and Related Transactions--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 election, 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, in
addition, the Company will have the right, and will be required, at the election
of any of the stockholders which are parties to such Stockholders Agreement
(including NTT) to repurchase for cash (to the extent permitted by applicable
Delaware corporation law) shares first from all other Foreign Owners (other than
such parties, if applicable) and thereafter from each of such stockholders on a
pro rata basis (based on the foreign ownership attributable to each such
stockholder) at the fair market value thereof based on the Company's then public
trading value. See 'Certain Relationships and Related Transactions--Stockholders
Agreement' and 'Description of Capital Stock--Restriction on Foreign Ownership.'
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
24
<PAGE>
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 the July 18, 1997 and
October 14, 1997 decisions, 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, 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 Eighth Circuit's October 14 decision vacated an FCC
rule that obligated ILECs, under certain circumstances, to provide combinations
of network elements, rather than provide them individually. This decision may
make it more difficult or expensive for competitors to use combinations of ILEC
elements. Because the Company does not anticipate widespread use of combinations
of ILEC elements, the decision should not have a material adverse effect on its
operations. Moreover, because the decision may increase the cost and decrease
the efficiency of ILEC network element-based competitive approaches, the Company
believes that the decision may comparatively advantage the Company's entry
strategy, which does not heavily rely on the use of ILEC network elements. 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.
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.
Although the Company generally intends not to install facilities in public
rights of way, some municipalities may claim nevertheless that the Company must
pay franchise or rights of way fees. As have several other providers, the
Company may become involved in litigation or FCC preemption proceedings
regarding whether local franchise requirements must be satisfied and what
constitutes use of public rights of way. The Company can give no assurance as to
the outcome of such litigation or, should it occur, whether it would have a
material adverse effect on the Company. See 'Regulation.' No assurance can be
given that any regulation, litigation or proceeding 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
25
<PAGE>
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 41.4% 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 defined herein). 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.'
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.'
26
<PAGE>
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.'
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. The Company intends to invest
the proceeds of the Offerings so as to preserve capital (for use in its
buildout) by investing it in short-term instruments consistent with prudent cash
management and not primarily for the purpose of achieving investment returns.
See 'Prospectus Summary--Pro Forma Capitalization' and 'Use of Proceeds.'
Investment in securities primarily for the purpose of achieving investment
returns could 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
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 $385.0 million, and the net proceeds to the Company from the
Equity Offerings are estimated to be approximately $103.6 million ($119.5 milion
if the underwriters' over-allotment options are exercised in full), assuming an
initial public offering price of $20.50 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 $69.0 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 due on the Senior Notes) that will be
pledged as security for repayment of the Senior Notes. The precise amount of the
Pledged Securities to be acquired will depend upon interest rates prevailing at
the closing of the Notes Offering.
Immediately prior to the Reorganization, the Company intends to use up to
$50.0 million 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 (i) as
of September 30, 1997 on an actual basis, (ii) to show pro forma adjustments
resulting from the Transactions and the application of net proceeds therefrom as
described under 'Use of Proceeds,' (iii) to show pro forma adjustments resulting
from the Offerings and the application of the net proceeds therefrom as
described under 'Use of Proceeds,' and (iv) as of September 30, 1997 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,' each case as if the same occurred on September 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 SEPTEMBER 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.............................. $ 5,808 $ 119,619 $419,550 $544,977
Other current assets................................... 5,581 (2,432) -- 3,149
-------- ------------------- ------------ --------------
Total current assets..................................... 11,389 117,187 419,550 548,126
Restricted cash(4)....................................... -- -- 69,000 69,000
Property and equipment, net.............................. 6,956 685 -- 7,641
Licenses................................................. -- 49,853 -- 49,853
Payment to wireless communications company(5)............ 5,570 (5,570) -- --
Other assets............................................. 403 (203) 15,000 15,200
-------- ------------------- ------------ --------------
Total Assets............................................. $ 24,318 $ 161,952 $503,550 $689,820
-------- ------------------- ------------ --------------
-------- ------------------- ------------ --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued payroll and other current
liabilities......................................... $ 6,298 $ 118 $ -- $ 6,416
Revolving line of credit(6)............................ 38,500 (38,500) -- --
Accrued company appreciation rights.................... 17,899 2,729 -- 20,628
-------- ------------------- ------------ --------------
Total current liabilities................................ 62,697 (35,653) -- 27,044
Accrued company appreciation rights...................... 36,815 (24,409) -- 12,406
Senior Notes............................................. -- -- 250,000 250,000
Senior Discount Notes.................................... -- -- 150,000 150,000
Other liabilities........................................ 956 -- -- 956
Contingent liability..................................... 4,000 -- -- 4,000
Stockholders' equity:
Common Stock........................................... -- 463 55 518
Additional paid-in capital(7).......................... 9,058 199,871 103,495 312,424
Deficit accumulated during the development stage....... (89,208) 21,680 -- (67,528)
-------- ------------------- ------------ --------------
Total Stockholders' equity............................... (80,150) 222,014 103,550 245,414
-------- ------------------- ------------ --------------
Total Liabilities and Stockholders' equity............... $ 24,318 $ 161,952 $503,550 $689,820
-------- ------------------- ------------ --------------
-------- ------------------- ------------ --------------
</TABLE>
(Footnotes on next page)
29
<PAGE>
(Footnotes from previous 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 and the
Offerings, net of transaction fees, and the application of a portion of the
Additional Sponsor Cash Contributions to repay 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.
(5) During the nine months ended September 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 $38.5 million at
September 30, 1997. Immediately prior to 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 September 30, 1997
consists of $9.1 million in member cash 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 and the Equity Offerings reflects the following additional
amounts: $31.5 million reflecting the FirstMark Acquisition, $61.6 million
reflecting the Additional Sponsor Equity Contributions, $8.2 million
reflecting the License Transactions, $100.0 million reflecting the Strategic
Equity Investment and $112.8 million as a result of the Equity Offerings,
less estimated aggregate transaction fees with respect to the Equity
Offerings and Strategic Equity Investment of $10.2 million and $518,000
allocated to Common Stock.
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 nine months ended September 30, 1997, and as of and for
the period March 5, 1996 (date of inception) to September 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 nine months ended September 30, 1997 and for the period March 5, 1996 (date
of inception) to September 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 MARCH 5, 1996
(DATE OF INCEPTION) TO NINE MONTHS ENDED (DATE OF INCEPTION) TO
DECEMBER 31, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
---------------------- ------------------ ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................ $ 1,386 $ 2,914 $ 4,300
Costs and expenses:
Cost of wireless communications services.......... 1,625 2,875 4,499
Sales, general and administrative................. 8,582 23,301 31,884
Company appreciation rights(1).................... 2,778 51,935 54,713
Depreciation and amortization..................... 164 306 470
---------- ---------- ----------
Total costs and expenses....................... 13,149 78,417 91,566
---------- ---------- ----------
Operating loss...................................... (11,763) (75,503) (87,266)
Interest expense and loan fees, net................. (870) (1,072) (1,942)
---------- ---------- ----------
Net loss(1)......................................... $(12,633) $(76,575) $(89,208)
---------- ---------- ----------
---------- ---------- ----------
<CAPTION>
DECEMBER 31, 1996 SEPTEMBER 30, 1997
---------------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash................................................ $ 1,303 $ 5,808
Property and equipment, net......................... 3,545 6,956
Total assets........................................ 5,145 24,318
Revolving line of credit............................ 2,000 38,500
Accrued company appreciation rights................. 2,778 54,713
Members' deficit:
Capital contributions............................. 9,058 9,058
Deficit accumulated during the development stage.. (12,633) (89,208)
---------- ----------
Total members' deficit......................... $ (3,575) $(80,150)
---------- ----------
---------- ----------
<CAPTION>
MARCH 5, 1996 MARCH 5, 1996
(DATE OF INCEPTION) TO NINE MONTHS ENDED (DATE OF INCEPTION) TO
DECEMBER 31, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
---------------------- ------------------ ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OTHER DATA:
EBITDA(2)........................................... $ (8,821) $(23,262) $(32,083)
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 nine months ended September 30, 1997, and for the period March
5, 1996 (date of inception) to September 30, 1997 includes noncash CARs
expense of $2,778,000, $51,935,000, and $54,713,000, 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 nine
months ended September 30, 1997, and the period March 5, 1996 (date of
inception) to September 30, 1997 would have been $9,855,000, $24,640,000 and
$34,495,000, 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
(Footnotes continued on next page)
32
<PAGE>
(Footnotes continued from previous page)
for operating income determined in accordance with generally accepted
accounting principles, it is included 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 nine months ended September
30, 1997 and the period March 5, 1996 (date of inception) to September 30,
1997, earnings were insufficient to cover fixed charges by $12.5 million,
$75.2 million and $87.7 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 September 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 in October 1997,
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 and authorizations, 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 negotiation 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
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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 September 30, 1997, expenditures for property and
equipment total $7.4 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 September 30, 1997 of approximately
$89.2 million. This amount includes $54.7 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 September 30, 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.
NINE MONTHS ENDED SEPTEMBER 30, 1997
For the nine months ended September 30, 1997, the Company generated
revenues of $2.9 million from services provided to MSI and DSC, including $2.3
million of other services, $90,000 of management fees and $0.5 million from
equipment leases.
In the same period, the Company incurred operating expenses (other than
interest expense) of approximately $78.4 million, including $2.9 million
relating to the cost of wireless communications services, $23.3 million of
sales, general and administrative expenses, primarily due to payroll and
consulting costs relating to the commencement of operations of the Company, and
$51.9 million of non-cash expense associated with the CARs. Interest expense for
the nine months ended September 30, 1997 was $1.1 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 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 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 has entered into a letter of intent with Nortel which outlines
the principal terms and conditions for the purchase of certain
telecommunications system equipment, software and services (collectively, the
'Deliverables') to be purchased by the Company (the 'Equipment Purchase Letter
of Intent'). The Company has also entered into a commitment letter with Nortel
setting forth the anticipated terms and conditions under which Nortel will
provide loans in an aggregate amount of up to $780.0 million (the 'Nortel
Loans') which will be used to finance the purchase of the Deliverables and
provide working capital (the 'Financing Commitment Letter'). The Company
currently expects to negotiate definitive documentation covering the purchase
and sale of the Deliverables as contemplated by the Equipment Purchase Letter of
Intent and the provision of financing as contemplated by the Financing
Commitment Letter, subject to satisfactory completion of Nortel's due diligence,
although the Company expects that the purchase and sale of certain Deliverables
on Nortel's standard terms and conditions will commence in advance of the
signing of definitive documentation.
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The provision of financing by Nortel is a condition precedent to the Company's
continued purchase of Deliverables from Nortel.
The obligations of Nortel and the Company under the Equipment Purchase
Letter of Intent and the Financing Commitment Letter are subject to numerous
conditions, including the negotiation, execution and delivery of definitive
documentation with respect to the matters described therein. There can be no
assurance that the parties will be able to reach agreement on the terms of such
definitive documentation. In addition, the Financing Commitment Letter is
subject to, among other things, the completion of Nortel's due diligence review
and the absence, as determined by Nortel in its reasonable discretion, of (i)
material adverse changes in the U.S. financial or capital markets generally, or
in the loan syndication market for comparable facilities and (ii) any material
adverse change in the business, condition (financial or otherwise), operations,
performance, prospects or properties of the Company and its subsidiaries, taken
as a whole. See 'Description of Certain Indebtedness.'
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 $9.1 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 29, 1997, the Company had outstanding
borrowings of $42.5 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 September 30, 1997, the Company used $28.6 million
of cash in its operating activities and $13.2 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 September 30, 1997, the Company had a working capital deficit of
$51.3 million and cash of $5.8 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 September 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.'
In December 1996, the Company received $2.0 million in cash and as of
September 30, 1997 the Company received $38.5 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 $24.3 million at September 30, 1997. Property and equipment, net of
accumulated depreciation, comprised $3.5 million of total assets at December 31,
1996 and $6.9 million at September 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 nine
months ended September 30, 1997 the Company used cash in operations of $22.5
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 nine month period ended September 30, 1997, the Company
used $9.5 million in investing activities, consisting of $3.7 million relating
to the purchase of property and equipment and $5.8 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 $11.1 million, consisting of capital
contributions from MSI and DSC of $9.1 million and borrowings under the
Revolving Credit Agreement of $2.0 million. Cash flows provided by financing
activities for the nine month period ended September 30, 1997 amounted to $36.5
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
has deployed 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
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 in March 1996 as a joint venture 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 ownership and operation of
communications assets and businesses, which have historically included cellular,
cable television and radio broadcasting. In December 1994,
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Associated was spun off from Associated Communications Corporation and
Associated Communications Corporation was acquired immediately thereafter by 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 investment
partnerships formed by 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. In October 1997, the FCC granted MSI's
applications for three 24 GHz channels in New York and four 24 GHz channels in
Boston, each of which were subsequently assigned to the Company.
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
42
<PAGE>
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 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 networks 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 systems 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 networks are 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
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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
networks will be designed to alleviate the last mile bottleneck and accommodate
the increasing demand for bandwidth-intensive applications. These networks,
which 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, are expected to provide each customer with two-way data transfer rates of
up to 40 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. The
Company believes that in the future, radio equipment vendors will make available
radio/antenna units with even 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-
44
<PAGE>
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
distance service on a resale basis, and intends to connect each local exchange
network to an IXC's point of presence.
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 networks 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.
DEPLOYMENT STRATEGY
Teligent intends to build out and commercialize its networks 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.
45
<PAGE>
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.
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.
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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
access, 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 access,
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 has deployed a
point-to-multipoint system in Richardson, TX on a trial basis.
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.
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<PAGE>
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.
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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
<CAPTION>
BUSINESS
SMSA BANDWIDTH EMPLOYEES IN
RANK MARKET AREAS (MHZ) POPULATION MARKET AREA
- ---- -------------------- --------- ----------- ------------
<S> <C> <C> <C> <C>
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
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>
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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, customer service and rapid response to customer
needs while bundling local resold long distance and Internet access. 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 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
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 MMDS, 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
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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 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
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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 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. The Company has entered into the Equipment Letter of
Intent with Nortel which outlines the principal terms and conditions for the
purchase of certain telecommunications equipment, software and services. See
'Description of Certain Indebtedness.'
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.
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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.
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 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 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
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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 the July 18,
1997 and October 14, 1997 decisions 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 Eighth Circuit's October 14 decision vacated an FCC rule that
obligated ILECs, under certain circumstances, to provide combinations of network
elements, rather than provide them individually. This decision may make it more
difficult or expensive for competitors to use combinations of ILEC elements.
Because the Company does not anticipate widespread use of combinations of
elements, the decision should not have a material adverse effect on its
operations. Moreover, because the decision may increase the cost and decrease
the efficiency of ILEC network element-based competitive approaches, the Company
believes that the decision may comparatively advantage the Company's entry
strategy, which does not heavily rely on the use of ILEC network elements. 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
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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.
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 in favor of 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 three 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
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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 18 GHz fixed wireless licensees in all other areas must 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 satellite uplink 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 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 this issue in the same
way or it could make a different decision, 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.
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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 reimburse MSI, DSC and
the Company, respectively, for some of the costs related to the relocation of
their 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 has proposed to apply a
rebuttable presumption that 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') serves the public
interest, 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.
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
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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 will 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 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 preempt such
barriers have 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>
EXECUTIVE OFFICERS
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
OTHER OFFICERS
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
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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, 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
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including public fundraising activities. Prior to that, Mr. Schwartz performed
consulting work in the communications industry including satellite, cable
television, and wireless telecommunications companies.
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 Chairman of the Board
and Chief Executive Officer of Telcom Ventures, L.L.C. and he also served as
President of that company, through September 1997. 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
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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 (or an affiliate
thereof), respectively. The holders of the Class A Common Stock and Class B
Common Stock, voting as a single class, will have the right to 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--Loans to Executive Officers') 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 governed by and subject to
the terms of 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 have been granted
to the Named Executive Officer.
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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 51,757,709 shares of Common Stock outstanding upon consummation of
the Equity Offerings and a Conversion Trading Price and an Offering Price of
$20.50 (the midpoint of the initial public offering price range in the Equity
Offerings), pursuant to the Conversion Mr. Mandl and all other directors and
executive officers of the Company as a group (8 persons) would receive
Conversion Options to purchase 5,904,481 and 4,220,714 shares of Class A Common
Stock, respectively (representing approximately 9.2% and 6.6%, respectively, of
all shares of Common Stock outstanding on a fully diluted basis immediately
after consummation of the Equity Offerings), at weighted average exercise prices
per share of Class A Common Stock of $5.77 (excluding the exercise price of
$46.28 per share for the 984,081 shares of Class A Common Stock subject to Mr.
Mandl's Conversion Option which vests in 2002) and $6.55, respectively. As of
September 30, 1997, after giving effect to the consummation of the Equity
Offerings, Mr. Mandl's Conversion Options will be vested and immediately
exercisable with respect to 984,080 shares of Class A Common Stock, and will
vest and become exercisable with respect to the remaining 4,920,401 shares of
Class A Common Stock subject to such Conversion Options ratably over the
remaining five years of the term of the Mandl Employment Agreement, and none of
the Conversion Options held by directors and officers (other than Mr. Mandl)
will be vested. Such Conversion Options held by such directors and officers
generally will vest ratably over five-year periods commencing on the date of
grant of the respective Appreciation Units which were converted into such
Conversion Options pursuant to the Conversion. 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.
14,588,532 shares of Class A Common Stock will initially be reserved for
issuance pursuant to awards under the Stock Plan, including 12,344,939 shares
issuable upon exercise of the Conversion
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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 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 (collectively, '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 21,436,689
shares of Series B-1 Common Stock; (ii) the interest of Telcom-DTS Investors,
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 17,206,210 shares of
Series B-2 Common Stock; (iii) the interest of NTT (or an affiliate thereof)
will be converted into 5,783,400 shares of Series B-3 Common Stock (defined
below); and (iv) the interest of the FirstMark Sole Stockholder will be
converted into 1,831,410 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 consummation
of the FirstMark Acquisition and the Additional Sponsor Equity Contributions,
but before giving effect to the consummation of the Equity Offerings and the
conversion of existing equity incentive awards into stock options in connection
with the Reorganization). 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 consummation of the FirstMark Acquisition
and the Additional Sponsor Cash Contributions, but before giving effect to the
consummation of the Equity Offerings and the conversion of existing equity
incentive awards into stock options in connection with the Reorganization);
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 additional shares such that its price per share in the Second Closing
equals the price per share in the Equity Offerings. Based on the initial public
offering price range of $19.00 to $22.00 per share, no such adjustment would be
required. 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, which
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termination has occurred. The NTT Purchase Agreement provides that the Second
Closing will occur at or immediately prior to the 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
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 parties thereto 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.
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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, (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 NTT Purchase Agreement and
in satisfaction of a condition to the First Closing, the Company has entered
into a technical services agreement (the 'TSA') with NTT America, Inc., a wholly
owned subsidiary of NTT ('NTT America'), whereby NTT America will provide
certain technical services to the Company relating to network design and
implementation. The term of the TSA commences on the later of December 1, 1997
and the date of the First Closing, and terminates on the fifth anniversary of
the commencement date, unless extended or earlier terminated as provided therein
(the 'Term'). After the initial five-year period, the Term is automatically
extended for additional one-year periods unless either party gives notice of
termination within sixty days prior to the then applicable termination date.
During the first two years of the Term (the 'Initial Phase'), the Company shall
pay to NTT America a fee in the amount of $4 million per year. The fees payable
by the Company to NTT America 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 America. 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 24 GHz band (which
were relocated from the 18 GHz band) in the Los Angeles and San Francisco, CA
and New York, NY markets. See 'Risk Factors-- Relocation of Licenses to 24 GHz;
Pending FCC Petitions' and 'Regulation--Relocation of Licenses to 24 GHz.'
VENDOR FINANCING
The Company has entered into the Equipment Purchase Letter of Intent with
Nortel which outlines the principal terms and conditions for the purchase of
certain telecommunications system equipment, software and services to be
purchased by the Company. The Company has also entered into the Financing
Commitment Letter with Nortel setting forth the anticipated terms and conditions
under which Nortel will provide the Nortel Loans which will be used to finance
the purchase of the equipment and provide working capital. See 'Description of
Certain Indebtedness.'
EQUITY OFFERINGS
Concurrent with the Notes Offering, the Company is offering 5,500,000
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
103.6 million (assuming an initial public offering price of $20.50 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
The Company, MSI, Associated, DSC, the Telcom Stockholder and the owners of
the Telcom Stockholder have entered into an agreement (the 'Members Agreement')
whereby the Company has 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. In addition, in the
Members Agreement, MSI and the Telcom Stockholder have each granted to the other
rights of first refusal and co-sale rights with respect to any sale or transfer
by the other (other than to an affiliate or pursuant to a pledge arrangement,
and excluding any public sale or distribution whether pursuant to a registration
statement, Rule 144 or otherwise) of shares of Common Stock (other than Common
Stock acquired in public market transactions). Pursuant to the Members
Agreement, Associated and the owners of the Telcom Stockholder have also each
granted to the other rights of first refusal and co-sale rights, with the same
exceptions, with respect to any sale or transfer by the other of shares of MSI,
or member or other equity interests of the Telcom Stockholder, but only if
shares of Common Stock constitute all or substantially all of the assets of MSI
or the Telcom Stockholder, respectively.
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
pursuant to the NTT Purchase Agreement (the 'Amended LLCA'), it is anticipated
that at or prior to 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 (such stockholders that are parties to the Stockholders Agreement
being referred to as the 'Stockholder Parties'). 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 Stockholder
Parties, (ii) any transaction between the Company and any Stockholder Party 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
72
<PAGE>
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 the issuance by the Company of shares
of Common Stock or Preferred Stock to 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
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 as provided in the Certificate
of Incorporation. 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
Stockholder Party 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 and be without further effect
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. Under the Stockholders Agreement, if such
requirement so lapses with respect to the Telcom Stockholder and, at the time of
such lapsing, MSI is not entitled, pursuant to the Certificate of Incorporation,
to elect a majority of the members of the Company's Board (see 'Description of
Capital Stock--Common Stock'), then such requirement shall also lapse and be
without further effect with respect to MSI. In addition, in the Stockholders
Agreement, MSI and the Telcom Stockholder have each granted to the other rights
of first refusal, and have granted to NTT co-sale rights with respect to any
sale or transfer by either of them (other than to an affiliate or pursuant to a
pledge arrangement, and excluding any public sale or distribution whether
pursuant to a registration statement, Rule 144 or otherwise) of shares of Common
Stock (other than Common Stock acquired in public market transactions).
73
<PAGE>
The Stockholders Agreement will also provide for certain rights and
obligations 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.'
LOANS TO EXECUTIVE OFFICERS
Mr. Mandl is obligated to the Company in the form of a loan for an
aggregate principal amount of $15.0 million at an interest rate of 6.53% per
year, which principal and interest accrued thereon will become due and payable
on September 3, 2001. The entire principal amount and interest accrued thereon
will be forgiven as to 20% thereof on each of the first and second anniversaries
of his employment with the Company and as to 60% thereof on the fifth such
anniversary, provided that he is employed by the Company on such dates. If Mr.
Mandl's employment with the Company is terminated prior to September 3, 2001 by
the Company other than for Cause or by Mr. Mandl for Good Reason or by reason of
his death or disability, the outstanding principal balance and accrued interest
thereon will be forgiven; if his employment with the Company is terminated prior
to September 3, 2001 for any other reason, the outstanding principal balance
(and interest accrued thereof) will become immediately due and payable. See
'Management--Mandl Employment Agreement.'
Messrs. Pickle, Harris, Morris and Bell are obligated to the Company in the
form of loans in the aggregate principal amounts of $1,000,000, $600,000,
$1,000,000 and $1,000,000, respectively. Such loans bear interest at annual
interest rates of 5.73%, 6.54%, 5.76% and 5.83%, respectively. The principal
amount and accrued interest on such loans will become due and payable generally
on February 1, 2000, June 8, 2000, April 10, 2000 and April 7, 2000,
respectively. Each of the loans provides for the forgiveness of the principal
balance and interest accrued thereon; generally, these provisions become
applicable either incrementally during the term of the loan or as of its
maturity date (in any case, subject to the executive's continued employment with
the Company as of such date) or, among other things, in the event the
executive's employment is terminated under certain circumstances, which include
in each case a termination of employment by the Company other than for cause,
and which may include a constructive termination or a termination by reason of
death or disability. In addition, each of the loans provides that the remaining
principal balance and interest accrued thereon will become immediately due and
payable in the event the executive's employment with the Company is terminated
by the Company for cause or, generally, by the executive other than by reason of
death or disability.
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-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.
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<PAGE>
ASSOCIATED
Associated owns, operates and invests in a variety of communications
activities and enterprises that may be in competition with the Company. 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 consummation of the Offerings for
Associated to continue to provide such services for the same fee.
NTT
In connection with the NTT Purchase Agreement, the Company has entered into
the Technical Services Agreement with an affiliate of NTT America. See 'Certain
Transactions--The Strategic Equity Investment-- Technical Services Agreement.'
75
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of September 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 ------------------ ------------------ ------------------- ------------------ BEFORE
BENEFICIAL OWNER NUMBER(9) %(10) NUMBER(9) %(10) NUMBER(9) %(10) NUMBER(9) %(10) OFFERING
- ------------------------ --------- ----- --------- ----- ---------- ----- ---------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
The Associated Group, %
Inc. (1) ............. -- -- -- -- 21,436,689 48.3 21,436,689 48.3 46.3
200 Gateway Towers
Pittsburgh, PA 15222
Telcom Ventures, -- -- -- -- 17,206,210 38.7 17,206,210 38.7 37.2%
L.L.C.(2) ............
211 N. Union Street
Suite 300
Alexandria, VA 22201
Lynn Forester .......... 1,831,410 100.0 1,831,410 25.0 -- -- -- -- 4.0%
c/o FirstMark Holdings
527 Madison Avenue
New York, NY 10022
Nippon Telegraph and %
Telephone -- -- -- -- 5,783,400 13.0 5,783,400 13.0 12.5
Corporation .
Tokyo Opera City
Tower
20-2 Nishi-Shinjuku
3-chome
Shinjuku-ku, Tokyo
163-14
Japan
Alex J. Mandl(3)........ 984,080 35.0 984,080 11.8 -- -- -- -- 2.1%
Myles P. Berkman(4)..... --
-- -- -- -- -- *
David J. Berkman(5)..... 120,175 6.2 120,175 1.6 -- -- -- -- *
William H. Berkman(6)... 120,175 6.2 120,175 1.6 -- -- -- -- *
Dr. Rajendra Singh(7)... 80,506 4.2 80,506 1.1 -- -- -- -- *
All directors and
executive officers as
a group (9
persons)(8)........... 1,626,958 47.0 1,626,958 18.2 -- -- -- -- 3.4%
<CAPTION>
NAME AND ADDRESS OF AFTER
BENEFICIAL OWNER OFFERING
- ------------------------ --------
<S> <C>
The Associated Group,
Inc. (1) ............. 41.4%
200 Gateway Towers
Pittsburgh, PA 15222
Telcom Ventures, 33.2%
L.L.C.(2) ............
211 N. Union Street
Suite 300
Alexandria, VA 22201
Lynn Forester .......... 3.5%
c/o FirstMark Holdings
527 Madison Avenue
New York, NY 10022
Nippon Telegraph and
Telephone 11.2%
Corporation .
Tokyo Opera City
Tower
20-2 Nishi-Shinjuku
3-chome
Shinjuku-ku, Tokyo
163-14
Japan
Alex J. Mandl(3)........ 1.9%
Myles P. Berkman(4).....
*
David J. Berkman(5)..... *
William H. Berkman(6)... *
Dr. Rajendra Singh(7)... *
All directors and
executive officers as
a group (9
persons)(8)........... 3.0%
</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 Telcom-DTS Investors, L.L.C., a
subsidiary of Telcom Ventures, L.L.C.
(3) All such 984,080 shares of Class A Common Stock are issuable upon exercise
of Mr. Mandl's Conversion Options which are exercisable within 60 days.
(4) Does not include 21,436,689 shares of Class B Common Stock held of record by
Microwave Services, Inc., a wholly owned subsidiary of The Associated Group,
Inc. As a director and Chairman, President, Chief Executive Officer and
Treasurer of The Associated Group, Inc., Myles P. Berkman may be deemed to
be the beneficial owner of the shares of Class B Common Stock held by
Microwave Services Inc.
(5) All such 120,175 shares of Class A Common Stock are issuable upon exercise
of David J. Berkman's Conversion Options which are exercisable within 60
days. Does not include 21,436,689 shares of Class B Common Stock held of
record by Microwave Services, Inc., a wholly owned subsidiary of The
Associated Group, Inc. As a director and Executive Vice President of The
Associated Group, Inc., David J. Berkman may be deemed to be the beneficial
owner of the shares of Class B Common Stock held by Microwave Services, Inc.
(Footnotes continued on next page)
76
<PAGE>
(Footnotes continued from previous page)
(6) All such 120,175 shares of Class A Common Stock are issuable upon exercise
of William H. Berkman's Conversion Options which are exercisable within 60
days.
(7) All such 80,506 shares of Class A Common Stock are issuable upon exercise of
Dr. Singh's Conversion Options which are exercisable within 60 days. Does
not include 17,206,210 shares of Class B Common Stock held of record by
Telcom-DTS Investors, L.L.C., a subsidiary of Telcom Ventures, L.L.C. As Dr.
Singh is the Chief Executive Officer, a director and, together with members
of his family, the principal owner of Telcom Ventures, L.L.C., Dr. Singh may
be deemed to be the beneficial owner of the shares of Class B Common Stock
held by Telcom-DTS Investors, L.L.C.
(8) All such 1,626,958 shares of Class A Common Stock are issuable upon exercise
of Conversion Options which are exercisable within 60 days held by all
directors and executive officers as a group. Does not include 21,436,689 and
17,206,210 shares of Class B Common Stock held of record by Microwave
Services, Inc. and Telcom-DTS Investors, L.L.C., respectively. See footnotes
4, 5 and 7.
(9) 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.
(10) 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.
77
<PAGE>
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 First
Union National Bank, 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
First Union National Bank, 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 $250.0 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 $150.0 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
78
<PAGE>
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 and their respective Affiliates shall be excluded
from this definition.
79
<PAGE>
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
Set forth below are certain covenants contained in the Indentures:
Limitation on Debt. The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, incur any Debt (including
Acquired Debt) unless (i) after giving effect to such incurrence of Debt and the
contemporaneous application of the proceeds thereof, no Default or Event of
Default shall have occurred and be continuing at the time or would occur as a
consequence of the incurrence of such Debt, and (ii) such Debt is Permitted
Debt.
Limitation on Liens. The Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
suffer to exist any Lien of any kind (other than Permitted Liens) on or with
respect to any of its property or assets, including any shares of stock or Debt
of any Subsidiary of the Company, whether owned at the Issue Date or thereafter
acquired, or any income, profits or proceeds therefrom, or assign or otherwise
convey any right to receive income thereon, where such Lien, assignment or
conveyance secures Debt, unless (x) in the case of any Lien securing
Subordinated Debt, the Notes are secured by a Lien on such property, assets or
income, profits or proceeds that is senior in priority to such Lien and (y) in
the case of any other Lien, the Notes are equally and ratably secured with the
obligation or liability secured by such Lien. Any such Lien thereby created in
favor of the Notes will be automatically and unconditionally released and
discharged upon (i) the release and discharge of the Lien or Liens to which it
relates, or (ii) any sale, exchange or transfer to any Person not an Affiliate
of the Company of the property or assets secured by such Lien or Liens, or of
all of the Capital Stock held by the Company or any of its Restricted
Subsidiaries in, or all or substantially all the assets of, any Restricted
Subsidiary creating such Lien or Liens.
Limitation on Restricted Payments. The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, make any
Restricted Payment unless, at the time of and after giving effect to the
proposed Restricted Payment, (i) no Default or Event of Default shall have
occurred and be continuing or shall occur as a consequence thereof; (ii) after
giving effect, on a pro forma basis, to such Restricted Payment and the
incurrence of any Debt the net proceeds of which are used to finance such
Restricted Payment, the Company could incur at least $1.00 of additional Debt
pursuant to clause (o) of the definition of Permitted Debt; and (iii) after
giving effect to such Restricted Payment on a pro forma basis, the aggregate
amount expended or declared for all Restricted Payments on or after the Issue
Date does not exceed the sum of (A) cumulative EBITDA of the Company and its
Restricted Subsidiaries (or, if the cumulative EBITDA is negative, minus 100% of
such negative amount) less 1.5 times cumulative Consolidated Interest Expense of
the Company and its Restricted Subsidiaries, in each case for the period
(treated as one accounting period) beginning on the first day of the Company's
fiscal quarter after which the Issue Date occurs, and ending on the last day of
the Company's fiscal quarter for which financial statements are available
immediately preceding such proposed Restricted Payment, (B) the aggregate Net
Cash Proceeds received by the Company subsequent to the Issue Date either (x) as
capital contributions to the Company in the form of or with respect to Common
Stock of the Company or (y) from the issuance or sale (other than to a
Restricted Subsidiary of the Company) of Qualified Capital Stock of the Company
(including Qualified Capital Stock issued upon conversion of convertible Debt or
convertible Redeemable Capital Stock) or Subordinated Stockholder Debt or any
options, warrants or rights to purchase such Qualified Capital Stock of the
Company, less 50% of Debt incurred pursuant to clause (l) of the definition of
Permitted Debt, and (C) in the case of the disposition or repayment of any
Investment constituting a Restricted Payment made after the Issue Date
(including by redesignation of an Unrestricted Subsidiary of the Company to a
Restricted Subsidiary of the Company), an amount equal to the lesser of the
return of capital with respect to such Investment and the initial amount of such
Investment, in either case, less the cost of the disposition of such Investment.
The foregoing limitations do not prevent (i) the payment of a dividend or
similar distribution on the Capital Stock of the Company or any of its
Restricted Subsidiaries at any time within 60 days after the declaration thereof
if, on the declaration date, the Company could have paid such dividend in
compliance with the applicable Indenture; (ii) the making of Permitted
Investments by the Company or any of its Restricted Subsidiaries; (iii) the
redemption, repurchase, retirement or other acquisition of any Capital Stock or
Subordinated Debt of the Company in exchange for (including any such exchange
pursuant to the exercise of a conversion right or privilege in which cash is
paid in lieu of fractional shares or scrip), or out of the Net Cash Proceeds of
the substantially concurrent sale (other than to a Restricted Subsidiary of the
Company) of, Qualified Capital Stock
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of the Company; (iv) the purchase, redemption, defeasance or other acquisition
or retirement for value of Subordinated Debt of the Company in exchange for
(including any such exchange pursuant to the exercise of a conversion right or
privilege in which cash is paid in lieu of fractional shares or scrip), or out
of the Net Cash Proceeds of a substantially concurrent incurrence (other than to
a Restricted Subsidiary of the Company) of, new Subordinated Debt of the Company
so long as (A) the principal amount of such new Subordinated Debt does not
exceed the principal amount (or, if such Subordinated Debt being refinanced
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, such lesser amount as of the
date of determination) of the Subordinated Debt being so purchased, redeemed,
defeased, acquired or retired, plus the lesser of the amount of any premium
required to be paid in connection with such refinancing pursuant to the terms of
the Subordinated Debt being refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing, plus, in
either case, the amount of expenses of the Company incurred in connection with
such refinancing, (B) such new Subordinated Debt is subordinated to the Notes to
the same extent as such Subordinated Debt so purchased, redeemed, defeased,
acquired or retired, and (C) such new Subordinated Debt has an Average Life
longer than the Average Life of the Subordinated Debt being refinanced and a
final Stated Maturity of principal later than the final Stated Maturity of
principal of the Subordinated Debt being refinanced; (v) any purchase or
defeasance of Subordinated Debt to the extent required upon a change of control
or asset sale (as defined therein) by the indenture or other agreement or
instrument pursuant to which such Subordinated Debt was issued, but only if the
Company (x) in the case of a Change of Control, has complied with its
obligations under the provisions described under 'Change of Control' or (y) in
the case of an Asset Sale, has applied the Net Cash Proceeds from such Asset
Sale in accordance with the provisions under the covenant entitled 'Limitation
on Asset Sales'; (vi) the repurchase of Capital Stock of the Company (including
options, warrants or other rights to acquire such Capital Stock) from departing
or deceased directors, officers or employees of the Company or its Subsidiaries
in an aggregate amount not to exceed $1.0 million in any fiscal year, provided
that the Company may carry forward the unused portion of the $1.0 million in any
fiscal year to the next fiscal year, and provided further, that the Company may
not carry forward more than $2.0 million to any subsequent fiscal year; and
(vii) the purchase, redemption, acquisition, cancellation or other retirement
for value of shares of Capital Stock of the Company to the extent necessary, in
the judgment of the Board of Directors of the Company, to prevent the loss or
secure the removal or reinstatement of any license held by the Company or any
Restricted Subsidiary from any governmental agency as a result of laws limiting
foreign ownership of the Company's Capital Stock.
Restricted Payments made pursuant to clauses (i), (iii), (vi) and (vii) of
the immediately preceding paragraph shall reduce the amount that would otherwise
be available for Restricted Payments under clause (iii) of the second preceding
paragraph and Restricted Payments made pursuant to clauses (ii), (iv) and (v) of
the immediately preceding paragraph shall not reduce the amount that would
otherwise be available for Restricted Payments under clause (iii) of the second
preceding paragraph, provided that any Permitted Investments made pursuant to
clause (a) of the definition of Permitted Investments will be deemed to be
Restricted Payments for the purposes of clause (iii) of the second preceding
paragraph.
For purposes of this covenant, if a particular Restricted Payment involves
a non-cash payment, including a distribution of assets, then such Restricted
Payment shall be deemed to be an amount equal to the cash portion of such
Restricted Payment, if any, plus an amount equal to the Fair Market Value of the
non-cash portion of such Restricted Payment as determined by the Board of
Directors of the Company, whose good faith determination shall be conclusive and
evidenced by a resolution of the Board of Directors of the Company (a 'Board
Resolution').
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, cause or suffer to exist or become
effective or enter into any consensual encumbrance or restriction on the ability
of any Restricted Subsidiary of the Company (i) to pay dividends or make any
other distributions in respect of its Capital Stock or pay any Debt or other
obligation owed to the Company or any other Restricted Subsidiary of the
Company; (ii) to make loans or advances to the Company or any Restricted
Subsidiary of the Company; or (iii) to transfer any of its property or assets to
the Company or any other Restricted Subsidiary of the Company, except:
(a) any encumbrance or restriction pursuant to an agreement in effect
at the Issue Date or any amendment, restatement, renewal or replacement of
such agreement, so long as the encumbrances and restrictions are not
materially more restrictive than those in the agreement in effect on the
Issue Date;
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(b) any encumbrance or restriction pursuant to an agreement relating
to an acquisition of property, so long as the encumbrances or restrictions
in any such agreement relate solely to the property so acquired (and are
not or were not created in anticipation of or in connection with the
acquisition thereof);
(c) any encumbrance or restriction relating to any Debt of any
Restricted Subsidiary of the Company at the date on which such Restricted
Subsidiary was acquired by the Company or any Restricted Subsidiary of the
Company (other than Debt incurred by such Restricted Subsidiary in
connection with or in anticipation of its acquisition);
(d) any encumbrance or restriction pursuant to an agreement effecting
a permitted refinancing of Debt issued pursuant to an agreement referred to
in the foregoing clauses (a) through (c), or permitted replacement or
increase of Debt referred to in the foregoing clause (a) so long as the
encumbrances and restrictions contained in any such refinancing agreement
are not materially more restrictive than the encumbrances and restrictions
contained in the agreements governing the Debt being so refinanced;
(e) customary provisions restricting subletting or assignment of any
lease, license or similar contract of the Company or any Restricted
Subsidiary of the Company or provisions in agreements that restrict the
assignment of such agreement or any rights thereunder;
(f) any encumbrance or restriction arising out of any sale of accounts
receivable in the ordinary course (including in connection with a financing
transaction) to or by (i) an Accounts Receivable Subsidiary or (ii) to
Persons that are not Affiliates of the Company or any Subsidiary of the
Company;
(g) any encumbrance or restriction on the sale or other disposition of
assets or property securing Debt as a result of a Permitted Lien on such
assets or property (including, without limitation, customary restrictions
relating to assets securing the Credit Agreement, any Vendor Debt or any
Telecommunications Assets Debt under the applicable security documents);
and
(h) any encumbrance or restriction contained in contracts for sales of
assets permitted by the 'Limitation on Asset Sales' covenant with respect
to the assets to be sold pursuant to such contract.
Nothing contained in this 'Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries' covenant shall prevent the
Company or any of its Restricted Subsidiaries from (1) creating, incurring,
assuming or suffering to exist any Liens otherwise permitted in the 'Limitation
on Liens' covenant or (2) restrictions on the sale or other disposition of
property or assets of the Company or any of its Restricted Subsidiaries to the
extent that such property or assets secure Debt of the Company or any of its
Restricted Subsidiaries not incurred or secured in violation of the Indenture.
Limitation on Issuances of Certain Guarantees by, and Debt Securities of,
Restricted Subsidiaries. The Company will not permit any of its Restricted
Subsidiaries to (i) directly or indirectly Guarantee any Debt Securities of the
Company, or (ii) issue any Debt Securities, unless, in either such case, such
Restricted Subsidiary simultaneously executes and delivers a Guarantee (a
'Subsidiary Guarantee') of the Senior Notes and the Senior Discount Notes. Any
such Subsidiary Guarantee shall not be subordinate in right of payment to any
Debt of the Restricted Subsidiary providing the Subsidiary Guarantee. A
Restricted Subsidiary shall be deemed released from all of its obligations under
its Subsidiary Guarantee at any such time that such Restricted Subsidiary is
released from all of its obligations under all of its Guarantees in respect of
Debt Securities of the Company or its obligations under its Debt Securities, as
applicable. The obligations of each Restricted Subsidiary under a Subsidiary
Guarantee will be limited to the maximum amount, as will, after giving effect to
all other contingent and fixed liabilities of such Restricted Subsidiary, result
in the obligations of such Restricted Subsidiary under the Subsidiary Guarantee
not constituting a fraudulent conveyance or fraudulent transfer under applicable
law. Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary of the Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged upon the sale or other
disposition, by way of merger or otherwise, to any Person not an Affiliate of
the Company, of all of the Company's and its Restricted Subsidiaries' Capital
Stock in such Restricted Subsidiary. In addition, any Subsidiary Guarantee will
be automatically and unconditionally released and discharged upon the merger or
consolidation of the applicable Restricted Subsidiary with and into the Company
or another Restricted Subsidiary that has guaranteed the Notes and that is the
surviving Person in such merger or consolidation.
Limitation on Issuances and Sales of Capital Stock in Restricted
Subsidiaries. The Company (a) will not permit any of its Restricted
Subsidiaries to issue any Capital Stock (other than to the Company or a
Restricted Subsidiary of the Company) unless the Company acquires at the same
time not less than its Proportionate Interest
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in such issuance of Capital Stock and (b) will not permit any Person (other than
the Company or a Restricted Subsidiary of the Company) to own any Capital Stock
in any Restricted Subsidiary of the Company; provided, however, that this
covenant shall not prohibit (i) the sale or other disposition of all, but not
less than all, of the issued and outstanding Capital Stock in any Restricted
Subsidiary owned by the Company or any Restricted Subsidiary of the Company in
compliance with the other provisions of the Indentures, (ii) the ownership of
Capital Stock issued as permitted by clause (a) above, (iii) the ownership by
directors of directors' qualifying shares or the ownership by foreign nationals
of Capital Stock in any Restricted Subsidiary of the Company, to the extent
mandated by applicable law, (iv) the ownership of Capital Stock of a Restricted
Subsidiary issued and outstanding prior to the time that such Person becomes a
Restricted Subsidiary of the Company so long as such Capital Stock was not
issued in contemplation of such Person's becoming a Restricted Subsidiary of the
Company or otherwise being acquired by the Company, (v) the issuance or sale of
Capital Stock of a Restricted Subsidiary of the Company in a transaction that
complies with the covenant described under 'Limitation on Asset Sales', provided
that such Restricted Subsidiary would remain a Restricted Subsidiary after such
transaction, or, if not a Restricted Subsidiary of the Company after such
transaction, the remaining Capital Stock held by the Company must be treated as
an Investment made at that time and must comply with the covenant described
under 'Limitation on Restricted Payments' or constitute a Permitted Investment,
and (vi) the ownership of Qualified Capital Stock of a Restricted Subsidiary
issued in exchange for, or the proceeds of which are used to refinance, Capital
Stock of a Restricted Subsidiary owned by a Person other than the Company or a
Restricted Subsidiary as permitted by clause (iv), provided that (x) the
liquidation value of such Qualified Capital Stock so issued that is preferred
stock shall not exceed the liquidation value of the Capital Stock so exchanged
or refinanced and (y) the Qualified Capital Stock so issued that is preferred
stock (I) shall not have a Stated Maturity earlier than the Stated Maturity of
the Capital Stock being exchanged or refinanced and (II) shall not have an
Average Life less than the remaining Average Life of the Capital Stock being
exchanged or refinanced. Notwithstanding the foregoing, each Restricted
Subsidiary of the Company that owns or holds a Federal Communications Commission
license for the transmission of wireless telecommunications services shall at
all times remain a wholly owned Restricted Subsidiary of the Company and shall
not, directly or indirectly, sell, convey, transfer, lease or otherwise dispose
of any assets or property used or useful in the operation of the business of the
Company or any of its Restricted Subsidiaries, other than (i) to the Company or
another wholly owned Restricted Subsidiary of the Company or (ii) in a
transaction that complies with the 'Limitation on Asset Sales' covenant.
Limitation on Asset Sales. The Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration (including by way of relief from, or by any Person other than the
Company or any of its Restricted Subsidiaries assuming responsibility for, any
liabilities, contingent or otherwise) at the time of such Asset Sale at least
equal to the Fair Market Value (as evidenced by a Board Resolution, which
determination shall be conclusive (including as to the value of all non-cash
consideration)) of the property or assets sold or otherwise disposed of, (ii) at
least 75% of the consideration received by the Company or such Restricted
Subsidiary for such property or assets consists of cash or Eligible Cash
Equivalents and (iii) the Company or such Restricted Subsidiary of the Company,
as the case may be, uses the Net Cash Proceeds in the manner set forth in the
next paragraph; provided, however, that for purposes of this covenant, 'cash'
shall include (i) the amount of any liabilities (other than liabilities that are
by their terms subordinated to the Notes) of the Company or such Restricted
Subsidiary (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet or in the notes thereto) that are assumed by the transferee
of any such assets or other property in such Asset Sale or are no longer the
liability of the Company or any Restricted Subsidiary (and excluding any
liabilities that are incurred in connection with or in anticipation of such
Asset Sale), but only to the extent that such assumption is effected on a basis
under which there is no further recourse to the Company or any of its Restricted
Subsidiaries with respect to such liabilities, and (ii) any securities, notes or
other obligations received by the Company or any such Restricted Subsidiary in
connection with such Asset Sale that are converted by the Company or such
Restricted Subsidiary into cash within 60 days of receipt.
Within 360 days after any Asset Sale, the Company or such Restricted
Subsidiary of the Company, as the case may be, may at its option (a) reinvest an
amount equal to the Net Cash Proceeds (or any portion thereof) from such
disposition in Replacement Assets, provided that if such Investment is in a
project authorized by the Board of Directors of the Company that will take
longer than such 360 day period to complete, the Company
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shall be entitled to utilize 90 additional days to apply such Net Cash Proceeds,
and/or (b) apply an amount equal to such Net Cash Proceeds (or remaining Net
Cash Proceeds) to the permanent reduction of any Debt of the Company ranking
pari passu with the Notes (including the Notes) or Debt of any Restricted
Subsidiary of the Company. Any Net Cash Proceeds from any Asset Sale that are
not used to reinvest in Replacement Assets and/or repay any such pari passu Debt
of the Company or Debt of its Restricted Subsidiaries constitute Excess
Proceeds.
When the aggregate amount of Excess Proceeds exceeds $10.0 million, the
Company shall, as soon as practicable, but in any event within 20 Business Days,
make an offer to the extent of the Excess Proceeds to purchase (an 'Asset Sale
Offer'), on a pro rata basis, the Notes and the other Debt described in the next
sentence, at a price in cash for the Notes equal to 100% of the principal amount
thereof (in the case of the Senior Notes) or 100% of the Accreted Value thereof
(in the case of the Senior Discount Notes) on any Asset Sale Purchase Date
occurring prior to , 2002, plus (in the case of the Senior Discount
Notes) any accrued and unpaid cash interest not otherwise included in Accreted
Value to such Asset Sale Purchase Date, or 100% of the principal amount thereof
at Stated Maturity on any Asset Sale Purchase Date occurring on or after
, 2002, plus accrued and unpaid interest, if any, to such Asset Sale
Purchase Date, in accordance with the procedures set forth in the Indentures.
Any Asset Sale Offer will include a pro rata offer under similar circumstances
to purchase all other unsecured Debt of the Company ranking pari passu with the
Notes, which Debt contains similar provisions requiring the Company to purchase
such Debt. To the extent that any amount of Excess Proceeds remains after
completion of such offer to purchase, the Company or such Restricted Subsidiary
of the Company may use such remaining amount for general corporate purposes and
the amount of Excess Proceeds shall be reset to zero.
Notwithstanding the three immediately preceding paragraphs, the Company and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent that (i) at least 75% of
the consideration for such Asset Sale consists of Telecommunications Assets and
(ii) such Asset Sale is for Fair Market Value; provided that any such
acquisition of Telecommunications Assets that is an Investment is made in
compliance with the 'Limitation on Restricted Payments' covenant or constitutes
a Permitted Investment, other than pursuant to clause (h) of the definition
thereof, and any Net Cash Proceeds received by the Company or any of its
Restricted Subsidiaries in connection with any such Asset Sale shall be subject
to the provisions of the three immediately preceding paragraphs.
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 Asset Sale Offer.
Transactions with Affiliates. The Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, enter into or
permit to exist any transaction or series of related transactions (including,
but not limited to, the purchase, sale or exchange of property, the making of
any Investment, the giving of any Guarantee or the rendering of any service)
with any Affiliate of the Company or such Restricted Subsidiary, as the case may
be, unless (i) such transaction or series of related transactions is on terms
that taken as a whole are no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained in a comparable arm's-length
transaction with a Person that is not such an Affiliate and (ii) (a) with
respect to a transaction or series of related transactions that involves
aggregate payments equal to, or in excess of, $5.0 million but less than $10.0
million, the Company delivers to the Trustee an Officers' Certificate stating
that such transaction or series of related transactions complies with clause (i)
above; and (b) with respect to a transaction or series of related transactions
that involves aggregate payments equal to, or in excess of, $10.0 million, the
Company delivers to the Trustee an Officers' Certificate stating that such
transaction or series of related transactions complies with clause (i) above,
and either (x) such transaction or series of related transactions is approved by
a majority of the Board of Directors (including a majority of the Disinterested
Directors, or in the event there is only one Disinterested Director, by such
Disinterested Director), which approval is set forth in a resolution delivered
to the Trustee or (y) the Company obtains an opinion from a nationally
recognized investment banking firm, accounting firm or appraisal firm stating
that such transaction or series of related transactions complies with clause (i)
above or is fair to the Company or such Restricted Subsidiary from a financial
point of view and delivers such opinion to the Trustee.
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Notwithstanding the foregoing, this covenant will not apply to (i) any
transaction entered into by or among the Company or one of its Restricted
Subsidiaries with one or more Restricted Subsidiaries of the Company, (ii) any
Restricted Payment not prohibited by the 'Limitation on Restricted Payments'
covenant, or any Permitted Investment, (iii) the payment of reasonable and
customary fees to directors of the Company and its Restricted Subsidiaries who
are not employees of the Company or its Subsidiaries, (iv) loans or advances
made to directors, officers or employees of the Company or any Restricted
Subsidiary, or Guarantees in respect thereof or otherwise made on their behalf
(including any payments under such Guarantees), in respect of travel,
entertainment or moving-related expenses incurred in the ordinary course of
business, in an aggregate principal amount not to exceed $500,000 in any fiscal
year, and (v) the granting and performance of registration rights for shares of
Capital Stock of the Company; (vi) transactions pursuant to the Administrative
Services Agreement between the Company and Associated as in effect on the Issue
Date, and as such agreement may be amended from time to time in a manner no less
favorable to the holders of the Notes; (vii) transactions pursuant to the
Technical Services Agreement between the Company and NTT America, Inc. as in
effect on the Issue Date, and as such agreement may be amended from time to time
in a manner no less favorable to the holders of the Notes; (viii) transactions
pursuant to the Stockholders Agreement between the Company, NTT and certain
other stockholders of the Company as in effect on the Issue Date, and as such
agreement may be amended from time to time in a manner no less favorable to the
holders of the Notes.
Provision of Financial Information. Whether or not the Company is subject
to Section 13(a) or 15(d) of the Exchange Act, or any successor provision
thereto, the Company shall file with the Commission the annual reports,
quarterly reports and other documents that the Company would have been required
to file with the Commission pursuant to such Section 13(a) or 15(d) or any
successor provision thereto if the Company were subject thereto and shall file
such documents with the Commission on or prior to the respective dates (the
'Required Filing Dates') by which the Company would have been required to file
them. The Company shall also in any event (a) within 15 days of each Required
Filing Date (i) transmit by mail to all Holders, as their names and addresses
appear in the Security Register, without cost to such Holders, and (ii) file
with the Trustee copies of the annual reports, quarterly reports and other
documents (without exhibits) that the Company would have been required to file
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act or
any successor provisions thereto if the Company was subject thereto and (b) if
filing such documents by the Company with the Commission is not permitted under
the Exchange Act, promptly upon written request supply copies of such documents
(without exhibits) to any prospective Holder.
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
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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 (o) 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;
(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 $15.0 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
$15.0 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
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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 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.
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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, (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
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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 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 (other than a Default or Event of Default resulting from the
incurrence of Debt, the proceeds of which are applied to 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 (other than a Default or Event of Default
resulting from the incurrence of Debt, the proceeds of which are applied to such
deposit), 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
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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), and (b) after the 91st 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 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
First Union National Bank, 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 901 E. Cary Street, Richmond, Virginia 23219.
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.
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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.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indentures. Reference is made to the applicable Indenture for the full
definition of all such terms, as well as any capitalized terms used herein for
which no definition is provided.
'Accounts Receivable Subsidiary' means any Restricted Subsidiary of the
Company that is, directly or indirectly, wholly owned by the Company (other than
directors' qualifying shares) and organized for the purpose of and engaged in
(i) purchasing, financing, and collecting accounts receivable obligations of
customers of the Company or its Restricted Subsidiaries, (ii) the sale or
financing of such accounts receivable or interests therein and (iii) other
activities incident thereto.
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'Accreted Value' as of any date (the 'Specified Date') means, with respect
to each $1,000 principal amount at Stated Maturity of Senior Discount Notes:
(i) if the Specified Date is one of the following dates (each a
'Semi-Annual Accrual Date'), the amount set forth opposite such date below:
<TABLE>
<CAPTION>
ACCRETED
SEMI-ANNUALACCRUAL DATE VALUE
- ---------------------------------------------------------------- --------
<S> <C>
Issue Date...................................................... $
, 1998................................................
, 1998................................................
, 1999................................................
, 1999................................................
, 2000................................................
, 2000................................................
, 2001................................................
, 2001................................................
, 2002................................................
, 2002................................................ $1000;
</TABLE>
(ii) if the Specified Date occurs between two Semi-Annual Accrual
Dates, the sum of (a) the Accreted Value for the Semi-Annual Accrual Date
immediately preceding the Specified Date and (b) an amount equal to the
product of (x) the Accreted Value for the immediately following Semi-Annual
Accrual Date less the Accreted Value for the immediately preceding
Semi-Annual Accrual Date and (y) a fraction, the numerator of which is the
number of days actually elapsed from the immediately preceding Semi-Annual
Accrual Date to the Specified Date and the denominator of which is 180; and
(iii) if the Specified Date is after , 2002, $1,000.
'Acquired Debt' means Debt of a Person (a) existing at the time such Person
becomes a Subsidiary or (b) assumed in connection with the acquisition of assets
from such Person; provided that, for the purposes of the 'Limitation on Debt'
covenant, such Debt shall be deemed to be incurred on the date of the related
acquisition of assets from any Person or the date the acquired Person becomes a
Restricted Subsidiary.
'Affiliate' means, as to any Person, any other Person that directly or
indirectly controls, or is under common control with, or is controlled by, such
Person. As used in this definition, 'control' (including, with its correlative
meanings, 'controlled by' and 'under common control with') shall mean
possession, directly or indirectly, of power to direct or cause the direction of
management or policies of such Person (whether through ownership of securities
or partnership or other ownership interests, by contract or otherwise), provided
that, in any event, any Person that owns directly or indirectly 10% of more of
the securities having ordinary voting power for the election of directors or
other governing body of a corporation or 10% or more of the partnership or other
ownership interests of any other Person (other than as a limited partner of such
other Person) will be deemed to control such corporation or other Person.
Notwithstanding the foregoing, no individual shall be deemed to be an Affiliate
of a Person solely by reason of his or her being an officer or director (or
equivalent) of such Person.
'Asset Sale' means, with respect to any Person, any transfer, conveyance,
sale, lease or other disposition (including, without limitation, by way of
sale-and-leaseback and dispositions pursuant to any consolidation or merger) by
such Person or any of its Restricted Subsidiaries to any Person other than to
such Person or its Restricted Subsidiaries in any single transaction or series
of transactions of (i) shares of Capital Stock or other ownership interests of
another Person (other than directors' qualifying shares) or (ii) any other
property or assets of such Person or any of its Restricted Subsidiaries other
than sales of property or assets in the ordinary course of business and
consistent with past practices. For purposes of this definition, any series of
related transactions that, if effected as a single transaction, would constitute
an Asset Sale, shall be deemed to be a single Asset Sale when the last such
transaction that is a part thereof is effected, provided that such last
transaction is effected within 12 months of the first such transaction. For
purposes of the 'Limitation on Asset Sale' covenant, the term 'Asset Sale' (i)
when used with respect to the Company, shall exclude any asset disposition
permitted pursuant to 'Consolidation, Merger, Conveyance, Transfer or Lease'
that constitutes a disposition of all or substantially
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all of the assets of the Company and its Restricted Subsidiaries taken as a
whole, (ii) shall exclude any Asset Sale of less than or equal to $2.0 million,
(iii) shall exclude sales of Eligible Cash Equivalents and Permitted Temporary
Investments; and (iv) shall exclude any sale, conveyance, disposition or other
transfer of the Capital Stock of an Unrestricted Subsidiary or other Investment
described in clause (iv) of the definition of Restricted Payment, provided that
such Investment was permitted by the terms of the applicable Indenture.
Notwithstanding the provisions of the covenant under 'Limitation on Asset
Sales', the Company and its Restricted Subsidiaries may (a) sell or dispose of
damaged, worn out or other obsolete property in the ordinary course of business
so long as such property is no longer necessary for the proper conduct of the
business of the Company or such Restricted Subsidiary, as applicable, (b) create
or assume Liens (or permit any foreclosure thereon) securing Debt to the extent
that such Lien does not violate the 'Limitation on Liens' covenant above, and
(c) sell, convey, transfer, lease or otherwise dispose of accounts receivable to
an Accounts Receivable Subsidiary or to Persons that are not Affiliates of the
Company or any Subsidiary of the Company in the ordinary course of business,
including in connection with financing transactions.
