<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1997
REGISTRATION NO. 333-37373
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 10, 1997
PROSPECTUS [LOGO]
$400,000,000 GROSS PROCEEDS
TELIGENT, INC.
$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 19 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS IN EVALUATING AN INVESTMENT
IN THE NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRICE TO UNDERWRITING PROCEEDS TO
AT MATURITY PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
<S> <C> <C> <C> <C>
Per Senior Note.................... % % % %
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.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<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. The
Company has entered into a letter of intent with Northern Telecom, Inc.
('Nortel'). Pursuant to such agreement, the Company can incur up to $780 million
in indebtedness which is expected to be secured by all of the Company's assets
and guaranteed by substantially all of the Company's subsidiaries. (See
'Summary--Vendor Financing.') '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 conditioned upon each other and will 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.' 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.' In connection with the Strategic Equity Investment, the original
members of Teligent, L.L.C. have made additional cash contributions to Teligent,
L.L.C. in the aggregate amount of $60 million (the 'Additional Sponsor Cash
Contributions'). In addition, Associated has agreed to contribute to Teligent
the business and operations of its wireless competitive access provider in Los
Angeles, California (together with the Additional Sponsor Cash Contributions,
the 'Additional Sponsor Equity Contributions'). Consummation of the Offerings is
conditioned on completion of the Reorganization and consummation of the
Strategic Equity Investment. See 'Certain Transactions.'
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.' 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. In
connection with the Strategic Equity Investment, the original members of
Teligent, L.L.C. have made additional cash contributions to Teligent, L.L.C. in
the aggregate amount of $60 million. In addition, Associated has agreed to
contribute to Teligent the business and operations of its wireless competitive
access provider in Los Angeles, California.
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
5
<PAGE>
more quickly and at a lower cost. Wireless point-to-multipoint broadband
networks allow transmissions between multiple customer antennas and a single
base station antenna, thereby allowing Teligent to share the same spectrum among
its customers and reducing its capital expenditures. The Company believes that a
significant portion of small and medium-sized businesses are located in
buildings that are not economically attractive to fiber-based providers.
Teligent's capital expenditures will be largely incremental or success-based,
thereby minimizing the risk of deploying network equipment not associated with
revenues.
TELIGENT'S COMPETITIVE ADVANTAGES
Teligent believes that a number of factors will provide it with significant
competitive advantages in offering telecommunications services, including lower
network cost, success-based capital expenditures, speed to market, high
bandwidth capacity and flexibility, high quality service and network control,
flexible information systems and experienced management and sponsors.
Lower Network Cost. Teligent expects that its incremental capital required
for launching service in a market and for connecting each customer will be lower
than that of its competitors. Unlike copper- and fiber-based systems that
require installation and maintenance of a significant amount of wire and cable,
the Company's system will have no physical wires to install and maintain between
the customer's radio equipment and the base station. As a result, Teligent
expects to enjoy a lower network cost structure than these systems. The majority
of Teligent's capital expenditures will consist of electronics, which tend to
decline in cost through time as economies of scale are achieved. Teligent
expects to benefit from its radio frequency band (24 GHz), which allows
communication with customer premise equipment at a greater distance than higher
frequency bands. In addition, point-to-multipoint networks provide more
efficient equipment utilization than the point-to-point systems currently used
by other fixed wireless providers, as transmissions from multiple customer
antennas can be concentrated at a single base station. The Company expects that
its average coverage radius of a base station will be approximately three miles
(five kilometers), depending on local conditions. Teligent also believes that
its anticipated lower cost structure should allow it to economically access
smaller buildings and more customers than fiber-based systems, and enjoy more
pricing flexibility than copper-based systems.
Success-Based Capital. Teligent's network is designed to be not only lower
cost, but also lower risk, due to the significant variable component of the
Company's planned capital expenditures. Teligent expects to minimize the
deployment of network equipment not associated with revenues since (i) a
significant portion of its planned capital expenditures will be the purchase and
installation of customer premise equipment and switch electronics, which are
generally deployed only when customers are acquired, (ii) Teligent's system does
not need to cover an entire market prior to initiating service in that market
and (iii) Teligent's equipment can be rapidly redeployed to meet changing
customer requirements.
Speed to Market. Teligent believes that its license coverage and network
characteristics will allow it to (i) enter a significant number of markets and
(ii) maximize coverage within each market area, in each case more quickly than
other new entrants. In entering numerous markets, Teligent will benefit from its
existing licenses in 74 market areas covering over 700 municipalities in the
United States. By utilizing its own facilities, Teligent expects to be able to
provide last mile services to customers within three to five days after
obtaining building access. Teligent believes that speed to market will allow it
to establish a sustainable customer base, develop brand recognition and gain
market share.
High Bandwidth Capacity and Flexibility. Teligent's high capacity local
network will be designed to alleviate the last mile 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 customers 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
6
<PAGE>
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 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
7
<PAGE>
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.
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
8
<PAGE>
for roll-out based on a variety of factors including (i) market size,
demographics and topography, (ii) expected market competition and pricing, (iii)
proximity to other markets and (iv) local regulatory environment.
Teligent has the ability to source key network components from a number of
equipment vendors. Unlike many cellular and PCS networks, fixed local wireless
networks can be constructed using equipment from different manufacturers
utilizing different technologies because customers do not roam between base
stations. Teligent believes that the flexibility provided by vendor diversity
will assist in ensuring an adequate and prompt supply of equipment at attractive
prices. 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, and as a
condition, 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, as follows: (i) the interest of
Microwave Services, Inc., a wholly owned subsidiary of Associated ('MSI'), will
be converted into Series B-1 Common Stock; (ii) the interest of Telcom-DTS
Investors, L.L.C., an affiliate of Telcom Ventures (the 'Telcom Stockholder')
which is expected, at or prior to the Second Closing (see 'The Strategic Equity
Investment' below), to hold the member interest currently held by Digital
Services Corporation ('DSC'), also an affiliate of Telcom Ventures, will be
converted into Series B-2 Common Stock; (iii) the interest of NTTA&T Investment
Inc. ('NTTA&T'), an indirect wholly owned subsidiary of NTT which will acquire
the member interest in Teligent, L.L.C. pursuant to the NTT Purchase Agreement
(see 'The Strategic Equity Investment' below), will be converted into Series B-3
Common Stock; and (iv) the interest of the FirstMark Sole Stockholder (see 'The
FirstMark Acquisition' below) will be converted into Class A Common Stock. The
Company will receive no additional consideration in connection with such
conversion of member interests into shares of Common Stock pursuant to the
Reorganization. See 'Certain Transactions--The Reorganization,' 'Description of
Capital Stock' and 'Security Ownership of Certain Beneficial Owners and
Management.'
The Additional Sponsor Equity Contributions. In connection with the First
Closing under the NTT Purchase Agreement (see 'The Strategic Equity Investment'
immediately below), the original members of Teligent, L.L.C. have made
additional cash capital contributions to Teligent, L.L.C. in the aggregate
amount of $60 million (the 'Additional Sponsor Cash Contributions'). In
addition, Associated has agreed to contribute to Teligent, Associated
Communications of Los Angeles ('ACLA'), a wireless competitive access provider
(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'),
9
<PAGE>
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.
Consummation of the Offerings is conditioned on consummation of the Strategic
Equity Investment. 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. These licenses have been
granted by the FCC and except for the New York license recently granted by the
FCC such grants are no longer subject to any petitions, challenges or
administrative or judicial review. The Company's licenses are the subject of
other proceedings pending before the FCC. 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 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. Based on the Company's
current business plan through December 2000, cash required for capital
expenditures is estimated to be approximately $530 million, cash required to
fund operating losses is estimated to be approximately $350 million and cash
interest and financing fees are estimated to be approximately $140 million. See
'Use of Proceeds.' 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.
10
<PAGE>
The Company expects that its capital requirements after December 2000 will
require it to obtain additional financing, which may include commercial bank
borrowings, additional vendor financing or the sale or issuance of equity and
debt securities either through one or more offerings or to one or more strategic
investors. 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.
COMPANY HISTORY AND SPONSORSHIP
The Company was founded in March 1996 as a joint venture by MSI, a wholly
owned 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. These licenses have been
granted by the FCC and except for the New York and Boston licenses described
below such grants are no longer subject to any petitions, challenges or
administrative or judicial review. The Company's licenses are the subject of
other proceedings pending before the FCC. See 'Risk Factors--Relocation to
Licenses to 24 GHz; Pending FCC Petitions' and 'Regulation--Federal
Regulation--Teledesic.' On October 29, 1997, the Company was granted 24 GHz
licenses in Boston, MA and New York, NY pursuant to certain applications
previously filed by MSI with the FCC, the grant of such licenses may be subject
to petitions for reconsideration. 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 November 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: (a) the FirstMark Acquisition, (b) the Additional Sponsor Equity
Contributions, (c) the assignment of certain licenses held by certain of the
Company's members or affiliates to the Company and (d) the grant by the FCC of
certain 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(6)
Common Stock...................................... -- 463 55 518
Deficit accumulated during the development
stage........................................... (92,458) 21,680(7) -- (70,778)
--------- ---------- --------------- -----------
(68,400) 222,014 103,550 257,164
Additional paid-in capital(6)..................... 24,058 199,871 103,495 327,424
Notes receivable from Executive(6)................ (11,750) -- -- (11,750)
--------- ---------- --------------- -----------
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 Long-Term Incentive Compensation Plan Appreciation Units
('Appreciation Units')), 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. In November 1997, the Company repaid the outstanding
balance under the Revolving Credit Agreement, 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.
and $15.0 million reflecting the loans from MSI and DSC to Mr. Mandl
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 assignment of certain licenses held by certain of the
Company's members or affiliates to the Company, $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.
In addition to receiving approximately $10.5 million in cash, the FirstMark
Sole Stockholder received a 5% member interest (calculated as of the date of
the definitive agreements) in Teligent, L.L.C. upon the closing of the
FirstMark Acquisition. As a result of the Reorganization, the FirstMark Sole
Stockholder will receive 1,830,410 shares of Teligent, Inc. Class A Common
Stock. Assuming an initial public offering price of $20.50 per share, the
midpoint of the initial public offering price range in the Equity Offerings,
the value of such shares is approximately $37.5 million. The FirstMark
acquisition has been accounted for using the purchase method in accordance
with Accounting Principles Board Opinion No. 16, 'Accounting for Business
Combinations.' See 'Security Ownership of Certain Beneficial Owners and
Management.'
(7) The adjustment to deficit accumulated during the development stage reflects
a decrease in the accrued CARs and Appreciation Units liabilities. This
decrease is attributable to adjustments to the CARs and Appreciation Units
resulting from the Transactions and estimates of vesting of the CARs and
Appreciation Units used in the calculation of the liabilities, assuming the
conversion of CARs and Appreciation Units to stock options on September 30,
1997 as described, and based on the assumptions set forth under 'Management'
and 'Conversion of CARs and Appreciation Units into Stock Options.'
12
<PAGE>
SUMMARY FINANCIAL DATA
The summary 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 following summary financial data
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.
13
<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 4,500
Sales, general and administrative................. 9,582 25,551 35,133
CARs and Appreciation Units(1).................... 2,778 51,935 54,713
Depreciation and amortization..................... 164 306 470
---------- ---------- ----------
Total costs and expenses....................... 14,149 80,667 94,816
---------- ---------- ----------
Operating loss...................................... (12,763) (77,753) (90,516)
Interest expense and loan fees, net................. (870) (1,072) (1,942)
---------- ---------- ----------
Net loss(1)......................................... $(13,633) $(78,825) $(92,458)
---------- ---------- ----------
---------- ---------- ----------
<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
Working capital (deficit)........................... (6,930) (51,309)
Revolving line of credit -- Total indebtedness...... 2,000 38,500
Accrued CARs and Appreciation Units Liability....... 2,778 54,713
Members' deficit:
Capital contributions............................. 24,058 24,058
Deficit accumulated during the development stage.. (13,633) (92,458)
---------- ----------
Subtotal.......................................... 10,425 (68,400)
Notes receivable from Executive................... (14,000) (11,750)
---------- ----------
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:
Modified EBITDA(2).................................. $ (8,821) $(23,262) $(32,083)
Cash used in operating activities................... (6,047) (22,508) (28,554)
Cash used in investing activities................... (3,709) (9,487) (13,196)
Cash provided by financing activities............... 11,058 36,500 47,558
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 and
Appreciation Units 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 and Appreciation Units, the net loss for the period March
5, 1996 (date of inception) to December 31, 1996, the nine months ended
September 30, 1997,
(Footnotes continued on next page)
14
<PAGE>
(Footnotes continued from previous page)
and the period March 5, 1996 (date of inception) to September 30, 1997 would
have been $10,855,000, $26,890,000 and $37,745,000, respectively.
(2) Modified EBITDA consists of operating loss expense and amortization of notes
receivable from Executive before depreciation and amortization, interest
expense and loan fees, net, CARs and Appreciation Units. EBITDA consisting
of operating loss before depreciation and amortization, interest expense,
and loan fees net, is a measure commonly used in the telecommunications
industry and is presented to assist in understanding the Company's operating
results. Additionally, certain covenants contained in the Indentures will be
calculated based on EBITDA. Although EBITDA should not be construed as a
substitute for operating income determined in accordance with generally
accepted accounting principles, it is included 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 $13.5 million,
$77.4 million and $90.9 million, respectively. After giving pro forma effect
to the Transactions and the Offerings as if they occurred at the beginning
of the period presented, the deficiency of earnings to fixed charges would
have been $15.0 million for the period March 5, 1996 (date of inception) to
December 31, 1996 and $46.3 million for the nine months ended September 30,
1997.
15
<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. The Company has entered into a letter of intent
with Nortel. Pursuant to such agreement, the Company can incur up to
$780 million in indebtedness which is expected to be secured by all
of the Company's assets and guaranteed by substantially all of the
Company's subsidiaries. (See 'Summary--Vendor Financing.') See 'Risk
Factors--Substantial Leverage; Ability to Service Indebtedness' and
'Description of the Notes--General.'
</TABLE>
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<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 any Change
of Control Payment Date occurring on or after
</TABLE>
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<TABLE>
<S> <C>
, 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. In November 1997, the Company
used $43.0 million of the Additional Sponsor Cash Contributions to
repay all outstanding amounts under the Revolving Credit Agreement.
Upon such repayment, the Revolving Credit Agreement was 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. Based on the Company's
current business plan through December 2000, cash required for capital
expenditures is estimated to be approximately $530 million, cash required
to fund operating losses is estimated to be approximately $350 million
and cash interest and financing fees are estimated to be approximately
$140 million.
</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.'
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<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 $13.6 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 $78.8 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 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 (including capital expenditures, working capital, debt service and
operating losses) from March 5, 1996 (inception) through December 2000 will be
approximately $1 billion. Based on the Company's current business plan through
December 2000, cash required for capital expenditures is estimated to be
approximately $530 million, cash required to fund operating losses is estimated
to be approximately $350 million and cash interest and financing fees are
estimated to be approximately $140 million. 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.
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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 $46.3 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 Company has entered into a letter of
intent with Nortel. Pursuant to such agreement, the Company can incur up to $780
million in indebtedness which is expected to be secured by all of the Company's
assets and guaranteed by substantially all of the Company's subsidiaries. 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 this issue in the same
way 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 or the MSI and DSC
assignment applications and the FCC grants thereof have become final. 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
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compete fully in the provision of long distance services upon the satisfaction
of certain statutorily mandated criteria. The Telecommunications Act generally
requires ILECs to provide competitors with interconnection and nondiscriminatory
access to the local exchange network on more favorable terms than have been
available in the past. Such interconnection and the terms thereof are subject to
negotiation with each ILEC, however, which may involve considerable delays.
Moreover, such interconnection may not necessarily be obtained on terms and
conditions that are favorable to the Company. Although the Company may petition
the proper state regulatory agency to arbitrate disputed issues, there can be no
assurance that the Company will be able to obtain favorable interconnection
agreements. Also, there can be no assurance that any interconnection agreements
will actually be implemented or enforced in a favorable manner. To date, the
Company has successfully negotiated comprehensive interconnection agreements
with five ILECs and a Resale Agreement with another for an additional state. In
addition, it is currently negotiating comprehensive interconnection agreements
with these and several other ILECs for numerous states. The Company has not
resorted to arbitration with respect to its interconnection negotiations as of
this date.
As required by the Telecommunications Act, the FCC adopted in August 1996
new rules implementing the interconnection and resale provisions of the
Telecommunications Act (the 'Interconnection Order'), which are intended to
remove or minimize regulatory, economic and operational impediments to full
competition for local services, including switched local exchange service. A
number of parties appealed the Interconnection Order in Federal court seeking to
vacate some or all of the rules adopted therein. In a July 18, 1997 decision,
the United States Court of Appeals for the Eighth Circuit vacated significant
portions of the Interconnection Order, including its provisions governing the
pricing of local telecommunications services and unbundled network 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 these decisions by the U.S. Supreme Court. Although the
Company believes that the final outcome of the Eighth Circuit decisions
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
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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.'
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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.
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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
million 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.
In November 1997, the Company used $43.0 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 was terminated. The interest rate on all indebtedness
outstanding under the Revolving Credit Agreement as of September 30, 1997 was
approximately 8.44%. The amounts that were 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. Based on Company's
current business plan, the Company estimates that through December 2000, $530
million will be required for capital expenditures, $350 million will be required
to fund operating losses and $140 million will be required for cash interest and
financing fees.
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.
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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 CARs and Appreciation Units.................... 17,899 2,729(7) -- 20,628
-------- ------------------- ------------ --------------
Total current liabilities................................ 62,697 (35,653) -- 27,044
Accrued CARs and Appreciation Units...................... 36,815 (24,409)(7) -- 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(8).......................... 24,058 199,871 103,495 327,424
Retained earnings (deficit accumulated) during the
development stage................................... (92,458) 21,680(7) -- (70,778)
-------- ------------------- ------------ --------------
Subtotal............................................... (68,400) 222,014 103,550 257,164
Notes receivable from Executive(8)..................... (11,750) -- -- (11,750)
-------- ------------------- ------------ --------------
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)
32
<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
Appreciation Units) 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. In November 1997, the Company repaid the outstanding
balance under the Revolving Credit Agreement with a portion of the
Additional Sponsor Cash Contributions, as described under 'Use of Proceeds.'
(7) The adjustment to deficit accumulated during the development stage reflects
a decrease in the accrued CARs and Appreciation Unit liabilities. This
decrease is attributable to adjustments to the CARs and Appreciation Units
resulting from the Transactions and estimates of vesting of the CARs and
Appreciation Units used in the calculation of the liabilities, assuming the
conversion of CARs and Units to stock options on September 30, 1997, as
described, and based on the assumptions set forth, under 'Management' and
'Conversion of CARs and Appreciation Units into Stock Options.' See
'Conversion of CARs and Appreciation Units into Stock Options.'
(8) 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.
and $15.0 million reflecting the loans from MSI and DSC to Mr. Mandl
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 assignment of certain licenses held by certain of the
Company's members or affiliates to the Company's, $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.
In addition to receiving approximately $10.5 million in cash, the FirstMark
Sole Stockholder received a 5% member interest (calculated as of the date of
the definitive agreements) in Teligent, L.L.C. upon the closing of the
FirstMark Acquisition. As a result of the Reorganization, the FirstMark Sole
Stockholder will receive 1,830,410 shares of Teligent, Inc. Class A Common
Stock. Assuming an initial public offering price of $20.50 per share, the
midpoint of the initial public offering price range in the Equity Offerings,
the value of such shares is approximately $37.5 million. The FirstMark
Acquisition has been accounted for using the purchase method in accordance
with Acounting Principles Board Opinion No. 16, 'Accounting for Business
Combinations.' See 'Security Ownership of Certain Beneficial Owners and
Management.'
33
<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.
34
<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 4,500
Sales, general and administrative................. 9,582 25,551 35,133
CARs and Appreciation Units....................... 2,778 51,935 54,713
Depreciation and amortization..................... 164 306 470
---------- ---------- ----------
Total costs and expenses....................... 14,149 80,667 94,816
---------- ---------- ----------
Operating loss...................................... (12,763) (77,753) (90,516)
Interest expense and loan fees, net................. (870) (1,072) (1,942)
---------- ---------- ----------
Net loss(1)......................................... $(13,633) $(78,825) $(92,458)
---------- ---------- ----------
---------- ---------- ----------
<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
Working capital (deficit)........................... (6,930) (51,309)
Revolving line of credit -- total indebtedness...... 2,000 38,500
Accrued CARs and Appreciation Units Liability....... 2,778 54,713
Members' deficit:
Capital contributions............................. 24,058 24,058
Deficit accumulated during the development stage.. (13,633) (92,458)
---------- ----------
Subtotal.......................................... 10,425 (68,400)
Notes receivable from Executive................... (14,000) (11,750)
---------- ----------
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:
Modified EBITDA(2).................................. $ (8,821) $(23,262) $(32,083)
Cash used in operating activities................... (6,047) (22,508) (28,554)
Cash used in investing activities................... (3,709) (9,487) (13,196)
Cash provided by financing activities............... 11,058 36,500 47,558
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,
(Footnotes continued on next page)
35
<PAGE>
(Footnotes continued from previous page)
1996, the nine months ended September 30, 1997, and the period March 5, 1996
(date of inception) to September 30, 1997 would have been $10,855,000,
$26,890,000 and $37,745,000, respectively.
(2) Modified EBITDA consists of operating loss expense and amortization of notes
receivable from Executive before depreciation and amortization, interest
expense and loan fees, net, CARs and Appreciation Units. EBITDA, consisting
of operating loss before depreciation and amortization, interest expense,
and net loan fees, is a measure commonly used in the telecommunications
industry and is presented to assist in understanding the Company's operating
results. Additionally, certain covenants contained in the Indentures will be
calculated based on EBITDA. Although EBITDA should not be construed as a
substitute for operating income determined in accordance with generally
accepted accounting principles, it is included 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 $13.5 million,
$77.4 million and $90.9 million, respectively. After giving pro forma effect
to the Transactions and the Offerings as if they occurred at the beginning
of the period presented, the deficiency of earnings to fixed changes would
have been $15.0 million for the period March 5, 1996 (date of inception) to
December 31, 1996 and $46.3 million for the nine months ended September 30,
1997.
36
<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'. 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 lines. Teligent's market research indicates that a significant portion
of its target customer base is currently
37
<PAGE>
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 already been acquired. Multiple customers located in
the same building can therefore share a single rooftop
38
<PAGE>
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.
39
<PAGE>
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.
40
<PAGE>
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
$92.4 million. This amount includes $54.7 million of non-cash compensation,
consisting of expenses associated with the CARs and Appreciation Units. 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 $80.7 million, including $2.9 million
relating to the cost of wireless communications services, $25.6 million of
sales, general and administrative expenses, primarily due to payroll and
consulting costs relating to the commencement of operations of the Company, and
$51.9 million of non-cash expense associated with the CARs and the Appreciation
Units. 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 $14.1 million, including $1.6 million
relating to the cost of wireless communication services and $9.6 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.'
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,
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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. The Company
estimates that through December 2000, $530 million will be required for capital
expenditures, $350 million will be required to fund operating losses and $140
million will be required for cash interest and financing fees. 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. 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
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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. In November 1997, the Company used $43.0 million of the
Additional Sponsor Cash Contributions to repay the outstanding balance of the
Revolving Credit Agreement.
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 cash 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. In connection with the Strategic Equity Investment, the
original members of Teligent, L.L.C. have made additional cash contributions to
Teligent, L.L.C. in the aggregate amount of $60 million. In addition, Associated
has agreed to contribute to Teligent the business and operations of its wireless
competitive access provider in Los Angeles, California.
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. These licenses have been granted by
the FCC and except for the New York and Boston licenses described below, such
grants are no longer subject to any petitions, challenges or administrative or
judicial review. The Company's licenses are the subject of other proceedings
pending before the FCC. See 'Risk Factors--Relocation to 24 GHz; Pending FCC
Petitions' and 'Regulation--Federal Regulation--Teledesic.' On October 29, 1997,
the Company was granted 24 GHz
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licenses in Boston, MA and New York, NY pursuant to certain applications
previously filed on MSI with the FCC, the grant of such licenses may be subject
to petitions for reconsideration. 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 November 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 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 November 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 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 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.
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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.
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
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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 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 customers 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.
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TELIGENT'S NETWORK ARCHITECTURE
The Company intends to deploy its own 24 GHz fixed wireless
point-to-multipoint broadband local networks to provide last mile connectivity
in its licensed market areas. Prior to commercial deployment of the
point-to-multipoint networks, and where otherwise economically attractive, the
networks may also include point-to-point links and resold local services. The
Company believes that this flexibility will allow it to accommodate new
customers quickly, as well as expand its addressable customer base. Teligent
also expects to offer long 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.
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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. 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
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expected to consist of direct mailings, highly localized advertising, inbound
telemarketing, an Internet web page and select promotional events. Teligent
anticipates that, over time, marketing and advertising will be expanded to mass
media with market-wide and potentially nationwide coverage, outbound
telemarketing and select indirect sales channels such as resellers, agents and
other partnerships.
The Company is in the process of creating a centralized marketing group
responsible for developing the Teligent product line and for ensuring that each
of its components and overall package of services are competitive. Teligent's
initial focus is on local exchange service where it believes it has a
significant advantage, but the Company expects that where demand exists, it will
bundle additional product lines, such as resold long distance and Internet
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
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companies. These long distance services will include domestic intrastate,
interstate and international calling, toll-free services (800, 888), calling
card, and conference call bridging and other enhanced services. When the
Company's coverage area spans multiple LATAs, it plans to use its own facilities
to provide inter-LATA long distance service.
Internet and Data Services. The Company intends to offer transport for
Internet services from the customer premise to an Internet access point in each
city, using the high bandwidth capacity of its 24 GHz networks. It also intends
to offer Internet access through resale, partnership or outsourcing, as a part
of a bundled offering under the Teligent brand name. These Internet services are
expected to include routing, addressing, DNS, registration services, network
security and fire walls, intranet services, e-mail, news servers, hosting and
peering.
Dedicated Private Line. Teligent intends to provide local dedicated data
access circuits as well as the long distance portion of those circuits on a
resale basis. These lines, which link customers' LANs together to create MANs
and WANs, are used by banks, billing clearinghouses, advertising agencies,
hospitals and other businesses to exchange large data files as well by any
business to connect offices for file sharing, e-mail and workgroup applications.
WHOLESALE TRANSPORT
The Company believes it is also well positioned to capitalize on the
opportunity to provide flexible high bandwidth telecommunications transport
services to other carriers including IXCs, ISPs, CAPs, CLECs, and ILECs. The
marketplace demand for such telecommunications transport services is
experiencing substantial growth as a result of the increased acceptance and
reliance on the Internet by business users as well as the emergence of bandwidth
intensive applications such as videoconferencing, Internet telephony, and large
data file transfers. Although not its core strategy, after penetrating a market
area, the Company may sell excess capacity to generate additional revenue and
increase local network utilization. The Company may also offer wireless backhaul
services to connect the cell sites of cellular and PCS companies to their mobile
switching centers.
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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>
52
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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
53
<PAGE>
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
54
<PAGE>
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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<PAGE>
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 local 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 July 18, 1997
decision, the United States Court of Appeals for the Eighth Circuit vacated
significant portions of the Interconnection Order, including its provisions
governing the pricing of local telecommunications services and unbundled network
elements, its unbundling requirements and its 'pick and choose' provision (which
enabled a telecommunications carrier to demand any term of an ILEC's
interconnection contract with another carrier). See 'Regulation'. The 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 these decisions by the U.S. Supreme Court. Although the Company
believes that the final outcome of the Eighth Circuit decisions, 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. 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 on the MSI and DSC
assignment applications and the FCC grant thereof has become final.
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 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, Maryland, Virginia, Colorado and Washington,
D.C. 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 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
65
<PAGE>
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
Certificate of Incorporation, which will become effective pursuant to the
Reorganization (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
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<PAGE>
holders of Series B-2 Common Stock and one director will be elected by the
holders of Series B-3 Common Stock. Upon the consummation of the Offerings, all
of the Series B-1 Common Stock, Series B-2 Common Stock and Series B-3 Common
Stock will be held by MSI, DSC (or other affiliate of Telcom Ventures) and NTT
(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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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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<PAGE>
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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<PAGE>
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. Based on
the assumptions set forth in the first sentence of the immediately preceding
paragraph, 14,588,532 shares of Class A Common Stock will initially be reserved
for issuance pursuant to awards
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<PAGE>
under the Stock Plan, including 12,344,939 shares issuable upon exercise of the
Conversion Options. (See 'Conversion of CARs and Appreciation Units into Stock
Options.') Shares to be issued pursuant to the exercise or vesting of awards
granted under the Stock Plan may be authorized but unissued shares or treasury
shares of Class A Common Stock. The Stock Plan provides that no participant can
receive awards thereunder (excluding Conversion Options) that relate to shares
of Class A Common Stock which in the aggregate exceed 20% of the total number of
shares of Common Stock reserved for issuance under the Stock Plan. The Stock
Plan provides that the Board of Directors or the Committee (as defined below)
may amend, suspend or terminate the Stock Plan at any time; provided, however,
that no amendment that requires stockholder approval under applicable law in
order for the Stock Plan to comply with Section 162(m) of the Internal Revenue
Code of 1986, as amended (the 'Code') shall be effective unless the same shall
be approved by the stockholders of the 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. See 'Shares Eligible for Future Sale.'
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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 the Telcom Stockholder
will be converted into 17,206,210 shares of Series B-2 Common Stock; (iii) the
interest of NTTA&T will be converted into 5,783,400 shares of Series B-3 Common
Stock (defined below), including the 3,470,040 shares acquired by NTTA&T at the
Second Closing; and (iv) the interest of the FirstMark Sole Stockholder will be
converted into 1,831,410 shares of Class A Common Stock. The Company will
receive no additional consideration in connection with such conversion of member
interests into shares of Common Stock pursuant to the Reorganization.
THE ADDITIONAL SPONSOR EQUITY CONTRIBUTIONS
In connection with the First Closing under the NTT Purchase Agreement (see
'The Strategic Equity Investment' immediately below), the original members of
Teligent, L.L.C. have made additional cash contributions to Teligent, L.L.C. in
the aggregate amount of $60 million. In addition, Associated has agreed 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 number of shares
of Series B-3 Common Stock representing 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 of Series B-3 Common Stock 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
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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 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
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Registrations. Under the Registration Rights Agreement, the Company is required
to indemnify the selling stockholders, and the Company may request as a
condition to effecting any registration indemnification from the selling
stockholders, against certain liabilities in respect of any registration
statement covered by the agreement.
NTT is permitted under the Registration Rights Agreement to assign its
rights thereunder to any person to which it transfers no less than 20% of the
NTT Registrable Securities. The Registration Rights Agreement terminates with
respect to particular NTT Registrable Securities when (i) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities have been disposed of
under such registration statement, (ii) such securities have been transferred
pursuant to Rule 144, (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
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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).
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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 MSI and DSC in the form of loans 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 to MSI
and DSC. 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 'piggyback' 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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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.'
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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 (and assuming an initial public
offering price of $20.50 per share, the midpoint of the initial public offering
price range in 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>
CLASS B COMMON
STOCK
------------------
SERIES B-1 COMMON
CLASS A COMMON STOCK CLASS B COMMON STOCK STOCK
------------------------------------- --------------------------------------- ------------------
BEFORE OFFERING AFTER OFFERING BEFORE OFFERING AFTER OFFERING BEFORE OFFERING
NAME AND ADDRESS OF BENEFICIAL ----------------- ----------------- ------------------ ------------------ ------------------
OWNER NUMBER(9) %(10) NUMBER(9) %(10) NUMBER(9) %(10) NUMBER(9) %(10) NUMBER(9) %(10)
- ------------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
The Associated Group, Inc. -- -- -- -- 21,436,689 48.3 21,436,689 48.3 21,436,689 100.0
(1) ..........................
200 Gateway Towers
Pittsburgh, PA 15222
Telcom Ventures, L.L.C.(2) .... -- -- -- -- 17,206,210 38.7 17,206,210 38.7 -- --
211 N. Union Street
Suite 300
Alexandria, VA 22201
Lynn Forester ................. 1,831,410 100.0 1,831,410 25.0 -- -- -- -- -- --
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 -- --
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 -- -- -- -- -- --
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 -- -- -- -- -- --
<CAPTION>
CLASS B COMMON STOCK
--------------------------------------------------------------------------------------------
SERIES B-1
COMMON STOCK SERIES B-2 COMMON STOCK SERIES B-3 COMMON STOCK
------------------ --------------------------------------- -------------------------------
AFTER
AFTER OFFERING BEFORE OFFERING AFTER OFFERING BEFORE OFFERING OFFERING
NAME AND ADDRESS OF BENEFICIAL ------------------ ------------------ ------------------ ------------------ ----------
OWNER NUMBER(9) %(10) NUMBER(9) %(10) NUMBER(9) %(10) NUMBER(9) %(10) NUMBER(9)
- ------------------------------- ---------- ----- ---------- ----- ---------- ----- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
The Associated Group, Inc. 21,436,689 100.0 -- -- -- -- -- -- --
(1) ..........................
200 Gateway Towers
Pittsburgh, PA 15222
Telcom Ventures, L.L.C.(2) .... -- -- 17,206,210 100.0 17,206,210 100.0 -- -- --
211 N. Union Street
Suite 300
Alexandria, VA 22201
Lynn Forester ................. -- -- -- -- -- -- -- -- --
c/o FirstMark Holdings
527 Madison Avenue
New York, NY 10022
Nippon Telegraph and Telephone -- -- -- -- -- -- 5,783,400 100.0 5,783,400
Corporation ..................
Tokyo Opera City Tower
20-2 Nishi-Shinjuku 3-chome
Shinjuku-ku, Tokyo 163-14
Japan
Alex J. Mandl(3)............... -- -- -- -- -- -- -- -- --
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)................... -- -- -- -- -- -- -- -- --
<CAPTION>
CLASS B
COMMON STOCK
------------
SERIES B-3 PERCENTAGE OF
COMMON STOCK VOTING
------------ POWER
AFTER OUTSTANDING(9)
OFFERING -------------------
NAME AND ADDRESS OF BENEFICIAL ------------ BEFORE AFTER
OWNER %(10) OFFERING OFFERING
- ------------------------------- ----- -------- --------
<S> <C> <C> <C>
The Associated Group, Inc. -- 46.3% 41.4%
(1) ..........................
200 Gateway Towers
Pittsburgh, PA 15222
Telcom Ventures, L.L.C.(2) .... -- 37.2% 33.2%
211 N. Union Street
Suite 300
Alexandria, VA 22201
Lynn Forester ................. -- 4.0% 3.5%
c/o FirstMark Holdings
527 Madison Avenue
New York, NY 10022
Nippon Telegraph and Telephone 100.0 12.5% 11.2%
Corporation ..................
Tokyo Opera City Tower
20-2 Nishi-Shinjuku 3-chome
Shinjuku-ku, Tokyo 163-14
Japan
Alex J. Mandl(3)............... -- 2.1% 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)................... -- 3.4% 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., an
affiliate of Telcom Ventures, L.L.C.
(Footnotes continued on next page)
79
<PAGE>
(Footnotes continued from previous page)
(3) Based on a Conversion Trading Price of $20.50 per share, (the midpoint of
the initial public offering price range in the Equity Offerings (see
'Management--Conversion of CARs and Appreciation Units into Stock
Options'). 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) Based on a Conversion Trading Price of $20.50 per share, (the midpoint of
the initial public offering price range in the Equity Offerings (see
'Management--Conversion of CARs and Appreciation Units into Stock
Options'). 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) Based on a Conversion Trading Price of $20.50 per share, (the midpoint of
the initial public offering price range in the Equity Offerings (see
'Management--Conversion of CARs and Appreciation Units into Stock
Options'). 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.