'Attributable Debt' means, with respect to an operating lease included in
any Sale and Leaseback Transaction at the time of determination, the present
value (discounted at the interest rate implicit in the lease or, if not known,
at the Company's incremental borrowing rate) of the obligations of the lessee of
the property subject to such lease for rental payments during the remaining term
of the lease included in such transaction, including any period for which such
lease has been extended or may, at the option of the lessor, be extended, or
until the earliest date on which the lessee may terminate such lease without
penalty or upon payment of penalty (in which case the rental payments shall
include such penalty), after excluding from such rental payments all amounts
required to be paid on account of maintenance and repairs, insurance, taxes,
assessments, water, utilities and similar charges.
'Average Life' means, as of any date, with respect to any Debt, the
quotient obtained by dividing (i) the sum of the products of (x) the number of
years from such date to the dates of each scheduled principal payment (including
any sinking fund or mandatory redemption payment requirements) of such Debt
multiplied in each case by (y) the amount of such principal payment by (ii) the
sum of all such principal payments.
'Business Day' means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in the Borough of Manhattan, The
City of New York are authorized or obligated by law or executive order to close.
'Capital Lease Obligation' of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Debt arrangement conveying
the right to use) real or personal property of such Person that is required to
be classified and accounted for as a capital lease or a liability on the face of
a balance sheet of such Person in accordance with GAAP and the Stated Maturity
thereof shall be the date of the last payment of rent or any amount due under
such lease prior to the first date upon which such lease may be terminated by
the lessee without payment of a penalty.
'Capital Stock' in any Person means any and all shares, interests,
participations or other equivalents in the equity interest (however designated)
in such Person and any rights (other than Debt securities convertible into an
equity interest), warrants or options to acquire an equity interest in such
Person.
'Change of Control' means the occurrence of any of the following events:
(i) any 'person' or 'group' (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act) other than a Permitted Holder is or becomes the 'beneficial
owner' (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that
a Person shall be deemed to have 'beneficial ownership' of all securities that
such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time, upon the happening of an event or
otherwise), directly or indirectly, of more than 50% of the total Voting Capital
Stock of the Company; provided that Permitted Holders do not otherwise control
the election of a majority of the Board of Directors of the Company; (ii) the
Company consolidates with, or merges with or into, another Person or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with,
or merges with or into, the Company, in any such event pursuant to a transaction
in which the outstanding Voting Capital Stock of the Company is converted into
or exchanged for cash, securities or other property, and immediately after such
transaction a 'person' or 'group' (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act) other than a Permitted Holder is the 'beneficial
owner' (as
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defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a Person
shall be deemed to have 'beneficial ownership' of all securities that such
Person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time, upon the happening of an event or otherwise),
directly or indirectly, of more than 50% of the total Voting Capital Stock of
the surviving or transferee Person; provided that Permitted Holders do not
otherwise control the election of a majority of the Board of Directors of the
Company; (iii) during any period of two consecutive years, individuals who at
the beginning of such period constituted the Board of Directors (together with
any new directors whose election by the Board of Directors or whose nomination
for election by the members of the Company was approved by (a) one or more
Permitted Holders or (b) a vote of a majority of the directors of the Company
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute 66 2/3% of the Board of Directors then in office;
and (iv) the approval by the holders of Capital Stock of the Company of any plan
or proposal for the liquidation or dissolution of the Company.
'Common Stock' means, with respect to the Company, the Class A Common
Stock, the Class B Common Stock or any similar common stock of the Company.
'Consolidated Interest Expense' means, with respect to any Person for any
period, without duplication (A) the sum of (i) the aggregate amount of cash and
non-cash interest expense (including capitalized interest) of such Person and
its Restricted Subsidiaries for such period as determined on a consolidated
basis in accordance with GAAP in respect of Debt (including, without limitation,
(v) any amortization of debt discount, (w) net costs associated with Interest
Swap Obligations (including any amortization of discounts), (x) the interest
portion of any deferred payment obligation, (y) all accrued interest, and (z)
all commissions, discounts and other fees and charges owed with respect to
letters of credit, bankers' acceptances or similar facilities) paid or accrued,
or scheduled to be paid or accrued, during such period; (ii) dividends on
preferred stock or preferred equity interests of such Person and of its
Restricted Subsidiaries (if paid to a Person other than such Person or its
Restricted Subsidiaries) declared and payable in cash; (iii) the portion of any
rental obligation of such Person or its Restricted Subsidiaries in respect of
any Capital Lease Obligation allocable to interest expense in accordance with
GAAP; (iv) the portion of any rental obligation of such Person or its Restricted
Subsidiaries in respect of any Sale and Leaseback Transaction allocable to
interest expense (determined as if such were treated as a Capital Lease
Obligation); less (B) to the extent included in (A) above, amortization or
write-off of deferred financing costs of such Person and its Restricted
Subsidiaries during such period and any charge related to any premium or penalty
in connection with redeeming or retiring any Debt of such Person and its
Restricted Subsidiaries prior to its stated maturity; in the case of both (A)
and (B) above, after elimination of intercompany accounts among such Person and
its Restricted Subsidiaries and as determined in accordance with GAAP.
'Consolidated Net Income' of any Person means, for any period, the
aggregate net income (or net loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis determined in accordance
with GAAP; provided that there shall be excluded therefrom, without duplication
(a) all items classified as extraordinary, (b) any net income or loss of any
Person other than such Person and its Restricted Subsidiaries, except with
respect to net income to the extent of the amount of dividends or other
distributions actually paid in cash to such Person or its Restricted
Subsidiaries by such other Person during such period, (c) the net income or loss
of any Person acquired by such Person or any of its Restricted Subsidiaries in a
pooling-of-interests transaction for any period prior to the date of such
acquisition, (d) gains or losses in respect of any sale, transfer or disposition
of assets other than in the ordinary course of business by such Person or its
Restricted Subsidiaries, (e) the net income or loss of any Restricted Subsidiary
of such Person to the extent that the payment of dividends or other
distributions to such Person at the time is restricted by the terms of its
charter or any agreement, instrument, contract, judgment, order, decree,
statute, rule, governmental regulation or otherwise, except for any dividends or
distributions actually paid or that could have been paid by such Restricted
Subsidiary to such Person in compliance with such restrictions, (f) any
non-cash, nonrecurring charges, (g) any non-cash compensation charge arising
from any grant of stock options and (h) any gain or loss, net of taxes, realized
on the termination of an employee pension benefit plan.
'Credit Agreement' means a secured or unsecured credit agreement providing
for revolving credit loans, term loans and/or letters of credit between the
Company and one or more lenders, as such agreement may be amended, modified,
supplemented, refunded, refinanced, restructured, renewed, repaid or replaced
from time to time (whether in whole or in part, whether with the original agent
or lenders or other agents or lenders or
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otherwise and whether provided pursuant to the facility contemplated by the
Financing Commitment Letter or otherwise).
'Currency Hedge Obligations' means the obligations of any Person, whether
or not incurred in the ordinary course of business, pursuant to any foreign
currency exchange agreement, option or futures contract or other similar
agreement or arrangement.
'Debt' means at any time (without duplication), with respect to any Person,
and whether or not contingent, (i) any obligation of such Person for money
borrowed, (ii) any obligation of such Person evidenced by bonds, debentures,
notes, Guarantees or other similar instruments, including, without limitation,
any such obligations incurred in connection with acquisition of property, assets
or businesses, excluding trade accounts payable arising in the ordinary course
of business, (iii) any reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of such Person, (iv) any obligation of such Person issued or assumed as
the deferred purchase price of property or services (but excluding trade
accounts payable or accrued liabilities arising in the ordinary course of
business that in either case are not more than 90 days overdue or are being
contested in good faith), which purchase price is due more than six months after
the date of placing such property in service or taking delivery and title
thereto or the completion of such service, (v) any Capital Lease Obligation of
such Person, (vi) the maximum fixed redemption or repurchase price of Redeemable
Capital Stock of such Person at the date of determination, (vii) to the extent
not otherwise included in this definition of 'Debt', any Interest Swap
Obligations or Currency Hedge Obligations of such Person at the date of
determination, (viii) Attributable Debt of such Person with respect to any Sale
and Leaseback Transaction to which such Person is a party, (ix) preferred stock
of a Restricted Subsidiary of such Person, and (x) to the extent not otherwise
included in this definition of 'Debt', any obligation of the type referred to in
clauses (i) through (ix) of this definition of another Person and all dividends
and distributions of another Person the payment of which, in either case, such
Person has Guaranteed, or the payment of which is secured by (or for which the
holder of such obligation has an existing right, contingent or otherwise, to be
secured by) any Lien upon or with respect to property or assets owned by such
Person, provided, however, if the obligations secured by a Lien (other than a
Permitted Lien not securing any liability that would itself constitute Debt) on
any assets or property have not been assumed by such Person in full or are not
such Person's legal liability in full, the amount of such Debt for purposes of
this definition shall be limited to the lesser of the amount of Debt secured by
such Lien or the value of the property subject to such Lien. For purposes of the
preceding sentence, the maximum fixed repurchase price of any Redeemable Capital
Stock that does not have a fixed repurchase price shall be calculated in
accordance with the terms of such Redeemable Capital Stock as if such Redeemable
Capital Stock were repurchased on any date on which Debt shall be required to be
determined pursuant to the applicable Indenture; provided, however, that if such
Redeemable Capital Stock is not then permitted to be repurchased, the repurchase
price shall be the book value of such Redeemable Capital Stock. The principal
amount outstanding of any Debt issued with original issue discount is the
accreted value of such Debt and Debt shall not include any liability for
federal, state, local or other taxes. The amount of Debt of any Person at any
date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability of any Guarantees at
such date.
'Debt to Annualized EBITDA Ratio' means, as at any date of determination,
the ratio of (i) the aggregate amount of Debt of the Company and its Restricted
Subsidiaries on a consolidated basis as at the date of determination to (ii) the
aggregate amount of EBITDA of the Company and its Restricted Subsidiaries for
the two preceding fiscal quarters for which financial information is available
immediately prior to the date of determination multiplied by two; provided that
any Debt incurred or retired by the Company or any of its Restricted
Subsidiaries during the fiscal quarter in which the transaction date occurs
shall be calculated as if such Debt was so incurred or retired on the first day
of the fiscal quarter in which the date of determination occurs; and provided
further that (x) if the transaction giving rise to the need to calculate the
Debt to EBITDA Ratio would have the effect of increasing or decreasing Debt or
EBITDA in the future, Debt or EBITDA shall be calculated on a pro forma basis as
if such transaction had occurred on the first day of such two fiscal quarter
period preceding the date of determination, and (y) if during such two fiscal
quarter period, the Company or any of its Restricted Subsidiaries shall have
engaged in any Asset Sale of any company, entity or business, EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive), or
increased by an amount equal to the EBITDA (if negative), directly attributable
to the company, entity or business that is the subject of such Asset
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Sale and any related retirement of Debt as if such Asset Sale and related
retirement of Debt had occurred on the first day of such period or (z) if during
such two fiscal quarter period the Company or any of its Restricted Subsidiaries
shall have acquired any company, entity or business, EBITDA shall be calculated
on a pro forma basis as if such acquisition and related financing had occurred
on the first day of such period.
'Debt Securities' means any debt securities (including any Guarantee of
such securities) issued by the Company and/or any Restricted Subsidiary in
connection with a public offering (whether or not underwritten) or a private
placement (provided such private placement is underwritten for resale pursuant
to Rule 144A, Regulation S or otherwise under the Securities Act or sold on an
agency basis by a broker-dealer or one of its Affiliates to 10 or more
beneficial holders); it being understood that the term 'Debt Securities' shall
not include any evidence of indebtedness under the Credit Agreement or other
commercial bank borrowings or similar borrowings (including the facility
contemplated by the Financing Commitment Letter), recourse transfers of
financial assets, capital leases or other types of borrowings incurred in a
manner not customarily viewed as a 'securities offering'.
'Default' means any event, act or condition the occurrence of which is, or
after notice or the passage of time or both would be, an Event of Default.
'Disinterested Director' means, with respect to any transaction or series
of related transactions, a member of the Board of Directors of the Company who
has no material direct or indirect financial interest in or with respect to such
transaction or series of related transactions. For purposes of this definition,
no Person would be deemed not to be a Disinterested Director solely because such
Person or an Affiliate of such Person holds Capital Stock of the Company.
'EBITDA' means, with respect to any Person for any period, the sum for such
Person for such period of Consolidated Net Income plus, to the extent reflected
in the income statement of such Person for such period from which Consolidated
Net Income is determined, without duplication, (i) Consolidated Interest
Expense, (ii) income tax expense, (iii) depreciation expense, (iv) amortization
expense including without limitation, amortization of goodwill and other
intangibles, (v) any charge related to any premium or penalty paid in connection
with redeeming or retiring any Debt prior to its stated maturity and (vi) any
non-cash charges excluded in calculating Consolidated Net Income less any
non-cash charges added to the calculation of Consolidated Net Income (excluding
in each case any such non-cash charge that requires an accrual of or reserve for
cash charges for any future period).
'Eligible Cash Equivalents' means (i) United States dollars, (ii)
securities issued or directly and fully guaranteed or insured by the United
States government or any agency or instrumentality thereof having maturities of
not more than one year and one day from the date of acquisition, (iii)
certificates of deposit and Eurodollar time deposits with maturities of one year
or less from the date of acquisition, bankers' acceptances with maturities not
exceeding six months and overnight bank deposits, in each case with any
commercial bank(s) domiciled in the United States or in any member of the OECD
having capital and surplus in excess of $500 million and a Keefe Bank Watch
Rating of 'B' or better, (iv) repurchase obligations with a term of not more
than seven days for underlying securities of the types described in clauses (ii)
and (iii) entered into with any financial institution meeting the qualifications
specified in clause (iii) above, (v) commercial paper rated no lower than P-2 or
the equivalent thereof by Moody's Investors Service, Inc. or no lower than A-2
or the equivalent thereof by Standard & Poor's Rating Services or corporate
notes, bonds or medium term notes rated no lower than A-2 or the equivalent
thereof by Moody's Investors Service, Inc. or no lower than A or the equivalent
thereof by Standard & Poor's Ratings Services, and in each case maturing within
one year and one day after the date of acquisition, (vi) direct obligations
issued by any state of the United States or any political subdivision of any
such state or political instrumentality thereof maturing, or subject to tender
at the option of the holder thereof, within 90 days after the date of
acquisition, having a rating of A from Standard & Poor's Ratings Services or A-2
from Moody's Investors Service, Inc., (vii) asset-backed securities with an
Average Life equal to or less than one year and one day from the time of
acquisition and rated no lower than Aaa or the equivalent thereof by Moody's
Investors Service, Inc. or AAA or the equivalent thereof by Standard & Poor's
Ratings Services; and (viii) investments in money market funds substantially all
of whose assets comprise securities of the types described in clauses (i)
through (vii).
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'Fair Market Value' means, with respect to any asset or property, the sale
value that could be obtained in an arm's-length transaction, for cash, between a
willing seller and a willing buyer, neither of whom is under pressure or
compulsion to complete the transaction. Unless otherwise specified in the
applicable Indenture, Fair Market Value shall be determined by the Board of
Directors of the Company acting in good faith and as of the date on which such
determination is made.
'Financing Commitment Letter' means the commitment letter between the
Company and Nortel setting forth the anticipated terms and conditions under
which Nortel will provide loans to the Company in an aggregate amount of up to
$780.0 million that will be used to provide working capital and finance the
purchase of certain telecommunications system equipment, software and services.
'GAAP' means United States generally accepted accounting principles,
consistently applied, as set forth in the opinions and pronouncements of the
Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board, or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession of the United
States, that are applicable to the circumstances as of the date of
determination; provided, however, that, except as otherwise specifically
provided, all calculations made for purposes of determining compliance with the
terms of the provisions of the Indentures shall utilize GAAP in effect at the
time of preparation of, and in accordance with the GAAP used to prepare, the
historical financial statements of the Company on the Issue Date.
'Guarantee' means, as applied to any obligation of another Person, (i) a
guarantee (other than by endorsement of negotiable instruments for collection in
the ordinary course of business), direct or indirect, in any manner, of any part
or all of such obligation, (ii) any direct or indirect obligation, contingent or
otherwise, of a Person guaranteeing or having the effect of guaranteeing the
obligations of any other Person in any manner and (iii) an agreement of a
Person, direct or indirect, contingent or otherwise, the practical effect of
which is to assure in any way the payment or performance (or payment of damages
in the event of non-performance) of all or any part of such obligation of
another Person (and 'Guaranteed', 'Guaranteeing' and 'Guarantor' shall have
meanings correlative to the foregoing).
'incur' means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), extend, assume,
Guarantee or otherwise become liable in respect of such Debt or other obligation
or the recording, as required pursuant to GAAP or otherwise, of any such Debt or
obligation on the balance sheet of such Person provided that neither the accrual
of interest nor the accretion of original issue discount shall be considered an
incurrence of Debt (and 'incurrence', 'incurred', 'incurrable' and 'incurring'
shall have meanings correlative to the foregoing); provided, however, that a
change in GAAP that results in an obligation of such Person that exists at such
time becoming Debt shall not be deemed an incurrence of such Debt. Debt
otherwise incurred by a Person before it becomes a Restricted Subsidiary of the
Company shall be deemed to have been incurred at the time at which it becomes a
Restricted Subsidiary.
'Interest Swap Obligations' means, with respect to any Person, the
obligations of such Person pursuant to any interest rate swap agreement,
interest rate cap, collar or floor agreement or other similar agreement or
arrangement.
'Invested Capital' means the sum of (a) 15% of the aggregate net cash
proceeds received by the Company (or its predecessor) from the issuance of (or
capital contributions with respect to) any Qualified Capital Stock (b) the
aggregate net cash proceeds received by the Company from the issuance of (or
capital contributions with respect to) any Qualified Capital Stock (including
preferred stock but only if any redemption thereof is permitted only after the
Stated Maturity of the Notes) or Subordinated Stockholder Debt subsequent to the
Issue Date, other than the issuance of Qualified Capital Stock to a Restricted
Subsidiary of the Company, and (c) all net cash proceeds from the sales of
Redeemable Capital Stock of the Company or Debt securities of the Company
convertible into Qualified Capital Stock of the Company, in each case upon such
redemption or conversion thereof into Qualified Capital Stock; provided,
however, that Invested Capital shall be excluded from any computation thereof to
the extent utilized to make a Restricted Payment.
'Investment' by any Person means any direct or indirect loan, advance (or
other extension of credit, including any Guarantee) or capital contribution to
(by means of any transfer of cash or other property to others or any other
payments for property or services for the account or use of others), the
purchase or acquisition of any
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Capital Stock, bonds, notes, debentures or other securities of, the acquisition,
by purchase or otherwise, of all or substantially all of the businesses or
assets or stock or other evidence of beneficial ownership of, any Person or
making of any Investment in any Person. Investments shall exclude accounts
receivable and other extensions of trade credit on commercially reasonable terms
in accordance with normal trade practices.
'Issue Date' means the date on which the Notes are first authenticated and
delivered under the Indentures.
'Lien' means, with respect to any property or other asset, any mortgage or
deed of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien (statutory or other), charge, easement, preference, priority or
other encumbrance on or with respect to such property or other asset (including,
without limitation, any conditional sale or other title retention agreement
having substantially the same economic effect as any of the foregoing).
'Maturity', when used with respect to a Note, means the date on which the
principal of such Note becomes due and payable as provided therein or in the
Indentures, whether at the Stated Maturity, on the purchase date established
pursuant to the terms of the Indentures with regard to a Change of Control Offer
or an Asset Sale Offer, as applicable, or by declaration of acceleration, call
for redemption or otherwise.
'Net Cash Proceeds' means, (a) with respect to Asset Sales of any property
or other assets by a Person or its Restricted Subsidiaries, cash and cash
equivalents received net of (i) all reasonable out-of-pocket expenses of such
Person or such Restricted Subsidiary incurred in connection with such sale,
including, without limitation, all legal, title and recording tax expenses,
commissions and other fees and expenses incurred (but excluding any finder's fee
or broker's fee payable to any Affiliate of such Person) and all federal, state,
foreign and local taxes arising in connection with such an Asset Sale that are
paid or required to be accrued as a liability under GAAP by such Person or its
Restricted Subsidiaries, (ii) all payments made by such Person or its Restricted
Subsidiaries on any Debt that is secured by such properties or other assets in
accordance with the terms of any Lien upon or with respect to such properties or
other assets or that must, by the terms of such Debt or in order to obtain a
necessary consent to such transaction or by applicable law, be repaid in
connection with such Asset Sale, (iii) all contractually required distributions
and other payments made to minority interest holders in Restricted Subsidiaries
of such Person as a result of such transaction, and (iv) appropriate amounts to
be provided by the Company or any Restricted Subsidiary of the Company as a
reserve against any liabilities associated with such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale; provided that, in
the event that any consideration for a transaction (which would otherwise
constitute Net Cash Proceeds) is required to be held in escrow pending
determination of whether a purchase price adjustment will be made or is reserved
pursuant to clause (iv) above, such consideration (or any portion thereof) shall
become Net Cash Proceeds only at such time as it is released to such Person or
its Restricted Subsidiaries from escrow or ceases to be reserved, and provided
that any non-cash consideration received in connection with any transaction that
is subsequently converted to cash shall be deemed to be Net Cash Proceeds at
such time, for purposes of an Asset Sale and shall thereafter be applied in
accordance with 'Certain Covenants--Limitation on Asset Sales', and (b) with
respect to any issuance or sale of Capital Stock, the proceeds of such issuance
or sale in the form of cash or cash equivalents, including payments in respect
of deferred payment obligations (to the extent corresponding to the principal,
but not interest, component thereof) when received in the form of cash or cash
equivalents (except to the extent such obligations are financed or sold with
recourse to the Company or any Restricted Subsidiary of the Company) and
proceeds from the conversion of other property received when converted to cash
or cash equivalents, net of attorney's fees, underwriters' or placement agents'
fees, discounts or commissions and brokerage, consultant and other fees incurred
in connection with such issuance or sale and net of taxes paid or payable as a
result thereof. For purposes of the preceding clause (b) the value of the
aggregate Net Cash Proceeds received by the Company upon the issuance of Capital
Stock either upon the conversion of convertible Debt or Redeemable Capital
Stock, will be the Net Cash Proceeds received upon the issuance of such Debt, or
Redeemable Capital Stock, plus the incremental amount received by the Company
upon the conversion, exchange or exercise thereof.
'Officers' Certificate' means a certificate signed by the Chairman of the
Board of Directors, a Vice Chairman of the Board of Directors, the President or
a Vice President, and by the Chief Financial Officer, the
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Chief Accounting Officer, the Treasurer, an Assistant Treasurer, the Secretary
or an Assistant Secretary of the Company and delivered to the Trustee, which
certificate shall comply with the Indentures.
'Permitted Debt' means (a) Vendor Debt in an aggregate principal amount not
to exceed $780 million outstanding at any one time, (b) Debt permitted to be
borrowed under the Credit Agreement in an aggregate principal amount not to
exceed $175 million outstanding at any time, (c) Telecommunications Assets Debt;
(d) Debt under Interest Swap Obligations designed to protect against or manage
the Company's or any of its Subsidiaries' exposure to fluctuations in interest
rates, provided that such obligations are related to payment obligations on
other Permitted Debt, and Currency Hedging Obligations entered into in the
ordinary course of business and designed to protect against or manage the
Company's or any of its Subsidiaries' exposure to fluctuations in foreign
currency exchange rates; (e) Debt of the Company to any of its Restricted
Subsidiaries or Debt of a Restricted Subsidiary of the Company to the Company or
to another Restricted Subsidiary of the Company (but only so long as such Debt
is held by a Person who is the Company or such a Restricted Subsidiary); (f)
Debt in respect of (1) letters of credit, bankers' acceptances or other similar
instruments or obligations, issued in connection with liabilities incurred in
the ordinary course of business (including those issued to governmental entities
in connection with self-insurance under applicable workers' compensation
statutes) or (2) surety, judgment, appeal, performance and other similar bonds,
instruments or obligations provided in the ordinary course of business; (g) Debt
represented by the Notes, any Guarantees in respect thereof, and any Debt
arising by reason of any Lien granted to secure any of the foregoing Debt; (h)
Debt arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from Guarantees, or letters of credit,
surety bonds or performance bonds securing any obligations of the Company or any
of its Restricted Subsidiaries pursuant to such agreements, in any case incurred
in connection with the disposition of any business, assets or Restricted
Subsidiary of the Company, in a principal amount not to exceed the gross
proceeds actually received by the Company or any Restricted Subsidiary in
connection with such disposition; (i) Capital Lease Obligations in an aggregate
principal amount outstanding at any time not to exceed $10.0 million; (j) Debt
in existence on the Issue Date; (k) Debt arising from the honoring of a check,
draft or similar instrument of a Person drawn against insufficient funds,
provided that such Debt is extinguished within five Business Days of its
incurrence; (l) Debt incurred (and refinancing of such Debt) not to exceed, at
any one time outstanding, two times the aggregate Net Cash Proceeds received by
the Company after the Issue Date from the issuance and sale of its Capital Stock
(other than (1) Redeemable Capital Stock and (2) preferred stock that requires
the accrual of dividends in cash prior to the Stated Maturity of the Notes) or
Subordinated Stockholder Debt to a Person that is not a Subsidiary of the
Company to the extent that such Net Cash Proceeds have not been used to make a
Permitted Investment pursuant to clause (a) of the definition of 'Permitted
Investments', or to make a Restricted Payment pursuant to the 'Limitation on
Restricted Payments' covenant, provided that such Debt does not mature prior to
the Stated Maturity of the Notes and has an Average Life longer than the Notes;
(m) any Debt incurred in connection with or given in exchange for the renewal,
extension, substitution, refunding, defeasance, refinancing or replacement of
any Debt referred to in clauses (c), (g), (j), (n), and (o) and not incurred in
violation of the Indenture ('Refinancing Debt'), provided, however, that (1) the
principal amount of such Refinancing Debt shall not exceed the principal amount
of the Debt so renewed, extended, substituted, refunded, defeased, refinanced or
replaced (plus the premiums paid, and the expenses incurred, in connection
therewith), (2) with respect to Refinancing Debt of any Debt, if the Average
Life of the Debt being renewed, extended, substituted, refunded, defeased,
refinanced or replaced is equal to or greater than the Average Life of the
Notes, the Refinancing Debt shall have an Average Life equal to or greater than
the Average Life of the Notes and shall not mature prior to the Stated Maturity
of the Notes, and (3) with respect to Refinancing Debt of any Debt, such
Refinancing Debt shall rank no more senior (including as a result of structural
subordination of the Notes), and shall be at least as subordinated, in right of
payment to the Notes as the Debt being renewed, extended, substituted, refunded,
defeased, refinanced or replaced; (n) Debt incurred in connection with a
prepayment or redemption of the Notes pursuant to a Change of Control, provided
that the principal amount of such Debt does not exceed 101% of the principal
amount of the Notes prepaid (plus the amount of reasonable expenses incurred in
connection therewith) and that such Debt (i) has an Average Life to stated
maturity equal to or greater than the remaining Average Life to Stated Maturity
of the Notes and (ii) does not mature prior to the Stated Maturity of the Notes;
(o) Debt incurred if after giving pro forma effect to the incurrence and
application of the proceeds thereof, the Debt to Annualized EBITDA Ratio would
not equal or exceed 5 to 1 in the case of any such incurrence; (p) Debt of the
Company or any of its Restricted Subsidiaries arising by reason of the
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recharacterization of the sale of accounts receivable to an Accounts Receivable
Subsidiary; and (q) Subordinated Stockholder Debt.
For purposes of determining compliance with, and any particular amount of
Debt under, the 'Limitation on Debt' covenant, Guarantees, Liens or obligations
with respect to letters of credit supporting Debt shall be disregarded (x) if
otherwise included in the determination of such particular amount, or (y) if
incurred by the obligor on such Debt, to the extent that any such Guarantee,
Lien or letter of credit secures the principal amount of such Debt. For purposes
of determining compliance with the 'Limitation on Debt' covenant, in the event
that an item of Debt meets the criteria of more than one of the types of Debt
described in this definition of Permitted Debt, the Company, in its sole
discretion, shall classify such item of Debt and only be required to include the
amount and type of such Debt in one of such clauses.
For purposes of determining compliance with any Dollar-denominated
restriction on the incurrence of Debt denominated in a foreign currency, the
Dollar-equivalent principal amount of such Debt incurred pursuant thereto shall
be calculated based on the relevant currency exchange rate in effect on the date
that such Debt was incurred, in the case of term debt, or first committed, in
the case of revolving credit debt, provided that (x) the Dollar-equivalent
principal amount of any such Debt outstanding on the Issue Date shall be
calculated based on the relevant currency exchange rate in effect on the Issue
Date and (y) if such Debt is incurred to refinance other Debt denominated in a
foreign currency, and such refinancing would cause the applicable
Dollar-denominated restriction to be exceeded if calculated at the relevant
currency exchange rate in effect on the date of such refinancing, such
Dollar-denominated restriction shall be deemed not to have been exceeded so long
as the principal amount of such refinancing Debt does not exceed the principal
amount of such Debt being refinanced. The principal amount of any Debt incurred
to refinance other Debt, if incurred in a different currency from the Debt being
refinanced, shall be calculated based on the currency exchange rate applicable
to the currencies in which such respective Debt is denominated that is in effect
on the date of such refinancing.
Debt of any Person that is not a Restricted Subsidiary, which Debt is
outstanding at the time such Person becomes a Restricted Subsidiary or is merged
with or into or consolidated with the Company or a Restricted Subsidiary, shall
be deemed to have been incurred at the time such Person becomes a Restricted
Subsidiary or is merged with or into or consolidated with the Company or a
Restricted Subsidiary, and Debt which is assumed at the time of the acquisition
of any asset shall be deemed to have been incurred at the time of such
acquisition.
'Permitted Holder' means each of MSI, DSC, NTT, Alex Mandl and their
respective Affiliates on the Issue Date.
'Permitted Investments' means (a) Investments in an aggregate amount not to
exceed the sum of (i) Invested Capital, (ii) the Fair Market Value of Qualified
Capital Stock of the Company, Redeemable Capital Stock of the Company, or Debt
securities of the Company convertible into Qualified Capital Stock of the
Company, in the latter two cases upon such redemption or conversion thereof into
Qualified Capital Stock of the Company, issued by the Company or any Restricted
Subsidiary of the Company as consideration for any such Investments made
pursuant to this clause (a), and (iii) in the case of the disposition or
repayment of any Investment made pursuant to this clause (a) after the Issue
Date (including by redesignation of an Unrestricted Subsidiary of the Company to
a Restricted Subsidiary of the Company), an amount equal to the lesser of the
return of capital with respect to such Investment and the initial amount of such
Investment, in either case, less the cost of the disposition of such Investment;
(b) Eligible Cash Equivalents; (c) Investments in assets used in the ordinary
course of business; (d) Investments in any Person as a result of which such
Person becomes a Restricted Subsidiary of the Company provided that such
Restricted Subsidiary is engaged in a Telecommunications Business; (e)
Investments in trade receivables, prepaid expenses, negotiable instruments held
for collection and lease, utility and workers' compensation, performance and
other similar deposits; (f) loans and advances to employees made in the ordinary
course of business; (g) Interest Swap Obligations and Currency Hedge
Obligations; (h) bonds, notes, debentures or other securities received as a
result of Asset Sales permitted under the covenant described in 'Certain
Covenants--Limitation on Asset Sales'; (i) Investments in existence at the Issue
Date and any extension, modification or renewal of any such Investment that does
not increase the amount of such Investment; (j) endorsements for collection or
deposit in the ordinary course of business by such Person of bank drafts and
similar negotiable instruments of such other Person received as payment for
ordinary course of business trade receivables; (k) any Investment by a
Restricted Subsidiary of the Company or any Investment by
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the Company or a Restricted Subsidiary of the Company in a Restricted Subsidiary
of the Company; (l) Investments deemed to have been made as a result of the
acquisition of a Person that at the time of such acquisition held instruments
constituting Investments that were not acquired in contemplation of, or in
connection with, the acquisition of such Person; and (m) Investments in or
acquisitions of Capital Stock, Debt, securities or other property of Persons
(other than Affiliates of the Company) received by the Company or any of its
Restricted Subsidiaries in the bankruptcy or reorganization of or by such Person
or any exchange of such Investment with the issuer thereof or taken in
settlement of or other resolution of claims or disputes, and, in each case,
extensions, modifications and renewals thereof.
'Permitted Liens' means (a) Liens securing Vendor Debt and Debt incurred
under the Credit Agreement provided that such Debt was incurred in compliance
with clauses (a) and (b), respectively, of the definition of Permitted Debt; (b)
Liens securing Telecommunications Assets Debt; (c) Liens on property of a Person
existing at the time such Person is merged with or into, or consolidated with,
the Company or becomes a Restricted Subsidiary of the Company (and not incurred
in anticipation of such transaction); provided that such Liens are not extended
to the property and assets of the Company and its Restricted Subsidiaries, other
than the acquired Restricted Subsidiary; (d) Liens existing as of the Issue
Date; (e) Liens on property or assets acquired by the Company or any of its
Restricted Subsidiaries, provided that such Liens were not incurred in
connection with, or in contemplation of such acquisition and do not extend to
any other property or assets; (f) Liens in respect of Interest Swap Obligations
and Currency Hedge Obligations permitted under the Indenture; (g) Liens in favor
of the Company or any of its Restricted Subsidiaries; (h) Liens securing the
Notes or any Guarantees thereof; (i) any interest or title of a lessor in the
property subject to any Capitalized Lease Obligation or operating lease; (j)
Liens securing reimbursement obligations with respect to letters of credit that
encumber documents and other property relating to such letters of credit and the
products and proceeds thereof; (k) Liens arising out of conditional sale, title
retention, consignment or similar arrangements for the sale of goods entered
into by the Company or any of its Restricted Subsidiaries in the ordinary course
of business; (l) Liens on the property or assets or Capital Stock of Accounts
Receivable Subsidiaries and Liens arising out of any sale of accounts receivable
in the ordinary course (including in connection with a financing transaction) to
or by an Accounts Receivable Subsidiary or to Persons that are not Affiliates of
the Company; (m) Liens on the Pledged Securities in favor of the holders of the
Senior Notes; and (n) any extension, renewal, refinancing, refunding or
replacement of any Permitted Lien (or any arrangement to which such Permitted
Lien relates), provided that such new Lien, pledge or deposit is limited to the
property or assets that secured (or under the arrangement under which the
original Permitted Lien arose, could secure) the obligations to which such Liens
relate.
'Permitted Temporary Investments' means (a) all Eligible Cash Equivalents
except that the term 'not more than one year and one day after the date of
acquisition' is changed to 'not more than two years after the Issue Date' and
(b) debt securities with an investment grade rating by Standard & Poor's Rating
Services and Moody's Investors Service, Inc. issued by any Person and maturing
within two years after the Issue Date.
'Person' means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability corporation or government or any agency or political subdivision
thereof.
'Pledge Account' means an account established with the Senior Notes Trustee
pursuant to the terms of the Pledge Agreement for the deposit of the Pledged
Securities.
'Pledge Agreement' means the Collateral Pledge and Security Agreement,
dated as of the date of the Senior Notes Indenture, by and between the Senior
Notes Trustee and the Company, governing the disbursement of funds from the
Pledge Account.
'Pledged Securities' means the securities purchased by the Company with a
portion of the net proceeds from the Senior Notes Offering, which securities
shall consist of U.S. Government Obligations, to be deposited in the Pledge
Account and any securities substituted therefor pursuant to the Pledge
Agreement.
'Proportionate Interest' in any issuance of Capital Stock of a Restricted
Subsidiary means a ratio (i) the numerator of which is the aggregate amount of
all Investments in Capital Stock of such Restricted Subsidiary by the Company
and (ii) the denominator of which is the aggregate amount of all Investments in
Capital Stock of such Restricted Subsidiary by all Persons.
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'Qualified Capital Stock' of any Person means a class of Capital Stock
other than Redeemable Capital Stock.
'Redeemable Capital Stock' of any Person means any equity security of such
Person that by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or otherwise (including on the
happening of an event), is required to be redeemed or is redeemable at the
option of the holder thereof, in whole or in part (including by operation of a
sinking fund), or is exchangeable for Debt (other than at the option of such
Person), in whole or in part, at any time prior to the Stated Maturity of the
Notes.
'Regular Record Date', for the interest payable on any interest payment
date, means the or (whether or not a Business Day), as the
case may be, next preceding such interest payment date.
'Replacement Assets' means, with respect to any Asset Sale, properties or
assets that, as determined by the Board of Directors, as evidenced by a Board
Resolution, are used or will be used in the Telecommunications Business of the
Company or a Restricted Subsidiary of the Company.
'Restricted Payment' means (i) a dividend or other distribution declared
and paid on the Capital Stock of the Company or to the Company's stockholders
(in their capacity as such), or declared and paid to any Person other than the
Company or a Restricted Subsidiary of the Company on the Capital Stock of any
Restricted Subsidiary of the Company, in each case, other than dividends,
distributions or payments made solely in Qualified Capital Stock of the Company
or such Restricted Subsidiary (and other than pro rata dividends or
distributions on Qualified Capital Stock of such Restricted Subsidiaries), (ii)
a payment made by the Company or any of its Restricted Subsidiaries (other than
a payment to the Company or any Restricted Subsidiary of the Company) to
purchase, redeem, acquire or retire any Capital Stock of the Company or of a
Restricted Subsidiary of the Company, (iii) a payment made by the Company or any
of its Restricted Subsidiaries to redeem, repurchase, defease (including an
in-substance or legal defeasance) or otherwise acquire or retire for value,
prior to any scheduled maturity, scheduled sinking fund or mandatory redemption
payment, of Subordinated Debt of the Company, or (iv) an Investment in any
Person, including an Unrestricted Subsidiary, other than (a) a Permitted
Investment, (b) an Investment by the Company in a Restricted Subsidiary of the
Company or (c) an Investment by a Restricted Subsidiary of the Company in the
Company or a Restricted Subsidiary of the Company. For calculation purposes upon
any Person becoming a Restricted Subsidiary of the Company, no investments in
that Person shall be considered to be Restricted Payments.
'Restricted Subsidiary' of any Person means (i) any corporation other than
an Unrestricted Subsidiary more than 50% of the outstanding shares of Voting
Stock of which is owned or controlled, directly or indirectly, by such Person or
(ii) any limited partnership other than an Unrestricted Subsidiary of which such
Person or any Restricted Subsidiary of such Person is a general partner or (iii)
any other Person (other than a corporation or limited partnership) other than an
Unrestricted Subsidiary in which such Person, or one or more other Restricted
Subsidiaries of such Person, or such Person and one or more other Restricted
Subsidiaries thereof, directly or indirectly, have more than 50% of the
outstanding partnership or similar interests or have the power, by contract or
otherwise, to direct or cause the direction of the policies, management and
affairs thereof.
'Sale and Leaseback Transaction' means, with respect to any Person, any
direct or indirect arrangement pursuant to which property is sold or transferred
by such Person or a Restricted Subsidiary of such Person and is thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its Restricted Subsidiaries.
'Significant Restricted Subsidiary' means a Restricted Subsidiary that is a
'significant subsidiary' as defined in Rule 1-02(w) of Regulation S-X under the
Securities Act and the Exchange Act, or that owns or holds a Federal
Communications Commission license for the transmission of wireless
telecommunications services.
'Stated Maturity', when used with respect to a Note or any installment of
interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable.
'Subordinated Debt' means Debt of the Company that is subordinated in right
of payment to the Notes.
'Subordinated Stockholder Debt' means Debt of the Company to a Permitted
Holder, provided that such Debt shall not (by its terms or by the terms of any
security into which it is convertible or for which it is
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exchangeable) (including upon the happening of any event) pay principal,
premium, if any, or interest (upon acceleration or otherwise) until six months
after the Stated Maturity of the Notes and shall be subordinated to the Notes
pursuant to the terms of a Subordination Agreement in the form attached to the
Indenture and the Company shall have delivered one or more opinions of counsel
as to the validity and enforceability of such Subordination Agreement.
'Subsidiary' means, with respect to any Person, (i) any corporation more
than 50% of the outstanding shares of Voting Stock of which is owned, directly
or indirectly, by such Person, or by one or more other Subsidiaries of such
Person, or by such Person and one or more other Subsidiaries of such Person,
(ii) any general partnership, joint venture or similar entity, more than 50% of
the outstanding partnership or similar interests of which are owned, directly or
indirectly, by such Person, or by one or more other Subsidiaries of such Person,
or by such Person and one or more other Subsidiaries of such Person and (iii)
any limited partnership of which such Person or any Subsidiary of such Person is
a general partner.
'Telecommunications Assets' means all assets, rights (contractual or
otherwise) and properties, whether tangible or intangible, used or useful in
connection with a Telecommunications Business.
'Telecommunications Assets Debt' means any Debt of the Company or any of
its Restricted Subsidiaries to finance the acquisition, construction, expansion
or development of Telecommunications Assets; provided that, at the time of
incurrence, such Debt does not exceed 100% of the lesser of cost or Fair Market
Value of the Telecommunications Assets to be so acquired, constructed, expanded
or developed.
'Telecommunications Business' means, when used in reference to any Person,
that such Person is engaged primarily in the business of (i) transmitting or
providing services relating to the transmission of voice, video or data through
owned or leased transmission facilities, (ii) creating, developing or marketing
communications related network equipment, software and other devices for use in
a Telecommunications Business or (iii) evaluating, participating in or pursuing
any other activity or opportunity that is related to those identified in (i) or
(ii) above; provided that the determination of what constitutes a
Telecommunications Business shall be made in good faith by the Board of
Directors of the Company.
'U.S. Government Obligations' means (x) securities that are (i) direct
obligations of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged or (ii) obligations
of a Person controlled or supervised by and acting as an agency or
instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the United
States of America, which securities, in either case under clauses (i) or (ii)
above, are not callable or redeemable at the option of the issuer thereof, and
(y) depository receipts issued by a bank (as defined in Section 3(a)(2) of the
Securities Act of 1933, as amended) as custodian with respect to any U.S.
Government Obligation that is specified in clause (x) above and held by such
bank for the account of the holder of such depository receipt, or with respect
to any specific payment of principal or interest on any U.S. Government
Obligation that is so specified and held, provided that (except as required by
law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal or interest of the U.S. Government Obligation evidenced by such
depository receipt.
'Unrestricted Subsidiary' means (i) any Subsidiary of the Company (a) that
at the time of determination shall be an Unrestricted Subsidiary (as designated
by the Board of Directors of the Company, as provided below), (b) that shall be
engaged in the same or similar line of business as the Company and its
Restricted Subsidiaries, and (c) all the Debt of which shall be non-recourse to
the Company and its Subsidiaries other than its Unrestricted Subsidiaries and
(ii) any Subsidiary of an Unrestricted Subsidiary; provided that notwithstanding
clause (i)(c) above, the Company or a Restricted Subsidiary of the Company may
Guarantee, endorse, agree to provide funds for the payment or maintenance of, or
otherwise become directly or indirectly liable with respect to, Debt of an
Unrestricted Subsidiary but only to the extent that the Company or such
Restricted Subsidiary could make an Investment in such Unrestricted Subsidiary
pursuant to the covenant described under 'Certain Covenants--Limitation on
Restricted Payments' and any such Guarantee, endorsement or agreement shall be
deemed an incurrence of Debt by the Company for purposes of the covenant
described under 'Certain Covenants--Limitation on Debt'. The Board of Directors
of the Company may designate any newly acquired or newly formed Subsidiary to be
an Unrestricted Subsidiary unless such Subsidiary owns any capital stock of, or
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owns or holds any Lien on any property of, any other Subsidiary of the Company
that is not an Unrestricted Subsidiary (other than an Subsidiary of the type
referred to in clause (ii) above). Any such designation by the Board of
Directors of the Company shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions. The Company's Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary (a
'Revocation'); provided, however, that immediately after giving effect to such
designation, no Default or Event of Default shall have occurred and be
continuing, including, without limitation, under the covenants described above
under the captions 'Limitation on Debt' and 'Limitation on Liens,' assuming the
incurrence by the Company and its Restricted Subsidiaries at the time of such
designation of all existing Debt and Liens of the Unrestricted Subsidiary to be
so designated as a Restricted Subsidiary of the Company.
'Vendor Debt' means any Debt incurred (x) pursuant to the facility
contemplated by the Financing Commitment Letter or (y) pursuant to any agreement
with one or more other vendors, suppliers or lessors of equipment (including any
facility entered into with any vendor, supplier or lessor or any financial
institution acting on behalf of any vendor, supplier or lessor as such agreement
may be amended, modified, supplemented, refunded, refinanced, restructured,
renewed or replaced from time to time (whether in whole or in part, whether with
the original agent or lenders or other agents or lenders and whether provided
under the original agreement or otherwise).
'Voting Stock' means, with respect to any Person, securities of any class
or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or at the times that such class of Capital Stock has
voting power by reason of the happening of any contingency) to vote in the
election of members of the board of directors or comparable body of such Person.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
GENERAL
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 has entered into the Equipment Purchase Letter of Intent with
Nortel which outlines the principal terms and conditions for the purchase of
certain telecommunications system equipment, software and services
(collectively, the 'Deliverables') to be purchased by the Company. The Company
has also entered into the Financing Commitment Letter with Nortel setting forth
the anticipated terms and conditions under which Nortel will provide Nortel
loans in an aggregate amount of up to $780.0 million which will be used to
finance the purchase of the Deliverables and provide working capital. The
Company currently expects to negotiate definitive documentation covering the
purchase and sale of the Deliverables as contemplated by the Equipment Purchase
Letter of Intent and the provision of financing as contemplated by the Financing
Commitment Letter, subject to satisfactory completion of Nortel's due diligence,
although the Company expects that the purchase and sale of certain Deliverables
on Nortel's standard terms and conditions will commence in advance of the
signing of definitive documentation. The provision of financing by Nortel is a
condition precedent to the Company's continued purchase of Deliverables from
Nortel.
The obligations of Nortel and the Company under the Equipment Purchase
Letter of Intent and the Financing Commitment Letter are subject to numerous
conditions, including the negotiation, execution and delivery of definitive
documentation with respect to the matters described therein. There can be no
assurance that the parties will be able to reach agreement on the terms of such
definitive documentation. In addition, the Financing Commitment Letter is
subject to, among other things, the completion of Nortel's due diligence review
and the absence, as determined by Nortel in its reasonable discretion, of (i)
material adverse changes in the U.S. financial or capital markets generally, or
in the loan syndication market for comparable facilities and (ii) any material
adverse change in the business, condition (financial or otherwise), operations,
performance, prospects or properties of the Company and its subsidiaries, taken
as a whole.
EQUIPMENT PURCHASE LETTER OF INTENT
The Equipment Purchase Letter of Intent contemplates that Nortel will be
responsible for network infrastructure integration as set forth in a mutually
agreed upon statement of work. The Equipment Purchase Letter of Intent provides
that microwave transmission equipment will be supplied by Teligent-approved
radio vendors. Nortel will be responsible for managing Teligent-approved radio
vendors and shall be responsible for (i) supplying certain equipment at the
agreed upon delivery dates, whether such equipment is made by Nortel or
Teligent-approved radio vendors, and (ii) furnishing financing to Teligent for
such purchases.
FINANCING COMMITMENT LETTER
The Financing Commitment Letter contemplates that the Nortel Loans will be
available in an aggregate amount of up to $780.0 million, in five tranches, as
follows:
<TABLE>
<S> <C>
Tranches A-1 and A-2..................................... $600.0 million
Tranches B-1, B-2 and C.................................. $180.0 million
--------------
Total $780.0 million
</TABLE>
The Financing Commitment Letter contemplates that advances from Tranches
A-1 and A-2 will be used to finance payments owing to Nortel in connection with
the purchase of the Deliverables and that advances from Tranches B-1 and B-2 may
be used by the Company to fund its working capital needs. Advances under Tranche
C are only to be used to pay interest due on Tranche A and B advances during the
first two years following initial funding. The Financing Commitment Letter
provides that Tranches A-1 and B-1 become available (subject to certain
customary conditions precedent) upon the Company's receipt of at least $100.0
million (the 'Initial
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Capital') in equity contributions after August 1997. The Company expects that
the consummation of the Additional Sponsor Cash Contributions and the Strategic
Equity Investment will satisfy this condition. The Financing Commitment Letter
contemplates that Tranches A-2 and B-2 will become available (subject to certain
customary conditions precedent) upon the termination of the Company's Revolving
Credit Agreement and the receipt of proceeds or commitments for specified levels
of additional equity and debt above and beyond the Initial Capital. The Company
expects that these conditions will be satisfied upon consummation of the
Offerings.
The Financing Commitment Letter contemplates that the Nortel Loans will be
available to the Company in multiple drawings until the earlier of (i) the
fourth anniversary of the date of the initial advance and (ii) December 31, 2001
(the relevant date, the 'Commitment Termination Date'). Principal will be repaid
in quarterly installments commencing on the fourth anniversary of the date of
the initial advance, as follows:
<TABLE>
<CAPTION>
YEAR FOLLOWING THE INITIAL 4-YEAR QUARTERLY
PERIOD AMORTIZATION
- ------------------------------------- ------------
<S> <C>
1.................................... 2.50%
2.................................... 3.75%
3.................................... 5.00%
4.................................... 6.25%
5.................................... 7.50%
</TABLE>
The Financing Commitment Letter contemplates that Nortel may, with the
prior written agreement of the Company, convert up to $195.0 million of advances
under Tranches A-1 and B-1 into a nine-year senior secured term loan, which
would be subject to limited annual amortization and otherwise be payable in full
at maturity.
The Financing Commitment Letter contemplates that the Nortel Loans will be
subject to mandatory prepayment in the amount of (i) 100% of the proceeds of
certain asset sales by the Company and its restricted subsidiaries which are not
reinvested in the Company's business, (ii) 100% of voluntary or mandatory
prepayments or redemptions of certain other indebtedness of the Company, (iii)
beginning on the Commitment Termination Date, 50% of excess cash flow (as
defined in the Financing Commitment Letter) of the Company, and (iv) 100% of
certain pension plan reversions. The Company will also be entitled to optionally
prepay the Nortel Loans at its option at any time without premium or penalty
(other than standard breakage costs).
The Financing Commitment Letter contemplates that the Nortel Loans will
accrue interest, at the Company's option, at an interest rate equal to a base
rate or an adjusted eurodollar rate ('LIBOR'), plus an applicable margin
consistent with comparable transactions, determined in accordance with the
amount of new capital received by the Company. Interest will be payable
quarterly in arrears for base rate advances and at the end of each interest
period (and also after three months) for LIBOR advances.
The Financing Commitment Letter contemplates that the Nortel Loans will be
secured by substantially all of the existing and future assets of the Company.
Certain of the Company's subsidiaries will also guarantee the Company's
obligations under the loan documentation and will also pledge substantially all
of their existing and future assets as collateral. All collateral for the Nortel
Loans will be held by a collateral trustee for the equal and ratable benefit of
Nortel, the other secured lenders to whom the Nortel Loans are syndicated by
Nortel and certain subsequent secured lenders or financiers of the Company (who
will be expected to enter into sharing arrangements with the collateral trustee
and the beneficiaries of the collateral trust).
The definitive loan documentation is expected to contain significant
covenants of the Company and its restricted subsidiaries, including, but not
limited to, the following: (a) affirmative covenants with respect to compliance
with laws, inspection rights, performance of other obligations, delivery of
financing statements and other information, interest rate cap arrangements,
maintenance of licenses, termination of the Revolving Credit Agreement and
receipt of additional equity or debt, (b) negative covenants restricting the
ability to incur or create (with standard baskets and exceptions) liens, debt
and operating lease obligations, and otherwise restricting (with customary
exceptions) mergers or consolidations, disposal of assets, investments, payments
of dividends and distributions, modification of tax-sharing or management or
servicing fee agreements, changes in the nature of the business of the Company,
prepayment or redemption of debt, amendments to the Revolving Credit Agreement,
negative lien covenants, creation of partnerships and new subsidiaries, conduct
of business through its license or property companies and transactions with
affiliates, and (c) financial covenants (including the
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following ratios: secured debt to total capitalization, total debt to total
capitalization, and, in subsequent years, total debt to annualized EBITDA and
fixed charge coverage; and the following operational measures: capital
expenditures, minimum revenue and minimum lines of credit).
The definitive loan documentation is expected to contain customary
representations and warranties for similarly situated borrowers in secured
transactions. The definitive loan documentation will also contain events of
default (with standard grace periods and exceptions) with respect to payments,
representations and warranties, covenants, cross default, bankruptcy and similar
proceedings, judgments, enforceability of the loan documentation, validity and
perfection of security interests, change of control, ERISA and other such other
events of default as may be mutually agreed.
In connection with the arranging and making of the Nortel Loans, the
Company will be required to pay various arrangement, commitment and other fees
to Nortel and the lenders customary for such facilities.
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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, 7,331,410 shares of Class A Common
Stock will be issued and outstanding, 21,436,689 shares of Series B-1 Common
Stock will be issued and outstanding, held by one stockholder of record,
17,206,210 shares of Series B-2 Common Stock will be issued and outstanding,
held by one stockholder of record, and 5,783,400 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 or by subsidiaries of
the Company) 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 or by
subsidiaries of the Company) 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 or by subsidiaries of the Company) 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 or by subsidiaries of the Company)
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
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Company's treasury or by subsidiaries of the Company) 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 by subsidiaries of the Company and
shares issued pursuant to the exercise of any warrants, options or other rights
to purchase shares issued in connection with any debt issued by the Company
substantially concurrently with the consummation of the Equity Offerings) 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 or by
subsidiaries of the Company and shares issued pursuant to the exercise of any
warrants, options or other rights to purchase shares issued in connection with
any debt issued by the Company substantially concurrently with the consummation
of the Equity Offerings) immediately following the Reorganization (such number
of shares of Series B-3 Common Stock meeting the foregoing 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 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 number referred to in clause (ii) of
this paragraph is required to 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-2 Common Stock ceases to be so controlled, then
any shares of Series B-2 Common Stock
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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 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.
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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 beneficially owned by any Foreign
Owner, or with respect to which any Foreign Owner has voting rights (pursuant to
any agreement, arrangement, understanding or otherwise), 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. Under the Certificate of Incorporation, the redemption
price of such shares may be paid in cash, securities or any combination thereof.
Such redemption will be upon such other terms and conditions as the Board of
Directors shall determine. See 'Risk Factors--Restrictions on Foreign
Ownership.'
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 and the Company is unable to obtain a waiver of such requirement, the
Company will have the right, and will be required, at NTT's election, 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 in addition, the Company will have the right, and will be required,
at the election of any Stockholder Party, to repurchase for cash (to the extent
permitted by applicable Delaware corporation law) shares first from all other
Foreign Owners other than the Stockholder Parties, if applicable, and thereafter
from each of the Stockholder Parties, on a pro rata basis (based on the
percentage of foreign ownership attributable to each Stockholder Party) at the
fair market value thereof based on the Company's then public trading value. See
'Certain Relationships and Related Transactions--Stockholders Agreement.'
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 or removal 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 or remove 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
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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.
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
.
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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) generally must 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.
If the yield to maturity with respect to the Senior Discount Notes equals
or exceeds the sum of the 'applicable federal rate' (6.32% for November 1997)
plus five percentage points, the Senior Discount Notes would be treated as
applicable high yield discount obligations ('AHYDOs') under the Code. If this
were the case, the OID on the Senior Discount Notes would not be deductible by
the Company until actually paid. Holders are advised to consult their tax
advisors regarding the applicability and operation of the AHYDO rules to their
investment in Senior Discount Notes.
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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 capital 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 (except to the extent that such cash or other
property is attributable to the payment of accrued and unpaid interest not
previously included in income, which amount will be taxable as ordinary income).
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. A 'Non-U.S.
Holder' is a holder that 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 generally 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, unless the Non-U.S. Holder's income from the Notes is
effectively connected with a U.S. trade or business of the holder and the holder
timely furnishes two duly executed copies of IRS Form 4224 (or any successor
form) to the withholding agent, in which case such income would be taxed on a
net basis as though the holder were a United States person.
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 United States trade or business income if it
had been received by such individual at the time of his or her death.
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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 Note.
Backup withholding will not apply, however, to a holder who furnishes a correct
taxpayer identification number or certificate of foreign status and makes any
other required certification, or who is otherwise exempt from backup
withholding. Generally, a United States holder of a Note will provide such
certification on IRS Form W-9 (Request for Taxpayer Identification Number and
Certification) and a Non-U.S. Holder will provide such certification on IRS Form
W-8 (Certificate of Foreign Status).
Backup witholding is not an additional tax. Amounts withheld under the
backup withholding rules may be credited against a holder's tax liability, and a
holder may obtain a refund of any excess amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the IRS
(generally, a United States federal income tax return).
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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
117
<PAGE>
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.
118
<PAGE>
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 radio/antenna
unit(s) typically located at one site. A cellular phone connects to the
ratio/antenna unit in its current cell, then the connection is handed-off when
the user moves to any other cell.
CENTREX--A central office managed group of lines; each line is individually
connected to the central office switch, but four or five digit dialing is
permitted among the line group.
CLEC (COMPETITIVE LOCAL EXCHANGE CARRIER)--A company that provides local
exchange services in competition with the incumbent local exchange carrier.
COMPRESSION--Any process that transforms a signal to a more compact form
(fewer bits) for easier transfer, and then restores the signal after transfer.
COPPER WIRE--A shorthand reference to traditional telephone lines using
electric current to carry signals over copper wire.
CPE (CUSTOMER PREMISE EQUIPMENT)--Telecommunications equipment, such as a
radio/antenna unit, which is installed on the customer premises.
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.
A-1
<PAGE>
DIRECT INWARD DIAL--A PBX trunk feature that allows the central office
switch to recognize individual extension numbers and route calls to the PBX
trunk.
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.
KBPS--Kilobits per second.
KILOBIT--One thousand bits of information. The information-carrying
capacity (i.e., bandwidth) of a circuit may be measured in '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
<PAGE>
LINE OF SIGHT--An unobstructed view between a base station and a
radio/antenna unit.
LINK--A transmission link between a base station and a radio/antenna unit.
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.
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.
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.
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.
PBX (PRIVATE BRANCH EXCHANGE)--A device located on the customer premises
that provides call routing capability.
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 radio/antenna units) 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.
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.
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)
SEPTEMBER 30, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash............................................................................................. $ 5,808,127
Accounts receivable.............................................................................. 19,340
Employee loans and advances...................................................................... 2,415,716
Due from related parties......................................................................... 2,522,794
Prepaid expenses and other assets................................................................ 622,827
-----------
Total current assets.......................................................................... 11,388,804
Property and equipment:
Operating equipment.............................................................................. 4,093,939
Furniture and equipment.......................................................................... 1,141,112
Leasehold improvements........................................................................... 30,782
Systems in process............................................................................... 2,159,973
-----------
7,425,806
Accumulated depreciation and amortization.......................................................... (470,120)
-----------
Property and equipment--net........................................................................ 6,955,686
Payment to wireless communications company......................................................... 5,570,000
Investment in wireless communications business..................................................... 200,000
Management fees receivable......................................................................... 203,376
-----------
Total assets....................................................................................... $24,317,866
-----------
-----------
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Accounts payable................................................................................. $ 3,906,330
Employee compensation............................................................................ 1,996,848
Accrued expenses................................................................................. 396,011
Revolving line-of-credit......................................................................... 38,500,000
Accrued company appreciation rights--current..................................................... 17,898,516
-----------
Total current liabilities..................................................................... 62,697,705
Deferred compensation.............................................................................. 955,557
Accrued company appreciation rights--long-term..................................................... 36,815,087
Contingent liability--see note 3................................................................... 4,000,000
Members' deficit:
Capital contributions............................................................................ 9,058,158
Deficit accumulated during the development stage................................................. (89,208,641)
-----------
Total members' deficit........................................................................ (80,150,483)
-----------
Total liabilities and members' deficit............................................................. $24,317,866
-----------
-----------
</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>
NINE MONTHS PERIOD
ENDED MARCH 5, 1996
SEPTEMBER 30, (DATE OF INCEPTION) TO
1997 SEPTEMBER 30, 1997
------------- ----------------------
<S> <C> <C>
Revenues:
Management fees............................................................ $ 90,000 $ 190,000
Equipment leases........................................................... 490,646 656,206
Other services provided to members......................................... 2,333,142 3,453,924
------------- ----------------------
Total revenues.......................................................... 2,913,788 4,300,130
Costs and expenses:
Cost of wireless communication services.................................... 2,874,554 4,499,560
Sales, general and administrative.......................................... 23,301,033 31,883,670
Company appreciation rights................................................ 51,935,438 54,713,603
Depreciation and amortization.............................................. 306,069 470,120
------------- ----------------------
Total costs and expenses................................................ 78,417,094 91,566,953
------------- ----------------------
Operating loss............................................................... (75,503,306) (87,266,823)
Interest expense and loan fees............................................... (1,072,642) (1,941,818)
------------- ----------------------
Net loss..................................................................... $ (76,575,948) $(89,208,641)
------------- ----------------------
------------- ----------------------
</TABLE>
The net loss for the nine months ended September 30, 1997 and the period
March 5, 1996 (date of inception) to September 30, 1997 includes non-cash
company appreciation rights expense of $51,935,438 and $54,713,603,
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 nine months ended September 30, 1997
and the period March 5, 1996 (date of inception) to September 30, 1997 would
have been $24,640,510 and $34,495,038, 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 SEPTEMBER 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.......................................................... -- (89,208,641) (89,208,641)
------------ ------------ ------------
Balance at September 30, 1997....................................... $ 9,058,158 $(89,208,641) $(80,150,483)
------------ ------------ ------------
------------ ------------ ------------
</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
NINE MONTHS (DATE OF
ENDED INCEPTION) TO
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss................................................................ $(76,575,948) $(89,208,641)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization........................................ 306,069 470,120
Deferred compensation................................................ 663,009 955,557
Company appreciation rights.......................................... 51,935,438 54,713,603
Management fees...................................................... (99,908) (203,376)
Contingent liability--See Note 3..................................... 4,000,000 4,000,000
Changes in current assets and current liabilities:
Accounts receivable.................................................. (14,475) (19,340)
Employee loans and advances.......................................... (2,415,716) (2,415,716)
Due from related parties............................................. (2,668,846) (2,522,794)
Prepaid expenses and other assets.................................... (471,645) (622,827)
Accounts payable..................................................... 904,151 3,906,330
Employee compensation................................................ 1,534,181 1,996,848
Accrued expenses..................................................... 396,011 396,011
------------------ ------------------
Net cash used in operating activities................................ (22,507,679) (28,554,225)
Cash flows from investing activities:
Purchase of property and equipment...................................... (3,716,806) (7,425,806)
Payments relating to wireless communications business................... (5,770,000) (5,770,000)
------------------ ------------------
Net cash used in investing activities................................... (9,486,806) (13,195,806)
Cash flows from financing activities:
Proceeds from bank borrowings........................................... 36,500,000 38,500,000
Member contributions.................................................... -- 9,058,158
------------------ ------------------
Net cash provided by financing activities............................... 36,500,000 47,558,158
------------------ ------------------
Net increase in cash.................................................... 4,505,515 5,808,127
Cash at beginning of period............................................. 1,302,612 --
------------------ ------------------
Cash at end of period................................................... $ 5,808,127 $ 5,808,127
------------------ ------------------
------------------ ------------------
</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)
SEPTEMBER 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 September 30, 1997, and the results of its operations
and cash flows for the nine months ended September 30, 1997 and the period March
5, 1996 (date of inception) to September 30, 1997. These condensed financial
statements are unaudited, and do not include all related footnote disclosures.
The results of operations for the nine months ended September 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 September
30, 1997 is in connection with the FirstMark acquisition and will be allocated
to licenses upon closing of the transaction.
(3) CONTINGENT LIABILITY
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.................................. 3
Additional Information...................................... 3
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.................................................... 41
Telecommunications Industry Overview........................ 54
Regulation.................................................. 55
Management.................................................. 61
Certain Transactions........................................ 69
Certain Relationships and Related Transactions.............. 72
Security Ownership of Certain Beneficial Owners and
Management................................................ 76
Description of the Notes.................................... 78
Description of Certain Indebtedness......................... 106
Description of Capital Stock................................ 109
Certain Federal Income Tax Considerations................... 114
Underwriting................................................ 117
Legal Matters............................................... 118
Experts..................................................... 118
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.
$250,000,000
% 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,
at or immediately prior to consummation of the Offerings, the Company will issue
an aggregate of 1,831,410 shares of Class A Common Stock and 44,426,299 shares
of Class B Common Stock to the 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.
Pursuant to the Securities Purchase Agreement dated as of September 30,
1997, at or immediately prior to consummation of the Offering, the Company will
issue and sell to Nippon Telegraph and Telephone Company or an affiliate thereof
3,470,040 shares of Series B-3 Common Stock for a purchase price of $60 million
in cash. Such issuance 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 -- Form of Certificate of Incorporation of Registrant.(1)
3.2 -- Form of Amended and Restated By-laws of Registrant.(1)
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 First Union National Bank, 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 First Union National Bank, 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 First Union National Bank, 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.(1)
10.2 -- Stock Contribution Agreement, dated as of March 10, 1997, among Associated Communications, L.L.C.,
Firstmark Communications, Inc. and Lynn Forester.(1)
10.3 -- Securities Purchase Agreement, dated as of September 30, 1997, by and among Teligent, L.L.C.,
Microwave Services, Inc., Digital Services Corporation and Nippon Telegraph and Telephone
Corporation.(1)
10.4 -- Form of Registration Rights Agreement, by and among Teligent, L.L.C. and Nippon Telegraph and
Telephone Corporation.(1)
10.5 -- Form of Technical Services Agreement, by and among Teligent, L.L.C. and NTT America, Inc.(2)
10.6 -- Agreement, dated September 29, 1997, among Teligent, L.L.C., Digital Services Corporation,
Telcom-DTS Investors, L.L.C., Microwave Services, Inc., The Associated Group, Inc. and certain
other parties.(2)
10.7 -- Agreement and Plan of Merger, dated as of October 6, 1997, by and between Teligent, Inc. and
Teligent, L.L.C.(1)
10.8 -- Sublease Agreement, dated as of July 22, 1997, for the 8065 Leesburg Pike, Vienna, Virginia office
space lease between NHP Incorporated and Teligent, L.L.C.(2)
10.9 -- Teligent, Inc. 1997 Stock Incentive Plan dated.(2)
11.1 -- Statement of Computation of Per Share Earnings.(2)
21.1 -- Subsidiaries of the Company.(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.(3)
25.1 -- Form T-1 (Statement of Eligibility and Qualification under the Trust Indenture Act of 1939) of
First Union National Bank relating to the Senior Notes Indenture.(1)
25.2 -- Form T-1 (Statement of Eligibility and Qualification under the Trust Indenture Act of 1939) of
First Union National Bank relating to the Senior Discount Notes Indenture.(1)
</TABLE>
- ------------------
(1) Filed herewith.
(2) To be filed by amendment.
(3) Previously filed.
(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.
II-5
<PAGE>
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 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 AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN VIRGINIA, ON
OCTOBER 29, 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 AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ---------------------------------------------- --------------------
<S> <C> <C>
/s/ ALEX J. MANDL Chairman of the Board, Chief Executive Officer October 29, 1997
- ------------------------------------------ and Director
Alex J. Mandl
* Senior Vice President and Chief Financial October 29, 1997
- ------------------------------------------ Officer (Principal Financial Officer)
Abraham L. Morris
* Vice President and October 29, 1997
- ------------------------------------------ Controller (Principal Accounting Officer)
Cindy L. Tallent
* Director October 29, 1997
- ------------------------------------------
Myles P. Berkman
* Director October 29, 1997
- ------------------------------------------
David J. Berkman
* Director October 29, 1997
- ------------------------------------------
William H. Berkman
* Director October 29, 1997
- ------------------------------------------
Rajendra Singh
*By: /s/ ALEX J. MANDL
Alex J. Mandl
Attorney-in-Fact
</TABLE>
II-7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
- ---------- --------------------------------------------------------------------------------------------- ---------
<S> <C> <C> <C>
1.1 -- Form of Underwriting Agreement.(2)
3.1 -- Form of Certificate of Incorporation of Registrant.(1)
3.2 -- Form of Amended and Restated By-laws of Registrant.(1)
4.1 -- Form of Stockholders Agreement.(2)
4.2 -- Form of Indenture between the Registrant, as issuer, and First Union National Bank, 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 First Union National Bank, 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 First Union National Bank,
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.(1)
10.2 -- Stock Contribution Agreement, dated as of March 10, 1997, among Associated
Communications, L.L.C., Firstmark Communications, Inc. and Lynn Forester.(1)
10.3 -- Securities Purchase Agreement, dated as of September 30, 1997, by and among Teligent,
L.L.C., Microwave Services, Inc., Digital Services Corporation and Nippon Telegraph and
Telephone Corporation.(1)
10.4 -- Form of Registration Rights Agreement, by and among Teligent, L.L.C. and Nippon
Telegraph and Telephone Corporation.(1)
10.5 -- Form of Technical Services Agreement, by and among Teligent, L.L.C. and NTT America, Inc.(2)
10.6 -- Agreement, dated September 29, 1997, among Teligent, L.L.C., Digital Services
Corporation, Telcom-DTS Investors, L.L.C., Microwave Services, Inc., The Associated
Group, Inc. and certain other parties.(2)
10.7 -- Agreement and Plan of Merger, dated as of October 6, 1997, by and between Teligent,
Inc. and Teligent, L.L.C.(1)
10.8 -- Sublease Agreement, dated as of July 22, 1997, for the 8065 Leesburg Pike, Vienna,
Virginia office space lease between NHP Incorporated and Teligent, L.L.C.(2)
10.9 -- Teligent, Inc. 1997 Stock Incentive Plan.(2)
11.1 -- Statement of Computation of Per Share Earnings.(2)
21.1 -- Subsidiaries of the Company.(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.(3)
25.1 -- Form T-1 (Statement of Eligibility and Qualification under the Trust Indenture Act of
1939) of First Union National Bank relating to the Senior Notes Indenture.(1)
25.2 -- Form T-1 (Statement of Eligibility and Qualification under the Trust Indenture Act of
1939) of First Union National Bank relating to the Senior Discount Notes Indenture.(1)
</TABLE>
- ------------------
(1) Filed herewith.
(2) To be filed by amendment.
(3) Previously filed.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
TELIGENT, INC.
FIRST: The name of the Corporation is Teligent, Inc.
(hereinafter the "Corporation").
SECOND: The address of the registered office of the
Corporation in the State of Delaware is 1201 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may be organized under the
General Corporation Law of the State of Delaware as set forth in Title 8 of the
Delaware Code (the "DGCL"). The Corporation will have perpetual existence.
FOURTH: The total number of shares of stock which the
Corporation shall have authority to issue is two hundred seventy-five million
(275,000,000) shares of capital stock, consisting of (i) ten million
(10,000,000) shares of preferred stock, each having a par value of one penny
($.01) ("Preferred Stock"), (ii) two hundred million (200,000,000) shares of
Class A common stock, each having a par value of one penny ($.01) ("Class A
Common Stock"), and (iii) sixty-five million (65,000,000) shares of Class B
common stock, each having a par value of one penny ($.01) ("Class B Common
Stock" and, collectively with Class A Common Stock, "Common Stock"). The Class B
Common Stock shall consist of three series: thirty million (30,000,000) shares
of Class B Common Stock shall be designated Series 1 ("Class B-Series 1 Common
Stock"), twenty-five million (25,000,000) shares of Class B Common Stock shall
be designated Series 2 ("Class B-Series 2 Common Stock") and ten million
(10,000,000) shares of Class B Common Stock shall be designated Series 3 ("Class
B-Series 3 Common Stock").
A. COMMON STOCK
(1) Voting Rights.
(a) Except as otherwise required by law or this Certificate of
Incorporation, the holders of shares of Common Stock shall vote together as a
single class. Each share of Common Stock shall entitle the registered holder
thereof to one vote. There shall be no cumulative voting.
(b) The holders of Class B-Series 1 Common Stock, voting as a
separate class, shall be entitled to elect that number of directors equal to the
minimum number necessary to constitute a majority of members of the
Corporation's Board of Directors ("Class B-Series 1 Directors"); provided, that
if at any time the number of issued and outstanding shares of Class B-Series 1
Common Stock (exclusive of any shares held in the Corporation's treasury or by
subsidiaries of the Corporation) is less than 20% of the aggregate number of
issued and outstanding shares of Common Stock (exclusive
<PAGE>
of shares held in the Corporation's treasury or by subsidiaries of the
Corporation) then, without any further action of any party or the Corporation,
all of such issued and outstanding shares of Class B-Series 1 Common Stock shall
automatically and irrevocably be converted into an equal number of shares of
Class A Common Stock and the holders of Class B-Series 1 Common Stock so
converted shall no longer be entitled to elect Class B-Series 1 Directors.
(c) The holders of Class B-Series 2 Common Stock, voting as a
separate class, shall be entitled to elect one member of the Corporation's Board
of Directors ("Class B-Series 2 Director"); provided, that if at any time the
number of issued and outstanding shares of Class B-Series 2 Common Stock
(exclusive of any shares held in the Corporation's treasury or by subsidiaries
of the Corporation) is less than 10% of the aggregate number of issued and
outstanding shares of Common Stock (exclusive of shares held in the
Corporation's treasury or by subsidiaries of the Corporation) then, without any
further action of any party or the Corporation, all of such issued and
outstanding shares of Class B-Series 2 Common Stock shall automatically and
irrevocably be converted into an equal number of shares of Class A Common Stock
and the holders of Class B-Series 2 Common Stock so converted shall no longer be
entitled to elect a Class B-Series 2 Director.
(d) The holders of Class B-Series 3 Common Stock, voting as a
separate class, shall be entitled to elect one member of the Corporation's Board
of Directors ("Class B-Series 3 Director"); provided, that if at any time (A)
the number of issued and outstanding shares of Class B-Series 3 Common Stock
(exclusive of any shares held in the Corporation's treasury or by subsidiaries
of the Corporation) is less than (i) 3% of the aggregate number of issued and
outstanding shares of Common Stock (exclusive of shares held in the
Corporation's treasury or by subsidiaries of the Corporation and shares issued
pursuant to the exercise of any warrants, options or other rights to purchase
shares issued in connection with any debt issued by the Corporation
substantially concurrently with the consummation of the Corporation's initial
public offering of Class A Common Stock (the "IPO")) or (ii) 50% of the
aggregate number of shares of Class B-Series 3 Common Stock issued and
outstanding (exclusive of any shares held in the Corporation's treasury or by
subsidiaries of the Corporation and shares issued pursuant to the exercise of
any warrants, options or other rights to purchase shares issued in connection
with any debt issued by the Corporation substantially concurrently with the IPO)
immediately following the merger of Teligent, L.L.C. with and into the
Corporation (50% of such aggregate number being referred to as the "Series B-3
Threshold Amount") or (B) Nippon Telegraph and Telephone Corporation ("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 entity whose principal business is, the
provision in the United States of any terrestrial fixed wireless local
telecommunications services offered by the Corporation in the same market
segments (i.e. business or residential), then, without any further action of any
party or the Corporation, all of such issued and outstanding shares of Class
B-Series 3 Common Stock shall automatically and irrevocably be converted into an
equal number of shares of Class A Common Stock and the holders of Class B-Series
3 Common Stock so converted shall
2
<PAGE>
no longer be entitled to elect a Class B-Series 3 Director. In the event of any
stock split, reverse stock split, stock dividend or similar transaction with
respect to the Class B-Series 3 Common Stock, the Series B-3 Threshold Amount
shall be accordingly adjusted.
(e) The holders of Class A Common Stock and Class B Common
Stock voting together as a single class, shall be entitled to elect all members
of the Corporation's Board of Directors, other than any Class B-Series 1
Directors, Class B-Series 2 Director or Class B-Series 3 Director ("Common
Directors").
(f) Any Class B-Series 1 Director, Class B-Series 2 Director
or Class B-Series 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.
(g) 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.
(h) Any vacancy in the office of a director may be filled by a
vote of holders of, in the case of any Class B-Series 1 Director, Class B-Series
2 Director or Class B-Series 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 the Class B Common Stock
voting together as a single class; provided, 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, that any vacancy in the office of a Class
B-Series 1 Director may, in the absence of a stockholder vote, be filled by the
remaining Class B-Series 1 Directors or, if there remains only one Class
B-Series 1 Director, by such sole remaining Class B-Series 1 Director.
(2) Conversion.
(a) Each fully paid share of Class B Common Stock shall 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 of the
Corporation.
(b) No fractional shares of Class A Common Stock shall be
issued upon such conversion, but in lieu thereof the Corporation shall pay to
the holder an amount in cash equal to the fair market value (as determined by
the Corporation's Board of Directors) of such fractional share.
(c) To convert shares of Class B Common Stock, the registered
holder thereof shall surrender the certificate or certificates representing such
shares, duly endorsed to the Corporation or in blank (which endorsement shall
correspond exactly with the name or names of the registered holder or holders
set forth on the face of the certificates and on the stock transfer records of
the
3
<PAGE>
Corporation), at the office of the transfer agent for the Common Stock (which
may be either the Corporation or any third party retained by it for such
purpose), and shall give written notice to the transfer agent and the
Corporation that such holder elects to convert all or part of the shares
represented thereby, stating therein the name or names (with the address or
addresses) in which the certificate or certificates for shares of Class A Common
Stock are to be issued.
(d) If the registered holder fully complies with the foregoing
conversion procedures, the Corporation shall, as soon as practicable thereafter,
deliver (if the Corporation is then the transfer agent for the shares of the
class Common Stock being converted), or instruct the transfer agent to deliver,
to such holder, or to such holder's nominee or nominees, a certificate or
certificates for the number of shares of Class A Common Stock to which such
holder shall be entitled, rounded to the nearest whole number of shares, and a
check for any amount payable hereunder in lieu of any fractional share, along
with a certificate representing any shares of the Class B Common Stock being
converted that the holder has not elected to convert hereunder but which
constituted part of the shares of Class B Common Stock represented by the
certificate or certificates surrendered.
(e) Shares of Class B Common Stock shall be deemed to have
been converted as of the close of business on the date of the due surrender of
the certificates representing the shares to be converted as provided above, and
the person or persons entitled to receive the shares of Class A Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Class A Common Stock at such time.
(f) If the Corporation shall in any manner split or subdivide
the outstanding shares of any class of Common Stock, the outstanding shares of
all other classes of Common Stock shall be split or subdivided in the same
manner, proportionately and on the same basis per share.
(g) When shares of Class B Common Stock have been converted,
they shall be irrevocably canceled and not reissued.
(3) Transfers of Certain Common Stock. No holder of shares of
Class B Common Stock shall transfer, and the Corporation shall not register (and
shall 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" of such holder (as defined
below). 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 person, such
transfer, without any further action of any party or the Corporation, shall
automatically and irrevocably convert such shares into an equal number of shares
of Class A Common Stock from the date of such transfer. "Permitted Transferee"
shall mean only:
(a) in the case of any holder of shares of Class B-
4
<PAGE>
Series 1 Common Stock, The Associated Group, Inc. ("Associated") and any
corporation, partnership or other business entity directly or indirectly
controlled by Associated at the time of transfer;
(b) in the case of any holder of shares of Class B-Series 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, that if any holder of shares of Class
B-Series 2 Common Stock ceases to be so controlled, then any shares of Class
B-Series 2 Common Stock held by such holder shall be deemed to have been
transferred to a person or entity other than a Permitted Transferee; and
(c) in the case of any holder of shares of Class B-Series 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, shall 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 Corporation 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 this
Certificate of Incorporation. No such grant or pledge shall by itself cause the
conversion of any such shares of Class B Common Stock into shares of Class A
Common Stock; provided, 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
further action of any party or the Corporation, shall automatically and
irrevocably convert such shares into an equal number of shares of Class A Common
Stock from the date of such foreclosure.
As used herein, "control" (including correlative terms such as "controlled" and
"controlling") shall mean, with respect to any corporation, partnership or other
business entity, direct ownership, or indirect ownership through one or more
controlled entities, of voting securities having at least 51% of the total
voting power of all outstanding voting securities of such corporation,
partnership or other business entity. The Corporation and any transfer agent of
Class B Common Stock may, as a condition to any transfer or the registration of
any transfer of shares of Class B Common Stock, require the furnishing of such
affidavits or other proof as they deem necessary to establish that the
transferee is a Permitted Transferee of the transferor.
(4) Dividends. Subject to the preferential rights of holders
of Preferred Stock, if any, the holders of shares of Common Stock shall be
entitled to receive, when, as and if declared by the
5
<PAGE>
Board of Directors of the Corporation, out of the assets of the Corporation
which are by law available therefor, dividends payable either in cash, in
property or in shares of capital stock. No dividend shall be declared or paid in
respect of any class of Common Stock 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 shall 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 shall 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 shall be payable only in shares
of, or in subscription or other rights to acquire shares of, the same series of
Class B Common Stock.
(5) Dissolution, Liquidation or Winding Up. In the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, 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 shall be entitled to receive
all the remaining assets of the Corporation of whatever kind available for
distribution to stockholders ratably in proportion to the number of shares of
Common Stock held by them. The holders of Common Stock shall participate in such
assets as if all classes and series of Common Stock constituted a single class
of stock. A dissolution, liquidation or winding-up of the Corporation, as such
terms are used in this paragraph, shall not be deemed to be occasioned by or to
include any consolidation or merger of the Corporation with or into any other
corporation or corporations or other entity or a sale, lease, exchange or
conveyance of all or a part of the assets of the Corporation.
B. PREFERRED STOCK
(1) General. The Board of Directors is expressly authorized to
provide for the issuance of all or any shares of the 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.
FIFTH: The following provisions are inserted for the
management of the business and the conduct of the affairs of the Corporation,
and for further definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
(1) The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors.
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(2) The number of directors that shall constitute the whole
Board of Directors shall from time to time be fixed exclusively by the Board of
Directors by a resolution adopted by a majority of the entire Board of Directors
serving at the time of that vote. No decrease in the number of directors shall
have the effect of shortening the term of any incumbent director. Election of
directors need not be by written ballot unless the By-Laws so provide. A
director shall hold office until the next annual meeting of stockholders of the
Corporation and until his successor shall be duly elected and shall duly
qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office.
(3) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, subject, nevertheless, to the provisions of the DGCL,
this Certificate of Incorporation, and any By-Laws adopted by the stockholders;
provided, that no By-Laws hereafter adopted by the stockholders shall invalidate
any prior act of the directors which would have been valid if such By-Laws had
not been adopted.
(4) The presence of a majority of the total number of
directors shall constitute a quorum for the transaction of business and, except
as otherwise provided herein, the vote of a majority of such quorum shall be
required in order for the Board of Directors to act; provided, that unless the
right of the holders of Class B-Series 1 Common Stock to elect Class B-Series 1
Directors shall have terminated, a quorum shall not exist if the Class B-Series
1 Directors constitute less than a majority of the directors present for the
transaction of business.
(5) Notwithstanding the foregoing, whenever the holders of any
one or more classes or series of Preferred Stock issued by the Corporation shall
have the right, voting separately by class or series, to elect directors at an
annual or special meeting of stockholders, the election, term of office, filling
of vacancies, removal and other features of such directorships shall be governed
by the terms of the instrument creating such class or series of Preferred Stock.
SIXTH: Unless otherwise required by the DGCL, special meetings
of stockholders, for any purpose or purposes, may be called only pursuant to the
affirmative vote of at least a majority of the Board of Directors. Stockholders
shall not be entitled to call a special meeting of stockholders, nor to require
the Board of Directors to call such a special meeting. Stockholders shall not be
entitled to act by written consent in lieu of a meeting; provided, that in
connection with the election or removal of any Class B-Series 1 Director, Class
B-Series 2 Director or Class B-Series 3 Director, the holders of the series of
Class B Common Stock entitled to elect or remove such director voting as a
separate class may act by written consent in lieu of a meeting.
SEVENTH: In furtherance and not in limitation of the
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powers conferred by the laws of the State of Delaware, the Board of Directors is
expressly authorized and empowered to adopt, amend or repeal any provision of
the By-Laws of the Corporation.
EIGHTH: The Corporation shall 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 shall continue as to a
person who has ceased to be a director or officer of the Corporation and shall
inure to the benefit of his or her heirs, executors and personal and legal
representatives; provided, that except for proceedings to enforce rights to
indemnification, the Corporation shall 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 this
Article EIGHTH shall include the right to be paid by the Corporation the
expenses as incurred in defending or otherwise participating in any proceeding
in advance of its final disposition.
The Corporation may, to the extent authorized from time to
time by the Board of Directors, provide rights to indemnification and to the
advancement of expenses to employees and agents of the Corporation similar to
those conferred in this Article EIGHTH to directors and officers of the
Corporation.
The rights to indemnification and to the advance of expenses
conferred in this Article EIGHTH shall 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 Corporation, any statute, agreement, vote of
stockholders or disinterested directors or otherwise.
Any repeal or modification of this Article EIGHTH shall not
adversely affect any rights to indemnification and to the advancement of
expenses of a director or officer of the Corporation existing at the time of
such repeal or modification with respect to any acts or omissions occurring
prior to such repeal or modification.
NINTH: No director shall be personally liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, except to the extent such exemption from liability
or limitation thereto is not permitted under the DGCL as the same exists or may
hereafter be amended. If the DGCL is amended hereafter to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the Corporation shall be eliminated or limited to the fullest extent
authorized by the DGCL, as so amended. Any repeal or modification of this
Article NINTH shall not adversely affect any right or protection of a director
of the Corporation existing at the time of such repeal or modification with
respect to acts or omissions occurring prior to such repeal or modification.
TENTH: Meetings of stockholders may be held within or without
the State of Delaware, as the By-Laws may provide. The
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books of the Corporation may be kept (subject to any provision contained in the
DGCL) outside the State of Delaware at such place or places as may be designated
from time to time by the Board of Directors or in the By-Laws of the
Corporation.
ELEVENTH: Subject to Section 242(b)(2) of the DGCL as in
effect on the date hereof, the Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of Incorporation,
in the manner now or hereafter prescribed by statute, and all rights conferred
upon stockholders herein are granted subject to this reservation.
TWELFTH: (1) The Board of Directors of the Corporation shall
have all powers necessary to ensure compliance by the Corporation 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 Federal Communications Commission ("Communications Act") including,
without limitation, the power to prohibit the transfer of any shares of capital
stock of the Corporation 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.
(2) Without limiting the generality of the foregoing, any
shares of capital stock of the Corporation determined by the Board of Directors
of the Corporation to be beneficially owned by any Foreign Owner, or with
respect to which any Foreign Owner has voting rights (pursuant to any agreement,
arrangement, understanding or otherwise), shall always be subject to redemption
by the Corporation 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. The terms and conditions of such redemption shall be as
follows:
(i) the redemption price of the shares to be redeemed shall be
equal to the fair market value of such shares, as determined in any manner
deemed equitable by the Board of Directors in good faith;
(ii) the redemption price of such shares may be paid in cash,
securities or any combination thereof;
(iii) if less than all the shares held by Foreign Owners are
to be redeemed, the shares to be redeemed shall be selected in any manner
determined by the Board of Directors; and
(iv) from and after the redemption date, the shares to be
redeemed shall cease to be regarded as outstanding and any and
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all rights of the holders in respect of the shares to be redeemed or attaching
to such shares of whatever nature (including, without limitation, any rights to
vote or participate in dividends declared on such shares) shall cease and
terminate, and the holders thereof thenceforth shall be entitled only to receive
the cash or securities payable upon redemption; and
(v) such other terms and conditions as the Board of Directors
shall determine.
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BY-LAWS
OF
TELIGENT, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
Section 2. Other Offices. The Corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the
stockholders for the election of directors or for any other purpose shall be
held at such time and place, either within or without the State of Delaware as
shall be designated from time to time by the Board of Directors.
Section 2. Annual Meetings. The Annual Meetings of
Stockholders for the election of directors shall be held on such date and at
such time as shall be designated from time to time by the Board of Directors.
Any other proper business may be transacted at the Annual Meeting of
Stockholders.
Section 3. Special Meetings. Unless otherwise required by law
or by the certificate of incorporation of the Corporation, as amended and
restated from time to time (the "Certificate of Incorporation"), Special
Meetings of Stockholders, for any purpose or purposes, may be called only
pursuant to the affirmative vote of at least a majority of the Board of
Directors. At a Special Meeting of Stockholders, only such business shall be
conducted as shall be specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors.
Section 4. Notice. Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise required by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting.
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Section 5. Adjournments. Any meeting of the stockholders may
be adjourned from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 6. Quorum. Unless otherwise required by law or the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. A quorum, once established, shall
not be broken by the withdrawal of enough votes to leave less than a quorum. If,
however, such quorum shall not be present or represented at any meeting of the
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have power to adjourn the meeting from time to time,
in the manner provided in Section 5, until a quorum shall be present or
represented.
Section 7. Voting. Unless otherwise required by law, the
Certificate of Incorporation or these By-laws, any question brought before any
meeting of stockholders, other than the election of directors, shall be decided
by the vote of the holders of a majority of the total number of votes of the
capital stock represented and entitled to vote thereat, voting as a single
class. Unless otherwise provided in the Certificate of Incorporation, and
subject to Section 5 of Article V hereof, each stockholder represented at a
meeting of stockholders shall be entitled to cast one vote for each share of the
capital stock entitled to vote thereat held by such stockholder. Such votes may
be cast in person or by proxy but no proxy shall be voted on or after three
years from its date, unless such proxy provides for a longer period. The Board
of Directors, in its discretion, or the officer of the Corporation presiding at
a meeting of stockholders, in such officer's discretion, may require that any
votes cast at such meeting shall be cast by written ballot.
Section 8. List of Stockholders Entitled to Vote. The officer
of the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting either at a place within the city where the meeting is to be held, which
place shall be specified
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in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder of the Corporation who is present.
Section 9. Stock Ledger. The stock ledger of the Corporation
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list required by Section 8 of this Article II or the books
of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 10. Conduct of Meetings. The Board of Directors of the
Corporation may adopt by resolution such rules and regulations for the conduct
of the meeting of the stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of the stockholders shall have the right
and authority to prescribe such rules, regulations and procedures and to do all
such acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) the determination of when the polls
shall open and close for any given matter to be voted on at the meeting; (iii)
rules and procedures for maintaining order at the meeting and the safety of
those present; (iv) limitations on attendance at or participation in the meeting
to stockholders of record of the corporation, their duly authorized and
constituted proxies or such other persons as the chairman of the meeting shall
determine; (v) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (vi) limitations on the time allotted to questions or
comments by participants.
Section 11. Nature of Business at Meetings of Stockholders. No
business may be transacted at an annual meeting of stockholders, other than
business that is either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors (or
any duly authorized committee thereof), (b) otherwise properly brought before
the annual meeting by or at the direction of the Board of Directors (or any duly
authorized committee thereof) or (c) otherwise properly brought before the
annual meeting by any stockholder of the Company (i) who is a stockholder of
record on the date of the giving of the notice provided for in this Section 11
and on the record date for the determination of stockholders entitled to vote at
such annual meeting and (ii) who complies with the notice procedures set forth
in this Section 11.
In addition to any other applicable requirements, for business
to be properly brought before an annual meeting by a stockholder, such
stockholder must have given timely notice thereof in proper written form to the
Secretary of the Company.
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To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Company not less than sixty (60) days nor more than ninety (90) days prior to
the anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the annual meeting is
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure of the date of the annual meeting was made, whichever
first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of such stockholder,
(iii) the class or series and number of shares of capital stock of the Company
which are owned beneficially or of record by such stockholder, (iv) a
description of all arrangements or understandings between such stockholder and
any other person or persons (including their names) in connection with the
proposal of such business by such stockholder and any material interest of such
stockholder in such business and (v) a representation that such stockholder
intends to appear in person or by proxy at the annual meeting to bring such
business before the meeting.
No business shall be conducted at the annual meeting of
stockholders except business brought before the annual meeting in accordance
with the procedures set forth in this Section 11; provided, however, that, once
business has been properly brought before the annual meeting in accordance with
such procedures, nothing in this Section 11 shall be deemed to preclude
discussion by any stockholder of any such business. If the Chairman of an annual
meeting determines that business was not properly brought before the annual
meeting in accordance with the foregoing procedures, the Chairman shall declare
to the meeting that the business was not properly brought before the meeting and
such business shall not be transacted.
Section 12. Nomination of Directors. Only persons who are
nominated in accordance with the following procedures shall be eligible for
election as directors of the Company, except as may be otherwise provided in the
Certificate of Incorporation with respect to the right of holders of preferred
stock of the Corporation to nominate and elect a specified number of directors
in certain circumstances. Nominations of persons for election to the Board of
Directors may be made at any annual meeting of stockholders, or at any special
meeting of stockholders called for the purpose of electing directors, (a) in the
case of any director for whose election the holders of Class A Common Stock are
entitled to vote, by or at the direction of the Board of Directors (or any duly
authorized committee thereof) or (b) in the case of any director, by any
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stockholder of the Company (i) who is a stockholder of record of common stock
entitled to vote for the election of such director on the date of the giving of
the notice provided for in this Section 12 and on the record date for the
determination of stockholders entitled to vote at such meeting and (ii) who
complies with the notice procedures set forth in this Section 12.
In addition to any other applicable requirements, for a
nomination to be made by a stockholder, such stockholder must have given timely
notice thereof in proper written form to the Secretary of the Company.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Company (a) in the case of an annual meeting, not less than sixty (60) days nor
more than ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; provided, however, that in the event
that the annual meeting is called for a date that is not within thirty (30) days
before or after such anniversary date, notice by the stockholder in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs; and (b) in the case of a special meeting of
stockholders called for the purpose of electing directors, not later than the
close of business on the tenth (10th) day following the day on which notice of
the date of the special meeting was mailed or public disclosure of the date of
the special meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth (a) as to each person whom the stockholder proposes to
nominate for election as a director (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person, (iii) the class (and if applicable, series) and number of shares of
capital stock of the Company which are owned beneficially or of record by the
person and (iv) any other information relating to the person that would be
required to be disclosed in a proxy statement or other filings required to be
made in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated thereunder; and (b)
as to the stockholder giving the notice (i) the name and record address of such
stockholder, (ii) the class (and if applicable, series) and number of shares of
capital stock of the Company which are owned beneficially or of record by such
stockholder, (iii) a description of all arrangements or understandings between
such stockholder and each proposed nominee and any other person or persons
(including their names) pursuant to which the nomination(s) are to be made by
such stockholder, (iv) a representation that such stockholder intends to appear
in person or by proxy at the meeting to nominate the persons named in its notice
and (v) any other information relating to such stockholder that would be
required to be disclosed in a
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proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder. Such notice
must be accompanied by a written consent of each proposed nominee to being named
as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the
Company unless nominated in accordance with the procedures set forth in this
Section 12. If the Chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedures, the Chairman shall declare to
the meeting that the nomination was defective and such defective nomination
shall be disregarded.
ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. Except as
provided in the Certificate of Incorporation, the number of members comprising
the Board of Directors shall be fixed from time to time exclusively by the Board
of Directors by a resolution adopted by a majority of the whole Board of
directors serving at the time of the vote. Directors shall be elected by a
plurality of the votes cast by holders of stock entitled to vote for the
election of such directors, as specified and to the extent provided for the
Certificate of Incorporation. Each director so elected shall hold office until
the next Annual Meeting of Stockholders and until such director's successor is
duly elected and qualified, or until such director's earlier death, resignation
or removal. Any director may resign at any time upon written notice to the
Corporation. Directors need not be stockholders.
Section 2. Vacancies; Removal. Unless otherwise required by
law, vacancies arising through death, resignation, removal, an increase in the
number of directors or otherwise shall be filled in the manner set forth in the
Certificate of Incorporation. Directors may be removed only in the manner set
forth in the Certificate of Incorporation.
Section 3. Duties and Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of Directors
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Certificate of Incorporation or
by these By-Laws required to be exercised or done by the stockholders.
Section 4. Meetings. The Board of Directors may hold meetings,
both regular and special, either within or without the State of Delaware.
Regular meetings of the Board of Directors may be held without notice at such
time and at such place as may from time to time be determined by the Board of
Directors. Special meetings of the Board of Directors may be called by the
Chairman, if there be one, and shall be called by the Secretary of the
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Corporation at the request of a majority of the Board of Directors. Notice
thereof stating the place, date and hour of the meeting shall be given to each
director either by mail not less than forty-eight (48) hours before the date of
the meeting, by telephone or telegram on twenty-four (24) hours' notice, or on
such shorter notice as the person or persons calling such meeting may deem
necessary or appropriate in the circumstances. At any meeting of the Board of
Directors, any member of the Board of Directors may present a matter or matters
for consideration by the Board of Directors at such meeting, whether or not such
matter or matters are included in the agenda for such meeting.
Section 5. Quorum. Except as otherwise required by law or the
Certificate of Incorporation, at all meetings of the Board of Directors, the
presence of a majority of the total number of directors shall constitute a
quorum for the transaction of business and the vote of a majority of such quorum
shall be required in order for the Board of Directors to act. If a quorum shall
not be present at any meeting of the Board of Directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting of the time and place of the adjourned meeting,
until a quorum shall be present.
Section 6. Actions by Written Consent. Unless otherwise
provided in the Certificate of Incorporation, or these By-Laws, any action
required or permitted to be taken at any meeting of the Board of Directors or of
any committee thereof may be taken without a meeting, if all the members of the
Board of Directors or committee, as the case may be, consent thereto in writing,
and the writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee.
Section 7. Meetings by Means of Conference Telephone. Unless
otherwise provided in the Certificate of Incorporation, members of the Board of
Directors of the Corporation, or any committee thereof, may participate in a
meeting of the Board of Directors or such committee by means of a conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this Section 7 shall constitute presence in person at such meeting.
Section 8. Committees. The Board of Directors may designate
one or more committees, each committee to consist of one or more of the
directors of the Corporation. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence of a designation
by the Board of Directors of an alternate member to replace the absent or
disqualified member, the member or members thereof present at any meeting and
not disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any absent or disqualified member. Any committee,
to the extent
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permitted by law and provided in the resolution establishing such committee,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it. Each committee shall keep regular minutes and report to the Board of
Directors when required.
Section 9. Compensation. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director, payable in cash or securities. No such payment
shall preclude any director from serving the Corporation in any other capacity
and receiving compensation therefor. Members of special or standing committees
may be allowed like compensation for attending committee meetings.
Section 10. Interested Directors. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or committee thereof which authorizes
the contract or transaction, or solely because the director or officer's vote is
counted for such purpose if (i) the material facts as to the director or
officer's relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the
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Board of Directors or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(ii) the material facts as to the director or officer's relationship or interest
and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified by the Board of Directors, a committee thereof
or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors, in its discretion, also may choose a Chairman
of the Board of Directors (who must be a director) and one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any
number of offices may be held by the same person, unless otherwise prohibited by
law or the Certificate of Incorporation. The officers of the
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Corporation need not be stockholders of the Corporation nor, except in the case
of the Chairman of the Board, need such officers be directors of the
Corporation.
Section 2. Election. The Board of Directors, at its first
meeting held after each Annual Meeting of Stockholders, shall elect the officers
of the Corporation who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board of Directors; and all officers of the Corporation shall hold
office until their successors are chosen and qualified, or until their earlier
death, resignation or removal. Any officer elected by the Board of Directors may
be removed at any time by the affirmative vote of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers
of attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the President or any Vice
President or any other officer authorized to do so by the Board of Directors and
any such officer may, in the name of and on behalf of the Corporation, take all
such action as any such officer may deem advisable to vote in person or by proxy
at any meeting of security holders of any corporation in which the Corporation
may own securities and at any such meeting shall possess and may exercise any
and all rights and power incident to the ownership of such securities and which,
as the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman of
the Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. The Chairman of the Board of
Directors shall be the Chief Executive Officer of the Corporation, unless the
Board of Directors designates the President as the Chief Executive Officer, and,
except where by law the signature of the President is required, the Chairman of
the Board of Directors shall possess the same power as the President to sign all
contracts, certificates and other instruments of the Corporation which may be
authorized by the Board of Directors. During the absence or disability of the
President, the Chairman of the Board of Directors shall exercise all the powers
and discharge all the duties of the President. The Chairman of the Board of
Directors shall also perform such other duties and may exercise such other
powers as may from time to time be assigned by these By-Laws or by the Board of
Directors.
Section 5. President. The President shall, subject to the
control of the Board of Directors and, if there be one, the Chairman of the
Board of Directors, have general supervision of the business of the Corporation
and shall see that all orders and
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resolutions of the Board of Directors are carried into effect. The President
shall execute all bonds, mortgages, contracts and other instruments of the
Corporation requiring a seal, under the seal of the Corporation, except where
required or permitted by law to be otherwise signed and executed and except that
the other officers of the Corporation may sign and execute documents when so
authorized by these By-Laws, the Board of Directors or the President. In the
absence or disability of the Chairman of the Board of Directors, or if there be
none, the President shall preside at all meetings of the stockholders and the
Board of Directors. If there be no Chairman of the Board of Directors, or if the
Board of Directors shall otherwise designate, the President shall be the Chief
Executive Officer of the Corporation. The President shall also perform such
other duties and may exercise such other powers as may from time to time be
assigned to such officer by these By-Laws or by the Board of Directors.
Section 6. Vice Presidents. At the request of the President or
in the President's absence or in the event of the President's inability or
refusal to act (and if there be no Chairman of the Board of Directors), the Vice
President, or the Vice Presidents if there is more than one (in the order
designated by the Board of Directors), shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President. Each Vice President shall perform such
other duties and have such other powers as the Board of Directors from time to
time may prescribe. If there be no Chairman of the Board of Directors and no
Vice President, the Board of Directors shall designate the officer of the
Corporation who, in the absence of the President or in the event of the
inability or refusal of the President to act, shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President.
Section 7. Secretary. The Secretary shall attend all meetings
of the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for committees of the Board of
Directors when required. The Secretary shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors, the Chairman of the Board of Directors or the President, under
whose supervision the Secretary shall be. If the Secretary shall be unable or
shall refuse to cause to be given notice of all meetings of the stockholders and
special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the President may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest to the affixing by such officer's
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signature. The Secretary shall see that all books, reports, statements,
certificates and other documents and records required by law to be kept or filed
are properly kept or filed, as the case may be.
Section 8. Treasurer. The Treasurer shall have the custody of
the corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all transactions as Treasurer and of the financial condition of the Corporation.
If required by the Board of Directors, the Treasurer shall give the Corporation
a bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of the office
of the Treasurer and for the restoration to the Corporation, in case of the
Treasurer's death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in the Treasurer's
possession or under the Treasurer's control belonging to the Corporation.
Section 9. Assistant Secretaries. Assistant Secretaries, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Secretary, and in the absence of the
Secretary or in the event of the Secretary's disability or refusal to act, shall
perform the duties of the Secretary, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if
there be any, shall perform such duties and have such powers as from time to
time may be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of the Treasurer's disability or refusal to act, shall
perform the duties of the Treasurer, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Treasurer. If required
by the Board of Directors, an Assistant Treasurer shall give the Corporation a
bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of the office
of Assistant Treasurer and for the restoration to the Corporation, in case of
the Assistant Treasurer's death, resignation, retirement or removal from office,
of all books, papers, vouchers, money and other property of whatever kind in the
Assistant Treasurer's possession or under the Assistant Treasurer's control
belonging to the Corporation.
Section 11. Other Officers. Such other officers as the Board
of Directors may choose shall perform such duties and have
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such powers as from time to time may be assigned to them by the Board of
Directors. The Board of Directors may delegate to any other officer of the
Corporation the power to choose such other officers and to prescribe their
respective duties and powers.
ARTICLE V
STOCK
Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by such stockholder in the Corporation.
Section 2. Signatures. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
Section 3. Lost Certificates. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person claiming the certificate
of stock to be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or the owner's legal representative, to advertise the
same in such manner as the Board of Directors shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed or the issuance of such new certificate.
Section 4. Transfers. Stock of the Corporation shall be
transferable in the manner prescribed by law, the Certificate of Incorporation
and in these By-Laws. Transfers of stock shall be made on the books of the
Corporation only by the person named in the certificate or by such person's
attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be cancelled before a new certificate shall be
issued. No transfer of stock shall be valid as against the Corporation for any
purpose until it shall have been entered in the stock records of the Corporation
by an entry showing from and to whom transferred.
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Section 5. Record Date.
(a) In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date shall
not be more than sixty nor less than ten days before the date of such meeting.
If no record date is fixed by the Board of Directors, the record date for
determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; providing, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled to exercise any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty days
prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
Section 6. Record Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise required by
law.
ARTICLE VI
NOTICES
Section 1. Notices. Whenever written notice is required by
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder,
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such notice may be given by mail, addressed to such director, member of a
committee or stockholder, at such person's address as it appears on the records
of the Corporation, with postage thereon prepaid, and such notice shall be
deemed to be given at the time when the same shall be deposited in the United
States mail. Written notice may also be given personally or by telegram, telex
or cable.
Section 2. Waivers of Notice. Whenever any notice is required
by law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto. Attendance of
a person at a meeting, present in person or represented by proxy, shall
constitute a waiver of notice of such meeting, except where the person attends
the meeting for the express purpose of objecting at the beginning of the meeting
to the transaction of any business because the meeting is not lawfully called or
convened.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the requirements of the DGCL and the provisions of the
Certificate of Incorporation, if any, may be declared by the Board of Directors
at any regular or special meeting of the Board of Directors (or any action by
written consent in lieu thereof in accordance with Section 6 of Article III
hereof), and may be paid in cash, in property, or in shares of the Corporation's
capital stock. Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the Board
of Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
Section 3. Fiscal Year. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have
inscribed thereon the name of the Corporation, the year of its organization and
the words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
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ARTICLE VIII
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings
other than Those by or in the Right of the Corporation. Subject to Section 3 of
this Article VIII, the Corporation shall 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 or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director or 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 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 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 Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that such
person's conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings
by or in the Right of the Corporation. Subject to Section 3 of this Article
VIII, the Corporation shall 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 or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation 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
Corporation; 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 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
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is fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper.
Section 3. Authorization of Indemnification; Selection of
Counsel. Any indemnification under this Article VIII (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 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 this 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 Corporation 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 shall 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. A director or officer shall
have the right to select his or her counsel in any such action, suit or
proceeding, subject to the Corporation's approval of such selection which shall
not be unreasonably withheld.
Section 4. Good Faith Defined. For purposes of any
determination under Section 3 of this Article VIII, a person shall be deemed to
have 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, or, with respect to
any criminal action or proceeding, to have had no reasonable cause to believe
such person's conduct was unlawful, if such person's action is based on the
records or books of account of the Corporation or another enterprise, or on
information supplied to such person by the officers of the Corporation or
another enterprise in the course of their duties, or on the advice of legal
counsel for the Corporation or another enterprise or on information or records
given or reports made to the Corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or another enterprise. The term "another
enterprise" as used in this Section 4 shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the Corporation as a
director, officer, employee or agent. The provisions of this Section 4 shall not
be deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth in
Section 1 or 2 of this Article VIII, as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article
VIII, and notwithstanding the absence of any determination thereunder, any
director or officer may apply to the
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Court of Chancery in the State of Delaware for indemnification to the extent
otherwise permissible under Sections 1 and 2 of this Article VIII. The basis of
such indemnification by a court shall 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 this Article VIII, as the case may be. Neither a contrary
determination in the specific case under Section 3 of this Article VIII nor the
absence of any determination thereunder shall 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 this Section 5 shall be given to the Corporation
promptly upon the filing of such application. If successful, in whole or in
part, the director or officer seeking indemnification shall also be entitled to
be paid the expense of prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses incurred by a
director or officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding and as such
expenses are incurred, upon receipt of an undertaking by or on behalf of such
director or officer to repay such amount if it shall ultimately be determined
that such person is not entitled to be indemnified by the Corporation as
authorized in this Article VIII.
Section 7. Nonexclusivity of Indemnification and Advancement
of Expenses. The indemnification and advancement of expenses provided by or
granted pursuant to this Article VIII shall 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 Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VIII shall be made to the
fullest extent permitted by law. The provisions of this Article VIII shall not
be deemed to preclude the indemnification of any person who is not specified in
Section 1 or 2 of this Article VIII but whom the Corporation has the power or
obligation to indemnify under the provisions of the General Corporation Law of
the State of Delaware, or otherwise.
Section 8. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director or officer
of the Corporation, or is or was a director or officer of the Corporation
serving at the request of the Corporation 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 Corporation would have
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the power or the obligation to indemnify such person against such liability
under the provisions of this Article VIII.
Section 9. Certain Definitions. For purposes of this Article
VIII, references to "the Corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued. For
purposes of this Article VIII, references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director or officer with
respect to an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner such person reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article VIII.
Section 10. Survival of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article VIII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director
or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 11. Limitation on Indemnification. Notwithstanding
anything contained in this Article VIII to the contrary, except for proceedings
to enforce rights to indemnification (which shall be governed by Section 5
hereof), the Corporation shall 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 Corporation.
Section 12. Indemnification of Employees and Agents. The
Corporation may, to the extent authorized from time to time by
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the Board of Directors, provide rights to indemnification and to the advancement
of expenses to employees and agents of the Corporation similar to those
conferred in this Article VIII to directors and officers of the Corporation.
ARTICLE IX
AMENDMENTS
Section 1. Amendments. In furtherance and not in limitation of
the powers conferred by the laws of the State of Delaware, the Board of
Directors is expressly authorized and empowered to adopt, amend, alter or repeal
any provision of the By-Laws of the Corporation.
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EMPLOYMENT AGREEMENT
AGREEMENT made as of the 19th day of August 1996, to be
effective September 1, 1996 (the "Effective Date"), between Associated
Communications, L.L.C. (formerly DMT, L.L.C.), a Delaware limited liability
company (the "Company"), and Alex J. Mandl (the "Executive"), and, as to the
last sentence of Section 4(d)(I) and Sections 4(d)(II), 4(d)(III), 4(f),
8(a)(ii), 10(c) and 14 hereof only, Microwave Services, Inc., a Delaware
corporation ("MSI"), and Digital Services Corporation, a Virginia corporation
("DSC", and collectively with MSI, the "Original Shareholders").
The Board of Directors of the Company (the "Board") desires to
provide for the employment of the Executive as a member of the Company's
management. The Executive is willing to commit himself to serve the Company, on
the terms and conditions herein provided.
In order to effect the foregoing, the Company and the
Executive wish to enter into an employment agreement on the terms and conditions
set forth below. Accordingly, in consideration of the premises and the
respective covenants and agreements of the parties herein contained, and
intending to be legally bound hereby, the parties hereto agree as follows:
1. Employment. The Company hereby agrees to employ the
Executive, and the Executive hereby agrees to serve the Company, on the terms
and conditions set forth herein.
2. Term. The Company hereby employs the Executive, and the
Executive hereby accepts such employment, for the period commencing on the
Effective Date and ending on the sixth anniversary of the Effective Date, unless
further extended as provided in this Section 2 or sooner terminated in the event
that Executive's employment is terminated pursuant to Section 6 hereof (the
"Term of Employment"). On the sixth and each subsequent anniversary of the
Effective Date, the Term of Employment ---- shall automatically be extended for
an additional year unless, not later than 180 days prior to any such
anniversary, the Company or the Executive shall have given notice not to extend
the Term of Employment.
<PAGE>
3. Position and Duties. Commencing on the Effective Date and
continuing for the remainder of the Term of Employment, the Executive shall be
employed as Chairman of the Board and Chief Executive Officer of the Company. He
shall have such authorities, duties and responsibilities customarily assigned to
a Chairman of the Board and Chief Executive Officer of an enterprise like the
company (including those associated with a public company if the Company becomes
a Public Company, as such term is defined in Section 4(d)(I) below). The
Executive shall be assigned no duties or responsibilities that are materially
inconsistent with, or that materially impair his ability to discharge, the
foregoing duties and responsibilities. He shall report solely and directly to
the Board. Upon any termination of the Executive's employment with the Company,
the Executive shall resign from the Board. The Executive shall devote
substantially all his working time and efforts to the business and affairs of
the Company; provided, however, that the Executive may also (a) serve on the
boards of directors or trustees of the business enterprises listed on Exhibit A
hereof, as well as any others to which the Board gives its written consent,
which shall not be unreasonably withheld, (b) serve on the boards of directors
or trustees of trade associations and/or charitable organizations or engage in
charitable activities and community affairs, and (c) manage his personal
investments and affairs, provided that such activities do not interfere with the
proper performance of his duties and responsibilities under this Agreement.
4. Compensation and Related Matters.
(a) Salary. The Company shall pay Executive a base
salary ("Base Salary") during the period of the Executive's employment
hereunder, which shall be at an initial rate of five-hundred-thousand dollars
($500,000) per annum. The Base Salary may be adjusted from time to time as
provided in the next paragraph and shall be paid in accordance with the
Company's standard payroll procedure.
Prior to the third anniversary of the
Effective Date, the Base Salary shall be reviewed for
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<PAGE>
increase effective on such third anniversary in the discretion of the Board.
Thereafter, the Base Salary shall be reviewed at least annually for increase in
the discretion of the Board. The Executive's Base Salary may not be decreased at
any time during the Term of Employment.
(b) Annual Bonus. For the Company's fiscal year
in which the Term of Employment begins, the Company shall pay the Executive an
amount equal to the product of five-hundred-thousand dollars ($500,000)
multiplied by a fraction, the numerator of which is the number of calendar
days of such fiscal year during which the Executive is employed hereunder, and
the denominator of which is 366. With respect to each of the first three full
fiscal years of the Company during the period of the Executive's employment
hereunder, the Company shall pay the Executive an annual bonus of
five-hundred-thousand dollars ($500,000). The respective bonus amounts
referred to in the preceding sentences of this on 4(b) shall be paid within
thirty (30) days after the end of the Company's fiscal year in respect of
which such bonus amount is payable. With respect to the fourth and subsequent
full fiscal years of the Company during the period of the Executive's
employment hereunder, the Executive shall be entitled to an annual bonus in
such amount and based upon such criteria as the Board may determine in its
discretion.
(c) Non-Equity-Based Annual Compensation Programs.
Beginning on the third anniversary of the Effective Date, the Executive shall
participate in all annual (but not long-term) executive compensation plans and
programs of the Company which are not equity-based at a level commensurate
with his seniority and position at the Company, provided that this Section 4(c)
shall not duplicate the amount of any benefit provided pursuant to the last
sentence of Section 4(b) hereof.
(d) Company Appreciation Rights.
(I) As of the Effective Date, the Company
shall grant the Executive six separate Company Appreciation Rights ("CARs")
which will expire on the tenth anniversary of the Effective Date and which will
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<PAGE>
vest on the first through sixth anniversaries of the Effective Date,
respectively, if the Executive shall be employed by the Company on the
respective six anniversaries; provided, however, that, if the Executive's
employment shall be terminated for any reason (other than a termination by the
Company for "Cause," as defined in Section 6(c) hereof), the CAR which would
otherwise have vested on the anniversary of the Effective Date next following
the issuance of a Notice of Termination (as defined in Section 6(e) hereof,
except in the case of termination due to death in which event the date of death
shall be deemed to be the issuance of such Notice for this purpose) in
connection with such termination shall vest on the Executive's Date of
Termination (as defined in Section 6(f) hereof). Each vested CAR will entitle
the Executive to receive, as soon as practicable after its Settlement Date
(defined below) in accordance with the terms hereof, an amount equal to three
percent (3%) (subject to adjustment as described below) of the amount by which
the equity value of the Company on the Settlement Date (calculated based on the
Fair Market Value, as defined below) exceeds the applicable Target Value, as set
forth in the table below (subject to adjustment as described below). If on a
Settlement Date the Company's equity securities which may be paid to the
Executive upon settlement of a CAR are not listed and traded on a national
securities exchange or on the Nasdaq National Market (if such equity securities
are so listed and traded, the Company shall be deemed to be a "Public Company"),
the amount to be paid to the Executive shall be paid as soon as practicable, and
in any event within 120 days, after the Company has received notice of the final
determination of the Company's Fair Market Value made in accordance with Section
4(d)(VI) hereof. In the discretion of the Board, the amount to be paid to the
Executive may be paid in cash, equity securities of the Company, or any
combination thereof, and/or such other form of consideration as the Board may
determine in good faith; provided, that, if equity securities of the Company are
used and more than one class of equity securities is outstanding, the Executive
shall have the right to request an appraisal of the fair market value of such
equity securities in accordance with the procedures set forth in Section
4(d)(VI) hereof for determining the Fair Market Value of the Company; and
provided, further, that a form of consideration other than cash or equity
securities of
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<PAGE>
the Company can be used only with the consent of the Executive, which shall not
be unreasonably withheld. If the Executive gives the Company notice that he does
not consent to payment in such form, the Company shall pay him promptly in cash
and/or equity securities of the Company. If equity securities of the Company are
paid to the Executive, all such securities shall be of the same type as the
securities owned at the time of payment by the Original Shareholders. If the
equity securities of the Company delivered to the Executive upon the settlement
of a CAR are of more than one class of security, the number of securities of
each class so delivered shall bear the same proportionate relationship as the
securities of such classes then owned by the Original Share holders (including
for purposes of this Section 4(d)(I), their respective successors) bear to each
other. If the Company becomes a Public Company pursuant to an initial public
offering (the "IPO") of equity securities pursuant to a registration statement
under the Securities Act of 1933, as amended (the "Securities Act"), or
otherwise, (A) the Company will, if requested in writing by the Executive, use
its reasonable best efforts to cause to be included in any registration
statement with respect to a public offering (including the IPO) of equity
securities of the class or classes issued to the Executive upon settlement of a
CAR or issued or issuable to the Executive upon exercise of an Option (as
defined in Section 4(d)(V) below) an amount of such equity securities so issued
to and owned by, or so issuable to, the Executive, as of the Conversion Date (as
defined in Section 4(d)(V) below) (the total number of such equity securities,
subject to adjustments for splits, combinations and the like, being referred to
as the "Maximum Amount"), proportionate to the amount of such equity securities
then owned by the Original Shareholders which are included in such registration
statement (based on the total amount of such equity securities then owned by the
Original Shareholders, and the Maximum Amount, respectively), and (B) in each of
the four successive 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 three respective subsequent anniversaries thereof, the Company will, if
requested in writing by the Executive (which request with respect to the first
such twelve-month period may not be made prior to six months after consummation
of the IPO), use its reason-
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<PAGE>
able best efforts to promptly cause to be registered under the Securities Act,
and registered or qualified under such state securities laws as the Executive
may reasonably request (provided that the Company shall not be required to
consent to general service of process in any jurisdiction where it is not then
so subject), for public sale by the Executive an amount of such equity
securities constituting at least 25% of the difference between the Maximum
Amount and the number of such equity securities, if any, sold by the Executive
in the IPO (such difference being referred to as the "Maximum Annual Amount");
provided that in no event will the Executive sell publicly more than the Maximum
Annual Amount in any such twelve-month period. Such registration rights shall
not be transferable to any transferee of such equity securities (except to
transferees referred to in clauses (i) and (ii) of the last sentence of Section
4(d)(IV) or in the last sentence of Section 4(d)(V)). In addition, such
registration rights shall be subject to the Executive entering into underwriting
(if applicable), indemnification, and other customary agreements, and to the
Company's right to defer (or require the Executive to suspend sales pursuant to)
any such registration if (but only for so long as) it determines in good faith
that such registration (or continued sales) would require disclosure which would
be materially adverse to the Company's interests. The Company shall keep any
registration statement filed under clause (B) above effective for at least 90
days (increased by the number of days, if any, that sales under any such
registration statement are suspended as provided above). If sold in the public
market, shares registered pursuant to this Section 4(d)(I) shall not be subject
to the first refusal rights set forth below in Section 4(d)(III). The Company
shall bear all registration expenses (exclusive of underwriting discounts and
commissions) under this Section 4(d)(I) and shall provide the Executive with
indemnification against liabilities under the securities laws in customary form.