(6) Based on a Conversion Trading Price of $20.50 per share, (the midpoint of
the initial public offering price range in the Equity Offerings (see
'Management--Conversion of CARs and Appreciation Units into Stock
Options'). 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) Based on a Conversion Trading Price of $20.50 per share, (the midpoint of
the initial public offering price range in the Equity Offerings (see
'Management--Conversion of CARs and Appreciation Units into Stock
Options'). 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) Based on a Conversion Trading Price of $20.50 per share, (the midpoint of
the initial public offering price range in the Equity Offerings (see
'Management--Conversion of CARs and Appreciation Units into Stock
Options'). 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.
80
<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
81
<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
date 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.
82
<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, 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.
83
<PAGE>
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 Restricted 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
84
<PAGE>
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 (such Restricted Subsidiary, a 'Subsidiary Guarantor')
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
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Subsidiary of the Company) unless the Company acquires at the same time not less
than its Proportionate Interest 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
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Board of Directors of the Company that will take longer than such 360 day period
to complete, the Company 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 and any Subsidiary Guarantors, 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 Subsidiary 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 Subsidiary 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 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 or a nationally recognized investment
banking firm 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.
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.
'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-ANNUAL ACCRUAL DATE VALUE
- ---------------------------------------------------------------- --------
<S> <C>
Issue Date...................................................... $
, 1998................................................
, 1998................................................
, 1999................................................
, 1999................................................
, 2000................................................
, 2000................................................
, 2001................................................
, 2001................................................
, 2002................................................
, 2002................................................ $1000;
</TABLE>
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(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 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
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(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 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
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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 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
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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 Annualized 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 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
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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).
'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
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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 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
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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 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
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$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 applicable 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 (in the case of the Senior Notes) and the
lesser of the Accreted Value or principal amount at Stated Maturity (in the case
of the Senior Discount Notes) 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 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.
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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 J. 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 and Permitted Temporary Investments; (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 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
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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.
'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
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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 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
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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
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 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.
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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 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 of By-laws of the Company, which will become effective upon
consummation of the Reorganization (the 'By-laws'), 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
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number of issued and outstanding shares of Series B-3 Common Stock (exclusive of
any shares held in the 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
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holder of Series B-2 Common Stock ceases to be so controlled, then any shares of
Series B-2 Common Stock held by such holder will be deemed to have been
transferred to a person or entity other than a Permitted Transferee; and (iii)
in the case of any holder of shares of Series B-3 Common Stock, NTT and any
corporation, partnership or other business entity directly or indirectly
controlled by NTT at the time of transfer. Notwithstanding the foregoing, any
holder of shares of Class B Common Stock, or any Permitted Transferee of such
holder, will be permitted to grant a security interest in, or pledge, pursuant
to a bona fide financing arrangement involving such holder or Permitted
Transferee, all or any portion of such holder's or Permitted Transferee's shares
of Class B Common Stock, if (i) such grant or pledge does not require
registration or qualification pursuant to any federal or state securities laws
and (ii) the Company receives copies of any instruments evidencing such grant or
pledge and such secured party's or pledgee's written acknowledgment that it has
reviewed the terms of the Certificate of Incorporation. No such grant or pledge
will by itself cause the conversion of any such shares of Class B Common Stock
into shares of Class A Common Stock; provided, however, that if any such secured
party or pledgee (which is not a Permitted Transferee of the holder making such
grant or pledge) forecloses upon any such shares of Class B Common Stock, such
foreclosure, without any 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
In the opinion of Skadden, Arps, Slate, Meagher & Flom, LLP, counsel to the
Company, the following discussion is an accurate summary of the material 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
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are advised to consult their tax advisors regarding the applicability and
operation of the AHYDO rules to their investment in Senior Discount Notes.
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 holder of a Note that is a United States person 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).
The IRS recently issued Treasury regulations, generally effective for
payments made after December 31, 1998, concerning the withholding of tax and
reporting for certain amounts paid to non-resident individuals and foreign
corporations. Among other things, these Treasury regulations may require
Non-U.S. Holders to furnish new certification of their foreign status after
December 31, 1998. Prospective purchasers of Notes should consult their tax
advisors concerning the applicability and effect of such Treasury regulations on
an investment in Notes.
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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 new issues of securities with no established trading market.
The Company does not intend to apply for listing of any of the Notes on any
securities exchange or for quotation of any of the Notes through any
inter-dealer quotation system. The Company has been advised by the Underwriters
that they presently intend to make a market in the Notes as permitted by
applicable laws and regulations. The Underwriters are not obligated, however, to
make a market in any of the Notes and any such marketmaking may be discontinued
at any time at the sole discretion of the Underwriters. No assurance can be
given as to the liquidity of, or the trading market for, the Notes.
In connection with the Notes Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Underwriters may overallot the offering, creating a
short position. In addition, the Underwriters may bid for, and purchase Notes in
the open market to cover short sales or to stabilize the price of the Notes.
Finally, the underwriting syndicate may reclaim selling concessions allowed for
distributing the Notes in the Notes Offering if the syndicate repurchases
previously distributed Notes in syndicate covering transactions, stabilization
transactions or otherwise. Any of these activities may stabilize or
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maintain the market price of the Notes above independent market levels. The
Underwriters are not required to engage in these activities and may end any of
these activities at any time.
Each Underwriter has represented and agreed that (i) it has not offered or
sold and, prior to the date six months after the date of issue of the Notes,
will not offer and sell any Notes to persons in the United Kingdom, except to
persons whose ordinary activities involve them in acquiring, holding, managing
or disposing of investments (as principal or agent) for the purposes of their
businesses, or otherwise in circumstances which do not constitute an offer to
the public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Notes in, from or otherwise involving the
United Kingdom; and (iii) it has only issued or passed on and will only issue or
pass on in the United Kingdom any document received by it in connection with the
issue of the Notes to a person who is of a kind described in Article 11(3) of
the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order
1996, or to any person to whom the document may otherwise lawfully be issued or
passed on.
Certain of the Underwriters and their respective affiliates have provided
from time to time, and expect to provide in the future, financial advisory and
investment banking services for, and/or have normal banking relationships with,
the Company and its affiliates, for which they receive customary compensation.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the
Company by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York and for
the Underwriters by Shearman & Sterling, New York, New York.
EXPERTS
The financial statements of Teligent, L.L.C. (a development stage company)
(formerly Associated Communications, L.L.C.) at December 31, 1996, and for the
period March 5, 1996 (date of inception) to December 31, 1996 appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, and the information under the caption 'Selected Financial
Data' for the period March 5, 1996 (date of inception) to December 31, 1996,
appearing in this Prospectus and Registration Statement have been derived from
financial statements audited by Ernst & Young LLP, as set forth in their report
thereon appearing elsewhere herein.
Such financial statements and selected financial data are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
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ANNEX A
GLOSSARY
24 GHZ--The portion of the radio frequency spectrum in which fixed wireless
licensees may hold up to five 80 MHz channels located between 24.25 GHz and
24.45 GHz and 25.05 and 25.25 GHz.
ACCESS CHARGES--The fees paid by long distance carriers to LECs for
originating and terminating long distance calls on their local networks.
ADSL (ASYMMETRICAL DIGITAL SUBSCRIBERS LINE)--A technology designed for
conventional copper wire connections which provides a 1.5-8 Mbps downstream data
transfer rates, and 16-640 Kbps upstream data transfer rates. The speed of the
connection is limited by the distance the signal must travel.
ATM (ASYNCHRONOUS TRANSFER MODE)--ATM is packet-based switching and
transmission technology used to transmit voice, data and video.
BANDWIDTH--At any given level of compression, the amount of information
transportable over a link per unit of time. A single T-1 circuit will carry up
to 1,544,000 bits (or 1.544 megabits) per second.
BIT--A bit is the basic unit of information, yes-or-no, on-or-off, 1-or-0
in the binary (base 2) system which is the basis of digital computing. In
contrast, a voice telephone signal over a copper wire is analog, reflecting a
continuous range of vocal tone (frequency) and volume (amplitude).
BROADBAND--Data streams of at least 1.544 megabits per second. Broadband
communications systems can transmit large quantities of voice, data and video by
way of digital or analog signals. Examples of broadband communications systems
include DS-3 systems, which can transmit 672 simultaneous voice conversations,
or a broadcast television station signal that transmits high resolution audio
and video signals into the home. Broadband connectivity is an essential element
for interactive multimedia applications.
CAP (COMPETITIVE ACCESS PROVIDER)--A company that provides its customers
with an alternative to the local telephone company for local and interstate
transport of private line, special access and switched access telecommunications
services. CAPs are also referred to in the industry as competitive local
exchange carriers (CLECs), alternative local telecommunications service
providers (ALTs) and metropolitan area network providers (MANs) and were
formerly referred to as alternative access vendors (AAVs).
CELLULAR--Characterized by 'cells,' the area accessible by 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.
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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 CARs and Appreciation Units............................................................. 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........................................................................... 24,058,158
Deficit accumulated during the development stage................................................ (13,632,693)
------------
Sub-total....................................................................................... 10,425,465
Notes receivable from Executive (Note 4)........................................................ (14,000,000)
------------
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............................................................... 9,582,637
CARs and Appreciation Units..................................................................... 2,778,165
Depreciation and amortization................................................................... 164,051
------------
Total costs and expenses.......................................................................... 14,149,859
------------
Operating loss.................................................................................... (12,763,517)
Interest expense and loan fees.................................................................... (869,176)
------------
Net loss.......................................................................................... $(13,632,693)
------------
------------
Unaudited Information (Note 10):
Pro forma loss per share........................................................................ $(.30)
------------
------------
Pro forma weighted average common shares outstanding............................................ 46,257,709
</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>
NOTES
RECEIVABLE
CAPITAL ACCUMULATED FROM TOTAL
CONTRIBUTIONS DEFICIT EXECUTIVE DEFICIT
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at March 5, 1996 (date of inception)...... $ -- $ -- $ -- $ --
Member capital contributions.................... 24,058,158 -- -- 24,058,158
Notes receivable from Executive................. -- -- (15,000,000) (15,000,000)
Amortization of notes receivable from
Executive.................................... -- -- 1,000,000 1,000,000
Net loss........................................ -- (13,632,693) -- (13,632,693)
------------- ------------ ------------ ------------
Balance at December 31, 1996...................... $ 24,058,158 $(13,632,693) $(14,000,000) $ (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.......................................................................................... $(13,632,693)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization................................................................... 164,051
Amortization of Notes receivable from Executive................................................. 1,000,000
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 CARs and Appreciation Units.......................................................... 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.
Long-Lived Assets
In accordance with Financial Accounting Standard No. 121, 'Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of,' management periodically reviews the carrying value and lives of property
and equipment and intangible assets based on expected future cash flows.
Capitalization of Interest
The Company accounts for capitalized interest in accordance with the
provisions of Statement of Financial Accounting Standards No. 34,
'Capitalization of Interest Cost.'
Revenue Recognition
Revenue from management fees, equipment leases, and other services provided
to members are recognized as earned on the accrual basis. Revenue from providing
DTS services is recognized when services are rendered based on usage of the
Company's exchange networks and facilities.
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.
F-7
<PAGE>
TELIGENT, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
2. SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
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 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. NOTES RECEIVABLE FROM EXECUTIVE AND DEFERRED COMPENSATION
An executive officer of the Company (the 'Executive') serves under an
employment agreement dated September 1, 1996 (the 'Agreement') that provides
for, among other things, a loan of $15,000,000 at an interest rate of 6.53% per
year, of which $8,250,000 and $6,750,000 was advanced to the Executive from MSI
and DSC, respectively. Under the terms of the Agreement, one-fifth of the
principal and interest due under the notes will be forgiven on each of the
Executives first two employment anniversary dates if he is still employed by
Teligent, and the remainder will be forgiven on the fifth anniversary of
employment. In the event that the Executive terminates his employment prior to
the fifth anniversary date (other than by reason of his death or disability or
for good reason as defined in the Agreement), any outstanding principal and
accrued interest on the notes will become immediately due and payable to MSI and
DSC. As a result, Teligent is expensing the accrued interest and principal over
five years, and as such, the balance at December 31, 1998 is $14,000,000. In
addition, the Agreement also provides for 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>
F-8
<PAGE>
TELIGENT, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
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 units
('Appreciation Units') may be granted to employees, directors, and consultants
of the Company. Each Appreciation Unit represents .00001% (subject to
adjustment) of the Appreciation Value associated with that Right, as defined in
the Plan. In 1996, 562,000 Appreciation Units 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 Appreciation Units 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
F-9
<PAGE>
TELIGENT, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
7. RELATED PARTY TRANSACTIONS--(CONTINUED)
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.
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.
10. UNAUDITED INFORMATION
The pro forma weighted average common shares outstanding of 46,257,709
reflects the shares outstanding upon conversion of Teligent L.L.C. to Teligent,
Inc.
F-10
<PAGE>
TELIGENT, L.L.C.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash..................................................................... $ 5,808,127 $ 1,302,612
Accounts receivable...................................................... 19,340 4,865
Employee loans and advances.............................................. 2,415,716 --
Due from related parties................................................. 2,522,794 38,253
Prepaid expenses and other assets........................................ 622,827 151,182
------------------ -----------------
Total current assets.................................................. 11,388,804 1,496,912
Property and equipment:
Operating equipment...................................................... 4,093,939 1,999,690
Furniture and equipment.................................................. 1,141,112 524,663
Leasehold improvements................................................... 30,782 25,879
Systems in process....................................................... 2,159,973 1,158,768
------------------ -----------------
7,425,806 3,709,000
Accumulated depreciation and amortization.................................. (470,120) (164,051)
------------------ -----------------
Property and equipment--net................................................ 6,955,686 3,544,949
Payment to wireless communications company................................. 5,570,000 --
Investment in wireless communications business............................. 200,000 --
Management fees receivable................................................. 203,376 103,468
------------------ -----------------
Total assets............................................................... $ 24,317,866 $ 5,145,329
------------------ -----------------
------------------ -----------------
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Accounts payable......................................................... $ 3,906,330 $ 3,002,179
Employee compensation.................................................... 1,996,848 462,667
Accrued expenses......................................................... 396,011 --
Payable to related parties............................................... -- 184,305
Revolving line-of-credit................................................. 38,500,000 2,000,000
Accrued CARs and Appreciation Units--current............................. 17,898,516 2,778,165
------------------ -----------------
Total current liabilities............................................. 62,697,705 8,427,316
Deferred compensation...................................................... 955,557 292,548
Accrued CARs and Appreciation Units--long-term............................. 36,815,087 --
Contingent liability--see note 3........................................... 4,000,000 --
Members' deficit:
Capital contributions.................................................... 24,058,158 24,058,158
Deficit accumulated during the development stage......................... (92,458,641) (13,632,693)
------------------ -----------------
Subtotal................................................................... (68,400,483) 10,425,465
Notes receivable from Executive.......................................... (11,750,000) (14,000,000)
------------------ -----------------
Total members' deficit................................................ (80,150,483) (3,574,535)
------------------ -----------------
Total liabilities and members' deficit..................................... $ 24,317,866 $ 5,145,329
------------------ -----------------
------------------ -----------------
</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.......................................... 25,551,033 35,133,670
CARs and Appreciation Units................................................ 51,935,438 54,713,603
Depreciation and amortization.............................................. 306,069 470,120
------------- ----------------------
Total costs and expenses................................................ 80,667,094 94,816,953
------------- ----------------------
Operating loss............................................................... (77,753,306) (90,516,823)
Interest expense and loan fees............................................... (1,072,642) (1,941,818)
------------- ----------------------
Net loss..................................................................... $ (78,825,948) $(92,458,641)
------------- ----------------------
------------- ----------------------
Pro forma loss per share..................................................... $ (1.70) $ (2.00)
------------- ----------------------
------------- ----------------------
Pro forma weighted average common shares oustanding.......................... 46,257,709 46,257,709
</TABLE>
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>
NOTES
RECEIVABLE
CAPITAL ACCUMULATED FROM TOTAL
CONTRIBUTIONS DEFICIT EXECUTIVE DEFICIT
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at March 5, 1996 (date of inception)...... $ -- $ -- $ -- $ --
Member capital contributions.................... 24,058,158 -- -- 24,058,158
Notes receivable from Executive................. -- -- (15,000,000) (15,000,000)
Amortization of notes receivable from
Executive.................................... -- -- 3,250,000 3,250,000
Net loss........................................ -- (92,458,641) -- (92,458,641)
------------ ------------ ------------ ------------
Balance at September 30, 1997..................... $ 24,058,158 $(92,458,641) $(11,750,000) $(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................................................................ $(78,825,948) $(92,458,641)
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
Amortization of notes receivable from Executive...................... 2,250,000 3,250,000
CARs and Appreciation Units.......................................... 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, except for the December 31, 1996 Condensed Balance
Sheet, which has been derived from the 1996 audited financial statements, 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.
These financial statements should be read in conjunction with the 1996
audited financial statements.
(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................................................ 19
Use of Proceeds............................................. 31
Unaudited Pro Forma Balance Sheet........................... 32
Selected Financial Data..................................... 34
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 37
Business.................................................... 44
Telecommunications Industry Overview........................ 57
Regulation.................................................. 58
Management.................................................. 64
Certain Transactions........................................ 72
Certain Relationships and Related Transactions.............. 75
Security Ownership of Certain Beneficial Owners and
Management................................................ 79
Description of the Notes.................................... 81
Description of Certain Indebtedness......................... 108
Description of Capital Stock................................ 110
Certain Federal Income Tax Considerations................... 115
Underwriting................................................ 118
Legal Matters............................................... 119
Experts..................................................... 119
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
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 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 the 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
(including the shares issued to Nippon Telegraph and Telephone Company described
in the following paragraph). 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 Purchase Agreement.(1)
3.1 -- Form of Certificate of Incorporation of Registrant.(3*)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.2 -- Form of By-laws of Registrant.(3*)
4.1 -- Form of Stockholders Agreement.(1)
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.(1)
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.(1)
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.(1)
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.(3)
10.2 -- Stock Contribution Agreement, dated as of March 10, 1997, among Associated Communications, L.L.C.,
Firstmark Communications, Inc. and Lynn Forester.(3)
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.(3)
10.4 -- Form of Registration Rights Agreement, by and among Teligent, L.L.C. and Nippon Telegraph and
Telephone Corporation.(3)
10.5 -- Form of Technical Services Agreement, by and among Teligent, L.L.C. and NTT America, Inc.(1)
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.(1)
10.7 -- Agreement and Plan of Merger, dated as of October 6, 1997, by and between Teligent, Inc. and
Teligent, L.L.C.(3)
10.8 -- Form of Lease 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.(1)
10.9 -- Teligent, Inc. 1997 Stock Incentive Plan.(2)
10.10 -- Financing Commitment Letter of Intent, dated October 28, 1997, by and between Northern Telecom
Inc. and Teligent, Inc.(1)
10.11 -- Promissory Note, dated February 1, 1997, by Kirby G. Pickle, Jr. to Associated Communications,
L.L.C.(1)
10.12 -- Promissory Note, dated October 29, 1997, by Abraham L. Morris to Associated Communications,
L.L.C.(2)
10.13 -- Promissory Note, dated August 5, 1997, by Laurence E. Harris to Associated Communications,
L.L.C.(1)
10.14 -- Promissory Note, dated April 7, 1997, by Steven F. Bell to Associated Communications, L.L.C.(1)
11.1 -- Statement of Computation of Per Share Earnings.(1)
21.1 -- Subsidiaries of the Company.(1)
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.(3)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C>
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.(3)
</TABLE>
- ------------------
(1) Filed herewith.
(2) To be filed by amendment.
(3) Previously filed.
* To be effective prior to consummation of the Offering.
(b) Financial Data Schedules. All required information is set forth in the
financial statements included in the Prospectus constituting part of this
Registration Statement.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event 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. 2 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN VIRGINIA, ON
NOVEMBER 10, 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. 2 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 November 10, 1997
- ------------------------------------------ Officer and Director
Alex J. Mandl
* Senior Vice President and Chief Financial November 10, 1997
- ------------------------------------------ Officer (Principal Financial Officer)
Abraham L. Morris
* Vice President and November 10, 1997
- ------------------------------------------ Controller (Principal Accounting Officer)
Cindy L. Tallent
* Director November 10, 1997
- ------------------------------------------
Myles P. Berkman
* Director November 10, 1997
- ------------------------------------------
David J. Berkman
* Director November 10, 1997
- ------------------------------------------
William H. Berkman
* Director November 10, 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 Purchase Agreement.(1)
3.1 -- Form of Certificate of Incorporation of Registrant.(3*)
3.2 -- Form of By-laws of Registrant.(3*)
4.1 -- Form of Stockholders Agreement.(1)
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.(1)
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.(1)
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.(1)
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.(3)
10.2 -- Stock Contribution Agreement, dated as of March 10, 1997, among Associated
Communications, L.L.C., Firstmark Communications, Inc. and Lynn Forester.(3)
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.(3)
10.4 -- Form of Registration Rights Agreement, by and among Teligent, L.L.C. and Nippon
Telegraph and Telephone Corporation.(3)
10.5 -- Form of Technical Services Agreement, by and among Teligent, L.L.C. and NTT America,
Inc.(1)
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.(1)
10.7 -- Agreement and Plan of Merger, dated as of October 6, 1997, by and between Teligent,
Inc. and Teligent, L.L.C.(3)
10.8 -- Form of Lease 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.(1)
10.9 -- Teligent, Inc. 1997 Stock Incentive Plan.(2)
10.10 -- Financing Commitment Letter of Intent, dated October 28, 1997, by and between Northern
Telecom Inc. and Teligent, Inc.(1)
10.11 -- Promissory Note, dated February 1, 1997, by Kirby G. Pickle, Jr. to Associated
Communications, L.L.C.(1)
10.12 -- Promissory Note, dated October 29, 1997, by Abraham L. Morris to Associated
Communications, L.L.C.(2)
10.13 -- Promissory Note, dated August 5, 1997, by Laurence E. Harris to Associated
Communications, L.L.C.(1)
10.14 -- Promissory Note, dated April 7, 1997, by Steven F. Bell to Associated Communications,
L.L.C.(1)
11.1 -- Statement of Computation of Per Share Earnings.(1)
21.1 -- Subsidiaries of the Company.(1)
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.(3)
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.(3)
</TABLE>
- ------------------
(1) Filed herewith.
(2) To be filed by amendment.
(3) Previously filed.
* To be effective prior to consummation of the offerings.
<PAGE>
- --------------------------------------------------------------------------------
TELIGENT, L.L.C.
(a Delaware limited liability company)
and
TELIGENT, INC.
(a Delaware corporation)
$250,000,000 ___% Senior Notes due 2007
$___________ ___% Senior Discount Notes due 2007
DEBT PURCHASE AGREEMENT
Dated: November __, 1997
- --------------------------------------------------------------------------------
<PAGE>
Table of Contents
<TABLE>
<S> <C>
PURCHASE AGREEMENT.............................................................................................. 1
SECTION 1. Representations and Warranties.................................................... 3
(a) Representations and Warranties by the L.L.C. and the Issuer....................... 3
(i) Compliance with Registration Requirements..................................... 3
(ii) Independent Accountants................................................. 4
(iii) Financial Statements.................................................... 4
(iv) No Material Adverse Change in Business.................................. 4
(v) Good Standing of the L.L.C.............................................. 5
(vi) Good Standing of the Issuer............................................. 5
(vii) Good Standing of Subsidiaries........................................... 5
(viii) Capitalization of the Company........................................... 6
(ix) Authorization of Agreement.............................................. 6
(x) Authorization and Description of Securities............................. 6
(xi) Absence of Defaults and Conflicts....................................... 6
(xii) Absence of Labor Dispute................................................ 7
(xiii) Absence of Proceedings.................................................. 7
(xiv) Accuracy of Exhibits.................................................... 8
(xv) Possession of Intellectual Property..................................... 8
(xvi) Absence of Further Requirements......................................... 8
(xvii) Possession of Licenses and Permits...................................... 8
(xviii) Title to Property....................................................... 9
(xix) Investment Company Act.................................................. 9
(xx) Environmental Laws...................................................... 9
(xxi) Registration Rights..................................................... 10
(xxii) Transactions............................................................ 10
(xxiii) Insurance Coverage...................................................... 10
(xxiv) Absence of Dividend Restrictions........................................ 11
(xxv) Filings of Tax Returns.................................................. 11
(xxvi) Maintenance of Internal Accounting Controls............................. 11
(b) Officer's Certificates............................................................ 11
SECTION 2. Sale and Delivery to Underwriters; Closing........................................ 11
(a) Securities........................................................................ 11
(b) Payment........................................................................... 12
(c) Denominations; Registration....................................................... 12
</TABLE>
- ------
* For high-yield offerings, counsel should also consider the additional
representations for use in high-yield offerings included in Annex B to this
form. The form of opinion of Company's consel should be revised accordingly.
<PAGE>
<TABLE>
<S> <C>
SECTION 3. Covenants of the Company.......................................................... 12
(a) Compliance with Securities Regulations and Commission
Requests....................................................................... 12
(b) Filing of Amendments.............................................................. 13
(c) Delivery of Registration Statements............................................... 13
(d) Delivery of Prospectus............................................................ 13
(e) Continued Compliance with Securities Laws......................................... 13
(f) Rule 158.......................................................................... 14
(g) Use of Proceeds................................................................... 14
(h) Listing........................................................................... 14
[(i) Restriction on Sale of Securities................................................. 14
(j) Reporting Requirements............................................................ 14
SECTION 4. Payment of Expenses............................................................... 15
(a) Expenses.......................................................................... 15
(b) Termination of Agreement.......................................................... 15
SECTION 5. Conditions of Underwriters' Obligations........................................... 15
(a) Effectiveness of Registration Statement........................................... 15
(b) Opinions of Counsel for the L.L.C. and the Issuer................................. 16
(c) Opinion of Counsel for Underwriters............................................... 16
(d) Officers' Certificate............................................................. 16
(e) Accountants' Comfort Letter....................................................... 17
(f) Bring-down Comfort Letter......................................................... 17
(g) Approval of Listing............................................................... 17
(h) No Objection...................................................................... 17
(i) Equity Transaction................................................................ 17
(j) Transactions...................................................................... 18
(k) Additional Documents.............................................................. 18
(l) Termination of Agreement.......................................................... 18
SECTION 6. Indemnification................................................................... 18
(a) Indemnification of Underwriters................................................... 18
(b) Indemnification of Issuer, Directors and Officers................................. 19
(c) Actions Against Parties; Notification............................................. 20
(d) Settlement Without Consent if Failure to Reimburse................................ 20
SECTION 7. Contribution...................................................................... 21
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery....................................................................... 22
SECTION 9. Termination of Agreement.......................................................... 22
(a) Termination; General.............................................................. 22
(b) Liabilities....................................................................... 23
SECTION 10. Default by One or More of the Underwriters........................................ 23
SECTION 11. Notices........................................................................... 24
SECTION 12. Parties........................................................................... 24
SECTION 13. GOVERNING LAW AND TIME............................................................ 24
SECTION 14. Effect of Headings................................................................ 24
</TABLE>
ii
<PAGE>
SCHEDULES
Schedule A - List of Underwriters
Schedule B-1 - Pricing Information Senior Notes
Schedule B-2 - Pricing Information--Senior Discount Notes
EXHIBITS
Exhibit A - Form of Opinion of Company Counsel
Exhibit B - Form of Opinion of Special Federal Regulatory Counsel
Exhibit C - Form of Opinion of General Counsel for the Company
iii
<PAGE>
TELIGENT, L.L.C.
(a Delaware limited liability company)
and
TELIGENT, INC.
(a Delaware corporation)
$250,000,000 ___% Senior Notes due 2007
$___________ ___% Senior Discount Notes due 2007
PURCHASE AGREEMENT
November __, 1997
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Salomon Brothers Inc
TD Securities (USA) Inc.
Goldman, Sachs & Co.
as Representatives of the several Underwriters
c/o Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281
Ladies and Gentlemen:
Teligent, L.L.C., a Delaware limited liability company (the "L.L.C."),
and Teligent, Inc., a Delaware corporation (the "Issuer"; references herein to
the "Company" mean, as of the date hereof, the L.L.C. and, as of the Closing
Time (as defined herein), the Issuer), confirm their agreement with Merrill
Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch") and each of the other Underwriters named in Schedule A hereto
(collectively, the "Underwriters", which term shall also include any underwriter
substituted as hereinafter provided in Section 10 hereof), for whom Merrill
Lynch, Salomon Brothers Inc, TD Securities (USA) Inc. and Goldman, Sachs & Co.
are acting as representatives (in such capacity, the "Representatives"), with
respect to the issue and sale by the Issuer and the purchase by the
Underwriters, acting severally and not jointly, of the respective principal
amounts and principal
<PAGE>
2
amounts at maturity set forth in said Schedule A of $250,000,000 aggregate
principal amount of the Issuer's ___% Senior Notes due 2007 (the "Senior Notes")
and $_____ aggregate principal amount at maturity of the Issuer's ___% Senior
Discount Notes due 2007 (the "Senior Discount Notes" and, together with the
Senior Notes, the "Securities"). The Senior Notes are to be issued pursuant to
an indenture dated as of o, 1997 (the "Senior Notes Indenture") between the
Issuer and First Union National Bank, as trustee (the "Trustee"), and the Senior
Discount Notes are to be issued pursuant to an indenture dated as of o, 1997
(the "Senior Discount Notes Indenture") between the Issuer and the Trustee (the
Senior Notes Indenture and the Senior Discount Notes Indenture, collectively,
the "Indentures").
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representatives deem advisable after
this Agreement has been executed and delivered and the Indentures have been
qualified under the Trust Indenture Act of 1939, as amended (the "1939 Act").
The Issuer has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-37373) and o
amendments thereto covering the registration of the Securities under the
Securities Act of 1933, as amended (the "1933 Act"), including the related
preliminary prospectus or prospectuses. Promptly after execution and delivery of
this Agreement, the Issuer will either (i) prepare and file a prospectus in
accordance with the provisions of Rule 430A ("Rule 430A") of the rules and
regulations of the Commission under the 1933 Act (the "1933 Act Regulations")
and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or
(ii) if the Issuer has elected to rely upon Rule 434 ("Rule 434") of the 1933
Act Regulations, prepare and file a term sheet (a "Term Sheet") in accordance
with the provisions of Rule 434 and Rule 424(b). The information included in
such prospectus or in such Term Sheet, as the case may be, that was omitted from
such registration statement at the time it became effective but that is deemed
to be part of such registration statement at the time it became effective (a)
pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A Information"
or (b) pursuant to paragraph (d) of Rule 434 is referred to as "Rule 434
Information." Each prospectus used before such registration statement became
effective, and any prospectus that omitted, as applicable, the Rule 430A
Information or the Rule 434 Information, that was used after such effectiveness
and prior to the execution and delivery of this Agreement, is herein called a
"preliminary prospectus." Such registration statement, including the exhibits,
schedules and amendments thereto, if any, at the time it became effective and
including the Rule 430A Information and the Rule 434 Information, as applicable,
is herein called the "Registration Statement." Any registration statement filed
pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the
"Rule 462(b) Registration Statement," and after such filing the term
"Registration Statement" shall include the Rule 462(b) Registration Statement.
The final prospectus in the form first furnished to the Underwriters for use in
connection with the confirmation of sales of the Securities is herein called the
"Prospectus." If Rule 434 is relied on, the term "Prospectus" shall refer to the
preliminary prospectus dated October 30, 1997 together with the Term Sheet and
all references in this Agreement to the date
<PAGE>
3
of the Prospectus shall mean the date of the Term Sheet. For purposes of this
Agreement, all references to the Registration Statement, any preliminary
prospectus, the Prospectus or any Term Sheet or any amendment or supplement to
any of the foregoing shall be deemed to include the copy filed with the
Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval
system ("EDGAR").
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the L.L.C. and the Issuer.
Each of the L.L.C. and the Issuer, jointly and severally, represents and
warrants to each Underwriter as of the date hereof, as of the Closing Time
referred to in Section 2(b) hereof, and agrees with each Underwriter, as
follows:
(i) Compliance with Registration Requirements. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the L.L.C. or the Issuer, are contemplated by the
Commission, and any request on the part of the Commission for
additional information has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments and
supplements thereto became effective and at the Closing Time, the
Registration Statement, the Rule 462(b) Registration Statement and any
post-effective amendments and supplements thereto complied and will
comply in all material respects with the requirements of the 1933 Act
and the 1933 Act Regulations and the 1939 Act and the rules and
regulations of the Commission under the 1939 Act (the "1939 Act
Regulations"), and did not and will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
Neither the Prospectus nor any amendments or supplements thereto
(including any prospectus wrapper), at the time the Prospectus or any
such amendment or supplement were issued and at the Closing Time,
included or will include an untrue statement of a material fact or
omitted or will omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. If Rule 434 is used, the Company
will comply with the requirements of Rule 434 and the Prospectus shall
not be "materially different", as such term is used in Rule 434, from
the prospectus included in the Registration Statement at the time it
became effective. The representations and warranties in this subsection
shall not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement or any post-effective
amendment thereto or the Prospectus or any amendments or supplements
thereto made in reliance upon and in conformity with information
furnished to the Company in writing
<PAGE>
4
by any Underwriter through the Representatives expressly for use in the
Registration Statement, any Rule 462(b) Registration Statement or any
post-effective amendment thereto or the Prospectus or any amendments or
supplements thereto.
Each preliminary prospectus and the prospectus filed as part
of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectus
delivered to the Underwriters for use in connection with this offering
was identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted
by Regulation S-T.
(ii) Independent Accountants. The accountants who
certified the financial statements and supporting schedules included
in the Registration Statement are independent public accountants as
required by the 1933 Act and the 1933 Act Regulations.
(iii) Financial Statements. The financial statements included
in the Registration Statement and the Prospectus, together with the
related schedules (if any) and notes, present fairly the financial
position of the L.L.C. at the dates indicated and the statement of
operations, members' deficit and cash flows of the L.L.C. for the
periods specified; said financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved. The
supporting schedules (if any) included in the Registration Statement
present fairly in accordance with GAAP the information required to be
stated therein. The selected financial data included in the Prospectus
present fairly the information shown therein and have been compiled on
a basis consistent with that of the audited financial statements
included in the Registration Statement. The pro forma balance sheet and
the related notes thereto included in the Registration Statement and
the Prospectus present fairly the information shown therein, have been
prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements and have been properly
compiled on the bases described therein, and the assumptions used in
the preparation thereof are reasonable and the adjustments used therein
are appropriate to give effect to the transactions and circumstances
referred to therein.
(iv) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business
(a "Material Adverse Effect"), (B) there have been no transactions
entered into by the Company or any of its subsidiaries, other than
those in the ordinary course of business, which are material with
respect to the
<PAGE>
5
Company and its subsidiaries considered as one enterprise, and (C)
there has been no dividend or distribution of any kind declared, paid
or made by the Company to any of its members or stockholders, as
applicable.
(v) Good Standing of the L.L.C. The L.L.C. has been duly
organized and is validly existing as a limited liability company in
good standing under the laws of the State of Delaware and has limited
liability company power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus
and to enter into and perform its obligations under this Agreement; and
the L.L.C. is duly qualified as a foreign limited liability company to
transact business and is in good standing in each other jurisdiction in
which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not
result in a Material Adverse Effect.
(vi) Good Standing of the Issuer. The Issuer has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and to enter into and perform
its obligations under this Agreement; and the Issuer is duly qualified
as a foreign corporation to transact business and is in good standing
in each other jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in
good standing would not result in a Material Adverse Effect.
(vii) Good Standing of Subsidiaries. Each "significant
subsidiary" of the Company (as such term is defined in Rule 1-02 of
Regulation S-X) (each a "Subsidiary" and, collectively, the
"Subsidiaries") has been duly organized and is validly existing as a
corporation or limited liability company (as applicable) in good
standing under the laws of the jurisdiction of its organization, has
corporate or limited liability company (as applicable) power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and is duly qualified as a
foreign corporation or limited liability company (as applicable) to
transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a
Material Adverse Effect; except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock
or members' interests (as applicable) of each such Subsidiary has been
duly authorized and validly issued, and, in the case of Subsidiaries
that are corporations, is fully paid and non-assessable, and is owned
by the Company, directly or through subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or equity
(except for any pledge thereof securing the Revolving Credit Agreement
(as defined in the Registration Statement)); none of the outstanding
shares of capital stock
<PAGE>
6
or members' interests (as applicable) of any Subsidiary was issued in
violation of the preemptive or similar rights of any securityholder or
member (as applicable) of such Subsidiary. The only subsidiaries of the
Company are the subsidiaries listed on Schedule D to this Agreement.
(viii) Capitalization of the L.L.C.. The capitalization of the
L.L.C. is as set forth in the Prospectus in the column entitled
"Actual" under the caption "Prospectus Summary--Pro Forma
Capitalization" (except for the repayment in full since September 30,
1997 of all outstanding amounts under the Revolving Credit Agreement).
The shares of issued and outstanding capital stock of the Issuer have
been duly authorized and validly issued and are fully paid and
non-assessable; none of the outstanding shares of capital stock of the
Issuer was issued in violation of the preemptive or other similar
rights of any member or securityholder of the L.L.C. or the Issuer.
(ix) Authorization of Agreement. This Agreement has been
duly authorized, executed and delivered by each of the L.L.C. and the
Issuer.
(x) Authorization and Description of Securities. The
Securities to be purchased by the Underwriters from the Issuer have
been duly authorized for issuance and sale to the Underwriters pursuant
to this Agreement and, when issued and delivered by the Issuer pursuant
to this Agreement against payment of the consideration set forth
herein, will be validly issued, fully paid and non-assessable; the
Securities conform to all statements relating thereto contained in the
Prospectus and such description conforms to the rights set forth in the
instruments defining the same; no holder of the Securities is or will
be subject to personal liability by reason of being such a holder; and
the issuance of the Securities is not subject to the preemptive or
other similar rights of any member or securityholder of the L.L.C. or
the Issuer.
(xi) Absence of Defaults and Conflicts. Neither the L.L.C.,
the Issuer nor any of their respective subsidiaries is in violation of
its organizational documents (in the case of a limited liability
company) or charter or by-laws (in the case of a corporation), or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or other agreement
or instrument to which either the L.L.C., the Issuer or any of their
respective subsidiaries is a party or by which it or any of them may be
bound, or to which any of the property or assets of either the L.L.C.,
the Issuer or any of their respective subsidiaries is subject
(collectively, the "Agreements and Instruments") except for such
violations or defaults that would not result in a Material Adverse
Effect; and the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated in this Agreement
and in the Registration Statement (including the consummation of the
Reorganization, the Additional Sponsor Equity Contributions and the
Strategic Equity Investment, each as defined in the
<PAGE>
7
Registration Statement (collectively, the "Transactions"), the issuance
and sale of the Securities and the use of the proceeds from the sale of
the Securities as described in the Prospectus under the caption "Use of
Proceeds") and compliance by each of the L.L.C. and the Issuer with
their respective obligations under this Agreement, and the agreements
pursuant to which the Transactions will be consummated have been duly
authorized by all necessary limited liability company or corporate
action (as applicable) and do not and will not, whether with or without
the giving of notice or passage of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined
below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of either the L.L.C.,
the Issuer or any of their respective subsidiaries pursuant to, the
Agreements and Instruments (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not result in a
Material Adverse Effect), nor will such action result in any violation
of the provisions of the organizational documents (in the case of a
limited liability company) or charter or by-laws (in the case of a
corporation) of either the L.L.C., the Issuer or any of their
respective subsidiaries or (except for such violations that would not
result in a Material Adverse Effect) any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having
jurisdiction over either the L.L.C., the Issuer or any of their
respective subsidiaries or any of their respective assets, properties
or operations. As used herein, a "Repayment Event" means any event or
condition which gives the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder's behalf)
the right to require the repurchase, redemption or repayment of all or
a portion of such indebtedness by either the L.L.C., the Issuer or any
of their respective subsidiaries.
(xii) Absence of Labor Dispute. No labor dispute with the
employees of the Company or any of its subsidiaries exists or, to the
knowledge of the Company, is imminent which, in any case under this
clause (xii), could reasonably be expected to result in a Material
Adverse Effect.
(xiii) Absence of Proceedings. Except as set forth in the
Prospectus, there is no action, suit, proceeding, inquiry or
investigation before or brought by any court or governmental agency or
body, domestic or foreign, now pending, or, to the knowledge of the
Company, threatened, against or affecting the Company or any of its
subsidiaries, or to which the property of the Company or any of its
subsidiaries is subject, which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or which
could reasonably be expected to result in a Material Adverse Effect, or
which could reasonably be expected to materially and adversely affect
the properties or assets thereof or the consummation of the
transactions contemplated in this Agreement or the performance by the
L.L.C. and the Issuer of their respective obligations hereunder or the
consummation of any of the transactions contemplated pursuant to the
Transactions; the aggregate of all pending legal or governmental
proceedings to which the Company or any
<PAGE>
8
of its subsidiaries is a party or of which any of their respective
property or assets is the subject which are not described in the
Registration Statement, including ordinary routine litigation
incidental to the business, could not reasonably be expected to result
in a Material Adverse Effect.
(xiv) Accuracy of Exhibits. There are no contracts or
documents which are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits thereto which
have not been so described and filed as required.
(xv) Possession of Intellectual Property. The Company and its
subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by them, and neither the Company
nor any of its subsidiaries has received any notice or is otherwise
aware of any infringement of or conflict with asserted rights of others
with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the respective interests of the Company or any of
its subsidiaries therein, and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity
or inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect.
(xvi) Absence of Further Requirements. Except as described in
the Prospectus, no filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, any court or
governmental authority or agency, domestic or foreign, is necessary or
required for the performance by the L.L.C. or the Issuer of their
respective obligations hereunder, in connection with the offering,
issuance or sale of the Securities under this Agreement or the
consummation of the transactions contemplated by this Agreement or the
consummation of any of the transactions contemplated pursuant to the
Transactions, except such as have been already obtained or as may be
required under the 1933 Act or the 1933 Act Regulations or state
securities or blue sky laws or the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder or the
laws and regulations promulgated thereunder and except for the
qualification of the Indenture under the 1939 Act.
(xvii) Possession of Licenses and Permits. Except as set forth
in the Prospectus, the Company and its subsidiaries possess such
permits, licenses, approvals, consents and other authorizations
(collectively, "Governmental Licenses") issued by the appropriate
federal, state, local or foreign regulatory agencies or bodies
necessary to conduct the business now operated by them; each of the
Company and its subsidiaries are in compliance with the terms and
conditions of all such Governmental Licenses, except
<PAGE>
9
where the failure so to comply would not, singly or in the aggregate,
have a Material Adverse Effect; all of the Governmental Licenses are
valid and in full force and effect, except when the invalidity of such
Governmental Licenses or the failure of such Governmental Licenses to
be in full force and effect would not have a Material Adverse Effect;
and neither the Company nor any of its subsidiaries has received any
notice of proceedings relating to the revocation or modification of any
such Governmental Licenses which, singly or in the aggregate, if the
subject of an unfavorable decision, ruling or finding, would result in
a Material Adverse Effect.
(xviii) Title to Property. The Company and its subsidiaries
have good and marketable title to all real property owned by them and
good title to all other properties owned by them, in each case, free
and clear of all mortgages, pledges, liens, security interests, claims,
restrictions or encumbrances of any kind except such as (a) are
described in the Prospectus or (b) do not, singly or in the aggregate,
materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company or
any of its subsidiaries; and all of the leases and subleases material
to the business of the Company and its subsidiaries, considered as one
enterprise, and under which the Company or any of its subsidiaries
holds properties described in the Prospectus, are in full force and
effect, and neither the Company nor any of its subsidiaries has any
notice of any material claim of any sort that has been asserted by
anyone adverse to the rights of the Company or any of its subsidiaries
under any of the leases or subleases mentioned above, or affecting or
questioning the rights of the Company or any such subsidiary to the
continued possession of the leased or subleased premises under any such
lease or sublease.
(xix) Investment Company Act. The Company is not and, upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the
Prospectus will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended (the "1940 Act").
(xx) Environmental Laws. Except as described in the
Registration Statement and except as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company
nor any of its subsidiaries is in violation of any federal, state,
local or foreign statute, law, rule, regulation, ordinance, code,
policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent, decree or judgment, relating to pollution or protection of
human health, the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating
to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum
or petroleum products (collectively, "Hazardous Materials") or to the
manufacture, processing,
<PAGE>
10
distribution, use, treatment, storage, disposal, transport or handling
of Hazardous Materials (collectively, "Environmental Laws"), (B) the
Company and its subsidiaries have all permits, authorizations and
approvals required under any applicable Environmental Laws and are each
in compliance with their requirements, (C) there are no pending or
threatened administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings relating to any Environmental
Law against the Company or any of its subsidiaries and (D) there are no
events or circumstances that might reasonably be expected to form the
basis of an order for clean-up or remediation, or an action, suit or
proceeding by any private party or governmental body or agency, against
or affecting the Company or any of its subsidiaries relating to
Hazardous Materials or any Environmental Laws.
(xxi) Registration Rights. Except as described in the
Prospectus, there are no persons with registration rights or other
similar rights to have any securities registered pursuant to the
Registration Statement or otherwise registered by the Issuer under the
1933 Act.
(xxii) Transactions. The agreements entered into by the
L.L.C. and the Issuer for the purposes of completing the Transactions
are all in full force and effect with respect to the L.L.C. and the
Issuer and, to the knowledge of the L.L.C. and the Issuer, with
respect to the other parties thereto; and the representations and
warranties of the L.L.C. and the Issuer set forth in such agreements
are true and correct as of the date hereof and as of the respective
dates of such agreements. The L.L.C. and the Issuer have obtained
all contractual consents and approvals necessary to consummate the
Transactions. Except as described in the Prospectus, all
transactions contemplated as part of the Transactions will be
consummated prior to or simultaneously with the Closing Time.
(xxiii) Insurance Coverage. The Company and each of its
subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent and customary in the businesses in which they are engaged;
neither the Company nor any of its subsidiaries has been refused any
insurance coverage sought or applied for; and neither the Company nor
any of its subsidiaries has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not materially
and adversely affect the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company and its
subsidiaries as one enterprise, except as described in or contemplated
by the Prospectus.
<PAGE>
11
(xxiv) Absence of Dividend Restrictions. No subsidiary of
the L.L.C. or the Issuer, respectively, is currently prohibited,
directly or indirectly, from paying any dividends to the L.L.C. or
the Issuer, as the case may be, from making any other distribution on
such subsidiary's capital stock, from repaying to the L.L.C. or the
Issuer, as the case may be, any loans or advances to such subsidiary
from the Issuer or from transferring any of such subsidiary's
property or assets to the L.L.C. or the Issuer, as the case may be,
or any other subsidiary of the L.L.C. or the Issuer, as the case may
be, except as described in or contemplated by the Prospectus.
(xxv) Filings of Tax Returns. The Company has filed all
foreign, federal, state and local tax returns that are required to be
filed or has requested extensions thereof and has paid all material
taxes required to be paid by it and any other assessment, fine or
penalty levied against it, to the extent that any of the foregoing is
due and payable, except for any such tax, assessment, fine or penalty
that is currently being contested in good faith or as described in or
contemplated by the Prospectus.
(xxvi) Maintenance of Internal Accounting Controls. The
Company and each of its subsidiaries maintain a system of internal
accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable and appropriate intervals and appropriate action is taken
with respect to any differences.
(b) Officer's Certificates. Any certificate signed by any
officer of the Issuer or any of its subsidiaries delivered to the
Representatives or to counsel for the Underwriters shall be deemed a
representation and warranty by the Issuer to each Underwriter as to the matters
covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Securities. On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Issuer agrees to sell to each Underwriter, severally and not jointly, and each
Underwriter, severally and not jointly, agrees to purchase from the Company, at
the price set forth in Schedule B, the respective aggregate principal amount of
Senior Notes and aggregate principal amount at maturity of Senior Discount Notes
set forth in Schedule A opposite the name of such Underwriter, plus any
additional principal amount or principal amount at maturity of Securities which
such Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.
<PAGE>
12
(b) Payment. Payment of the purchase price for, and delivery of
certificates for, the Securities shall be made at the offices of Skadden, Arps,
Slate, Meagher & Flom, LLP, 919 Third Avenue, New York, New York 10022, or at
such other place as shall be agreed upon by the Representatives and the Company,
at [10:00 A.M.] (Eastern time) on the third (fourth, if the pricing occurs after
4:30 P.M. (Eastern time) on any given day) business day after the date hereof
(unless postponed in accordance with the provisions of Section 10), or such
other time not later than ten business days after such date as shall be agreed
upon by the Representatives and the Issuer (such time and date of payment and
delivery being herein called "Closing Time").
Payment shall be made to the Issuer by wire transfer of immediately
available funds to a bank account designated by the Issuer, against delivery to
the Representatives for the respective accounts of the Underwriters of
certificates for the Securities to be purchased by them. It is understood that
each Underwriter has authorized the Representatives, for its account, to accept
delivery of, receipt for, and make payment of the purchase price for, the
Securities which it has agreed to purchase. Merrill Lynch, individually and not
as representative of the Underwriters, may (but shall not be obligated to) make
payment of the purchase price for the Securities to be purchased by any
Underwriter whose funds have not been received by the Closing Time, but such
payment shall not relieve such Underwriter from its obligations hereunder.
(c) Denominations; Registration. Certificates for the Securities shall
be in such denominations ($1,000 or integral multiples thereof) and registered
in such names as the Representatives may request in writing at least one full
business day before the Closing Time. The Securities will be made available for
examination and packaging by the Representatives in The City of New York not
later than 10:00 A.M. (Eastern time) on the business day prior to the Closing
Time.
SECTION 3. Covenants of the Issuer. The Issuer covenants with
each Underwriter as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Issuer, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify
the Representatives immediately, and confirm the notice in writing, (i)
when any post-effective amendment to the Registration Statement shall
become effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any comments
from the Commission, (iii) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement
to the Prospectus or for additional information, and (iv) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing
or suspending the use of any preliminary prospectus, or of the
initiation or threatening of any proceedings for any of such purposes.
The Issuer will promptly effect the filings
<PAGE>
13
necessary pursuant to Rule 424(b) and will take such steps as it deems
necessary to ascertain promptly whether the form of prospectus
transmitted for filing under Rule 424(b) was received for filing by the
Commission and, in the event that it was not, it will promptly file
such prospectus. The Issuer will make every reasonable effort to
prevent the issuance of any stop order and, if any stop order is
issued, to obtain the lifting thereof at the earliest possible moment.
(b) Filing of Amendments. The Issuer will give the
Representatives notice of its intention to file or prepare any
amendment to the Registration Statement (including any filing under
Rule 462(b)), any Term Sheet or any amendment, supplement or revision
to either the prospectus included in the Registration Statement at the
time it became effective or to the Prospectus, will furnish the
Representatives with copies of any such documents a reasonable amount
of time prior to such proposed filing or use, as the case may be, and
will not file or use any such document to which the Representatives or
counsel for the Underwriters shall object.
(c) Delivery of Registration Statements. The Issuer has
furnished or will deliver to the Representatives and counsel for the
Underwriters, without charge, signed copies of the Registration
Statement as originally filed and of each amendment thereto (including
exhibits filed therewith or incorporated by reference therein) and
signed copies of all consents and certificates of experts, and will
also deliver to the Representatives, without charge, a conformed copy
of the Registration Statement as originally filed and of each amendment
thereto (without exhibits) for each of the Underwriters. The copies of
the Registration Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(d) Delivery of Prospectus. The Issuer has delivered to each
Underwriter, without charge, as many copies of each preliminary
prospectus as such Underwriter reasonably requested, and the Issuer
hereby consents to the use of such copies for purposes permitted by the
1933 Act. The Issuer will furnish to each Underwriter, without charge,
during the period when the Prospectus is required to be delivered under
the 1933 Act or the Securities Exchange Act of 1934 (the "1934 Act"),
such number of copies of the Prospectus (as amended or supplemented) as
such Underwriter may reasonably request. The Prospectus and any
amendments or supplements thereto furnished to the Underwriters will be
identical to the electronically transmitted copies thereof filed with
the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(e) Continued Compliance with Securities Laws. The
Issuer will comply with the 1933 Act and the 1933 Act Regulations and
the 1939 Act and the 1939 Act Regulations so as to permit the
completion of the distribution of the Securities as
<PAGE>
14
contemplated in this Agreement and in the Prospectus. If at any time
when a prospectus is required by the 1933 Act to be delivered in
connection with sales of the Securities, any event shall occur or
condition shall exist as a result of which it is necessary, in the
opinion of counsel for the Underwriters or for the Issuer, to amend the
Registration Statement or amend or supplement the Prospectus in order
that the Prospectus will not include any untrue statements of a
material fact or omit to state a material fact necessary in order to
make the statements therein not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser, or
if it shall be necessary, in the opinion of such counsel, at any such
time to amend the Registration Statement or amend or supplement the
Prospectus in order to comply with the requirements of the 1933 Act or
the 1933 Act Regulations, the Issuer will promptly prepare and file
with the Commission, subject to Section 3(b), such amendment or
supplement as may be necessary to correct such statement or omission or
to make the Registration Statement or the Prospectus comply with such
requirements, and the Issuer will furnish to the Underwriters such
number of copies of such amendment or supplement as the Underwriters
may reasonably request.
(f) Rule 158. The Issuer will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally
available to its securityholders as soon as practicable an earnings
statement for the purposes of, and to provide the benefits contemplated
by, the last paragraph of Section 11(a) of the 1933 Act.
(g) Use of Proceeds. The Issuer will use the net
proceeds received by it from the sale of the Securities in the manner
specified in the Prospectus under "Use of Proceeds".
(h) Listing. The Issuer will use its best efforts to effect
and maintain the quotation of the Securities on the Nasdaq National
Market and will file with the Nasdaq National Market all documents and
notices required by the Nasdaq National Market of companies that have
securities that are traded in the over-the-counter market and
quotations for which are reported by the Nasdaq National Market.
(i) Restriction on Sale of Securities. During a period of
[180] days from the date of the Prospectus, the Issuer will not,
without the prior written consent of Merrill Lynch, directly or
indirectly, issue, sell, offer or contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant
any right or warrant to purchase, or otherwise transfer or dispose of,
any debt securities of the Company.
(j) Reporting Requirements. The Issuer, during the
period when the Prospectus is required to be delivered under the 1933
Act or the 1934 Act, will file all documents required to be filed
with the Commission pursuant to the 1934 Act within the
<PAGE>
15
time periods required by the 1934 Act and the rules and regulations
of the Commission thereunder.
SECTION 4. Payment of Expenses.
(a) Expenses. Each of the L.L.C. and the Issuer agrees,
jointly and severally, to pay all expenses incident to the performance of their
respective obligations under this Agreement, including (i) the preparation,
printing and filing of the Registration Statement (including financial
statements and exhibits) as originally filed and of each amendment thereto, (ii)
the preparation, printing and delivery to the Underwriters of this Agreement,
any Agreement among Underwriters, the Indenture and such other documents as may
be required in connection with the offering, purchase, sale, issuance or
delivery of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriters, including any transfer
taxes and any stamp or other duties payable upon the sale, issuance or delivery
of the Securities to the Underwriters, (iv) the fees and disbursements of
counsel, accountants and other advisors for the L.L.C. and the Issuer, (v) the
reasonable fees and disbursements of counsel for the Underwriters in connection
with the preparation of any Blue Sky Survey and any supplement thereto, (vi) the
printing and delivery to the Underwriters of copies of each preliminary
prospectus, any Term Sheets and of the Prospectus and any amendments or
supplements thereto, (vii) the preparation, printing and delivery to the
Underwriters of copies of any Blue Sky Survey and any supplement thereto, (viii)
the fees and expenses of the Trustee, including the fees and disbursements of
counsel for the Trustee in connection with the Indenture and the Securities,
(ix) any fees payable in connection with the rating of the Securities and (x)
the filing fees incident to, and the reasonable fees and disbursements of
counsel to the Underwriters in connection with, the review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of
the Securities.
(b) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the L.L.C. and the Issuer shall reimburse the Underwriters for
all of their out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of each of the L.L.C. and the Issuer contained in
Section 1(a) hereof or in certificates of any officer of the Issuer or any
subsidiary of the Issuer delivered pursuant to the provisions hereof, to the
performance by the Issuer of its covenants and other obligations hereunder, and
to the following further conditions:
(a) Effectiveness of Registration Statement. The
Registration Statement, including any Rule 462(b) Registration
Statement, has become effective and at Closing Time no stop order
suspending the effectiveness of the Registration Statement shall have
<PAGE>
16
been issued under the 1933 Act or proceedings therefor initiated or
threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to
the reasonable satisfaction of counsel to the Underwriters. A
prospectus containing the Rule 430A Information shall have been filed
with the Commission in accordance with Rule 424(b) (or a post-effective
amendment providing such information shall have been filed and declared
effective in accordance with the requirements of Rule 430A) or, if the
Issuer has elected to rely upon Rule 434, a Term Sheet shall have been
filed with the Commission in accordance with Rule 424(b).
(b) Opinions of Counsel for the L.L.C. and the Issuer. At
Closing Time, the Representatives shall have received the favorable
opinion, dated as of Closing Time, of (i) Skadden, Arps, Slate, Meagher
& Flom LLP, counsel for the L.L.C. and the Issuer, to the effect set
forth in Exhibit A hereto and to such further effect as counsel to the
Underwriters may reasonably request, (ii) Skadden, Arps, Slate, Meagher
& Flom LLP, special federal regulatory counsel for the L.L.C. and the
Issuer, to the effect set forth in Exhibit B hereto and to such further
effect as counsel to the Underwriters may reasonably request and (iii)
Laurence E. Harris, Esq., General Counsel for the L.L.C. and the
Issuer, to the effect set forth in Exhibit C hereto and to such further
effect as counsel to the Underwriters may reasonably request; each in
form and substance satisfactory to counsel for the Underwriters,
together with signed or reproduced copies of such letter for each of
the other Underwriters. Such counsel may state that, insofar as such
opinions involve factual matters, they have relied, to the extent they
deem proper, upon certificates of officers of the L.L.C. and the Issuer
and their respective subsidiaries and certificates of public officials.
(c) Opinion of Counsel for Underwriters. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Shearman & Sterling, counsel for the Underwriters,
together with signed or reproduced copies of such letter for each of
the other Underwriters with respect to the matters set forth in
[clauses (i), (ii), (v), (vi) (solely as to preemptive or other similar
rights arising by operation of law or under the organizational
documents, charter or by-laws, as the case may be, of the L.L.C. and
the Issuer), (viii) through (x), inclusive, (xii), (xiv) (solely as to
the information in the Prospectus under "Description of Capital
Stock--Common Stock") and the penultimate paragraph] of Exhibit A
hereto. In giving such opinion, such counsel may rely, as to all
matters governed by the laws of jurisdictions other than the law of the
State of New York, the federal law of the United States and the General
Corporation Law of the State of Delaware, upon the opinions of counsel
satisfactory to the Representatives. Such counsel may also state that,
insofar as such opinion involves factual matters, they have relied, to
the extent they deem proper, upon certificates of officers of the
L.L.C. and the Issuer and their respective subsidiaries and
certificates of public officials.
<PAGE>
17
(d) Officers' Certificate. At Closing Time, there shall not
have been, since the date hereof or since the respective dates as of
which information is given in the Prospectus, any material adverse
change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company and its
subsidiaries considered as one enterprise, whether or not arising in
the ordinary course of business, and the Representatives shall have
received a certificate of the President or a Vice President of the
Company and of the chief financial or chief accounting officer of the
Company, dated as of Closing Time, to the effect that (i) there has
been no such material adverse change, (ii) the representations and
warranties in Section 1(a) hereof are true and correct with the same
force and effect as though expressly made at and as of Closing Time
(except to the extent that such representations and warranties relate
to an earlier date), (iii) the Company has complied with all agreements
and satisfied all conditions on its part to be performed or satisfied
at or prior to Closing Time, and (iv) no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or are
contemplated by the Commission.
(e) Accountants' Comfort Letter. At the time of the execution
of this Agreement, the Representatives shall have received from Ernst &
Young LLP a letter dated such date, in form and substance satisfactory
to the Representatives, together with signed or reproduced copies of
such letter for each of the other Underwriters containing statements
and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial
statements and certain financial information contained in the
Registration Statement and the Prospectus.
(f) Bring-down Comfort Letter. At Closing Time, the
Representatives shall have received from Ernst & Young LLP a letter,
dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (e) of
this Section, except that the specified date referred to shall be a
date not more than three business days prior to Closing Time.
(g) Approval of Listing. At Closing Time, the Securities shall
have been approved for inclusion in the Nasdaq National Market, subject
only to official notice of issuance.
(h) No Objection. The NASD has confirmed that it has not
raised any objection with respect to the fairness and reasonableness
of the underwriting terms and arrangements.
(i) Equity Transaction. The transactions contemplated by
the U.S. Purchase Agreement, dated of even date herewith, among the
Representatives and the Issuer and the L.L.C. shall have occurred
contemporaneously with the transactions contemplated herein.
<PAGE>
18
(j) Transactions. At the Closing Time, (i) the Transactions
(other than the Second Closing (as defined in the Prospectus)) shall
have been consummated in full, (ii) the agreements entered into by the
L.L.C. and the Issuer for the purposes of completing the Second Closing
shall be in full force and effect with respect to the L.L.C. and the
Issuer and, to the knowledge of the L.L.C. and the Issuer, with respect
to the other parties thereto, the representations and warranties of the
L.L.C. and the Issuer set forth in such agreements shall be true and
correct and prior to, or simultaneously with, the Closing Time, and
(iii) the L.L.C. and the Issuer shall have provided to the
Representatives and counsel for the Underwriters copies of all closing
documents delivered to the parties to the Transactions (other than with
respect to the Second Closing).
(k) Additional Documents. At Closing Time, counsel for the
Underwriters shall have been furnished with such documents and opinions
as they may require for the purpose of enabling them to pass upon the
issuance and sale of the Securities as herein contemplated, or in order
to evidence the accuracy of any of the representations or warranties,
or the fulfillment of any of the conditions, herein contained; and all
proceedings taken by the Issuer in connection with the issuance and
sale of the Securities as herein contemplated shall be satisfactory in
form and substance to the Representatives and counsel for the
Underwriters.
(l) Termination of Agreement. If any condition specified in
this Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement may be terminated by the Representatives by
written notice to the Issuer on behalf of the L.L.C. and the Issuer, as
applicable, at any time at or prior to Closing Time, and such
termination shall be without liability of any party to any other party
except as provided in Section 4 and except that Sections 1, 6, 7 and 8
shall survive any such termination and remain in full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of Underwriters. Each of the L.L.C. and the Issuer
agrees, jointly and severally, to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and any Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or
<PAGE>
19
alleged untrue statement of a material fact included in any preliminary
prospectus or the 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, in the light of the
circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided
that (subject to Section 6(d) below) any such settlement is effected
with the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Issuer by any
Underwriter through the Representatives expressly for use in the Registration
Statement (or any amendment thereto), including the Rule 430A Information and
any Rule 434 Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
The foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such loss, liability, claim, damage or expense purchased
Securities (or any director, officer or employee of such Underwriter, or any
person who controls such Underwriter within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act) if a copy of the applicable Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if such is required by law, at or prior to the
written confirmation of the sale of such Securities to such person and if such
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, liability, claim, damage or expense.
(b) Indemnification of Issuer, Directors and Officers. Each
Underwriter severally agrees to indemnify and hold harmless the Issuer, its
directors, each of its officers who signed the Registration Statement, and each
person, if any, who controls the Issuer within the meaning
<PAGE>
20
of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all
loss, liability, claim, damage and expense described in the indemnity contained
in subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and any Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the Issuer
by such Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto) or such preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
(c) Actions Against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Issuer. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement Without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
<PAGE>
21
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 7. Contribution. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Issuer on the one
hand and the Underwriters on the other hand from the offering of the Securities
pursuant to this Agreement or (ii) if the allocation provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the L.L.C. and the Issuer on the one hand and of the
Underwriters on the other hand in connection with the statements or omissions
that resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations.
The relative benefits received by the Issuer on the one hand and the
Underwriters on the other hand in connection with the offering of the Securities
pursuant to this Agreement shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Securities
pursuant to this Agreement (before deducting expenses) received by the Company
and the total underwriting discount received by the Underwriters, in each case
as set forth on the cover of the Prospectus, or, if Rule 434 is used, the
corresponding location on the Term Sheet, bear to the aggregate initial public
offering price of the Securities as set forth on such cover.
The relative fault of the L.L.C. and the Issuer on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the L.L.C. and the Issuer or by the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The L.L.C. and the Issuer and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 7 were determined
by pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 7. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 7 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental
<PAGE>
22
agency or body, commenced or threatened, or any claim whatsoever based upon any
such untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Issuer, each officer of the Issuer who signed the
Registration Statement, and each person, if any, who controls the Issuer within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall
have the same rights to contribution as the Issuer. The Underwriters' respective
obligations to contribute pursuant to this Section are several in proportion to
the respective principal amount and principal amount at maturity of Securities
set forth opposite their respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of its
subsidiaries submitted pursuant hereto shall remain operative and in full force
and effect, regardless of any investigation made by or on behalf of any
Underwriter or controlling person, or by or on behalf of the Company, and shall
survive delivery of the Securities to the Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Issuer on behalf of the L.L.C. and the Issuer, as
applicable, at any time at or prior to Closing Time (i) if there has been, since
the time of execution of this Agreement or since the respective dates as of
which information is given in the Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, or (ii)
if there has occurred any material adverse change in the financial markets in
the United States or the international financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or economic
<PAGE>
23
conditions, in each case the effect of which is such as to make it, in the
judgment of the Representatives, impracticable to market the Securities or to
enforce contracts for the sale of the Securities, or (iii) if trading in any
securities of the Issuer has been suspended or materially limited by the
Commission or the Nasdaq National Market, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the Nasdaq National
Market has been suspended or materially limited, or minimum or maximum prices
for trading have been fixed, or maximum ranges for prices have been required, by
any of said exchanges or by such system or by order of the Commission, the NASD
or any other governmental authority, or (iv) if a banking moratorium has been
declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section 9, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the Underwriters. If one or more
of the Underwriters shall fail at Closing Time to purchase the Securities which
it or they are obligated to purchase under this Agreement (the "Defaulted
Securities"), the Representatives shall have the right, within 24 hours
thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the aggregate principal amount and principal amount at maturity of
the Securities to be purchased hereunder, the non-defaulting
Underwriters shall be obligated, each severally and not jointly, to
purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
aggregate principal amount and principal amount at maturity of the
Securities to be purchased hereunder, this Agreement shall terminate
without liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section 10 shall relieve any
defaulting Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement, either the Representatives or the Issuer shall have the right
to postpone Closing Time for a period not exceeding seven days in order to
effect any required changes in the Registration
<PAGE>
24
Statement or Prospectus or in any other documents or arrangements. As used
herein, the term "Underwriter" includes any person substituted for an
Underwriter under this Section 10.
SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives at North Tower, World
Financial Center, New York, New York 10281, attention of o; and notices to
either of the Companies shall be directed to the Company at 8065 Leesburg Pike,
Vienna, Virginia 22182, attention of Laurence E. Harris, Esq., with copies to
Skadden, Arps, Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York
10022, attention of Mark C. Smith, Esq.
SECTION 12. Parties. This Agreement shall inure to the benefit of and
be binding upon the Underwriters and the L.L.C. and the Issuer and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the Underwriters and the L.L.C. and the Issuer and their respective
successors and the controlling persons and officers and directors referred to in
Sections 6 and 7 and their heirs and legal representatives, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision herein contained. This Agreement and all conditions and provisions
hereof are intended to be for the sole and exclusive benefit of the Underwriters
and the L.L.C. and the Issuer and their respective successors, and said
controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation. No
purchaser of Securities from any Underwriter shall be deemed to be a successor
by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
<PAGE>
25
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to each of the L.L.C. and the Issuer a
counterpart hereof, whereupon this instrument, along with all counterparts, will
become a binding agreement between the Underwriters and the L.L.C. and the
Issuer in accordance with its terms.
Very truly yours,
TELIGENT, L.L.C.
By
-----------------------------------
Name:
Title:
TELIGENT, INC.
By
-----------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
SALOMON BROTHERS INC
TD SECURITIES (USA) INC.
GOLDMAN, SACHS & CO.
By
------------------------------------------------
Authorized Signatory
For themselves and as Representatives of the other Underwriters named in
Schedule A hereto.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
UNDERWRITERS
Aggregate
Principal Amount
Name of Underwriter of Senior Notes
------------------- ----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................................
Salomon Brothers Inc....................................................................
TD Securities (USA) Inc.................................................................
Goldman, Sachs & Co.....................................................................
----------------
Total................................................................................... $
================
<CAPTION>
Aggregate
Principal at
Maturity Amount
of Senior
Name of Underwriter Discount Notes
------------------- ---------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................................
Salomon Brothers Inc....................................................................
TD Securities (USA) Inc.................................................................
Goldman, Sachs & Co.....................................................................
----------------
Total................................................................................... $
================
</TABLE>
<PAGE>
SCHEDULE B-1
PRICING INFORMATION
TELIGENT, INC.
$250,000,000 ___% Senior Notes due 2007
1. The initial public offering price of the Senior Notes shall be 100%
of the principal amount thereof, plus accrued interest, if any, from the date of
issuance.
2. The purchase price to be paid by the Underwriters for the Senior
Notes shall be __% of the principal amount thereof.
3. The interest rate on the Senior Notes shall be __% per annum.
<PAGE>
SCHEDULE B-2
PRICING INFORMATION
TELIGENT, INC.
$250,000,000 ___% Senior Discount Notes due 2007
1. The initial public offering price of the Senior Discount Notes shall
be __% of the principal amount at maturity thereof, plus accrued interest, if
any, from the date of issuance.
2. The purchase price to be paid by the Underwriters for the Senior
Discount Notes shall be __% of the principal amount thereof.
3. The interest rate on the Senior Discount Notes shall be __%
per annum.
<PAGE>
EXHIBIT A
FORM OF OPINION OF COMPANY COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(b)
<PAGE>
EXHIBIT B
FORM OF OPINION OF SPECIAL FEDERAL REGULATORY COUNSEL
TO BE DELIVERED PURSUANT TO SECTION 5(b)
<PAGE>
EXHIBIT C
FORM OF OPINION OF GENERAL COUNSEL FOR THE COMPANY
TO BE DELIVERED PURSUANT TO SECTION 5(b)
<PAGE>
FORM OF STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT, dated as of ________ 1997 (this
"Agreement"), by and among Teligent, Inc., a Delaware corporation (the
"Company"), Microwave Services, Inc., a Delaware corporation ("MSI"), Telcom-DTS
Investors, L.L.C., a Delaware limited liability company ("Telcom"), and NTTA&T
Investment Inc. ("New Member" and, together with MSI and Telcom, the
"Stockholders"), an indirect wholly owned subsidiary of Nippon Telegraph and
Telephone Corporation, a Japanese corporation ("NTT").
WHEREAS, the Stockholders are parties to the Amended and
Restated Limited Liability Company Agreement, dated as of _________, 1997 (the
"LLC Agreement"), of Teligent, L.L.C., a Delaware limited liability company (the
"LLC"), entered into pursuant to the Securities Purchase Agreement dated as of
September 30, 1997 by and among the LLC, MSI, Digital Services Corporation, a
Virginia corporation and an affiliate of Telcom, and NTT (the "Purchase
Agreement");
WHEREAS, upon the terms and subject to the conditions of the
Agreement and Plan of Merger, dated as of October 6, 1997 (the "Merger
Agreement"), by and between the Company and the LLC, immediately prior to the
Company's initial public offering of Class A Common Stock (the "IPO") the LLC
will be merged (the "Merger") with and into the Company;
WHEREAS, the Merger Agreement provides that as a result of the
Merger the Stockholders will receive shares of Common Stock of the Company, as
the entity surviving the Merger; and
WHEREAS, the LLC Agreement contemplates, and the parties
hereto have agreed, that following a Conversion Transaction (as defined in the
LLC Agreement), in connection with an IPO, certain rights, privileges and
obligations set forth in the LLC Agreement with respect to the ownership and
governance of the LLC will, to the extent and upon the terms and subject to the
conditions set forth herein, continue to apply with respect to the ownership and
governance of the Company.