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
CAR Vesting Target
Date Value
1 1st Anniversary $200 million
2 2nd Anniversary $250 million
3 3rd Anniversary $325 million
4 4th Anniversary $425 million
5 5th Anniversary $500 million
6 6th Anniversary $2.75 billion
</TABLE>
The applicable percentage (initially three percent (3%)) shall be appropriately
adjusted downward by the Board in good faith to reflect equity investments in
the Company (whether such investments are made in cash or in kind and whether
made prior to, on or after the Effective Date); provided, however, that (i) no
such adjustment shall be made in respect of up to $25 million of equity
investments in the Company to the extent such investments were or are made by
the Original Shareholders or their respective affiliates prior to one year after
the Effective Date, (ii) if equity investments in the Company in excess of $25
million up to a total of $75 million (i.e., $50 million over and above such $25
million) were or are made by the Original Shareholders or their respective
affiliates prior to one year after the Effective Date, in lieu of adjusting the
applicable percentage, the applicable Target Value of each CAR shall be adjusted
upward by the amount of such excess equity investments and (iii) if equity
invest ments in the Company not covered by clause (i) or (ii) above were or are
made by the Original Shareholders or their respective affiliates, the
appropriate adjustment in the applicable percentage in respect of such equity
investments shall be based on (A) the amount of such equity investment, and (B)
the Fair Market Value of the Company (determined in accordance with Section
4(d)(VI)) at the time of such equity investment. For purposes of this Section
4(d), equity investments made by the Original Sharehold ers or their respective
affiliates shall include (and shall be deemed made at the time of the payment or
advancement of), in addition to actual capital contributions or investments,
amounts paid by the Original Shareholders or their respective affiliates to the
Company in reim-
7
<PAGE>
bursement of costs or expenses incurred by or on behalf of the Company and the
amount of the loan advanced by the Original Shareholders to the Executive
pursuant to Section 4(d), provided that if the "DTS Systems Transfers" are "con
summated" (with such quoted terms having the same meaning as in the Limited
Liability Company Agreement, dated as of March 5, 1996 between the Original
Shareholders (the "DMT L.L.C. Agreement")), the contribution to the Company of
"DTS Licenses" (with such quoted term having the same meaning as in the DMT
L.L.C. Agreement) pursuant thereto shall not be considered an investment for
purposes of this Section 4(d).
The applicable Target Value of each CAR shall be appropriately adjusted downward
dollar for dollar by the Board in good faith to reflect distributions from the
Company in respect of equity interests in the Company (whether such
distributions are made in cash or in kind); provided, however, that no
adjustment shall be made with respect to distributions for tax liabilities
attributable to such equity interests. For the thirty-day period immediately
following the Company's notice to the Executive that an additional non-cash
equity investment has been made in the Company (other than a non-cash equity
investment pursuant to the DTS Systems Transfers) , or that the Company has made
a non-cash distribution in respect of equity interests in the Company (which
notice the Company agrees to provide within fifteen (15) days following any such
investment or distribution) the Executive shall have a right to request an
appraisal of the fair market value of such equity investment or distribution in
accordance with the procedures set forth in Section 4(d)(VI) hereof. In the
event the Company fails to give notice to the Executive as provided in the
preceding sentence, the thirty-day period during which the Executive may request
such appraisal shall commence on the first date, after the end of the fifteen
(15) day notice period for the Company, on which the Executive knows of the
applicable equity investment or distribution. Any appraisal so requested shall
be made only at the first subsequent Settlement Date, unless the Company, in its
discretion, decides to have the appraisal made earlier; provided, however, that
if the aggregate value of all such non-cash equity investments or distributions,
respectively, would reasonably be
8
<PAGE>
estimated to exceed $50 million, the Executive may include in the foregoing
request a request for a current appraisal (including of the dilutive effect of
such investments) in which event an appraisal thereof in accordance with Section
4(d)(VI) shall be made as promptly as reasonably possible. In the case of an
equity investment in cash whereby equity interests in the Company of a different
class from the equity interests held by the Original Shareholders are issued,
the Executive may request an appraisal of the dilutive effect of such investment
on equity interests and the CARs, in which event an appraisal in accordance with
Section 4(d)(VI) shall be made as promptly as practicable. It shall be a
condition to the Executive's receipt of an Equity Interest (as defined in
Section 4(d)(II) below) that, if requested by the Company, the Executive becomes
a party to the DMT L.L.C. Agreement as then in effect, or any analogous
partnership, stockholders or other governance agreement (with respect to any
successor partnership or corporate entity) to which the Original Shareholders
(or their successors) are parties (such DMT L.L.C. Agreement or analogous
agreement being sometimes referred to as a "Company Governance Agreement"). The
Company shall give the Executive written notice of any changes (which notice
shall include the full text of such changes) which are made in the Company
Governance Agreement from time to time, such notice to be given within fifteen
(15) days following any such change. It is agreed that if the Executive becomes
a party to a Company Governance Agreement, in the event of any conflict or
inconsistency between the respective rights and obligations of the Executive,
the Company and the Original Shareholders thereunder and under this Agreement,
the provisions of this Agreement shall control.
(II) If the Original Shareholders
(including for purposes of this Section 4(d)(II) and Section 4(d)(III), their
respective successors) shall sell to a third party any of their equity
interests in the Company at a time (whether or not during the Term of
Employment) when the Executive holds vested CARs or owns any equity interest
in the Company as a result of the settlement of any CAR or otherwise (an
"Equity Interest"):
(A) The Original Shareholders shall require the purchaser of
their equity interests to purchase, at the
9
<PAGE>
Executive's election, the same percentage of the aggregate of the Executive's
vested CARs (treating such vested CARs as if the date of purchase were a
Settlement Date and the vested CARs had been converted into an Equity Interest
as provided in Section 4(d)(I) above immediately prior to such purchase) and
Equity Interest as the percentage of the aggregate equity interests of the
Original Shareholders which is being purchased; the purchase from the Executive
shall be made on the same terms and for the same consideration as the purchase
from the Original Shareholders; and
(B) The Original Shareholders, at their election, may require
the purchaser of their equity interests to purchase, and the Executive to sell,
the same percentage of the aggregate of the Executive's vested CARs (treating
such vested CARs as if the date of purchase were a Settlement Date and the
vested CARs had been converted into an Equity Interest as provided in Section
4(d)(I) immediately prior to such purchase) and Equity Interest as the
percentage of the aggregate equity interests of the Original Shareholders which
is being purchased; the Original Shareholders, in their discretion, may direct
the Company to vest part or all of the Executive's unvested CARs immediately
prior to such date of purchase; any purchase from the Executive shall be made on
the same terms and for the same consideration as the purchase from the Original
Shareholders.
(III) Upon the terms and subject to the
conditions of this Section 4(d)(III), the Executive grants the Original
Shareholders a right of first refusal with respect to any sale or other
disposition for value by the Executive (a "Transfer") of any Equity Interest.
(i) If the Executive desires to effect a
Transfer of some or all of his Equity Interest pursuant to a bona fide offer
(an "Offer") from any person or entity (an "Offeror"), the Executive shall
give written notice of such Offer (a "First Refusal Notice") to each of the
Original Shareholders. The First Refusal Notice shall specify the number or
amount of securities comprising the Equity Interest proposed to be transferred
pursuant to such Offer (the "First Refusal Interest"), the price proposed to
be paid by the Offeror (the "Offer Price"), the
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<PAGE>
identity of the Offeror and the other terms and conditions of such Offer, and
shall be accompanied by a true and correct copy of the Offer. If any part of
the consideration proposed in the Offer consists of other than cash, the price
proposed to be paid pursuant to such Offer shall be deemed to include the fair
market value of such non-cash consideration, as determined in good faith by the
Board. If the Executive objects to the fair market value, as so determined, the
Executive may require that the Company obtain a determination of the fair market
value of such non-cash consideration pursuant to the procedures set forth in
Section 4(d)(VI) hereof for determining the fair market value of the Company,
and such determination shall be final and binding on all parties.
(ii) Each Original Shareholder shall have
the option to purchase the First Refusal Interest at the Offer Price and on
such other terms as are set forth in the Offer, by giving notice to the
Executive within thirty (30) days of receipt by such Original Shareholder of
the First Refusal Notice (an Original Shareholder which gives such notice being
referred to as an "Accepting Original Shareholder"), and by purchasing such
First Refusal Interest for the Offer Price in cash, against delivery of the
First Refusal Interest (with appropriate transfer documentation) free and clear
of any liens or encumbrances within fifteen (15) days following the expiration
of such thirty (30) day period; provided, however, that if Accepting Original
Shareholders elect in the aggregate to purchase more than 100% of the First
Refusal Interest, then the portion of the First Refusal Interest which may be
purchased by any Accepting Original Shareholder that has elected to purchase
more than such Accepting Original Shareholder's Pro Rata Share (as defined
below) of the First Refusal Interest shall be reduced (based on each such
Accepting Original Shareholder's Pro Rata Share), but not below such Accepting
Original Shareholder's Pro Rata Share; and provided, further, that the date for
such purchase may be deferred solely to the extent necessary to obtain any
governmental consents or approvals required to complete such purchase or, if
applicable, to the extent necessary to complete the determina tion of the fair
market value of any non-cash consideration proposed to be paid by the Offeror,
as provided in subparagraph (i) above. For
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<PAGE>
purposes of this paragraph (ii) of this Section 4(d)(III), an Accepting Original
Shareholder's "Pro Rata Share" shall be the percentage which such Accepting
Original Shareholder's ownership interest in the Company represents of the
ownership interest in the Company of all Accepting Original Shareholders.
(iii) If the Original Shareholders do not
give timely notice of their election to purchase the entire First Refusal
Interest, or if such notice is timely given but the Accepting Original
Shareholders fail to purchase the entire First Refusal Interest within the
applicable time period specified in this Section 4(d)(III), then the Executive
may, within the 90-day period immediately following the expiration of the period
during which the Original Shareholders may give no tice of such election, or, if
applicable, within the 90-day period immediately following such failure to
purchase the entire First Refusal Interest, transfer the First Refusal Interest
to the Offeror at a price not less than the Offer Price and on the same terms
and subject to the same conditions as were set forth in the First Refusal
Notice. If the Executive does not complete such Transfer within such 90-day
period, no subsequent Transfer of all or any part of his Equity Interest may be
made without again complying with this Section 4(d)(III), it being understood
and agreed that the retention by the Executive of a security interest in some or
part of the First Refusal Interest which is transferred shall not mean that such
Transfer has not been completed.
(iv) If the Executive fails to comply
with this Section 4(d)(III) with respect to all or any part of his Equity
Interest (including without limitation any beneficial interest therein), any
attempted or purported Transfer thereof shall be void and of no force or effect.
(IV) Upon any termination of Executive's
employment, the Executive's CARs which have not vested on or before the Date of
Termination shall be forfeited. No Settlement Date shall occur with respect to
forfeited CARs. Except to the extent provided in Section 4(d)(II) hereof, CARs
held by the Executive (whether vested or not) can be transferred (i) during his
lifetime only by gratu-
12
<PAGE>
itous transfers to immediate family members or to trusts for their benefit, and
(ii) upon his death by his will or the laws of descent and distribution.
(V) Except to the extent previously
settled pursuant to Section 4(d)(II) hereof, the Settlement Date of each vested
CAR shall occur, at the Executive's election, at any time after its vesting and
before the tenth anniversary of the Effective Date, even if the Term of
Employment shall have already ended. Notwithstanding the foregoing, if any
vested CAR shall still be outstanding on the tenth anniversary of the Effective
Date, such anniversary shall be its Settlement Date (and it shall automatically
be settled and thereby expire). If the Company becomes a Public Company, the
Board shall effect as promptly as practicable the conversion (the "Conversion")
of each outstanding CAR (whether or not vested) into a stock option ("Option"),
effective as of the date the Company becomes a Public Company (such date being
referred to as the "Conversion Date"), having the same vesting schedule, vesting
rights (including upon termination of employment) and term as the CAR being
converted, commencing with the Effective Date. In converting the CARs into
Options, the Board shall proceed in good faith and on an equitable basis so as
to preserve the value and economic opportunities previously represented by the
CARs. If on the Conversion Date there are outstanding equity interests of the
Company of a different class than the shares of common stock for which, as a
result of the Conversion, the Options will be exercisable, the terms of the
Conversion as determined by the Board shall be subject to review, at the
Executive's request, in accordance with the procedures described in Section
4(d)(VI), including, without limitation, determination of the exercise price and
the number of shares subject to the Options. Each Option shall be exercisable
for shares of a class of common stock of the Company that is listed on a
national securities exchange or on the Nasdaq National Market. Pursuant to the
Conversion, each CAR shall become an Option to acquire shares having an
aggregate value (val ued at the average closing price of a share over the first
twenty (20) days of public trading of such class of shares commencing on the
Conversion Date or, if, in accordance with Section 4(d)(I), the Executive is
selling shares in the IPO whereby the Company becomes a Public Company,
13
<PAGE>
valued at the price per share to the public of such shares in the IPO (the
"Share Value")) equal to the product of multiplying (1) the equity value of the
Company on the Conversion Date, which, unless on the Conversion Date there are
outstanding equity interests of the Company of a different class than the shares
of common stock for which, as a result of the Conversion, the Options will be
exercisable, shall be the Share Value times the number of outstanding shares of
common stock of the Company as of the Conversion Date (and in any event the
determination of such equity value shall take the Share Value into account) by
(2) the applicable percentage for the CAR as set forth in Section 4(d)(I), as
adjusted in accordance with that Section (the "CAR Percentage"). Such Option
shall have an aggregate exercise price equal to the product of multiplying (1)
the Target Value of the CAR, as adjusted if applicable, on the Conversion Date
by (2) the CAR Percentage. Such Option shall provide that in the event that any
dividend or other distribution (whether in the form of cash, stock, or other
property), recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, share exchange, liquidation,
dissolution, or other similar corporate transaction or event occurs that affects
the stock subject to the Option so that an adjustment is appropriate in order to
prevent dilution or enlargement of the rights of the Option holder, then the
Option shall, in such manner as is equitable, be adjusted as to any or all of
(i) the number and kind of shares of stock which may thereafter be issued in
connection with the Option and (ii) the exercise price of the Option. Any
dispute arising under the prior sentence shall be resolved in accordance with
the procedures described in Section 15. Each Option (when otherwise exercisable)
may be exercised in full, or in part, at the Executive's election. Any part of
the exercise price of any Option may, at the Executive's election, be paid
through the withholding of shares subject to the Option with a value equal to
the portion of the exercise price to be paid in shares. In addition, any part of
the exercise price of any Option and any related tax withholding amount may, at
the Executive's election, be paid through a cashless exercise procedure that
affords the Executive the opportunity to sell immediately some or all of the
shares underlying the exercised portion of the Option in order to generate
sufficient cash to pay the
14
<PAGE>
Option exercise price and/or to satisfy tax withholding obligations relating to
the Option (and if such tax withholding obligations are not satisfied through
such cash, the Executive shall, as a condition of such exercise, pay to the
Company, or make arrangements satisfactory to the Company for the payment of,
the full amount of such tax withholding obligations), provided that such
cashless exercise procedure shall be available only if at the time of such
exercise the shares subject to the Option being exercised are freely
transferable without restriction under the Securities Act, state securities or
"blue sky" laws or otherwise. Any Option held by the Executive (whether vested
or not) may be transferred (1) during his lifetime only by gratuitous transfers
to immediate family members or to trusts for their benefit, and (2) upon his
death by his will or the laws of descent and distribution.
(VI) For purposes of this Agreement,
except as otherwise expressly provided in this Agreement, (A) the "Fair Market
Value" of the Company on any Settlement Date on which the Company is not a
Public Company (or on any other date for which a valuation of the Company is
required by this Agreement), (B) the fair market value of any non-cash
consideration or property the value of which is to be determined under this
Section 4(d) (including, if required by Section 4(d)(V), the terms of the
Conversion) and (C) if required by Section 4(d)(V), the dilutive effect of any
equity investments or distributions on equity, shall be determined in accordance
with the following procedure: The Executive and the Company shall each select a
nationally recognized appraiser, which shall determine the valuation or other
issue in question. If, in the case of a valuation issue, the higher of the two
original appraisal values is not more than ten percent (10%) above the lower
appraisal value, the value in question shall be the value agreed upon by the two
original appraisers or, in the absence of such an agreement, the value in
question shall be the average of the two original appraisal values. If, in the
case of a valuation issue, the higher of the two original appraisal values is
more than ten percent (10%) above the lower appraisal value, the two appraisers
shall select a third nationally recognized appraiser who shall determine a value
which shall be at least equal to the lower appraisal
15
<PAGE>
value and whose determination of the value in question shall be final and
binding on all parties. In the case of any other issue, if either appraiser
concludes that the two appraisers are not in substantial agreement, the two
appraisers shall select a third nationally recognized appraiser who shall
resolve the remaining differences and whose determination shall be final and
binding on all parties. All costs and expenses relating to any appraisal or
review conducted under this Section 4(d)(VI) shall be borne by the Company.
(VII) For purposes of this Section 4(d),
equity securities of the Company which are identical except for voting rights
shall not be deemed to be equity securities of different classes.
(e) Special Payment. During the Term of
Employment, the Company shall make no distributions to its members (other than
for tax liabilities attributable to their interests in the Company) until the
fifth anniversary of the Effective Date unless the Company first makes a payment
to the Executive in the amount of five million dollars ($5,000,000). Promptly
upon the fifth anniversary of the Effective Date, if the Executive has not
previously received a payment of five million dollars ($5,000,000) pursuant to
either the immediately preceding sentence or clause (iii) of Section 8(a)
hereof, the Company shall pay the Executive the following amount, and the
Executive shall have no further rights under this Section 4(e):
(i) If the Executive is employed hereunder
on such fifth anniversary of the Effective Date, the amount of five million
dollars ($5,000,000);
(ii) If the Executive's employment has
been terminated by the Company for Cause prior to such fifth anniversary, an
amount equal to one million dollars ($1,000,000) for each completed year of
employment hereunder;
(iii) If the Executive's employment has
been terminated by the Executive without Good Reason prior to such fifth
anniversary, an amount equal to eighty-three thousand three hundred and
thirty-three
16
<PAGE>
dollars ($83,333) for each completed month of employment hereunder; and
(iv) If the Executive's employment has
been terminated for any other reason prior to such fifth anniversary, the
amount of five million dollars ($5,000,000).
Any payment made pursuant to this Section 4(e) shall not be offset by any
payment received, or to be received, by the Executive pursuant to any other
provision of this Agreement.
(f) Recourse Loan. As of the Effective Date, the
Original Shareholders shall loan the Executive (in proportion to their
respective equity interests in the Company) the aggregate amount of fifteen
million dollars ($15,000,000). The Executive shall be personally liable,
subject to the terms of this Agreement, for the repayment of such loans, which
shall become due and payable in full on the fifth anniversary of the Effective
Date. Interest shall accrue on such loans at the "Applicable Federal Rate",
determined in accordance with section 1274(d) of the Internal Revenue Code of
1986, as amended from time to time (the "Code"). On each of the first two
anniversaries of the Effective Date, if, and only if, the Executive shall be
employed by the Company on such anniversary date, all interest then accrued on
such loans and one-fifth (1/5) of the principal amount of such loans shall
automatically be forgiven. Upon any termination of the Executive's employment
for Cause prior to the fifth
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anniversary of the Effective Date, the entire outstanding principal balance of
such loans and all accrued interest thereon shall become due and payable
immediately. Upon the earlier to occur of the fifth anniversary of the Effective
Date (if, and only if the Executive shall be employed by the Company on such
date) or any termination of the Executive's employment prior to the fifth
anniversary of the Effective Date by the Company (other than for Cause), by the
Executive for Good Reason (as defined in Section 6(d)(i) hereof), or by reason
of the Executive's death or Disability, the entire outstanding principal balance
of such loans and the accrued interest thereon shall automatically be forgiven.
If the Executive's employment is terminated by the Executive prior to the fifth
anniversary of the Effective Date (other than for Good Reason or by reason of
his death or Disability), forgiveness of outstanding principal and accrued
interest of such loans (beyond amounts required to be forgiven pursuant to the
fourth sentence of this Section 4(f)) shall not occur, and the remaining
principal and accrued interest of such loans shall immediately become due and
payable. On September 3, 1996, the Executive shall execute promissory notes
evidencing such loans substantially in the forms attached hereto as Exhibits B-1
and B-2, respectively. The parties acknowledge that such promissory notes may be
assigned by the Original Shareholders to the Company, in which case the rights
and obligations under such notes shall inure to the benefit of and be binding
upon, and shall be enforceable by, the Company; provided that no such assignment
shall occur prior to the earlier of (i) the second anniversary of the Effective
Date and (ii) the Company having raised an aggregate of $150 million of equity
or debt financing.
(g) Non-Equity-Based Benefit Plans. The Executive
shall be entitled to participate in or receive benefits under any "employee
benefit plan" (as currently defined in section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) or employee benefit
arrangement which is not equity-based and is made available by the Company from
time to time during the period of the Executive's employment hereunder to its
executives and key management employees, on terms and conditions commensurate
with his position at the Company, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and arrangements;
provided, however, that there shall be no duplication of the benefits or
compensation elements created by this Agreement; and provided, specifically,
without limitation, that there shall be no duplication of amounts paid in
respect of the annual bonuses and annual bonus opportunities provided by
Sections 4(b) and 4(c) hereof.
(h) Expenses. The Executive shall be entitled to
receive prompt reimbursement for all reasonable and customary expenses
incurred by the Executive in performing services hereunder during the Term of
Employment, including all expenses of travel and living expenses
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while away from home on business or at the request of and in the service of the
Company, provided that such expenses are incurred and accounted for in
accordance with the policies and procedures established by the Company. The
Executive shall be entitled to receive prompt reimbursement for his reasonable
legal and public relations expenses incurred in connection with the execution of
this Agreement.
(i) Place of Employment; Services Furnished. The
Executive shall be based in the Company's principal executive offices, currently
located in the Washington, D.C. area, except for reasonable required travel on
Company business. The Company shall furnish the Executive with appropriate
office space and such other facilities and services as shall be suitable to the
Executive's position and adequate for the performance of his duties as set forth
in Section 3 hereof. If the Company's principal executive offices shall be
moved out of the Washington, D.C. area, the Company shall promptly reimburse the
Executive for the reasonable costs of relocating his family, and principal
residence, to the new location of such offices.
5. Offices. At the reasonable request of the Company, the
Executive agrees to serve without additional compensation as a director of any
of the Company's subsidiaries and in one or more executive offices of any of the
Company's subsidiaries or affiliates.
6. Termination.
(a) Death. The Executive's employment hereunder
shall terminate upon his death.
(b) Disability. If, as a result of the Executive's
incapacity due to physical or mental illness (as determined by a medical doctor
chosen by the Company and reasonably satisfactory to the Executive or his legal
representative), the Executive shall have been absent from his duties hereunder
on a full-time basis for the entire period of one-hundred-eighty (180)
consecutive days, the Executive's employment hereunder shall be terminated for
Disability.
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(c) Cause. The Company may terminate the
Executive's employment hereunder for "Cause". For purposes of this Agreement,
the Company shall have "Cause" to terminate the Executive's employment hereunder
if (i) the Executive is convicted of a felony; or (ii) the Executive engages in
conduct that constitutes willful gross neglect or willful gross misconduct in
carrying out his duties under this Agreement, resulting, in either case, in
material harm to the Company, monetarily or otherwise, unless the Executive
reasonably believed in good faith that such act or non-act was in (or not
opposed to) the best interests of the Company). Unless the Executive has been
convicted of a felony, no termination for Cause shall take effect unless the
following provisions of this paragraph shall have been complied with. The Board
shall give the Executive written notice of its intention to terminate him for
Cause, such notice (i) to state in detail the particular circumstances that
constitute the grounds on which the proposed termination for Cause is based and
(ii) to be given within four (4) months of the Board learning of such
circumstances. The Executive shall have ten (10) days, after receiving such
special notice, to cure such grounds, to the extent such cure is possible. If he
fails to cure such grounds to the Board's satisfaction, the Executive shall then
be entitled to a hearing by the Board, during which he may, at his election, be
represented by counsel. Such hearing shall be held within thirty (30) days of
his receiving such special notice, provided he requests a hearing within fifteen
(15) days of receiving the notice. If the Board gives written notice to the
Executive within five (5) days following such hearing confirming that, in the
good faith judgment of a majority of the Board, Cause for terminating him on the
basis set forth in the original notice exists, he shall thereupon be terminated
for Cause.
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(d) Termination by the Executive.
(i) The Executive may terminate his employment
hereunder for "Good Reason", which, for purposes of this Agreement, shall mean
any failure by the Company or the Original Shareholders to comply with any
material provision of this Agreement required by the terms hereof to be complied
with by such entity (including, without limitation, any breach of any of the
Company's obligations under Sections 3, 4(a), 4(b), 4(c), 4(d), 4(e), 4(f),
8(a), 9 or 15) that has not been cured within twenty (20) days after written
notice of such noncompliance (specifying in reasonable detail the particulars of
such noncompliance) has been given by the Executive to the Company.
(ii) The Executive may terminate his
employment hereunder without Good Reason, upon giving four months notice to the
Company (which notice period shall end earlier if the Company's designated
successor to the Executive commences employment with the Company before the end
of such period).
(e) Notice of Termination. Any termination of the
Executive's employment by the Company or by the Executive (other than
termination pursuant to Section 6(a) hereof) shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section 17
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated, except that in the case of a termination by the
Company without Cause, or a termination by the Executive without Good Reason,
the Notice may merely state that Cause/Good Reason for termination is not
claimed.
(f) Date of Termination. "Date of Termination"
shall mean the following: (i) if the Executive's employment is terminated by his
death, the date of his death; (ii) if the Executive's employment is terminated
pursuant to Section 6(b) hereof, thirty (30) days after the Notice of
Termination is given; (iii) if the Executive's employment is terminated
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pursuant to Section 6(c) hereof, the date specified in the Notice of
Termination; (iv) if the Executive's employment is terminated pursuant to
Section 6(d)(i) hereof, thirty (30) days after the Notice of Termination is
given; (v) if the Executive's employment is terminated pursuant to Section
6(d)(ii) hereof, the date determined in accordance with said Section; and (vi)
if the Executive's employment is terminated by the Company without Cause, thirty
(30) days after the Notice of Termination is given. Notwithstanding the
immediately preceding sentence, if within thirty (30) days after any Notice of
Termination is given the party re ceiving such Notice of Termination notifies
the other party in good faith that a dispute exists concerning the termination,
the Date of Termination shall be the date on which the dispute is finally
determined, either by mutual written agreement of the parties or by a binding
and final arbitration award. Anything herein to the contrary notwithstanding, if
the Executive gives Notice of Termination on the basis of Good Reason, his
absence from employment after the 30th day following such notice shall not
constitute a basis for termination for Cause.
7. Compensation Upon Termination or During Disability.
(a) During any period that the Executive fails to
perform his duties hereunder as a result of incapacity due to physical or mental
illness ("Disability Period"), the Executive shall continue to receive his Base
Salary at the rate and frequency then in effect for such period and all other
compensation and benefits provided herein until his employment is terminated
pursuant to Section 6(b) hereof, provided that payments so made to the Executive
shall be reduced by the sum of the amounts, if any, payable to the Executive at
or prior to the time of any such payment under disability benefit plans of the
Company or under the Social Security disability insurance program, and which
amounts were not previously applied to reduce any such payment.
(b) If the Executive's employment is terminated
(i) by his death, (ii) for Disability under
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Section 6(b) hereof, (iii) by the Company for Cause under Section 6(c) hereof,
or (iv) by the Executive without Good Reason, the Company shall promptly pay the
Executive (or the Executive's legal representative in accordance with Section
15(b) hereof) his (A) Base Salary through the Date of Termination at the rate in
effect on the Date of Termination (plus, in the case of termination due to
death, Base Salary at that rate through the ninetieth (90th) day after the date
of death); (B) any amounts due the Executive through the Date of Termination
pursuant to Section 4 hereof, provided that the Company's post-termination
obligations with respect to CARs shall be as provided pursuant to Section 4(d)
hereof; and (C) any other or additional benefits to be provided in accordance
with pertinent plans, programs, or obligations of the Company.
(c) If (A) the Company shall terminate the
Executive's employment (other than for Cause), (B) the Executive shall terminate
his employment for Good Reason or (C) the Executive's employment shall be
terminated for Disability, then, subject to the Executive's continuing
compliance with Section 12 hereof (provided that the Company's post-termination
obligations with respect to CARs, which are provided for in Section 4(d) hereof,
shall not be subject to such compliance),
(i) the Company shall promptly pay the
Executive his Base Salary through the Date of Termination at the rate in effect
at the time Notice of Termination is given, any previously awarded but unpaid
bonus for any fiscal year completed prior to the Date of Termination, all other
unpaid amounts, if any, to which the Executive is entitled as of the Date of
Termination under this Agreement or any compensation plan or program of the
Company, at the time such payments are due, and a pro-rata bonus for the year
of termination based on his prior year's bonus award (or, if the Date of
Termination shall occur prior to the end of the first full fiscal year of the
Company during the Term of Employment, based on an annual bonus of five-hundred
thousand dollars ($500,000));
(ii) in lieu of any further salary or
bonus payments to the Executive for periods subsequent to the Date of
Termination, the Company shall pay as
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severance to the Executive an amount (the "Severance Amount") equal to two (2)
times the sum of (A) the Executive's annual Base Salary rate in effect as of the
Date of Termination (or, if the termination is for Good Reason based on a
reduction in Base Salary, then the rate shall be the rate in effect immediately
prior to such reduction), plus (B) if the Date of Termination occurs on or
before December 31, 1999, a deemed annual bonus of five-hundred-thousand dollars
($500,000); the Severance Amount shall be paid in substantially equal
installments and in the same manner and over the same period of time as the
Executive's salary payments would have been made, except that if the Date of
Termination occurs within the two-year period immediately following a "Change in
Control" (as defined in Section 8 hereof) the Severance Amount shall be paid in
a single lump sum payment within the ten-day period immediately following such
Date of Termination;
(iii) the Company shall maintain in full
force and effect, for the continued benefit of the Executive for two years, each
"employee welfare benefit plan" (as defined in section 3(1) of ERISA) in which
the Executive was entitled to participate immediately prior to the Date of
Termination (with no reduction in benefits), provided that the Executive's
continued participation is possible under the general terms and provisions of
such plans. In the event that the Executive's participation in any such plan is
barred, the Company shall arrange to provide the Executive with benefits
substantially similar to those which the Executive would otherwise have been
entitled to receive under the plan from which his continued participation is
barred (with no reduction in benefits); and
(iv) the Company shall promptly pay to
the Executive (A) any other amounts due and owing to the Executive under Section
4 of this Agreement and (B) any other or additional benefits to be provided in
accordance with pertinent plans, programs and obligations of the Company.
(d) After completing the payments and providing
the benefits required by this Section 7 and Section 4 hereof, the Company shall
have no further obligations to
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the Executive under this Agreement except as expressly set forth in Sections 9,
10, 14 and 15 hereof. Any amounts due under this Section 7 and Section 4 hereof
are in the nature of compensation or severance payments considered to be
reasonable by the Company and are not in the nature of a penalty.
8. Change in Control of the Company.
(a) Notwithstanding any other provision of this
Agreement, if a "Change in Control" (as defined in Section 8(b) hereof) shall
occur while the Executive is employed by the Company hereunder, (i) all of the
Executive's outstanding CARs shall immediately vest, (ii) the principal balance
remaining of the loans to the Executive pursuant to Section 4(f) hereof (and all
accrued interest thereon) shall automatically be forgiven, and (iii) if the
Company has not previously made a payment in full to the Executive pursuant to
Section 4(e) hereof, the Company shall immediately pay the Executive the sum of
five million dollars ($5,000,000) less any amounts previously paid the Executive
pursuant to Section 4(e), in complete settlement of the Executive's rights
pursuant to such Section 4(e).
(b) For purposes of this Agreement, a Change in
Control shall occur if (i) any person or entity, or group of affiliated persons
or entities, other than the Original Shareholders and/or their respective
affiliates (for this purpose, the Executive shall be deemed to be an affiliate
of the Original Shareholders), acquires membership interests, stock or other
equity interests of the Company representing more than 50% of the voting power
of all such outstanding membership interests, stock or other equity interests,
(ii) the majority of the Board (or comparable governing group) consists of
persons who are designees of any person or entity or group of affiliated persons
or entities which hold membership interests, stock or other equity interests in
the Company, other than the Original Shareholders and/or their respective
affiliates (for this purpose the Executive shall be deemed a designee of the
Original Shareholders), (iii) the Company adopts a plan of liquidation providing
for the distribution of all or substantially all of its assets, or (iv) all or
substantially all of the business enterprise of the Compa-
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ny is disposed of pursuant to a sale of assets transaction or a merger,
consolidation or similar transaction in which the Company is not the surviving
entity (unless (A) no person or entity, or group of affiliated persons or
entities, other than the Original Shareholders and/or their respective
affiliates (for this purpose, the Executive shall be deemed to be an affiliate
of the Original Shareholders) owns immediately after such transaction membership
interests, stock or other equity interests of the entity which succeeds to the
business of the Company as a result of such transaction representing more than
50% of the voting power of all such outstanding membership interests, stock or
other equity interests, (B) a majority of the board of directors (or comparable
governing body) of the entity which succeeds to the business of the Company as a
result of such transaction consists of persons (or persons designated by such
persons) who constituted a majority of the Board of the Company immediately
prior to such transaction, and (C) such successor entity assumes in writing the
Company's obligations hereunder and, with respect to the CARs, agrees in writing
to substitute for the CARs on an equitable basis equity-based awards having the
same vesting schedule as the CARs, the same period of time during which the
Executive can exercise a right equivalent to the settlement right associated
with the CARs and otherwise providing substantially equivalent economic
opportunity to that afforded by the CARs determined, if the Executive requests,
as provided in Section 4(d)(VI) (it being understood and agreed that if the
common stock of such successor entity is listed and traded on a national
securities exchange or the Nasdaq National Market, such substitution will be
effected through the conversion of the CARs into stock options for the purchase
of such common stock, or other equity based awards of such entity having the
same economic value, in the manner described in Section 4(d)(V)). For purposes
of this Agreement, "affiliate" (or derivations thereof, i.e., "affiliated") of
any person or entity means any other person or entity directly or indirectly
controlling or controlled by or under direct or indirect common control with
such person or entity; and for purposes of such definition, "control" when used
with respect to any person or entity means the power to direct the management
and policies of such person or entity, directly or indirectly, whether through
the
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ownership of voting securities or other equity interests, by contract or
otherwise, and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
9. Gross-Up Payment. In the event that the aggregate of any
payments or benefits made or provided to the Executive under this Agreement
(other than any payment pursuant to this Section 9) and under any other plans,
programs or arrangements of the Company (the "Aggregate Payment") is determined
to constitute a Parachute Payment, as such term is defined in Section 280G(b)(2)
of the Code, or any successor provision, then, subject to the last sentence of
this Section 9, the Company shall pay to the Executive, prior to the time any
excise tax imposed by Section 4999 of the Code, or any successor provision
("Excise Tax"), is payable with respect to such Aggregate Payment, an additional
amount which, after the imposition of all income and excise taxes thereon, is
equal to the Excise Tax on the Aggregate Payment. The determination of whether
an Aggregate Payment constitutes a Parachute Payment and, if so, the amount to
be paid to the Executive and the time of payment shall be made by an independent
Tax Auditor (the "Tax Auditor") jointly selected by the Company and the
Executive and paid by the Company. The Tax Auditor shall be a nationally
recognized United States public accounting firm that has not, during the two
years preceding the date of its selection, acted in any way on behalf of the
Company or any affiliate thereof. If the Executive and the Company cannot agree
on a firm to serve as the Tax Auditor, then the Executive and the Company shall
each select one nationally recognized United States accounting firm and those
two firms shall jointly select the accounting firm to serve as the Tax Auditor.
Notwithstanding the foregoing (but subject to the last sentence of this Section
9), in the event that the amount of the Executive's Excise Tax liability is
subsequently determined to be greater than the Excise Tax liability with respect
to which an initial payment to the Executive under this Section 9 has been made,
the Company shall pay to the Executive an additional amount with respect to such
additional Excise Tax (and any interest and penalties thereon) at the time that
the amount of the actual Excise Tax liability is finally determined, such
additional amount to be calculated in the same manner as such initial payment.
The Executive and the Company shall cooperate
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with each other in connection with any proceeding or claim relating to the
existence or amount of liability for Excise Tax, and all expenses relating to
any such proceeding or claim (including all reasonable attorney's fees and other
expenses incurred by the Executive in connection therewith) shall be paid by the
Company promptly upon written demand by the Executive. Notwithstanding any of
the foregoing provisions of this Section 9, the aggregate amounts payable to the
Executive pursuant to this Section 9 with respect to the Excise Tax liability
(exclusive of the aforesaid expenses incurred by the Executive in connection
therewith) shall not exceed one million dollars ($1,000,000).
10. Indemnification.
(a) The Company agrees that (i) if the Executive
is made a party, or is threatened to be made a party, to any proceeding, by
reason of the fact that he is or was a director, officer, employee or agent of
the Company or is or was serving at the request of the Company as a director,
officer, member, employee or agent of another corporation, partnership, joint
venture, trust, person or other entity, including service with respect to
employee benefit plans, whether or not the basis of such proceeding is the
Executive's alleged action in an official capacity while serving as a director,
officer, member, employee or agent, or (ii) if any claim, demand, request,
threat, or request for information, documents or testimony (collectively,
"Claim") is made, or is threatened to be made, that arises out of or relates to
the Executive's service in any of the foregoing capacities, then the Executive
shall promptly be indemnified and held harmless by the Company to the fullest
extent permitted or authorized by the Company's limited liability company
agreement, certificate of incorporation, bylaws, or other corporate governance
documents or, if greater, by the laws of the State of Delaware, against any and
all costs, expenses, liabilities and losses (including, without limitation,
reasonable attorney's fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid or to be paid in settlement) incurred or suffered by the
Executive in connection therewith, and such indemnification shall continue as to
the Executive even if he has ceased to be a director, member, employee or agent
of the Company or
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other person or entity, and shall inure to the benefit of the Executive's heirs,
beneficiaries, executors, administrators and other representatives and
successors. The Company shall pay all reasonable out-of-pocket costs and
expenses incurred by the Executive in connection with any such proceeding or
Claim within fifteen (15) days of receiving written notice requesting such
payment and provid ing evidence reasonably satisfactory to the Company of the
Executive's incurrence of such costs and expenses. Such notice shall include an
undertaking by the Executive to repay the amount of such payment if he is
ultimately determined not to be entitled to indemnification against such costs
or expenses. Notwithstanding the foregoing provisions of this Section 10(a), the
Company shall not indemnify and hold harmless the Executive, and shall not pay
any costs or expenses incurred by the Executive, in connection with any action,
suit or proceeding by the Executive against the Company or any of its directors,
officers, subsidiaries or affiliates; provided that this sentence shall not
affect the Executive's right to indemnification and payment of costs and
expenses if the Company is made a party to a third party action, suit or
proceeding against the Executive, but no such right to indemnification or
payment shall apply with respect to any claim (other than a claim for
indemnification under this Section 10(a) to which the Executive is otherwise
entitled), counterclaim or cross-claim by the Executive against the Company or
any of its directors, officers, subsidiaries or affiliates.
(b) Neither (i) the failure of the Company
(including its Board, independent legal counsel or stockholders) to have made a
determination, in connection with any request for payment or reimbursement under
Section 10(a), that the Executive has satisfied any applicable standard of
conduct, nor (ii) a determination by the Company (including its Board,
independent legal counsel or stockholders) that the Executive has not satisfied
any applicable standard of conduct, shall create a presumption that the
Executive has not met an applicable standard of conduct.
(c) Until such time as the Company shall obtain
officers' and directors' liability insurance coverage providing protections to
the Executive (as part
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of a policy covering officers and directors of the Company, generally) as
comprehensive as possible (taking into account scope, exclusions, deductibles,
maximum liability and other factors) for an annual premium not exceeding
$100,000, the guarantee provided in Section 14 hereof shall remain in full force
and effect with respect to Section 10(a) hereof (whether or not it has
terminated for all other purposes); it being understood and agreed that from and
after the time such guarantee is no longer in effect with respect to Section
10(a) hereof until the termination of the Executive's employment with the
Company, the Company will continue to maintain the aforesaid officers' and
directors' liability insurance to the extent available at an annual premium not
exceeding $100,000.
11. No Offset; No Mitigation. If the Executive's employment
is terminated for any reason during the Term of Employment, the Executive shall
not be required to mitigate damages by seeking other employment, and there shall
be no offset against amounts due the Executive under this Agreement on account
of (i) any remuneration or benefits attributable to any subsequent employment
that the Executive may obtain or (ii) any claims the Company or any of its
affiliates may have against the Executive.
12. Confidentiality, Noncompetition and Nonsolicitation.
(a) The Executive will not, during or after the
Term of Employment, disclose to any entity or person any information (including,
but not limited to, information about customers or about the design, manufacture
or marketing of products or services) (i) which is not generally known to the
public (other than through the Executive's own breach of this Agreement); (ii)
which relates to the business of the Company or any of its subsidiaries; (iii)
which is treated as confidential by the Company; and (iv) to which the Executive
gains access by reason of his position as an employee or director of the
Company, except as such disclosure (i) is required or appropriate in connection
with his work as an employee of the Company, or (ii) is required by a court of
law, by any governmental agency having supervisory authority over the business
of the Company, or by any other person or body
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with apparent jurisdiction to order him to disclose such information.
(b) While the Executive continues to be an employee
of the Company and for the two-year period immediately following his Date of
Termination (or if the Executive's employment is terminated by the Company
without Cause or by the Executive with Good Reason, for the one-year period
immediately following his Date of Termination), the Executive shall not, except
as permitted by the Company upon its prior written consent, (i) enter, directly
or indirectly, into the employ of or render or engage in, directly or
indirectly, any services to any person, firm, corporation or other entity that
is in competition (or is actively planning to engage in competition) with the
Company with respect to (x) any local loop business (if the Company is engaged
in such business on the Date of Termination), (y) any business actively
conducted by the Company on the Date of Termination or (z) any business which,
on the Date of Termination, the Company plans to enter pursuant to a business
strategy in the development of which the Executive actively participated and
which was adopted by the Board before the Executive's termination of employment
(any of the foregoing being referred to herein as a "Competitive Business"), or
(ii) become interested, directly or indirectly, in any such person, firm,
corporation or other entity as an individual, partner, member, shareholder,
creditor, director, officer, principal, agent, employee, trustee, consultant,
advisor or in any other relationship or capacity. The ownership of three percent
(3%) of any class of the outstanding securities of any corporation, even though
such corporation may conduct (or be planning to conduct) a Competitive Business,
shall not be deemed as constituting an interest which violates clause (ii) of
the immediately preceding sentence. Further, the Executive shall not be deemed
to have violated the first sentence of this Section 12(b) solely by reason of
the fact that the Executive is employed by, or rendering services to, a person,
firm, corporation or other entity which conducts or provides services to (or may
be planning to conduct or provide services to) a Competitive Business, so long
as the Executive's employment is, or his services rendered are, solely in
connection with businesses of such person, firm, corporation or other entity
which are not Competitive
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Businesses and which do not involve the provision of services to any Competitive
Business, and the Executive has no direct or indirect authority or involvement
in connection with any Competitive Business conducted (or planned to be
conducted), or any services provided (or planned to be provided) to any
Competitive Business, by such person, firm, corporation or other entity.
(c) While the Executive continues to be an employee
of the Company and for the two-year period immediately following his Date of
Termination, the Executive shall not, except as permitted by the Company upon
its prior written consent, attempt, directly or indirectly, to induce any
employee employed by or performing services for the Company, or any subsidiary
or affiliate of the Company ("Another Employee"), to be employed or perform
services elsewhere; provided, however, the Executive shall not be deemed to have
induced Another Employee to be employed or perform services elsewhere solely as
a result of any actions properly taken in the performance of his duties
hereunder. If the Executive engages in discussions with an entity other than the
Company, its subsidiaries or affiliates about his own subsequent employment or
performance of services for such entity or makes plans to establish an entity by
which he will be employed or for which he will perform services (in either case,
the "Subsequent Employer"), the Executive shall not discuss with Another
Employee (or communicate to Another Employee in any manner) the possibility of
the employment of Another Employee, or the engagement of Another Employee to
perform services, by the Subsequent Employer.
(d) Any violation by the Executive of Section 12
hereof, occurring after the Date of Termination, shall entitle the Company to
cease making any payments and providing any welfare benefits otherwise required
under Section 7(c) hereof (provided that the Company's post-termination
obligations with respect to CARs which are provided for in Section 4(d) hereof
shall not be subject to this provision). Additionally, the Company shall have
the right and remedy to have the provisions of this Section 12 specifically
enforced, including by temporary and/or permanent injunction, it being
acknowledged and agreed that any such violation may cause irreparable injury to
the Company and that money damages
32
<PAGE>
will not provide an adequate remedy to the Company. The Company shall in any
event have the right to seek damages for any breach of this Section 12.
13. Independence and Severability of Section 12 Provisions.
Each of the rights and remedies enumerated in Section 12 shall be independent of
the others and shall be severally enforceable and all of such rights and
remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company under law or in equity. If any of the
covenants contained in Section 12 or if any of the rights or remedies enumerated
in Section 12, or any part of any of them, is hereafter construed to be invalid
or unenforceable, the same shall not affect the remainder of the covenant or
covenants or rights or remedies which shall be given full effect without regard
to the invalid portions. If any of the covenants contained in Section 12 is held
to be unenforceable because of the duration of such provision or the area
covered thereby, the parties agree that the court or arbitrator making such
determination shall have the authority to reduce the duration and/or area of
such provi sion, and in its reduced form said provision shall then be
enforceable.
14. Guarantee. The Original Shareholders, in proportion to
their respective ownership interests (as such interests may vary from time to
time) in the Company, severally and unconditionally guarantee prompt payment of
all amounts that become due and owing to the Executive from the Company under
this Agreement; provided that at such time, if any, as the "DTS Systems
Transfers" are fully "consummated" (with the quoted terms having the same
meaning as in the DMT, L.L.C. Agreement), such guarantee shall automatically
terminate and be of no further force or effect, except with respect to the
guarantee of the Company's obligations under Section 10(a) hereof, which
guarantee shall be governed by the provisions of Section 10(c) hereof. Each of
the Original Shareholders hereby represents and warrants, as to itself, that it
is fully authorized and empowered to enter into this Agreement to the extent
provided in the first paragraph hereof and that the performance of its
obligations under this Agreement does not violate any law, regulation or order,
or any agreement between it and any other person or entity.
33
<PAGE>
15. Arbitration. Any controversy or claim arising out of or
relating to this Agreement, any amendment of this Agreement, or any breach of
any of the foregoing, shall, at the election of the Company or the Executive, be
settled by confidential arbitration, to be held in Washington D.C., in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. The arbitrator(s) shall apply the provisions of this Agreement
strictly as written (unless doing so violates the clear intent of this
Agreement), and shall explain the reasons and basis of his (their) award in
detail and in writing. Judgment upon the award rendered by the arbitrator(s) may
be entered in any court having jurisdiction thereof. All costs and expenses
relating to any controversy or claim that is arbitrable under this Section
(including reasonable attorney's fees of the Executive) shall be paid by the
Company promptly on written demand, except that the arbitrator(s) are authorized
to require reim bursement of the Company for moneys paid by it pursuant to this
sentence if the arbitrator(s) determine that the substantive positions of the
Executive in the arbitration were entirely without merit. Pending final
resolution of any arbitration or court proceeding, the Company shall continue
prompt payment of all amounts due the Executive under this Agreement or any
amendment thereof and prompt provision of all benefits to which the Executive or
his beneficiaries are entitled. Notwithstanding the foregoing, nothing contained
in this Section 15 shall limit a party's right to seek equitable relief in any
court of competent jurisdiction.
16. Successors; Binding Agreement.
(a) No rights or obligations of the Company under
this Agreement may be assigned or transferred by the Company except that such
rights or obligations may be assigned or transferred pursuant to a merger or
consolidation in which the Company is not the continuing entity, or in
connection with the sale or liquidation of all or substantially all of the
assets of the Company, or in connection with the disposition of the business of
the Company substantially as an entirety, provided that the assignee or
transferee is the successor to all or substantially all of the assets of the
Company and such
34
<PAGE>
assignee or transferee assumes the liabilities, obligations and duties of the
Company under this Agreement, either contractually or as a matter of law.
(b) This Agreement and all rights of the Executive
hereunder shall inure to the benefit of and be enforceable by the Executive's
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amounts would still be payable to him hereunder if he had continued to live, all
such amounts unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the Executive's devisee, legatee, or other
designee or, if there be no such designee, to the Executive's estate.
17. Notice.
(a) For the purposes of this Agreement, notices,
demands and all other communications provided for in this Agreement shall be
in writing and shall be addressed as follows:
If to the Executive:
Mr. Alex J. Mandl
If to the Company:
Associated Communications, L.L.C.
c/o The Associated Group, Inc.
680 Fifth Avenue
11th Floor
New York, NY 10019
Attention: William H. Berkman
Facsimile No.: 212-265-6443,
with copies to:
The Associated Group, Inc.
Three Bala Plaza East
Suite 502
Bala Cynwyd, PA 19004
35
<PAGE>
Attention: David J. Berkman
Scott G. Bruce, Esq.
Facsimile No.: 610-660-4920;
Skadden, Arps, Slate, Meagher & Flom
One Beacon Street
Boston, MA 02108
Attention: Kent A. Coit
Facsimile No.: 617-573-4822;
and
Digital Services Corporation
2300 Clarendon Boulevard
Suite 800
Arlington, Virginia 22201
Attention: President
Attention: General Counsel
Facsimile No.: 703-234-4960
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
(b) Notices and communications given in accordance
with the foregoing shall conclusively be deemed to have been received and to be
effective on the day on which delivered to the designated recipient, or, if sent
by United States certified or registered mail, postage prepaid, on the fifth
business day after the day on which mailed, provided that a telecopy or cable of
identical content has been sent to the relevant address specified above within
two days after the posting date of such mail. "Business day" shall mean any day
not a Saturday, Sunday or a legal holiday for non-government employees in the
District of Columbia.
18. Miscellaneous. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and such officer of the Company as
may be duly authorized by the Board. No waiver by either party hereto at any
time of any prospective or past breach of any condition or provision of this
Agree-
36
<PAGE>
ment by the other party hereto shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time (unless
otherwise specified in the waiver). No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not set forth expressly in this Agreement.
The validity, interpretation, construction and, performance and enforcement of
this Agreement shall be governed by the laws of the State of Delaware without
regard to its conflicts of law principles. To the extent that the rights and
obligations under this Agreement of the parties hereto and their successors, as
such rights and obligations are described herein, may require performance after
the termination or expiration of this Agreement, such rights and obligations
shall survive the Term of this Agreement and shall be fully enforceable
thereafter. In the event that any portion or aspect of any provision of this
Agreement shall be deemed to be invalid or unenforceable for any reason, in
whole or in part, the remainder of this Agreement shall remain in full force and
effect to the fullest extent permitted by law so as to achieve the purposes of
this Agreement. The Executive shall be entitled, to the fullest extent permitted
by law, to select and change a beneficiary or beneficiaries to receive any
compensation or benefit hereunder following the Executive's death. In the event
of the Executive's death or a judicial determination of his incompetence,
references in this Agreement to the Executive shall be deemed, where
appropriate, to refer to his beneficiary, estate or other legal representative.
The Executive agrees that he will cooperate with any application by the Company
to obtain insurance to assist in funding its obligations to him under this
Agreement. The Company represents and warrants that it is fully authorized and
empowered to enter into this Agreement and that the performance of its
obligations under this Agreement does not violate any law, regulation or order,
or any agreement between it and any other person or entity. The Executive
represents that there are no restrictions or limitations of any kind imposed by
his current employer which would affect his ability to execute this Agreement
and perform his obligations hereunder and further represents that such execution
and performance will not create any liabilities to his current employer or
breach the
37
<PAGE>
terms of any agreement to which the Executive is a party (except to the extent
of triggering loss of various rights, options, and other benefits from the
Executive's current employer), including without limitation, any agreement to
keep in confidence the confidential or proprietary information of his current
(or any prior) employer. The Executive shall not, during his employment with the
Company or thereafter, disclose to the Company or otherwise use in an
unauthorized manner any confidential or proprietary information of any third
party, including his current (or any prior) employer. All payments and benefits
provided to Executive hereunder shall be subject to applicable withholding
taxes, and no such payments or benefits shall be made without adequate
arrangement, reasonably acceptable to the Company, for the satisfaction of such
withholding taxes. Notwithstanding any other provision of this Agreement,
wherever this Agreement provides for an action to be taken, or a decision to be
made, by the Company, the action or decision shall be taken or made by the
Company's Board, or by such individual (including, without limitation, the
Executive) or a group of individuals as shall have been duly authorized by the
Company's Board.
19. Validity. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
20. Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
21. Entire Agreement. This Agreement sets forth the entire
agreement of the parties hereto in respect of the subject matter contained
herein and supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto; and any prior agreement
of the parties hereto in respect of the subject matter contained herein is
hereby terminated and cancelled.
38
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date and year first above written.
ASSOCIATED COMMUNICATIONS, L.L.C.
By: /s/David J. Berkman
--------------------------
Name: David J. Berkman
Title:
EXECUTIVE
/s/ Alex J. Mandl
------------------------------
Alex J. Mandl
Signed and agreed upon, as to the last
sentence of Section 4(d)(I) and
Sections 4(d)(II), 4(d)(III), 4(f), (8)(a)(ii), 10(c) and 14 hereof only.
MICROWAVE SERVICES, INC.
By: /s/ David J. Berkman
-----------------------
Name: David J. Berkman
Title: Executive Vice President
DIGITAL SERVICES CORPORATION
By: /s/ Rajendra Singh
------------------------
Name: Rajendra Singh
Title: President
<PAGE>
- -------------------------------------------------------------------------------
STOCK CONTRIBUTION AGREEMENT
DATED AS OF MARCH 10, 1997
BY AND BETWEEN
ASSOCIATED COMMUNICATIONS, L.L.C.,
FIRSTMARK COMMUNICATIONS, INC.
AND
LYNN FORESTER
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Definitional Provisions.......................................................................1
(a) Defined Terms......................................................................1
(b) Other Definitional Provisions......................................................6
Section 2. Actions of Associated and Contributor Upon Signing the Agreement..............................7
Section 3. Contribution of FirstMark Stock...............................................................7
(a) The Closing........................................................................7
(b) Contribution of the Stock..........................................................8
(c) Consideration......................................................................8
(d) Conversion of Associated...........................................................9
(e) Trust Channels and Related DEMS Systems............................................9
(f) Certain Operating Expenses........................................................11
Section 4. Conditions to Consummating the Contribution..................................................11
Section 5. Termination; Extension Payments..............................................................12
Section 6. Withdrawal of FirstMark DEMS Applications....................................................14
(a) Withdrawal........................................................................14
(b) Conveyance to Trust...............................................................14
Section 7. Additional Covenants and Agreements of Contributor and FirstMark.............................14
(a) Cooperation.......................................................................14
(b) Conduct of Business...............................................................15
(c) Access............................................................................15
(d) Capital Stock.....................................................................15
(e) Dividends and Distributions.......................................................15
(f) Debt; Liabilities.................................................................15
(g) Certain Agreements................................................................15
(h) Covenants Regarding DEMS Systems and FirstMark DEMS Applications..................16
(i) Noncompetition....................................................................17
(j) Confidentiality...................................................................18
(k) Intercompany Indebtedness.........................................................18
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 8. Additional Covenants and Agreements of Associated............................................18
(a) Cooperation by Associated.........................................................18
(b) Conduct of Business...............................................................18
(c) Books and Records; Personnel......................................................18
(d) Interim Control of DEMS Systems...................................................19
(e) Opposition to DEMS Licenses.......................................................19
(f) Teledesic Settlement..............................................................20
(g) Contributor Registration Rights...................................................21
(h) Tag-Along and Drag-Along Rights...................................................22
(i) Right of First Refusal............................................................23
(j) Confidentiality...................................................................25
(k) Non-disclosure of Financial Terms.................................................26
(l) Anti-Dilution Rights..............................................................26
Section 9. Tax Matters..................................................................................27
(a) Tax Indemnification by Contributor................................................27
(b) Apportionment of Taxes............................................................27
(c) Refunds...........................................................................28
(d) Cooperation.......................................................................28
(e) Certain Other Definitions.........................................................28
(f) Certain Taxes.....................................................................28
(g) Tax Treatment of Indemnity Payments...............................................28
(h) Certain Representations...........................................................28
Section 10. Representations and Warranties..............................................................29
(a) Representations and Warranties of Contributor and FirstMark.......................29
(b) Representations and Warranties of Associated......................................32
Section 11. Miscellaneous...............................................................................34
(a) Further Assurances................................................................34
(b) Binding Effect....................................................................34
(c) Indemnification; Joint and Several Liability of FirstMark and Contributor
Prior to Closing...............................................................34
(d) Survival..........................................................................35
(e) Entire Agreement..................................................................35
(f) Costs and Expenses................................................................35
(g) Amendment.........................................................................35
(h) Waiver; Cumulative Rights.........................................................35
(i) Notices...........................................................................35
(j) Governing Law.....................................................................37
(k) Counterparts......................................................................37
(l) Headings..........................................................................37
</TABLE>
ii
<PAGE>
Schedule I - DEMS Licenses
Schedule II - FirstMark DEMS Applications
Schedule 7(g) Extraordinary Contracts of FirstMark
Schedule 9(h)(i) Tax Matters
Schedule 10(a)(vi) Regulatory Matters
Schedule 10(a)(vii) Subscription Contracts
Schedule 10(a)(x) Assets and Liabilities of FirstMark
Schedule 10(b)(i) Capitalization of Associated
Exhibit A - Signing Opinion of Lukas McGowan Nace & Gutierrez
Exhibit B - Closing Opinion of Lukas McGowan Nace & Gutierrez
iii
<PAGE>
STOCK CONTRIBUTION AGREEMENT
AGREEMENT dated as of March 10, 1997, by and between
ASSOCIATED COMMUNICATIONS, L.L.C., a Delaware limited liability company
(together with its successors, "Associated"), FIRSTMARK COMMUNICATIONS, INC., a
Delaware corporation (together with its successors, "FirstMark"), and LYNN
FORESTER ("Contributor"), and, for purposes of Sections 8(h) and (i) only,
Microwave Services, Inc., a Delaware corporation (together with its successors,
"MSI") and Digital Services Corporation, a Virginia corporation (together with
its successors, "DSC," and, collectively with MSI, the "Original Shareholders").