<PAGE>
NOW, THEREFORE, in consideration of the premises, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties to this Agreement covenant and agree as
follows:
Section 1. Effectiveness of Agreement; Defined Terms. This
Agreement shall not become effective unless and until the Merger is consummated.
If the Merger Agreement is terminated in accordance with its terms, this
Agreement shall automatically terminate. Capitalized terms used but not defined
herein shall have the respective meanings assigned to such terms in the form of
Certificate of Incorporation of the Company attached as Exhibit I to the Merger
Agreement, which will be effective upon the effectiveness of the Merger (the
"Certificate of Incorporation").
Section 2. Information Made Available. The Company covenants
and agrees with each of MSI, Telcom and New Member that, with respect to MSI, so
long as any shares of Class B-Series 1 Common Stock are outstanding, with
respect to Telcom, so long as any shares of Class B-Series 2 Common Stock are
outstanding, and with respect to New Member, so long as any shares of Class
B-Series 3 Common Stock are outstanding, the Company will use all reasonable
efforts to provide regular information to (and updates thereof), consult with,
and obtain the advice of, representatives of MSI designated by MSI's designees
(the "MSI Directors") to the board of directors of the Company (the "Board of
Directors"), representatives of Telcom designated by Telcom's designee (the
"Telcom Director") to the Board of Directors, and representatives of New Member
designated by New Member's designee (the "New Member Director") to the Board of
Directors, respectively, in connection with ordinary decisions of the Board of
Directors or any committee thereof. This Section 2 shall terminate as to New
Member, and New Member shall have no further rights under such Section, upon New
Member's delivery of, or failure to deliver, the notice required by Section 15.
Section 3. Consultation. The Company covenants and agrees with
New Member and Telcom that, with respect to New Member, so long as any shares of
Class B-Series 3 Common Stock are outstanding, and with respect to Telcom, so
long as any shares of
2
<PAGE>
Class B-Series 2 Common Stock are outstanding, Consultation (as defined below)
with New Member or a representative (the "New Member Representative") designated
from time to time by New Member for such purpose (who need not be the
representative described in Section 12 hereof), and/or with Telcom or a
representative (the "Telcom Representative") designated from time to time by
Telcom for such purpose (who need not be the representative described in Section
12 hereof), respectively, will be required for any action (each, a "Consultation
Event") which (A) materially changes the fundamental character of the Company's
business; (B) replaces the Company's Chief Executive Officer or Chief Operating
Officer; (C) 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 (D) involves the issuance by the Company of shares of Common Stock
or Preferred Stock to any telecommunications carrier (a "Strategic Partner").
"Consultation" shall mean and include reasonable advance notice and advance
disclosure of all material facts regarding the Consultation Event by the Company
to the New Member Representative and/or the Telcom Representative, respectively,
and, in the case of the issuance by the Company of shares of Common Stock or
Preferred Stock to a Strategic Partner, due consideration of any objections of
New Member and/or the Telcom Representative, respectively. New Member and Telcom
shall notify the Company as to who the New Member Representative and the Telcom
Representative, respectively, shall be, and shall provide the Company with the
address, business telephone and facsimile number for such respective persons.
Such persons shall be the New Member Representative and the Telcom
Representative, respectively, until such time as the Company receives written
notice from New Member or Telcom, respectively, stating the name, address,
business telephone and facsimile number of the new New Member Representative or
the new Telcom Representative, respectively. This Section 3 shall terminate as
to New Member, and New Member shall have no further rights under such Section,
upon New Member's delivery of, or failure to deliver, the notice required by
Section 15.
Section 4. Confidential Treatment of Proprietary Information.
Except as provided in Section 14 hereof, in the event any Covered Person (as
3
<PAGE>
hereinafter defined) (the "Receiving Party") obtains from any other Covered
Person or the Company (the "Disclosing Party") information relating to the
Company in whatever form which is confidential or proprietary ("Proprietary
Information"), the Receiving Party (i) shall treat all such Proprietary
Information as confidential; (ii) shall use such Proprietary Information only
for the purposes contemplated in this Agreement; (iii) shall protect such
Proprietary Information, whether in storage or in use, with the same degree of
care as the Receiving Party uses to protect its own proprietary information
against public disclosure, but in no case with less than reasonable care; and
(iv) shall not disclose such Proprietary Information to any third party except
to such employees and agents of the Receiving Party who need to know such
Proprietary Information for the purpose of effectuating this Agreement and who
have been informed of the confidential nature of such Proprietary Information.
"Covered Person" shall mean any Stockholder, or any person (other than the
Company) that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, the Company or any
Stockholder; any officers, directors, shareholders, controlling persons,
partners, employees, representatives or agents of any Stockholder or its
Affiliates (other than the Company); any director, officer, employee or agent of
the Company or its Affiliates; or any person who was, at the time of the act or
omission in question, such a person. As used in this Agreement, "Affiliate"
means, with respect to any specified person, a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, the person specified.
Section 5. Exceptions. The provisions of Section 4 of this
Agreement shall not apply to any Proprietary Information which: (i) was in the
public domain on the date hereof or comes into the public domain other than
through the fault or negligence of the Receiving Party; (ii) was lawfully
obtained by the Receiving Party from a third party without breach of this
Agreement and otherwise not in violation of the Disclosing Party's rights; (iii)
was known to the Receiving Party at the time of disclosure of such Proprietary
Information to the Receiving Party by the Disclosing Party and the Receiving
Party was not, at such time, subject to any confidentiality obligation with
respect
4
<PAGE>
thereto; (iv) was independently developed by the Receiving Party without making
use of any Proprietary Information of the Disclosing Party; or (v) is required
to be disclosed pursuant to law.
Section 6. Return of Proprietary Information. Subject to
Section 14(d) of this Agreement, upon the dissolution of the Company, and in any
event upon the Disclosing Party's request at any time, the Receiving Party
shall: (i) return to the Disclosing Party all documents (including, any copies
thereof) embodying the Disclosing Party's Proprietary Information and (ii)
certify in writing to the Disclosing Party, within ten (10) days following the
Disclosing Party's request, that all such Proprietary Information has been
returned.
Section 7. Equitable Remedies. Each Stockholder acknowledges
that the extent of damages in the event of the breach of any provision of
Section 4 or 6 hereof would be difficult or impossible to ascertain, and that
there will be available no adequate remedy at law in the event of any such
breach. Each Stockholder therefore agrees that in the event it or any Covered
Person employed by or affiliated with it breaches any provision of Section 4 or
6 hereof, the aggrieved party (including, without limitation, the Company) will
be entitled to injunctive or other equitable relief, in addition to any other
relief to which it may be entitled.
Section 8. CEO as Director. The Stockholders agree to vote, or
act by written consent with respect to, all of their respective shares of Common
Stock in favor of the election of the Chief Executive Officer of the Company as
a member of the Board of Directors.
Section 9. Special Board Votes; Other Board Matters. (a) The
Company and the Stockholders agree that, notwithstanding any provision in the
Company's ByLaws to the contrary, the following actions shall require the
affirmative vote of a majority of the Board of Directors, which, so long as any
shares of Class B-Series 2 Common Stock are issued and outstanding, shall
include the affirmative vote of the Telcom Director and, so long as any shares
of Class B-
5
<PAGE>
Series 3 Common Stock are issued and outstanding, shall include the affirmative
vote of the New Member Director:
(i) any amendment to the Certificate of Incorporation
or By-laws of the Company which materially and adversely affects the
rights of Telcom or New Member in a manner which discriminates against
Telcom or New Member, either individually or with one or more other
Stockholders, vis-a-vis any of the other Stockholders, provided that
the affirmative vote of a majority of the Board of Directors, including
only the Telcom Director (and not the New Member Director), shall be
necessary to approve such an amendment which so affects Telcom (and not
New Member), and the affirmative vote of a majority of the Board of
Directors, including only the New Member Director (and not the Telcom
Director), shall be necessary to approve such an amendment which so
affects New Member (and not Telcom);
(ii) any transaction between the Company and any
Stockholder or Affiliate thereof involving an amount in excess of
$150,000, except for such transactions contemplated by this Agreement,
the Securities Purchase Agreement between the Company and Nippon
Telegraph and Telephone Corporation dated as of September 30, 1997 (the
"Purchase Agreement") and the Technical Services Agreement dated as of
October 22, 1997 between the Company and NTT America, Inc.
(iii) the appointment of any independent accoun-
6
<PAGE>
tants or firm of 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.
(b) So long as, pursuant to the Certificate of Incorporation,
MSI is entitled to elect a majority of the members of the Board of Directors and
to remove or fill vacancies with respect to such directorships, MSI will use all
reasonable efforts to promptly fill any vacancies in such directorships, however
occurring, and to remove and replace any such director elected by MSI who is or
becomes unwilling or unable to serve as such director.
(c) Without limitation of and subject to Section 4 of Article
III of the Company's By-Laws, the Company covenants and agrees with New Member
to use all reasonable efforts under the circumstances to provide the New Member
Director with at least 72 hours prior notice of any special meeting of the Board
of Directors.
Section 10. Committees. (a) The Company and the Stockholders
agree that, so long as any shares of Class B-Series 3 Common Stock are issued
and outstanding, (i) the New Member Director and the New Member Representative
shall have visitation rights at meetings of all significant internal operating
committees of the Board of Directors, if any, and (ii) the New Member Director
shall be a member of any technical, compensation or audit committee, if any, of
the Board of Directors or any other committee designated by the Board of
Directors with the power to negotiate any Consultation Event. In the event no
audit committee of the Board of Directors has been established, the New Member
Director shall have the right to attend, so long as any shares of Class B-Series
3 Common Stock of the Company are issued and outstanding, all meetings involving
the auditor's review of the Company's financial condition and shall have the
right to review and discuss such auditor's reports with such auditor. The New
Member
7
<PAGE>
Director and the New Member Representative shall also, so long as any shares of
Class B-Series 3 Common Stock of the Company are issued and outstanding, have
visitation rights with respect to each committee of the Board of Directors which
is established of which the New Member Director is not a member and shall
receive no less than 48 hours prior written notice of each meeting of any such
committee. If, during the course of the meeting of any such committee, the New
Member Director shall determine that the matter being considered should be
considered by the full Board of Directors, such committee shall thereupon cease
its consideration of such matter and such matter shall thereupon be referred
back to the full Board of Directors. This Section 10(a) shall terminate, and New
Member shall have no further rights under such Section, upon New Member's
delivery of, or failure to deliver, the notice required by Section 15.
(b) The Company and the Stockholders agree that, so long as
any shares of Class B-Series 2 Common Stock are issued and outstanding, (i) the
Telcom Director and the Telcom Representative shall have visitation rights at
meetings of all significant internal operating committees of the Board of
Directors, if any, and (ii) the Telcom Director shall be a member of any
technical, compensation or audit committee, if any, of the Board of Directors or
any other committee designated by the Board of Directors with the power to
negotiate any Consultation Event. In the event no audit committee of the Board
of Directors has been established, the Telcom Director shall have the right to
attend, so long as any shares of Class B-Series 2 Common Stock of the Company
are issued and outstanding, all meetings involving the auditor's review of the
Company's financial condition and shall have the right to review and discuss
such auditor's reports with such auditor. The Telcom Director and the Telcom
Representative shall also, so long as any shares of Class B-Series 2 Common
Stock of the Company are issued and outstanding, have visitation rights with
respect to each committee of the Board of Directors which is established of
which the Telcom Director is not a member and shall receive no less than 48
hours prior written notice of each meeting of any such committee. If, during the
course of the meeting of any such committee, the Telcom Director shall determine
that the matter being considered should be considered by the full Board of
Directors, such committee shall thereupon
8
<PAGE>
cease its consideration of such matter and such matter shall thereupon be
referred back to the full Board of Directors.
Section 11. Annual Business Plans and Budgets. The parties
hereto agree that an annual business plan and budget for the Company shall be
prepared by the officers of the Company and submitted to the Board of Directors
for its approval. Each such annual business plan and budget shall contain: (i) a
comprehensive and detailed budget for the upcoming year (including, without
limitation, projected capital expenditures and projected income, expense and
cash flow levels); (ii) such other financial, marketing and other plans and
projections for the upcoming year as the Board of Directors shall deem
appropriate; and (iii) such financial, marketing and other plans and projections
for the upcoming five-year period as the Board of Directors shall deem
appropriate. New Member shall have no further rights under this Section 11 upon
New Member's delivery of, or failure to deliver, the notice required by Section
15.
Section 12. New Member and Telcom Consultants. The parties
hereto agree that at any meeting of the Board of Directors at which the New
Member Director and/or the Telcom Director, respectively, is present, the New
Member Director and/or the Telcom Director, respectively, may each invite a
representative designated by New Member (and who is employed by New Member or an
Affiliate of New Member) or Telcom (and who is employed by Telcom or an
Affiliate of Telcom), respectively, to attend and consult and advise the New
Member Director or the Telcom Director, respectively, on any matter; provided,
that such respective representatives agree with the Company in writing to be
bound by Sections 4, 5, 6 and 7 hereof as if such representatives were Covered
Persons for purposes of such Sections.
Section 13. Agreement to Hold. Each Stockholder agrees
that, for the two-year period immediately following the date of the LLC
Agreement, each will continue to hold no less than 50% of its interest in the
Company which it owns immediately following the Merger; provided, that the
foregoing agreement and all other restrictions imposed on the ability of New
Member or Telcom, respectively, to transfer their respec-
9
<PAGE>
tive interests in the Company, except those imposed by law, shall lapse and
be null, void and without further effect, if a Consultation Event occurs even
though New Member or Telcom, respectively, have objected thereto; and provid-
ed, further, that if at the time the agreement contained in this Section 13
shall have lapsed and become null and void and without further effect with
respect to Telcom pursuant to the immediately preceding proviso, MSI is not
entitled, pursuant to the Certificate of Incorporation, to elect a majority of
the members of the Board of Directors, then the agreement contained in this
Section 13 shall automatically lapse and become null and void and without
further effect with respect to MSI.
Section 14. New Member Information Right.
(a) Secunded Employees. So long as any shares of Class
B-Series 3 Common Stock of the Company are issued and outstanding, New Member
and its Affiliates shall have the right, at their expense, to secund to the
Company employees of New Member 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"). This Section 14(a) shall automatically
terminate and be of no further force or effect upon New Member's delivery of, or
failure to deliver, the notice required by Section 15.
(b) Status of Secunded Employees; Expenses. The Secunded
Employees shall be and remain employees of New Member (or its Affiliates) for
all purposes, and New Member (or such Affiliates) shall be solely responsible
for, and shall indemnify and hold the Company harmless from and against any
claims for, the payment of any and all salary, bonuses, living expenses, travel
expenses and other compensation, and the provision of all retirement, health
care, insurance and other benefits to such Secunded Employees. New Member (or
its Affiliate) shall be solely responsible for, and shall indemnify and hold the
Company harmless from and against any claims for, the payment of any taxes or
governmental charges of any kind, including, without limitation, withholding
taxes, payroll taxes or unemployment or worker's compensation insurance, with
respect to any such
10
<PAGE>
Secunded Employees. The Secunded Employees shall, at the Company's expense, be
provided, with reasonable office space and standard office equipment at the
Company's facilities to the extent reasonably necessary for them to carry out
their intended purposes as described in Subsection 14(c) below.
(c) Purpose of Secunded Employees. The Company and New Member
acknowledge that the Secunded Employees will be secunded to the Company so that
they may gain knowledge of the operation of fixed wireless communications
services as conducted by the Company, with a view to enabling New Member and its
Affiliates to provide such services to their customers outside the United
States.
(d) Information Rights. To enable New Member and its
Affiliates to benefit from secunding the Secunded Employees as contemplated by
this Section 14, New Member and its Affiliates shall have the non-exclusive,
perpetual, irrevocable royalty free right and license to use, solely in the
business of New Member 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 Secunded Employees; provided that
such right and license shall not include any right or license with respect to
any patent (or patent application), utility model, design patent, copyright,
trademark or tradename (or other similar property rights arising under United
States or other laws) relating to specific inventions, technical devices,
software, publications or other works of the Company; and provided further that
if and to the extent such information constitutes confidential or proprietary
information of the Company, New Member will, and will cause its Affiliates to,
use the same efforts as it uses with respect to its own confidential or
proprietary information to keep such information of the Company confidential.
New Member and its Affiliates shall not be entitled to sublicense, assign or
otherwise transfer to any third party any of the rights granted, or any of the
information relating to the Company learned or obtained by them, pursuant to
this Section 14. In addition, the grant of rights by the Company pursuant to
this Section 15 shall be subject to the Company's need to comply with its other
agreements with third parties in existence on the date hereof relating to any of
the Company informa-
11
<PAGE>
tion referred to in this Section 14, it being understood and agreed that the
Company will use all reasonable efforts to afford New Member and its Affiliates
the full benefit of the rights granted pursuant to this Section 14 in a manner
consistent with such other agreements.
Section 15. New Member Notice of Competition. New Member will
provide the Company with at least 90 days prior written notice of any action
which, pursuant to clause (B) of the proviso to Article FOURTH, Section A(1)(d)
of the Certificate of Incorporation, would result in the automatic conversion of
shares of Class B-Series 3 Common Stock into Class A Common Stock.
Section 16. Foreign Ownership Limitation.
(a) The Company shall have the right to limit New Member's
ownership of the Company to ensure that it does not violate the foreign
ownership limitations imposed by the Communications Act of 1934, as amended, and
by the regulations and decisions of the Federal Communications Commission
(collectively, the "Communications Act").
(b) If at any time after the date hereof the
Company is required by a change in the law or other circumstance to reduce the
level of foreign ownership of the Company, and absent the Company's ability to
obtain a waiver (which the Company will use all reasonable efforts to obtain),
the Company shall have the right, and shall be required (i) at New Member's
election, to refuse to sell equity interests in the Company or any equity
interests in the License Companies (as such term is defined in the Purchase
Agreement) to any Foreign Owner (as defined below) if any such transaction
would, under the Communications Act or other applicable law, adversely impact
New Member's ability to hold its then existing equity interest in the Company,
and (ii) at the election of any Stockholder, to repurchase such equity interests
in the Company, to the extent necessary to comply with applicable foreign
ownership restrictions, first, from all persons, other than the Stockholders,
who hold Foreign Ownership Interests (as defined below), and thereafter from
each of the Stockholders who hold Foreign Ownership Interests, on a pro rata
basis (based on the
12
<PAGE>
percentage of foreign ownership attributable to each Stockholder), in each case,
for an amount in cash (to the extent permitted by the Delaware corporation law)
equal to the "fair market value" of the equity interests repurchased. If the
class of equity interests to be repurchased (or conversion equivalent) is
publicly traded, "fair market value" shall be the closing price per share or
unit of such equity interest (or conversion equivalent) on the trading day
immediately preceding the date of such repurchase and, if the class of equity
interests to be repurchased (or conversion equivalent) is not publicly traded,
"fair market value" shall be determined by the Board of Directors. In the event
that (i) all or any portion of a Stockholder's equity interest in the Company is
to be repurchased pursuant to this Section 16, (ii) such class of equity
interests (or conversion equivalent) is not publicly traded and (iii) such
Stockholder disputes, by notice to the Company within forty-five (45) days after
receipt of notice from the Board of Directors of the Board of Director's fair
market value determination (a "Valuation Dispute Notice"), then "fair market
value" shall be determined by two appraisers selected by the Company and such
Stockholder, respectively, within forty-five (45) days after delivery of the
Valuation Dispute Notice. If the appraisers chosen by the Company and such
Stockholder cannot reach an agreement within 30 days of their appointment, "fair
market value" shall be determined by a third appraiser to be selected by the
original appraisers chosen by such Stockholder and the Company within 10 days
thereafter. "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, or (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; and "Foreign Ownership Interests"
shall mean any equity interests in the Company or equity interests in the
License Companies held by a Foreign Owner.
Section 17. New Member Co-Sale Rights. MSI and Telcom agree
that New Member will have co-sale rights with respect to any sale or
13
<PAGE>
transfer by MSI or Telcom, respectively, or their respective Affiliates, to a
single buyer or group, of all of the shares of Common Stock held by MSI or
Telcom or such Affiliates, respectively, which co-sale rights shall be
exercisable in accordance with the same procedures as set forth in Section
10.3(b) of the LLC Agreement (as if such Section were in effect and references
in such Section to an "Interest" being deemed for this purpose to refer to
Common Stock). Notwithstanding the foregoing, it is acknowledged and agreed
that (i) pursuant to Section 5.8 of the LLC Agreement, upon consummation of the
Merger, the Company, New Member and any person or entity who or which was a
member of the LLC but is not a party hereto will cease to have any rights
pursuant to such Sections 10.3(a) and 10.3(b) of the LLC Agreement, except as
provided above in this Section 17 with respect to New Member, and (ii) the co-
sale rights provided for in this Section 17 will in any event not apply with
respect to (A) any sale or transfer of Common Stock which was acquired pursuant
to a public market transaction, (B) any public sale or distribution of Common
Stock, whether pursuant to a registration statement under the Securities Act,
Rule 144 thereunder or otherwise, (C) any sale or transfer of Common Stock to an
Affiliate (as such term is defined in the LLC Agreement) of the selling or
transferring party, provided such Affiliate executes and delivers to the parties
hereto an instrument agreeing to be bound hereby or (D) any pledge of, or grant
of a security interest in, Common Stock, provided such pledge or grant meets the
requirements set forth in Section 10.2(a)(ii), (a)(iii) and (a)(iv) of the LLC
Agreement (as if such Section were still in effect).
Section 18. Miscellaneous.
(a) This Agreement may be modified or amended at any time by
Stockholders holding shares of Common Stock representing at least 50.01% of the
aggregate number of shares of Common Stock held by all Stockholders; provided,
that without the consent of any Stockholder, the Company may (i) enter into
agreements with permitted assignees pursuant to the terms of this Agreement,
providing in substance that such permitted assignees will be bound by this
Agreement and (ii) amend this Agreement (A) to satisfy any requirements,
conditions, guidelines or opinions contained in any
14
<PAGE>
opinion, directive, order, ruling or regulation of the Securities and Exchange
Commission, the Internal Revenue Service or any other United States federal or
state agency, or in any United States federal or state statute, compliance with
which the Board of Directors deems to be in the best interests of the Company,
(B) to change the name of the Company, and (C) to cure any ambiguity or correct
or supplement any provision of this Agreement that may be incomplete or
inconsistent with any other provision contained herein, so long as any amendment
under this clause (ii) does not adversely affect the investment in the Company
of any Stockholder; provided, further, that, notwithstanding the foregoing
provisions of this Section 18(a), no amendment of this Agreement shall (y)
deprive a Stockholder of any of such Stockholder's rights hereunder without the
prior written consent of such Stockholder, or (z) change the provisions of this
Section 18(a) without the prior written consent of each Stockholder.
(b) Any party to this Agreement may extend the time for the
performance of any of the obligations or other acts of any other party hereto,
or waive compliance with any of the agreements of any other party, in each case
only to the extent that such obligations, agreements and conditions are intended
for its benefit.
(c) 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.
(d) This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which
together shall constitute a single agreement.
(e) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to its
conflicts of law principles.
15
<PAGE>
(f) 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.
(g) 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.
(h) This Agreement may not be assigned by any party without
the prior written consent of the other parties; provided, that in connection
with any Stockholder's transfer of shares of Class B Common Stock to a Permitted
Transferee of such Stockholder, such Stockholder shall require such Permitted
Transferee to agree in writing to become a "Stockholder" for purposes of this
Agreement and to be bound by the terms hereof.
(i) This Agreement shall inure to the benefit of, and be
binding upon, the parties to it and their respective successors and permitted
assigns. Nothing contained in this Agreement, express or implied, is intended to
confer upon any person other than the parties to it and their respective
successors and permitted assigns, any rights or remedies under or by reason of
this Agreement.
(j) All notices, requests, demands and other communications
which are required or may be given pursuant to the terms of this Agreement shall
be in writing and shall be deemed given when delivered by hand, fax (provided,
that a confirming copy is sent by a reputable overnight courier service), or
reputable overnight courier service, to the parties at their respective
addresses set forth in Schedule I hereto or to such other address as any party
shall have designated by notice in writing to the other parties.
(k) The Company, MSI and Telcom covenant and agree with New
Member that any and all disputes hereunder involving any of them and New
16
<PAGE>
Member shall be submitted to the same dispute resolution procedures as are set
forth in Section 7.10 of the Purchase Agreement.
(l) Nothing contained herein shall require any Stockholder to
make any further investment in or otherwise contribute capital to the Company.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
TELIGENT, INC.
By:
- -----------------------------
Name:
Title:
MICROWAVE SERVICES, INC.
By:
- -----------------------------
Name:
Title:
TELCOM-DTS INVESTORS, L.L.C.
By:
- -----------------------------
Name:
Title:
NTTA&T INVESTMENT INC.
By:
- -----------------------------
Name:
Title:
18
<PAGE>
SCHEDULE I
Addresses for Notices
Teligent, Inc.
8065 Leesburg Pike
Vienna, Virginia 22182
Phone: 703-762-5100
Fax: 703-762-5227
Attention: General Counsel
Microwave Services, Inc.
650 Madison Avenue, 25th Floor
New York, New York 10022
Phone: 212-301-2800
Fax: 212-301-2811
Attention: President and General Counsel
Telcom-DTS Investors, L.L.C.
211 N. Union Street
Suite 300
Alexandria, Virginia 22314
Phone: 703-706-3800
Fax: 703-706-3801
Attention: President and General Counsel
NTTA&T Investment Inc.
c/o Nippon Telegraph and Telephone Corporation
Tokyo Opera City Tower
20-2 Nishi-Shinjuku 3-chome
Shinjuku, Tokyo 163-14
JAPAN
Phone: 011-81-3-5353-5111
Fax: 011-81-3-5353-5503
Attention: Mr. Osamue Inoue
19
<PAGE>
================================================================================
TELIGENT, INC.
TO
FIRST UNION NATIONAL BANK,
Trustee
--------------------
Indenture
Dated as of November __, 1997
---------------------
$250,000,000
_____% Senior Notes
due 2007
================================================================================
<PAGE>
TELIGENT, INC.
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of November __, 1997
<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section
<S> <C>
ss. 310(a)(1) .................................................... 609
(a)(2) .................................................... 609
(a)(4) .................................................... 609
(a)(5) .................................................... 609
(b) .................................................... 610
ss. 311(a) .................................................... 614
(b) .................................................... 614
(b)(2) .................................................... 614
ss. 312(c) .................................................... 701
ss. 313(a) .................................................... 702
(b) .................................................... 702
(c) .................................................... 702
(d) .................................................... 702
ss. 314(a) .................................................... 703
(a)(4) .................................................... 1008(a)
(c)(1) .................................................... 102
(c)(2) .................................................... 102
(c)(3) .................................................... 102
(e) .................................................... 102
ss. 315(b) .................................................... 601
ss. 315(e) .................................................... 515
ss. 316(a)(last
sentence) .................................................... 101 ("Outstanding")
(a)(1)(A) .................................................... 502, 512
(a)(1)(B) .................................................... 513
(b) .................................................... 508
(c) .................................................... 104(d)
ss. 317(a)(1) .................................................... 503
(a)(2) .................................................... 504
(b) .................................................... 1003
ss. 318(a) .................................................... 111
</TABLE>
<PAGE>
TABLE OF CONTENTS
Page
PARTIES.................................................................... 1
RECITALS OF THE COMPANY.................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.................................................. 2
Accounts Receivable Subsidiary............................................. 2
Acquired Debt.............................................................. 2
Act........................................................................ 3
Affiliate.................................................................. 3
Asset Sale................................................................. 3
Attributable Debt.......................................................... 4
Average Life............................................................... 4
Board of Directors......................................................... 4
Board Resolution........................................................... 4
Business Day............................................................... 4
Capital Lease Obligation................................................... 4
Capital Stock.............................................................. 5
Change of Control.......................................................... 5
Class A Common Stock....................................................... 5
Class B Common Stock....................................................... 5
Commission................................................................. 6
Common Stock............................................................... 6
Company.................................................................... 6
Company Request or Company Order........................................... 6
Consolidated Interest Expense.............................................. 6
Consolidated Net Income.................................................... 6
Corporate Trust Office..................................................... 7
Corporation................................................................ 7
Credit Agreement........................................................... 7
Currency Hedge Obligations................................................. 7
Debt....................................................................... 8
- --------
Note: This table of contents shall not, for any purpose, be deemed to be a part
of this Indenture.
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Debt to Annualized EBITDA Ratio........................................... 9
Debt Securities........................................................... 9
Default................................................................... 9
Defaulted Interest........................................................ 9
Disinterested Director.................................................... 9
EBITDA.................................................................... 10
Eligible Cash Equivalents................................................. 10
Equity Offerings.......................................................... 11
Event of Default.......................................................... 11
Exchange Act.............................................................. 11
Fair Market Value......................................................... 11
Federal Communications Commission......................................... 11
Financing Commitment Letter............................................... 11
GAAP...................................................................... 11
Guarantee................................................................. 11
incur..................................................................... 12
Holder.................................................................... 12
Indenture................................................................. 12
Interest Payment Date..................................................... 12
Interest Swap Obligations................................................. 12
International Equity Offering............................................. 12
Invested Capital.......................................................... 12
Invest.................................................................... 13
Issue Date................................................................ 13
Lien...................................................................... 13
Maturity.................................................................. 13
Net Cash Proceeds......................................................... 13
Notes..................................................................... 14
Note Register and Note Registrar.......................................... 14
Officers' Certificate..................................................... 14
Opinion of Counsel........................................................ 15
Outstanding............................................................... 15
Paying Agent.............................................................. 16
Permitted Debt............................................................ 16
Permitted Holder.......................................................... 18
Permitted Investments..................................................... 18
Permitted Liens........................................................... 19
Permitted Temporary Investments........................................... 20
Person.................................................................... 20
Pledge Account............................................................ 20
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Pledge Agreement.......................................................... 20
Pledged Securities........................................................ 20
Predecessor Note.......................................................... 20
Proportionate Interest.................................................... 20
Public Equity Offering.................................................... 21
Qualified Capital Stock................................................... 21
Redeemable Capital Stock.................................................. 21
Redemption Date........................................................... 21
Redemption Price.......................................................... 21
Regular Record Date....................................................... 21
Regulation S.............................................................. 21
Replacement Assets........................................................ 21
Responsible Officer....................................................... 22
Restricted Payment........................................................ 22
Restricted Subsidiary..................................................... 22
Rule 144A................................................................. 23
Sale and Leaseback Transaction............................................ 23
Securities Act............................................................ 23
Senior Discount Notes..................................................... 23
Senior Discount Notes Indenture........................................... 23
Significant Restricted Subsidiary......................................... 23
Special Record Date....................................................... 23
Stated Maturity........................................................... 23
Strategic Equity Investor................................................. 23
Subordinated Debt......................................................... 23
Subordinated Stockholder Debt............................................. 23
Subsidiary................................................................ 24
Subsidiary Guarantee...................................................... 24
Subsidiary Guarantor...................................................... 24
Telecommunications Assets................................................. 24
Telecommunications Assets Debt............................................ 24
Telecommunications Business............................................... 24
Transactions.............................................................. 24
Trust Indenture Act or TIA................................................ 25
Trustee................................................................... 25
U.S. Equity Offering...................................................... 25
U.S. Government Obligations............................................... 25
Unrestricted Subsidiary................................................... 25
Vendor Debt............................................................... 26
Vice President............................................................ 26
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Voting Stock............................................................... 26
SECTION 102. Compliance Certificates and Opinions......................... 26
SECTION 103. Form of Documents Delivered to Trustee....................... 27
SECTION 104. Acts of Holders.............................................. 28
SECTION 105. Notices, etc., to Trustee and Company........................ 29
SECTION 106. Notice to Holders; Waiver.................................... 29
SECTION 107. Effect of Headings and Table of Contents..................... 30
SECTION 108. Successors and Assigns....................................... 30
SECTION 109. Separability Clause.......................................... 30
SECTION 110. Benefits of Indenture........................................ 30
SECTION 111. Governing Law................................................ 30
SECTION 112. Legal Holidays............................................... 31
SECTION 113. No Recourse Against Others................................... 31
SECTION 114. Exhibits and Schedules....................................... 31
SECTION 115. Counterparts................................................. 31
SECTION 116. Duplicate Originals.......................................... 32
SECTION 117. Incorporation by Reference of TIA............................ 32
ARTICLE TWO
NOTES FORMS
SECTION 201. Forms Generally.............................................. 32
SECTION 202. Form of Face of Note......................................... 33
SECTION 203. Form of Reverse of Note...................................... 34
SECTION 204. Form of Trustee's Certificate of Authentication.............. 39
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms.............................................. 39
SECTION 302. Denominations................................................ 40
SECTION 303. Execution, Authentication, Delivery and Dating............... 40
SECTION 304. Temporary Notes.............................................. 41
SECTION 305. Registration, Registration of Transfer and Exchange.......... 41
SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes.................. 43
SECTION 307. Payment of Interest; Interest Rights Preserved............... 43
SECTION 308. Persons Deemed Owners........................................ 45
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SECTION 309. Cancellation................................................. 45
SECTION 310. Computation of Interest...................................... 45
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture...................... 46
SECTION 402. Application of Trust Money................................... 47
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default............................................ 47
SECTION 502. Acceleration of Maturity; Rescission and Annulment........... 49
SECTION 503. Collection of Debt and Suits for Enforcement by Trustee...... 51
SECTION 504. Trustee May File Proofs of Claim............................. 51
SECTION 505. Trustee May Enforce Claims Without Possession of Notes....... 52
SECTION 506. Application of Money Collected............................... 52
SECTION 507. Limitation on Suits.......................................... 53
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium
and Interest............................................... 54
SECTION 509. Restoration of Rights and Remedies........................... 54
SECTION 510. Rights and Remedies Cumulative............................... 54
SECTION 511. Delay or Omission Not Waiver................................. 54
SECTION 512. Control by Holders........................................... 54
SECTION 513. Waiver of Past Defaults...................................... 55
SECTION 514. Waiver of Stay or Extension Laws............................. 55
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults............................................ 56
SECTION 602. Trustee's Duties Following Event of Default................... 56
SECTION 603. Certain Rights of Trustee..................................... 56
SECTION 604. Trustee Not Responsible for Recitals or Issuance of Notes..... 58
SECTION 605. Extension of Credit to Company................................ 58
SECTION 606. May Hold Notes................................................ 58
SECTION 607. Money Held in Trust........................................... 58
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Page
SECTION 608. Compensation and Reimbursement................................ 58
SECTION 609. Corporate Trustee Required; Eligibility....................... 59
SECTION 610. Resignation and Removal; Appointment of Successor............. 60
SECTION 611. Acceptance of Appointment by Successor........................ 61
SECTION 612. Merger, Conversion, Consolidation or Succession to Business... 61
SECTION 613. Conflicting Interests......................................... 62
SECTION 614. Preferential Collection of Claims Against Issuers............. 62
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders.................. 62
SECTION 702. Reports by Trustee............................................ 63
SECTION 703. Reports by Company............................................ 63
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, etc., Only on Certain Terms.......... 64
SECTION 802. Successor Substituted......................................... 65
SECTION 803. Notes to Be Secured in Certain Events......................... 66
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders............ 66
SECTION 902. Supplemental Indentures with Consent of Holders............... 67
SECTION 903. Execution of Supplemental Indentures.......................... 68
SECTION 904. Effect of Supplemental Indentures............................. 68
SECTION 905. Conformity with Trust Indenture Act........................... 69
SECTION 906. Reference in Notes to Supplemental Indentures................. 69
SECTION 907. Notice of Supplemental Indentures............................. 69
SECTION 908. Effect of Consents............................................ 69
<PAGE>
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ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and Interest.......... 69
SECTION 1002. Maintenance of Office or Agency.............................. 70
SECTION 1003. Money for Note Payments to Be Held in Trust.................. 70
SECTION 1004. Corporate Existence.......................................... 72
SECTION 1005. Payment of Taxes and Other Claims............................ 72
SECTION 1006. Maintenance of Properties.................................... 72
SECTION 1007. Insurance.................................................... 73
SECTION 1008. Statement by Officers As to Default.......................... 73
SECTION 1009. Purchase of Notes upon Change in Control..................... 73
SECTION 1010. Limitation on Debt........................................... 75
SECTION 1011. Limitation on Liens.......................................... 75
SECTION 1012. Limitation on Restricted Payments............................ 75
SECTION 1013. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries.......................... 78
SECTION 1014. Limitation on Issuances of Certain Guarantees by, and Debt
Securities of, Restricted Subsidiaries..................... 79
SECTION 1015. Limitation on Issuances and Sales of Capital Stock in
Restricted Subsidiaries.................................... 80
SECTION 1016. Limitation on Asset Sales.................................... 81
SECTION 1017. Transactions with Affiliates................................. 82
SECTION 1018. Waiver of Certain Covenants.................................. 84
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Right of Redemption.......................................... 84
SECTION 1102. Applicability of Article..................................... 84
SECTION 1103. Election to Redeem; Notice to Trustee........................ 85
SECTION 1104. Selection by Trustee of Notes to Be Redeemed................. 85
SECTION 1105. Notice of Redemption......................................... 85
SECTION 1106. Deposit of Redemption Price.................................. 86
SECTION 1107. Notes Payable on Redemption Date............................. 86
SECTION 1108. Notes Redeemed in Part....................................... 87
<PAGE>
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ARTICLE TWELVE
SECURITY FOR THE NOTES
SECTION 1201. Security..................................................... 84
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or Covenant Defeasance. 87
SECTION 1302. Defeasance and Discharge..................................... 88
SECTION 1303. Covenant Defeasance.......................................... 88
SECTION 1304. Conditions to Defeasance or Covenant Defeasance.............. 89
SECTION 1305. Deposited Money and U.S. Government Obligations to Be Held
in Trust; Other Miscellaneous Provisions................... 91
SECTION 1306. Reinstatement................................................ 91
TESTIMONIUM................................................................. 97
SIGNATURES AND SEALS........................................................ 97
<PAGE>
INDENTURE, dated as of November __, 1997 by and
between TELIGENT, INC., a corporation duly organized and existing under the laws
of the State of Delaware (herein called the "Company"), having its principal
office at 8065 Leesburg Pike, Vienna, VA 22182 and FIRST UNION NATIONAL BANK, a
____________________ duly organized and existing under the laws of
_______________, Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of
____% Senior Notes due 2007 (herein called the "Notes"), of substantially the
tenor and amount hereinafter set forth, and to provide therefor the Company has
duly authorized the execution and delivery of this Indenture. The Notes will be
partially secured pursuant to the terms of a Pledge Agreement (as defined
herein) by the Pledged Securities as provided by Article Twelve of this
Indenture. Immediately prior to the consummation of the offering of the Notes,
Teligent, L.L.C. will merge with and into the Company (the "Reorganization"),
with the Company surviving the merger.
This Indenture is subject to the provisions of the Trust
Indenture Act of 1939, as amended, that are required to be part of this
Indenture and shall, to the extent applicable, be governed by such provisions.
All things necessary have been done to make the Notes, when
executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company and to make this
Indenture a valid agreement of the Company, in accordance with their and its
terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Notes by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Notes, as follows:
<PAGE>
2
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as
the singular;
(b) all other terms used herein that are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein, and the terms "cash transaction" and
"self-liquidating paper", as used in TIA Section 311, shall have the
meanings assigned to them in the rules of the Commission adopted under
the Trust Indenture Act;
(c) all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with GAAP; and
(d) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
Certain terms, used principally in Article Ten, are defined in
that Article.
"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.
"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
Section 1010, 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.
<PAGE>
3
"Act", when used with respect to any Holder, has the meaning
specified in Section 104.
"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) shall 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 Section 1016, the term "Asset Sale" (i) when used with respect to
the Company, shall exclude any asset disposition permitted pursuant to Article
Eight that constitutes a disposition of all or substantially 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 this Indenture. Notwithstanding the
provisions of Section 1016, 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
<PAGE>
4
such Lien does not violate Section 1011, 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.
"Board of Directors" means either the board of directors of
the Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday 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.
<PAGE>
5
"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 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.
"Class A Common Stock" means, with respect to the Company, the
shares of Class A Common Stock, par value $.01 per share.
"Class B Common Stock" means, with respect to the Company, the
shares of Class B Common Stock, par value $.01 per share.
<PAGE>
6
"Closing Date" means the date on which the Notes originally
are issued under this Indenture.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Securities Exchange Act of
1934, or, if at any time after the execution of this Indenture such Commission
is not existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such time.
"Common Stock" means, with respect to the Company, the Class A
Common Stock, the Class B Common Stock or any similar common stock of the
Company.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by an officer of the Company, and
delivered to the Trustee.
"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.
<PAGE>
7
"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.
"Corporate Trust Office" means the principal corporate trust
office of the Trustee, at which at any particular time its corporate trust
business shall be administered, which office at the date of execution of this
Indenture is located at 901 E. Cary Street - 2nd Fl., Richmond, Virginia 23219
except that, with respect to presentation of Notes for payment or for
registration of transfer or exchange, such term shall mean the office or agency
of the Trustee at which, at any particular time, its corporate agency business
shall be conducted.
"Corporation" includes corporations, associations, companies
and business trusts.
"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 otherwise and
whether provided pursuant to the facility contemplated by the Financing
Commitment Letter or otherwise).
<PAGE>
8
"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 this 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
<PAGE>
9
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 Annualized 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 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.
"Defaulted Interest" has the meaning specified in Section 307.
<PAGE>
10
"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
Organization for Economic Cooperation and Development having capital and surplus
in excess of $500.0 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
<PAGE>
11
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).
"Equity Offerings" means the U.S. Equity Offering together
with the International Equity Offering.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"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
herein, 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.
"Federal Communications Commission" means the Federal
Communications Commission, or, if at any time after the execution of this
Indenture such Commission is not existing and performing the duties now assigned
to it, then the body performing such duties at such time.
"Financing Commitment Letter" means the commitment letter
between the Company and Northern Telecom, Inc. setting forth the anticipated
terms and conditions under which Northern Telecom, Inc. 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 this Indenture 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.
<PAGE>
12
"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.
"Holder" means a Person in whose name a Note is registered in
the Note Register.
"Indenture" means this instrument as originally executed and
as it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an
installment of interest on the Notes.
"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.
"International Equity Offering" means the offering outside of
the United States and Canada of 1,100,000 shares of the Company's Class A Common
Stock pursuant to the registration statement on Form S-1 (No. 333-37381), as
amended, filed by the Company with the Securities and Exchange Commission.
<PAGE>
13
"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 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 this Indenture.
"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 herein, whether at the Stated Maturity, on the purchase date established
pursuant to the terms of this Indenture 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
<PAGE>
14
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 (that otherwise would constitute Net Cash Proceeds) is required to
be held in escrow pending determination of whether a purchase price adjustment
shall 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 Section 1016, 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, shall 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.
"Note Register" and "Note Registrar" have the respective
meanings specified in Section 305.
<PAGE>
15
"Notes" has the meaning stated in the first recital of this
Indenture and more particularly means any Notes authenticated and delivered
under this Indenture.
"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 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 this Indenture.
"Opinion of Counsel" means a written opinion of counsel, who
may be an employee of or counsel for the Company, including an employee of the
Company, and who shall be reasonably acceptable to the Trustee.
"Outstanding", when used with respect to Notes, means, as of
the date of determination, all Notes theretofore authenticated and delivered
under this Indenture, except:
(i) Notes theretofore cancelled by the Trustee or delivered
to the Trustee for cancellation;
(ii) Notes, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore deposited
with the Trustee or any Paying Agent (other than the Company) in trust
or set aside and segregated in trust by the Company (if the Company
shall act as its own Paying Agent) for the Holders of such Notes;
provided that, if such Notes are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision
therefor reasonably satisfactory to the Trustee has been made;
(iii) Notes, except to the extent expressly provided in
Sections 1302 and 1303, with respect to which the Company has effected
defeasance and/or covenant defeasance as provided in Article Thirteen;
and
(iv) Notes that have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Notes have been authenticated
and delivered pursuant to this Indenture, other than any such Notes in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Notes are held by a bona fide purchaser in
whose hands the Notes are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Notes have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Notes owned by
the Company or any other obligor upon the Notes or any Affiliate of the Company
or such other obligor shall be disregarded and deemed not to be
<PAGE>
16
Outstanding, except that, in determining whether the Trustee shall be protected
in making such calculation or in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes that the Trustee
knows to be so owned shall be so disregarded. Notes so owned that have been
pledged in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act with respect to
such Notes and that the pledgee is not the Company or any other obligor upon the
Notes or any Affiliate of the Company or such other obligor.
"Paying Agent" means any Person (including the Company acting
as Paying Agent) authorized by the Company to pay the principal of (and premium,
if any) or interest on any Notes on behalf of the Company.
"Permitted Debt" means (a) Vendor Debt in an aggregate
principal amount not to exceed $780.0 million outstanding at any one time, (b)
Debt permitted to be borrowed under the Credit Agreement in an aggregate
principal amount not to exceed $175.0 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 and the Senior Discount 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
<PAGE>
17
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 Section 1012, 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 this 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 or the
Senior Discount Notes pursuant to a Change of Control (in the case of the Senior
Discount Notes, as defined in the Senior Discount Notes Indenture), provided
that the principal amount of such Debt does not exceed 101% of the principal
amount of the Notes or the lesser of the Accreted Value or principal amount at
Stated Maturity of the Senior Discount 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 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, Section 1011, 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
<PAGE>
18
of determining compliance with Section 1010, 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 that 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 Microwave Services Inc.,
Digital Services Corporation, Nippon Telegraph and Telephone Corporation, Alex
J. 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
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19
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 Section 1016; (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 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 and the Senior Discount Notes, or any Guarantees thereof; (i) any interest
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20
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 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 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 this Indenture, by and between the 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 offering of the Notes and
the Senior Discount Notes, 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.
"Predecessor Note" of any particular Note means every previous
Note evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 306 in
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21
exchange for a mutilated security or in lieu of a lost, destroyed or stolen Note
shall be deemed to evidence the same debt as the mutilated, lost, destroyed or
stolen Note.
"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.
"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 under Sections 203 and 1101
shall have resulted in gross proceeds to the Company of not less than $65.0
million. Such a primary offering may be undertaken either independently or in
conjunction with any secondary offering of securities of the Company.
"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.
"Redemption Date", when used with respect to any Note to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture and the terms of the Notes.
"Redemption Price", when used with respect to any Note to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture and the terms 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.
"Regulation S" means Regulation S under the General
Regulations of the Securities Act.
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22
"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 shall be used in the Telecommunications
Business of the Company or a Restricted Subsidiary of the Company.
"Responsible Officer", when used with respect to the Trustee,
means the chairman or any vice-chairman of the board of directors, the chairman
or any vice-chairman of the executive committee of the board of directors, the
chairman of the trust committee, the president, any vice president, the
secretary, any assistant secretary, the treasurer, any assistant treasurer, the
cashier, any assistant cashier, any trust officer or assistant trust officer,
the controller or any assistant controller or any other officer of the Trustee
duly authorized and customarily performing functions similar to those performed
by any of the above-designated officers, and also means, with respect to a
particular corporate trust matter, any other duly authorized officer to whom
such matter is referred because of his knowledge of and familiarity with the
particular subject.
"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
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23
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.
"Rule 144A" means Rule 144A under the General Regulations of
the Securities Act.
"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.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Discount Notes" means the Company's __% Senior
Discount Notes due 2007.
"Senior Discount Notes Indenture" means the indenture dated
November __, 1997 by and between the Trustee and the Company governing the
Senior Discount Notes.
"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.
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to a 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.
"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.
"Subordinated Debt" means Debt of the Company that is
subordinated in right of payment to the Notes.
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24
"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
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 hereto
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.
"Subsidiary Guarantee" means a Guarantee of the Notes or the
Senior Discount Notes, as the case may be, by a Restricted Subsidiary and
required pursuant to Section 1014 hereof.
"Subsidiary Guarantor" means a Restricted Subsidiary that has
executed a Subsidiary Guarantee.
"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
<PAGE>
25
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.
"Transactions" means (i) the acquisition by the Company of all
of the outstanding stock of FirstMark Communications, Inc. pursuant to a stock
contribution agreement dated as of March 10, 1997 among Teligent, L.L.C.,
FirstMark Communications, Inc. and the sole stockholder of FirstMark
Communications, Inc., (ii) the capital contributions in an aggregate amount of
$60 million to Teligent L.L.C. by the original members of Teligent L.L.C., (iii)
the contribution of Associated Communications of Los Angeles to Teligent, L.L.C.
by The Associated Group, Inc., (iv) the assignment of certain licenses held by
certain of the Company's members or affiliates to the Company, (v) the grant by
the Federal Communications Commission of pending applications to provide 24 GHz
wireless services in Boston, MA and New York, NY, (vi) the investment by Nippon
Telegraph and Telephone Corporation of $100.0 million in the Company pursuant to
a securities purchase agreement dated September 30, 1997 between the Company and
Nippon Telegraph and Telephone Corporation and (vii) the merger of Teligent,
L.L.C. with and into the Company, with the Company surviving the merger.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act
of 1939 as in effect from time to time.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"U.S. Equity Offering" means the offering in the United States
and Canada of 4,400,000 shares of the Company's Class A Common Stock pursuant to
the registration statement on Form S-1 (No. 333-37381), as amended, filed by the
Company with the Securities and Exchange Commission..
"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) 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
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26
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 Section 1012 and any such Guarantee, endorsement or
agreement shall be deemed an incurrence of Debt by the Company for purposes of
Section 1010. 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 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 Sections 1010 and 1011,
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).
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27
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"Voting Stock" means, 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.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee
to take any action under any provision of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent, if any, provided for in this Indenture (including any covenant
compliance with which constitutes a condition precedent) relating to the
proposed action have been complied with and an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with, except that in the case of any such application or request as to
which the furnishing of such documents is specifically required by any provision
of this Indenture relating to such particular application or request, no
additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008(a)) shall include:
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to enable
him to express an informed opinion as to whether or not such covenant
or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
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28
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or Opinion
of Counsel may be based, insofar as it relates to factual matters, upon (x) a
certificate or opinion of, or representations by, an officer or officers of the
Company stating that the information with respect to such factual matters is in
the possession of the Company, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous or (y) one or more certificates of
public officials.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him
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29
the execution thereof. Where such execution is by a signer acting in a capacity
other than his individual capacity, such certificate or affidavit shall also
constitute sufficient proof of authority. The fact and date of the execution of
any such instrument or writing, or the authority of the Person executing the
same, may also be proved in any other manner that the Trustee deems sufficient.
(c) The principal amount and serial numbers of Notes held by
any Person, and the date of holding the same, shall be proved by the Note
Register.
(d) If the Company shall solicit from the Holders of Notes any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than the date such solicitation is completed. If such a record date is
fixed, such request, demand, authorization, direction, notice, consent, waiver
or other Act may be given before or after such record date, but only the Holders
of record at the close of business on such record date shall be deemed to be
Holders for the purposes of determining whether Holders of the requisite
proportion of Outstanding Notes have authorized or agreed or consented to such
request, demand, authorization, direction, notice, consent, waiver or other Act,
and for that purpose the Outstanding Notes shall be computed as of such record
date; provided that no such authorization, agreement or consent by the Holders
on such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than eleven months after
the record date.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Note shall bind every future
Holder of the same Note and the Holder of every Note issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee, any
Paying Agent or the Company in reliance thereon, whether or not notation of such
action is made upon such Note.
SECTION 105. Notices, etc., to Trustee and Company.
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with,
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(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: [Corporate Trust Administration Division], or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at the address of its principal
office specified in the first paragraph of this Indenture, or at any
other address previously furnished in writing to the Trustee by the
Company.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice of any event to
Holders by the Company or the Trustee, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to each Holder affected by such event, at his
address as it appears in the Note Register, not later than the latest date, and
not earlier than the earliest date, prescribed for the giving of such notice. In
any case where notice to Holders is given by mail, neither the failure to mail
such notice, nor any defect in any notice so mailed, to any particular Holder
shall affect the sufficiency of such notice with respect to other Holders. Any
notice mailed to a Holder in the manner herein prescribed shall be conclusively
deemed to have been received by such Holder, whether or not such Holder actually
receives such notice. Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in
regular mail service or by reason of any other cause, it shall be impracticable
to mail notice of any event to Holders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice for every purpose hereunder.
SECTION 107. Effect of Headings, Table of Contents and
Recitals.
The Article and Section headings herein, the Table of Contents
and the Recitals are for convenience only and shall not affect the construction
hereof.
<PAGE>
31
SECTION 108. Successors and Assigns.
All covenants and agreements in this Indenture by the Company
and the Trustee shall bind their respective successors and assigns, whether so
expressed or not.
SECTION 109. Separability Clause.
In case any provision in this Indenture or in the Notes shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 110. Benefits of Indenture.
Nothing in this Indenture or in the Notes, express or implied,
shall give to any Person, (other than the parties hereto, any Paying Agent, any
Notes Registrar and their successors hereunder, and the Holders) any benefit or
any legal or equitable right, remedy or claim under this Indenture.
SECTION 111. Governing Law.
This Indenture and the Notes shall be governed by and
construed in accordance with the law of the State of New York (without giving
effect to the conflict of laws principles thereof). The Trustee, the Company,
and (by their acceptance of the Notes) the Holders, agree to submit to the
non-exclusive jurisdiction of any United States federal or state court located
in the Borough of Manhattan, in the City of New York in any action or proceeding
arising out of or relating to this Indenture or the Notes. This Indenture is
subject to the provisions of the Trust Indenture Act that are required to be
part of this Indenture and shall, to the extent applicable, be governed by such
provisions.
SECTION 112. Legal Holidays.
In any case where any Interest Payment Date, date established
for the payment of defaulted interest, Redemption Date, Change of Control
Payment Date, Asset Sale Offer Purchase Date or Stated Maturity or Maturity of
any Note shall not be a Business Day, then (notwithstanding any other provision
of this Indenture or of the Notes) payment of principal (or premium, if any) or
interest need not be made on such date, but may be made on the next succeeding
Business Day with the same force and effect as if made on the Interest Payment
Date, date established for the payment of defaulted interest, Redemption Date,
Change of Control Payment Date, Asset Sale Offer Purchase Date or at the Stated
Maturity or Maturity; provided that no interest shall accrue for the period from
and after such Interest Payment Date, date established for the payment of
defaulted interest, Redemption Date,
<PAGE>
32
Change of Control Payment Date, Asset Sale Offer Purchase Date, Stated Maturity
or Maturity, as the case may be.
SECTION 113. No Recourse Against Others.
No recourse for the payment of the principal of, or 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 this Indenture or in any of the Notes,
or because of the creation of any Debt represented thereby, shall be had against
any incorporator, shareholder, officer, director, employee or controlling person
of the Company, any Subsidiary of the Company or of any successor Person
thereof. Each Holder of Notes by accepting a Note waives and releases all such
liability, and such waiver and release is part of the consideration for the
issuance of the Notes.
SECTION 114. Exhibits and Schedules.
All exhibits and schedules attached hereto are by this
reference made a part hereof with the same effect as if herein set forth in
full.
SECTION 115. Counterparts.
This Indenture may be executed in any number of counterparts,
each of which shall be an original; but such counterparts shall together
constitute but one and the same instrument.
SECTION 116. Duplicate Originals.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
SECTION 117. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in, and made a part of, this Indenture.
Any terms incorporated by reference in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
under the TIA, have the meanings so assigned to them therein.
ARTICLE TWO
<PAGE>
33
NOTES FORMS
SECTION 201. Forms Generally.
The Notes and the Trustee's certificate of authentication
shall be in substantially the forms set forth in this Article, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture, and may have such letters, numbers or
other marks of identification and such legends or endorsements placed thereon as
may be required to comply with the rules of any securities exchange, law,
governmental rule or regulation, depository rule or usage, or other customary
usage or as may, consistently herewith, be determined by the officers executing
such Notes, as evidenced by their execution of the Notes. Any portion of the
text of any Note may be set forth on the reverse thereof, with an appropriate
reference thereto on the face of the Note.
The definitive Notes shall be printed, lithographed or
engraved on steel-engraved borders or may be produced in any other manner, all
as determined by the officers of the Company executing such Notes, as evidenced
by their execution of such Notes.
SECTION 202. Form of Face of Note.
TELIGENT, INC.
___% Senior Notes due 2007
No. __________ $________
Teligent, Inc., a Delaware corporation (herein called the
"Company", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
____________________ or registered assigns, the principal sum of
____________________ Dollars on [ ], 2007, at the office or agency of the
Company referred to below, and to pay interest thereon on [ ], 1998 and
semi-annually thereafter, on [ ] and [ ] in each year, from [ ], 1997, or from
the most recent Interest Payment Date to which interest has been paid or duly
provided for, at the rate of ____% per annum, until the principal hereof is paid
or duly provided for, and (to the extent lawful) to pay on demand interest on
any overdue interest at the rate borne by the Notes from the date on which such
overdue interest becomes payable to the date payment of such interest has been
made or duly provided for. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in such Indenture,
be paid to the Person in whose name this Note (or one or more Predecessor Notes)
is registered at the close of business on the Regular Record Date for such
interest, which shall be the [ ] or [ ] (whether or not a Business Day), as the
<PAGE>
34
case may be, next preceding such Interest Payment Date. Any such interest not so
punctually paid or duly provided for shall forthwith cease to be payable to the
Holder on such Regular Record Date, and such defaulted interest, and (to the
extent lawful) interest on such defaulted interest at the rate borne by the
Notes, may be paid to the Person in whose name this Note (or one or more
Predecessor Notes) is registered at the close of business on a Special Record
Date for the payment of such Defaulted Interest to be fixed by the Trustee,
notice whereof shall be given to Holders of Notes not less than 10 days prior to
such Special Record Date, or may be paid at any time in any other lawful manner
not inconsistent with the requirements of any securities exchange on which the
Notes may be listed, and upon such notice as may be required by such exchange,
all as more fully provided in said Indenture. Payment of the principal of (and
premium, if any, on) and interest on this Note will be made at the office or
agency of the Company maintained for that purpose in The City of New York, or at
such other office or agency of the Company as may be maintained for such
purpose, in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts; provided,
however, that payment of interest may be made at the option of the Company (i)
by check mailed to the address of the Person entitled thereto as such address
shall appear on the Note Register or (ii) by transfer to an account maintained
by the payee located in the United States.
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof by manual signature,
this Note shall not be entitled to any benefit under the Indenture, or be valid
or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed.
Dated: TELIGENT, INC.
By
------------------------------
Attest:
- ---------------------------------------
Authorized Signature
<PAGE>
35
SECTION 203. Form of Reverse of Note.
This Note is one of a duly authorized issue of securities of
the Company designated as its _____% Senior Notes due 2007 (herein called the
"Notes"), limited (except as otherwise provided in the Indenture referred to
below) in aggregate principal amount to $250,000,000, that may be issued under
an indenture (herein called the "Indenture") dated as of November __, 1997
between the Company and First Union National Bank, trustee (herein called the
"Trustee", which term includes any successor trustee under the Indenture), to
which Indenture and all indentures supplemental thereto reference is hereby made
for a statement of the respective rights, limitations of rights, duties,
obligations and immunities thereunder of the Company, the Trustee and the
Holders of the Notes, and of the terms upon which the Notes are, and are to be,
authenticated and delivered.
The Company has purchased and pledged to the Trustee $_______
of Pledged Securities to provide for payment in full of the first six scheduled
interest payments due on the Notes.
The Notes are subject to redemption upon not less than 30 nor
more than 60 days notice, at any time on or after [ ], 2002 as a whole
or in part, at the election of the Company, at a Redemption Price equal to the
percentage of the principal amount set forth below if redeemed during the
12-month period beginning [ ] of the years indicated below, together in each
case with accrued and unpaid interest, if any, to the Redemption Date, all as
provided in the Indenture:
Year Redemption Price
---- ----------------
2002............................... %
2003............................... %
2004............................... %
2005 and thereafter................ 100%
In addition, up to 35% of the originally issued principal
amount of Notes may be redeemed, at the election of the Company, at any time on
or prior to [ ], 2000 subject to the conditions and at a Redemption Price of
___% of the aggregate principal amount thereof, together with accrued and unpaid
interest to the Redemption Date, 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 $65.0 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 Notes remains Outstanding immediately
after giving effect to such redemption.
<PAGE>
36
Upon the occurrence of a Change in Control, the Holder of this
Note may require the Company, subject to certain limitations provided in the
Indenture, to repurchase this Note at a purchase price in cash in an amount
equal to 101% of the principal amount thereof plus accrued and unpaid interest.
In the case of any redemption of Notes, interest installments
whose Stated Maturity is on or prior to the Redemption Date will be payable to
the Holders of such Notes, or one or more Predecessor Notes, of record at the
close of business on the relevant Regular Record Date referred to on the face
hereof. Notes (or portions thereof) for whose redemption and payment provision
is made in accordance with the Indenture shall cease to bear interest from and
after the Redemption Date.
In the event of redemption of this Note in part only, a new
Note or Notes for the unredeemed portion hereof shall be issued in the name of
the Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the
principal of all the Notes and any accrued and unpaid interest thereon may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture contains provisions for defeasance at any time
of (a) the entire indebtedness of the Company on this Note and (b) certain
restrictive covenants and the related Defaults and Events of Default, upon
compliance by the Company with certain conditions set forth therein, which
provisions apply to this Note.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Notes at the time Outstanding. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Notes at the time Outstanding,
on behalf of the Holders of all the Notes, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by or on behalf of
the Holder of this Note shall be conclusive and binding upon such Holder and
upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof whether
or not notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of (and premium, if
any) and interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed.
<PAGE>
37
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Note is registerable on the
Note Register of the Company, upon surrender of this Note for registration of
transfer at the office or agency of the Company maintained for such purpose in
The City of New York, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Note Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Notes, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated transferee or
transferees.
The Notes are issuable only in registered form without coupons
in denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Notes are
exchangeable for a like aggregate principal amount of Notes of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any registration of
transfer or exchange of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
Prior to the time of due presentment of this Note for
registration of transfer, the Company, the Trustee and any agent of the Company
or the Trustee may treat the Person in whose name this Note is registered as the
owner hereof for all purposes, whether or not this Note be overdue, and neither
the Company, the Trustee nor any agent shall be affected by notice to the
contrary.
All terms used in this Note that are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
No recourse for the payment of the principal of, or 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 Indenture or in any of the Notes, or
because of the creation of any Debt represented thereby, shall be had against
any incorporator, shareholder, officer, director, employee or controlling person
of the Company, any Subsidiary of the Company or of any successor Person
thereof. Each Holder of Notes by accepting a Note waives and releases all such
liability, and such waiver and release is part of the consideration for the
issuance of the Notes.
The Indenture and this Note shall be governed by, and
construed in accordance with, the internal laws of the State of New York
(without giving effect to the conflict of laws principles thereof). The Trustee,
the Company, and (by their acceptance of the Notes) the Holders agree to submit
to the non-exclusive jurisdiction of any United States federal or state
<PAGE>
38
court located in the Borough of Manhattan, in the City of New York, in any
action or proceeding arising out of or relating to the Indenture of this Note.
<PAGE>
39
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have your
signature guaranteed:
I or we assign and transfer this Note to
- --------------------------------------------------------------------------------
(Insert assignee's social security or tax ID number)
- ---------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code) and irrevocably appoint
- --------------------------------------------------------------------------------
agent to transfer this Note on the books of the Company.
The agent may substitute another to act for such agent.
Date: Your signature:
------------------- ----------------------
(Sign exactly as your
name appears on the
other side of this
Note)
By:
-------------------
NOTICE: To be
executed by an
executive officer
NOTICE: Signature(s) must be guaranteed by an institution that is a
participant in the Securities Transfer Agent Medallion Program ("STAMP") or
similar program.
<PAGE>
40
SECTION 204. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be in
substantially the following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
Dated: ____________________
This is one of the Notes referred to in the within-mentioned
Indenture.
FIRST UNION NATIONAL BANK,
as Trustee
By
------------------------------
Authorized Officer
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms.
The aggregate principal amount of Notes that may be
authenticated and delivered under this Indenture is limited to $250,000,000,
except for Notes authenticated and delivered upon registration of transfer of,
or in exchange for, or in lieu of, other Notes pursuant to Section 303, 304,
305, 306, 906, 1009, 1016 or 1108.
The Notes shall be known and designated as the "_____% Senior
Notes due 2007" of the Company. Their Stated Maturity shall be [ ], 2007, and
they shall bear interest at the rate of _____% per annum from [ ], 2007, or from
the most recent Interest Payment Date to which interest has been paid or duly
provided for, payable on [ ], 1998 and semi-annually thereafter on
[ ] and [ ] in each year and at said Stated Maturity until the principal
thereof is paid or duly provided for.
The principal of (and premium, if any) and interest on the
Notes shall be payable at the office or agency of the Company maintained for
such purpose in The City of New York, or at such other office or agency of the
Company as may be maintained for such purpose; provided, however, that, at the
option of the Company, interest may be paid (i) by check mailed to addresses of
the Persons entitled thereto as such addresses shall appear on
<PAGE>
41
the Note Register or (ii) by transfer to an account maintained by the payee
located in the United States.
The Notes shall be redeemable as provided in Article Eleven.
SECTION 302. Denominations.
The Notes shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Notes shall be executed on behalf of the Company by its
Chairman, its President or a Vice President and attested by its Secretary or an
Assistant Secretary. The signature of any of these officers on the Notes may be
manual or facsimile signatures of the present or any future such authorized
officer and may be imprinted or otherwise reproduced on the Notes.
Notes bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Notes or did
not hold such offices at the date of such Notes.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Notes executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Notes, and the Trustee in accordance with
such Company Order shall authenticate and deliver such Notes.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual signature of an authorized officer, and such
certificate upon any Note shall be conclusive evidence, and the only evidence,
that such Note has been duly authenticated and delivered hereunder and is
entitled to the benefits of this Indenture.
In case the Company, pursuant to Article Eight, shall be
consolidated or merged with or into any other Person or shall convey, transfer,
lease or otherwise dispose of its properties and assets substantially as an
entirety to any Person, and the successor Person resulting from such
consolidation, or surviving such merger, or into which the Company
<PAGE>
42
shall have been merged, or the Person that shall have received a conveyance,
transfer, lease or other disposition as aforesaid, shall have executed an
indenture supplemental hereto with the Trustee pursuant to Article Eight, any of
the Notes authenticated or delivered prior to such consolidation, merger,
conveyance, transfer, lease or other disposition may, from time to time, at the
request of the successor Person, be exchanged for other Notes executed in the
name of the successor Person with such changes in phraseology and form as may be
appropriate, but otherwise in substance of like tenor as the Notes surrendered
for such exchange and of like principal amount; and the Trustee, upon Company
Request of the successor Person, shall authenticate and deliver Notes as
specified in such request for the purpose of such exchange. If Notes shall at
any time be authenticated and delivered in any new name of a successor Person
pursuant to this Section in exchange or substitution for or upon registration of
transfer of any Notes, such successor Person, at the option of the Holders but
without expense to them, shall provide for the exchange of all Outstanding Notes
for Notes authenticated and delivered in such new name.
SECTION 304. Temporary Notes.
Pending the preparation of definitive Notes, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Notes that are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Notes in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Notes may determine, as conclusively evidenced by their
execution of such Notes.
If temporary Notes are issued, the Company will cause
definitive Notes to be prepared without unreasonable delay. After the
preparation of definitive Notes, the temporary Notes shall be exchangeable for
definitive Notes upon surrender of the temporary Notes at the office or agency
of the Company designated for such purpose pursuant to Section 1002, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Notes, the Company shall execute and the Trustee shall authenticate
and deliver in exchange therefor a like principal amount of definitive Notes of
authorized denominations. Until so exchanged, the temporary Notes shall in all
respects be entitled to the same benefits under this Indenture as definitive
Notes.
SECTION 305. Registration, Registration of Transfer and
Exchange.
The Company shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in such office and in
any other office or agency designated pursuant to Section 1002 being herein
sometimes referred to as the "Note Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Notes and of transfers of Notes. The Note Register shall
<PAGE>
43
be in written form or any other form capable of being converted into written
form within a reasonable time. At all reasonable times, the Note Register shall
be open to inspection by the Trustee. The Trustee is hereby initially appointed
as security registrar (the "Note Registrar") for the purpose of registering
Notes and transfers of Notes as herein provided.
Upon surrender for registration of transfer of any Note at the
office or agency of the Company designated pursuant to Section 1002, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Notes of any
authorized denomination or denominations of a like aggregate principal amount.
At the option of the Holder, Notes may be exchanged for other
Notes of any authorized denomination and of a like aggregate principal amount,
upon surrender of the Notes to be exchanged at such office or agency. Whenever
any Notes are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Notes that the Holder making the
exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange
of Notes shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Notes
surrendered upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Note
Registrar) be duly endorsed, or be accompanied by a written instrument of
transfer, in the form attached to the Note or otherwise satisfactory to the
Company and the Note Registrar, duly executed by the Holder thereof or his
attorney duly authorized in writing.
No service charge shall be made for any registration of
transfer or exchange or redemption of Notes, but the Company may require payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of Notes,
other than exchanges pursuant to Section 304, 906, 1009, 1016 or 1108 not
involving any transfer.
The Company shall not be required (i) to issue, register the
transfer of or exchange any Note during a period beginning at the opening of
business 15 days before the selection of Notes to be redeemed under Section 1104
and ending at the close of business on the day of such mailing of the relevant
notice of redemption, (ii) to register the transfer of or exchange any Note so
selected for redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part or (iii) to issue, register, transfer or
exchange any Note during a Change of Control Offer or an Asset Sale Offer, if
such Note is tendered pursuant to such Change of Control Offer or Asset Sale
Offer and not withdrawn.
<PAGE>
44
SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes.
If (i) any mutilated Note is surrendered to the Trustee, or
(ii) the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Note, and there is delivered to the Company
and the Trustee such security or indemnity as may be required by them to save
each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Note has been acquired by a bona fide purchaser, the Company
shall execute and upon Company Order the Trustee shall authenticate and deliver,
in exchange for any such mutilated Note or in lieu of any such destroyed, lost
or stolen Note, a replacement Note of like tenor and principal amount, bearing a
number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a replacement Note, pay such Note.
Upon the issuance of any replacement Note under this Section,
the Company may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every replacement Note issued pursuant to this Section in lieu
of any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all benefits of this Indenture equally and proportionately
with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Note that is payable, and is punctually paid
or duly provided for, on any Interest Payment Date shall be paid to the Person
in whose name such Note (or one or more Predecessor Notes) is registered at the
close of business on the Regular Record Date for such interest at the office or
agency of the Company maintained for such purpose pursuant to Section 1002;
provided, however, that each installment of interest may at the Company's option
be paid by (i) mailing a check for such interest, payable to or upon the written
order of the Person entitled thereto pursuant to Section 308, to the address of
such Person as it appears in the Note Register or (ii) transfer to an account
located in the United States maintained by the payee.
<PAGE>
45
Any interest on any Note that is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date shall
forthwith cease to be payable to the Holder on the Regular Record Date by virtue
of having been such Holder, and such defaulted interest and (to the extent
lawful) interest on such defaulted interest at the rate borne by the Notes (such
defaulted interest and interest thereon herein collectively called "Defaulted
Interest") may be paid by the Company, at its election in each case, as provided
in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be
fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Note and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements reasonably satisfactory to the
Trustee for such deposit prior to the date of the proposed payment,
such money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as in this clause (1)
provided. Thereupon the Trustee shall fix a Special Record Date for the
payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and
not less than 10 days after the receipt by the Trustee of the notice of
the proposed payment. The Trustee shall promptly notify the Company of
such Special Record Date, and in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor to be given in the manner
provided for in Section 106, not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been so given,
such Defaulted Interest shall be paid to the Persons in whose names the
Notes (or their respective Predecessor Notes) are registered at the
close of business on such Special Record Date and shall no longer be
payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such
notice as may be required by such exchange, if, after notice given by
the Company to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note
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46
shall carry the rights to interest accrued and unpaid, and to accrue, that were
carried by such other Note.