WHEREAS, Contributor owns all of the issued and outstanding
capital stock of FirstMark (the "Stock") and all of the issued and outstanding
capital stock of Netwave Inc., a Delaware corporation (together with its
successors, "Netwave"); and
WHEREAS, FirstMark has been granted licenses by the FCC to
provide, and to construct and operate facilities for the provision of, common
carrier digital electronic message services ("DEMS") in the Los Angeles SMSA and
the San Francisco SMSA and has pending before the FCC applications to provide,
and to construct and operate facilities for the provision of, DEMS in the New
York SMSA and the Boston SMSA; and
WHEREAS, Contributor desires to contribute, and Associated
desires to accept the contribution of, the Stock (the "Contribution"), and
Associated desires that Contributor cause, and Contributor has agreed to cause,
FirstMark to withdraw the FirstMark DEMS Applications, all upon the terms and
subject to the conditions set forth herein; and
WHEREAS, in connection with the Contribution, Associated
desires to acquire, and Contributor has agreed to cause Netwave to issue to
Associated, shares of common stock of Netwave, upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the
representations, covenants and agreements contained herein, the parties hereto
agree as follows:
Section 1. Definitional Provisions.
(a) Defined Terms. As used in this Agreement, the following
terms shall have the following meanings:
"Accepting Original Shareholder" shall have the meaning set
forth in Section 8(i) hereof.
<PAGE>
"Affiliate" shall mean, as to any Person, any other Person (i)
that is a subsidiary of such Person or (ii) that directly or indirectly through
one or more intermediaries, controls, is controlled by, or is under common
control with, such Person. For the purposes of this definition, "control" when
used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise; the terms "controlling" and "controlled" shall have
meanings correlative to the foregoing.
"Agreement" shall mean this Agreement, as amended, modified,
supplemented or restated from time to time.
"Associated" shall have the meaning set forth in the first
paragraph hereof.
"Books and Records" shall have the meaning set forth in
Section 8(c) hereof.
"Business Day" shall mean each Monday, Tuesday, Wednesday,
Thursday and Friday which is not a day on which banking institutions in New
York, New York are authorized or obligated to close by law or executive order.
"Change in Control Application" shall mean the application
required under FCC regulations to be filed with the FCC for approval of the
Contribution.
"Closing" shall have the meaning set forth in Section 3(a)
hereof.
"Closing Date" shall have the meaning set forth in Section
3(a) hereof.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Confidential Information" shall have the meaning set forth in
Section 8(j) hereof.
"Contribution" shall have the meaning set forth in the third
"WHEREAS" clause hereof.
"Contributor" shall have the meaning set forth in the first
paragraph hereof.
"Contributor Registrable Securities" shall have the meaning
set forth in Section 8(g) hereof.
"DEMS" shall have the meaning set forth in the second
"WHEREAS" clause hereof.
2
<PAGE>
"DEMS Facilities" shall mean facilities and equipment for the
provision of DEMS in the geographic area or areas covered by any or all of the
DEMS Licenses.
"DEMS Licenses" shall mean the licenses listed on Schedule I
hereto granted by the FCC to FirstMark (and any FCC waivers relating thereto)
any amendments, modifications or renewals thereof, and any other licenses
granted by the FCC to FirstMark after the date hereof (and any FCC waivers
relating thereto) to construct DEMS Facilities or provide DEMS in any of the
geographic areas covered by any of the licenses listed on Schedule I hereto, or
by any amendments, modifications or renewals thereof, and any licenses,
authorizations or approvals granted to FirstMark by any PUC, together with any
amendments, modifications or renewals thereof, with respect to any DEMS
Facilities or DEMS in any of the geographic areas covered by any of the licenses
listed on Schedule I hereto or by any amendments, modifications or renewals
thereof, in each case whether in the 18 GHz frequency band or any other
frequency band to which DEMS are relocated by the FCC. Except as otherwise
expressly provided herein, as used herein "DEMS License" refers to such license
with respect to any or all of the channels covered thereby.
"DEMS Systems" shall mean all assets, property and equipment
comprising or relating to the DEMS Facilities, including without limitation any
DEMS License(s) relating thereto.
"DSC" shall have the meaning set forth in the first paragraph
hereof.
"Equity Interest" shall have the meaning set forth in Section
8(h) hereof.
"Equityholders Agreement" shall mean any shareholder,
operating or similar agreement which establishes certain rights and obligations
of equityholders of Associated. As of the date hereof, "Equityholders Agreement"
means the Limited Liability Company Agreement.
"Extension Payment" shall mean, with respect to each one year
extension of this Agreement as provided in Section 5(b) hereof, an amount in
cash equal to $1,000,000.
"FCC" shall mean the United States Federal Communications
Commission and any successor agency.
"FirstMark" shall have the meaning set forth in the first
paragraph hereof.
"FirstMark DEMS Application License" shall have the meaning
set forth in Section 6(b) hereof.
3
<PAGE>
"FirstMark DEMS Applications" shall mean the applications of
FirstMark pending on the date hereof before the FCC for licenses to provide, and
to construct and operate facilities for the provision of, DEMS, together with
any amendments, modifications or renewals thereof, in each case whether in the
18 GHz frequency band or any other frequency band to which DEMS are relocated by
the FCC, which applications as currently pending are listed on Schedule II
hereto.
"First Refusal Interest" shall have the meaning set forth in
Section 8(i) hereof.
"First Refusal Notice" shall have the meaning set forth in
Section 8(i) hereof.
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof, and any entity or official
properly exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Interest" shall have the meaning set forth in the Limited
Liability Company Agreement; provided that, if the Interests in Associated have
been changed into or exchanged for any other equity securities, the term
"Interest" shall refer to the number and class of equity securities into or for
which such Interests have been changed or exchanged.
"IPO" shall have the meaning set forth in Section 8(g) hereof.
"IRS" shall have the meaning set forth in Section 9(e) hereof.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including, without limitation, any
conditional sale or other title retention agreement and any capital lease).
"Limited Liability Company Agreement" shall mean the Limited
Liability Company Agreement of the Company dated as of March 5, 1996, as amended
as of August 16, 1996, and as further amended from time to time.
"Mandl " shall mean Alex J. Mandl, currently the Chief
Executive Officer of Associated.
"Mandl Employment Agreement" shall mean the Employment
Agreement dated as of August 19, 1996 between Associated and Mandl, as in effect
on the date hereof.
"Member" shall have the meaning set forth in the Limited
Liability Company Agreement.
4
<PAGE>
"Membership Percentage" shall have the meaning set forth in
the Limited Liability Company Agreement. References in this Agreement to the
Membership Percentage represented by any Interest issued to Contributor
hereunder are to such Membership Percentage calculated as of the date of this
Agreement, after giving effect to the issuance to Contributor of such Interest
and any Interest previously issued to Contributor as if all such Interests had
been issued as of the date of this Agreement (that is, the Interest receivable
by Contributor will be subject to dilution from and after the date of this
Agreement (subject to Section 8(k) hereof), such that the Interest issued to
Contributor at the Closing or upon the release from the Trust of any Trust
Channel or upon the grant by the FCC or the release from the Trust of any
Applicable License may represent a percentage Interest in Associated when so
issued that is less than the Membership Percentage referred to in Sections 3(c)
or 3(e), as applicable).
"MSI" shall have the meaning set forth in the first paragraph
hereof.
"Netwave" shall have the meaning set forth in the first
"WHEREAS" clause hereof.
"Offer" shall have the meaning set forth in Section 8(i)
hereof.
"Offering Price" shall have the meaning set forth in Section
8(i) hereof.
"Operating Expenses" shall have the meaning set forth in
Section 3(f) hereof.
"Original Shareholders" shall have the meaning set forth in
the first paragraph hereof.
"Person" shall mean any individual, corporation, association,
partnership (general or limited), joint venture, trust, joint-stock company,
estate, limited liability company, unincorporated organization or other legal
entity or organization.
"Pre-Closing Tax Period" shall have the meaning set forth in
Section 9(a) hereof.
"Pro Rata Share" shall have the meaning set forth in Section
8(i) hereof.
"PUC" shall mean any state public utility commission of
competent jurisdiction, the approval of which is required to consummate any DEMS
Systems Transfer.
"Related DEMS System" shall have the meaning set forth in
Section 3(e) hereof.
"Representative" shall have the meaning set forth in Section
8(j) hereof.
5
<PAGE>
"Requirement of Law" shall mean, as to any Person, any
statute, law, rule, regulation, ordinance, code, license, permit, order,
judgment, decree or determination of any arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its properties or to which such Person or any of its property is
subject.
"Requisite Approvals" shall have the meaning set forth in
Section 4(a) hereof.
"Requisite Regulatory Approvals" shall mean decisions of the
FCC and of any applicable PUC approving the Contribution, and any other
consents, approvals or authorizations of any other Governmental Authority
required in connection with the Contribution.
"Return" shall have the meaning set forth in Section 9(e)
hereof.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
"SMSA" shall mean Standard Metropolitan Statistical Area.
"Stock" shall mean all of the issued and outstanding stock of
FirstMark.
"Straddle Period" shall have the meaning set forth in Section
9(b) hereof.
"Tax" shall have the meaning set forth in Section 9(e) hereof.
"Taxing Authority" shall have the meaning set forth in Section
9(e) hereof.
"Teledesic" shall mean Teledesic Corp., a Delaware
corporation.
"Teledesic Settlement" shall have the meaning set forth in
Section 8(f) hereof.
"Transfer" shall have the meaning set forth in Section 8(i)
hereof.
"Trust" shall have the meaning set forth in Section 3(e)
hereof.
"Trust Agreement" shall have the meaning set forth in Section
3(e) hereof.
"Trust Channel" shall have the meaning set forth in Section
3(e) hereof.
(b) Other Definitional Provisions.
(i) Any term defined in the singular shall have a
comparable meaning when used in the plural, and vice versa.
6
<PAGE>
(ii) As used herein, the neuter gender shall also
denote the masculine and feminine, and the masculine gender shall also
denote the neuter and feminine, where the context so permits.
(iii) The words "hereof", "herein" and "hereunder",
and words of a similar import, when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of
this Agreement. References to Sections shall refer to Sections of this
Agreement, unless otherwise expressly provided.
Section 2. Actions of Associated and Contributor Upon Signing the Agreement.
(a) As an inducement to Contributor to enter into this
Agreement and in partial consideration for the Contribution, concurrently with
the execution and delivery hereof, Associated is paying or causing to be paid to
Contributor a non-refundable cash payment of $5,570,000, by wire transfer of
immediately available funds to an account previously designated by Contributor
to Associated. Concurrently with and as a condition to such payment, Contributor
is delivering or causing to be delivered to Associated an opinion of Lukas
McGowan Nace & Gutierrez, Chartered, special FCC counsel to Contributor, in the
form of Exhibit A hereto.
(b) As a further inducement to Contributor to enter into this
Agreement and in consideration of the mutual covenants and agreements of the
parties contained herein with respect to the Contribution, as promptly as
practicable after the execution and delivery hereof, pursuant to a Subscription
Agreement in form and substance reasonably satisfactory to Netwave and
Associated, Netwave shall issue to Associated shares of common stock of Netwave
constituting ten percent (10%) of the outstanding shares of capital stock of
Netwave on a fully diluted basis immediately after giving effect to such
issuance, and Associated shall deliver to Netwave $200,000 by wire transfer of
immediately available funds to an account of Netwave previously designated by
Contributor to Associated.
(c) Concurrently with the execution and delivery hereof,
FirstMark is delivering to Associated FirstMark's original technology plan,
marketing study and business plan relating to development of DEMS in the 18 GHz
frequency band.
Section 3. Contribution of FirstMark Stock.
(a) The Closing. The closing of the Contribution (the
"Closing") shall occur at the offices of Skadden, Arps, Slate, Meagher & Flom
LLP, 919 Third Avenue, New York, New York, not later than five (5) Business Days
after satisfaction or waiver of the conditions to Closing specified in Sections
4(a) and (b) hereof, or at such other time and/or place and/or on such other
date as the parties may mutually agree (the "Closing Date").
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(b) Contribution of the Stock.
(i) At the Closing, Contributor shall contribute to
Associated, and Associated shall accept the contribution from
Contributor of, the Stock.
(ii) At the Closing, Contributor shall deliver to
Associated certificates representing the Stock, free and clear of all
Liens, duly endorsed in blank for transfer or accompanied by duly
executed stock powers assigning the Stock in blank.
(c) Consideration. The aggregate consideration for the
Contribution (in addition to the amount previously paid pursuant to Section 2(a)
hereof) shall consist of the following:
(i) $4,950,000 payable in cash to
Contributor by wire transfer of immediately available funds to
an account designated by Contributor to Associated not less
than two (2) Business Days prior to the Closing; and
(ii) an Interest of the same class or
classes as that then held by the Original Shareholders which
represents a 5.00% Membership Percentage. Commencing as of the
Closing, Contributor shall share in the profits and losses of
Associated as provided in the Limited Liability Company
Agreement and a capital account shall be established for
Contributor in an amount equal to that percentage of the
aggregate capital accounts of the Members equal to
Contributor's percentage Interest. The Interest issued to
Contributor shall be evidenced by the Limited Liability
Company Agreement, which Contributor shall sign at the Closing
and thereby become a party to, with Schedule A thereto
appropriately amended to reflect Contributor's admission as a
Member and Contributor's percentage Interest. In the event of
any conflict or inconsistency between the rights and
obligations of Contributor under the Limited Liability Company
Agreement and this Agreement, the provisions of this Agreement
shall control. Without limiting the immediately preceding
sentence, Sections 4.1(n), 8.7, 10.3(a) and 10.3(b) (and
Section 10.1 to the extent that it relates to the foregoing
subsections of Section 10.3) of the Limited Liability Company
Agreement shall not apply to Contributor. Associated shall
give Contributor written notice of any changes (which notice
shall include the full text of such changes) that are made in
the Limited Liability Company Agreement from time to time,
such notice to be given within fifteen (15) days following any
such change; provided that no amendment or modification to the
Limited Liability Company Agreement shall impose on
Contributor any additional financial obligations, other
obligations (except
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for immaterial non-financial obligations) or any obligations
inconsistent with the two immediately preceding sentences.
(d) Conversion of Associated. If, prior to the Closing,
Associated shall be reorganized as, or converted or merged into, an entity taxed
as a corporation for federal income tax purposes, then Associated shall promptly
(and in any event not less than ten (10) days prior to the Closing) notify
Contributor thereof. If Associated has been reorganized as, or converted or
merged into, an entity taxed as a corporation for federal income tax purposes,
then at Contributor's sole option, exercisable by written notice to Associated
not less than ten (10) days prior to the Closing, the Contribution contemplated
by this Agreement shall be restructured as a merger of FirstMark with and into
Associated or, at Associated's option, a wholly owned subsidiary of Associated,
pursuant to which the Stock shall be converted into the right to receive the
consideration contemplated by this Section 3. If Contributor exercises its
option under this paragraph (d), each of Contributor, FirstMark and Associated
shall take all actions necessary to effect the transactions contemplated by this
Agreement as a merger in lieu of the Contribution.
(e) Trust Channels and Related DEMS Systems
(i) If at the Closing control of any DEMS License or
channels covered thereby is not permitted by the FCC to be transferred
as contemplated by this Agreement, the cash consideration for the
Contribution provided for in Section 3(c) above shall be reduced by
$618,750 for each channel control of which is not permitted to be
transferred to Associated and the Membership Percentage represented by
the Interest in Associated to be issued to Contributor at the Closing
shall be reduced by an amount equal to the product of (a) 0.6250% and
(b) the number of channels control of which is not permitted to be
transferred.
(ii) Any channels control of which is not permitted
to be transferred at the Closing (each, a "Trust Channel" and
collectively, the "Trust Channels") and the related DEMS Systems (each,
a "Related DEMS System" and collectively, the Related DEMS Systems"),
shall be conveyed by FirstMark prior to the Closing to a trust (the
"Trust") established by FirstMark pursuant to a trust agreement (the
"Trust Agreement") containing terms reasonably acceptable to FirstMark,
Contributor and Associated. The operations of the Trust Channels shall
be conducted by the trustee of the Trust in accordance with the
directions of Contributor, and neither Associated nor FirstMark shall
directly or indirectly control, supervise or direct, or attempt to
control, supervise or direct, such operations. After the Closing,
Associated, Contributor and FirstMark shall cooperate and use their
reasonable best efforts, at Associated's expense, to obtain all
Requisite Approvals for the transfer of control of each Trust Channel,
in which event, subject to Section 4(d) hereof, such Trust Channel and
Related DEMS
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System shall be released from the Trust to FirstMark. Notwithstanding
the foregoing, if less than all of the channels for which FirstMark
holds a DEMS License are Trust Channels, no portion of the Related DEMS
System shall be conveyed by FirstMark to the Trust, but FirstMark shall
enter into arrangements reasonably acceptable to Contributor and
Associated and consistent with the FCC's rules giving the Trust rights
to use such DEMS System in connection with the operations of the Trust
Channels.
(iii) Concurrently with the release of any Trust
Channel and Related DEMS System (if any) from the Trust to FirstMark,
Associated shall deliver to Contributor the following consideration:
(A) $618,750 in cash with respect to each
Trust Channel and Related DEMS System (if any) so released,
which amount shall be paid to Contributor by wire transfer of
immediately available funds to an account designated by
Contributor to Associated not less than two (2) Business Days
prior to the release of the applicable Trust Channel and
Related DEMS System (if any) from the Trust (provided that the
aggregate cash consideration to be paid by Associated pursuant
to this Section 3 if control of all channels for which
FirstMark holds a DEMS License to construct DEMS Facilities or
provide DEMS in the Los Angeles SMSA and San Francisco SMSA is
transferred by Contributor shall not exceed $4,950,000; and
(B) with respect to each Trust Channel and
Related DEMS System (if any) so released from the Trust to
FirstMark, an Interest in Associated representing a 0.6250%
Membership Percentage (provided that the aggregate Interest in
Associated to be issued to Contributor if control of all
channels for which FirstMark holds a DEMS License to construct
DEMS Facilities or provide DEMS in the Los Angeles SMSA and
San Francisco SMSA is transferred by Contributor shall not
exceed a 5.00 % Membership Percentage).
(f) Certain Operating Expenses. Associated shall reimburse
Contributor in cash at the Closing or, with respect to any DEMS License
or channels covered thereby control of which is not permitted to be
transferred at the Closing, upon transfer of control of such DEMS
License or channels covered thereby, for all expenditures incurred and
paid by FirstMark or Contributor from and after the date six (6) months
after the date hereof required to fund actions deemed by Contributor
and/or FirstMark to be necessary or desirable to be taken in order to
fulfill customer requirements in connection with the regular operation
of the DEMS Systems, including, without limitation, the implementation
of marketing, construction and development plans and legal fees and
expenses related thereto
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(collectively, the "Operating Expenses"). Reimbursements by Associated
for Operating Expenses under this Section 3(f) shall be made by wire
transfer of immediately available funds to an account previously
designated by Contributor to Associated, against receipt by Associated
of reasonably itemized invoices or other records documenting such
Operating Expenses.
Section 4. Conditions to Consummating the Contribution.
(a) Conditions to Associated's Obligation to Consummate the
Contribution. Associated's obligation to consummate the Contribution is subject
to satisfaction (or, to the extent permissible, waiver by Associated) of the
following conditions:
(i) the representations and warranties of Contributor
and FirstMark contained in this Agreement shall be true and accurate in
all material respects as of the date when made and (unless made as of a
specified date) as of the Closing Date as if made on and as of such
date;
(ii) Contributor and FirstMark shall have performed
in all material respects all of their respective agreements and
covenants contained in this Agreement which are required to be
performed by it on or prior to the Closing Date;
(iii) the parties hereto shall have received all
Requisite Regulatory Approvals, and all other required consents,
approvals or authorizations of any other third party, in connection
with the Contribution (collectively, the "Requisite Approvals") shall
have been obtained and the Requisite Regulatory Approvals shall not be
subject to administrative or judicial review, reconsideration or
appeal; and
(iv) Associated shall have received an opinion of
Lukas McGowan Nace & Gutierrez, Chartered, special FCC counsel to
Contributor, dated the Closing Date, in the form of Exhibit B hereto.
(b) Conditions to Contributor's Obligation to Consummate the
Contribution. Contributor's obligation to consummate the Contribution is subject
to satisfaction (or, to the extent permissible, waiver) of the following
conditions:
(i) the representations and warranties of Associated
contained in this Agreement shall be true and accurate in all material
respects as of the date when made and (unless made as of a specified
date) as of the Closing Date as if made on and as of such date;
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(ii) Associated shall have performed in all material
respects all of its agreements and covenants contained in this
Agreement which are required to be performed by it on or prior to the
Closing Date; and
(iii) the parties hereto shall have received all
Requisite Approvals.
(c) Certain Regulatory Matters. Notwithstanding the provisions
of paragraphs (a)(iii) and (b)(iii) of this Section 4, if the Requisite
Approvals in connection with the Contribution have been obtained but contain
restrictions the effect of which is to prevent the transfer of control of a
portion of the DEMS Licenses or channels covered thereby, the parties hereto
shall use all commercially reasonable efforts to cause such restrictions to be
removed. If such restrictions have not been removed within ninety (90) days
after the obtaining of the Requisite Approvals, the conditions set forth in
paragraphs (a)(iii) and (b)(iii) of this Section 4 shall be deemed to have been
satisfied, and with respect to any DEMS License or channels covered thereby
which cannot be transferred at the Closing, the provisions of Section 3(e) shall
apply.
(d) Conditions to Release of Trust Channels. The conditions
set forth in paragraphs (a) and (b) above shall apply, mutatis mutandis, to the
release of any Trust Channel and the Related DEMS System (if any) to FirstMark,
and the payment of the consideration therefor, as contemplated by Section 3(e)
hereof.
Section 5. Termination; Extension Payments.
(a) If either (i) the Closing has not theretofore occurred or
(ii) the Closing has occurred but in connection therewith one or more Trust
Channels were conveyed to the Trust and all of such Trust Channels have not been
released to FirstMark from the Trust as contemplated by Section 3(e)(ii) hereof,
this Agreement and any Trust Agreement shall terminate on the second anniversary
of the date hereof; provided that if the Closing has not occurred or any Trust
Channels have not been released to FirstMark from the Trust by reason of the
breach by Contributor or FirstMark, on the one hand, or by Associated, on the
other hand, of any of its respective representations and warranties contained in
this Agreement, then the date of termination of this Agreement shall be
extended, at the option of the non-breaching party, for thirty (30) days from
the date on which this Agreement would otherwise have terminated; and provided,
further, that if the Closing has not occurred or any Trust Channels have not
been released to FirstMark from the Trust by reason of the breach by Contributor
or FirstMark, on the one hand, or by Associated, on the other hand, of any of
its respective covenants contained in this Agreement, then the date of
termination of this Agreement shall be extended, at the option of the
non-breaching party, for a period or periods not to exceed in the aggregate one
(1) year from the date on which this Agreement would otherwise have terminated.
(b) Notwithstanding the preceding paragraph (a), the date of
termination of this Agreement (and any Trust Agreement) may, at the option of
Associated, be
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extended (collectively but not individually) for two successive one year periods
if, prior to the then scheduled termination date, Associated shall have paid or
caused to be paid to Contributor an Extension Payment by wire transfer of
immediately available funds to an account previously designated by Contributor
to Associated.
(c) If this Agreement terminates prior to the Closing, the
provisions of this Section 5(c), Sections 5(d), 5(e), 7(h)(v), 7(j), 8(f) (but
only in the event that there has been a Teledesic Settlement prior to such
termination and subject to the last sentence of Section 8(f)), 8(j), 8(k),
11(e), 11(f), 11(h), 11(j) and 11(l) hereof shall survive such termination
without limitation as to time, and all other provisions of this Agreement shall
become void and of no further force or effect; provided, however, that any
termination of this Agreement shall not relieve any party of any damages or
other amounts for which it would otherwise be liable by reason of any breach,
prior to such termination, of any of its representations and warranties or
covenants contained in this Agreement; and provided, further, that no party
shall have any liability under this Agreement for the failure of any
representation or warranty of such party which was true and correct as of the
date of this Agreement to continue to be true and correct after the date of this
Agreement, unless the failure of such representation or warranty to continue to
be true and correct results from the breach by such party of any of its
agreements or covenants contained in this Agreement.
(d) If this Agreement is terminated prior to the Closing by
reason of a breach of this Agreement by Contributor or FirstMark, Contributor
shall be obligated to pay to Associated, promptly (and in any event within two
(2) Business Days) following such termination, the sum of $600,000 in cash. If
this Agreement is terminated without fault of any party hereto, Contributor
shall be obligated to pay to Associated, promptly (and in any event within two
(2) Business Days) following such termination, the sum of $300,000 in cash.
(e) If this Agreement is terminated prior to the Closing, each
of Associated, Contributor and FirstMark agrees that neither it nor any of its
Affiliates shall, after such termination, oppose, challenge or in any manner
take an adverse position, directly or indirectly, with respect to any DEMS
application of the other party or any of its Affiliates or the grant to the
other party or any of its Affiliates of any DEMS license, in each case whether
in the 18 GHz frequency band or any other frequency band to which DEMS are
relocated by the FCC; provided that, subject to and without limitation of the
obligations of any party under the other provisions of this Agreement, the
provisions of this paragraph (e) shall not apply to any existing or future DEMS
application or DEMS license of any party to the extent such DEMS application or
DEMS license is with respect to a channel as to which the other party, currently
or in the future, holds a DEMS application or DEMS license.
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Section 6. Withdrawal of FirstMark DEMS Applications.
(a) Withdrawal. At such time or times prior to the Closing and
in such manner as Associated may specify, Contributor shall cause FirstMark
promptly to withdraw the FirstMark DEMS Applications (other than with respect to
channel 31 for the New York SMSA) and, upon the request and at the expense of
Associated, Contributor and FirstMark will assist and cooperate with Associated
in seeking to obtain FCC approval of any license applications filed by MSI or
Associated or any of their respective Affiliates with the FCC to provide DEMS in
the New York SMSA or the Boston SMSA. In consideration of the withdrawal by
FirstMark of the foregoing FirstMark DEMS Applications, upon the FCC's grant of
FirstMark's request for withdrawal of such FirstMark DEMS Applications and for
approval of this Agreement, Associated shall pay to Contributor the sum of
$50,000 in reimbursement of expenses incurred by Contributor and FirstMark in
connection with such FirstMark DEMS Applications.
(b) Conveyance to Trust. If, (i) either (x) prior to the
Closing, FirstMark is granted a DEMS license by the FCC pursuant to the
FirstMark DEMS Application with respect to channel 31 in the New York SMSA (the
"FirstMark DEMS Application License") or (y) the FirstMark DEMS Application
License has not been granted prior to the Closing and the FirstMark DEMS
Application with respect to channel 31 remains outstanding, and (ii) the
transfer of control at the Closing of the FirstMark DEMS Application License or
such FirstMark DEMS Application, as the case may be, is not permitted under the
terms of the Requisite Approvals, the FirstMark DEMS Application License or such
FirstMark DEMS Application, as the case may be, shall be conveyed by FirstMark
prior to the Closing to the Trust. After the Closing, Associated, Contributor
and FirstMark shall cooperate and use their reasonable best efforts, at
Associated's expense, to obtain all Requisite Approvals for the transfer of
control of the FirstMark DEMS Application License or such FirstMark DEMS
Application, as the case may be, in which event the FirstMark DEMS Application
License or such FirstMark DEMS Application, as the case may be, shall be
released from the Trust to FirstMark, without payment of any additional
consideration by Associated.
Section 7. Additional Covenants and Agreements of Contributor and FirstMark.
(a) Cooperation. From and after the date this Agreement,
Contributor and FirstMark shall use their reasonable efforts, and shall
cooperate with Associated, in each case at Associated's expense, to secure all
Requisite Approvals to enable Contributor, FirstMark and Associated to effect
the transactions contemplated by this Agreement, and shall otherwise use their
reasonable efforts, at Associated's expense, to
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cause the consummation of such transactions in accordance with the terms and
conditions of this Agreement.
(b) Conduct of Business. Except as may be otherwise
contemplated by this Agreement or the Exhibits or Schedules hereto, or except as
Associated may otherwise consent to in writing, from the date of this Agreement
through the Closing, Contributor and FirstMark shall operate the business of
FirstMark solely in the ordinary course of business; it being understood that
the relocation by FirstMark of radio equipment from one site to another site in
connection with the fulfillment of customer build-out requirements shall not be
prohibited by this paragraph.
(c) Access. From the date of this Agreement and prior to the
Closing, Contributor and FirstMark shall provide Associated with such
information as Associated may from time to time reasonably request with respect
to FirstMark and the transactions contemplated by this Agreement, and shall
provide Associated and its representatives reasonable access during regular
business hours and upon reasonable notice to the properties, books and records
of FirstMark as Associated may from time to time reasonably request.
(d) Capital Stock. Neither FirstMark nor Contributor shall
issue, sell, transfer, pledge or otherwise encumber any shares of capital stock
of FirstMark, or grant or issue any option, warrant, right or convertible or
exchangeable security exercisable for, convertible into or exchangeable for
shares of capital stock of FirstMark, or make any other changes in the capital
structure of FirstMark, or enter into any contract with respect to any of the
foregoing.
(e) Dividends and Distributions. FirstMark shall not declare,
set aside, pay or make any dividend or other distribution or payment with
respect to shares of its capital stock, and shall not purchase or redeem any
shares of its capital stock.
(f) Debt; Liabilities. FirstMark shall not incur or assume any
indebtedness for borrowed money other than any such indebtedness that will be
paid in full prior to the Closing and shall not make any loans, advances or
capital contributions to, or investments in, any other Person. From the date of
this Agreement through the Closing, FirstMark shall incur no liabilities other
than liabilities arising in the ordinary course of business of the operations of
the DEMS Systems that will not, individually or in the aggregate, have a
material adverse effect on the assets, business or operations of FirstMark.
(g) Certain Agreements. FirstMark shall not (i) encumber
(unless such encumbrance is removed prior to the Closing without cost or expense
to Associated), sell, lease or otherwise dispose of any assets, or acquire any
assets other than in the ordinary course of business or as otherwise necessary
or desirable to fulfill customer requirements, (ii) authorize, propose or enter
into an agreement in principle or definitive agreement with
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respect to any merger, consolidation, other business combination, liquidation or
dissolution pursuant to which FirstMark would be acquired or would acquire or
dispose of (in any such case, by merger, consolidation, acquisition or
disposition of stock or assets, or similar transaction) assets, (iii) assume,
guarantee, endorse (other than checks in the ordinary course of business) or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other Person, (iv) enter into any
commitment or transaction outside the ordinary course of business except as set
forth on Schedule 7(g) hereto, or (v) enter into any contract or commitment to
do any of the foregoing.
(h) Covenants Regarding DEMS Systems and FirstMark DEMS
Applications.
(i) Between the date of this Agreement and the
Closing, at Associated's expense, Contributor and FirstMark shall use
all commercially reasonable efforts to maintain in full force and
effect all necessary federal, state and local regulatory agency
authorizations relating to such DEMS System, and shall operate such
DEMS System in accordance with all Requirements of Law applicable
thereto.
(ii) Between the date of this Agreement and the
Closing, neither Contributor nor FirstMark shall sell or otherwise
dispose of, or create Liens or otherwise encumber, any of the DEMS
Systems (including without limitation any of the DEMS Licenses or DEMS
Facilities).
(iii) Upon and as a condition to Associated's
issuance to Contributor of any Interest, Contributor shall execute and
deliver, and thereby become a party to, any Equityholders Agreement,
subject to the last three sentences of Section 3(c) of this Agreement.
(iv) Except as contemplated by Schedule 7(g), between
the date of this Agreement and the Closing, all customer subscription
contracts with respect to DEMS to be provided through one or more of
the DEMS Systems entered into after the date hereof shall be entered
into by FirstMark only in the ordinary course of business and shall
contain only customary provisions.
(v) Until the Closing, or until such time prior to
the Closing as Associated directs Contributor to cause FirstMark to
withdraw a FirstMark DEMS Application pursuant to Section 6 hereof,
FirstMark shall, and Contributor shall cause FirstMark to, prosecute
such FirstMark DEMS Application, at Associated's expense, to the extent
required by the FCC's rules to retain FirstMark's eligibility and
qualifications for the DEMS licenses requested by such FirstMark DEMS
Application.
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(vi) Neither Contributor, FirstMark nor any of their
Affiliates shall (A) oppose, challenge or in any manner take an adverse
position, directly or indirectly, with respect to (i) any existing or
future DEMS applications or licenses of Associated, DSC or MSI, in each
case whether in the 18 GHz frequency band or any other frequency band
to which DEMS are relocated by the FCC (and FirstMark shall promptly
withdraw or rescind any such previous opposition, challenge or adverse
position); provided that, subject to and without limitation of
Contributor's and FirstMark's obligations under the other provisions of
this Agreement, prior to the Closing the provisions of this clause (A)
shall not apply to any existing or future DEMS application or DEMS
license of Associated to the extent such DEMS application or DEMS
license is with respect to a channel as to which FirstMark holds a DEMS
License, or (ii) any change or modification to the rules generally
applicable to DEMS, DEMS licenses or DEMS frequencies proposed, ordered
or implemented by the FCC, so long as such change or modification would
not adversely affect FirstMark in a manner different (on a
proportionate and comparable basis) from Associated, MSI, DSC and their
Affiliates, or (B) seek authorizations, directly or indirectly, with
respect to any DEMS channel in the New York SMSA or the Boston SMSA, in
each case whether in the 18 GHz frequency band or any other frequency
band to which DEMS are relocated by the FCC (except pursuant to a
FirstMark DEMS Application).
(i) Noncompetition. Contributor agrees with Associated that,
from and after the date hereof, neither Contributor nor any of its Affiliates
will, alone or as a member, employee or agent of any partnership, corporation,
limited liability company or other business entity, or as an officer, agent,
employee, director, shareholder (except for passive investments of not more than
five percent (5%) of the outstanding shares of or any other equity interest in
any company or entity listed or traded on a national securities exchange or on
an over-the-counter securities market) of or investor in any partnership,
corporation, limited liability company or other business entity, directly or
indirectly, own, manage, operate, join, control or participate in the ownership,
management, operation or control of, or work for or permit the use of her or its
name by, or be connected in any manner with, any business (other than
Associated) or activity (including without limitation submitting any application
for a license to provide services or construct or operate equipment or
facilities) which engages in or proposes to engage in the provision in the
United States of DEMS in the 18 GHz frequency band or such other frequency band
to which DEMS are relocated by the FCC or the provision in Canada of fixed
wireless voice, video or data transmission services in any frequency band;
provided that the foregoing shall not apply to the ownership or operation by
Contributor of FirstMark and the business of FirstMark with respect to the DEMS
Systems and the FirstMark DEMS Applications to the extent consistent with the
other provisions of this Agreement. The parties intend that the covenant
contained in this Section 7(i) shall be deemed to be a series of separate
covenants, one for each county of each state of the United States and
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province of Canada. Except for geographic coverage, each separate covenant shall
be deemed identical in terms to the covenant contained in this paragraph. If, in
any judicial proceeding, a court shall refuse to enforce all of the separate
covenants deemed included in this paragraph, because, taken together, they cover
too extensive a geographic area, the parties intend that those of such covenants
(taken, in the case of the states, territories or counties within any state in
order of the applicable states, territories or counties which are less populous)
which, if eliminated, would permit the remaining separate covenants to be
enforced in such proceedings shall, for the purpose of such proceedings, be
deemed eliminated from the provisions of this paragraph. The term "county" as
used herein shall be deemed to apply to other similar political subdivisions,
such as parishes, in those areas which have such other political subdivisions.
(j) Confidentiality. If Contributor or FirstMark obtains,
directly or indirectly, information or records, whether prepared by Associated,
its advisors or otherwise, and whether written or oral, concerning the business
of Associated, Contributor and FirstMark shall be bound by the provisions of
Section 8(j) with respect to such information or records to the same extent that
Associated would be bound with respect to Confidential Information.
(k) Intercompany Indebtedness. Prior to the Closing,
Contributor and FirstMark shall cause all outstanding indebtedness of FirstMark
to Contributor or any of her Affiliates to be cancelled or discharged without
any cost, liability (including, without limitation, any Tax liability) or
expense being incurred by FirstMark.
Section 8. Additional Covenants and Agreements of Associated.
(a) Cooperation by Associated. From and after the date of this
Agreement, Associated will use its reasonable efforts, and will cooperate with
Contributor, in each case at Associated's expense, to secure all Requisite
Approvals to enable Contributor and Associated to effect the transactions
contemplated by this Agreement, and will otherwise use its reasonable efforts to
cause the consummation of such transactions in accordance with the terms and
conditions of this Agreement.
(b) Conduct of Business. From the date of this Agreement
through the Closing, Associated shall not operate its business in any manner
with the intention of diminishing the value of the Interest to be received by
Contributor pursuant to this Agreement.
(c) Books and Records; Personnel. For a period of seven years
from the Closing Date:
(i) Associated shall not, and shall cause FirstMark
not to, dispose of or destroy any of the books and records of FirstMark
in their possession relating to periods prior to the Closing ("Books
and Records") without the prior written
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consent of Contributor (which shall be deemed given if Contributor
fails to object in writing to such disposal or destruction with twenty
(20) days of receipt of notice from Associated of its intention to
effect such disposal or destruction).
(ii) Associated shall, and shall cause FirstMark to,
upon at least three (3) days prior written notice from Contributor,
allow Contributor and its agents reasonable access to all Books and
Records during normal working hours at Associated's principal place of
business or at any location where any Books and Records are stored, and
Contributor shall have the right, at its own expense, to make copies of
any Books and Records, in connection with (x) any pending or threatened
litigation in which Contributor or any of its Affiliates is involved,
(y) any investigation or proceeding of any Governmental Authority in
which Contributor or any of its Affiliates is involved, or (z) the
preparation of any Returns; provided, however, that any such access or
copying shall be had or done in such a manner so as not to interfere
with the normal conduct of Associated's or FirstMark's businesses, as
applicable.
(iii) Contributor shall, and shall cause its
representatives to, keep confidential all Books and Records and the
information contained therein.
(d) Interim Control of DEMS Systems. Without limiting Section
7 hereof, between the date of this Agreement and the Closing, Associated shall
not directly or indirectly control, supervise or direct, or attempt to control,
supervise or direct, the operation of the DEMS Systems of FirstMark and its
Affiliates, and the operations of FirstMark and its Affiliates shall be the sole
responsibility of Contributor and FirstMark and its Affiliates.
(e) Opposition to DEMS Licenses. Neither Associated nor any of
its Affiliates shall oppose, challenge or in any manner take an adverse
position, directly or indirectly, with respect to any DEMS License (and
Associated or its Affiliates shall promptly withdraw or rescind any such
previous opposition, challenge or adverse position); provided that, subject to
and without limitation of Associated's obligations under the other provisions of
this Agreement, prior to the Closing, the provisions of this paragraph (e) shall
not apply to any channel covered by an existing or future DEMS License to the
extent such DEMS License is with respect to a channel as to which Associated
holds a DEMS license. Notwithstanding any other provision of this Agreement, if
the FCC revokes a DEMS License with respect to channel 31 in the Los Angeles
SMSA or channel 30 in the San Francisco SMSA and grants, pursuant to a decision
that is no longer subject to administrative or judicial review, reconsideration
or appeal, a DEMS license with respect to such channel, or a channel in
substitution for such channel, to MSI, DSC, Associated or any of their
respective Affiliates, then Contributor shall receive the consideration that she
would have received under Section 3(c) or Section 3(e), at the same time she
would have received such consideration under
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Section 3(c) or 3(e), if such channel had been an asset of FirstMark at the
Closing and/or had been released from the Trust, as applicable.
(f) Teledesic Settlement. Associated agrees that (i) any
settlement with Teledesic with respect to DEMS licenses in the 18 GHz frequency
band which involves the relocation of DEMS to a frequency band other than 18 GHz
(a "Teledesic Settlement") will not adversely affect FirstMark in a manner
different (on a proportionate and comparable basis), after giving effect to
clause (ii) below, from Associated, MSI and DSC and their respective Affiliates
and (ii) Associated will reimburse Contributor for expenditures actually made by
FirstMark prior to the date of this Agreement (and as to which Associated
receives reasonable documentary evidence from FirstMark as to incurrence and
amount) in connection with the DEMS Systems to the same extent (on a
proportionate and comparable basis) and subject to the same conditions and
payable to Contributor by wire transfer of immediately available funds to an
account previously designated by Contributor to Associated at the same time as
Associated, MSI or DSC or their respective Affiliates receive, pursuant to a
Teledesic Settlement, reimbursement for expenditures actually made by them prior
to the date of this Agreement in connection with the DEMS licenses and DEMS
systems of Associated, MSI or DSC or their respective Affiliates; provided that
any such reimbursement of Contributor shall not exceed $600,000 in the
aggregate, and shall be reduced dollar for dollar to the extent that Contributor
or FirstMark receives any amounts from Teledesic pursuant to any separate
agreement, arrangement or understanding with Teledesic (and FirstMark and
Contributor agree promptly to notify Associated of their receipt of any such
payments). Associated agrees that it shall, promptly following receipt of FCC
approval of the Teledesic Settlement which is no longer subject to
administrative or judicial review, reconsideration or appeal, provide
Contributor with a true and correct copy of the agreement(s) providing for the
Teledesic Settlement, subject to execution of an appropriate confidentiality
agreement by Contributor. Without the prior written consent of Associated,
neither Contributor nor FirstMark nor any of their respective Affiliates shall
oppose, challenge, or in any manner take, directly or indirectly, an adverse
position with respect to, any Teledesic Settlement, or any term thereof, or any
plan adopted or order issued by the FCC to relocate DEMS to a frequency band
other than 18 GHz. If this Agreement is terminated prior to the Closing (x) by
reason of a breach of this Agreement by Contributor or FirstMark, the provisions
of clause (ii) of the first sentence of this paragraph shall be of no further
force or effect, (y) by reason of a breach of this Agreement by Associated, the
provisions of clause (ii) of the first sentence of this paragraph shall survive
termination, or (z) without fault of either party, the provisions of clause (ii)
of the first sentence of this paragraph shall survive termination, except that
the obligation of Associated under such clause shall be limited to 50% of the
expenditures reimbursable under such clause (ii) and not more than $300,000 in
the aggregate.
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(g) Contributor Registration Rights.
(i) Contributor "Piggyback". Contributor shall have
the same rights with respect to registration, pursuant to a
registration statement filed by Associated under the Securities Act, of
equity securities of Associated issued to Contributor pursuant to this
Agreement as Mandl has pursuant to clause (A) of Section 4(d)(I) of the
Mandl Employment Agreement. Associated shall, if requested in writing
by Contributor, use all reasonable efforts to cause to be included in
such registration statement up to an amount of the equity securities of
Associated then owned by Contributor (of the same class as the equity
securities of Associated then owned by or issuable to Mandl) which were
issued to Contributor pursuant to this Agreement ("Contributor
Registrable Securities") proportionate to the amount of equity
securities which are then owned by or issuable to Mandl which are
entitled to be included in such registration statement (based on the
total amount of such equity securities then owned by or issuable to
Mandl and the total amount of Contributor Registrable Securities then
owned by Contributor, respectively). If, in connection with an
underwritten offering registered pursuant to a registration statement,
the managing underwriter imposes a limitation on the amount of equity
securities which may be included in such registration statement, then
Associated shall be obligated to use all reasonable efforts to include
in such registration statement the Contributor Registrable Securities
validly requested by Contributor in accordance with the terms hereof to
be included in such registration statement (x) only after the inclusion
of all equity securities proposed to be sold by Associated for its own
account and (y) subject to reduction of the amount of Contributor
Registrable Securities and any other equity securities to be included
in such registration statement on behalf of any Person other than
Associated on a pro rata basis in accordance with the number of
Contributor Registrable Securities and such other equity securities
requested to be included in such registration statement.
(ii) Demand Registration Rights. In addition to the
registration rights afforded by clause (i) of this Section 8(g), at any
time after the first anniversary of the closing of Associated's initial
public offering (the "IPO"), Contributor shall be entitled to one
demand registration under the Securities Act and under such state
securities laws as Contributor may reasonably request (provided that
Associated shall not be required to consent to general service of
process in any jurisdiction where it is not then so subject) in respect
of Contributor Registrable Securities, provided that such demand
registration right shall apply only if the amount of Contributor
Registrable Securities to be registered (x) constitutes at least 50% of
the greatest amount of Contributor Registrable Securities owned by
Contributor at any time and (y) has an anticipated aggregate offering
price (before underwriters' fees, commissions and discounts) of at
least $10,000,000.
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(iii) Restrictions. The registration rights of
Contributor provided for in this Section 8(g) shall not be transferable
to any transferee of Contributor Registrable Securities except (i)
during her lifetime by gratuitous transfers to grantor trusts,
charitable remainder trusts or to immediate family members or trusts
for their benefit, provided that any such transferee agrees in writing
to be bound by the provisions of this Section 8(g) or (ii) upon her
death by will or the laws of descent and distribution. In addition,
such registration rights shall be subject to Contributor entering into
underwriting (if applicable), indemnification, and other customary
agreements, including customary lock-up provisions requested by the
managing underwriter of any offering, and to Associated's right to
defer (or require Contributor to suspend sales pursuant to) any such
registration if (but only for so long as) it determines in good faith
that such registration (or continued sales) would require disclosure
which would be materially adverse to Associated's interests. Associated
shall keep any registration statement filed under clause (ii) above
effective for at least ninety (90) days (increased by the number of
days, if any, that sales under such registration statement are
suspended as provided above). Associated shall bear all registration
expenses (exclusive of underwriting fees, discounts and commissions)
under this Section 8(g) and in such connection shall provide
Contributor with indemnification and contribution against liabilities
under the securities laws in customary form.
(iv) Contributor agrees to execute a customary
lock-up agreement in connection with the IPO, whether or not
Contributor is a selling stockholder in the IPO.
(h) Tag-Along and Drag-Along Rights. If, prior to the time
that equity securities of Associated (of the same class as the Contributor
Registrable Securities) are publicly traded, the Original Shareholders shall
sell to a third party (other than an Affiliate of such Original Shareholder) any
of their equity interests in Associated at a time when Contributor holds any
equity interest in the Company (an "Equity Interest"):
(i) The Original Shareholders shall require the
purchaser of their equity interests to purchase, at Contributor's
election, the same percentage of the aggregate Equity Interest then
held by Contributor as the percentage of the aggregate equity interests
of the Original Shareholders which is being purchased; such purchase
from Contributor shall be made on the same terms and for the same
consideration as the purchase from the Original Shareholders; and
(ii) The Original Shareholders, at their election,
may require the purchaser of their equity interests to purchase, and
Contributor to sell, the same percentage of the aggregate Equity
Interest then held by Contributor as the percentage of the aggregate
equity interests of the Original Shareholders which is being purchased;
any such purchase from Contributor shall be made on the same
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terms and for the same consideration as the purchase from the Original
Shareholders.
(i) Right of First Refusal. Upon the terms and subject to the
conditions of this Section 8(i), Contributor grants the Original Shareholders a
right of first refusal with respect to any sale or other disposition for value
by Contributor (a "Transfer") of any Equity Interest.
(i) If Contributor desires to effect a Transfer of
some or all of its Equity Interest pursuant to a bona fide offer (an
"Offer") from any person or entity (an "Offeror"), Contributor shall
give written notice of such Offer (a "First Refusal Notice") to each of
the Original Shareholders. The First Refusal Notice shall specify the
number or amount of securities comprising the Equity Interest proposed
to be transferred pursuant to such Offer (the "First Refusal
Interest"), the price proposed to be paid by the Offeror (the "Offer
Price"), the identity of the Offeror and the other terms and conditions
of such Offer, and shall be accompanied by a true and correct copy of
the Offer. If any part of the consideration proposed in the Offer
consists of property other than cash, the price proposed to be paid
pursuant to such Offer shall be deemed to include the fair market value
of such non-cash consideration, as determined in good faith by the
board of directors of Associated. If Contributor objects to the fair
market value, as so determined, Contributor may require that Associated
obtain a determination of the fair market value of such non-cash
consideration pursuant to the procedures set forth in paragraph (v) of
this Section 8(i), and such determination shall be final and binding on
all parties.
(ii) Each Original Shareholder shall have the option
to purchase the First Refusal Interest at the Offer Price and on such
other terms as are set forth in the Offer, by giving notice to
Contributor within thirty (30) days of receipt by such Original
Shareholder of the First Refusal Notice (an Original Shareholder which
gives such notice being referred to as an "Accepting Original
Shareholder"), and by purchasing such First Refusal Interest for the
Offer Price in cash, against delivery of the First Refusal Interest
(with appropriate transfer documentation) free and clear of any Liens
within fifteen (15) days following the expiration of such thirty (30)
day period; provided, however, that if Accepting Original Shareholders
elect in the aggregate to purchase more than 100% of the First Refusal
Interest, then the portion of the First Refusal Interest which may be
purchased by any Accepting Original Shareholder that has elected to
purchase more than such Accepting Original Shareholder's Pro Rata Share
(as defined below) of the First Refusal Interest shall be reduced
(based on each such Accepting Original Shareholder's Pro Rata Share),
but not below such Accepting Original Shareholder's Pro Rata Share; and
provided, further, that the date for such purchase may be deferred
solely to the extent necessary to obtain any
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governmental consents or approvals required to complete such purchase
or, if applicable, to the extent necessary to complete the
determination of the fair market value of any non-cash consideration
proposed to be paid by the Offeror, as provided in paragraph (i) above.
For purposes of this paragraph (ii) of this Section 8(i), an Accepting
Original Shareholder's "Pro Rata Share" shall be the percentage which
such Accepting Original Shareholder's ownership interest in Associated
represents of the ownership interest in Associated of all Accepting
Original Shareholders.
(iii) If the Original Shareholders do not give timely
notice of their election to purchase the entire First Refusal Interest,
or if such notice is timely given but the Accepting Original
Shareholders fail to purchase the entire First Refusal Interest within
the applicable time period specified in this Section 8(i), then
Contributor may, within the 90-day period immediately following the
expiration of the period during which the Original Shareholders may
give notice of such election, or, if applicable, within the 90-day
period immediately following such failure to purchase the entire First
Refusal Interest, transfer the First Refusal Interest to the Offeror at
a price not less than the Offer Price and on the same terms and subject
to the same conditions as were set forth in the First Refusal Notice.
If Contributor does not complete such Transfer within such 90-day
period, no subsequent Transfer of all or any part of its Equity
Interest may be made without again complying with this Section 8(i), it
being understood and agreed that the retention by Contributor of a
security interest in some or part of the First Refusal Interest which
is transferred shall not mean that such Transfer has not been
completed.
(iv) If Contributor fails to comply with this Section
8(i) with respect to all or any part of its Equity Interest (including
without limitation any beneficial interest therein), any attempted or
purported Transfer thereof shall be void and of no force or effect.
(v) The fair market value of any non-cash
consideration or property the value of which is to be determined
pursuant to the last sentence of paragraph (i) of this Section 8(i)
shall be determined in accordance with the following procedure:
Contributor and Associated shall each select a nationally recognized
appraiser, which shall determine the valuation or other issue in
question. If the higher of the two original appraisal values is not
more than ten percent (10%) above the lower appraisal value, the value
in question shall be the value agreed upon by the two original
appraisers or, in the absence of such an agreement, the value in
question shall be the average of the two original appraisal values. If
the higher of the two original appraisal values is more than ten
percent (10%) above the lower appraisal value, the two appraisers shall
select a third nationally recognized appraiser who shall determine a
value which shall be at least
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equal to the lower appraisal value and whose determination of the value
in question shall be final and binding on all parties. All costs and
expenses relating to any appraisal or review conducted under this
paragraph shall be borne by Associated.
(vi) This Section 8(i) shall not apply to the sale by
Contributor in the public market of Contributor Registrable Securities
registered under the Securities Act or pursuant to Rule 144 under the
Securities Act.
(j) Confidentiality.
(i) Associated shall, and shall cause its
representatives to, keep confidential all information and records,
whether prepared by Contributor, its advisors or otherwise, and whether
written or oral, which were obtained, directly or indirectly, by
Associated or its representatives concerning the business of FirstMark
("Confidential Information"). Associated shall, and shall cause its
representatives to, use Confidential Information solely in connection
with its analysis and review of the transactions contemplated by this
Agreement or in connection with operating the business of FirstMark.
(ii) Associated may disclose Confidential Information
to any of its directors, officers, employees, agents and advisors (each
a "Representative" and, collectively, the "Representatives") who need
to know such Confidential Information for the purpose of assisting
Associated in connection with the transactions contemplated by this
Agreement or with operating the business of FirstMark; provided,
however, that prior to making such disclosure, Associated shall advise
each such Representative of Associated's obligations under this Section
8(j) and Associated shall be responsible for any breach of this
Agreement by any such Representative. Associated may disclose
Confidential Information if required by legal process or by operation
of applicable law; provided, however, that Associated shall first
promptly advise and consult with Contributor and its counsel concerning
the information Associated proposes to disclose.
(iii) Associated's obligations under clauses (i) and
(ii) of this Section 8(j) do not apply to information which (x) was
known by Associated prior to such disclosure and not subject to any
confidentiality agreement or obligation of secrecy to Contributor or
FirstMark of which Associated is aware or reasonably should be aware,
(y) at the time of disclosure is generally available to and known by
the public or the telecommunications industry other than as a result of
disclosure in violation of clause (i) or (ii) of this Section 8(j) or
(z) was or becomes available to Associated on a non-confidential basis
from a source other than Contributor or its agents or advisors;
provided, however, that such source is
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not bound by a confidentiality agreement or obligation of secrecy to
Contributor in respect thereof of which Associated is aware or
reasonably should be aware.
(iv) In the event that this Agreement is terminated,
all Confidential Information, whether or not then in Associated's
possession, and any copies thereof or notes or extracts therefrom,
shall be returned to Contributor, without retaining any copies thereof,
and Associated shall destroy, as soon as practicable, all copies of any
analyses, studies, compilations or other documents prepared by
Associated or any of its Representatives to the extent that they
contain, reflect or are generated from any Confidential Information.
(v) Associated acknowledges and agrees that any
breach by it of the provisions of this Section 8(j) will cause
Contributor irreparable injury and damage, for which Contributor cannot
be adequately compensated in damages. Associated, therefore, expressly
agrees that Contributor shall be entitled to seek injunctive relief
and/or other equitable relief to prevent any breach of the provisions
of this Section 8(j), or any part thereof, and to secure their
enforcement.
(vi) The provisions of this Section 8(j) shall not
survive the Closing, except that the provisions of this Section 8(j)
shall survive with respect to any DEMS Licenses and DEMS Systems unless
and until control thereof is transferred to Associated pursuant to this
Agreement.
(k) Non-disclosure of Financial Terms. Associated agrees that,
except as requested by the FCC or required by law or legal process or in
connection with any financing, strategic alliance, acquisition or disposition
transaction, it shall not disclose to any third party, other than its Affiliates
or Representatives, the financial terms of the transactions contemplated by this
Agreement without the prior written consent of Contributor.
(l) Anti-Dilution Rights. Associated agrees that the
Membership Percentage represented by the Interest to be issued to Contributor
under this Agreement (regardless of when any portion of such Interest is issued
hereunder) shall not be diluted by the first $75 million of equity investments
in Associated by the Original Shareholders and their Affiliates from the date of
this Agreement through August 19, 1997 and shall be diluted in respect of any
other equity investments by the Original Shareholders or their Affiliates after
the date of this Agreement based upon (A) the amount of such equity investment
and (B) the fair market value of Associated (as determined in good faith by the
board of directors of Associated).
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Section 9. Tax Matters.
(a) Tax Indemnification by Contributor.
(i) Contributor shall be liable for, and shall
indemnify Associated and its Affiliates and hold them harmless from and
against, any Taxes of FirstMark for taxable periods ending on or before
the Closing Date ("Pre-Closing Tax Periods") or portions of taxable
periods ending on or before the Closing Date and any loss, damage,
liability or expense, including, but not limited to, reasonable fees
for attorneys and other outside consultants, incurred in connection
with such Taxes.
(ii) Payments required under this Section 9(a) shall
be made within 30 days of Associated furnishing Contributor with
written evidence that Associated has paid such amounts or such amounts
are due and payable to a Taxing Authority.
(b) Apportionment of Taxes. In order to apportion
appropriately any Taxes relating to any taxable period beginning prior to and
ending after the Closing Date ("Straddle Period"), the parties hereto shall, to
the extent permitted under applicable law, elect with the relevant Tax Authority
to treat for all purposes, the Closing Date as the last day of the taxable year
or period of FirstMark, and such period shall be treated as a short taxable year
and a Pre-Closing Tax Period for purposes of this Section 9. In any case where
applicable law does not permit FirstMark to treat the Closing Date as the last
day of the taxable year or period with respect to Taxes that are payable with
respect to a Straddle Period, the portion of any such Taxes that are allocable
to the portion of the taxable year ending on the Closing Date shall be deemed to
be equal to the amount which would be payable if the taxable year or period
ended on the Closing Date.
(c) Refunds.
(i) Contributor shall be entitled to any refunds of
Taxes attributable to FirstMark (including refunds paid by means of
credit against other or future Tax liabilities) for a Pre-Closing Tax
Period or the portion of a Straddle Period ending on or before the
Closing Date other than refunds arising from a carryback of a loss or
credit from any period other than a Pre-Closing Tax Period.
(ii) Associated shall forward to Contributor any
refunds to which Contributor is entitled (pursuant to the terms of this
Section 9(c)) within 5 days after receipt thereof. In the case of a
refund received in the form of a credit against other or future Tax
liabilities, reimbursement in respect of such refund shall be due on
the due date for payment of the Taxes against which such refund has
been credited.
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(d) Cooperation. After the Closing Date, each of Associated
and Contributor shall make available to the other, as reasonably requested, and
to any Taxing Authority, all information, records and documents relating to Tax
liabilities or potential Tax liabilities relating to FirstMark and shall
preserve all such information, records and documents until the expiration of any
applicable statute of limitations or extension thereof. Associated shall render
such assistance as shall be reasonably requested by Contributor so as to comply
with the responsibilities imposed on Contributor by Section 9(f).
(e) Certain Other Definitions. For purposes of this Agreement
(i) "IRS" means the Internal Revenue Service; (ii) "Return" means all returns,
reports, declarations, estimates, information returns, statements and forms of
any nature regarding Taxes, including remittance advices, required to be filed
with any Taxing Authority or depository; (iii) "Tax" means any federal, state,
local or foreign tax, including, without limitation, income (net or gross),
gross receipts, franchise, estimated, alternative minimum, add-on minimum,
sales, use, transfer, registration, value added, excise, natural resources,
severance, stamp, occupation, premium, windfall profit, customs, duties, real
property, personal property, capital stock, social security, unemployment,
disability, payroll, license, employee or other withholding, or other tax, of
any kind whatsoever, and including any interest, penalties or additions to tax
imposed with respect thereto; and (iv) "Taxing Authority" means any Governmental
Authority, domestic or foreign, having jurisdiction over the assessment,
determination, collection, or other imposition of Tax.
(f) Certain Taxes. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement ("Transfer Taxes") shall be
paid by Contributor when due, and Contributor shall file all necessary Returns
and other documentation with respect to all such Transfer Taxes, and, if
required by applicable law, Associated will, and will cause FirstMark to, join
in the execution of any such Returns and other documentation. Associated shall
reimburse Contributor for one-half of all Transfer Taxes and one-half of the
cost of filing Returns relating to Transfer Taxes.