SECTION 308. Persons Deemed Owners.
Prior to and at the time of the due presentment of a Note for
registration of transfer, the Company, the Trustee and any agent of the Company
or the Trustee may treat the Person in whose name such Note is registered as the
owner of such Note for the purpose of receiving payment of principal of (and
premium, if any) and (subject to Sections 305 and 307) interest on such Note and
for all other purposes whatsoever, whether or not such Note be overdue, and none
of the Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 309. Cancellation.
All Notes surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Notes previously
authenticated and delivered hereunder that the Company may have acquired in any
manner whatsoever, and may deliver to the Trustee (or to any other Person for
delivery to the Trustee) for cancellation any Notes previously authenticated
hereunder that the Company has not issued and sold, and all Notes so delivered
shall be promptly cancelled by the Trustee. No Notes shall be authenticated in
lieu of or in exchange for any Notes cancelled as provided in this Section,
except as expressly permitted by this Indenture. All cancelled Notes held by the
Trustee shall be disposed of by the Trustee in accordance with its customary
procedures and certification of their disposal delivered to the Company unless
by Company Order the Company shall direct that cancelled Notes be returned to
it. The Trustee shall provide the Company with a list of all Notes that have
been cancelled from time to time as requested by the Company.
SECTION 310. Computation of Interest.
Interest on the Notes shall be computed on the basis of a
360-day year of twelve 30-day months.
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47
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of
further effect (except as to surviving rights of registration of transfer or
exchange of Notes expressly provided for herein or pursuant hereto) and the
Trustee, on demand of and at the expense of the Company, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture when
(1) either
(a) all Notes theretofore authenticated and delivered
(other than (i) Notes that have been destroyed, lost or stolen
and that have been replaced or paid as provided in Section 306
and (ii) Notes for whose payment money has theretofore been
deposited in trust with the Trustee or any Paying Agent or
segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as
provided in Section 1003) have been delivered to the Trustee
for cancellation; or
(b) all such Notes not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their
Stated Maturity within one year, or
(iii) are to be called for redemption within
one year under 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, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust for such purpose an amount
sufficient to pay and discharge the entire indebtedness on
such Notes not theretofore delivered to the Trustee for
cancellation, for principal (and premium, if any) and interest
to the date of such deposit (in the case of Notes that have
become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be;
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(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with. (Such Opinion of
Counsel may, as to all matters of fact, rely on, among other things,
such Officers' Certificate).
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under Section 608 and,
if money shall have been deposited with the Trustee pursuant to subclause (b) of
clause (1) of this Section, the obligations of the Trustee under Section 402 and
the last paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section
1003, all money deposited with the Trustee pursuant to Section 401 shall be held
in trust and applied by it, in accordance with the provisions of the Notes and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a) default in the payment of any installment of interest in a
timely manner on the Notes through [ ], 2000, with no grace or
cure period, and thereafter the continuance of such default for a
period of 30 days;
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49
(b) default in the payment of the principal of (or premium, if
any, on) any Note at its Stated 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) failure by the Company to perform or comply with the
provisions of Article Eight of this Indenture;
(d) default in the performance, or breach, of any covenant or
warranty of the Company under this 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 Outstanding Notes;
(e) (A) there shall have occurred one or more defaults by the
Company or any Restricted Subsidiary in the payment of the principal of
(or premium, if any, on) Debt aggregating $15.0 million or more, when
the same becomes due and payable at the stated maturity thereof, and
such default or defaults shall have continued after any applicable
grace period and shall not have been cured or waived or (B) Debt of the
Company or any Restricted Subsidiary aggregating $15.0 million or more
shall have been accelerated in accordance with its terms or otherwise
declared due and payable prior to the stated maturity thereof;
(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 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,
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50
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;
(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; or
(i) the Pledge Agreement shall have ceased to be in full force
and effect or enforceable with its terms, other than in accordance with
its terms.
SECTION 502. Acceleration of Maturity; Rescission and
Annulment.
If an Event of Default (other than an Event of Default
specified in Section 501(g) or 501(h)) occurs and is continuing, then and in
every such case the Trustee
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51
or the Holders of not less than 25% in principal amount of the Outstanding Notes
may declare the principal amount of all the Outstanding Notes and any accrued
and unpaid interest on all such Notes to be due and payable immediately, by a
notice in writing to the Company (and to the Trustee if given by Holders), and
upon any such declaration such principal amount and any accrued and unpaid
interest on all such Notes shall become immediately due and payable. If an Event
of Default specified in Section 501(g) or 501(h) occurs and is continuing, then
the principal amount of all the Notes shall ipso facto become and be immediately
due and payable without any declaration or other act on the part of the Trustee
or any Holder.
At any time after a declaration of acceleration has been made
and before a judgment or decree for payment of the money due has been obtained
by the Trustee as hereinafter provided in this Article, the Holders of a
majority in principal amount of the Notes Outstanding, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay,
(A) all overdue interest on all Outstanding Notes,
(B) all unpaid principal of (and premium, if any, on)
any Outstanding Notes that has become due otherwise than by
such declaration of acceleration, and interest on such unpaid
principal at the rate borne by the Notes,
(C) to the extent that payment of such interest is
lawful, interest on overdue interest at the rate borne by
the Notes, and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel; and
(2) all Events of Default, other than the non-payment of
amounts of principal of (or premium, if any, on) or interest on Notes
that have become due solely by such declaration of acceleration, have
been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
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52
SECTION 503. Collection of Debt and Suits for Enforcement by
Trustee.
The Company covenants that if an Event of Default specified in
Section 501(a) or (b) occurs, the Company will, upon demand of the Trustee, pay
to the Trustee for the benefit of the Holders of such Notes, the whole amount
then due and payable on such Notes for principal (and premium, if any) and
interest, and interest on any overdue principal (and premium, if any) and, to
the extent that payment of such interest shall be legally enforceable, upon any
overdue installment of interest, at the rate borne by the Notes, and, in
addition thereto, such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon the Notes and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor upon the Notes,
wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other similar judicial proceeding relative to the Company or any other obligor
upon the Notes or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Notes shall
then be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Trustee shall have made any demand on the Company
for the payment of overdue principal, premium, if any, or interest) shall be
entitled and empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in
respect of the Notes and to file such other papers or documents as may
be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses,
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53
disbursements and advances of the Trustee, its agents and counsel) and
of the Holders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 608.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Notes or the rights of any Holder thereof, or to authorize the Trustee to vote
in respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of
Notes.
All rights of action and claims under this Indenture or the
Notes may be prosecuted and enforced by the Trustee without the possession of
any of the Notes or the production thereof in any proceeding relating thereto,
and any such proceeding instituted by the Trustee shall be brought in its own
name and as trustee of an express trust, and any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Notes in respect of which such judgment
has been recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal
(or premium, if any) or interest, upon presentation of the Notes and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 608;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Notes in respect
of which or for the
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54
benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and
payable on such Notes for principal (and premium, if any) and interest,
respectively; and
THIRD: The balance, if any, to the Company.
SECTION 507. Limitation on Suits.
No Holder of any Notes shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of
the Outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority or more in principal amount of the Outstanding Notes;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive
Principal, Premium and Interest.
Notwithstanding any other provision in this Indenture, the
Holder of any Note shall have the right, which is absolute and unconditional, to
receive payment, as provided
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55
herein (including, if applicable, Article Thirteen) and in such Note of the
principal of (and premium, if any) and (subject to Section 307) interest on such
Note on the respective Stated Maturities expressed in such Note (or, in the case
of redemption, on the Redemption Date) and to institute suit for the enforcement
of any such payment, and such rights shall not be impaired without the consent
of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes in the last paragraph
of Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any
Note to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this Article
or by law to the Trustee or to the Holders may be exercised from time to time,
and as often as may be deemed expedient, by the Trustee or by the Holders, as
the case may be.
SECTION 512. Control by Holders.
The Holders of not less than a majority in principal amount of
the Outstanding Notes shall have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee, provided that
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56
(1) such direction shall not be in conflict with any rule of
law or with this Indenture or any Note,
(2) the Trustee may take any other action deemed proper by the
Trustee that is not inconsistent with such direction, and
(3) the Trustee need not take any action that might involve it
in personal liability or be unjustly prejudicial to the Holders not
consenting.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of
the Outstanding Notes may on behalf of the Holders of all the Notes waive
(including by way of consents obtained with a purchase of, or a tender or
exchange offer for, Notes) any past default hereunder and its consequences,
except a default
(1) in respect of the payment of the principal of (or premium,
if any) or interest on any Note, or
(2) in respect of a covenant or provision hereof that under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Note affected.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or Event of Default or impair any right consequent
thereon.
SECTION 514. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, that may affect the
covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
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57
SECTION 515. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any
Note by such Holder's acceptance thereof shall be deemed to have agreed, that
any court may in its discretion require in any suit for the enforcement of any
right or remedy under this Indenture or the Notes, or in any suit against the
Trustee for any action taken, suffered or omitted by it as Trustee, the filing
by any party litigant in such suit of an undertaking to pay the costs of such
suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; but the provisions of this Section 515 shall not apply to
any suit instituted by the Trustee, to any suit instituted by any Holder, or
group of Holders, holding in the aggregate more than 10% in principal amount of
the Outstanding Notes or to any suit instituted by any Holder for the
enforcement of the payment of the principal of, premium, if any, or interest on
any Note on or after the respective Stated Maturity expressed in such Note.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults.
Within 90 days after the occurrence of any Default hereunder,
the Trustee shall transmit in the manner and to the extent provided in TIA
Section 313(c), notice of such Default hereunder known to the Trustee, unless
such Default shall have been cured or waived; provided, however, that, except in
the case of a Default in the payment of the principal of (or premium, if any) or
interest on any Note, the Trustee shall be protected in withholding such notice
if and so long as the board of directors, the executive committee or a trust
committee of directors and/or Responsible Officers of the Trustee in good faith
determines that the withholding of such notice is in the interest of the
Holders; and provided further that in the case of any Default of the character
specified in Section 501(d) no such notice to Holders shall be given until at
least 60 days after the occurrence thereof.
SECTION 602. Trustee's Duties Following Event of Default.
In case an Event of Default shall occur (that has not been
cured), the Trustee shall be required to exercise such of the rights and powers
vested in it by this 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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58
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of TIA Sections 315(a) through
315(d):
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document reasonably believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(3) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate;
(4) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(5) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities that might be
incurred by it in compliance with such request or direction;
(6) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit;
(7) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
(other than an agent or attorney who is an employee of the Trustee)
appointed with due care by it hereunder; and
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(8) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture; provided that no provision of this Indenture
shall be construed to relieve the Trustee from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct.
The Trustee shall not be required to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
SECTION 604. Trustee Not Responsible for Recitals or Issuance
of Notes.
The recitals contained herein and in the Notes, except for the
Trustees certificates of authentication, shall be taken as the statements of the
Company, and the Trustee assumes no responsibility for their correctness. The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Notes, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Notes and
perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility and Qualification on Form T-1 supplied to the Company
are true and accurate, subject to the qualifications set forth therein. The
Trustee shall not be accountable for the use or application by the Company of
Notes or the proceeds thereof.
SECTION 605. Extension of Credit to Company.
The Trustee from time to time may extend credit to the Company
in the ordinary course of business.
SECTION 606. May Hold Notes.
The Trustee, any Paying Agent, any Note Registrar or any other
agent of the Company or of the Trustee, in its individual or any other capacity,
may become the owner or pledgee of Notes and, subject to TIA Sections 310(b) and
311, may otherwise deal with the Company with the same rights it would have if
it were not Trustee, Paying Agent, Note Registrar or such other agent.
SECTION 607. Money Held in Trust.
Money held by the Trustee in trust hereunder shall, until used
or applied as herein provided, be held in trust for the purposes for which it
was received, but need not be segregated from other funds except to the extent
required by law. The Trustee shall be
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under no liability for interest on any money received by it hereunder except as
otherwise agreed with the Company.
SECTION 608. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may arise from or be attributable to its negligence or bad faith;
and
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or
duties hereunder.
The Trustee shall notify the Company promptly of any claim
asserted against the Trustee for which it may seek indemnity. The obligations of
the Company under this Section to compensate the Trustee, to pay or reimburse
the Trustee for expenses, disbursements and advances and to indemnify and hold
harmless the Trustee shall constitute additional indebtedness hereunder and
shall survive the satisfaction and discharge of this Indenture. As security for
the performance of such obligations of the Company, the Trustee shall have a
claim prior to the Notes upon all property and funds held or collected by the
Trustee as such, except funds held in trust for the payment of principal of (and
premium, if any) or interest on particular Notes.
When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 501(g) or (h), the
expenses (including the reasonable charges and expenses of its counsel) of and
the compensation for such services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination
of this Indenture.
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SECTION 609. Corporate Trustee Required; Eligibility.
There shall be at all times a Trustee hereunder that shall be
eligible to act as Trustee under TIA Section 310(a)(1) and 310(a)(5) and shall
have a combined capital and surplus of at least $50,000,000. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of Federal, State, territorial or District of Columbia supervising
or examining authority, then for the purposes of this Section, the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article.
SECTION 610. Resignation and Removal; Appointment of
Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 611.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If the instrument of acceptance by a successor
Trustee required by Section 611 shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment of
a successor Trustee.
(c) The Trustee may be removed at any time by Act of the
Holders of not less than a majority in principal amount of the Outstanding
Notes, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of
TIA Section 310(b) after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Note for at least six
months, or
(2) the Trustee shall cease to be eligible under Section 609
and shall fail to resign after written request therefor by the Company
or by any Holder who has been a bona fide Holder of a Note for at least
six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed
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or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation,
conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Notes delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner hereinafter
provided, any Holder who has been a bona fide Holder of a Note for at least six
months may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Holders of Notes in the manner provided for in Section 106. Each notice shall
include the name of the successor Trustee and the address of its Corporate Trust
Office.
SECTION 611. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder. Upon reasonable request of any such
successor Trustee, the Company shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor Trustee all such
rights, powers and trusts.
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No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 612. Merger, Conversion, Consolidation or Succession
to Business.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Trustee, shall be the successor of the Trustee
hereunder, provided such corporation shall be otherwise qualified and eligible
under this Article, without the execution or filing of any paper or any further
act on the part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes. In case at
that time any of the Notes shall not have been authenticated, any successor
Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor Trustee. In all such cases such
certificates shall have the full force and effect that this Indenture provides
for the certificate of authentication of the Trustee shall have; provided,
however, that the right to adopt the certificate of authentication of any
predecessor Trustee or to authenticate Notes in the name of any predecessor
Trustee shall apply only to its successor or successors by merger, conversion or
consolidation.
SECTION 613. Conflicting Interests.
The Trustee shall be subject to and comply with the provisions
of Section 310(b) of the TIA.
SECTION 614. Preferential Collection of Claims Against
Issuers.
The Trustee shall comply with Section 311(a) of the TIA,
excluding any creditor relationship listed in Section 311(b) of the TIA. If the
present or any future Trustee shall resign or be removed, it shall be subject to
Section 311(a) of the TIA to the extent provided therein.
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ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders.
Every Holder of Notes, by receiving and holding the same,
agrees with the Company and the Trustee that none of the Company or the Trustee
or any agent of either of them shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the Holders
in accordance with TIA Section 312, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under TIA Section
312(b).
SECTION 702. Reports by Trustee.
Within 60 days after May 15 of each year commencing with the
first May 15 after the first issuance of Notes, the Trustee shall transmit to
the Holders, in the manner and to the extent provided in TIA Section 313(c), a
brief report dated as of such May 15 if required by TIA Section 313(a).
SECTION 703. Reports by Company.
The Company shall:
(1) whether or not the Company is subject to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended, or any
successor provision thereto, 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), 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;
(2) whether or not the Company is subject to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended, or any
successor provision thereto, within 15 days of each Required Filing
Date, 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 Securities Exchange Act of 1934, as
amended, or any successor provisions thereto if the Company was
subject thereto;
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(3) file with the Trustee and the Commission, in accordance
with rules and regulations prescribed from time to time by the
Commission, such additional information, documents and reports with
respect to compliance by the Company with the conditions and covenants
of this Indenture as may be required from time to time by such rules
and regulations; and
(4) transmit by mail to all Holders, in the manner and to the
extent provided in TIA Section 313(c), within 15 days after the filing
thereof with the Commission, such summaries of any information,
documents and reports required to be filed by the Company pursuant to
paragraphs (1), (2) and (3) of this Section as may be required by
rules and regulations prescribed from time to time by the Commission.
If the Company is not permitted under the Exchange Act to file
with the Commission such reports and other information referred to in Section
703(1), the Company shall promptly upon written request supply copies of such
documents (without exhibits) to prospective purchasers of the Notes or their
representatives.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, etc., Only on Certain
Terms.
The Company shall 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 shall 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
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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 this Indenture;
(b) immediately before and after giving effect to such
transaction or series of transactions on a pro forma basis (including,
without limitation, any Debt incurred or anticipated to be incurred in
connection with or in respect of such transaction or series of
transactions), no Default or Event of Default shall have occurred and
be continuing or would result therefrom;
(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"; and
(d) the Company or such Person shall have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each
stating that such consolidation, merger, conveyance, transfer or lease
and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture, comply with this Article and
that all conditions precedent herein provided for relating to such
transaction have been complied with.
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), (b) and (d)
of the preceding paragraphs.
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 this Indenture and the Notes with the same effect as if such Surviving
Entity had been named as the Company herein; and when a Surviving Person duly
assumes all of the obligations and covenants of the Company pursuant to this
Indenture and the Notes, except in the case of a lease, the predecessor Person
shall be relieved of all such obligations.
SECTION 802. Successor Substituted.
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Upon any consolidation of the Company with or merger of the
Company with or into any other corporation or any conveyance, transfer or lease
of the properties and assets of the Company substantially as an entirety to any
Person in accordance with Section 801, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein,
and in the event of any such conveyance or transfer, the Company (which term
shall for this purpose mean the Person named as the "Company" in the first
paragraph of this Indenture or any successor Person that shall theretofore
become such in the manner described in Section 801), except in the case of a
lease, shall be discharged of all obligations and covenants under this Indenture
and the Notes and may be dissolved and liquidated.
SECTION 803. Notes to Be Secured in Certain Events.
If, upon any such consolidation of the Company with or merger
of the Company into any other corporation, or upon any conveyance, lease or
transfer of the property of the Company substantially as an entirety to any
other Person, any property or assets of the Company would thereupon become
subject to any Lien, then unless such Lien could be created pursuant to Section
1011 without equally and ratably securing the Notes, the Company, prior to or
simultaneously with such consolidation, merger, conveyance, lease or transfer,
will as to such property or assets, secure the Notes Outstanding (together with,
if the Company shall so determine, any other Debt of the Company now existing or
hereinafter created that is not subordinate in right of payment to the Notes)
equally and ratably with (or prior to) the Debt that upon such consolidation,
merger, conveyance, lease or transfer is to become secured as to such property
or assets by such Lien, or will cause such Notes to be so secured.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of
Holders.
Without notice to or the consent of any Holders, the Company,
when authorized by a Board Resolution, and the Trustee, at any time and from
time to time, may amend, waive or supplement this Indenture, the Notes and the
Pledge Agreement and (if necessary) enter into one or more indentures
supplemental hereto, in form reasonably satisfactory to the Trustee, for any of
the following purposes:
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(1) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of
the Company contained herein, in the Notes or in the Pledge Agreement,
or
(2) to add to the covenants of the Company for the benefit of
the Holders or to surrender any right or power herein conferred upon
the Company, or
(3) to add any additional Events of Default, or
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of
Section 611, or
(5) to cure any ambiguity, to correct or supplement any
provision herein that may be inconsistent with any other provision
herein, in the Notes or in the Pledge Agreement, or to add any other
provisions with respect to matters or questions arising under this
Indenture, the Notes or the Pledge Agreement; provided that such action
shall not adversely affect the interests of the Holders in any material
respect, or
(6) to secure the Notes pursuant to the requirements of
Section 803 or 1013 or otherwise, or
(7) to provide for uncertificated Notes in addition to or in
place of certificated Notes, or
(8) to change or eliminate any of the provisions herein, in
the Notes or in the Pledge Agreement; provided that any such change or
elimination shall 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, or
(9) to comply with the requirements of the Commission in order
to effect or maintain the qualification of this Indenture under the
Trust Indenture Act.
SECTION 902. Supplemental Indentures with Consent of Holders.
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 Notes, by Act of said Holders
delivered to the Company and the Trustee, the Company, when authorized by a
Board Resolution, and the Trustee may amend, waive or supplement this Indenture,
the Notes and the Pledge Agreement and (if necessary) enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of
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modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent (including consents obtained with a purchase of, or a tender or exchange
offer for, Notes) of the Holder of each Outstanding Note affected thereby:
(1) change the Stated Maturity of the principal of or any
installment of interest on any Note, or reduce the principal amount
thereof (or premium, if any) or the rate of interest thereon or change
the coin or currency in which any Note or any premium or the interest
thereon is payable, or impair the right to institute suit for the
enforcement of any such payment after the Stated Maturity thereof (or,
in the case of redemption, on or after the Redemption Date), or
(2) reduce the percentage in principal amount of the
Outstanding Notes, the consent of whose Holders is required for any
such supplemental indenture, or the consent of whose Holders is
required for any waiver of compliance with certain provisions of this
Indenture or certain defaults hereunder and their consequences provided
for in this Indenture, or
(3) modify the obligations of the Company to make offers to
purchase Notes in accordance with Sections 1009 and 1016, or
(4) subordinate in right of payment, or otherwise subordinate,
the Notes to any other Debt, or
(5) modify Article Twelve or the Pledge Agreement in a manner
that adversely affects the rights of any Holder in any material
respect, or
(6) modify any of the provisions of this Section or Sections
513 and 1018, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Note affected
hereby.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is
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authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture that affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Notes theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to the Article
shall conform to the requirements of the Trust Indenture Act as then in effect
if this Indenture shall then be required to be qualified under the TIA.
SECTION 906. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
replacement Notes so modified as to conform, in the opinion of the Trustee and
the Company, to any such supplemental indenture may be prepared and executed by
the Company and authenticated and delivered by the Trustee in exchange for
Outstanding Notes.
SECTION 907. Notice of Supplemental Indentures.
Reasonably promptly after the execution by the Company and the
Trustee of any supplemental indenture pursuant to the provisions of Section 902,
the Company shall give notice thereof to the Holders of each Outstanding Note
affected, in the manner provided for in Section 106, setting forth in general
terms the substance of such supplemental indenture. Any failure of the Company
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any supplemental indenture or effectiveness of
any such amendment, supplement or waiver.
SECTION 908. Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of that Note or portion of that Note that evidences the same
debt as the consenting Holder's Note, even if
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notation of the consent is not made on any Note. After an amendment, supplement
or waiver becomes effective, it shall bind every Holder of Notes.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and
Interest.
The Company covenants and agrees for the benefit of the
Holders that it will duly and punctually pay the principal of (and premium, if
any) and interest on the Notes in accordance with the terms of the Notes and
this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in The City of New York, an office
or agency where Notes may be presented or surrendered for payment, where Notes
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Notes and this Indenture
may be served. The Trustee's New York Corporate Trust Office at [________] shall
be such office or agency of the Company, unless the Company shall designate and
maintain some other office or agency for one or more of such purposes. The
Company will give prompt written notice to the Trustee of any change in the
location of any such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more
other offices or agencies (in or outside of The City of New York) where the
Notes may be presented or surrendered for any or all such purposes and may from
time to time rescind any such designation; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York for such
purposes. The Company will give prompt written notice to the Trustee of any such
designation or rescission and any change in the location of any such other
office or agency.
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SECTION 1003. Money for Note Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent,
it will, on or before each due date of the principal of (or premium, if any) or
interest on any of the Notes, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal of (or premium,
if any) or interest so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and will promptly notify the
Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for
the Notes, it will, on or before each due date of the principal of (or premium,
if any) or interest on any Notes, deposit with a Paying Agent a sum sufficient
to pay the principal (and premium, if any) or interest so becoming due, such sum
to be held in trust for the benefit of the Persons entitled to such principal,
premium or interest, and (unless such Paying Agent is the Trustee) the Company
will promptly notify the Trustee of such action or any failure so to act.
The Company will cause each Paying Agent (other than the
Company or the Trustee) to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provisions
of this Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal
of (and premium, if any) or interest on Notes in trust for the benefit
of the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or
any other obligor upon the Notes) in the making of any payment of
principal (and premium, if any) or interest; and
(3) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
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Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of (or
premium, if any) or interest on any Note and remaining unclaimed for two years
after such principal, premium or interest has become due and payable shall be
paid to the Company on Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Note shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease.
SECTION 1004. Corporate Existence.
Subject to Article Eight, the Company will do or cause to be
done all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and each Restricted Subsidiary of the Company; provided, however, that
the Company shall not be required to preserve any such right or franchise if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Restricted
Subsidiaries as a whole and that the loss thereof would not materially adversely
affect the Company's ability to perform its obligations under this Indenture and
the Notes; provided further, however, that the foregoing shall not prohibit a
liquidation, dissolution, merger, consolidation, sale, transfer, conveyance or
other disposition of a Restricted Subsidiary of the Company or any of its assets
or Capital Stock in compliance with the other terms of this Indenture.
SECTION 1005. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (a) all material taxes,
assessments and governmental charges levied or imposed upon the Company or any
of its Restricted Subsidiaries or upon the income, profits or property of the
Company or any of its Restricted Subsidiaries and (b) all material lawful claims
for labor, materials and supplies that, if unpaid, might by law become a lien
upon the property of the Company or any of its Restricted Subsidiaries (other
than any Permitted Lien or other Lien permitted by this Indenture); provided,
however, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
SECTION 1006. Maintenance of Properties.
The Company will cause all material properties owned by the
Company or any of its Restricted Subsidiaries or used or held for use in the
conduct of its business or the business of any of its Restricted Subsidiaries to
be maintained and kept in good condition,
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repair and working order (reasonable wear and tear excepted) and supplied with
all reasonably necessary equipment and will cause to be made all reasonably
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company reasonably may be necessary so that the
business carried on in connection therewith may be conducted at all times in the
ordinary course; provided, however, that nothing in this Section shall prevent
the Company from discontinuing the maintenance of any of such properties if such
discontinuance is, in the judgment of the Company, desirable in the conduct of
its business or the business of any of its Restricted Subsidiaries or if such
discontinuance or disposal is not materially adverse to the ability of the
Company to satisfy its obligations hereunder.
SECTION 1007. Insurance.
The Company will at all times keep all of its and its
Restricted Subsidiaries' properties that are of an insurable nature insured with
insurers, believed by the Company to be responsible, against loss or damage to
the extent that property of similar character is usually so insured by
corporations similarly situated and owning like properties (which may include
self-insurance, if reasonable and in comparable form to that maintained by
companies similarly situated).
SECTION 1008. Statement by Officers as to Default.
(a) The Company will deliver to the Trustee, within 120 days
after the end of each fiscal year, a brief certificate from the principal
executive officer, principal financial officer or principal accounting officer
as to his or her knowledge of the Company's compliance with all conditions and
covenants under this Indenture. For purposes of this Section 1008(a), such
compliance shall be determined without regard to any period of grace or
requirement of notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of Debt of
the Company or any Subsidiary gives any notice or takes any other action with
respect to a claimed default (other than with respect to Debt in the principal
amount of less than $15,000,000), the Company shall deliver to the Trustee by
registered or certified mail or by telegram, telex or facsimile transmission an
Officers' Certificate specifying such event, notice or other action within five
Business Days of its occurrence.
SECTION 1009. Purchase of Notes upon Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder
shall have the right to require that the Company repurchase such Holder's
Outstanding Notes (the "Change of Control Offer") in whole or in part in
integral multiples of $1,000, at a purchase
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75
price (the "Purchase Price") in cash in an amount equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
purchase, in accordance with the procedures set forth in paragraphs (b) and (c)
of this Section.
(b) Within 30 days following any Change of Control, the
Company shall give to each Holder of the Notes in the manner provided in Section
106 a notice stating:
(1) that a Change of Control has occurred and a Change of
Control Offer is being made as described in this Section 1009, and
that, although Holders are not required to tender their Notes, all
Notes that are tendered in accordance with paragraph (c) of this
Section 1009 shall be accepted for payment;
(2) the circumstances and relevant facts regarding such Change
of Control (including but not limited to information with respect to
pro forma historical income, cash flow and capitalization after giving
effect to such Change of Control);
(3) the Purchase Price and the date of purchase, which shall
be no earlier than 30 days nor later than 60 days from the date such
notice is mailed (the "Change of Control Payment Date");
(4) the instructions and any other information necessary to
enable Holders to tender their Notes and have such Notes repurchased in
accordance with paragraph (d) of this Section; and
(5) that, unless the Company defaults in the payment of the
Purchase Price for the Notes payable pursuant to such Change of Control
Offer, any Notes accepted for payment pursuant to such Change of
Control Offer shall cease to accrue interest after the Change of
Control Payment Date.
(c) Holders electing to have Notes purchased will be required
to surrender such Notes to the Company at the address specified in the notice at
least five Business Days prior to the Change of Control Payment Date. Holders
will be entitled to withdraw their election if the Company receives, not later
than three Business Days prior to the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Notes delivered for purchase by the Holder
as to which his election is to be withdrawn and a statement that such Holder is
withdrawing his election to have such Notes purchased. Holders whose Notes are
purchased only in part will be issued new Notes equal in principal amount to the
unpurchased portion of the Notes surrendered.
In the event that a Change of Control occurs and the Company
is required to purchase Notes as described above, the Company will comply with
the applicable tender
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offer rules, including the requirements of Section 14(e) and Rule 14e-1 under
the Exchange Act and any other securities laws and regulations to the extent
such laws and regulations are applicable, and will be deemed not to be in
violation of any of its covenants under this Indenture to the extent such
compliance is in conflict with such covenants.
On and after a Change of Control Payment Date, interest will
cease to accrue on the Notes or portions thereof accepted for payment unless the
Company defaults in the payment of the purchase price therefor.
(d) Notwithstanding paragraphs (a) and (b), the Company shall
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 this Section 1009
applicable to a Change of Control Offer made by the Company and, in accordance
with paragraph (c) of this Section 1009, purchases all Notes validly tendered
under the Change of Control Offer and not withdrawn.
SECTION 1010. Limitation on Debt.
The Company shall not, and shall 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.
SECTION 1011. Limitation on Liens.
The Company shall not, and shall 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 Restricted 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 shall 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
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or any of its Restricted Subsidiaries in, or all or substantially all the assets
of, any Restricted Subsidiary creating such Lien or Liens.
SECTION 1012. Limitation on Restricted Payments.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, make any Restricted Payment
unless, at the time of 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 this 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
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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 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 Section 1009 or (y) in the case of an
Asset Sale, has applied the Net Cash Proceeds from such Asset Sale in accordance
with Section 1016; (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
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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 shall be deemed to be Restricted
Payments for the purposes of clause (iii) of the second preceding paragraph.
For purposes of this Section 1012, 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 Board Resolution.
SECTION 1013. Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, 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 (including, but not limited to, the Senior
Discount Notes Indenture) 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;
(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);
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(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 Section 1016 with respect to the assets to
be sold pursuant to such contract.
Nothing contained in this Section 1013 shall prevent the
Company or any of its Restricted Subsidiaries from (1) creating, incurring,
assuming or suffering to exist any Liens otherwise permitted in Section 1011 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 this Indenture.
SECTION 1014. Limitation on Issuances of Certain Guarantees
by, and Debt Securities of, Restricted Subsidiaries.
The Company shall 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 Subsidiary
Guarantee of the Notes. Any such Subsidiary Guarantee shall not
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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 shall be limited to the
maximum amount, as shall, 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 shall
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.
SECTION 1015. Limitation on Issuances and Sales of Capital
Stock in Restricted Subsidiaries.
The Company (a) shall 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 in such issuance of Capital Stock
and (b) shall 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 Section 1015 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 this Indenture, (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 Section
1016, 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
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treated as an Investment made at that time and must comply with Section 1012 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 Section 1016.
SECTION 1016. Limitation on Asset Sales.
The Company shall not, and shall 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 Section 1016, "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
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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 shall take
longer than such 360 day period to complete, the Company 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 and the Senior Discount 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 (an "Asset Sale Trigger Date"), 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 plus accrued
and unpaid interest, if any, to the Asset Sale Offer Purchase Date (as defined
below), in accordance with the procedures set forth below. Any Asset Sale Offer
shall 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
(including, but not limited to, the Senior Discount Notes). 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 shall 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 Section 1012 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.
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Notice of an Asset Sale Offer shall be prepared and mailed by
the Company with a copy to the Trustee not later than the 20th business day
after the related Asset Sale Offer Trigger Date to each Holder of Notes at such
Holder's registered address, stating:
(1) that an Asset Sale Offer Trigger Date has occurred and
that the Company is offering to purchase the maximum principal amount
of Notes that may be purchased out of the Excess Proceeds to the extent
to be applied to an offer to purchase Notes (as provided in the
immediately preceding paragraph), at an offer price in cash in an
amount equal to 100% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of the purchase (the "Asset Sale
Offer Purchase Date"), which shall be a Business Day, specified in such
notice, that is not earlier than 30 days or later than 60 days from the
date such notice is mailed;
(2) the amount of accrued and unpaid interest, if any, as of
the Asset Sale Offer Purchase Date;
(3) that any Note not tendered will continue to accrue
interest in accordance with the terms thereof;
(4) that, unless the Company defaults in the payment of the
purchase price for the Notes payable pursuant to the Asset Sale Offer,
any Notes accepted for payment pursuant to the Asset Sale Offer shall
cease to accrue interest after the Asset Sale Offer Purchase Date;
(5) that Holders electing to have Notes purchased pursuant
to an Asset Sale Offer will be required to surrender their Notes to the
Paying Agent at the address specified in the notice prior to 5:00 p.m.,
New York City time, on the third Business Day prior to the Asset Sale
Offer Purchase Date and must complete any form letter of transmittal
proposed by the Company (which letter must be completed correctly by
such Holder) and which is reasonably acceptable to the Trustee and the
Paying Agent;
(6) that Holders of Notes will be entitled to withdraw their
election if the Paying Agent receives, not later than 5:00 p.m., New
York City time, on the third Business Day prior to the Asset Sale Offer
Purchase Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of Notes the
Holder delivered for purchase, the Note certificate number (if any) and
a statement that such Holder is withdrawing its election to have such
Notes purchased;
(7) that Holders whose Notes are purchased only in part will
be issued Notes equal in principal amount to the unpurchased portion of
the Notes surrendered; and
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(8) the instructions that Holders must follow in order to
tender their Notes.
On the Asset Sale Offer Purchase Date, the Company will (i)
accept for payment the maximum principal amount of Notes or portions thereof
tendered pursuant to the Asset Sale Offer that can be purchased out of Excess
Proceeds from such Asset Sale that are to be applied to an Asset Sale Offer (to
the extent provided in the second preceding paragraph), (ii) deposit with the
Paying Agent an amount in cash equal to the aggregate purchase price of all
Notes or portions thereof accepted for payment and any accrued and unpaid
interest on such Notes as of the Asset Sale Offer Purchase Date, and (iii)
deliver or cause to be delivered to the Trustee all Notes tendered pursuant to
the Asset Sale Offer. If less than all Notes tendered pursuant to the Asset Sale
Offer are accepted for payment by the Company for any reason consistent with
this Indenture, selection of the Notes to be purchased by the Company shall be
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 so
listed, on a pro rata basis or by lot; provided, however, that Notes accepted
for payment in part shall only be purchased in integral multiples of $1,000. The
Paying Agent shall as promptly as practicable after the Asset Sale Offer
Purchase Date mail to each Holder of Notes or portions thereof accepted for
payment an amount in cash equal to the purchase price for such Notes plus any
accrued and unpaid interest thereon, and the Trustee shall promptly authenticate
and mail to such Holder of Notes accepted for payment in part a new Note equal
in principal amount to any unpurchased portion of the Notes, and any Note not
accepted for payment in whole or in part shall be promptly returned to the
Holder of such Note.