(g) Tax Treatment of Indemnity Payments. The Tax treatment of
all indemnity payments made by either party to or for the benefit of the other
party under this Agreement shall be treated by the parties hereto as an
adjustment to the consideration.
(h) Certain Representations. Contributor and FirstMark hereby
jointly and severally represent and warrant to Associated that (i) except as set
forth on Schedule 9(h)(i), FirstMark has filed or has had filed on its behalf in
a timely manner (within any applicable extension periods) with the appropriate
Taxing Authority all income and other materials Returns with respect to Taxes of
FirstMark; (ii) all material Taxes with respect to FirstMark have been paid in
full or have been provided for in accordance with
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generally accepted accounting principles on Schedule 10(a)(x); (iii) there are
no outstanding agreements or waivers extending the statutory period of
limitations applicable to any federal, state, local or foreign income or other
material Returns required to be filed by or with respect to FirstMark; (iv) none
of the Returns of or with respect to FirstMark is currently being audited or
examined by any Taxing Authority; and (v) no deficiency for any income or other
material Taxes has been assessed with respect to FirstMark which has not been
abated or paid in full. FirstMark is not, and has not at any time been, a member
of a consolidated group for federal income tax purposes.
Section 10. Representations and Warranties.
(a) Representations and Warranties of Contributor and
FirstMark. Contributor and FirstMark hereby jointly and severally represent and
warrant to Associated as follows:
(i) Capitalization. The authorized capital stock of
FirstMark consists of one thousand (1,000) shares of common stock, par
value $.01 per share, of which one hundred (100) shares are issued and
outstanding and owned of record and beneficially by Contributor. All of
the shares comprising the Stock are validly issued, fully paid and
non-assessable and are held by Contributor free and clear of all Liens.
There are outstanding no securities convertible into, exchangeable for,
or carrying the right to acquire, equity securities of FirstMark, or
subscriptions, warrants, options, rights or other arrangements or
commitments obligating FirstMark to issue or dispose of any securities
or any ownership interest therein. The Contribution of the Stock to
Associated pursuant to Section 3 hereof will vest in Associated legal
and valid title to the Stock, free and clear of all Liens (other than
Liens created by Associated).
(ii) Litigation. There is no action or proceeding in
any court or before any Governmental Authority pending or, to
Contributor's knowledge, threatened against Contributor or any of its
Affiliates, with respect to which there is a reasonable likelihood of a
determination which would have a material adverse affect on the ability
of Contributor to perform its obligations under this Agreement or which
is otherwise material to FirstMark. Neither Contributor nor any of its
Affiliates is subject to any outstanding order, ruling, judgment or
decree which would have a material adverse effect on the ability of
Contributor to perform its obligations under this Agreement or which is
otherwise material to FirstMark.
(iii) Corporate Organization. FirstMark is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Delaware.
(iv) Enforceability. This Agreement has been duly
executed and delivered by, and constitutes the valid and binding
obligation of, Contributor and
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FirstMark, enforceable against Contributor and FirstMark in accordance
with its terms.
(v) No Violation; No Consents or Approvals. The
execution, delivery and performance by Contributor and FirstMark of
this Agreement does not conflict with, result in a breach of or cause a
default under, with or without the giving of notice or the passage of
time, or both, or require any consent or approval of any party pursuant
to, the certificate of incorporation of FirstMark or any material
agreement or instrument to which Contributor or FirstMark is a party or
by which either of them or any of their respective properties is bound,
nor does it conflict with or violate any Requirement of Law or require
any consent or approval of any Governmental Authority other than the
Requisite Regulatory Approvals.
(vi) DEMS Licenses; FirstMark DEMS Applications.
(A) FirstMark duly and validly holds each of
the DEMS Licenses listed on Schedule I, which are the only
licenses for DEMS granted to FirstMark or any of its
Affiliates as of the date of this Agreement. Each of the DEMS
Licenses has been validly issued, is in full force and effect,
has not been suspended, revoked, canceled, or modified in any
adverse way, is not subject to any conditions or requirements
that have not been imposed upon all such licenses generally,
and, except as set forth on Schedule 10(a)(vi) hereto, is not
subject to any pending regulatory or judicial review. To the
best knowledge of Contributor and FirstMark, other than
objections by Teledesic, there is not pending any application,
petition, objection, or other pleading with the FCC or any
court of appeals which questions the validity of or contests
any of the DEMS Licenses. To the best knowledge of Contributor
and FirstMark, no pending or threatened action or matter has
occurred that would inhibit or preclude the renewal of any
DEMS License in the ordinary course.
(B) FirstMark has, at all times, operated
the DEMS Systems in material compliance with the
Communications Act of 1934, as amended (the "Act"), the rules
of the FCC, and the terms of the DEMS Licenses. No
noncompliance with the Act, the rules of the FCC or the terms
of the DEMS Licenses has occurred with respect to the DEMS
Licenses which permits, or after notice or lapse of time or
both would permit, revocation or termination of any DEMS
License or would result in any impairment of the rights of
FirstMark with respect to the DEMS Licenses. All applications
and material reports required by the rules of the FCC have
been timely filed and all representations made in such
applications and reports are truthful and accurate in all
material respects.
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No radio equipment used in the operation of the DEMS Systems
has been modified from its manufacturers' type-accepted
specifications or causes interference to other FCC-licensed
radio station facilities. All structures that support radio
equipment used in the operation of the DEMS Systems are, and
since their construction have been, reported, registered,
marked, lighted, inspected and maintained in accordance in all
material respects with the rules of the FCC and the standards
of the Federal Aviation Administration.
(C) Schedule I includes a list of all
applications for additions to or modifications of the DEMS
Systems that are pending as of the date of this Agreement
before the FCC.
(D) Except as disclosed on Schedule
10(a)(vi) hereto, FirstMark possesses all authorizations
required by any PUC or other Governmental Authority with
jurisdiction over the DEMS Systems, including, without
limitation, certificates of public convenience and necessity,
permits necessary for the use of land or construction of
facilities, and zoning variances (collectively, the "Local
Authorizations"). A list of all Local Authorizations in effect
as of the date of this Agreement is included in Schedule I.
The Local Authorizations are in full force and effect, have
not been suspended, revoked, canceled, or modified in any
adverse way, and are not subject to any conditions or
requirements that have not been imposed upon all wireless
communications providers generally and are not subject to any
pending regulatory or judicial review. To the best knowledge
of Contributor and FirstMark, there is not pending any
application, petition, objection, or other pleading with any
state, county, or other local regulatory agency or court of
appeals which questions the validity of or contests any of the
Local Authorizations. FirstMark has at all times operated the
DEMS Systems in material compliance with all state, county,
and other local statutes and ordinances. All facilities used
in the operation of the DEMS Systems are, and since their
construction have been, in material compliance with all
applicable land use and zoning statutes and ordinances.
(E) No communications facility used in
connection with the DEMS Systems has been constructed by
FirstMark under circumstances where such construction may have
significantly affected the environment pursuant to the rules
of the FCC, without the preparation of an environmental
assessment and a prior determination by the FCC that such
construction would result in no significant environmental
effect.
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<PAGE>
(F) The FirstMark DEMS Applications are the
only applications of FirstMark or any of its Affiliates for
any DEMS license.
(vii) Subscription Contracts. Schedule 10(a)(vii)
hereto (as supplemented at the Closing by identifying all additions
thereto between the date hereof and such date) sets forth all
subscription contracts for the provision of DEMS entered into by
FirstMark. Accurate and complete copies of all contracts listed on
Schedule 10(a)(vii) have been provided to Associated.
(viii) Tangible Assets. All material tangible assets
comprising a part of the DEMS Systems are in good working order and
condition.
(ix) Intellectual Property. FirstMark has, and upon
consummation of the Contribution will have, all intellectual property
rights associated with the DEMS Systems and such intellectual property
rights do not and will not infringe upon the intellectual property
rights of any Person.
(x) No Undisclosed Assets or Liabilities. Schedule
10(a)(x) hereto sets forth all assets and liabilities of FirstMark as
of the date of this Agreement. Between the date of this Agreement and
the Closing, except as expressly permitted by this Agreement, the
Schedules and Exhibits hereto, FirstMark will not incur any liabilities
other than liabilities arising in the ordinary course of business of
the operations of the DEMS Systems that will not, individually or in
the aggregate, have a material adverse effect on the assets, business
or operations of FirstMark.
(b) Representations and Warranties of Associated. Associated
hereby represents and warrants to Contributor and FirstMark as follows:
(i) Capitalization. Schedule 10(b)(i) sets forth the
outstanding Membership Percentage and the capital account of each
Member as of the date of this Agreement. As of the date of this
Agreement, except pursuant to the Mandl Employment Agreement and under
Associated's Equity Incentive Plan, there are outstanding no securities
or other instruments convertible into, exchangeable for, or carrying
the right to acquire, any Interest, or subscriptions, warrants,
options, rights or other arrangements or commitments (other than this
Agreement) obligating Associated to issue any Interest, or any
ownership interest therein.
(ii) Corporate Organization. Associated is a limited
liability company duly organized, validly existing and in good standing
under the laws of the State of Delaware.
(iii) Corporate Power and Authority. Associated has
the requisite limited liability company power and authority to enter
into this Agreement, to
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<PAGE>
perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution, delivery and performance by
Associated of this Agreement and the consummation by Associated of the
transactions contemplated hereby have been duly authorized by all
requisite limited liability company action on the part of Associated,
and no other limited liability company proceedings on the part of
Associated or its members are necessary to authorize this Agreement and
the transactions contemplated hereby. The Original Shareholders have
irrevocably waived all rights under Section 5.1(d) of the Limited
Liability Company Agreement in connection with the transactions
contemplated by this Agreement. This Agreement has been duly executed
and delivered by Associated and constitutes the valid and binding
obligation of Associated, enforceable against Associated in accordance
with its terms.
(iv) No Violation. The execution, delivery and
performance by Associated of this Agreement does not conflict with,
result in a breach of or cause a default under, with or without the
giving of notice or the passage of time, or both, or require any
consent or approval of any party pursuant to, its operating agreement
or any material agreement or instrument to which it is a party or by
which it or any of its property is bound, nor does it conflict with or
violate any Requirement of Law or require any consent or approval of
any Governmental Authority other than the Requisite Regulatory
Approvals.
(v) Litigation. As of the date of this Agreement,
there is no litigation pending or, to Associated's knowledge,
threatened against Associated or any of its Affiliates with respect to
which there is a reasonable likelihood of a determination which would
have a material adverse effect on the ability of Associated to perform
its obligations under this Agreement. As of the date of this Agreement,
neither Associated nor any of its Affiliated is subject to any
outstanding orders, rulings, judgments or decrees which would have a
material adverse effect on the ability of Associated to perform its
obligations under this Agreement.
(vi) Acquisition of DEMS Licenses. As of the date of
this Agreement, Associated and its Affiliates have no agreement or
understanding with any Person (other than Contributor or FirstMark)
with respect to the direct or indirect purchase or sale of any DEMS
license or any Person which holds any DEMS license, and as of the date
of this Agreement, neither Associated nor any of its Affiliates is
engaged in any discussions or negotiations relating to any such
purchase or sale.
33
<PAGE>
Section 11. Miscellaneous.
(a) Further Assurances. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all reasonable efforts
to take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under any Requirement of Law to perform
its obligations hereunder and to consummate and make effective the transactions
contemplated to be consummated by such party under this Agreement. Without
limitation of the generality of the foregoing, each party hereto (i) agrees to
use all reasonable efforts to obtain, and to cooperate with the other party in
obtaining, as promptly as practicable as contemplated by this Agreement, any and
all Requisite Approvals, and (ii) agrees that it will not take any action, or
enter into any agreement, which is inconsistent with, or which would impair or
restrict in any manner, its right or ability to promptly perform its obligations
hereunder.
(b) Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the respective successors, heirs, personal
representatives and permitted assigns of the parties hereto, provided that
neither this Agreement nor any rights or obligations hereunder may be assigned
or delegated by Contributor without Associated's prior written consent. For
purposes of this Agreement the term "successor" includes, without limitation,
any Person who or which acquires in a single or series of related transactions
more than 50% of the assets, earnings or voting stock of a party.
(c) Indemnification; Joint and Several Liability of FirstMark
and Contributor Prior to Closing.
(i) From and after the Closing, Contributor shall be
liable for, and shall indemnify Associated and hold her harmless from
and against, any and all losses, claims, damages or liabilities
incurred by Associated, or to which Associated becomes subject, to the
extent that such losses, claims, damages or liabilities result from the
breach by Contributor or FirstMark of any of their respective
representations and warranties or covenants contained in this
Agreement. In addition, Contributor shall be liable for, and shall
indemnify Associated and its Affiliates (including FirstMark) and hold
them harmless from and against, any and all losses, claims, damages or
liabilities incurred by Associated or any of its Affiliates, or to
which any of them becomes subject, to the extent that such losses,
claims, damages or liabilities result from FirstMark's former status as
an Affiliate of Contributor. Payments required under this paragraph
shall be made within 30 days of Associated's request therefor.
(ii) From and after the Closing, Associated shall be
liable for, and shall indemnify Contributor and hold her harmless from
and against, any and all losses, claims, damages or liabilities
incurred by Contributor, or to which Contributor becomes subject, to
the extent that such losses, claims, damages or
34
<PAGE>
liabilities result from the breach by Associated of any of its
representations and warranties or covenants contained in this
Agreement. Payments required under this paragraph shall be made within
30 days of Contributor's request therefor.
(iii) Contributor and FirstMark shall be jointly and
severally liable for any breach by either of them prior to the Closing
of their obligations hereunder; provided that, if the Closing has
occurred, Contributor shall be solely liable for any such breach.
(d) Survival. The representations and warranties of the
parties contained herein shall survive the Closing of the transactions
contemplated hereby. The covenants and agreements contained herein to be
performed or complied with prior to the Closing (or termination of the Trust
Agreement, if applicable) shall expire at the Closing (or termination of the
Trust Agreement, if applicable). The covenants and agreements contained herein
to be performed or complied with after the Closing shall survive the Closing in
accordance with their terms without limitation as to time unless otherwise
specifically indicated. Nothing in this Section 11(d) shall limit the rights and
remedies of any party for any breach by another party of any of its
representations, warranties, covenants or other agreements under this Agreement.
(e) Entire Agreement. This Agreement (including the Exhibits
and Schedules hereto) and the other agreements and instruments which may be
entered into in connection herewith constitute the entire agreement of the
parties hereto with respect to the subject matter hereof and thereof and shall
supersede any prior expressions of intent or understanding with respect to the
transactions provided for herein and therein.
(f) Costs and Expenses. Except as otherwise provided in this
Agreement, each party agrees to bear its own expenses, fees and costs incurred
in connection with the transactions contemplated by this Agreement.
(g) Amendment. Any amendment hereto shall be effective only if
in writing and signed by each of the parties hereto.
(h) Waiver; Cumulative Rights. No provision of this Agreement
shall be deemed to have been waived by any act or knowledge of either party or
of such party's agents, officers or employees, but only by an instrument in
writing signed by such party and delivered to the other party hereto specifying
such waiver. The failure or delay of either party to require performance by the
other party of any provision hereof shall not affect its right to require
performance of such provision unless and until such performance has been waived
in writing. Each and every right hereunder is cumulative and may be exercised in
whole or in part from time to time.
(i) Notices. All notices, demands, requests, certificates or
other communications under this Agreement shall be in writing and shall be
mailed by certified
35
<PAGE>
or registered mail (return receipt requested) with charges prepaid, hand
delivered or sent by facsimile transmission or by commercial courier to the
address set forth below for each of the parties (or at such other address as
shall be specified by a party by like notice to the other party):
(i) if to Associated:
Associated Communications, L.L.C.
11 Canal Center Plaza Suite 300A
Alexandria, VA 22314
Attention: Laurence Harris, Esq.
General Counsel
Facsimile: (703) 299-4585
with copies to:
The Associated Group, Inc.
3 Bala Plaza East
Suite 502
Bala Cynwyd, PA 19004
Attention: Scott G. Bruce, Esq.
Facsimile: (610) 660-4920
and
Skadden, Arps, Slate, Meagher & Flom LLP
One Beacon Street
Boston, MA 02108
Attention: Kent A. Coit, Esq.
Facsimile: (617) 573-4822
(ii) if to Contributor or FirstMark:
Lynn Forester
c/o FirstMark Holdings, Inc.
527 Madison Avenue
New York, New York 10022
and
Lynn Forester
1185 Park Avenue
Apartment 14B
New York, New York 10128
36
<PAGE>
with copies to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Stephen Fraidin, Esq.
Facsimile: (212) 859-4000
and
Starr & Company
350 Park Avenue
New York, New York 10022
Attention: Kenneth Starr
Facsimile: (212) 759-6694
Notices shall be deemed delivered when received; provided that any notice
delivered after business hours or on a Saturday, Sunday or legal holiday at the
place of such delivery shall be deemed for purposes of computing any time period
hereunder to have been delivered on the next business day in such place of
delivery. Nothing in this Section 11(i) shall be deemed to constitute consent to
the manner and address for service of process in connection with any legal
proceeding (including litigation arising out of or in connection with this
Agreement), which service shall be effected as required by applicable law.
(j) Governing Law. This Agreement shall be governed by and
interpreted in accordance with the internal laws of the State of New York,
without reference to its conflicts of law principles.
(k) Counterparts. This Agreement may be signed in
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
(l) Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
37
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the
parties hereof on the date first above written.
ASSOCIATED COMMUNICATIONS, L.L.C.
By: /s/ Alex J. Mandl
--------------------------------------------
Name: Alex J. Mandl
Title: Chairman & CEO
FIRSTMARK COMMUNICATIONS, INC.
By: /s/ Lynn Forester
--------------------------------------------
Name: Lynn Forester
Title:President and Chief Executive Officer
/s/ Lynn Forester
--------------------------------------------
Lynn Forester
Signed and agreed upon, as to
Sections 8(h) and 8(i) only.
MICROWAVE SERVICES, INC.
By: /s/ William H. Berkman
-------------------------------
Name: William H. Berkman
Title: President
DIGITAL SERVICES CORPORATION
By: /s/ Rajendra Singh
-------------------------------
Name: Rajendra Singh
Title: President
<PAGE>
SECURITIES PURCHASE AGREEMENT
dated as of September 30, 1997
by and among
TELIGENT, L.L.C.
(the "Company"),
MICROWAVE SERVICES, INC.
("MSI"),
DIGITAL SERVICES CORPORATION
("DSC"),
and
NIPPON TELEGRAPH AND TELEPHONE CORPORATION
(the "INVESTOR")
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINED TERMS..........................................................................................1
ARTICLE II PURCHASE AND SALE TERMS...............................................................................6
Section 2.1. Purchase and Sale..............................................................................6
Section 2.2. Payment........................................................................................6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY, MSI AND DSC...........................................6
Section 3.1. Existence......................................................................................6
Section 3.2. Power and Authority............................................................................6
Section 3.3. Subsidiaries...................................................................................7
Section 3.4. No Material Adverse Change.....................................................................7
Section 3.5. Litigation.....................................................................................7
Section 3.6. Intellectual Property Rights and Government Approvals..........................................8
Section 3.7. Compliance with Law; Government and Other Approvals............................................8
Section 3.8. Ownership of Member Interests..................................................................9
Section 3.9. Brokers, etc...................................................................................9
Section 3.10. Private Sale..................................................................................9
Section 3.11. Employment Contracts, etc.; Certain Material Transactions....................................10
Section 3.12. Contracts and Commitments, etc...............................................................10
Section 3.13. Employee Benefit Plans.......................................................................11
Section 3.14. Liabilities..................................................................................12
Section 3.15. Affiliate Transactions.......................................................................12
Section 3.16. Taxes........................................................................................12
Section 3.17. Full Disclosure..............................................................................13
Section 3.18. Financial Matters............................................................................13
Section 3.19. No Other Ventures............................................................................13
Section 3.20. Investment Company Act; Public Utilities Holding Company Act, Etc............................13
Section 3.21. Insurance....................................................................................13
Section 3.22. Labor Matters................................................................................14
Section 3.23. Force Majeure................................................................................14
Section 3.24. Environmental Protection.....................................................................14
Section 3.25. Properties...................................................................................15
Section 3.26. FCC Compliance...............................................................................16
Section 3.27. No Conflict of Interest......................................................................17
Section 3.28. No Improper or Other Payments................................................................17
Section 3.29. Equity Plans.................................................................................17
Section 3.30. Use of Proceeds..............................................................................18
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IV COVENANTS OF THE COMPANY AND THE INVESTOR............................................................18
Section 4.1. Accounts and Reports..........................................................................18
Section 4.2. Insurance.....................................................................................19
Section 4.3. Taxes and Assessments.........................................................................19
Section 4.4. Maintenance of Existence......................................................................19
Section 4.5. Further Assurances............................................................................20
Section 4.6. Conduct of Business...........................................................................20
Section 4.7. Filings and Consents..........................................................................21
Section 4.8. Supplements to Disclosure Schedule; Notice and Cure...........................................21
Section 4.9. Covenant to Satisfy Conditions................................................................22
Section 4.10. Stock Option Pool............................................................................22
Section 4.11. Sale of Member Interests.....................................................................22
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE INVESTOR........................................................23
Section 5.1. Existence.....................................................................................23
Section 5.2. Power and Authority...........................................................................23
Section 5.3. Purchase for Investment; No Authorization or Consent..........................................23
Section 5.4. Financial Matters.............................................................................23
ARTICLE VI THE CLOSING AND CLOSING CONDITIONS...................................................................24
Section 6.1. First Closing.................................................................................24
Section 6.2. Second Closing................................................................................30
ARTICLE VII MISCELLANEOUS.......................................................................................34
Section 7.1. Remedies Cumulative...........................................................................34
Section 7.2. Brokerage.....................................................................................34
Section 7.3. Severability..................................................................................34
Section 7.4. Parties in Interest...........................................................................35
Section 7.5. Notices.......................................................................................35
Section 7.6. No Waiver.....................................................................................35
Section 7.7. Amendments and Waivers........................................................................35
Section 7.8. Rights of The Investor........................................................................35
Section 7.9. Survival......................................................................................35
Section 7.10. Construction; Disputes.......................................................................35
Section 7.11. Entire Understanding.........................................................................37
Section 7.12. Expenses.....................................................................................37
Section 7.13. Counterparts.................................................................................37
Section 7.14. Assignment; No Third-Party Beneficiaries.....................................................37
Section 7.15. Press Releases and Announcements.............................................................37
ARTICLE VIII TERMINATION........................................................................................38
Section 8.1. Termination...................................................................................38
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 8.2. Effect of Termination.........................................................................39
ARTICLE IX INVESTOR ASSIGNMENT..................................................................................39
Section 9.1. Assignment....................................................................................39
Section 9.2. Guaranty......................................................................................39
</TABLE>
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<PAGE>
EXHIBITS AND SCHEDULES
Exhibit 1.1 Form of Amended Operating Agreement
Exhibit 3.1 Formation
Exhibit 3.3 Subsidiaries
Exhibit 3.4 Material Adverse Change
Exhibit 3.5 Litigation
Exhibit 3.6 Intellectual Property
Exhibit 3.7 Regulatory Consents
Exhibit 3.8 Equity Owners
Exhibit 3.11 Employment Contracts
Exhibit 3.12 Contracts and Commitments
Exhibit 3.13 ERISA
Exhibit 3.14 Liabilities
Exhibit 3.15 Affiliate Transactions
Exhibit 3.22 Labor Matters
Exhibit 3.24 Environmental Protection
Exhibit 3.25 Real Property
Exhibit 3.26(a) FCC Compliance
Exhibit 3.26(c) FCC Order
Exhibit 3.27 No Conflict of Interest
Exhibit 3.29 Equity Plans
Exhibit 4.6 Conduct of Business
Exhibit 4.7(a) Required Consents
Exhibit 5.3 Investor Consents
Exhibit 6.1(b)(iv) Form of Registration Rights Agreement
Exhibit 6.1(b)(xii) Opinions of Skadden Arps, Slate, Meagher & Flom
Exhibit 6.1(b)(xiv) Form of Technical Services Agreement
Exhibit 6.1(b)(xv) Form of Bank Confirmation
Exhibit 7.5 Notices
Schedule A DEMS Licenses
iv
<PAGE>
AGREEMENT dated as of September 30, 1997, between Teligent, L.L.C., a
Delaware limited liability company (the "Company"), Microwave Services, Inc., a
Delaware corporation ("MSI"), Digital Services Corporation, a Delaware
corporation ("DSC"), and Nippon Telegraph and Telephone Company, a Japanese
corporation ("NTT" and together with any assignee thereof pursuant to Article IX
hereof, the "Investor").
PREAMBLE
The Company wishes to obtain equity financing. The Investor is willing,
on the terms contained in this Agreement, to purchase member interests of the
Company having the characteristics set forth in the Amended and Restated Limited
Liability Company Agreement of the Company, attached as Exhibit 1.1 (the
"Amended Operating Agreement"). The Company and NTT America Inc., a New York
corporation and a wholly-owned subsidiary of NTT ("NTTA") are entering into a
technical services agreement (the "Technical Services Agreement") under which
NTTA shall provide assistance to the Company on certain technical matters.
Certain capitalized terms are defined in the first Article. Exhibits are
incorporated by reference into this Agreement as though such exhibits were set
forth at the point of such reference. The neuter gender shall include the
masculine and feminine genders as appropriate.
ARTICLE I
DEFINED TERMS
The following terms, when used in this Agreement, have the following
meanings, unless the context otherwise indicates:
"Acceptable Currency" shall mean immediately available funds in United
States dollars which will be credited to the account of the Company at the bank
previously designated to the Investor in time to earn interest for the day of
the Closing.
"'33 Act" means the Securities Act of 1933, as amended, or any similar
federal law then in force.
"'34 Act" means the Securities Exchange Act of 1934, as amended, or any
similar federal law then in force.
"Affiliate" means, with respect to any specified Person, any other
Person who, directly or indirectly, through one or more intermediaries controls,
is controlled by, or is under common control with, the specified Person.
"Best Knowledge" or "Company's Best Knowledge" or "Best Knowledge of
the Company" shall mean (a) the actual knowledge of the Company's Chief
Executive Officer, Chief Operating Officer or Chief Financial Officer
(collectively, the "Senior Officers") and (b) any knowledge which any of the
Senior Officers could reasonably be expected to have obtained through the
exercise of due diligence (either conducted by such Senior Officer directly or
by
1
<PAGE>
agents of the Company acting at the direction of such Senior Officer) which
such Senior Officer would reasonably be expected to perform in his capacity as
such Senior Officer.
"Certificate of Formation" means the certificate of formation of the
Company, as originally filed with the Delaware Secretary of State together with
all amendments thereto.
"Closings" and "Closing Dates" mean the consummation of the Company's
sale and the Investor's purchase of Member Interests pursuant to this Agreement,
and the date or dates on which the same occurs or occurred, respectively. "First
Closing" and "First Closing Date" shall be determined in accordance with Section
6.1 hereof, and "Second Closing" and "Second Closing Date" shall be determined
in accordance with Section 6.2 hereof.
"Code" means the Internal Revenue Code of 1986, as amended, or any
similar federal law then in force.
"Commission" means the United States Securities and Exchange Commission
or any successor agency.
"Common Stock" shall mean Common Stock of the Company if and when the
Company is converted into a corporation.
"Company Parties" means, collectively, the Company, MSI and DSC.
"Contaminant" means any substance regulated or forming the basis of
liability under any Environmental Law, including, without limitation, any waste,
pollutant, hazardous substance, toxic substance, hazardous waste, special waste,
petroleum or petroleum-derived substance or waste, or any constituent of any
such substance or waste, or asbestos or polychlorinated biphenyls ("PCBs").
"Conversion Date" shall mean the date on which Common Stock is first
sold to the public pursuant to a Public Offering.
"Employee Benefit Plan" means any plan regulated under ERISA.
"Environmental Claim" means any claim, action, cause of action,
investigation or notice (written or oral) by any person or entity alleging
potential liability (including, without limitation, potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries, or penalties) arising
out of, based on or resulting from (a) the presence, Release, or threatened
Release of any Contaminants at any location whether or not owned or operated by
the Company, or (b) circumstances forming the basis of any violation, or alleged
violation, of any Environmental Law.
"Environmental Laws" means all federal, state and local laws, statutes,
ordinances and regulations, now or hereafter in effect, and in each case as
amended or supplemented from time to time, and any judicial or administrative
interpretation thereof, including, without limitation, any judicial or
administrative order, consent decree or judgment relating to pollution or
protection of human health or the environment, including without limitation,
laws relating to Releases or
2
<PAGE>
threatened Releases of Contaminants or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, Release, disposal, transport
or handling of Contaminants and all laws and regulations with regard to
recordkeeping, notification, disclosure and reporting requirements respecting
Contaminants.
"Equity Equivalents" has the meaning set forth in Section 4.1.
"Equity Participations" means any security or right entitling the
holder, absolutely or contingently, to participate in the revenues or equity
appreciation of the Company, including, but not limited to, options, warrants,
company appreciation rights, interests in "phantom" stock plans, restricted or
contingent stock or profits interests, stock appreciation rights or equivalents,
stock loan purchase plans, convertible debentures or stock bonus plans.
"Equity Rights" has the meaning set forth in the Amended Operating
Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974 (or
any successor legislation thereto), as amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with the Company within the meaning of
Section 414(b), (c), (m) or (o) of the Code.
"FCC License" means each of the DEMS licenses listed on Schedule A
hereto.
"First Mark Agreement" means the Agreement dated as of March 10, 1997
between the Company, First Mark Communications, Inc. and Lynn Forester.
"GAAP" means generally accepted accounting principles consistently
applied.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government (including, without limitation, the Federal Communication
Commission (or any successor thereto) (the "FCC") and each applicable public
utilities commission).
"Holder" means the Investor (or its successors or assigns) who
continues to hold a Member Interest or any successor security thereto.
"IPO Price" means the per share offering price for Common Stock stated
on the face of the final prospectus relating to the Public Offering.
"Mandl Employment Agreement" means the Employment Agreement made as of
August 19, 1996 between the Company and Alex J. Mandl, as amended from time to
time.
"Material Adverse Change" has the meaning specified in Section 3.4
hereof.
"Material Adverse Effect" has the meaning specified in Section 3.7
hereof.
3
<PAGE>
"Member Interest" means the Interest of a Member (as such terms are
defined in the Amended Operating Agreement), of the percentage designated.
"Membership Percentage" has the meaning specified in the Amended
Operating Agreement.
"Multiemployer Plan" means a multiemployer plan, as defined in Section
4001(a)(3) of ERISA, and to which the Company or any ERISA Affiliate is making,
is obligated to make, has made or been obligated to make, contributions on
behalf of participants who are or were employed by any of them.
"NTT's Per Share Price" means the quotient obtained (at the time of the
Second Closing) by dividing $60,000,000 by the number of Equity Equivalents
which represents 7.5% of the Equity Equivalents, calculated on a Pro Forma
Equity Basis.
"NTT's Price Per Percent" means the quotient obtained, from time to
time, by dividing the Investor's total investment in the Company pursuant to
this Agreement by the Investor's then-current Membership Percentage; as of the
First Closing, the Investor's Price Per Percent shall be $8,000,000 (obtained by
dividing $40,000,000 by 5).
"NTTA" means NTT America, Inc.
"Operating Agreement" means the Limited Liability Company Agreement of
the Company dated as of March 5, 1996, as amended prior to the First Closing.
"Pension Plan" means an employee pension benefit plan, as defined in
Section 3(2) of ERISA (other than a Multiemployer Plan), which is not an
individual account plan, as defined in Section 3(34) of ERISA, and which the
Company or, if a Title IV Plan, any ERISA Affiliate maintains, contributes to or
has an obligation to contribute to on behalf of participants who are or were
employed by any of them.
"Permit" means any permit, approval, authorization, license, variance
or permission required from a Governmental Authority under an applicable
Requirement of Law including, without limitation, each FCC License.
"Plan" means an employee benefit plan, as defined in Section 3(3) of
ERISA, which the Company maintains, contributes to or has an obligation to
contribute to on behalf of participants who are or were employed by the Company.
"Person" means any individual, corporation, partnership, limited
liability company or partnership, joint venture, association, governmental
entity, or any other entity.
"Pro Forma Equity Basis" means a determination of equity amounts made
on a pro forma basis, calculated as the sum of (i) Member Interests (or their
Equity Equivalents) which are actually outstanding on the date of this
Agreement, plus (ii) if the closing under the First Mark Agreement has not been
consummated on or before the date of this Agreement, the Member Interest (or its
Equity Equivalent) issued to Lynn Forester pursuant to the First Mark Agreement
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plus (iii) the Member Interests (or their Equity Equivalents) to be issued to
MSI and DSC in respect of the $60,000,000 additional capital contribution
contemplated by Section 6.1(b)(xvii) hereof plus (iv) Member Interests (or their
Equity Equivalents) issued upon the exercise of Equity Rights.
"Public Offering" means an underwritten distribution of Member
Interests (or their Equity Equivalents) pursuant to a registration statement
filed by the Company under the '33 Act in which the Company receives proceeds
(before any application thereof) of $75,000,000 or more.
"Qualified Plan" means an employee pension benefit plan, as defined in
Section 3(2) of ERISA, which is intended to be tax-qualified under Section
401(a) of the Code, and which the Company or any ERISA Affiliate maintains,
contributes to or has an obligation to contribute to on behalf of participants
who are or were employed by any of them.
"Registration Rights Agreement" means that certain Registration Rights
Agreement to be dated as of the date of the First Closing between the Company
and the Investor, in substantially the form of Exhibit 6.1(b)(iv) hereto.
"Release" means, as to any person, any release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration, in each case of any Contaminant, into the indoor or outdoor
environment or into or out of any property owned by such Person, including,
without limitation, the movement of Contaminants through or in the air, soil,
surface water, groundwater or property.
"Requirements of Law" means, as to any Person, the certificate of
incorporation and bylaws or other organizational or governing documents of such
Person, and all federal, state, local and foreign laws, rules and regulations,
including, without limitation, federal, state, local or foreign securities,
antitrust, communications, licensing, health, safety, labor and trade laws,
rules and regulations, the disclosure requirements of Environmental Laws and
ERISA and all orders, judgments, decrees or other determinations of any
Governmental Authority (including, without limitation, the FCC) or arbitrator,
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.
"Subsidiary" or "Subsidiaries" of any Person means any corporation or
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other Persons
performing similar functions are at the time directly or indirectly owned or
controlled by such Person or one or more Subsidiaries of such Person.
"Title IV Plan" means a Pension Plan, other than a Multiemployer Plan,
which is covered by Title IV of ERISA.
"Welfare Benefit Plan" means an employee welfare benefit plan, as
defined in Section 3(1) of ERISA, to which the Company maintains, contributes
to, contributed to within the six year period prior to the First Closing Date,
or has an obligation to contribute to, on behalf of its former or active
employees (or their beneficiaries).
Additional defined terms are found in the body of the following text.
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The masculine form of words includes the feminine and the neuter and
vice versa, and, unless the context otherwise requires, the singular form of
words includes the plural and vice versa. The words "herein," "hereof,"
"hereunder," and other words of similar import when used in this Agreement refer
to this Agreement as a whole, and not to any particular section or subsection.
ARTICLE II
PURCHASE AND SALE TERMS
2.1 Purchase and Sale. (a) Subject to the terms of this Agreement, at
the First Closing, the Company shall issue and sell to the Investor, and the
Investor shall purchase from the Company, a 5% Member Interest (calculated on a
Pro Forma Equity Basis) for the aggregate purchase price of $40,000,000.
(b) Subject to the terms of this Agreement, at the Second
Closing, the Company shall issue and sell to the Investor, and the Investor
shall purchase from the Company, an additional 7.5% Member Interest (or its
Equity Equivalent) (subject to adjustment as provided in Section 6.3(a))
calculated on a Pro Forma Equity Basis (together with the Member Interest
purchased by the Investor at the First Closing, the "Purchased Interest") for
the aggregate purchase price of $60,000,000.
2.2 Payment. The Investor shall pay the purchase price for the Member
Interest to be purchased by it at the First Closing and the Second Closing in
Acceptable Currency.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY, MSI AND DSC
The Company (and, to the extent expressly provided herein, MSI and DSC,
in which case such representations and warranties shall be several and not joint
and shall be deemed made solely with respect to such party) represents and
warrants to the Investor, as of the date hereof and as of the date of the First
Closing (and, to the extent expressly provided for herein, the Second Closing)
that:
3.1 Existence. The Company is a limited liability company duly formed,
validly existing and in good standing under Delaware law and has the requisite
limited liability company power and authority to conduct its business and own or
lease its properties as now conducted and owned or leased. Exhibit 3.1 is a true
copy of the Certificate of Formation, with all amendments. The Company is duly
qualified to do business in all jurisdictions in which the nature of its
properties and business requires such qualification, except where the failure to
be so qualified would not have a Material Adverse Effect.
3.2 Power and Authority. (a) (i) The Company has the requisite limited
liability company power and authority, and has taken all required action
necessary (including any
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approvals required under the Operating Agreement) to authorize, the execution
and delivery by the Company of this Agreement and the issuance and sale by the
Company of the Member Interests as herein provided and otherwise for the Company
to carry out the terms of this Agreement and all other documents, instruments,
or transactions required by this Agreement, and (ii) none of such actions will
(A) violate any provision of the Operating Agreement or (B) except as set forth
in Exhibit 4.7(a), (1) constitute or result in a breach or default by the
Company, or give rise to a right of termination on the part of any other party,
or result in the creation or imposition of any lien, claim or encumbrance on any
Company assets, under, any agreement or instrument to which the Company is a
party or by which it is bound or (2) constitute or result in a violation by the
Company of any Requirement of Law, except, in the case of clause (ii)(B)(1), for
any such breach, default or termination or any such lien, claim or encumbrance
which would not have a Material Adverse Effect.
(b) This Agreement has been duly executed and delivered by
each of MSI, DSC and the Company and (assuming the due authorization, execution
and delivery hereof by the Investor) constitutes the valid and binding
obligation of the Company enforceable against each of MSI, DSC and the Company
in accordance with its terms.
(c) The Company has all necessary licenses, permits, consents
or approvals from or by, has made all necessary filings with, and has given all
necessary notices to, each Governmental Authority having jurisdiction, to the
extent required for the conduct of the Company's business as currently
conducted, except for licenses, permits, consents or approvals or filings or
notices which can be obtained, made or given by the taking of ministerial action
with respect to which no third party action or approval is required or the
failure of which to be obtained, made or given in the aggregate does not have a
Material Adverse Effect.
3.3 Subsidiaries. Except as set forth in Exhibit 3.3, as of the date
hereof, the Company has no subsidiaries and owns no capital stock or other
securities, or rights or obligations to acquire the same, of any other entity.
3.4 No Material Adverse Change. Except as set forth in Exhibit 3.4,
since December 31, 1996, there has been no material adverse change in the
financial or other condition, properties or business operations of the Company
(a "Material Adverse Change").
3.5 Litigation. As of the date hereof, except as disclosed in Exhibit
3.5, there are no suits, proceedings or investigations pending or, to the Best
Knowledge of the Company, threatened, against or affecting the Company or, to
the Best Knowledge of the Company, an officer or member of the Company, which in
any such case is reasonably likely to have a Material Adverse Effect or
materially and adversely affect the ability of any officer or member to
participate in the affairs of the Company, or which concern in any material way
the transactions contemplated by this Agreement. The foregoing includes, without
limiting its generality, actions pending or threatened (or any basis therefor
known to the Company) involving the prior employment of such officer or such
currently contemplated prospective officer of the Company or their use, in
connection with the business of the Company, of any information or techniques
which might be alleged to be proprietary to their former employer(s).
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3.6 Intellectual Property Rights and Government Approvals. The
patents, trademarks, service marks, trade names, copyrights and rights or
licenses to use the same, and any and all applications therefor, as well as the
trade secrets and similar proprietary information, owned or held by the Company
(the "Intellectual Property Rights") are all that are required to enable the
Company to conduct its business as now conducted, except for such failures to
own or hold as, in the aggregate, would not have a Material Adverse Effect. As
of the date hereof, there is no individual Intellectual Property Right for which
the Company has paid or currently pays in excess of $5,000 per annum for the
right to use. As of the date hereof, the Company has not received any formal or
informal notice of infringement or other complaint that the Company's operations
traverse or infringe rights under patents, trademarks, service marks, trade
names, trade secrets, copyrights or licenses or any other proprietary rights of
others. As of the date hereof, the Company has no reason to believe that there
has been any such infringement. No person affiliated with the Company has
wrongfully employed, in connection with their affiliation with the Company, any
trade secrets or any confidential information or documentation proprietary to
any former employer, and, to the Company's Best Knowledge, no person affiliated
with the Company has violated any confidential relationship which such person
may have had with any third party except for any such wrongful employment or
violations as, in the aggregate would not have a Material Adverse Effect. The
Company has the right and authority to utilize the processes, systems and
techniques presently employed by it in the design, development and manufacture
of its present products and all rights to any material processes, systems and
techniques developed by any employee or consultant of the Company have been and
will be duly and validly assigned to the Company, except to the extent the
failure to have such right or authority or to obtain such assignment, in the
aggregate, would not have a Material Adverse Effect. Except as set forth in
Exhibit 3.6, as of the date hereof no royalties, honoraria or fees are or will
be payable by the Company to other persons by reason of the ownership or use by
the Company of Intellectual Property Rights. The Company has all governmental
approvals, authorizations, consents, licenses and permits necessary or required
to conduct its business except for such approvals, authorizations, consents,
licenses or permits, the failure of which to obtain, in the aggregate, would not
have a Material Adverse Effect.
3.7 Compliance with Law; Government and Other Approvals. The Company
Parties represent and warrant that each of them is in compliance with all
applicable Requirements of Law except for such non-compliance as in the
aggregate would not have a material adverse effect on the financial or other
condition, properties or business operations of the Company (a "Material Adverse
Effect"). Except as set forth in Exhibit 3.7 or as may be required by any state
"blue sky" laws, no authorization, consent, approval, license, qualification or
formal exemption from, or any filing, declaration or registration with, or
termination or expiration of any waiting periods imposed by, any court,
governmental agency, regulatory authority or political subdivision thereof, any
securities exchange or any other Person (collectively, "Consents") is required
to be made or obtained by the Company in connection with the execution, delivery
or performance by the Company of this Agreement or the consummation by the
Company of the transactions contemplated in this Agreement, except for any
Consent to be made or obtained by the Company from a Person who or which is not
a Governmental Authority and which if not so obtained or made would not, in the
aggregate, have a Material Adverse Effect; and all such material authorizations,
consents, approvals, licenses, qualifications, exemptions, filings, declarations
and
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registrations that have been obtained or made, as the case may be, are in
full force and effect and are not the subject of any pending or, to the Best
Knowledge of the Company Parties, threatened attack by appeal or direct
proceeding or otherwise.
3.8 Ownership of Member Interests. Exhibit 3.8 sets forth the owners
of the outstanding Member Interests of Company as of the date hereof; all of
such outstanding Member Interests are, and upon issuance and payment therefor in
accordance with the terms of this Agreement, the Member Interests issued to the
Investor pursuant to this Agreement will be, validly issued in compliance with
applicable law. Each of MSI and DSC hereby represent and warrant to the full
extent of the immediately preceding sentence with respect to the Member Interest
owned by it. Except as set forth in Exhibit 3.8 or as expressly provided in the
Amended Operating Agreement or this Agreement, as of the date hereof, (i) the
Company has no outstanding Equity Participation or other commitment to issue or
to acquire any Member Interest, or any securities or obligations convertible
into or exchangeable for a Member Interest, nor, except as contemplated hereby,
has it given any person any right to acquire from the Company or sell to the
Company any Member Interest; (ii) there is no agreement, restriction or
encumbrance with respect to the sale or voting of any Member Interest of the
Company (whether outstanding or issuable upon conversion or exercise of
outstanding securities) except for the offering and sale pursuant to this
Agreement and the Amended Operating Agreement; (iii) the Company has no
obligation to register under the '33 Act any of its presently outstanding
securities or any of its securities which may thereafter be issued other than as
provided in the Registration Rights Agreement, the Mandl Employment Agreement
and the First Mark Agreement; and (iv) there are no voting trusts, voting
agreements, proxies, first refusal rights, first offer rights, co-sale rights,
options, transfer restrictions or other agreements (whether written or oral)
with respect to the voting, transfer or disposition of the Member Interests to
which the Company is a party or by which it is bound, or, to the Best Knowledge
of the Company Parties, between or among any Persons other than the Company.
3.9 Brokers, etc. Other than for Bear Stearns Inc., the Company has
not dealt with any broker, finder, or other similar person in connection with
the offer or sale of the Member Interests pursuant to the transactions
contemplated by this Agreement, and the Company is not under any obligation to
pay any broker's fee, finder's fee or commission in connection with such
transactions other than to Bear Stearns Inc.
3.10 Private Sale. The Company has not, either directly or through any
agent, offered any securities to or solicited any offers to acquire any
securities from, or otherwise approached, negotiated, or communicated in respect
of any securities with, any person, and neither the Company nor anyone acting on
its behalf will take any action prior to any Closing, such that the offering,
issuance or sale of the Member Interests pursuant to this Agreement would be
subject to the registration provisions of the '33 Act. Assuming the continued
accuracy of the Investor's representations and warranties set forth in Section
5.3 hereof, the issuance of Member Interests sold hereby will be exempt from
registration under the '33 Act. The Company has complied with all federal and
state securities and blue sky laws in all issuances of its Member Interests
prior to the date hereof and has not violated any applicable law in making such
issuances of its Member Interests prior to the date hereof. Any notices required
to be filed by the Company under federal
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and state securities and blue sky laws prior to or subsequent to each Closing
shall be filed by the Company on a timely basis prior to or as so required.
3.11 Employment Contracts, etc.; Certain Material Transactions. Except
as set forth in Exhibit 3.11 hereto, as of the date hereof (i) the Company is
not a party to any employment or deferred compensation agreements providing for
compensation in excess of $40,000 per annum, (ii) the Company does not have any
bonus, incentive or profit-sharing plans, and (iii) the Company does not have
any pension, retirement or similar plans or obligations, whether funded or
unfunded, of a legally binding nature or in the nature of informal
understandings. As of the date hereof, the Company is not a party to any
collective bargaining agreement and, to the best of its knowledge, no
organizational efforts are currently being made with respect to any of their
respective employees.
3.12 Contracts and Commitments, etc. Exhibit 3.12 lists the following
contracts and other agreements to which the Company is a party as of the date
hereof:
(a) any agreement which imposes a security interest on any of
its assets, tangible or intangible;
(b) any agreement concerning confidentiality or
noncompetition (and, with respect to employees which have executed a
non-disclosure or non-competition agreement with the Company which is in
substantially the Company's standard form of such agreement previously delivered
to the Investor, a list of such employees);
(c) any agreement to which any of the members of the Company
or their Affiliates (other than the Company) are parties;
(d) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of the Company's current or former directors,
officers, or employees;
(e) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual compensation
in excess of $40,000 or for periods greater than one year or providing material
severance benefits;
(f) any agreement under which the Company has advanced or
loaned (or agreed to advance or loan) an amount to any of its directors,
officers, or employees in excess of $50,000;
(g) any agreement under which the consequences of a default
or termination could have a Material Adverse Effect; or
(h) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $25,000.
The Company has delivered to the Investor a correct and complete copy of each
written agreement listed in Exhibit 3.12 (as amended to date) and each oral
agreement referred to in
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Exhibit 3.12. With respect to each such written agreement: (A) the agreement is
legal, valid, binding, enforceable, and in full force and effect in all material
respects against the Company (assuming, for such purposes, that the agreement is
legal, valid, binding, enforceable and in full force and effect in all material
respects against each other party thereto); (B) the Company has not declared any
party in material breach or default, the Company is not in material breach or
default, and, to the Best Knowledge of the Company, no event has occurred which
with notice or lapse of time would constitute a material breach or default, or
permit termination, modification, or acceleration, under such agreement; and (C)
the Company has not advised any party to such agreement of the repudiation
thereof, and has not received from any other party thereto notice that such
other party has repudiated or intends to repudiate, any material provision of
such agreement, except in the case of (A), (B) or (C), to the extent any
illegality, invalidity, non-binding nature or unenforceability of, or any such
other actions with respect to such agreement, in the aggregate, would not have a
Material Adverse Effect.
3.13 Employee Benefit Plans. (a) Exhibit 3.13 separately identifies
all Plans. Neither the Company nor any ERISA Affiliates maintains or contributes
to, or has ever maintained or contributed to, any Title IV Plan, Multiemployer
Plan, Pension Plan (other than a Qualified Plan) or Welfare Benefit Plan that
provides retiree benefits (other than continuation coverage provided pursuant to
Section 4980B of the Code).
(b) Except as set forth on Exhibit 3.13, each Qualified Plan
has been determined by the IRS to qualify under Section 401 of the Code, and the
trusts created thereunder have been determined to be exempt from tax under the
provisions of Section 501 of the Code, and, as of the date hereof, to the Best
Knowledge of the Company, nothing has occurred which would cause the loss of
such qualification or tax-exempt status.
(c) Each Plan is in compliance with applicable provisions of
ERISA and the Code, except for any noncompliance which would not have a Material
Adverse Effect.
(d) Neither the Company nor any ERISA Affiliate, with respect
to any Qualified Plan, has failed to make any contributions or pay any amount
due as required by Section 412 of the Code or Section 302 of ERISA or the terms
of any such Qualified Plan, except for any such failures which in the aggregate
would not have a Material Adverse Effect nor, as of the date hereof, is any such
failure reasonably expected to occur. There has been no, nor is there reasonably
expected to occur any, failure to make a required contribution to a Qualified
Plan.
(e) As of the date hereof, there are no pending or threatened
claims, actions or lawsuits (other than claims for benefits in the normal
course), asserted or instituted against (i) any Plan or its assets, (ii) any
fiduciary with respect to any Plan or (iii) the Company or any ERISA Affiliate
with respect to any Plan.
(f) The Company and each ERISA Affiliate has complied with
the notice and continuation coverage requirements of Section 4980B of the Code
and the regulations thereunder, except for non-compliance which in the aggregate
would have no Material Adverse Effect.
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(g) The Company has not engaged in a prohibited transaction,
as defined in Section 4975 of the Code or Section 406 of ERISA, in connection
with any Plan, except for transactions which in the aggregate would not have a
Material Adverse Effect.
(h) Neither the Company nor any ERISA Affiliate has any
liability under any terminated "employee benefit plan", as defined in Section
3(3) of ERISA, of any related or unrelated entity, except for such liabilities
which, in the aggregate, would not have a Material Adverse Effect.
(i) As of the date hereof, there is no unfunded liability
under any Plan.
3.14 Liabilities. As of the date hereof, except as set forth on
Exhibit 3.14, the Company has no indebtedness for borrowed money that the
Company has directly or indirectly created, incurred, assumed or guaranteed, or
with respect to which the Company has otherwise become directly or indirectly
liable.
3.15 Affiliate Transactions. As of the date hereof, except as set
forth in Exhibit 3.15, (i) other than the payment of compensation to employees
of the Company, the Company is not a party to any transaction, contract or other
agreement with any Affiliate or associate (as defined in Rule 12b-2 promulgated
under the `34 Act) of the Company and (ii) the Company is not the direct or
indirect owner of an interest in any Person which is a present or potential
competitor, supplier or customer of the Company.
3.16 Taxes. (a) All material federal, state, local and foreign tax
returns, reports and statements (collectively, the "Tax Returns") required to be
filed by the Company have been filed with the appropriate governmental agencies
in all jurisdictions in which such Tax Returns, are required to be filed, all
such Tax Returns are true and correct in all material respects, and all taxes,
charges and other impositions shown to be due and payable on such Tax Returns
have been timely paid prior to the date on which any fine, penalty, interest,
late charge or loss may be added thereto for non-payment thereof, except where
contested in good faith and by appropriate proceedings if (i) adequate reserves
therefor have been established on the books of the Company in conformity with
GAAP and (ii) all such non-payments in the aggregate have no Material Adverse
Effect.
(b) Amounts have been withheld by the Company from their
respective employees for all periods in compliance in all material respects with
the tax, social security and unemployment withholding provisions of applicable
federal, state, local and foreign law and such withholdings have been or will be
timely paid to the respective Governmental Authorities.
(c) As of the date hereof, the Company has (i) not executed
or filed with the Internal Revenue Service or any other Governmental Authority
any agreement or other document extending, or having the effect of extending,
the period for assessment or collection of any charges; (ii) not agreed or been
requested to make any adjustment under Section 481(a) of the Code by reason of a
change in accounting method or otherwise; or (iii) no obligation under any
written tax sharing agreement.
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3.17 Full Disclosure. The Company represents and warrants that, to the
Company's Best Knowledge, the written information concerning the Company
provided by the Company to the Investor in connection with the Investor's
examination of the Company prior to entering into this Agreement (other than any
materials, including without limitation the Company's business plans previously
provided to the Investor, which relate to future periods, which this
representation and warranty does not address) is not, taken as a whole, untrue
or misleading in any respect which constitutes or would have a Material Adverse
Effect.
3.18 Financial Matters. (a) The consolidated balance sheet of the
Company and subsidiary as of December 31, 1996, and the related consolidated
statements of operations, members' equity and cash flows for the period March 5,
1996 (date of inception) to December 31, 1996 (the "Period") (together with the
notes thereto), certified by Ernst & Young, LLP, copies of which have been
furnished to the Investor, present fairly in all material respects the financial
position of the Company and subsidiary at December 31, 1996 and the results of
the operations of the Company and subsidiary for the Period, all in conformity
with GAAP.
(b) The Company had as of December 31, 1996 no material
obligation, contingent liability or liability for taxes, long-term leases or
unusual forward or long-term commitment which is required by GAAP to be
reflected in the balance sheet at such date referred to in subsection (a) above
or in the notes thereto and which is not so reflected.
3.19 No Other Ventures. As of the date hereof, the Company is not
engaged in any joint venture or partnership with any other person.
3.20 Investment Company Act; Public Utilities Holding Company Act,
Etc. (a) Neither the Company nor any of its controlled Affiliates is an
"Investment Company" subject to registration and regulation as an investment
company under the Investment Company Act of 1940, as amended.
(b) The Company is not subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Interstate
Commerce Act, and state public utilities code, or any other Federal or state
statute or regulation limiting its ability to incur Indebtedness
3.21 Insurance. All policies of insurance owned by or issued to the
Company, including, without limitation, policies of life, fire, theft, product
liability, public liability, property damage, other casualty, employee fidelity,
workers' compensation and employee health and welfare insurance, are in full
force and effect (except where the failure to be in full force and effect would
not have a Material Adverse Effect) and, in the good faith judgment of the
Company's Board of Directors, as of the date hereof, are of a nature and provide
such coverage as is sufficient and as is customarily carried by companies of the
size and character of the Company. As of the date hereof, the Company has not
been refused insurance for which it applied or had any policy of insurance
terminated (other than at its request).
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3.22 Labor Matters. (a) There are no strikes, work stoppages,
slowdowns or lockouts pending or threatened against or involving the Company,
other than those which in the aggregate have no Material Adverse Effect.
(b) There are no arbitrations or grievances pending against
or involving the Company, nor are there any arbitrations or grievances
threatened involving the Company, other than those which, in the aggregate, if
resolved adversely to the Company, would have no Material Adverse Effect.
(c) As of the date hereof, the Company is not a party to, and
has no obligations under, any collective bargaining agreement.
(d) There is no organizing activity involving the Company
pending or threatened by any labor union or group of employees, other than those
which in the aggregate have no Material Adverse Effect. There are no
representation proceedings pending or threatened with the National Labor
Relations Board, and no labor organization or group of employees of the Company
have made a pending demand for recognition, other than those which in the
aggregate have no Material Adverse Effect.
(e) There are no unfair labor practices charges, grievances
or complaints pending or in process or threatened by or on behalf of any
employee or group of employees of the Company, other than those which, in the
aggregate, are not reasonably likely to have a Material Adverse Effect.
(f) There are no complaints or charges against the Company
pending or threatened to be filed with any federal, state or local court,
governmental agency or arbitrator based on, arising out of, in connection with,
or otherwise relating to the employment by the Company of any individual, other
than those which in the aggregate, are not reasonably likely to have a Material
Adverse Effect.
(g) Except as set forth on Exhibit 3.22, as of the date
hereof, the Company is not a contractor or subcontractor with obligations under
any federal, state or local government contracts, nor does the Company otherwise
have a legal obligation to engage in affirmative action.
3.23 Force Majeure. Neither the business nor the properties of the
Company are currently suffering from the effects of any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance), other than those which in the aggregate
have no Material Adverse Effect.
3.24 Environmental Protection. (a) Except as set forth in Exhibit
3.24, the Company is in compliance with all applicable Environmental Laws (which
compliance includes, but is not limited to, the possession by the Company of all
permits and other governmental authorizations required under applicable
Environmental Laws, and compliance with the terms and conditions thereof), other
than such non-compliance the consequences of which in the aggregate would not
have a Material Adverse Effect. As of the date hereof, the Company has not
received any
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communication (written or oral), whether from a Governmental Authority,
citizens group, employee or otherwise, alleging that the Company is not in
such compliance.
(b) Except as set forth in Exhibit 3.24, there are no past or
present conditions, events or incidents, including, without limitation, the
Release or presence of any Contaminant, which could form the basis of any
Environmental Claim against the Company, or against any person or entity whose
liability for any Environmental Claim the Company has or may have retained or
assumed either contractually or by operation of law, which in any such case
would in the aggregate have a Material Adverse Effect. Furthermore, there is not
now on or in the property leased or operated by the Company (i) any underground
storage tanks or surface impoundments or (ii) any asbestos-containing material,
which in any such case would in the aggregate have a Material Adverse Effect.
3.25 Properties.
(a) As of the date hereof, the Company does not own any real
property.
(b) The Company owns valid leasehold interests in all other
properties and assets purported to be leased by the Company, free and clear of
all liens, except for any liens which do not have a Material Adverse Effect and
provided that such leaseholds may be subordinate to the fee interest or superior
leasehold interest or other encumbrances to which such fee interest is subject.
Each item of real property leased at the date hereof by the Company involving
annual lease payments in excess of $20,000 is listed on Exhibit 3.25, setting
forth information regarding the commencement date, termination date, renewal
options (if any) and annual base rents. Assuming each of such leases is valid
and enforceable against the other parties thereto, each of such leases is valid
and enforceable against the Company in accordance with its terms and is in full
force and effect, except for any invalidity, unenforceability or failure to be
in full force and effect which in the aggregate would not have a Material
Adverse Effect. The Company has delivered to the Investor true and complete
copies of each of such real property leases and all documents to which it is a
party or which are in its possession affecting the rights or obligations of the
Company under such leases, including, without limitation, any such
non-disturbance and recognition agreements, subordination agreements, attornment
agreements and agreements regarding the term or rental of any of such leases.
Neither the Company nor, to the knowledge of the Company, any other party to any
such lease is in default of its obligations under or has delivered or received
any written notice of default under any such lease, nor has any event occurred
with respect to the Company or, to the knowledge of the Company, any other
party, which, with the giving of notice, the passage of time or both, would
constitute a default under any such lease, except for defaults which in the
aggregate have no Material Adverse Effect.
(c) Except as set forth in Exhibit 3.25, as of the date
hereof the Company does not own or hold, and is not obligated under or a party
to, any option, right of first refusal or other contractual right to purchase,
acquire, sell, assign or dispose of any real property.
(d) To the Best Knowledge of the Company, as of the date
hereof, the improvements included within the real property leased by the Company
(collectively, "Improvements"), including, without limitation, the roofs and
structural elements thereof and the
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heating, ventilation, air conditioning, plumbing, electrical, mechanical, sewer,
waste water, storm water, paving and parking equipment, systems and facilities
included therein, are in good working order and repair, except for such defects
which, in the aggregate, would not have a Material Adverse Effect. To the Best
Knowledge of the Company, as of the date hereof, the water, gas, electrical,
steam, compressed air, telecommunication, sanitary and storm sewage lines and
systems and other similar systems serving the real property leased by the
Company are installed and operating and are sufficient to enable the real
property leased by the Company to continue to be used and operated in the manner
currently being used and operated, except for such insufficiencies which, is the
aggregate, would not have a Material Adverse Effect, and, as of the date hereof,
the Company has no knowledge of any factor or condition that could result in the
termination or material impairment of the furnishing thereof.
(e) All Permits required to have been obtained by the Company
to enable all real property leased by the Company to be lawfully occupied and
used for the purposes for which they are currently occupied and used have been
issued and are in full force and effect, other than those which in the aggregate
if not so obtained would have no Material Adverse Effect.
(f) As of the date hereof, the Company has not received any
written notice, or has any knowledge, of any pending, threatened or contemplated
condemnation proceeding affecting any real property leased by the Company or any
part thereof, or of any sale or other disposition of any real property leased by
the Company or any part thereof in lieu of the condemnation except for those
which, in the aggregate, would not have a Material Adverse Effect.
(g) As of the date hereof, no portion of any real property
leased by the Company has suffered any arterial damage by fire or other casualty
loss which has not heretofore been completely repaired and restored to its
original condition, except for such losses which, in the aggregate, would not
have a Material Adverse Effect.
3.26 FCC Compliance. (a) Except as disclosed on Exhibit 3.26(a), at
the First Closing, the Company and a wholly-owned subsidiary of the Company (the
"License Subsidiary" and, together with the Company, to the extent applicable,
the "License Companies") together will have in effect all the licenses required
to be obtained from the FCC and any applicable state public utility commission
exercising jurisdiction over the License Companies ("Applicable PUC") or their
provision of digital electronic message services ("DEMS") to the extent required
by the License Companies's operations at the Closing Date. All FCC Licenses and
any Applicable PUC licenses which were or are held by the Company Parties were
duly and validly issued and in full force and effect; all FCC Licenses and any
Applicable PUC licenses which will be held by the License Companies as of the
First Closing Date will have been duly and validly issued and in full force and
effect; and the License Companies are not, and the Company Parties were not, in
violation of any of the terms and conditions of any of the FCC Licenses and any
Applicable PUC licenses, and have fulfilled and performed all of their
respective material obligations with respect to its FCC Licenses and any
Applicable PUC licenses, and no event has occurred which allows, or after notice
or lapse of time would allow, revocation or termination thereof or result in any
other material impairment of the License Companies's rights under any of their
respective FCC Licenses
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and any Applicable PUC licenses; except with respect to any of the foregoing
as would not have a Material Adverse Effect.
(b) The Company Parties were not, and the License Companies
are not, in violation of the Communications Act of 1934, as amended, or any rule
or regulation of the FCC or any Applicable PUC, or any judgment, injunction,
order or decree of the FCC or any Applicable PUC, except for violations which
individually or in the aggregate would not have a Material Adverse Effect.
(c) The Company Parties and the License Companies represent
and warrant that, except as disclosed in Exhibit 3.26(c), there is no
outstanding adverse judgment, injunction, decree or order that has been issued
by the FCC or any Applicable PUC against any of the Company Parties or License
Companies, or any action, proceeding or investigation pending or, to the
knowledge of the Company Parties and the License Companies, threatened by the
FCC or any Applicable PUC against any of the Company Parties or License
Companies, specifically including (but not limited to) any pending or threatened
proceeding that would have the effect of revoking or restricting any of the FCC
Licenses or any Applicable PUC Licenses, except for any such judgment,
injunction, decree or order or any such action, proceeding or investigation
which individually or in the aggregate would not have a Material Adverse Effect.
(d) Except as set forth in Exhibit 3.26(a), the execution,
delivery and performance by the Company of this Agreement, compliance by the
Company with all the provisions hereof and the consummation by the Company of
the transactions contemplated hereby will not require that the Company Parties
or the License Companies obtain any consent, approval, authorization or other
order of the FCC or any Applicable PUC, violate or conflict with the
Communications Act of 1934, as amended, or the rules or regulations of the FCC
or any Applicable PUC, and will not cause any cancellation, termination,
revocation, forfeiture or material impairment of any of the FCC Licenses or any
Applicable PUC Licenses.
3.27 No Conflict of Interest. Except as disclosed on Exhibit 3.27,
none of the Company Parties or any of their respective Affiliates has or claims
to have any direct or indirect interest in any tangible or intangible property
used in the business of the Company.
3.28 No Improper or Other Payments. The Company has not made any
improper foreign payment (as defined in the Foreign Corrupt Practices Act).
3.29 Equity Plans. On the date hereof, the only agreements which have
been entered into by the Company which by its or their terms provides any
director, officer, employee, or agent of the Company, or any Affiliate of any of
the foregoing, with an Equity Participation are, together with their material
terms, set forth in Exhibit 3.29 (except to the extent a copy of such agreement,
or the form thereof in the case of award agreements under the Company's Long
Term Incentive Compensation Plan, has previously been delivered to the Investor,
in which case the only information required shall be who the recipient of the
award was, the equity interest involved and the exercise price).
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3.30 Use of Proceeds. No portion of the funds received by the Company
pursuant to the purchase of the Member Interests contemplated hereby will be
utilized to fund any distributions to the Company's Members.
ARTICLE IV
COVENANTS OF THE COMPANY AND THE INVESTOR
4.1 Accounts and Reports. (a) So long as the Investor holds the greater of (x) a
Member Interest representing not less than 3% of all the then-outstanding Member
Interests (or other equity equivalent in the event the Company is no longer
limited liability company ("Equity Equivalents")) (provided, that in connection
with any such determination, any Member Interests or their Equity Equivalents
issuable under any Equity Rights shall not be counted) or (y) 50% of the
aggregate Member Interests (or Equity Equivalents) purchased by it at the time
of such determination pursuant to this Agreement (the greater of (x) or (y)
being referred to as the "Investor Threshold Membership Percentage"), the
Company shall furnish to the Investor copies of the following certificates,
filings and reports:
(i) Annual Budgets. So long as the Investor is
entitled to nominate a member to the Company's Board of Directors, as
soon as available, and in any event no later than 60 days prior to the
end of each fiscal year, the annual budget of the Company for the
succeeding fiscal year.
(ii) Quarterly Financial Statements. As soon as
available, and in any event within 45 days after the end of each
quarter, copies of the Company's comparative statements of income and
cash flow and unaudited consolidated balance sheet as of the end of
such quarter, which shall be prepared in accordance with GAAP.
(iii) Other Information. So long as the Investor is
entitled to nominate a member to the Company's Board of Directors, upon
the reasonable request of the Investor, the Company will deliver to the
Investor other information and data, pertaining to its business,
financial and corporate affairs to the extent that such delivery will
not violate any then applicable laws and any contracts of the Company
with third persons. The Company will permit any person designated by
the Investor in writing, upon prior notice, to visit and inspect any of
the properties of the Company, including its books of account, and to
discuss its affairs, finances, and accounts with the Company's
officers, all at such reasonable times and as often as the Investor may
reasonably request.
(b) The Company's obligations under Section 4.1(a) shall
terminate with respect to the Investor upon the effectiveness of the Company's
registration statement for the Member Interests (or Equity Equivalents) under
the '34 Act.
(c) All information furnished under Section 4.1(a) is deemed
to be confidential. Each recipient of any information furnished under Section
4.1(a) shall (i) maintain the confidential nature of such information and not
disclose the same to any third party, except as required by law
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or approved in advance by the Company, and (ii) take all reasonable measures to
prevent any officer or agent of such recipient from disclosing any such
information including, without limitation, advising such party of the obligation
to keep such information confidential. In connection therewith, each recipient
of such information shall agree as a precondition to such receipt not to make
copies of any such information which the Company believes to be proprietary and
to return to the Company all copies of such information furnished by the Company
after they have completed their review of the same. The parties hereto
acknowledge and agree that the violation by any recipient of the foregoing
provisions would not be adequately compensated through money damages and hereby
agree to the Company's seeking of equitable relief, including a temporary
restraining order or permanent injunction, in the event the Company believes any
such recipient is violating the foregoing provisions. This Section 4.1(c) shall
not apply to information that (i) is generally available to the public other
than as a result of a disclosure of the Investor or an employee or agent
thereof, (ii) is in the possession of the Investor prior to its delivery by the
Company, provided that such information was not known by the Investor, after due
inquiry, to be provided in breach of any confidentiality provision, (iii) is
obtained, after the date hereof, by the Investor on a non-confidential basis
from any party not known by the Investor, after due inquiry, to be in violation
of any confidentiality agreement or (iv) is provided in accordance with Section
8.8 of the Amended Operating Agreement.
4.2 Insurance. The Company will maintain full force and effect its
insurance policies in effect as of the date hereof, except for such policies for
which the failure to keep in full force and effect would not have a Material
Adverse Effect, and a policy on the life of Alex Mandl for which the Company is
the sole beneficiary in an amount of not less than $10,000,000. This Section 4.2
shall expire and be of no further force and effect upon the First Closing.
4.3 Taxes and Assessments. The Company will pay any taxes, assessments
and governmental charges, and any liabilities thereon imposed on the Company and
outstanding and due, except for those which the Company is contesting in good
faith and by appropriate proceedings if (i) adequate reserves have been
established on the books of the Company in conformity with GAAP and (ii) all
such non-payments, in the aggregate, have no Material Adverse Effect. The
Company will pay and discharge in a timely manner all taxes, assessments and
governmental charges upon or against the Company, or any of its properties, and
all other material liabilities at any time existing, except to the extent and so
long as (a) the same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any Material Adverse Effect and (b)
the Company shall have set aside on its books adequate reserves with respect
thereto. This Section 4.3 shall expire and be of no further force and effect
upon the First Closing.
4.4 Maintenance of Existence. The Company will preserve, renew and
keep in full force and effect, its limited liability company existence,
qualification in requisite jurisdictions and rights and privileges necessary or
desirable in the normal conduct of its business; provided, that the Company
shall be permitted to convert to a corporate form pursuant to the express
provisions of the Amended Operating Agreement (the "Incorporation Merger"). This
Section 4.4 shall expire and be of no further force and effect upon the First
Closing.
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4.5 Further Assurances. Subject to the terms and conditions provided
herein, each of the parties agrees to use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done as promptly as
practicable, all things necessary, proper or advisable under applicable laws and
regulations or otherwise to consummate and make effective the transactions
contemplated by this Agreement. The Company will cure promptly any defects in
the creation and issuance of the Member Interests (or Equity Equivalents) to be
purchased by the Investor at any Closing hereunder, and the Company and the
Investor will cure promptly any defects in the execution and delivery of this
Agreement. The Company, at its expense, will promptly execute and deliver to the
Investor, and the Investor will, at its expense, promptly execute and deliver to
the Company, upon the other's request, all such other and further documents,
agreements and instruments in compliance with or pursuant to its covenants and
agreements herein, and will make any recordings, file any notices, and obtain
any consents as may be necessary or appropriate in connection therewith.
4.6 Conduct of Business. Except (i) as expressly contemplated by this
Agreement, (ii) as set forth in Exhibit 4.6 or (iii) as consented to by
Purchaser in writing, from and after the date of this Agreement and until the
First Closing Date, the Company:
(a) shall use reasonable efforts consistent with good
business judgment to: (i) preserve intact the present business organization of
the Company, (ii) keep available the services of those employees of the Company
having management responsibilities, (iii) maintain in full force and effect
without any amendment, termination, waiver, disposal or lapse all Permits of the
Company Parties and the License Companies, including any FCC Licenses, other
than such Permits, the failure of which to keep in full force and effect without
any termination, waiver, disposal or lapse would not have a Material Adverse
Effect, (iv) preserve the present relationships of the Company with entities or
persons having business dealings with them and (v) enter into agreements with
each of the Company's managers, officers and key employees to the effect that
all proprietary information and inventions developed by such persons are the
property solely of the Company, and assigning all right, title and interest any
of them may have to the Company;
(b) shall operate in the ordinary course of business;
(c) shall not
(i) directly or indirectly purchase, redeem or
otherwise acquire or dispose of any Member Interests or other
securities of the Company (i) for cash (other than with respect to
redemptions under the CARS Plan with respect to Persons who are
employees of the Company who are not of the level of Vice President or
above), and (ii) other than pursuant to the CARS Plan and the Mandl
Employment Agreement;
(ii) except as specifically required (as opposed to
permitted) under the Operating Agreement, declare, set aside or pay, or
commit to pay, any distribution on the Member Interests; or
(iii) agree to do any of the foregoing;
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(d) shall not add to or modify in any material respect any of
the Plans other than for (i) contributions in accordance with the normal
practices of the Company, (ii) the extension of coverage to any other employees
who become eligible in accordance with the terms thereof or (iii) amendments or
modifications reasonably necessary in order to comply with applicable law; and
(e) shall not undertake acts which would constitute a
prohibited transaction under ERISA, or fail to fund employee benefits to the
extent required by law or contract.
4.7 Filings and Consents. (a) As soon as practicable after execution
and delivery of this Agreement, the Investor and the Company shall make all
filings required under the Hart Scott Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), relating to the transactions contemplated hereby. In
addition, the Investor and the Company will each furnish all information as may
be required by the Japan Ministry of Finance or by the Federal Trade Commission
and the Department of Justice under the HSR Act in order for the requisite
approvals for the purchase and sale of the Member Interests, and the
transactions contemplated hereby, to be obtained or any applicable waiting
periods to expire. Each of the parties hereto will cooperate with each other
with respect to obtaining, as promptly as practicable, all necessary consents,
approvals, authorizations and agreements of, and the giving of all notices and
making of all other filings with, any third parties, including (i) Governmental
Authorities, necessary to authorize, approve or permit the consummation of the
transactions contemplated hereby and (ii) those set forth in Exhibit 4.7(a)
hereto.
(b) The Investor and the Company will provide such
information and communications to the Persons requiring such approvals,
authorizations and consents as reasonably required by such Person.
(c) The Company and its Members will use all reasonable
efforts to consummate the DTS Systems Transfers (as such term is defined in and
pursuant to the terms of the Operating Agreement).
4.8 Supplements to Disclosure Schedule; Notice and Cure. (a) From time
to time prior to the First Closing, the Company and the Investor will promptly
supplement or amend the Exhibits relating to their respective representations
and warranties in this Agreement with respect to any matter, condition or
occurrence hereafter arising which, if existing or occurring as the date of this
Agreement, would have been required to be set forth or described in their
respective Exhibits or would otherwise have given rise to a breach of any
representations or warranties herein. No supplement or amendment by either party
shall be deemed to cure (or affect the rights of any party with respect to) any
breach of any representation or warranty made in this Agreement or have any
effect for the purpose of determining satisfaction of the conditions set forth
in Article VI hereof or the compliance by the Company or the Investor with the
covenants set forth in this Article IV.
(b) From the date hereof until the Second Closing, each of
the Investor and the Company shall inform the other in writing of, and
contemporaneously with such notice will provide to the other reasonable details
(and other information reasonably requested) concerning,
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any event, transaction or circumstance occurring after the date hereof that
causes any of its covenants or agreements under this Agreement to be breached.
4.9 Covenant to Satisfy Conditions. Each party agrees to use all
reasonable efforts to insure that the conditions to the other party's
obligations hereunder set forth in Article VI, insofar as such matters are
within the control of such party, are satisfied.
4.10 Stock Option Pool. The Company will not from and after the date
hereof until the First Closing Date (i) authorize a pool of Equity
Participations to be granted or awarded to the Company's employees or directors
in excess of the pool provided for as of the date of this Agreement under the
CARS Plan (as hereinafter defined), and (ii) authorize the creation of any other
plan to provide incentive awards or other grants to employees or directors of
any form of equity or other securities of the Company. Until the occurrence of a
public distribution of the class of Member Interests (or Equity Equivalents)
issuable pursuant to the cancellation of Appreciation Units (as such term is
defined in the CARS Plan), so long as the Investor holds the Threshold
Membership Percentage, the Company will, as contemplated by Section 6 of the
form of award agreement under the CARS Plan previously delivered to the
Investor, require each person to whom such Membership Interests (or Equity
Equivalents) are to be issued pursuant to the cancellation of any such
Appreciation Units, as a pre-condition to such issuance, to execute an agreement
providing that such Member Interests (or Equity Equivalents) shall not be
transferable prior to the occurrence of such a public distribution.
4.11 Sale of Member Interests. From and after the date hereof until
the Second Closing, except as provided in the Mandl Employment Agreement and
except for issuances pursuant to the Company's Long Term Incentive Compensation
Plan dated November 26, 1996 (the "CARS Plan") and, in the event that the
closing under the First Mark Agreement has not occurred on or prior to the date
of this Agreement, as provided in the First Mark Agreement, the Company shall
not issue or sell, or commit to issue or sell, any Member Interests (or their
Equity Equivalents) or other securities of the Company, any options, warrants or
commitments or rights of any kind with respect thereto or any convertible or
exchangeable securities (provided, that the Company may issue or sell Member
Interests in connection with a private sale not requiring registration under the
`33 Act, so long as the price for a 1% Member Interest or its Equity Equivalent
in such sale, as relevant, is greater than or equal to NTT's Price Per Percent
or its Equity Equivalent, as relevant, subject to the Investor's rights under
Section 5.1(c) of the Amended Operating Agreement). This Section 4.11 shall not
apply to or restrict in any way any issuance or sale, or commitment to issue or
sell, any Member Interests (or their Equity Equivalent) pursuant to a public
offering registered under the Securities Act which results in the Member
Interests (or their Equity Equivalents) becoming registered under the Securities
Act of 1934, as amended.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor represents and warrants to the Company, as of the date
hereof and as of the date of the First Closing (and, to the extent expressly
provided for herein, the Second Closing) that:
5.1 Existence. The Investor is a company duly organized, validly
existing and current in payment of all taxes properly payable pursuant to the
laws of the jurisdiction of its organization. The Investor has the requisite
corporate power and authority to own and operate its properties and assets and
to carry on its business as presently conducted.
5.2 Power and Authority. The Investor has the requisite corporate
power and authority and has taken all required action necessary to authorize the
execution and delivery by it of this Agreement and all other documents or
instruments required by this Agreement, and to carry out the terms of this
Agreement and of all such other documents or instruments. This Agreement has
been duly executed and delivered by the Investor and (assuming the due
authorization, execution and delivery hereof by the Company and the other
parties thereto other than the Investor) constitutes the valid and binding
obligation of the Investor, enforceable against the Investor in accordance with
its terms.
5.3 Purchase for Investment; No Authorization or Consent. The Investor
is purchasing its Member Interests for investment, for its own account and not
for the account of any Employee Benefit Plan (or if are being acquired for the
account of any such Plan, such acquisition does not involve a nonexempt
prohibited transaction within the meaning of Section 406 of ERISA or Section
4975 of the Code) and not with a view to distribution thereof, except for
transfers permitted hereunder. The Investor understands that its Member
Interests must be held indefinitely unless they are registered under the '33 Act
or an exemption from such registration becomes available, and that its Member
Interests may only be transferred as provided in this Agreement and the Amended
Operating Agreement. Except as set forth in Exhibit 5.3, no Consent is required
to be made or obtained by the Investor in connection with the execution,
delivery or performance by the Investor of this Agreement or the consummation by
the Investor of the transactions contemplated in this Agreement, except for any
Consent to be made or obtained by the Investor from a Person which is not a
Governmental Authority and which is not so obtained or made would not, in the
aggregate, prevent, in any material way, the ability of the Investor to perform
its material obligations under this Agreement.
5.4 Financial Matters. The Investor, either alone or with its
financial advisor, has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of the investment
to be made by it hereunder. The Investor represents that it is an "accredited
investor" as that term is defined in Regulation D promulgated under the '33 Act.
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ARTICLE VI
THE CLOSING AND CLOSING CONDITIONS
6.1 First Closing. (a) The purchase and sale of the Member Interests to take
place at each Closing shall be held at the offices of Morrison & Foerster LLP,
New York, New York. The First Closing shall occur on the second business day
following the satisfaction of each of the conditions set forth in Sections
6.1(b)(ix) and (x) and 6.1(c)(ix) and (x), or, such other date as the Company
and the Investor may designate (the "First Closing Date").
(b) The obligation of the Investor to purchase the Member
Interests to be purchased by it hereunder at the First Closing shall be subject
to the satisfaction of, or waiver by the Investor of, the following conditions
at and as of the First Closing:
(i) Issuance of Member Interests. Concurrently with
such purchase, the Company shall have duly issued and have amended its
books and records to reflect the purchase by the Investor of a 5%
Member Interest determined on a Pro Forma Equity Basis, all as provided
in Section 2.1.
(ii) Certificate of Officer of the Company. The
Company shall have delivered to the Investor a certificate of its chief
financial officer, or an alternative therefor reasonably satisfactory
to counsel for the Investor, dated the date of the First Closing, to
the effect that each of the conditions in this Section 6.1(b) has been
satisfied.
(iii) Amended Operating Agreement. Each of the
Company's members immediately prior to the First Closing shall have
duly authorized, executed and delivered the Amended Operating
Agreement.
(iv) Registration Rights Agreement. The Company
shall have duly authorized, executed and delivered the Registration
Rights Agreement.
(v) Representations and Warranties to be True and
Correct. The representations and warranties contained in Article III
shall be true and correct on and as of the First Closing Date with the
same effect as though such representations and warranties had been made
on and as of such date (except to the extent that any representations
and warranties of the Company specifically apply to conditions existing
at a particular date, in which case such representation and warranty
shall have been true and correct on and as of such date), except to the
extent that the aggregate of all such untrue or incorrect
representations and warranties do not have a Material Adverse Effect,
and the Company shall have certified to such effect to the Investor in
writing; provided, that solely for purposes of this Section 6.1(b)(v),
the determination of whether a representation or warranty is true and
correct shall be made without the benefit of, and as if it had not
contained, any limitation or qualification as to materiality, Material
Adverse Effect or material adverse change set forth in such
representation and warranty.
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(vi) Performance. The Company shall have performed
and complied in all respects with all agreements and covenants
contained herein required to be performed or complied with by it prior
to or at the First Closing Date, except to the extent that the
aggregate effect of such non-performances does not have a Material
Adverse Effect, and the Company shall have certified to such effect to
the Investor in writing; provided, that solely for purposes of this
Section 6.1(b)(vi), the determination of whether any agreement or
covenant has been performed and complied with shall be made without the
benefit of, and as if it had not contained, any limitation or
qualification as to materiality, Material Adverse Effect or material
adverse change set forth in such covenant.
(vii) All Proceedings to Be Satisfactory. All
limited liability company and other proceedings (including third party
consents, if any) to be taken by the Company in connection with the
transactions contemplated hereby and all documents incident thereto
shall be reasonably satisfactory in form and substance to the Investor
and its counsel, and the Investor and said counsel shall have received
all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
(viii) No Injunction or Other Action. (A) There
shall be no injunction, writ, preliminary restraining order or other
order in effect of any nature issued by a court or governmental agency
of competent jurisdiction directing that the transactions provided for
in this Agreement not be consummated in the manner provided for in this
Agreement.
(B) No action or proceeding shall have been
instituted and remain pending before a court or other
governmental body of competent jurisdiction to restrain,
prohibit or otherwise challenge the transactions contemplated
by this Agreement (or seeking substantial damages from the
Investor or the Company as a result thereof), other than any
such action or proceeding which was instituted prior to the
date of this Agreement of which the Investor was aware at
least 15 days prior to such date or was instituted prior to,
on or after such date but which is not reasonably likely to
have a Material Adverse Effect or impair the ability of the
Company or the Investor to perform their respective
obligations hereunder.
(C) No governmental or regulatory agency or
body of competent jurisdiction shall have notified any party
to this Agreement in writing that the consummation of the
transactions contemplated hereby would constitute a violation
of the laws of the United States or the laws of the
jurisdiction to which such governmental or regulatory agency
or body is subject and that it intends to commence proceedings
to restrain consummation of such transactions, to force
divestiture if the same are consummated or to materially
modify the terms or results of such transactions, unless such
governmental or regulatory agency or body shall have withdrawn
such notice.
(ix) HSR Act. The applicable waiting period, if any,
including any extension thereof, under the HSR Act, if applicable to
the transactions contemplated by the First Closing, shall have been
terminated or shall have expired.
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(x) Japanese Governmental Consents. The Investor
shall have filed notification of its proposed purchase of the Member
Interests with the Japan Ministry of Finance ("MOF") and the waiting
period with respect thereto shall have expired without the MOF having
objected to such purchase or any such objection shall have been
withdrawn by the MOF.
(xi) Consents. Each of the Consents identified in
Exhibit 4.7(a) shall, if required, have been obtained and, if the
Consent referred to in item 4 of such Exhibit is required, such Consent
shall have been obtained and shall not be subject to any conditions
adverse to the Investor that are not: (a) generally imposed by the FCC
in connection with all or virtually all such consents, (b) previously
imposed on the Licenses currently held by the Company Parties or the
License Companies prior to any requirement for such Consent, or (c) for
conditions not covered by clauses (a) or (b), reasonably acceptable to
the Investor.
(xii) Opinion. The Investor shall have received the
opinions of (A) Skadden, Arps, Slate, Meagher & Flom in substantially
the forms attached hereto as Exhibit 6.1(b)(xii) and (B) counsel to the
Company regarding the Applicable PUC licenses in the states in which
the License Companies are operating at the time of the First Closing,
which the Company shall use its reasonable best efforts to obtain and
which shall be reasonably satisfactory to the Investor, except that the
failure of the Company to obtain such opinion in any state or states in
which, either individually or in the aggregate, the Company does not
conduct a material portion of its operations at the time of the First
Closing, shall not be deemed to constitute a failure to satisfy this
condition.
(xiii) Material Adverse Change. There shall not have
occurred a Material Adverse Change with respect to the Company since
the date of this Agreement.
(xiv) Technical Services Agreement. The Company
shall have duly executed and delivered the Technical Services
Agreement, in substantially the form attached hereto as Exhibit
6.1(b)(xiv) prior to October 15, 1997, and, assuming the valid
execution and delivery thereof by NCCA, the same shall be in full force
and effect on the date of the First Closing.
(xv) Bank Confirmation. The Toronto-Dominion Bank
("TD") shall have provided the Company with a letter in substantially
the form of Exhibit 6.1(b)(xv).
(xvi) Transfer of FCC Licenses. The DTS Systems
Transfer (as such term is defined in the Amended Operating Agreement)
shall have occurred in all material respects as provided in the Amended
Operating Agreement and the Investor shall have received evidence
thereof reasonably satisfactory to the Investor and its counsel.
(xvii) MSI and DSC Additional Contribution. MSI and
DSC shall have made additional capital contributions to the Company
under the terms of the Operating Agreement in the aggregate amount of
$60,000,000, provided, however, that such capital
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contributions may be reduced by up to $3,000,000 if Lynn Forester has
made capital contributions in the same amount.
(xviii) First Mark. The Company shall have closed
the transaction contemplated by the First Mark Agreement and shall have
issued the Member Interest to Ms. Lynn Forester contemplated thereby.
(xix) [intentionally omitted]
(xx) Supporting Documents. On or prior to the First
Closing Date, the Investor and its counsel shall have received copies
of the following supporting documents:
(A) copies of the Certificate of Formation,
certified as of a recent date by the Secretary of State of the
State of Delaware (the "Delaware Secretary");
(B) a certificate of the Delaware
Secretary, dated as of a recent date, as to the due formation
and good standing of the Company and listing all documents of
the Company on file with the Delaware Secretary;
(C) a confirmation from the Delaware
Secretary as of the close of business on the next business day
preceding the First Closing Date as to the continued good
standing of the Company; and
(D) a certificate of the Secretary or an
Assistant Secretary of the Company, dated the First Closing
Date and certifying: (1) that attached thereto is a true and
complete copy of resolutions adopted by the Board of Directors
of the Company authorizing the execution, delivery and
performance of this Agreement, the Amended Operating Agreement
and the Registration Rights Agreement, the issuance, sale and
delivery of the Member Interests to be purchased by the
Investor, and that all such resolutions are still in full
force and effect and are all the resolutions adopted in
connection with the transactions contemplated by this
Agreement; (2) that the Certificate of Formation has not been
amended since the date of the last amendment referred to in
the certificate delivered pursuant to clause (B) above; and
(3) the incumbency and specimen signature of each officer of
the Company executing this Agreement and the Registration
Rights Agreement and any certificate or instrument furnished
pursuant hereto, and a certification by another officer of the
Company as to the incumbency and signature of the officer
signing the certificate referred to in this clause (xvii);
All such documents shall be reasonably satisfactory in form
and substance to the Investor and its counsel.
(c) The obligation of the Company to sell the Member
Interests to be sold by it to the Investor at the First Closing shall be subject
to satisfaction, or waiver by the Company, of the following conditions at and as
of the First Closing:
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(i) Payment. Concurrently with such sale, the
Investor shall have made the payment to be made by it at the First
Closing pursuant to Section 2.1 hereof.
(ii) Certificate of Officer of the Investor. The
Investor shall have delivered to the Company a certificate of its chief
financial officer, or an alternative therefor reasonably satisfactory
to counsel for the Company, dated the date of the First Closing, to the
effect that each of the conditions in this Section 6.1(c) has been
satisfied.
(iii) Amended Operating Agreement. The Investor
shall have duly authorized, executed and delivered the Amended
Operating Agreement.
(iv) Registration Rights Agreement. The Investor
shall have duly authorized, executed and delivered the Registration
Rights Agreement.
(v) Representations and Warranties to be True and
Correct. The representations and warranties contained in Article V
shall be true and correct in all material respects on and as of the
First Closing Date with the same effect as though such representations
and warranties had been made on and as of such date (except to the
extent that any representations and warranties of the Investor
specifically apply to conditions existing at a particular date, in
which case such representation and warranty shall have been true and
correct in all material respects on and as of such date).
(vi) Performance. The Investor shall have performed
and complied in all material respects with all agreements and covenants
contained herein required to be performed or complied with by it prior
to or at the First Closing Date.
(vii) All Proceedings to Be Satisfactory. All
corporate and other proceedings (including third party consents, if
any) to be taken by the Investor in connection with the transactions
contemplated hereby and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Company and its
counsel, and the Company and said counsel shall have received all such
counterpart originals or certified or other copies of such documents as
they may reasonably request.
(viii) No Injunction or Other Action. (A) There
shall be no injunction, writ, preliminary restraining order or other
order in effect of any nature issued by a court or governmental agency
of competent jurisdiction directing that the transactions provided for
in this Agreement not be consummated in the manner provided for in this
Agreement.
(B) No action or proceeding shall have been
instituted and remain pending before a court or other
governmental body of competent jurisdiction to restrain,
prohibit or otherwise challenge the transactions contemplated
by this Agreement (or seeking substantial damages from the
Investor or the Company as a result thereof) other than any
such action or proceeding which was instituted prior to the
date of this Agreement of which the Investor was aware at
least 15 days prior to such date or was instituted prior to,
on or after such date but which is not
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reasonably likely to have a Material Adverse Effect or impair
the ability of the Company or the Investor to perform their
respective obligations hereunder.
(C) No governmental or regulatory agency or
body of competent jurisdiction shall have notified any party
to this Agreement in writing that the consummation of the
transactions contemplated hereby would constitute a violation
of the laws of the United States or the laws of the
jurisdiction to which such governmental or regulatory agency
or body is subject and that it intends to commence proceedings
to restrain consummation of such transactions, to force
divestiture if the same are consummated or to materially
modify the terms or results of such transactions, unless such
governmental or regulatory agency or body shall have withdrawn
such notice.
(ix) HSR Act. The waiting period, if any, including
any extension thereof, under the HSR Act, if applicable to the
transactions contemplated by the First Closing, shall have been
terminated or shall have expired.
(x) Japanese Governmental Consents. The Investor
shall have filed notification of its proposed purchase of Member
Interests with the MOF and the waiting period with respect thereto
shall have expired without the MOF having objected to such purchase or
any such objection shall have been withdrawn by the MOF.
(xi) Consents. Each of the Consents identified in
Exhibit 4.7(a) shall have been obtained.
(xii) Opinion. The Company shall have received the
opinion of counsel to the Investor in a form reasonably satisfactory to
the Company.
(xiii) Supporting Documents. On or prior to the
First Closing Date, the Company and its counsel shall have received
copies of the following supporting documents in the event that the
Investor is not NTT:
(A) copies of the Certificate of
Incorporation of the Investor, and all amendments thereto,
certified as of a recent date by the Secretary of State of the
Investor's state of organization (the "State Secretary");
(B) a certificate of the State Secretary
dated as of a recent date as to the due formation and good
standing of and listing of all documents of the Investor on
file with the State Secretary;
(C) a confirmation from the State Secretary
as of the close of business on the next business day preceding
the First Closing Date as to the continued good standing of
the Investor; and
(xiv) a certificate of the Secretary or an Assistant
Secretary of the Investor, dated the First Closing Date and certifying:
(1) that attached thereto is a true and complete copy of the
Certificate of Incorporation and By Laws (or equivalent
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organizational documents) of the Investor as in effect on the date of
such certification; (2) that attached thereto is a true and complete
copy of resolutions adopted by the Board of Directors of the Company
authorizing the execution, delivery and performance of this Agreement,
the Amended Operating Agreement and the Registration Rights Agreement,
and that all such resolutions are still in full force and effect and
are all the resolutions adopted in connection with the transactions
contemplated by this Agreement; (3) that the Certificate of
Incorporation and By Laws (or equivalent organizational documents) of
the Investor have not been amended since the date of the last amendment
referred to in the certificate delivered pursuant to clause (B) above;
and (4) the incumbency and specimen signature of each officer of the
Investor executing this Agreement, the Amended Operating Agreement and
the Registration Rights Agreement and any certificate or instrument
furnished pursuant hereto, and a certification by another officer of
the Investor as to the incumbency and signature of the officer signing
the certificate referred to in this paragraph (xiii).
6.2 Second Closing. The Second Closing shall be held at the offices of
Morrison & Foerster LLP, New York, New York. The Second Closing shall occur on
the later to occur of the date of the First Closing and the date of the
consummation of the transactions contemplated by the underwriting agreement
relating to the Public Offering.
(a) The obligation of the Investor to purchase the Common
Stock (or Member Interests if the Company remains a limited liability company at
the time of the Second Closing) to be purchased by it from the Company at the
Second Closing shall be subject to satisfaction, or waiver by the Investor, of
the following conditions:
(i) Issuance of Common Stock. Concurrently with such
purchase, in the event the Company has converted to a corporation, the
Company shall have duly issued to the Investor such number of shares of
Common Stock which would represent the Equity Equivalent of the
remaining 7.5% Member Interest determined on a Pro Forma Equity Basis,
as provided in Section 2.1; provided, however, that, notwithstanding
the foregoing, in the event that the IPO Price is less than NTT's Per
Share Price, then and in such event, the Investor shall receive such
additional number of shares of Common Stock in consideration for such
$60,000,000 such that NTT's Per Share Price equals the IPO Price. In
the event that the Company remains a limited liability company at the
time of the Second Closing, then concurrently with the Second Closing,
the Company shall issue to the Investor (and duly amend its Amended
Operating Agreement to reflect the purchase by the Investor of) a 7.5%
Member Interest determined on a Pro Forma Equity Basis, subject to the
same adjustment as provided in the immediately preceding sentence in
connection with the issuance of Common Stock.
(ii) [intentionally omitted]
(iii) No Injunction or Other Action. (A) There shall
be no injunction, writ, preliminary restraining order or other order in
effect of any nature issued by a court or governmental agency of
competent jurisdiction directing that the transactions provided
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for in this Agreement to be consummated at the Second Closing not be
consummated in the manner provided for in this Agreement.
(B) No action or proceeding shall have been
instituted and remain pending before a court or other
governmental body of competent jurisdiction to restrain,
prohibit or otherwise challenge the transactions contemplated
by this Agreement to be consummated at the Second Closing (or
seeking substantial damages from the Investor or the Company
as a result thereof) other than any such action or proceeding
which was instituted prior to the date of this Agreement of
which the Investor was aware at least 15 days prior to such
date or was instituted prior to, on or after such date but
which is not reasonably likely to have a Material Adverse
Effect or impair the ability of the Company or the Investor to
perform their respective obligations hereunder.
(C) No governmental or regulatory agency or
body of competent jurisdiction shall have notified any party
to this Agreement in writing that the consummation of the
transactions contemplated hereby to be consummated at the
Second Closing would constitute a violation of the laws of the
United States or the laws of the jurisdiction to which such
governmental or regulatory agency or body is subject and that
it intends to commence proceedings to restrain consummation of
such transactions, to force divestiture if the same are
consummated or to materially modify the terms or results of
such transactions, unless such governmental or regulatory
agency or body shall have withdrawn such notice.
(iv) Consents. Each of the Consents identified in
Exhibit 4.7(a) (to the extent applicable to the Second Closing) shall,
if required, have been obtained and, if the Consent referred to in item
4 of such Exhibit is required, such Consent shall have been obtained
and shall not be subject to any conditions adverse to the Investor that
are not: (a) generally imposed by the FCC in connection with all or
virtually all such consents, (b) previously imposed on the Licenses
currently held by the Company Parties or the License Companies prior to
any requirement for such Consent, or (c) for conditions not covered by
clauses (a) or (b), reasonably acceptable to the Investor.
(v) Opinion. The Investor shall have received the
opinion of (A) the Company's counsel in substantially the form provided
to the underwriter of the Public Offering to the extent such opinion
relates to the organization and good standing of the Company or the due
authorization and valid issuance of the Membership Interest to be
issued to the Investor at the Second Closing and (B) counsel to the
Company regarding the Applicable PUC licenses in the states in which
the License Companies are operating at the time of the Second Closing,
which the Company shall use its reasonable best efforts to obtain and
which shall be reasonably satisfactory to the Investor, except that the
failure of the Company to obtain such opinion in any state or states in
which, either individually or in the aggregate, the Company does not
conduct a material portion of its operations at the time of the Second
Closing, shall not be deemed to constitute a failure to satisfy this
condition.
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(vi) HSR Act. The applicable waiting period,
including any extension thereof, under the HSR Act shall have been
terminated or shall have expired with respect to the investment to be
made by the Investor at the Second Closing.
(vii) Supporting Documents. On or prior to the
Second Closing Date, the Investor and its counsel shall have received
copies of the following supporting documents:
(A) copies of the Certificate of Formation
of the Company (or Certificate of Incorporation if the Company
has become a corporation), and all amendments thereto,
certified as of a recent date by the Delaware Secretary;
(B) a certificate of the Delaware Secretary
dated as of a recent date as to the due formation and good
standing of the Company and listing all documents of the
Company on file with said Secretary;
(C) a confirmation from the Delaware
Secretary as of the close of business on the next business day
preceding the Second Closing Date as to the continued good
standing of the Company; and
(D) a certificate of the Secretary or an
Assistant Secretary of the Company, dated the Second Closing
Date and certifying: (1) that attached thereto is a true and
complete copy of the Amended Operating Agreement (or
Certificate of Incorporation and Bylaws if the Company has
become a corporation) of the Company as in effect on the date
of such certification; (2) that attached thereto is a true and
complete copy of resolutions adopted by the Board of Directors
of the Company authorizing the execution, delivery and
performance of this Agreement, the Amended Operating Agreement
and the Registration Rights Agreement, the issuance, sale and
delivery of the Member Interests to be purchased by the
Investor, and that all such resolutions are still in full
force and effect and are all the resolutions adopted in
connection with the transactions contemplated by this
Agreement; (3) that the Certificate of Formation of the
Company has not been amended since the date of the last
amendment referred to in the certificate delivered pursuant to
clause (B) above; and (4) the incumbency and specimen
signature of each officer of the Company executing this
Agreement, the Amended Operating Agreement and the
Registration Rights Agreement and any certificate or
instrument furnished pursuant hereto, and a certification by
another officer of the Company as to the incumbency and
signature of the officer signing the certificate referred to
in this paragraph (vi).
All such documents shall be reasonably satisfactory in form and substance to the
Investor and its counsel.
(b) The obligation of the Company to sell the Member
Interests to be sold by it to the Investor at the Second Closing shall be
subject to satisfaction, or waiver by the Company, of the following conditions
at and as of the Second Closing:
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(i) Payment. Concurrently with such sale, the
Investor shall have made the payment to be made by it at the Second
Closing pursuant to Section 2.1 hereof.
(ii) No Injunction or Other Action. (A) There shall
be no injunction, writ, preliminary restraining order or other order in
effect of any nature issued by a court or governmental agency of
competent jurisdiction directing that the transactions provided for in
this Agreement to be consummated at the Second Closing not be
consummated in the manner provided for in this Agreement.
(B) No action or proceeding shall have been
instituted and remain pending before a court or other
governmental body of competent jurisdiction to restrain,
prohibit or otherwise challenge the transactions contemplated
by this Agreement to be consummated at the Second Closing (or
seeking substantial damages from the Investor or the Company
as a result thereof) other than any such action or proceeding
which was instituted prior to the date of this Agreement of
which the Investor was aware at least 15 days prior to such
date or was instituted prior to, on or after such date but
which is not reasonably likely to have a Material Adverse
Effect or impair the ability of the Company or the Investor to
perform their respective obligations hereunder.
(C) No governmental or regulatory agency or
body of competent jurisdiction shall have notified any party
to this Agreement in writing that the consummation of the
transactions contemplated hereby to be consummated at the
Second Closing would constitute a violation of the laws of the
United States or the laws of the jurisdiction to which such
governmental or regulatory agency or body is subject and that
it intends to commence proceedings to restrain consummation of
such transactions, to force divestiture if the same are
consummated or to materially modify the terms or results of
such transactions, unless such governmental or regulatory
agency or body shall have withdrawn such notice.
(iii) Supporting Documents. On or prior to the
Second Closing Date, the Company and its counsel shall have received
copies of the following supporting documents in the event that the
Investor is not NTT:
(A) copies of the Certificate of
Incorporation of the Investor, and all amendments thereto,
certified as of a recent date by the Secretary of State of the
Investor's state of organization (the "State Secretary");
(B) a certificate of the State Secretary
dated as of a recent date as to the due formation and good
standing of and listing of all documents of the Investor on
file with the State Secretary;
(C) a confirmation from the State Secretary
as of the close of business on the next business day preceding
the Second Closing Date as to the continued good standing of
the Investor; and
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(iv) a certificate of the Secretary or an Assistant
Secretary of the Investor, dated the Second Closing Date and
certifying: (1) that attached thereto is a true and complete copy of
the Certificate of Incorporation and By Laws (or equivalent
organizational documents) of the Investor as in effect on the date of
such certification; (2) that attached thereto is a true and complete
copy of resolutions adopted by the Board of Directors of the Company
authorizing the execution, delivery and performance of this Agreement,
the Amended Operating Agreement and the Registration Rights Agreement,
and that all such resolutions are still in full force and effect and
are all the resolutions adopted in connection with the transactions
contemplated by this Agreement; (3) that the Certificate of
Incorporation and By Laws (or equivalent organizational documents) of
the Investor have not been amended since the date of the last amendment
referred to in the certificate delivered pursuant to clause (2) above;
and (4) the incumbency and specimen signature of each officer of the
Investor executing this Agreement, the Amended Operating Agreement and
the Registration Rights Agreement and any certificate or instrument
furnished pursuant hereto, and a certification by another officer of
the Investor as to the incumbency and signature of the officer signing
the certificate referred to in this paragraph (iv).
(v) Consents. Each of the Consents identified in
Exhibit 4.7(a) (to the extent applicable to the Second Closing) shall
have been obtained.
(vi) Opinion. The Company shall have received the
opinion of counsel to the Investor in a form reasonably satisfactory to
the Company.
(vii) HSR Act. The applicable waiting period,
including any extension thereof, under the HSR Act shall have been
terminated or shall have expired with respect to the investment to be
made by the Investor at the Second Closing.
ARTICLE VII
MISCELLANEOUS
7.1 Remedies Cumulative. Except as herein provided, the remedies provided herein
shall be cumulative and shall not preclude assertion by any party hereto of any
other rights or the seeking of any other remedies against the other party
hereto.
7.2 Brokerage. Each party hereto will indemnify and hold harmless the
other against and in respect of any claim for brokerage or other commission
relative to this Agreement or to the transactions contemplated hereby, based in
any way on agreements, arrangements or understandings made or claimed to have
been made by such party with any third party.
7.3 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provisions shall be
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ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
7.4 Parties in Interest. All covenants and agreements contained in
this Agreement by or on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective legal representatives, successors and permitted
assigns of the parties hereto whether so expressed or not.
7.5 Notices. Notices required under this Agreement shall be deemed to
have been adequately given if delivered in person or sent to the recipient at
its address (or telefacsimile number, as the case may be) set forth in Exhibit
7.5 (with copies to the persons specified in Exhibit 7.5 at the respective
addresses for such persons specified in such Exhibit 7.5) or such other address
as such party may from time to time designate in writing by certified mail
(return receipt requested), telefacsimile or overnight courier.
7.6 No Waiver. No failure to exercise and no delay in exercising any
right, power or privilege granted under this Agreement shall operate as a waiver
of such right, power or privilege. No single or partial exercise of any right,
power or privilege granted under this Agreement shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies provided in this Agreement are cumulative and are not
exclusive of any rights or remedies provided by law.
7.7 Amendments and Waivers. This Agreement may be modified or amended
only by a writing signed by the Company and by the Investor.
7.8 Rights of the Investor. Subject to the terms and conditions of
this Agreement, the Investor shall have the absolute right to exercise or
refrain from exercising any right or rights that such holder may have by reason
of this Agreement or its Member Interest, including without limitation the right
to consent to the waiver of any obligation of the Company under this Agreement
and to enter into an agreement with the Company for the purpose of modifying
this Agreement or any agreement effecting any such modification, and such holder
shall not incur any liability to any other holder or holders of its Member
Interest with respect to exercising or refraining from exercising any such right
or rights.
7.9 Survival. All covenants and agreements contained in this Agreement
shall survive the execution and delivery of this Agreement and, except as
provided in such covenant or agreement, the First and Second Closing. Except for
the representations and warranties contained in the first sentence of Section
3.1, subsections (a)(i), (a)(ii)(A) and (b) of Section 3.2, Section 5.1, Section
5.2, and the first two sentences of Section 5.3 and Section 5.4, all of which
shall survive forever, the respective representations and warranties of the
parties contained in this Agreement shall survive for a period of one year from
the First Closing Date. The representations and warranties contained herein
shall be unaffected by any investigation at any time made by or on behalf of a
party.
7.10 Construction; Disputes. (a) This Agreement shall be governed by
and construed in accordance with the laws of the State of New York, other than
such laws as would result in the
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application of any jurisdiction's law other than that of the State of New York.
Each party hereto expressly acknowledges each of the other parties' rights, in
the event of such party's breach of its obligations hereunder, to require the
specific performance of such party's obligations hereunder, and hereby waives
any defenses or objections to any claim or action seeking specific performance
by such party of its obligations hereunder based on the ground that there exists
an adequate remedy at law.
(b) Disputes Generally. In the event of a dispute between any
of the parties arising under this Agreement or the breach, termination or
validity thereof (a "Dispute"), the parties concerned shall attempt to settle
such Dispute amicably.
(c) Arbitration. Notwithstanding the provisions of Section
7.10(b) above, when any Dispute between the parties has not been settled
amicably within sixty (60) days of written notification by any party to the
other parties concerned of the existence of such a Dispute, the Dispute shall be
finally and conclusively settled by arbitration in accordance with the Rules of
Arbitration (the "Rules") of the International Chamber of Commerce ("ICC") in
force when such arbitration is commenced. The arbitration shall be conducted and
the award shall be rendered in both English and Japanese, and shall be held in
London unless all of the parties to the arbitration agree upon another place.
(d) Procedures. For the purpose of any arbitration
proceeding, unless MSI and DSC and the opposing parties in a Dispute, the
Company, MSI and DSC shall be treated as one Arbitration Party and the Investor
shall be treated as the other Arbitration Party. Each Arbitration Party shall
nominate an arbitrator in accordance with the Rules. The third arbitrator, who
shall be the chairman of the arbitral tribunal, shall be nominated by agreement
of the two party appointed arbitrators within thirty days of the appointment of
the second arbitrator in accordance with the Rules
(e) Binding Decision. The arbitrators' award shall be final
and binding upon the parties to the arbitration. The parties expressly agree
that the leave to appeal under Section 45 or 69 of the English Arbitration Act
1996 may not be sought with respect to any question of law arising in the course
of the arbitration or with respect to any award made. Judgment upon the award
may be entered by any court having jurisdiction thereof or having jurisdiction
over the parties or their assets. The parties shall furthermore carry out the
award without delay, provided that the parties reserve their right to seek
recourse against the award as provided in the United Nations Convention on the
Enforcement of Foreign Arbitral Awards 1958.
(f) Expenses of Arbitration. During the arbitration, the
parties shall each bear their own costs and expenses in connection with the
arbitration, subject, however, to the power of the arbitrators to decide in
their award which of the parties shall bear such costs, in addition to the
arbitrators' fees and expenses and other costs of the arbitration, or in what
proportions such costs shall be borne by the parties.
(g) Preliminary Injunctions. Notwithstanding the provisions
of Sections 7.10(b) through (g) of this Agreement, in the event any party hereto
is seeking a pre-arbitral injunction, preliminary injunction or an order in aid
of arbitration, each of the parties hereto
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agrees that jurisdiction and venue will be proper in the federal and state
courts located in New York, New York and the Tokyo District Court located in
Tokyo, Japan, and waives any objection based upon lack of personal jurisdiction
or forum non conveniens, and agrees to submit to jurisdiction in each of such
venues. The choice of forum set forth in this Section 7.10(g) shall not be
deemed to preclude the seeking of a pre-arbitral injunction, preliminary
injunction or order in aid of arbitration in any other appropriate jurisdiction.
7.11 Entire Understanding. This Agreement and the agreements to be
executed in connection therewith on the First Closing Date express the entire
understanding of the parties and supersede all prior and contemporaneous
agreements and undertakings of the parties with respect to the subject matter
hereof and thereof.
7.12 Expenses. Each party will pay all of its own expenses, including
attorney's fees incurred in connection with the negotiation of this Agreement,
the performance of its obligations hereunder and the consummation of
transactions contemplated by this Agreement.
7.13 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed to be an original but which taken together shall
constitute one agreement.
7.14 Assignment; No Third-Party Beneficiaries. (a) This Agreement and
the rights hereunder shall not be assignable or transferable by the Company
(other than pursuant to the Incorporation Merger) without the prior written
consent of the other. The Investor may assign or transfer this Agreement in
accordance with the provisions of Article IX hereof without the consent of the
Company. Subject to the preceding sentence, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties hereto and their
respective successors and permitted assigns.
(b) This Agreement is for the sole benefit of the parties
hereto and their respective successors and permitted assigns and nothing herein
expressed or implied shall give or be construed to give to any person, other
than the parties hereto and such successors and permitted assigns, any legal or
equitable rights hereunder.
7.15 Press Releases and Announcements. All press releases and
announcements concerning the investment contemplated by this Agreement shall be
mutually agreed to by the Company and the Investor, except for any such
disclosure required by law which, in the case of such disclosure by the Company,
shall, to the extent practicable under the circumstances, be first discussed
with the Investor and, in the case of such disclosure by either NTT or the
Investor, shall, to the extent practicable under the circumstances, be first
discussed with the Company. Without limiting the generality of the foregoing,
the Company and the Investor agree to issue jointly a press release in the
United States and Japan announcing the execution of this Agreement on the date
hereof. The foregoing provisions of this Section 7.15 shall not prohibit or
restrict in any way disclosure by a party with respect to this Agreement, the
Amended Operating Agreement and the Registration Rights Agreement in connection
with any financing, strategic transaction, acquisition or disposition involving
such party or any of its Affiliates, provided that such disclosure shall be
first approved by the other party, which approval shall not be unreasonably
withheld or delayed.
37
<PAGE>
ARTICLE VIII
TERMINATION
8.1 Termination. (a) This Agreement may be terminated at any time prior to the
First Closing:
(i) by mutual consent of the Investor and the
Company;
(ii) by either the Company or the Investor if the
First Closing shall not have occurred by December 31, 1997, provided
that the failure to consummate the First Closing by such Date is not a
result of either the failure by the party so electing to terminate this
Agreement to perform any of its obligations hereunder or the breach by
the party so electing of its representations and warranties; provided,
however, that such date may be extended by either party to March 31,
1998 in the event such failure to consummate is due to a governmental
intervention or failure to obtain a necessary Consent from a
Governmental Authority other than as a result of the party seeking such
extension failing to perform any of its obligations hereunder;
provided, however, that notwithstanding the foregoing proviso, in the
event of such extension to March 31, 1998, the Investor shall have the
right to conduct due diligence with respect to the Company and, in the
event it determines there shall have been a Material Adverse Change
with respect to the Company since the date of this Agreement, the
Investor shall have the right to terminate this Agreement
notwithstanding and despite of such extension; or
(iii) by either the Company or the Investor in the
event any court or governmental agency of competent jurisdiction shall
have issued an order, decree or ruling or taken any other action
restricting, enjoining or otherwise prohibiting the transaction
contemplated hereby and such order, decree, ruling or other action
shall have become final and unappealable, and the parties hereto hereby
agree to use all reasonable efforts to prevent any such order, decree,
ruling or other action from becoming final and unappealable.
(b) This Agreement may be terminated at any time after the
First Closing and prior to the Second Closing:
(i) by the Investor by notice delivered to the
Company within 30 days after the second year anniversary of the First
Closing;
(ii) by either the Investor or the Company by notice
delivered to the other party within 30 days after the third year
anniversary of the First Closing;
(iii) by mutual consent of the Investor and the
Company; or
(iv) by either the Company or the Investor in the
event any court or governmental agency of competent jurisdiction shall
have issued an order, decree or ruling or taken any other action
restricting, enjoining or otherwise prohibiting the consummation of the
Second Closing, and such order, decree, ruling or other action shall
have become
38
<PAGE>
final and unappealable, and the parties hereto hereby agree to use all
reasonable efforts to prevent any such order, decree, ruling or other
action from becoming final and unappealable.
8.2 Effect of Termination. Except for the obligations of Section
4.1(c) hereof and this Section 8.2, if this Agreement shall be terminated
pursuant to Section 8.1, all obligations, representations and warranties of the
parties hereto under this Agreement shall terminate and there shall be no
liability of any party to another party except for a party's breach of any of
its obligations, representations or warranties under this Agreement prior to
such termination; provided, however, the aggregate maximum liability any party
shall have to all other parties hereunder arising from a termination of this
Agreement as a result of such party's breach of any of its representations or
warranties under this Agreement shall be $500,000.
ARTICLE IX
INVESTOR ASSIGNMENT
9.1 Assignment. From and after the date of this Agreement, the Investor shall
have the right, with or without the consent of the Company, to assign all of its
rights and obligations under this Agreement, effecting a novation (except that
such assignment shall not relieve NTT from liability (subject to Section 8.2)
for breach of any of its representations or warranties contained herein), to a
direct or indirect wholly-owned subsidiary of the Investor (the "Assignee").
Such assignment shall become effective immediately upon notification by the
Investor to the Company of such assignment. In the event of a statutory
reorganization of the Investor by way of enactment of specific legislation in
Japan (which reorganization may involve the dissolution of the Investor and/or
the transfer of assets and liabilities of the Investor to one or more successor
entities), the Investor undertakes to ensure that all the rights and obligations
of the Investor under this Agreement and the ownership of all the Investor's
Member Interests are transferred to the said successor entity without any
dilution or adverse effect on the enforceability of such obligations. Subject to
the aforesaid, the other parties to this Agreement: (a) agree that such a
reorganization shall not constitute a default by the Investor or any successor
entity of the Investor under this Agreement and shall not constitute grounds for
termination of this Agreement by any of such parties; (b) consent to the
transfer of the rights and obligations of the Investor under this Agreement to a
successor entity as part of such reorganization; and (c) consent to the transfer
of the Investor's ownership of its Member Interests to a successor entity as
part of such reorganization.
9.2 Guaranty. In connection with any assignment provided by Section
9.1 above, the Investor shall, and effective automatically upon any such
assignment, hereby agrees to unconditionally guarantee the full and timely
performance by the Assignee of each covenant, provision and agreement to be
performed and observed by the Assignee and its successors under each of this
Agreement, the Amended Operating Agreement and the Registration Rights Agreement
(the "Guaranteed Obligations") until January 1, 1999 (the "Guarantee Period").
If the Assignee, during the Guarantee Period, shall fail to perform or observe
any of the Guaranteed Obligations, the Investor shall fully and promptly perform
such Guaranteed Obligation, but only
39
<PAGE>
during the Guaranty Period. The foregoing guaranty shall be continuing and
unconditional and enforceable directly against the Investor, but only during the
Guarantee Period, without the necessity of (i) any suit or proceeding against
the Assignee, (ii) any notice of nonperformance, nonobservance, or breach, (iii)
any notice of acceptance of such guaranty or (iv) any other notice or demand,
all of which the Investor hereby waives. The Investor's obligations under such
guaranty during the Guarantee Period will not be affected in any way by reason
of any amendment, renewal, supplement or modification of this Agreement, the
Amended Operating Agreement or the Registration Rights Agreement, and such
obligations will not be affected by any party's failure to exercise or waiver of
any of such party's rights under any of such agreements. Such guaranty will be a
primary and independent obligation of the Investor during the Guarantee Period.
In the event that any Guaranteed Obligations remain at the termination of the
Guarantee Period, the Investor will arrange for a guarantee equivalent to the
one provided in this Section 9.2 to be issued by a substitute guarantor having a
reasonable creditworthiness in light of the guarantee obligations hereunder.
40
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
TELIGENT, L.L.C.
By: /s/ Alex J. Mandl
-----------------------------------
NIPPON TELEGRAPH AND TELEPHONE
CORPORATION
By: /s/ Junichiro Miyazu
-----------------------------------
SOLELY WITH RESPECT TO SECTIONS 3.2(b),
3.7, 3.8, 3.26, and 3.27, SOLELY TO THE
EXTENT OF THE REPRESENTATIONS MADE BY
THEM IN SUCH SECTIONS:
MICROWAVE SERVICES, INC.
By: /s/ David J. Berkman
-----------------------------------
DIGITAL SERVICES CORPORATION
By: /s/ Hal B. Perkins
-----------------------------------
41
<PAGE>
Exhibit 7.5
Teligent, L.L.C. (T) (703) 299-4400
11 Canal Center Plaza (F) (703) 299-4585
Suite 300A
Arlington, VA 22314
Attn: Laurence E. Harris
with copies to
Microwave Service, Inc. (T) (610) 660-4910
3 Bala Plaza East, Suite 502 (F) (610) 660-4920
Bala Cynwyd, PA 19004
Attn: Scott G. Bruce, Esq.
Digital Services Corporation (T) (703) 706-3815
c/o Telcom Ventures, LLC (F) (703) 706-3801
211 North Union Street, Suite 300
Alexandria, VA 22314
Attn: Hal B. Perkins, Esq.