On and after an Asset Sale Offer Purchase Date, interest will
cease to accrue on the Notes or portions thereof accepted for payment, unless
the Company defaults in the payment of the purchase price therefor. The Company
will announce the results of the Asset Sale Offer on or as soon as practicable
after the Asset Sale Offer Purchase Date.
The Company shall comply with the applicable tender offer
rules, including the requirements of Section 14(e) and Rule 14e-1 under the
Exchange Act, and all other applicable securities laws and regulations in
connection with any Asset Sale Offer and will be deemed not to be in violation
of any of its covenants under this Indenture to the extent such compliance is in
conflict with such covenants.
SECTION 1017. Transactions with Affiliates.
The Company shall not, and shall 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
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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.
Notwithstanding the foregoing, this Section 1017 shall 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 Section 1012, 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, Nippon Telegraph and Telephone Corporation 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.
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SECTION 1018. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with
any term, provision or condition set forth in Section 803 or Sections 1007
through 1017, inclusive, if before or after the time for such compliance the
Holders of at least a majority in principal amount of the Outstanding Notes, by
Act of such Holders (including by way of consents obtained with a purchase of,
or a tender or exchange offer for, Notes), waive such compliance in such
instance with such term, provision or condition, but no such waiver shall extend
to or affect such term, provision or condition except to the extent so expressly
waived, and, until such waiver shall become effective, the obligations of the
Company and the duties of the Trustee in respect of any such term, provision or
condition shall remain in full force and effect.
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Right of Redemption.
The Notes may be redeemed, at the election of the Company, as
a whole or from time to time in part, at any time after [ ], 2002
subject to the conditions and at the Redemption Prices specified in the form of
Note, together
with accrued and unpaid interest to the Redemption Date.
In addition, up to 35% of the originally issued principal
amount of Notes may be redeemed, at the election of the Company, at any time on
or prior to [ ], 2000 subject to the conditions and at the Redemption Price
specified in the form of Note, together with accrued and unpaid interest to the
Redemption Date, 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 Notes remains Outstanding immediately after giving effect to
such redemption.
SECTION 1102. Applicability of Article.
Redemption of Notes at the election of the Company or
otherwise, as permitted or required by any provision of this Indenture, shall be
made in accordance with such provision and this Article.
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SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Notes pursuant to
Section 1101 shall be evidenced by a Board Resolution. In case of any redemption
at the election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Notes to be redeemed and shall deliver to the Trustee
such documentation and records as shall enable the Trustee to select the Notes
to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of Notes to Be Redeemed.
If less than all the Notes are to be redeemed, the particular
Notes to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Notes not previously called
for redemption 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 then listed on a national securities exchange, on a pro rata basis or by lot
or any other method as the Trustee shall deem fair and appropriate and which may
provide for the selection for redemption of portions of the principal of Notes;
provided, however, that no such partial redemption shall reduce the portion of
the principal amount of a Note not redeemed to less than $1,000.
The Trustee shall promptly notify the Company in writing of
the Notes selected for redemption and, in the case of any Notes selected for
partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to redemption of Notes shall relate,
in the case of any Note redeemed or to be redeemed only in part, to the portion
of the principal amount of such Note that has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given in the manner provided for
in Section 106 not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Notes to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
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(2) the Redemption Price and the amount of accrued interest to
the Redemption Date payable as provided in Section 1107, if any,
(3) if less than all Outstanding Notes are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amounts) of the particular Notes to be redeemed,
(4) in case any Note is to be redeemed in part only, the
notice that relates to such Note shall state that on and after the
Redemption Date, upon surrender of such Note, the holder will receive,
without charge, a new Note or Notes of authorized denominations for the
principal amount thereof remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and
accrued interest, if any, to the Redemption Date payable as provided in
Section 1107) will become due and payable upon each such Note, or the
portion thereof, to be redeemed, and that interest thereon will cease
to accrue on and after said date, and
(6) the place or places where such Notes are to be surrendered
for payment of the Redemption Price and accrued interest, if any.
Notice of redemption of Notes to be redeemed at the election
of the Company shall be given by the Company or, at the Company's request, by
the Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
Prior to 10:00 a.m., New York City time, on any Redemption
Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if
the Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 1003) an amount of money sufficient to pay the Redemption
Price of, and accrued interest on, all the Notes that are to be redeemed on that
date.
SECTION 1107. Notes Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Notes
so to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such Notes
shall cease to bear interest. Upon surrender of any such Note for redemption in
accordance with said notice, such Note shall be paid by the Company at the
Redemption Price, together with accrued interest, if any, to the Redemption
Date; provided, however, that installments of interest whose Stated Maturity is
on or prior to
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the Redemption Date shall be payable to the Holders of such Notes, or one or
more Predecessor Notes, registered as such at the close of business on the
relevant Record Dates according to their terms and the provisions of Section
307.
On and after any Redemption Date, if money sufficient to pay
the Redemption Price of any accrued and unpaid interest on Notes called for
redemption shall have been made available in accordance with Section 1106, the
Notes called for redemption will cease to accrue interest and the only right of
the Holders of such Notes will be to receive payment of the Redemption Price of
and, subject to the provision in the preceding paragraph, any accrued and unpaid
interest on such Notes to the Redemption Date.
If any Note called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Notes.
SECTION 1108. Notes Redeemed in Part.
Any Note that is to be redeemed only in part shall be
surrendered at the office or agency of the Company maintained for such purpose
pursuant to Section 1002 (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or such Holders
attorney duly authorized in writing), and the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Note without
service charge, a new Note or Notes, of any authorized denomination as requested
by such Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Note so surrendered.
ARTICLE TWELVE
SECURITY FOR THE NOTES
SECTION 1201. Security.
(a) On the Closing Date, the Company shall (i) enter into the
Pledge Agreement and comply with the terms and provisions thereof and (ii)
purchase the Pledged Securities to be pledged to the Trustee for the benefit of
the Holders in such amount as will be sufficient upon receipt of scheduled
interest and/or principal payments of such Pledged Securities, in the opinion of
a nationally recognized firm of independent public accountants or nationally
recognized investment banking firm selected by the Company, to provide for
payment in full of the first six scheduled interest payments due on the Notes.
The Pledged Securities shall be pledged by the Company to the Trustee for the
benefit of the Holders and
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shall be held by the Trustee in the Pledge Account pending disposition pursuant
to the Pledge Agreement.
(b) Each Holder, by its acceptance of a Note, consents and
agrees to the terms of the Pledge Agreement (including, without limitation, the
provisions providing for foreclosure and release of the Pledged Securities) as
the same may be in effect or may be amended from time to time in accordance with
its terms, and authorizes and directs the Trustee to enter into the Pledge
Agreement and to perform its respective obligations and exercise its respective
rights thereunder in accordance therewith. The Company will do or cause to be
done all such acts and things as may be reasonably necessary or proper, or as
may be required by the provisions of the Pledge Agreement, to assure and confirm
to the Trustee the security interest in the Pledged Securities contemplated
hereby, by the Pledge Agreement or any part thereof, as from time to time
constituted, so as to render the same available for the security and benefit of
this Indenture and of the Notes secured hereby, according to the intent and
purposes herein expressed. The Company shall take, or shall cause to be taken,
upon request of the Trustee, any and all actions reasonably required to cause
the Pledge Agreement to create and maintain, as security for the obligations of
the Company under this Indenture and the Notes, valid and enforceable first
priority liens in and on all the Pledged Securities, in favor of the Trustee,
superior to and prior to the rights of third Persons and subject to no other
Liens.
(c) The release of any Pledged Securities pursuant to the
Pledge Agreement will not be deemed to impair the security under this Indenture
in contravention of the provisions hereof if and to the extent the Pledged
Securities are released pursuant to this Indenture and the Pledge Agreement. To
the extent applicable, the Company shall cause TIA Section 314(d) relating to
the release of property or securities from the Lien and security interest of the
Pledge Agreement and relating to the substitution therefor of any property or
securities to be subjected to the Lien and security interest of the Pledge
Agreement to be complied with. Any certificate or opinion required by TIA
Section 314(d) may be made by an officer of the Company, except in cases where
TIA Section 314(d) requires that such certificate or opinion be made by an
independent Person, which Person shall be an independent engineer, appraiser or
other expert selected by the Company.
(d) The Company shall cause TIA Section 314(b), relating to
opinions of counsel regarding the Lien under the Pledge Agreement, to be
complied with. The Trustee may, to the extent permitted by Section 603 hereof,
accept as conclusive evidence of compliance with the foregoing provisions the
appropriate statements contained in such instruments.
(e) The Trustee may, in its sole discretion and without the
consent of the Holders, on behalf of the Holders, take all actions it deems
necessary or appropriate in order to (i) enforce any of the terms of the Pledge
Agreement and (ii) collect and receive any and
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all amounts payable in respect of the obligations of the Company thereunder. The
Trustee shall have power to institute and to maintain such suits and proceedings
as the Trustee may reasonably deem expedient to preserve or protect its
interests and the interests of the Holders in the Pledged Securities.
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or
Covenant Defeasance.
The Company may, at its option by Board Resolution, at any
time, with respect to the Notes, elect to have either Section 1302 or Section
1303 be applied to all Outstanding Notes and Subsidiary Guarantees upon
compliance with the conditions set forth below in this Article Thirteen. Either
Section 1302 or Section 1303 may be applied to the Notes to any Redemption Date
or the Stated Maturity of the Notes.
SECTION 1302. Defeasance and Discharge.
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1302, the Company shall be deemed to have been
discharged from its obligations with respect to all Outstanding Notes, and the
Subsidiary Guarantors, if any, shall be deemed to have been discharged from
their respective obligations under their respective Subsidiary Guarantees, on
the date the conditions set forth in Section 1304 are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Company shall be
deemed to have paid and discharged the entire indebtedness represented by the
Outstanding Notes, which thereafter shall be deemed to be "Outstanding" only for
the purposes of Section 1305 and the other Sections of this Indenture referred
to in (A) and (B) below, and the Company and the Subsidiary Guarantors, if any,
shall be deemed to have satisfied all its other obligations under such Notes and
this Indenture insofar as such Notes are concerned (and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging the
same), except for the following, which shall survive until otherwise terminated
or discharged hereunder: (A) the rights of Holders of Outstanding Notes to
receive, solely from the trust fund described in Section 1304 and as more fully
set forth in such Section, payments in respect of the principal of (and premium,
if any, on) and interest on such Notes when such payments are due, (B) the
Company's obligations with respect to such Notes under Sections 304, 305, 306,
1002 and 1003, (C) the rights, powers, trusts, duties and immunities of the
Trustee hereunder and (D) this Article Thirteen; provided, however, that the
Company's rights pursuant to Section 1101 shall not be terminated or discharged
hereunder. Subject to compliance with this Article Thirteen, the Company may
exercise its option under
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this Section 1302 notwithstanding the prior exercise of its option under Section
1303 with respect to the Notes.
SECTION 1303. Covenant Defeasance.
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1303, the Company and the Subsidiary Guarantors, if
any, shall be released from their respective obligations under any covenant
contained in Section 801(c) and Section 803 and in Sections 1007 through 1017
with respect to the Outstanding Notes on and after the date the conditions set
forth below are satisfied (hereinafter, "covenant defeasance"), and the Notes
shall thereafter be deemed not to be "Outstanding" for the purposes of any
direction, waiver, consent or declaration or Act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "Outstanding" for all other purposes hereunder. For this
purpose, such covenant defeasance means that, with respect to the Outstanding
Notes, the Company and the Subsidiary Guarantors, if any, may omit to comply
with and shall have no liability in respect of any term, condition or limitation
set forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference in
any such covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under Section 501, but, except as specified above, the remainder of this
Indenture and such Notes shall be unaffected thereby.
SECTION 1304. Conditions to Defeasance or Covenant
Defeasance.
The following shall be the conditions to application of either
Section 1302 or Section 1303 to the Outstanding Notes:
(1) either (i) all Outstanding Notes (except lost, stolen or
destroyed Notes which have been replaced or paid) shall have been
delivered to the Trustee for cancellation or (ii) all such Notes not
theretofore delivered to the Trustee for cancellation shall have become
due and payable, shall 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 shall irrevocably have deposited or caused to be deposited with
the Trustee (or another trustee satisfying the requirements of Section
609 who shall agree to comply with the provisions of this Article
Thirteen applicable to it) as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for,
and dedicated solely to, the benefit of the Holders of such Notes, (A)
money in an amount, or (B) U.S. Government Obligations that through the
scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before
the due date of any payment, money in an amount, or
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(C) a combination thereof, sufficient, in the opinion of a nationally
recognized firm of independent public accountants or a nationally
recognized investment banking firm expressed in a written certification
thereof delivered to the Trustee, to pay and discharge, and which shall
be applied by the Trustee (or other qualifying trustee) to pay and
discharge, the principal of (and premium, if any) and interest on the
Outstanding Notes on the Stated Maturity (or Redemption Date, if
applicable) of such principal (and premium, if any) or installment of
interest on the day on which such payments are due and payable in
accordance with the terms of this Indenture and of such Notes; provided
that the Trustee shall have been irrevocably instructed to apply such
money or the proceeds of such U.S. Government Obligations to said
payments with respect to the Notes. Before such a deposit, the Company
may give to the Trustee, in accordance with Section 1103 hereof, a
notice of its election to redeem all of the Outstanding Notes at a
future date in accordance with Article Eleven hereof, which notice
shall be irrevocable. Such irrevocable redemption notice, if given,
shall be given effect in applying the foregoing.
(2) No Default or Event of Default with respect to the Notes
shall 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) or, insofar
as paragraphs (g) and (h) of Section 501 hereof are concerned, at any
time during the period ending on the 91st day after the date of such
deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period).
(3) Such defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a default under, this Indenture
(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
other material agreement or instrument to which the Company is a party
or by which it is bound.
(4) In the case of an election under Section 1302 and in the
event that such election shall occur more than twelve months prior to
the Stated Maturity of the Outstanding Notes, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (x) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (y) since November , 1997, there has been
a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion shall state to the
effect that, the Holders of the Outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of
such defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such defeasance had not occurred.
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(5) In the case of an election under Section 1303 and in the
event that such election shall occur more than twelve months prior to
the Stated Maturity of the Outstanding Notes, the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such covenant
defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such covenant defeasance had not occurred.
(6) The Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that after the 91st day following the
Company's deposit, the trust funds shall not be subject to the effect
of any applicable bankruptcy, insolvency, reorganization, or similar
laws affecting creditors' rights generally.
(7) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the defeasance
under Section 1302 or the covenant defeasance under Section 1303 (as
the case may be) have been complied with. In rendering such Opinion of
Counsel, counsel may rely on such Officers' Certificate as to any
matters of fact (including as to compliance with the foregoing clauses
(1), (2) and (3)).
SECTION 1305. Deposited Money and U.S. Government Obligations
to Be Held in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section
1003, all money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 1305, the "Trustee") pursuant to Section 1304 in
respect of the Outstanding Notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Notes and this Indenture, to
the payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Notes of all sums due and to become due thereon in respect of principal
(and premium, if any) and interest, but such money need not be segregated from
other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Governmental
Obligations deposited pursuant to Section 1304 or the principal and interest
received in respect thereof other than any such tax, fee or other charge that by
law is for the account of the Holders of the Outstanding Notes.
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Anything in this Article Thirteen to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company from time to
time upon Company Request any money or U.S. Government Obligations held by it as
provided in Section 1304 that, in the opinion of a nationally recognized firm of
independent public accountants or a nationally recognized investment banking
firm expressed in a written certification thereof delivered to the Trustee, are
in excess of the amount thereof that would then be required to be deposited to
effect an equivalent defeasance or covenant defeasance, as applicable, in
accordance with this Article.
SECTION 1306. Reinstatement.
If the Trustee or any Paying Agent is unable to apply any
money in accordance with Section 1305 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Notes shall be revived and reinstated as though no deposit had occurred pursuant
to Section 1302 or 1303, as the case may be, until such time as the Trustee or
Paying Agent is permitted to apply all such money in accordance with Section
1305; provided, however, that if the Company makes any payment of principal of
(or premium, if any) or interest on any Note following the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money held by the Trustee or Paying
Agent.
<PAGE>
97
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed and attested, all as of the day and year first
above written.
TELIGENT, INC.
By
-----------------------------
Title:
Attest:
--------------------------------
Title:
FIRST UNION NATIONAL BANK
By
-----------------------------
Title:
Attest:
--------------------------------
Title:
<PAGE>
TELIGENT, INC.
TO
FIRST UNION NATIONAL BANK,
Trustee
--------------------
Indenture
Dated as of November __, 1997
---------------------
$[__________]
_____% Senior Discount Notes
due 2007
<PAGE>
TELIGENT, INC.
Reconciliation and tie between Trust Indenture Act
of 1939 and Indenture, dated as of November __, 1997
Trust Indenture
Act Section Indenture Section
ss. 310(a)(1) .................................. 609
(a)(2) .................................. 609
(a)(4) .................................. 609
(a)(5) .................................. 609
(b) .................................. 610
ss. 311(a) .................................. 614
(b) .................................. 614
(b)(2) .................................. 614
ss. 312(c) .................................. 701
ss. 313(a) .................................. 702
(b) .................................. 702
(c) .................................. 702
(d) .................................. 702
ss. 314(a) .................................. 703
(a)(4) .................................. 1008(a)
(c)(1) .................................. 102
(c)(2) .................................. 102
(c)(3) .................................. 102
(e) .................................. 102
ss. 315(b) .................................. 601
(e) .................................. 515
ss. 316(a)(last
sentence) .................................. 101 ("Outstanding")
(a)(1)(A) .................................. 502, 512
(a)(1)(B) .................................. 513
(b) .................................. 508
(c) .................................. 104(d)
ss. 317(a)(1) .................................. 503
(a)(2) .................................. 504
(b) .................................. 1003
ss. 318(a) .................................. 111
<PAGE>
TABLE OF CONTENTS
Page
PARTIES...................................................................... 1
RECITALS OF THE COMPANY...................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.................................................... 1
Accounts Receivable Subsidiary............................................... 2
Accreted Value ..................................................... 2
Acquired Debt ..................................................... 3
Act ..................................................... 3
Affiliate ..................................................... 3
Asset Sale ..................................................... 3
Attributable Debt ..................................................... 4
Average Life ..................................................... 4
Board of Directors ..................................................... 5
Board Resolution ..................................................... 5
Business Day ..................................................... 5
Capital Lease Obligation..................................................... 5
Capital Stock ..................................................... 5
Change of Control ..................................................... 5
Class A Common Stock ..................................................... 6
Class B Common Stock ..................................................... 6
Closing Date ..................................................... 6
Commission ..................................................... 6
Common Stock ..................................................... 6
Company ..................................................... 6
Company Request ..................................................... 6
Company Order ..................................................... 6
Consolidated Interest Expense................................................ 7
Consolidated Net Income ..................................................... 7
- --------
Note: This table of contents shall not, for any purpose, be deemed to be a part
of this Indenture.
<PAGE>
ii
Page
Corporate Trust Office ..................................................... 8
Corporation ..................................................... 8
Credit Agreement ..................................................... 8
Currency Hedge Obligations................................................... 8
Debt ..................................................... 8
Debt to Annualized EBITDA Ratio.............................................. 9
Debt Securities ..................................................... 10
Default ..................................................... 10
Defaulted Interest ..................................................... 10
Disinterested Director ..................................................... 10
EBITDA ..................................................... 10
Eligible Cash Equivalents.................................................... 11
Equity Offerings ..................................................... 11
Event of Default ..................................................... 11
Exchange Act ..................................................... 11
Fair Market Value ..................................................... 11
Federal Communications Commission............................................ 12
Financing Commitment Letter.................................................. 12
GAAP ..................................................... 12
Guarantee ..................................................... 12
incur ..................................................... 12
Holder ..................................................... 13
Indenture ..................................................... 13
Interest Payment Date ..................................................... 13
Interest Swap Obligations.................................................... 13
International Equity Offering................................................ 13
Invested Capital ..................................................... 13
Invest ..................................................... 13
Issue Date ..................................................... 14
Lien ..................................................... 14
Maturity ..................................................... 14
Net Cash Proceeds ..................................................... 14
Note Register ..................................................... 15
Note Registrar ..................................................... 15
Notes ..................................................... 15
Officers' Certificate ..................................................... 15
Opinion of Counsel ..................................................... 15
Outstanding ..................................................... 15
Paying Agent ..................................................... 16
Permitted Debt ..................................................... 16
<PAGE>
iii
Page
Permitted Holder ..................................................... 19
Permitted Investments ..................................................... 19
Permitted Liens ..................................................... 20
Permitted Temporary Investments.............................................. 21
Person ..................................................... 21
Pledge Account ..................................................... 21
Pledge Agreement ..................................................... 21
Pledged Securities ..................................................... 21
Predecessor Note ..................................................... 21
Proportionate Interest ..................................................... 21
Public Equity Offering ..................................................... 21
Qualified Capital Stock ..................................................... 22
Redeemable Capital Stock..................................................... 22
Redemption Date ..................................................... 22
Redemption Price ..................................................... 22
Regular Record Date ..................................................... 22
Regulation S ..................................................... 22
Replacement Assets ..................................................... 22
Responsible Officer ..................................................... 22
Restricted Payment ..................................................... 23
Restricted Subsidiary ..................................................... 23
Rule 144A ..................................................... 23
Sale and Leaseback Transaction............................................... 23
Securities Act ..................................................... 23
Senior Notes ..................................................... 23
Senior Notes Indenture ..................................................... 24
Senior Notes Trustee ..................................................... 24
Significant Restricted Subsidiary............................................ 24
Special Record Date ..................................................... 24
Stated Maturity ..................................................... 24
Strategic Equity Investor.................................................... 24
Subordinated Debt ..................................................... 24
Subordinated Stockholder Debt................................................ 24
Subsidiary ..................................................... 24
Subsidiary Guarantee ..................................................... 25
Subsidiary Guarantor ..................................................... 25
Telecommunications Assets.................................................... 25
Telecommunications Assets Debt............................................... 25
Telecommunications Business.................................................. 25
Transactions ..................................................... 25
<PAGE>
iv
Page
Trust Indenture Act ..................................................... 26
TIA ..................................................... 26
Trustee ..................................................... 26
U.S. Equity Offering ..................................................... 26
U.S. Government Obligations.................................................. 26
Unrestricted Subsidiary ..................................................... 26
Vendor Debt ..................................................... 27
Vice President ..................................................... 27
Voting Stock ..................................................... 27
SECTION 102. Compliance Certificates and Opinions........................... 27
SECTION 103. Form of Documents Delivered to Trustee......................... 28
SECTION 104. Acts of Holders................................................ 29
SECTION 105. Notices, etc., to Trustee and Company.......................... 30
SECTION 106. Notice to Holders; Waiver...................................... 30
SECTION 107. Effect of Headings, Table of Contents and Recitals............. 31
SECTION 108. Successors and Assigns......................................... 31
SECTION 109. Separability Clause............................................ 31
SECTION 110. Benefits of Indenture.......................................... 31
SECTION 111. Governing Law.................................................. 32
SECTION 112. Legal Holidays................................................. 32
SECTION 113. No Recourse Against Others..................................... 32
SECTION 114. Exhibits and Schedules......................................... 32
SECTION 115. Counterparts................................................... 33
SECTION 116. Duplicate Originals............................................ 33
SECTION 117. Incorporation by Reference of TIA.............................. 33
ARTICLE TWO
NOTES FORMS
SECTION 201. Forms Generally................................................ 33
SECTION 202. Form of Face of Note........................................... 33
SECTION 203. Form of Reverse of Note........................................ 35
SECTION 204. Form of Trustee's Certificate of Authentication................ 41
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms................................................ 41
<PAGE>
v
Page
SECTION 302. Denominations.................................................. 42
SECTION 303. Execution, Authentication, Delivery and Dating................. 42
SECTION 304. Temporary Notes................................................ 43
SECTION 305. Registration, Registration of Transfer and Exchange............ 44
SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes.................... 45
SECTION 307. Payment of Interest; Interest Rights Preserved................. 46
SECTION 308. Persons Deemed Owners.......................................... 47
SECTION 309. Cancellation................................................... 47
SECTION 310. Computation of Interest........................................ 48
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture........................ 48
SECTION 402. Application of Trust Money..................................... 49
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.............................................. 49
SECTION 502. Acceleration of Maturity; Rescission and Annulment............. 52
SECTION 503. Collection of Debt and Suits for Enforcement by Trustee........ 53
SECTION 504. Trustee May File Proofs of Claim............................... 54
SECTION 505. Trustee May Enforce Claims Without Possession of Notes......... 54
SECTION 506. Application of Money Collected................................. 55
SECTION 507. Limitation on Suits............................................ 55
SECTION 508. Unconditional Right of Holders to Receive Principal, Premium
and Interest................................................... 56
SECTION 509. Restoration of Rights and Remedies............................. 56
SECTION 510. Rights and Remedies Cumulative................................. 56
SECTION 511. Delay or Omission Not Waiver................................... 57
SECTION 512. Control by Holders............................................. 57
SECTION 513. Waiver of Past Defaults........................................ 57
SECTION 514. Waiver of Stay or Extension Laws............................... 58
SECTION 515. Undertaking for Costs.......................................... 58
ARTICLE SIX
THE TRUSTEE
<PAGE>
vi
Page
SECTION 601. Notice of Defaults............................................. 58
SECTION 602. Trustee's Duties Following Event of Default.................... 59
SECTION 603. Certain Rights of Trustee...................................... 59
SECTION 604. Trustee Not Responsible for Recitals or Issuance of Notes...... 60
SECTION 605. Extension of Credit to Company................................. 61
SECTION 606. May Hold Notes................................................. 61
SECTION 607. Money Held in Trust............................................ 61
SECTION 608. Compensation and Reimbursement................................. 61
SECTION 609. Corporate Trustee Required; Eligibility........................ 62
SECTION 610. Resignation and Removal; Appointment of Successor.............. 62
SECTION 611. Acceptance of Appointment by Successor......................... 64
SECTION 612. Merger, Conversion, Consolidation or Succession to Business.... 64
SECTION 613. Conflicting Interests.......................................... 65
SECTION 614. Preferential Collection of Claims Against Issuers.............. 65
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders................... 65
SECTION 702. Reports by Trustee............................................. 65
SECTION 703. Reports by Company............................................. 65
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, etc., Only on Certain Terms........... 66
SECTION 802. Successor Substituted.......................................... 68
SECTION 803. Notes to Be Secured in Certain Events.......................... 68
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders............. 69
SECTION 902. Supplemental Indentures with Consent of Holders................ 70
SECTION 903. Execution of Supplemental Indentures........................... 71
SECTION 904. Effect of Supplemental Indentures.............................. 71
SECTION 905. Conformity with Trust Indenture Act............................ 71
<PAGE>
vii
Page
SECTION 906. Reference in Notes to Supplemental Indentures.................. 71
SECTION 907. Notice of Supplemental Indentures.............................. 72
SECTION 908. Effect of Consents............................................. 72
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and Interest........... 72
SECTION 1002. Maintenance of Office or Agency............................... 72
SECTION 1003. Money for Note Payments to Be Held in Trust................... 73
SECTION 1004. Corporate Existence........................................... 74
SECTION 1005. Payment of Taxes and Other Claims............................. 74
SECTION 1006. Maintenance of Properties..................................... 75
SECTION 1007. Insurance..................................................... 75
SECTION 1008. Statement by Officers as to Default........................... 75
SECTION 1009. Purchase of Notes upon Change of Control...................... 76
SECTION 1010. Limitation on Debt............................................ 77
SECTION 1011. Limitation on Liens........................................... 78
SECTION 1012. Limitation on Restricted Payments............................. 78
SECTION 1013. Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries............................. 80
SECTION 1014. Limitation on Issuances of Certain Guarantees by, and Debt
Securities of, Restricted Subsidiaries........................ 82
SECTION 1015. Limitation on Issuances and Sales of Capital Stock in
Restricted Subsidiaries....................................... 82
SECTION 1016. Limitation on Asset Sales..................................... 83
SECTION 1017. Transactions with Affiliates.................................. 87
SECTION 1018. Waiver of Certain Covenants................................... 88
ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Right of Redemption........................................... 88
SECTION 1102. Applicability of Article...................................... 89
SECTION 1103. Election to Redeem; Notice to Trustee......................... 89
SECTION 1104. Selection by Trustee of Notes to Be Redeemed.................. 89
SECTION 1105. Notice of Redemption.......................................... 90
SECTION 1106. Deposit of Redemption Price................................... 91
<PAGE>
viii
Page
SECTION 1107. Notes Payable on Redemption Date.............................. 91
SECTION 1108. Notes Redeemed in Part........................................ 91
ARTICLE TWELVE
[Intentionally omitted]
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or Covenant Defeasance.. 92
SECTION 1302. Defeasance and Discharge...................................... 92
SECTION 1303. Covenant Defeasance........................................... 93
SECTION 1304. Conditions to Defeasance or Covenant Defeasance............... 93
SECTION 1305. Deposited Money and U.S. Government Obligations to Be Held in
Trust; Other Miscellaneous Provisions......................... 95
SECTION 1306. Reinstatement................................................. 96
TESTIMONIUM.................................................................. 97
SIGNATURES AND SEALS......................................................... 97
<PAGE>
INDENTURE, dated as of November __, 1997 by and between
TELIGENT, INC., a corporation duly organized and existing under the laws of the
State of Delaware (herein called the "Company"), having its principal office at
8065 Leesburg Pike, Vienna, VA 22182, and FIRST UNION NATIONAL BANK, a
____________________ duly organized and existing under the laws of
_______________, Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of
____% Senior Discount Notes due 2007 (herein called the "Notes"), of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture. Immediately prior to the consummation of the offering of the Notes,
Teligent, L.L.C. will merge with and into the Company (the "Reorganization"),
with the Company surviving the merger.
This Indenture is subject to the provisions of the Trust
Indenture Act of 1939, as amended, that are required to be part of this
Indenture and shall, to the extent applicable, be governed by such provisions.
All things necessary have been done to make the Notes, when
executed by the Company and authenticated and delivered hereunder and duly
issued by the Company, the valid obligations of the Company and to make this
Indenture a valid agreement of the Company, in accordance with their and its
terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Notes by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Notes, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
<PAGE>
2
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as
the singular;
(b) all other terms used herein that are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein, and the terms "cash transaction"
and "self-liquidating paper", as used in TIA Section 311, shall have
the meanings assigned to them in the rules of the Commission adopted
under the Trust Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP; and
(d) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
Certain terms, used principally in Article Ten, are defined in
that Article.
"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.
"Accreted Value" as of any date (the "Specified Date") means,
with respect to each $1,000 principal amount at Stated Maturity of 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:
Accreted
Semi-Annual Accrual Date Value
------------------------ --------
Issue Date.......................................... $[_______]
[________], 1998.................................... [_______]
[________], 1998.................................... [_______]
[________], 1999.................................... [_______]
[________], 1999.................................... [_______]
[________], 2000.................................... [_______]
[________], 2000.................................... [_______]
[________], 2001.................................... [_______]
[________], 2001.................................... [_______]
<PAGE>
3
[________], 2002.................................... [_______]
[________], 2002.................................... $1000;
(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
Section 1010, 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.
"Act", when used with respect to any Holder, has the meaning
specified in Section 104.
"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) shall 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
<PAGE>
4
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 Section 1016, the term "Asset Sale" (i) when used with respect to
the Company, shall exclude any asset disposition permitted pursuant to Article
Eight that constitutes a disposition of all or substantially 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 this Indenture. Notwithstanding the
provisions of Section 1016, 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 Section 1011, 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.
<PAGE>
5
"Board of Directors" means either the board of directors of
the Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company to have been duly adopted
by the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday
and Friday 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 defined in Rules 13d-3 and 13d-5 under the
Exchange Act, except that a Person shall be deemed to
<PAGE>
6
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 662/3% 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.
"Class A Common Stock" means, with respect to the Company, the
shares of Class A Common Stock, par value $.01 per share.
"Class B Common Stock" means, with respect to the Company, the
shares of Class B Common Stock, par value $.01 per share.
"Closing Date" means the date on which the Notes originally
are issued under this Indenture.
"Commission" means the Securities and Exchange Commission, as
from time to time constituted, created under the Securities Exchange Act of
1934, or, if at any time after the execution of this Indenture such Commission
is not existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such time.
"Common Stock" means, with respect to the Company, the Class A
Common Stock, the Class B Common Stock or any similar common stock of the
Company.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by an officer of the Company, and
delivered to the Trustee.
<PAGE>
7
"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
<PAGE>
8
options and (h) any gain or loss, net of taxes, realized on the termination of
an employee pension benefit plan.
"Corporate Trust Office" means the principal corporate trust
office of the Trustee, at which at any particular time its corporate trust
business shall be administered, which office at the date of execution of this
Indenture is located at 901 E. Cary Street-2nd Fl., Richmond, Virginia 23219
except that, with respect to presentation of Notes for payment or for
registration of transfer or exchange, such term shall mean the office or agency
of the Trustee at which, at any particular time, its corporate agency business
shall be conducted.
"Corporation" includes corporations, associations, companies
and business trusts.
"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 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
<PAGE>
9
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 this 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 Annualized 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
<PAGE>
10
such Asset 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.
"Defaulted Interest" has the meaning specified in Section 307.
"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).
<PAGE>
11
"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
Organization for Economic Cooperation and Development having capital and surplus
in excess of $500.0 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).
"Equity Offerings" means the U.S. Equity Offering together
with the International Equity Offering.
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"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
herein, 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.
<PAGE>
12
"Federal Communications Commission" means the Federal
Communications Commission, or, if at any time after the execution of this
Indenture such Commission is not existing and performing the duties now assigned
to it, then the body performing such duties at such time.
"Financing Commitment Letter" means the commitment letter
between the Company and Northern Telecom, Inc. setting forth the anticipated
terms and conditions under which Northern Telecom, Inc. 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 this Indenture 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
<PAGE>
13
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.
"Holder" means a Person in whose name a Note is registered in
the Note Register.
"Indenture" means this instrument as originally executed and
as it may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an
installment of interest on the Notes.
"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.
"International Equity Offering" means the offering outside of
the United States and Canada of 1,100,000 shares of the Company's Class A Common
Stock pursuant to the registration statement on Form S-1 (No. 333-37381), as
amended, filed by the Company with the Securities and Exchange Commission.
"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 Capital Stock,
<PAGE>
14
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 this Indenture.
"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 herein, whether at the Stated Maturity, on the purchase date established
pursuant to the terms of this Indenture 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 (that otherwise would
constitute Net Cash Proceeds) is required to be held
<PAGE>
15
in escrow pending determination of whether a purchase price adjustment shall 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 Section 1016, 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, shall 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.
"Note Register" and "Note Registrar" have the respective
meanings specified in Section 305.
"Notes" has the meaning stated in the first recital of this
Indenture and more particularly means any Notes authenticated and delivered
under this Indenture.
"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 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 this Indenture.
"Opinion of Counsel" means a written opinion of counsel, who
may be an employee of or counsel for the Company, including an employee of the
Company, and who shall be reasonably acceptable to the Trustee.