Kent A. Coit, Esq. (T) (617) 573-4835
Skadden, Arps, Slate, Meagher & Flom (F) (617) 573-4822
One Beacon Street
Boston, MA 02108
Nippon Telegraph and Telephone Corporation (T) 81-3-5353-5111
Tokyo Opera City Tower (F) 81-3-5353-5503
20-2 Nishi-Shinjuku 3-chome
Shinjuku-ku, Tokyo 163-14
JAPAN
Attn.: Mr. Osamu Inoue
with a copy to
Joseph W. Bartlett, Esq. (T) (212) 468-8240
Morrison & Foerster, LLP (F) (212) 468-7900
1290 Avenue of the Americas
New York, New York 10104
1
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of [ ] ___, 199_ by and among Teligent, L.L.C., a Delaware
limited liability company (the "Company") and ___________________ (such party
and any party to which any rights under this Agreement have been transferred, a
"Holder").
This Agreement is made pursuant to that certain Securities Purchase
Agreement, dated as of September 30, 1997 (the "Securities Purchase Agreement"),
between, among other parties, the Company and the Nippon Telegraph and Telephone
Corporation. The execution and delivery of this Agreement by the Company is a
condition to the First Closing (as such term is defined under the Securities
Purchase Agreement).
The parties hereto agree as follows:
ARTICLE I
Section 1.1. Definitions. Certain defined terms used herein and
not otherwise defined shall have the meanings for such terms as used in the
Limited Liability Company Agreement (as hereinafter defined). In addition, as
used in this Agreement, the following capitalized terms have the following
meanings:
Exchange Act shall mean the Securities Exchange Act of 1934, as
amended.
Initial Public Offering shall mean an initial Public Offering which
results in net proceeds to the Company of not less than $75,000,000.
Limited Liability Company Agreement shall mean the Amended and Restated
Limited Liability Company Agreement of the Company dated as of the date hereof,
as from time to time amended.
Managing Underwriter shall have the meaning specified in Section
2.1(e).
Public Offering shall mean a public offering and sale of equity
securities of the Company or any successors thereto, pursuant to an effective
registration statement under the Securities Act.
Registrable Securities shall mean membership interests of the Company
purchased by the Holders pursuant to the Securities Purchase Agreement or the
securities into which such membership interests have been converted upon the
conversion of the Company from a limited liability company to a "C" corporation,
together with any securities issued or issuable by the Company in respect of any
of such securities by way of a distribution or split or in connection with a
combination or subdivision of such securities of the Company, reclassification,
recapitalization, merger, consolidation or other reorganization of the Company.
<PAGE>
As to any particular Registrable Securities, such securities shall
cease to be 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 shall have been disposed of under such
registration statement, (ii) such securities shall have been transferred
pursuant to Rule 144, (iii) such securities shall 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 shall not require their registration
or qualification under the Securities Act or any similar state law then in
force, or (iv) such securities shall have ceased to be outstanding.
Registration Expenses shall mean any and all out-of-pocket expenses
incident to the Company's performance of or compliance with this Agreement,
including, without limitation, all Securities and Exchange Commission
("Commission"), stock exchange or National Association of Securities Dealers,
Inc. ("NASD") registration and filing fees, all fees and expenses of complying
with securities and blue sky laws (including the reasonable fees and
disbursements of underwriters' counsel in connection with blue sky
qualifications and NASD filings), all fees and expenses of the transfer agent
and registrar for the Registrable Securities, all printing expenses, the fees
and disbursements of counsel for the Company and of its independent public
accountants, including the expenses of any special audits and/or "cold comfort"
letters required by or incident to such performance and compliance, but
excluding underwriting discounts and commissions, the fees and disbursements of
the Holder's counsel and applicable transfer and documentary stamp taxes, if
any, which shall be borne by the seller of the securities in all cases.
Securities Act shall mean the Securities Act of 1933, as amended, or
any similar federal statute then in effect, and in reference to a particular
section thereof shall include a reference to the comparable section, if any, of
any such similar federal statute and the rules and regulations thereunder.
Underwritten Offering shall mean a Public Offering for which an
investment banking firm will enter into an underwriting agreement.
ARTICLE II
Registration Rights
Section 2.1. Demand Registrations.
(a) At any time after the sixth month anniversary of
the effectuation of an Initial Public Offering (the "Demand Date"), the
Holders shall be entitled to demand in writing that the Company effect
a registration under the Securities Act of all or part of their
Registrable Securities, specifying in the request the number and type
of Registrable Securities to be registered by the Holders and the
intended method of disposition thereof (such notice is hereinafter
referred to as a "Holder Request"). Upon receipt of such Holder
Request, the Company will give prompt written notice to all other
Holders and all other holders of the same or a substantially similar
class of securities as those held by the Holders with applicable
registration rights (such securityholders referred to herein as the
<PAGE>
"Other Holders" and such securities as the "Other Holders Securities"
and, together with the Registrable Securities, the "Securities") of
such registration request and other relevant facts involved in such
proposed registration and will, as expeditiously as possible, use its
reasonable best efforts to effect the registration under the Securities
Act of:
(i) all Registrable Securities which the Company
has been so requested to register by the Holders; and
(ii) all other Securities which the Company has been
requested to register by any other Holder thereof and by all Other
Holders, if applicable, by written request given to the Company within
30 calendar days after the giving of such written notice by the Company
(which request shall specify the intended method of disposition of such
Securities), all to the extent necessary to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the
Securities so to be registered;
provided, however, that the Company shall not be obligated to file a
registration statement relating to any Holder Request under this Section 2.1(a)
unless (A) the Company shall have received requests for such registration with
respect to at least 20% of the Registrable Securities purchased pursuant to the
Securities Purchase Agreement (the "NCC Shares") or (B) it is reasonably
anticipated that, with respect to the Registrable Securities requested to be
registered, the aggregate offering price, net of underwriters' discounts and
commissions, will be not less than $20,000,000;
provided, further, however, that the Company shall not be obligated to file and
use its reasonable best efforts to cause to become effective a registration
statement pursuant to this Section 2.1 until a period shall have elapsed from
the effective date of the most recent such previous registration statement of
the Company (the "Prior Public Offering") equal to the greater of (i) 120 days
and (ii) the shortest period of any lockup of shareholders of the Company
required by the underwriting firm which was the lead manager of the Prior Public
Offering (the "Holdback Period"); and provided, further, that if, while a
registration request is pending pursuant to this Section 2.1, the Board of
Directors of the Company makes a good faith determination that the filing or
effectiveness of a registration statement would require the public disclosure of
material information, the disclosure of which would adversely affect the
Company, the Company shall not be required to effect a registration pursuant to
this Section 2.1 until such material information is disclosed to the public or
ceases to be material; provided, however, that the foregoing delay shall in no
event exceed 120 days, and provided, further, that in such event, if requested
by the Holders of Registrable Securities representing at least 50% of the
Registrable Securities which are or were included in such registration, the
Holders will be entitled to withdraw such request, and if such request is
withdrawn, such registration will not count as one of the required registrations
under this Section 2.1. In any event, the Company will pay all Registration
Expenses in connection with any registration initiated under this Section 2.1.
(b) Notwithstanding the foregoing provisions of
Section 2.1(a), the Company shall not be obligated to effect more than
three registrations pursuant to this Section 2.1.
<PAGE>
(c) A registration requested pursuant to Section
2.1(a) will not be deemed to have been effected for purposes of this
Agreement unless it has become effective; provided, that if after such
registration has become effective, the offering of Registrable
Securities pursuant thereto is interfered with by any stop order,
injunction or other order or requirement of the Commission or other
governmental agency or court (other than any such order, injunction or
other order or requirement as would not affect any of the date of the
closing with respect to the sale of such securities, the number of such
securities to be sold or the price to be paid for such securities),
such registration will be deemed not to have been effected.
(d) The Company will pay all Registration Expenses in
connection with each of the registrations of Registrable Securities
effected by it pursuant to this Section 2.1.
(e) If a registration pursuant to this Section 2.1
involves an Underwritten Offering, the Holders of a majority of the
Registrable Securities to be included in such registration shall have
the right, with the approval of the Company (which approval shall not
be unreasonably withheld), to select the investment banker (or
investment bankers) that shall manage the Underwritten Offering
(collectively, the "Managing Underwriter").
(f) If in connection with any Underwritten Offering
pursuant to this Section 2.1, the Managing Underwriter shall advise the
Company that, in its judgment, the number of Securities (including, for
purposes of this Section 2.1, securities of the Company which the
Company has proposed to include in such offering) proposed to be
included in such offering should be limited due to market conditions,
then the Company will promptly so advise the Holders and the Other
Holders, as applicable, and Securities shall be excluded from such
offering in the following order until such limitation has been met: (i)
Other Securities requested to be registered pursuant to Section 2.1(a),
if any, shall be excluded until all of the Other Securities shall have
been so excluded, (ii) Securities which the Company has elected to
include in such offering, if any, shall be excluded until all of such
Securities have been excluded, and, (iii) thereafter, any Registrable
Securities requested to be included in such offering pursuant to
Section 2.1(a) shall be excluded pro rata, based on the respective
number of Registrable Securities as to which registration has been so
requested by each Holder.
(g) If more than 50% of the Registrable Securities
requested to be included in a registration pursuant to Section 2.1(a)
are not so included, such registration shall not count as one of the
permitted registrations under this Section 2.1.
Section 2.2. Registration.
(a) At any time after the Demand Date, the Holders
shall be entitled to demand in writing that the Company effect a
registration under the Securities Act of all or part of their
Registrable Securities on Form S-3 or any similar short-form
("Short-Form") registration statement ("Short-Form Registrations"), if
available, specifying in the request
<PAGE>
the number of Registrable Securities to be registered by the Holders
and the intended method of distribution thereof (such notice is
hereinafter referred to as an "S-3 Holder Request"); provided, that the
Company shall be obligated to effect a registration of Registrable
Securities pursuant to this Section 2.2 only if the anticipated
aggregated offering price for such Registrable Securities is in excess
of $10,000,000, provided, further, that the Company shall not be
obligated to file and use its reasonable best efforts to cause to
become effective a registration statement pursuant to this Section 2.2
until a period equal to the Holdback Period shall have elapsed from the
effective date of the Prior Public Offering; and provided, further,
that if, while a registration request is pending pursuant to this
Section 2.2, the Board of Directors of the Company makes a good faith
determination that the filing or effectiveness of a registration
statement would require the public disclosure of material information,
the disclosure of which would adversely affect the Company, the Company
shall not be required to effect a registration pursuant to this Section
2.2 until such material information is disclosed to the public or
ceases to be material; provided, however, that the foregoing delay
shall in no event exceed 120 days. The Holders of Registrable
Securities will be entitled to request an unlimited number of
Short-Form Registrations. After the Company has become subject to the
reporting requirements of the Exchange Act, the Company will use its
reasonable best efforts to make Short-Form Registrations on Form S-3
available for the sale of Registrable Securities.
(b) If, in connection with any Underwritten Offering
pursuant to Section 2.2(a), the Managing Underwriter thereof advises
the Company in writing that in its opinion the number of Securities
(including, for purposes of this Section 2.2(b), securities of the
Company which the Company has proposed to include in such offering)
proposed to be included in such offering should be limited due to
market conditions, the Company will promptly so advise the Holders and
Other Holders, as applicable, and Securities shall be excluded from
such offering in the following order until such limitation has been
met: (i) Other Securities requested to be included in such offering
pursuant to Section 2.2(c), if any, shall be excluded until all of the
Other Securities shall be so excluded, (ii) Securities that the Company
has elected to include in such offering, if any, shall be excluded
until all such Securities have been excluded, and, (iii) thereafter,
any Registrable Securities requested to be included in such offering
pursuant to Sections 2.2(a) and (c) shall be excluded pro rata, based
on the respective number of Registrable Securities as to which
registration has been so requested by each Holder.
(c) Upon receipt of any S-3 Holder Request subject to
Section 2.2(a), the Company will give prompt written notice to all
other Holders and all Other Holders and will, as expeditiously as
possible, use its reasonable best efforts to effect the registration
under the Securities Act of:
(i) all Registrable Securities which the Company
has been so requested to register by the Holders; and
(ii) all other Registrable Securities which the
Company has been requested to register by any other Holder thereof and
all Other Securities, if applicable, by
<PAGE>
written request given to the Company within 30 calendar days after the
giving of such written notice by the Company (which request shall
specify the intended method of disposition of such Securities), all to
the extent necessary to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Securities so to be
registered.
(d) If a requested registration pursuant to this
Section 2.2 involves an Underwritten Offering, the Holders representing
a majority of Registrable Securities included in such registration
shall have the right, with the approval of the Company (which approval
shall not be unreasonably withheld), to select the Managing
Underwriter.
(e) The Company will pay all Registration Expenses in
connection with registrations of Registrable Securities effected by it
pursuant to this Section 2.2.
Section 2.3. Piggyback Registrations
(a) After the Initial Public Offering, if the Company
at any time proposes to register any of its equity securities of the
same class as the Registrable Securities under the Securities Act
(other than a registration on Form S-4 or S-8 or any successor or
similar forms thereto and other than pursuant to a registration under
Section 2.1 or 2.2), whether or not for sale for its own account
(including, without limitation, pursuant to the exercise by any other
Person of any registration rights granted by the Company), on a form
and in a manner that would permit registration of Registrable
Securities held by a Holder for sale to the public under the Securities
Act, it will give written notice to all the Holders promptly of its
intention to do so, describing such securities and specifying the form
and manner and the other relevant facts involved in such proposed
registration (including, without limitation, (x) whether or not such
registration will be in connection with an Underwritten Offering of
Registrable Securities and, if so, the identity of the Managing
Underwriter and whether such offering will be pursuant to a "best
efforts" or "firm commitment" underwriting and (y) the anticipated
price range at which the Registrable Securities are reasonably expected
to be sold to the public). Upon the written request of any such Holder
delivered to the Company within 45 calendar days after the receipt of
any such notice (which request shall specify the Registrable Securities
intended to be disposed of by such Holder and the intended method of
disposition thereof), the Company will use reasonable best efforts to
effect the registration under the Securities Act of all of the
Registrable Securities that the Company has been so requested to
register; provided, however, that:
(i) If, at any time after giving such written notice
of its intention to register any securities and prior to the effective
date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to
register such securities, the Company may, at its election, give
written notice of such determination to each Holder who made a request
as hereinabove provided and thereupon the Company shall be relieved of
its obligation to register any Registrable Securities in connection
with such registration (but not from its obligation to pay the
Registration Expenses in connection therewith, subject to Section
2.3(b)), without prejudice, however,
<PAGE>
to the rights, of any Holder to request that such registration be
effected as a registration under Sections 2.1 or 2.2, upon the terms
and subject to the conditions set forth therein.
(ii) If such registration involves an Underwritten
Offering, all Holders of Registrable Securities requesting to be
included in the Company's registration must sell their Registrable
Securities to the underwriters selected by the Company on the same
terms and conditions as apply to the Company.
No registration effected under this Section 2.3 shall
relieve the Company of its obligation to effect registrations upon
request under Sections 2.1 or 2.2, upon the terms and conditions set
forth therein.
(b) The Registration Expenses incurred in connection
with up to three fully completed registrations of Registrable
Securities requested pursuant to this Section 2.3 (and for each such
registration discontinued or terminated pursuant to the provisions of
Section 2.3(a) or for which more than 50% of the Registrable Securities
for which registration has been requested are not registered pursuant
to the provisions of Section 2.3(c)) shall be paid by the Company.
(c) If a registration pursuant to this Section 2.3
involves an Underwritten Offering and the Managing Underwriter advises
the Company that, in its opinion, the number of Registrable Securities
proposed to be included in such registration should be limited due to
market conditions, then the Company may exclude Registrable Securities
requested to be included pursuant to Section 2.3(a) pro rata, based on
the respective numbers of Registrable Securities as to which
registration has been so requested by each Holder.
(d) In connection with any Underwritten Offering with
respect to which holders of Registrable Securities shall have requested
registration pursuant to this Section 2.3, the Company shall have the
right to select the Managing Underwriter with respect to the offering.
Section 2.4. Registration Procedures.
(a) If and whenever the Company is required to use
its reasonable best efforts to effect or cause the registration of any
Registrable Securities under the Securities Act as provided in Sections
2.1, 2.2 or 2.3, the Company will, as expeditiously as possible:
(i) Prepare and promptly file with the Commission a
registration statement with respect to such Registrable Securities and
use its reasonable best efforts to cause such registration statement to
become and remain effective; provided, that in the case of a
registration provided for in Sections 2.1, 2.2 or 2.3, before filing a
registration statement or prospectus or any amendments or supplements
thereof, the Company will furnish to one counsel selected by the
Holders desiring to register their Registrable Securities for sale
copies of all such documents proposed to be filed, which documents will
be subject to the right of such counsel to approve all information
contained therein
<PAGE>
with respect to the Holders (which approval shall not be unreasonably
withheld) and the reasonable opportunity of such counsel to otherwise
comment thereon; and, provided, further, that the Company may
discontinue any registration of its securities that is being effected
pursuant to Section 2.3 at any time prior to the effective date of the
registration statement relating thereto.
(ii) Prepare and file with the Commission such
amendments (including post-effective amendments) and supplements to
such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement
effective for a period as may be requested by the Holders desiring to
register their Registrable Securities for sale not exceeding 90 days
and to comply with the provisions of the Securities Act with respect to
the disposition of all Registrable Securities covered by such
registration statement during such period in accordance with the
intended methods of disposition by the Holder or Holders thereof set
forth in such registration statement.
(iii) Furnish to each Holder of Registrable
Securities covered by the registration statement and to each
underwriter, if any, of such Registrable Securities, such number of
copies of a prospectus and preliminary prospectus for delivery in
conformity with the requirements of the Securities Act, and such other
documents, as such Person may reasonably request, in order to
facilitate the public sale or other disposition of the Registrable
Securities.
(iv) Use its reasonable best efforts to register or
qualify such Registrable Securities covered by such registration
statement under such other securities or blue sky laws of such
jurisdictions as each Holder shall reasonably request, and do any and
all other acts and things which may be reasonably necessary or
advisable to enable such Holder to consummate the disposition of the
Registrable Securities owned by such Holder in such jurisdictions,
except that the Company shall not for any such purpose be required (A)
to qualify to do business as a foreign corporation in any jurisdiction
where, but for the requirements of this Section 2.4(a)(iv), it is not
then so qualified, or (B) to subject itself to taxation in any such
jurisdiction, or (C) to take any action which would subject it to
general or unlimited service of process in any such jurisdiction where
it is not then so subject.
(v) Use its reasonable best efforts to cause such
Registrable Securities covered by such registration statement to be
registered with or approved by such other governmental agencies or
authorities as may be necessary to enable the Holder or Holders thereof
to consummate the disposition of such Registrable Securities.
(vi) Immediately notify each Holder of Registrable
Securities covered by such registration statement, at any time when a
prospectus relating thereto is required to be delivered under the
Securities Act within the appropriate period mentioned in Section
2.4(a)(ii), if the Company becomes aware that the prospectus included
in such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the
<PAGE>
statements therein not misleading in the light of the circumstances
then existing, and, at the request of any such Holder, deliver a
reasonable number of copies of an amended or supplemental prospectus as
may be necessary so that, as thereafter delivered to the purchasers of
such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(vii) Otherwise use its reasonable best efforts to
comply with all applicable rules and regulations of the Commission and
make generally available to its securityholders, in each case as soon
as practicable, but not later than 45 calendar days after the close of
the period covered thereby (90 calendar days in case the period covered
corresponds to a fiscal year of the Company), an earnings statement of
the Company which will satisfy the provisions of Section 11(a) of the
Securities Act.
(viii) Use its reasonable best efforts in cooperation
with the underwriters to list such Registrable Securities on each
securities exchange as they may reasonably designate.
(ix) In the event the offering is an Underwritten
Offering, use its reasonable best efforts to obtain a "cold comfort"
letter from the independent public accountants for the Company in
customary form and covering such matters of the type customarily
covered by such letters.
(x) Execute and deliver all instruments and
documents (including in an Underwritten Offering an underwriting
agreement in customary form) and take such other actions and obtain
such certificates and opinions as are customary in an underwritten
public offering.
(b) Each Holder of Registrable Securities will, upon
receipt of any notice from the Company of the happening of any event of
the kind described in Section 2.4(a)(vi), forthwith discontinue
disposition of the Registrable Securities pursuant to the registration
statement covering such Registrable Securities until such Holder's
receipt of the copies of the supplemented or amended prospectus
contemplated by Section 2.4(a)(vi).
(c) If a registration pursuant to Sections 2.1, 2.2
or 2.3 involves an Underwritten Offering, the Company agrees, if so
required by the Managing Underwriter, not to effect any public sale or
distribution of any of its equity securities or securities convertible
into or exchangeable or exercisable for any of such equity securities
during a period of up to 180 calendar days after the effective date of
such registration, except for securities sold in such Underwritten
Offering or except in connection with an option plan, purchase plan,
savings or similar plan, or an acquisition, merger or exchange offer.
(d) If a registration pursuant to Sections 2.1, 2.2
or 2.3 involves an Underwritten Offering, each Holder of Registrable
Securities, whether or not such
<PAGE>
Holder's Registrable Securities are included in such registration,
will, if and to the extent requested by the Managing Underwriter, enter
into an agreement not to effect any public sale or distribution,
including any sale pursuant to Rule 144 under the Securities Act (but
excluding those Registrable Securities sold in such offering), of any
of the Company's equity securities owned by such Holder or securities
convertible into or exchangeable or exercisable for any such equity
securities, without the consent of the Managing Underwriter, during a
period commencing on the effective date of such registration and ending
a number of calendar days thereafter not exceeding 180 days as the
Managing Underwriter shall reasonably determine is required to effect a
successful offering.
(e) If a registration pursuant to Sections 2.1, 2.2
or 2.3 involves an Underwritten Offering, any Holder requesting that
Registrable Securities be included in such registration may elect by
notice, in writing, given a reasonable period prior to the effective
date of the registration statement filed in connection with such
registration, not to register such securities in connection with such
registration, unless such Holder has agreed with the Company or the
Managing Underwriter to limit its rights under this Section 2.4.
(f) It is understood that in any Underwritten
Offering, in addition to any Registrable Securities (the "initial
units") the underwriters have committed to purchase, the underwriting
agreement may grant the underwriters an option to purchase up to a
number of additional authorized but unissued Registrable Securities
(the "option units") equal to 15% of the initial units (or such other
maximum amount as the NASD may then permit), solely to cover
over-allotments. Registrable Securities proposed to be sold by the
Company and the Holders shall be allocated between initial units and
option units as agreed or, in the absence of agreement, pursuant to
Sections 2.1(g), 2.2(b) or 2.3(c), as the case may be. The number of
initial units and option units to be sold by requesting Holders shall
be allocated pro rata among all such Holders on the basis of the
relative number of Registrable Securities each such Holder has included
in such registration.
Section 2.5. Indemnification.
(a) In the event of any registration of any
securities of the Company under the Securities Act pursuant to Sections
2.1, 2.2 or 2.3, the Company will, and it hereby agrees to, indemnify
and hold harmless, to the extent permitted by law, each Holder of any
Registrable Securities covered by such registration statement, its
directors and officers or general and limited partners, each other
Person who participates as an underwriter in the offering or sale of
such securities and each other Person, if any, who controls such Holder
or any such underwriter within the meaning of the Securities Act, as
follows:
(i) against any and all loss, liability, claim,
damage and expense whatsoever arising out of or based upon an untrue
statement or alleged untrue statement of a material fact contained in
any registration statement (or any amendment or supplement thereto),
including all documents incorporated therein by reference, or the
<PAGE>
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading, or arising out of an untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus or
prospectus (or any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary in order to
make the statements therein not misleading;
(ii) against any and all loss, liability, claim,
damage and expense whatsoever to the extent of the aggregate amount
paid in settlement of any litigation, or investigation or proceeding by
any governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, if such settlement is
effected with the written consent of the Company; and
(iii) against any and all expense reasonably incurred
by them in connection with investigating, preparing or defending
against any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, to the
extent that any such expense is not paid under subparagraph (i) or (ii)
above;
provided, however, that this indemnity does not apply to any loss,
liability, claim, damage or expense to the extent arising out of an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of such Holder, underwriter or control person expressly
for use in the preparation of any registration statement (or any amendment
thereto) or any preliminary prospectus or prospectus (or any amendment or
supplement thereto) and provided, further, that the Company shall not be liable
to any Person who participates as an underwriter in the offering or sale of
Registrable Securities or to any other Person, if any, who controls such
underwriter with the meaning of the Securities Act, in any such case to the
extent that such loss, liability, claim, damage or expense arises out of such
Person's failure to send or give a copy of the final prospectus, as the same may
be then supplemented or amended, to the Person asserting an untrue statement or
alleged untrue statement or omission or alleged omission at or prior to the
written confirmation of the sale of Registrable Securities to such Person if
such statement or omission was corrected in the final prospectus.
(b) The Company may require, as a condition to
including any Registrable Securities in any registration statement
filed in accordance with Sections 2.1, 2.2 or 2.3, that the Company
shall have received an undertaking reasonably satisfactory to it from
the prospective seller of such Registrable Securities to indemnify and
hold harmless (in the same manner and to the same extent as set forth
in Section 2.5(a)) the Company, each director of the Company, each
officer of the Company and each other Person, if any, who controls the
Company within the meaning of the Securities Act, with respect to any
statement or alleged statement in or omission or alleged omission from
such registration statement, any preliminary, final or summary
prospectus contained therein, or any amendment or supplement, if such
statement or alleged statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished
<PAGE>
to the Company by or on behalf of such Holder specifically stating that
it is for use in the preparation of such registration statement,
preliminary, final or summary prospectus or amendment or supplement.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any such director,
officer or controlling Person and shall survive the transfer of such
securities by such Holder. In that event, the obligations of the
Company and such Holders pursuant to this Section 2.5 are to be several
and not joint; provided, however, that with respect to each claim
pursuant to this Section 2.5(b), each such Holder's liability under
this Section 2.5(b) shall be limited to an amount equal to the net
proceeds (after deducting the underwriting discount and expenses)
received by such Holder from the sale of such Registrable Securities by
such Holder.
(c) Promptly after receipt by an indemnified party
hereunder of written notice of the commencement of any action or
proceeding involving a claim referred to in this Section 2.5, such
indemnified party will, if a claim in respect thereof is to be made
against an indemnifying party, give written notice to such indemnifying
party of the commencement of such action; provided, however, that the
failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations under this
Section 2.5, except to the extent (not including any such notice of an
underwriter) that the indemnifying party is actually prejudiced by such
failure to give notice. In case any such action is brought against an
indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim (in which case
the indemnifying party shall not be liable for the fees and expenses of
more than one firm of counsel for a majority of the sellers of
Registrable Securities or more than one firm of counsel for the
underwriters in connection with any one action or separate but similar
or related actions), the indemnifying party will be entitled to
participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that it may
wish with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party for any legal or
other expenses subsequently incurred by such indemnified party in
connection with the defense thereof. No indemnified party shall consent
to the entry of any judgment or enter into any settlement of any such
action, the defense of which has been assumed by an indemnifying party
or for which an indemnifying party may have indemnification liability
hereunder without the consent of such indemnifying party.
(d) The Company and each seller of Registrable
Securities shall provide for the foregoing indemnity (with appropriate
modifications) in any underwriting agreement with respect to any
required registration or other qualification of securities under any
federal or state law or regulation of any governmental authority.
Section 2.6. Contribution. In order to provide for just and
equitable contribution in circumstances under which the indemnity contemplated
by Section 2.5 is for any reason not available, the parties required to
indemnify by the terms thereof shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by such
indemnity
<PAGE>
agreement incurred by the Company, any seller of Registrable Securities and one
or more of the underwriters, except to the extent that contribution is not
permitted under Section 11(f) of the Securities Act. In determining the amounts
which the respective parties shall contribute, there shall be considered the
relative benefits received by each party from the offering of the Registrable
Securities (taking into account the portion of the proceeds of the offering
realized by each), the parties' relative knowledge and access to information
concerning the matter with respect to which the claim was asserted, the
opportunity to correct and prevent any statement or omission and any other
equitable considerations appropriate under the circumstances. The Company and
each Holder selling securities agree with each other that no seller of
Registrable Securities shall be required to contribute any amount in excess of
the amount such seller would have been required to pay to an indemnified party
if the indemnity under Section 2.5(b) were available. The Company and each such
seller agree with each other and the underwriters of the Registrable Securities,
if requested by such underwriters, that it would not be equitable if the amount
of such contribution were determined by pro rata or per capita allocation (even
if the underwriters were treated as one entity for such purpose) or for the
underwriters' portion of such contribution to exceed the percentage that the
underwriting discount bears to the initial public offering price of the
Registrable Securities. For purposes of this Section 2.6, each Person, if any,
who controls an underwriter within the meaning of Section 15 of the Securities
Act shall have the same rights to contribution as such underwriter, and each
director and officer of the Company who signed the registration statement, and
each Person, if any, who controls the Company or a seller of Registrable
Securities within the meaning of Section 15 of the Securities Act shall have the
same rights to contribution as the Company or a seller of Registrable
Securities, as the case may be.
Section 2.7. Rule 144. If the Company shall have filed a
registration statement pursuant to the requirements of Section 12 of the
Exchange Act or a registration statement pursuant to the requirements of the
Securities Act, the Company covenants that it will file the reports required to
be filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the Commission thereunder (or, if the Company is not
required to file such reports, it will, upon the request of any Holder of
Registrable Securities, make publicly available other information), and it will
take such further action as any Holder of Registrable Securities may reasonably
request, all to the extent required from time to time to enable such Holder to
sell Registrable Securities without registration under the Securities Act within
the limitation of the exemptions provided by (i) Rule 144 under the Securities
Act, as such Rule may be amended from time to time, or (ii) any similar rule or
regulation hereafter adopted by the Commission. Upon the request of any Holder
of Registrable Securities, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
Section 2.8. Transfer of Registration Rights.
Each Holder may assign its rights under this Agreement to any
Person to whom or which they sell, transfer or assign not less than 20% of the
NCC Shares (other than sales pursuant to Rule 144); provided, that such Person
agrees in writing with the Company to be bound by this Agreement to the same
extent as the transferring Holder.
<PAGE>
ARTICLE III
Termination
Section 3.1. Termination. This Agreement shall terminate with
respect to any Holder when such Holder no longer owns any Registrable
Securities.
ARTICLE IV
Miscellaneous
Section 4.1. Successors and Assigns. Except as otherwise provided
herein, all of the terms and provisions of this Agreement shall be binding upon,
shall inure to the benefit of and shall be enforceable by and against the
respective successors and assigns of the parties hereto.
Section 4.2. Amendment and Modification; Waiver of Compliance;
Conflicts.
(a) This Agreement may be amended only by a written
instrument duly executed by the parties hereto.
(b) Except as otherwise provided in this Agreement,
any failure of any of the parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the party
entitled to the benefits thereof only by a written instrument signed by
the party granting such waiver, but such waiver or failure to insist
upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect
to, any subsequent or other failure.
Section 4.3. Notices. Any notice, request, claim, demand, document
and other communication hereunder to any party shall be effective upon receipt
(or refusal of receipt) and shall be in writing and delivered personally or sent
by telex or telecopy (with such telex or telecopy confirmed promptly in writing
sent by first class mail), or first class mail, or other similar means of
communication, as follows:
(a) If to the Company, addressed to the Company at
11 Canal Center Plaza, Suite 300A, Arlington, Virginia 22314, Attn.:
Laurence E Harris; with a copy to (i) The Associated Group, Inc., 3
Bala Plaza East, Suite 502, Bala Cynwyd, PA 19004, Attn.: Scott G.
Bruce; (ii) Telcon Ventures, LLC, 211 North Union Street, Suite 300,
Alexandria, VA 22314, Attn.: Hal B. Perkins; and (iii) Kent A. Coit,
Esq., Skadden Arps, Slate, Meagher & Flom, One Beacon Street, Boston,
MA 02108; or
(b) If to a Holder, to the address of such Holder set
forth in the records of the Company;
or, in each case, to such other address or telex or telecopy
number as such party may designate in writing to each Holder and the Company by
written notice given in the manner specified herein.
<PAGE>
All such communications shall be deemed to have been given,
delivered or made when so delivered by hand or sent by telex (answer back
received) or telecopy, or five business days after being so mailed.
Section 4.4. Entire Agreement. This Agreement, the Securities
Purchase Agreement and the other agreements referred to herein or therein or
delivered pursuant hereto or thereto which form a part hereof or thereof contain
the entire agreement among the parties hereto with respect to the subject
transactions contemplated hereby and supersede all prior oral and written
agreements and memoranda and undertakings among the parties hereto with regard
to this subject matter. The Company represents to the Holders that the rights
granted to the holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted or obligations accepted under any other
agreement (including the Limited Liability Company Agreement) to which the
Company is a party. Neither the Company nor any Affiliate of the Company will
hereafter enter into any agreement with respect to its equity or debt securities
which is inconsistent with the rights granted to the Holders of Registrable
Securities under this Agreement without obtaining the prior written consent of
the Holders of a majority of the Registrable Securities whose rights would be
thereby affected.
Section 4.5. [Intentionally Omitted]
Section 4.6. Headings. The section and paragraph headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
Section 4.7. Governing Law; Specific Performance. This Agreement
and the parties' respective obligations hereunder shall be governed by and
construed in accordance with the laws of New York (without regard to the
conflicts of laws principles thereunder). Each party expressly acknowledges each
of the other parties' right, in the event of such party's breach of its
obligations hereunder, to require the specific performance of such party's
obligations hereunder, and hereby waives any defenses or objections to any claim
or action seeking specific performance by such party of its obligations
hereunder based on the ground that there exists an adequate remedy at law.
Section 4.8. Disputes Generally. In the event of a dispute between
any of the parties in connection with this Agreement, such dispute shall be
subject to the dispute resolution procedures set forth in Section 7.10 of the
Securities Purchase Agreement.
Section 4.9. Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed as of the date first above written.
The Company:
TELIGENT, L.L.C.
By:
---------------------------
Name:
Title:
Holder:
NTTA&T INVESTMENT, INC.
By:
---------------------------
Name:
Title:
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "Agreement"), dated as
of October 6, 1997, is by and between Teligent, Inc., a Delaware corporation
(the "Company"), and Teligent, L.L.C., a Delaware limited liability company (the
"LLC").
WITNESSETH
WHEREAS, the LLC has determined (i) to offer equity interests
to the public pursuant to a registration statement filed with the Securities and
Exchange Commission (the "IPO"); and (ii) in connection with the IPO, to
reorganize the LLC as a corporation; and
WHEREAS, the Board of Directors and the sole stockholder of
the Company, and the Board of Directors and the Members of the LLC holding a
majority of the interest therein, have approved and adopted this Agreement.
NOW, THEREFORE, for good and valuable consideration, the
receipt of which is hereby acknowledged, the parties to this Agreement covenant
and agree as follows:
ARTICLE I
THE MERGER
I.1 The Merger; Surviving Corporation. Subject to the terms
and conditions set forth in this Agreement, at the Effective Time (as defined in
Section 1.3 below), the LLC shall be merged with and into the Company, pursuant
to Section 264 of the Delaware General Corporation Law (the "DGCL") and Section
18-209 of the Delaware Limited Liability Company Act (the "DLLCA"), and the
separate existence of the LLC shall cease. The Company shall be the surviving
entity (the "Surviving Corporation") and shall continue to be governed by the
DGCL.
I.2 Condition to the Merger. The LLC and the Company shall not
consummate the Merger unless and until there shall have occurred, or be
occurring concurrently with the Merger, the closing of the purchase of capital
stock of the Company by the underwriter or underwriters
<PAGE>
for the IPO in accordance with the terms of the applicable underwriting
agreement or agreements. The LLC and the Company agree that the foregoing
condition shall not be waived.
I.3 Effective Time. The Merger shall become effective (the
"Effective Time") upon filing of the Certificate of Merger (the "Certificate of
Merger") with the Secretary of State of the State of Delaware. The Certificate
of Merger shall be filed at such time as the Company and the LLC shall direct.
I.4 Cancellation of the Limited Liability Company. In
accordance with Section 18-209(e) of the DLLCA, the Certificate of Merger filed
pursuant to Section 1.3 hereof shall be deemed a certificate of cancellation of
the LLC.
ARTICLE II
THE SURVIVING CORPORATION
II.1 Name. The name of the Surviving Corporation shall
continue to be Teligent, Inc.
II.2 Certificate of Incorporation and Bylaws; Defined Terms.
The Certificate of Incorporation and Bylaws of the Surviving Corporation shall
be as set forth in Exhibits I and II to this Agreement, respectively, unless and
until amended in accordance with their terms and applicable law. Capitalized
terms used but not defined herein shall have the meanings given to such terms in
the Certificate of Incorporation set forth in Exhibit I to this Agreement.
2
<PAGE>
II.3 Directors and Officers. The directors of the Company
immediately prior to the Effective Time (who shall include at least all of the
individuals then serving as directors of the LLC) shall be the initial directors
of the Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation and until
his or her successor is duly elected and qualified or until his or her earlier
resignation or removal. The officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation, each
to hold office in accordance with the Certificate of Incorporation and Bylaws of
the Surviving Corporation and until his or her successor is duly appointed and
qualified or until his or her earlier resignation or removal.
ARTICLE III
CONVERSION OF SECURITIES
III.1 Conversion of LLC Interests. At the Effective Time, by
virtue of the Merger and without any action on the part of the Company, the LLC
or any holder of the following interests or securities:
(a) the interest of Microwave Services, Inc., a
Delaware corporation ("MSI"), in the LLC shall be converted into and become a
number of shares of Class B-Series 1 Common Stock of the Surviving Corporation
equal to the product of (x) MSI's percentage interest in the LLC immediately
prior to the Effective Time (expressed in decimal form to five decimal places)
and (y) the Pre-IPO Outstanding Amount (as hereinafter defined);
(b) the interest of Telcom-DTS, L.L.C., a Delaware
limited liability company ("Telcom"), in the LLC shall be converted into and
become a number of shares of Class B-Series 2 Common Stock of the Surviving
Corporation equal to the product of (x) Telcom's percentage interest in the LLC
immediately prior to the Effective Time (expressed in decimal form to five
decimal places) and (y) the Pre-IPO Outstanding Amount;
(c) the interest of Nippon Telegraph and
3
<PAGE>
Telephone Corporation and its affiliates (collectively, "NTT") in the LLC shall
be converted into and become a number of shares of Class B-Series 3 Common Stock
of the Surviving Corporation equal to the product of (x) NTT's percentage
interest in the LLC immediately prior to the Effective Time (expressed in
decimal form to five decimal places) and (y) the Pre-IPO Outstanding Amount;
(d) the interest of Lynn Forester in the LLC shall be
converted into and become a number of shares of Class A Common Stock of the
Surviving Corporation equal to the product of (x) Lynn Forester's percentage
interest in the LLC immediately prior to the Effective Time (expressed in
decimal form to five decimal places) and (y) the Pre-IPO Outstanding Amount;
(e) the interest, if any, of any person or entity
(other than MSI, Telcom, NTT and Lynn Forester) in the LLC shall be converted
into and become a number of shares of Class A Common Stock of the Surviving
Corporation equal to the product of (x) such person's or entity's percentage
interest in the LLC immediately prior to the Effective Time (expressed in
decimal form to five decimal places) and (y) the Pre-IPO Outstanding Amount; and
(f) all shares of capital stock of the Company, if
any, that are issued and outstanding immediately prior to the Effective Time
shall be cancelled and retired.
The "Pre-IPO Outstanding Amount" shall be the aggregate number of shares of
Common Stock of the Company that will be issued and outstanding immediately
following the Merger (without giving effect to the issuance of any shares in the
IPO), as disclosed in the definitive prospectus for the IPO.
III.2 No Fractional Shares. No fractional shares of capital
stock of the Surviving Corporation shall be issued in the Merger. In lieu of any
fractional share that any holder would otherwise be entitled to receive, such
holder shall instead instead receive one whole share of the same class and
series.
ARTICLE IV
4
<PAGE>
TRANSFER AND CONVEYANCE OF ASSETS
AND ASSUMPTION OF LIABILITIES
IV.1 Transfer, Conveyance and Assumption. At the Effective
Time, the Company shall continue in existence as the Surviving Corporation and,
without further transfer, succeed to and possess all the rights, privileges and
powers of the LLC, and all the assets and property of whatever kind and
character of the LLC shall vest in the Surviving Corporation without further act
or deed. Thereafter, the Company, as the Surviving Corporation, shall be liable
for all of the liabilities and obligations of the LLC, and any claim or judgment
against the LLC may be enforced against the Company, as the Surviving
Corporation. As of the Effective Time, the Surviving Corporation shall assume
all of the Company's obligations under the Company Appreciation Rights granted
to Alex J. Mandl ("Mr. Mandl") pursuant to that certain Employment Agreement
entered into between the LLC and Mr. Mandl, dated as of September 1, 1996, and
the Appreciation Units granted to certain employees of the LLC pursuant to the
Associated Communications, L.L.C. Long-Term Incentive Plan. At or prior to the
Effective Time, the Company shall enter into a stockholders' agreement which
will implement as of the Effective Time (to the extent not implemented by the
Certificate of Incorporation or Bylaws of the Surviving Corporation) the
provisions of the Amended and Restated Limited Liability Company Agreement of
the Teligent, L.L.C. as then in effect (the "LLC Agreement") which, under the
LLC Agreement, are contemplated to be implemented.
IV.2 Taxation. It is intended that the Merger shall be treated
as a transfer of the property of the LLC to the Company under Section 351 of the
Internal Revenue Code.
IV.3 Further Assurances. If at any time the Company shall
consider or be advised that any further assignment, conveyance or assurance is
necessary or advisable to vest, perfect or confirm of record in the Surviving
Corporation the title to any property or right of the LLC, or otherwise, to
carry out the provisions hereof, the proper representatives of the LLC as of the
Effective Time shall execute and deliver any and all proper deeds, assignments
and assurances, and do all
5
<PAGE>
things necessary and proper to vest, perfect or convey title to such property or
right in the Surviving Corporation and otherwise to carry out the provisions
hereof.
ARTICLE V
TERMINATION
V.1 Termination. This Agreement shall automatically terminate
in the event that the condition to the Merger set forth in Section 1.2 of this
Agreement shall not have been satisfied on or before December 31, 1997.
V.2 Effect of Termination. If this Agreement is terminated
pursuant to Section 5.1, this Agreement shall become void and of no effect with
no liability on the part of any party hereto.
ARTICLE VI
MISCELLANEOUS
VI.1 Entire Agreement. This Agreement contains the parties'
entire understanding and agreement with respect to its subject matter, and any
and all conflicting or inconsistent discussions, agreements, promises,
representations and statements, if any, between the parties or their
representatives that are not incorporated in this Agreement shall be null and
void and are merged into this Agreement.
VI.2 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall constitute an original, but all of which
together shall constitute a single agreement.
VI.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without giving
effect to conflicts
6
<PAGE>
of law principles.
VI.4 Headings. The various section headings are inserted for
purposes of reference only and shall not affect the meaning or interpretation of
this Agreement or any provision hereof.
VI.5 Severability. The provisions of this Agreement shall be
severable, and any invalidity, unenforceability or illegality of any provision
or provisions of this Agreement shall not affect any other provision or
provisions of this Agreement, and each term and provision of this Agreement
shall be construed to be valid and enforceable to the full extent permitted by
law.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
Teligent, L.L.C.
By: /s/ Alex J. Mandl
-------------------------------
Name: Alex J. Mandl
Title: Chairman and CEO
Teligent, Inc.
By: /s/ Alex J. Mandl
-------------------------------
Name: Alex J. Mandl
Title: Chairman and CEO
<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
------------------------------------
Pittsburgh, Pennsylvania
October 27, 1997
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM T-1
--------------------
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT FOR 1939, AS AMENDED,
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
_____ Check if an application to determine eligibility of a trustee pursuant
to Section 305(b)(2)
--------------------
FIRST UNION NATIONAL BANK
(Exact name of Trustee as specified in its charter)
<TABLE>
<S> <C> <C>
230 SOUTH TRYON STREET, 9TH FL.
CHARLOTTE, NC 28288-1179 56-0900030
(Address of principal executive office) (Zip Code) (I.R.S. Employer Identification No.)
</TABLE>
Patricia A. Welling, (804) 788-9663
901 E. Cary Street, Richmond, Virginia 23219
(Agent for Service)
--------------------
TELIGENT, INC.
(Exact name of obligor as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
54-1866562
(I.R.S. Employer Identification No.)
8065 Leesburg Pike
Vienna, VA
(Address of principal executive offices)
22182
(Zip Code)
SENIOR NOTES DUE 2007
(Title of the indenture securities)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
1. General information.
(a) The following are the names and addresses of each examining
or supervising authority to which the Trustee is subject:
The Comptroller of the Currency, Washington, D.C.
Federal Reserve Bank of Richmond, Richmond, Virginia.
Federal Deposit Insurance Corporation, Washington, D.C.
Securities and Exchange Commission, Division of Market
Regulation, Washington, D.C.
(b) The Trustee is authorized to exercise corporate trust powers.
2. Affiliations with obligor.
The obligor is not an affiliate of the Trustee.
3. Voting Securities of the Trustee.
Not applicable
(See answer to Item 13)
4. Trusteeships under other indentures.
Not applicable
(See answer to Item 13)
5. Interlocking directorates and similar relationships with the obligor
or underwriters.
Not applicable
(See answer to Item 13)
6. Voting securities of the Trustee owned by the obligor or its
officials.
Not applicable
(See answer to Item 13)
7. Voting securities of the Trustee owned by underwriters or their
officials.
Not applicable
(See answer to Item 13)
8. Securities of the obligor owned or held by the Trustee.
Not applicable
(See answer to Item 13)
9. Securities of underwriters owned or held by the Trustee.
Not applicable
(See answer to Item 13)
10. Ownership or holdings by the Trustee of voting securities of certain
affiliates or security holders of the obligor.
Not applicable
(See answer to Item 13)
2
<PAGE>
11. Ownership of holders by the Trustee of any securities of a person
owning 50 percent or more of the voting securities of the obligor.
Not applicable
(See answer to Item 13)
12. Indebtedness of the obligor to the Trustee.
Not applicable
(See answer to Item 13)
13. Defaults by the obligor.
A. None
B. None
14. Affiliations with the underwriters.
Not applicable
(See answer to Item 13)
15. Foreign trustee.
Trustee is a national banking association organized under the
laws of the United States.
16. List of Exhibits.
(1) Articles of Incorporation. (Incorporated by reference from Exhibit
25 to Registration 333-25575, filed June 5, 1997.)
(2) Certificate of Authority of the Trustee to conduct business.
(Incorporated by reference from Exhibit 25 to Registration
333-25575, filed June 5, 1997.)
(3) Certificate of Authority of the Trustee to exercise corporate
trust powers. (Incorporated by reference from Exhibit 25 to
Registration 333-25575, filed June 5, 1997.)
(4) By-Laws. (Incorporated by reference from Exhibit 25 to
Registration 333-25575, filed June 5, 1997.)
(5) Inapplicable.
(6) Consent by the Trustee required by Section 321(b) of the Trust
Indenture Act of 1939. Included at Page 4 of this Form T-1
Statement.
(7) Report of condition of Trustee.
(8) Inapplicable.
(9) Inapplicable.
3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the Trustee, FIRST UNION NATIONAL BANK, a national association
organized and existing under the laws of the United States of America, has duly
caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Richmond, and Commonwealth of Virginia on the 29th day of October, 1997.
FIRST UNION NATIONAL BANK
(Trustee)
BY: /s/ Patricia A. Welling
-----------------------------------
Patricia A. Welling, Vice President
EXHIBIT T-1 (6)
CONSENTS OF TRUSTEE
Under section 321(b) of the Trust Indenture Act of 1939 and in
connection with the proposed issuance by Teligent, Inc. Senior Notes due 2007,
First Union National Bank, as the Trustee herein named, hereby consents that
reports of examinations of said Trustee by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon requests therefor.
FIRST UNION NATIONAL BANK
BY: /s/ John M. Turner
-----------------------------------
John M. Turner, Vice President and
Managing Director
Dated: October 29, 1997
4
<PAGE>
EXHIBIT 7 to T-1
R E P O R T OF C O N D I T I O N
Consolidating domestic subsidiaries of the
First Union National Bank of Virginia of Roanoke
Name of Bank City
in the state of Virginia, at the close of business on June 30, 1997,
published in response to call made by Comptroller of the Currency,
under title 12, United States Code, Section 161. Charter Number 02737
Comptroller of the Currency Southeastern District
Statement of Resources and Liabilities
<TABLE>
<CAPTION>
ASSETS
Thousands of dollars
<S> <C> <C>
1 Cash and balances due from depository institutions:
a. Noninterest-bearing balances and currency and coin.................................. 545,663
b. Interest-bearing balances........................................................... 105,078
2 Securities:
a. Held-to-maturity securities.......................................................... 106,633
b. Available-for-sale securities........................................................ 2,065,875
3 Federal funds sold and securities purchased under agmts to resell: 34,017
4 Loans and lease financing receivables:
a. Loans and leases, net of unearned income................................. 6,768,094
b. LESS: Allowance for loan and lease losses................................ 94,982
c. LESS: Allocated transfer risk reserve.................................... 0
d. Loans and leases, net of unearned income, allowance, and reserve..................... 6,673,112
5 Assets held in trading accounts......................................................... 0
6 Premises and fixed assets (including capitalized leases)................................ 155,842
7 Other real estate owned................................................................. 10,432
8 Investments in unconsolidated subsidiaries and associated companies..................... 54,248
9 Customers' liability to this bank on acceptances outstanding............................ 812
10 Intangible assets....................................................................... 160,918
11 Other assets............................................................................ 168,132
12 Total assets............................................................................ 10,080,762
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C>
13 Deposits:
a. In domestic offices.................................................................. 6,846,202
(1) Noninterest-bearing.................................................. 1,510,572
(2) Interest-bearing..................................................... 5,335,630
b. In foreign offices, Edge and Agmt subsidiaries, and IBFs............................. 0
(1) Noninterest-bearing.............................................................. 0
(2) Interest-bearing................................................................. 0
14 Federal funds purchased and securities sold under agmts to repurchase: 1,837,150
15 a. Demand notes issued to the U.S. Treasury............................................. 5,507
b. Trading liabilities.................................................................. 0
16 Other borrowed money:
a. With a remaining maturity of one year or less........................................ 100,875
b. With a remaining maturity of more than one year through three years.................. 0
c. With a remaining maturity of more than three years 46,570
17 Not applicable
18 Bank's liability on acceptances executed and outstanding................................ 812
19 Subordinated notes and debentures....................................................... 160,000
20 Other liabilities....................................................................... 127,448
21 Total liabilities....................................................................... 9,224,564
22 Not applicable
EQUITY CAPITAL
23 Perpetual preferred stock and related surplus........................................... 0
24 Common stock............................................................................ 65,164
25 Surplus................................................................................. 729,855
26 a. Undivided profits and capital reserves............................................... 61,207
b. Net unrealized holding gains (losses) on available-for-sale securities............... (28)
27 Cumulative foreign currency translation adjustments.....................................
28 Total equity capital.................................................................... 856,198
29 Total liabilities, limited-life preferred stock, and equity capital
(sum of items 21 and 28)................................................................ 10,080,762
</TABLE>
2
<PAGE>
We, the undersigned directors, attest to the correctness of this statement of
resources and liabilities. We declare that it has been examined by us, and to
the best of our knowledge and belief has been prepared in conformance with the
instructions and is true and correct.
Directors I, Gary R. Sessions
Warner N. Dalhouse Name
Benjamin P. Jenkins, III Vice President
Robert W. Helms Title
of the above-named bank do hereby
declare that this Report
of Condition is true and correct to
the best of my knowledge and
belief.
report.condition 6/30/97
3
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM T-1
--------------------
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT FOR 1939, AS AMENDED,
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
_____ Check if an application to determine eligibility of a trustee pursuant
to Section 305(b)(2)
--------------------
FIRST UNION NATIONAL BANK
(Exact name of Trustee as specified in its charter)
<TABLE>
<S> <C> <C>
230 SOUTH TRYON STREET, 9TH FL.
CHARLOTTE, NC 28288-1179 56-0900030
(Address of principal executive office) (Zip Code) (I.R.S. Employer Identification No.)
</TABLE>
Patricia A. Welling, (804) 788-9663
901 E. Cary Street, Richmond, Virginia 23219
(Agent for Service)
--------------------
TELIGENT, INC.
(Exact name of obligor as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
54-1866562
(I.R.S. Employer Identification No.)
8065 Leesburg Pike
Vienna, VA
(Address of principal executive offices)
22182
(Zip Code)
SENIOR DISCOUNT NOTES DUE 2007
(Title of the indenture securities)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
1. General information.
(a) The following are the names and addresses of each examining
or supervising authority to which the Trustee is subject:
The Comptroller of the Currency, Washington, D.C.
Federal Reserve Bank of Richmond, Richmond, Virginia.
Federal Deposit Insurance Corporation, Washington, D.C.
Securities and Exchange Commission, Division of Market
Regulation, Washington, D.C.
(b) The Trustee is authorized to exercise corporate trust powers.
2. Affiliations with obligor.
The obligor is not an affiliate of the Trustee.
3. Voting Securities of the Trustee.
Not applicable
(See answer to Item 13)
4. Trusteeships under other indentures.
Not applicable
(See answer to Item 13)
5. Interlocking directorates and similar relationships with the obligor
or underwriters.
Not applicable
(See answer to Item 13)
6. Voting securities of the Trustee owned by the obligor or its
officials.
Not applicable
(See answer to Item 13)
7. Voting securities of the Trustee owned by underwriters or their
officials.
Not applicable
(See answer to Item 13)
8. Securities of the obligor owned or held by the Trustee.
Not applicable
(See answer to Item 13)
9. Securities of underwriters owned or held by the Trustee.
Not applicable
(See answer to Item 13)
10. Ownership or holdings by the Trustee of voting securities of certain
affiliates or security holders of the obligor.
Not applicable
(See answer to Item 13)
2
<PAGE>
11. Ownership of holders by the Trustee of any securities of a person
owning 50 percent or more of the voting securities of the obligor.
Not applicable
(See answer to Item 13)
12. Indebtedness of the obligor to the Trustee.
Not applicable
(See answer to Item 13)
13. Defaults by the obligor.
A. None
B. None
14. Affiliations with the underwriters.
Not applicable
(See answer to Item 13)
15. Foreign trustee.
Trustee is a national banking association organized under the
laws of the United States.
16. List of Exhibits.
(1) Articles of Incorporation. (Incorporated by reference from Exhibit
25 to Registration 333-25575, filed June 5, 1997.)
(2) Certificate of Authority of the Trustee to conduct business.
(Incorporated by reference from Exhibit 25 to Registration
333-25575, filed June 5, 1997.)
(3) Certificate of Authority of the Trustee to exercise corporate
trust powers. (Incorporated by reference from Exhibit 25 to
Registration 333-25575, filed June 5, 1997.)
(4) By-Laws. (Incorporated by reference from Exhibit 25 to
Registration 333-25575, filed June 5, 1997.)
(5) Inapplicable.
(6) Consent by the Trustee required by Section 321(b) of the Trust
Indenture Act of 1939. Included at Page 4 of this Form T-1
Statement.
(7) Report of condition of Trustee.
(8) Inapplicable.
(9) Inapplicable.
3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the Trustee, FIRST UNION NATIONAL BANK, a national association
organized and existing under the laws of the United States of America, has duly
caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Richmond, and Commonwealth of Virginia on the 29th day of October, 1997.
FIRST UNION NATIONAL BANK
(Trustee)
BY: /s/ Patricia A. Welling
-----------------------------------
Patricia A. Welling, Vice President
EXHIBIT T-1 (6)
CONSENTS OF TRUSTEE
Under section 321(b) of the Trust Indenture Act of 1939 and in
connection with the proposed issuance by Teligent, Inc. Senior Discount Notes
due 2007, First Union National Bank, as the Trustee herein named, hereby
consents that reports of examinations of said Trustee by Federal, State,
Territorial or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon requests therefor.
FIRST UNION NATIONAL BANK
BY: /s/ John M. Turner
-----------------------------------
John M. Turner, Vice President and
Managing Director
Dated: October 29, 1997
4
<PAGE>
EXHIBIT 7 to T-1
R E P O R T OF C O N D I T I O N
Consolidating domestic subsidiaries of the
First Union National Bank of Virginia of Roanoke
Name of Bank City
in the state of Virginia, at the close of business on June 30, 1997,
published in response to call made by Comptroller of the Currency,
under title 12, United States Code, Section 161. Charter Number 02737
Comptroller of the Currency Southeastern District
Statement of Resources and Liabilities
<TABLE>
<CAPTION>
ASSETS
Thousands of dollars
<S> <C> <C>
1 Cash and balances due from depository institutions:
a. Noninterest-bearing balances and currency and coin.................................. 545,663
b. Interest-bearing balances........................................................... 105,078
2 Securities:
a. Held-to-maturity securities.......................................................... 106,633
b. Available-for-sale securities........................................................ 2,065,875
3 Federal funds sold and securities purchased under agmts to resell: 34,017
4 Loans and lease financing receivables:
a. Loans and leases, net of unearned income................................. 6,768,094
b. LESS: Allowance for loan and lease losses................................ 94,982
c. LESS: Allocated transfer risk reserve.................................... 0
d. Loans and leases, net of unearned income, allowance, and reserve..................... 6,673,112
5 Assets held in trading accounts......................................................... 0
6 Premises and fixed assets (including capitalized leases)................................ 155,842
7 Other real estate owned................................................................. 10,432
8 Investments in unconsolidated subsidiaries and associated companies..................... 54,248
9 Customers' liability to this bank on acceptances outstanding............................ 812
10 Intangible assets....................................................................... 160,918
11 Other assets............................................................................ 168,132
12 Total assets............................................................................ 10,080,762
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C>
13 Deposits:
a. In domestic offices.................................................................. 6,846,202
(1) Noninterest-bearing.................................................. 1,510,572
(2) Interest-bearing..................................................... 5,335,630
b. In foreign offices, Edge and Agmt subsidiaries, and IBFs............................. 0
(1) Noninterest-bearing.............................................................. 0
(2) Interest-bearing................................................................. 0
14 Federal funds purchased and securities sold under agmts to repurchase: 1,837,150
15 a. Demand notes issued to the U.S. Treasury............................................. 5,507
b. Trading liabilities.................................................................. 0
16 Other borrowed money:
a. With a remaining maturity of one year or less........................................ 100,875
b. With a remaining maturity of more than one year through three years.................. 0
c. With a remaining maturity of more than three years 46,570
17 Not applicable
18 Bank's liability on acceptances executed and outstanding................................ 812
19 Subordinated notes and debentures....................................................... 160,000
20 Other liabilities....................................................................... 127,448
21 Total liabilities....................................................................... 9,224,564
22 Not applicable
EQUITY CAPITAL
23 Perpetual preferred stock and related surplus........................................... 0
24 Common stock............................................................................ 65,164
25 Surplus................................................................................. 729,855
26 a. Undivided profits and capital reserves............................................... 61,207
b. Net unrealized holding gains (losses) on available-for-sale securities............... (28)
27 Cumulative foreign currency translation adjustments.....................................
28 Total equity capital.................................................................... 856,198
29 Total liabilities, limited-life preferred stock, and equity capital
(sum of items 21 and 28)................................................................ 10,080,762
</TABLE>
2
<PAGE>
We, the undersigned directors, attest to the correctness of this statement of
resources and liabilities. We declare that it has been examined by us, and to
the best of our knowledge and belief has been prepared in conformance with the
instructions and is true and correct.
Directors I, Gary R. Sessions
Warner N. Dalhouse Name
Benjamin P. Jenkins, III Vice President
Robert W. Helms Title
of the above-named bank do hereby
declare that this Report
of Condition is true and correct to
the best of my knowledge and
belief.
report.condition 6/30/97
3