"Outstanding", when used with respect to Notes, means, as of
the date of determination, all Notes theretofore authenticated and delivered
under this Indenture, except:
<PAGE>
16
(i) Notes theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(ii) Notes, or portions thereof, for whose payment or
redemption money in the necessary amount has been theretofore
deposited with the Trustee or any Paying Agent (other than the
Company) in trust or set aside and segregated in trust by the Company
(if the Company shall act as its own Paying Agent) for the Holders of
such Notes; provided that, if such Notes are to be redeemed, notice of
such redemption has been duly given pursuant to this Indenture or
provision therefor reasonably satisfactory to the Trustee has been
made;
(iii) Notes, except to the extent expressly provided in
Sections 1302 and 1303, with respect to which the Company has effected
defeasance and/or covenant defeasance as provided in Article Thirteen;
and
(iv) Notes that have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Notes have been authenticated
and delivered pursuant to this Indenture, other than any such Notes in
respect of which there shall have been presented to the Trustee proof
satisfactory to it that such Notes are held by a bona fide purchaser
in whose hands the Notes are valid obligations of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount at Stated Maturity of Outstanding Notes have given any request,
demand, authorization, direction, consent, notice or waiver hereunder, and for
the purpose of making the calculations required by TIA Section 313, Notes owned
by the Company or any other obligor upon the Notes or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in making such calculation or in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes that the Trustee
knows to be so owned shall be so disregarded. Notes so owned that have been
pledged in good faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act with respect to
such Notes and that the pledgee is not the Company or any other obligor upon the
Notes or any Affiliate of the Company or such other obligor.
"Paying Agent" means any Person (including the Company acting
as Paying Agent) authorized by the Company to pay the principal of (and premium,
if any) or interest on any Notes on behalf of the Company.
"Permitted Debt" means (a) Vendor Debt in an aggregate
principal amount not to exceed $780.0 million outstanding at any one time, (b)
Debt permitted to be borrowed under the Credit Agreement in an aggregate
principal amount not to exceed $175.0 million outstanding at any time, (c)
Telecommunications Assets Debt; (d) Debt under Interest Swap
<PAGE>
17
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 and the Senior
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 Section 1012, 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 this 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,
<PAGE>
18
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 or the
Senior Notes pursuant to a Change of Control (in the case of the Senior Notes,
as defined in the Senior Notes Indenture), provided that the principal amount of
such Debt does not exceed 101% of the principal amount of the Senior Notes or
the lesser of the Accreted Value or principal amount at Stated Maturity 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 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, Section 1011, 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 Section 1010, 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
<PAGE>
19
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 that 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 Microwave Services Inc.,
Digital Services Corporation, Nippon Telegraph and Telephone Corporation, Alex
J. 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 Section 1016; (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;
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20
(k) any Investment by a Restricted Subsidiary of the Company or any Investment
by 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 and the Senior 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; (n) Liens on
the Pledged Securities in favor of the Senior Notes Trustee and the holders of
the Senior Notes; and (m) 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.
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21
"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 this 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 offering of the Notes and
the Senior Notes, 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.
"Predecessor Note" of any particular Note means every previous
Note evidencing all or a portion of the same debt as that evidenced by such
particular Note; and, for the purposes of this definition, any Note
authenticated and delivered under Section 306 in exchange for a mutilated
security or in lieu of a lost, destroyed or stolen Note shall be deemed to
evidence the same debt as the mutilated, lost, destroyed or stolen Note.
"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.
"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 under Sections 203 and 1101
shall have resulted in gross proceeds to the Company of not less than $65.0
million. Such a primary offering may be undertaken either independently or in
conjunction with any secondary offering of securities of the Company.
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22
"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.
"Redemption Date", when used with respect to any Note to be
redeemed, in whole or in part, means the date fixed for such redemption by or
pursuant to this Indenture and the terms of the Notes.
"Redemption Price", when used with respect to any Note to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture and the terms 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.
"Regulation S" means Regulation S under the General
Regulations of the Securities Act.
"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 shall be used in the Telecommunications
Business of the Company or a Restricted Subsidiary of the Company.
"Responsible Officer", when used with respect to the Trustee,
means the chairman or any vice-chairman of the board of directors, the chairman
or any vice-chairman of the executive committee of the board of directors, the
chairman of the trust committee, the president, any vice president, the
secretary, any assistant secretary, the treasurer, any assistant treasurer, the
cashier, any assistant cashier, any trust officer or assistant trust officer,
the controller or any assistant controller or any other officer of the Trustee
duly authorized and customarily performing functions similar to those performed
by any of the above-designated officers, and also means, with respect to a
particular corporate trust matter, any other duly authorized officer to whom
such matter is referred because of his knowledge of and familiarity with the
particular subject.
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23
"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.
"Rule 144A" means Rule 144A under the General Regulations of
the Securities Act.
"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.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Notes" means the Company's ____% Senior Notes due
2007.
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24
"Senior Notes Indenture" means the indenture dated November
__, 1997 by and between the Trustee and the Company governing the Senior Notes.
"Senior Notes Trustee" means the Person named as the "Trustee"
in the first paragraph of the Senior Notes Indenture until a successor Trustee
shall have become such pursuant to the applicable provisions of the Senior Notes
Indenture, and thereafter "Senior Notes Trustee" shall mean such successor
Trustee.
"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.
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to a 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.
"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.
"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
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 hereto
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
<PAGE>
25
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.
"Subsidiary Guarantee" means a Guarantee of the Notes or the
Senior Notes, as the case may be, by a Restricted Subsidiary and required
pursuant to Section 1014 hereof.
"Subsidiary Guarantor" means a Restricted Subsidiary that has
executed a Subsidiary Guarantee.
"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.
"Transactions" means (i) the acquisition by the Company of all
of the outstanding stock of FirstMark Communications, Inc. pursuant to a stock
contribution agreement dated as of March 10, 1997 among Teligent, L.L.C.,
FirstMark Communications, Inc. and the sole stockholder of FirstMark
Communications, Inc., (ii) the capital contributions in an aggregate amount of
$60 million to Teligent L.L.C. by the original members of Teligent L.L.C., (iii)
the contribution of Associated Communications of Los Angeles to Teligent, L.L.C.
by The Associated Group, Inc., (iv) the assignment of certain licenses held by
certain of the Company's members or affiliates to the Company, (v) the grant by
the Federal Communications Commission of pending applications to provide 24 GHz
wireless services in Boston, MA and New York, NY, (vi) the investment by Nippon
Telegraph and Telephone Corporation of $100.0 million in the Company pursuant to
a
<PAGE>
26
securities purchase agreement dated September 30, 1997 between the Company and
Nippon Telegraph and Telephone Corporation and (vii) the merger of Teligent,
L.L.C. with and into the Company, with the Company surviving the merger.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act
of 1939 as in effect from time to time.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"U.S. Equity Offering" means the offering in the United States
and Canada of 4,400,000 shares of the Company's Class A Common Stock pursuant to
the registration statement on Form S-1 (No. 333-37381), as amended, filed by the
Company with the Securities and Exchange Commission..
"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) 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
<PAGE>
27
Subsidiary but only to the extent that the Company or such Restricted Subsidiary
could make an Investment in such Unrestricted Subsidiary pursuant to Section
1012 and any such Guarantee, endorsement or agreement shall be deemed an
incurrence of Debt by the Company for purposes of Section 1010. 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 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 Sections 1010 and 1011,
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).
"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".
"Voting Stock" means, 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.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee
to take any action under any provision of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent, if any, provided for in this
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28
Indenture (including any covenant compliance with which constitutes a condition
precedent) relating to the proposed action have been complied with and an
Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008(a)) shall include:
(1) a statement that each individual signing such certificate
or opinion has read such covenant or condition and the definitions
herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual,
he has made such examination or investigation as is necessary to
enable him to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or Opinion
of Counsel may be based, insofar as it relates to factual matters, upon (x) a
certificate or opinion of, or representations by, an officer or officers of the
Company stating that the information with respect to such factual matters is in
the possession of the Company, unless such counsel knows, or in the exercise of
reasonable care should know, that the
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29
certificate or opinion or representations with respect to such matters are
erroneous or (y) one or more certificates of public officials.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or taken
by Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such instrument or of
a writing appointing any such agent shall be sufficient for any purpose of this
Indenture and conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee deems sufficient.
(c) The principal amount and serial numbers of Notes held by
any Person, and the date of holding the same, shall be proved by the Note
Register.
(d) If the Company shall solicit from the Holders of Notes any
request, demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, by or pursuant to a Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding TIA Section
316(c), such record date shall be the record date specified in or pursuant to
such Board Resolution, which shall be a date not earlier than the date 30 days
prior to the first solicitation of Holders generally in connection therewith and
not later than
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30
the date such solicitation is completed. If such a record date is fixed, such
request, demand, authorization, direction, notice, consent, waiver or other Act
may be given before or after such record date, but only the Holders of record at
the close of business on such record date shall be deemed to be Holders for the
purposes of determining whether Holders of the requisite proportion of
Outstanding Notes have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and for
that purpose the Outstanding Notes shall be computed as of such record date;
provided that no such authorization, agreement or consent by the Holders on such
record date shall be deemed effective unless it shall become effective pursuant
to the provisions of this Indenture not later than eleven months after the
record date.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Note shall bind every future
Holder of the same Note and the Holder of every Note issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee, any
Paying Agent or the Company in reliance thereon, whether or not notation of such
action is made upon such Note.
SECTION 105. Notices, etc., to Trustee and Company.
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: [Corporate Trust Administration Division], or
(2) the Company by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to it at the address of its
principal office specified in the first paragraph of this Indenture,
or at any other address previously furnished in writing to the Trustee
by the Company.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice of any event to
Holders by the Company or the Trustee, such notice shall be sufficiently given
(unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to each Holder affected by such event, at his
address as it appears in the Note Register, not later than the latest date, and
not earlier than the earliest date, prescribed for the giving of such notice. In
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31
any case where notice to Holders is given by mail, neither the failure to mail
such notice, nor any defect in any notice so mailed, to any particular Holder
shall affect the sufficiency of such notice with respect to other Holders. Any
notice mailed to a Holder in the manner herein prescribed shall be conclusively
deemed to have been received by such Holder, whether or not such Holder actually
receives such notice. Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in
regular mail service or by reason of any other cause, it shall be impracticable
to mail notice of any event to Holders when such notice is required to be given
pursuant to any provision of this Indenture, then any manner of giving such
notice as shall be satisfactory to the Trustee shall be deemed to be a
sufficient giving of such notice for every purpose hereunder.
SECTION 107. Effect of Headings, Table of Contents and
Recitals.
The Article and Section headings herein, the Table of Contents
and the Recitals are for convenience only and shall not affect the construction
hereof.
SECTION 108. Successors and Assigns.
All covenants and agreements in this Indenture by the Company
and the Trustee shall bind their respective successors and assigns, whether so
expressed or not.
SECTION 109. Separability Clause.
In case any provision in this Indenture or in the Notes shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 110. Benefits of Indenture.
Nothing in this Indenture or in the Notes, express or implied,
shall give to any Person, (other than the parties hereto, any Paying Agent, any
Notes Registrar and their successors hereunder, and the Holders) any benefit or
any legal or equitable right, remedy or claim under this Indenture.
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32
SECTION 111. Governing Law.
This Indenture and the Notes shall be governed by and
construed in accordance with the law of the State of New York (without giving
effect to the conflict of laws principles thereof). The Trustee, the Company,
and (by their acceptance of the Notes) the Holders, agree to submit to the
non-exclusive jurisdiction of any United States federal or state court located
in the Borough of Manhattan, in the City of New York in any action or proceeding
arising out of or relating to this Indenture or the Notes. This Indenture is
subject to the provisions of the Trust Indenture Act that are required to be
part of this Indenture and shall, to the extent applicable, be governed by such
provisions.
SECTION 112. Legal Holidays.
In any case where any Interest Payment Date, date established
for the payment of defaulted interest, Redemption Date, Change of Control
Payment Date, Asset Sale Offer Purchase Date or Stated Maturity or Maturity of
any Note shall not be a Business Day, then (notwithstanding any other provision
of this Indenture or of the Notes) payment of principal (or premium, if any) or
interest need not be made on such date, but may be made on the next succeeding
Business Day with the same force and effect as if made on the Interest Payment
Date, date established for the payment of defaulted interest, Redemption Date,
Change of Control Payment Date, Asset Sale Offer Purchase Date or at the Stated
Maturity or Maturity; provided that no interest shall accrue for the period from
and after such Interest Payment Date, date established for the payment of
defaulted interest, Redemption Date, Change of Control Payment Date, Asset Sale
Offer Purchase Date, Stated Maturity or Maturity, as the case may be.
SECTION 113. No Recourse Against Others.
No recourse for the payment of the principal of, or 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 this Indenture or in any of the Notes,
or because of the creation of any Debt represented thereby, shall be had against
any incorporator, shareholder, officer, director, employee or controlling person
of the Company, any Subsidiary of the Company or of any successor Person
thereof. Each Holder of Notes by accepting a Note waives and releases all such
liability, and such waiver and release is part of the consideration for the
issuance of the Notes.
SECTION 114. Exhibits and Schedules.
All exhibits and schedules attached hereto are by this
reference made a part hereof with the same effect as if herein set forth in
full.
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33
SECTION 115. Counterparts.
This Indenture may be executed in any number of counterparts,
each of which shall be an original; but such counterparts shall together
constitute but one and the same instrument.
SECTION 116. Duplicate Originals.
The parties may sign any number of copies of this Indenture.
Each signed copy shall be an original, but all of them together represent the
same agreement.
SECTION 117. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in, and made a part of, this Indenture.
Any terms incorporated by reference in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
under the TIA, have the meanings so assigned to them therein.
ARTICLE TWO
NOTES FORMS
SECTION 201. Forms Generally.
The Notes and the Trustee's certificate of authentication
shall be in substantially the forms set forth in this Article, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture, and may have such letters, numbers or
other marks of identification and such legends or endorsements placed thereon as
may be required to comply with the rules of any securities exchange, law,
governmental rule or regulation, depository rule or usage, or other customary
usage or as may, consistently herewith, be determined by the officers executing
such Notes, as evidenced by their execution of the Notes. Any portion of the
text of any Note may be set forth on the reverse thereof, with an appropriate
reference thereto on the face of the Note.
The definitive Notes shall be printed, lithographed or
engraved on steel-engraved borders or may be produced in any other manner, all
as determined by the officers of the Company executing such Notes, as evidenced
by their execution of such Notes.
SECTION 202. Form of Face of Note.
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34
TELIGENT, INC.
Senior Discount Notes due 2007
No._____ $__________
The following information is supplied for purposes of Sections
1273 and 1275 of the Internal Revenue Code:
Issue Date: ____________________ Original issue discount under Section 1273
of the Internal Revenue Code (for each
$1,000 principal amount at maturity):
$__________
Issue Price (for each $1,000 Yield to Maturity: _____%
principal amount at maturity):
$________
Method used to determine yield to Original issue discount for [short]
maturity for [short] accrual period accrual period of [issue date] to
of [issue date] to [_________]: [___________] (for each $1,000 principal
exact method amount at maturity): $__________
Teligent, Inc., a Delaware corporation (herein called the
"Company", which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
____________________, or registered assigns, the principal sum of __________
Dollars on [_______], 2007 at the office or agency of the Company referred to
below, and to pay interest thereon on [_______], 2003 and semi-annually
thereafter, on [_______] and [_______] in each year, from [_______], 2002, or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for, at the rate of _____% per annum, until the principal hereof
is paid or duly provided for, and (to the extent lawful) to pay on demand
interest on any overdue interest at the rate borne by the Notes from the date on
which such overdue interest becomes payable to the date payment of such interest
has been made or duly provided for. The principal of this Note shall not accrue
interest until [_______], 2002 except in the case of a default in payment of the
amount due at Stated Maturity, in which case the amount due on this Note shall
bear interest at the rate borne by the Notes (to the extent that the payment of
such interest shall be legally enforceable), which shall accrue from the date of
such default to the date the payment of such amount has been made or duly
provided for. The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Note (or one or more Predecessor Notes) is registered
at the close of business on the Regular Record Date for such interest, which
shall be the [_______] or [_____] (whether or not a Business Day), as the case
may be, next
<PAGE>
35
preceding such Interest Payment Date. Any such interest not so punctually paid
or duly provided for shall forthwith cease to be payable to the Holder on such
Regular Record Date, and such defaulted interest, and (to the extent lawful)
interest on such defaulted interest at the rate borne by the Notes, may be paid
to the Person in whose name this Note (or one or more Predecessor Notes) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Notes not less than 10 days prior to such Special Record
Date, or may be paid at any time in any other lawful manner not inconsistent
with the requirements of any securities exchange on which the Notes may be
listed, and upon such notice as may be required by such exchange, all as more
fully provided in said Indenture. Payment of the principal of (and premium, if
any, on) and interest on this Note will be made at the office or agency of the
Company maintained for that purpose in The City of New York, or at such other
office or agency of the Company as may be maintained for such purpose, in such
coin or currency of the United States of America as at the time of payment is
legal tender for payment of public and private debts; provided, however, that
payment of interest may be made at the option of the Company (i) by check mailed
to the address of the Person entitled thereto as such address shall appear on
the Note Register or (ii) by transfer to an account maintained by the payee
located in the United States.
Reference is hereby made to the further provisions of this
Note set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof by manual signature,
this Note shall not be entitled to any benefit under the Indenture, or be valid
or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed.
Dated: TELIGENT, INC.
By ________________________
Attest: Title:
_________________________________
Authorized Signature
SECTION 203. Form of Reverse of Note.
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36
This Note is one of a duly authorized issue of securities of
the Company designated as its ____% Senior Discount Notes due 2007 (herein
called the "Notes"), limited (except as otherwise provided in the Indenture
referred to below) in aggregate principal amount at maturity to $[________],
that may be issued under an indenture (herein called the "Indenture") dated as
of November __, 1997 between the Company and First Union National Bank, trustee
(herein called the "Trustee", which term includes any successor trustee under
the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties, obligations and immunities thereunder of the Company, the
Trustee and the Holders of the Notes, and of the terms upon which the Notes are,
and are to be, authenticated and delivered.
The Notes are subject to redemption, upon not less than 30 nor
more than 60 days notice, at any time on or after [_______], 2002, as a whole or
in part, at the election of the Company, at a Redemption Price equal to the
percentage of the principal amount at Stated Maturity set forth below if
redeemed during the 12-month period beginning [_______], of the years indicated
below, together in each case with accrued and unpaid interest, if any, to the
Redemption Date, all as provided in the Indenture:
Year Redemption Price
---- ----------------
2002........................................... [___]%
2003........................................... [___]%
2004........................................... [___]%
2005 and thereafter............................ 100%
In addition, up to 35% of the originally issued principal
amount at Stated Maturity of Notes may be redeemed, at the election of the
Company, at any time on or prior to [_______], 2000 subject to the conditions
and at a Redemption Price of ___% of the Accreted Value thereof at the
Redemption Date 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
$65.0 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 Notes remains Outstanding immediately
after giving effect to such redemption.
Upon the occurrence of a Change of Control, the Holder of this
Note may require the Company, subject to certain limitations provided in the
Indenture, to repurchase this Note at a purchase price in cash in an amount
equal to (i) 101% of the Accreted Value
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37
of this Note as of the Change of Control Payment Date, if such Change of Control
Payment Date occurs 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 (ii) 101% of the principal amount at Stated Maturity of this
Note as of the Change of Control Payment Date, if such Change of Control Payment
Date occurs on or after [_______], 2002, plus accrued and unpaid interest, if
any, to such Change of Control Payment Date.
In the case of any redemption of Notes, interest installments
whose Stated Maturity is on or prior to the Redemption Date will be payable to
the Holders of such Notes, or one or more Predecessor Notes, of record at the
close of business on the relevant Regular Record Date referred to on the face
hereof. Notes (or portions thereof) for whose redemption and payment provision
is made in accordance with the Indenture shall cease to bear interest from and
after the Redemption Date.
In the event of redemption of this Note in part only, a new
Note or Notes for the unredeemed portion hereof shall be issued in the name of
the Holder hereof upon the cancellation hereof.
If an Event of Default shall occur and be continuing, the
principal of all the Notes and any accrued and unpaid interest thereon may be
declared due and payable in the manner and with the effect provided in the
Indenture and in an amount equal to (i) the Accreted Value of the Notes as of
the date on which the Notes first become due and payable plus any accrued and
unpaid cash interest not otherwise included in the Accreted Value to such date,
if such date occurs prior to [_______], 2002, or (ii) 100% of the principal
amount at Stated Maturity of the Notes as of the date on which the Notes first
become due and payable plus accrued and unpaid interest, if any, to such date,
if such date occurs on or after [_______], 2002.
The Indenture contains provisions for defeasance at any time
of (a) the entire indebtedness of the Company on this Note and (b) certain
restrictive covenants and the related Defaults and Events of Default, upon
compliance by the Company with certain conditions set forth therein, which
provisions apply to this Note.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount at Stated Maturity of the Notes at the
time Outstanding. The Indenture also contains provisions permitting the Holders
of specified percentages in aggregate principal amount at Stated Maturity of the
Notes at the time Outstanding, on behalf of the Holders of all the Notes, to
waive compliance by the Company with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by or on behalf of
<PAGE>
38
the Holder of this Note shall be conclusive and binding upon such Holder and
upon all future Holders of this Note and of any Note issued upon the
registration of transfer hereof or in exchange therefor or in lieu hereof
whether or not notation of such consent or waiver is made upon this Note.
No reference herein to the Indenture and no provision of this
Note or of the Indenture shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of (and premium, if
any) and interest on this Note at the times, place, and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Note is registrable on the
Note Register of the Company, upon surrender of this Note for registration of
transfer at the office or agency of the Company maintained for such purpose in
The City of New York, duly endorsed by, or accompanied by a written instrument
of transfer in form satisfactory to the Company and the Note Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Notes, of authorized denominations and for the same
aggregate principal amount at Stated Maturity, will be issued to the designated
transferee or transferees.
The Notes are issuable only in registered form without coupons
in denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, the Notes are
exchangeable for a like aggregate principal amount at Stated Maturity of Notes
of a different authorized denomination, as requested by the Holder surrendering
the same.
No service charge shall be made for any registration of
transfer or exchange of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
Prior to the time of due presentment of this Note for
registration of transfer, the Company, the Trustee and any agent of the Company
or the Trustee may treat the Person in whose name this Note is registered as the
owner hereof for all purposes, whether or not this Note be overdue, and neither
the Company, the Trustee nor any agent shall be affected by notice to the
contrary.
All terms used in this Note that are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
No recourse for the payment of the principal of, or 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 Indenture or in any of the Notes, or
because of the creation of any Debt represented thereby,
<PAGE>
39
shall be had against any incorporator, shareholder, officer, director, employee
or controlling person of the Company, any Subsidiary of the Company or of any
successor Person thereof. Each Holder of Notes by accepting a Note waives and
releases all such liability, and such waiver and release is part of the
consideration for the issuance of the Notes.
The Indenture and this Note shall be governed by, and
construed in accordance with, the internal laws of the State of New York
(without giving effect to the conflict of laws principles thereof). The Trustee,
the Company, and (by their acceptance of the Notes) the Holders agree to submit
to the non-exclusive jurisdiction of any United States federal or state court
located in the Borough of Manhattan, in the City of New York, in any action or
proceeding arising out of or relating to the Indenture of this Note.
<PAGE>
40
ASSIGNMENT FORM
If you the holder want to assign this Note, fill in the form below and have your
signature guaranteed:
I or we assign and transfer this Note to
________________________________________________________________________________
(Insert assignee's social security or tax ID number)
____________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code) and irrevocably appoint
________________________________________________________________________________
agent to transfer this Note on the books of the Company.
The agent may substitute another to act for such agent.
Date: ______________________ Your signature: ________________________________
(Sign exactly as your name
appears on the other side of
this Note)
By: ____________________________
NOTICE: To be executed by an
executive officer
NOTICE: Signature(s) must be guaranteed by an institution that is a participant
in the Securities Transfer Agent Medallion Program ("STAMP") or similar program.
<PAGE>
41
SECTION 204. Form of Trustee's Certificate of Authentication.
The Trustee's certificate of authentication shall be in
substantially the following form:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
Dated: ____________________
This is one of the Notes referred to in the within-mentioned
Indenture.
FIRST UNION NATIONAL BANK,
as Trustee
By ____________________________
Authorized Officer
ARTICLE THREE
THE NOTES
SECTION 301. Title and Terms.
The aggregate principal amount at Stated Maturity of Notes
that may be authenticated and delivered under this Indenture is limited to
$[_______], except for Notes authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Notes pursuant to Section
303, 304, 305, 306, 906, 1009, 1016 or 1108.
The Notes shall be known and designated as the "___% Senior
Discount Notes due 2007" of the Company. Their Stated Maturity shall be [_____],
2007 and they shall bear interest at the rate of _____% per annum from
[_______], 2002 or from the most recent Interest Payment Date to which interest
has been paid or duly provided for, payable in cash on [_______], 2003 and
semi-annually thereafter on [_______] and [_______] in each year and at said
Stated Maturity until the principal thereof is paid or duly provided for. The
Notes will be issued at a discount to their aggregate principal amount at
maturity. The principal of this Note shall not accrue interest until [_______],
2002 except in the case of a default in payment of the amount due at Stated
Maturity, in which case the amount due on this Note shall bear interest at the
rate borne by the Notes (to the extent that the payment of such interest shall
be legally enforceable), which shall accrue from the date of such default to
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42
the date the payment of such amount has been made or duly provided for. Interest
on any overdue principal amount shall be payable on demand.
The principal of (and premium, if any) and interest on the
Notes shall be payable at the office or agency of the Company maintained for
such purpose in The City of New York, or at such other office or agency of the
Company as may be maintained for such purpose; provided, however, that, at the
option of the Company, interest may be paid (i) by check mailed to addresses of
the Persons entitled thereto as such addresses shall appear on the Note Register
or (ii) by transfer to an account maintained by the payee located in the United
States.
The Notes shall be redeemable as provided in Article Eleven.
SECTION 302. Denominations.
The Notes shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Notes shall be executed on behalf of the Company by its
Chairman, its President or a Vice President and attested by its Secretary or an
Assistant Secretary. The signature of any of these officers on the Notes may be
manual or facsimile signatures of the present or any future such authorized
officer and may be imprinted or otherwise reproduced on the Notes.
Notes bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Notes or did
not hold such offices at the date of such Notes.
At any time and from time to time after the execution and
delivery of this Indenture, the Company may deliver Notes executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Notes, and the Trustee in accordance with
such Company Order shall authenticate and deliver such Notes.
Each Note shall be dated the date of its authentication.
No Note shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for herein duly
executed by the Trustee by manual
<PAGE>
43
signature of an authorized officer, and such certificate upon any Note shall be
conclusive evidence, and the only evidence, that such Note has been duly
authenticated and delivered hereunder and is entitled to the benefits of this
Indenture.
In case the Company, pursuant to Article Eight, shall be
consolidated or merged with or into any other Person or shall convey, transfer,
lease or otherwise dispose of its properties and assets substantially as an
entirety to any Person, and the successor Person resulting from such
consolidation, or surviving such merger, or into which the Company shall have
been merged, or the Person that shall have received a conveyance, transfer,
lease or other disposition as aforesaid, shall have executed an indenture
supplemental hereto with the Trustee pursuant to Article Eight, any of the Notes
authenticated or delivered prior to such consolidation, merger, conveyance,
transfer, lease or other disposition may, from time to time, at the request of
the successor Person, be exchanged for other Notes executed in the name of the
successor Person with such changes in phraseology and form as may be
appropriate, but otherwise in substance of like tenor as the Notes surrendered
for such exchange and of like principal amount at Stated Maturity; and the
Trustee, upon Company Request of the successor Person, shall authenticate and
deliver Notes as specified in such request for the purpose of such exchange. If
Notes shall at any time be authenticated and delivered in any new name of a
successor Person pursuant to this Section in exchange or substitution for or
upon registration of transfer of any Notes, such successor Person, at the option
of the Holders but without expense to them, shall provide for the exchange of
all Outstanding Notes for Notes authenticated and delivered in such new name.
SECTION 304. Temporary Notes.
Pending the preparation of definitive Notes, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Notes that are printed, lithographed, typewritten, mimeographed or
otherwise produced, in any authorized denomination, substantially of the tenor
of the definitive Notes in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other variations as the
officers executing such Notes may determine, as conclusively evidenced by their
execution of such Notes.
If temporary Notes are issued, the Company will cause
definitive Notes to be prepared without unreasonable delay. After the
preparation of definitive Notes, the temporary Notes shall be exchangeable for
definitive Notes upon surrender of the temporary Notes at the office or agency
of the Company designated for such purpose pursuant to Section 1002, without
charge to the Holder. Upon surrender for cancellation of any one or more
temporary Notes, the Company shall execute and the Trustee shall authenticate
and deliver in exchange therefor a like principal amount at Stated Maturity of
definitive Notes of authorized denominations. Until so exchanged, the temporary
Notes shall in all respects be entitled to the same benefits under this
Indenture as definitive Notes.
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44
SECTION 305. Registration, Registration of Transfer and
Exchange.
The Company shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in such office and in
any other office or agency designated pursuant to Section 1002 being herein
sometimes referred to as the "Note Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Notes and of transfers of Notes. The Note Register shall be in
written form or any other form capable of being converted into written form
within a reasonable time. At all reasonable times, the Note Register shall be
open to inspection by the Trustee. The Trustee is hereby initially appointed as
security registrar (the "Note Registrar") for the purpose of registering Notes
and transfers of Notes as herein provided.
Upon surrender for registration of transfer of any Note at the
office or agency of the Company designated pursuant to Section 1002, the Company
shall execute, and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new Notes of any
authorized denomination or denominations of a like aggregate principal amount at
Stated Maturity.
At the option of the Holder, Notes may be exchanged for other
Notes of any authorized denomination and of a like aggregate principal amount at
Stated Maturity, upon surrender of the Notes to be exchanged at such office or
agency. Whenever any Notes are so surrendered for exchange, the Company shall
execute, and the Trustee shall authenticate and deliver, the Notes that the
Holder making the exchange is entitled to receive.
All Notes issued upon any registration of transfer or exchange
of Notes shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Notes
surrendered upon such registration of transfer or exchange.
Every Note presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Note
Registrar) be duly endorsed, or be accompanied by a written instrument of
transfer, in the form attached to the Note or otherwise satisfactory to the
Company and the Note Registrar, duly executed by the Holder thereof or his
attorney duly authorized in writing.
No service charge shall be made for any registration of
transfer or exchange or redemption of Notes, but the Company may require payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of Notes,
other than exchanges pursuant to Section 304, 906, 1009, 1016 or 1108 not
involving any transfer.
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45
The Company shall not be required (i) to issue, register the
transfer of or exchange any Note during a period beginning at the opening of
business 15 days before the selection of Notes to be redeemed under Section 1104
and ending at the close of business on the day of such mailing of the relevant
notice of redemption, (ii) to register the transfer of or exchange any Note so
selected for redemption in whole or in part, except the unredeemed portion of
any Note being redeemed in part or (iii) to issue, register, transfer or
exchange any Note during a Change of Control Offer or an Asset Sale Offer, if
such Note is tendered pursuant to such Change of Control Offer or Asset Sale
Offer and not withdrawn.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Notes.
If (i) any mutilated Note is surrendered to the Trustee, or
(ii) the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Note, and there is delivered to the Company
and the Trustee such security or indemnity as may be required by them to save
each of them harmless, then, in the absence of notice to the Company or the
Trustee that such Note has been acquired by a bona fide purchaser, the Company
shall execute and upon Company Order the Trustee shall authenticate and deliver,
in exchange for any such mutilated Note or in lieu of any such destroyed, lost
or stolen Note, a replacement Note of like tenor and principal amount at Stated
Maturity, bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Note has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a replacement Note, pay such Note.
Upon the issuance of any replacement Note under this Section,
the Company may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every replacement Note issued pursuant to this Section in lieu
of any mutilated, destroyed, lost or stolen Note shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Note shall be at any time enforceable by anyone, and
shall be entitled to all benefits of this Indenture equally and proportionately
with any and all other Notes duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies with respect to
the replacement or payment of mutilated, destroyed, lost or stolen Notes.
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46
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Note that is payable, and is punctually paid
or duly provided for, on any Interest Payment Date shall be paid to the Person
in whose name such Note (or one or more Predecessor Notes) is registered at the
close of business on the Regular Record Date for such interest at the office or
agency of the Company maintained for such purpose pursuant to Section 1002;
provided, however, that each installment of interest may at the Company's option
be paid by (i) mailing a check for such interest, payable to or upon the written
order of the Person entitled thereto pursuant to Section 308, to the address of
such Person as it appears in the Note Register or (ii) transfer to an account
located in the United States maintained by the payee.
Any interest on any Note that is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date shall
forthwith cease to be payable to the Holder on the Regular Record Date by virtue
of having been such Holder, and such defaulted interest and (to the extent
lawful) interest on such defaulted interest at the rate borne by the Notes (such
defaulted interest and interest thereon herein collectively called "Defaulted
Interest") may be paid by the Company, at its election in each case, as provided
in clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Notes (or their respective
Predecessor Notes) are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be
fixed in the following manner. The Company shall notify the Trustee in
writing of the amount of Defaulted Interest proposed to be paid on each
Note and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements reasonably satisfactory to the
Trustee for such deposit prior to the date of the proposed payment,
such money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as in this clause (1)
provided. Thereupon the Trustee shall fix a Special Record Date for the
payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and
not less than 10 days after the receipt by the Trustee of the notice of
the proposed payment. The Trustee shall promptly notify the Company of
such Special Record Date, and in the name and at the expense of the
Company, shall cause notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor to be given in the manner
provided for in Section 106, not less than 10 days prior to such
Special Record Date. Notice of the proposed payment of such Defaulted
Interest and the Special Record Date therefor having been so given,
such Defaulted Interest shall be paid to the Persons in whose names the
Notes (or their respective Predecessor Notes) are
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47
registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following clause (2).
(2) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Notes may be listed, and upon such
notice as may be required by such exchange, if, after notice given by
the Company to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Note
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Note shall carry the rights to interest accrued and
unpaid, and to accrue, that were carried by such other Note.
SECTION 308. Persons Deemed Owners.
Prior to and at the time of the due presentment of a Note for
registration of transfer, the Company, the Trustee and any agent of the Company
or the Trustee may treat the Person in whose name such Note is registered as the
owner of such Note for the purpose of receiving payment of principal of (and
premium, if any) and (subject to Sections 305 and 307) interest on such Note and
for all other purposes whatsoever, whether or not such Note be overdue, and none
of the Company, the Trustee or any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 309. Cancellation.
All Notes surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Trustee,
be delivered to the Trustee and shall be promptly cancelled by it. The Company
may at any time deliver to the Trustee for cancellation any Notes previously
authenticated and delivered hereunder that the Company may have acquired in any
manner whatsoever, and may deliver to the Trustee (or to any other Person for
delivery to the Trustee) for cancellation any Notes previously authenticated
hereunder that the Company has not issued and sold, and all Notes so delivered
shall be promptly cancelled by the Trustee. No Notes shall be authenticated in
lieu of or in exchange for any Notes cancelled as provided in this Section,
except as expressly permitted by this Indenture. All cancelled Notes held by the
Trustee shall be disposed of by the Trustee in accordance with its customary
procedures and certification of their disposal delivered to the Company unless
by Company Order the Company shall direct that cancelled Notes be returned to
it. The Trustee shall provide the Company with a list of all Notes that have
been cancelled from time to time as requested by the Company.
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48
SECTION 310. Computation of Interest.
Interest on the Notes shall be computed on the basis of a
360-day year of twelve 30-day months.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of
further effect (except as to surviving rights of registration of transfer or
exchange of Notes expressly provided for herein or pursuant hereto) and the
Trustee, on demand of and at the expense of the Company, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture when
(1) either
(a) all Notes theretofore authenticated and delivered
(other than (i) Notes that have been destroyed, lost or stolen
and that have been replaced or paid as provided in Section 306
and (ii) Notes for whose payment money has theretofore been
deposited in trust with the Trustee or any Paying Agent or
segregated and held in trust by the Company and thereafter
repaid to the Company or discharged from such trust, as
provided in Section 1003) have been delivered to the Trustee
for cancellation; or
(b) all such Notes not theretofore delivered to the
Trustee for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their
Stated Maturity within one year, or
(iii) are to be called for redemption within
one year under 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,
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and the Company, in the case of (i), (ii) or (iii) above, has
irrevocably deposited or caused to be deposited with the
Trustee as trust funds in trust for such purpose an amount
sufficient to pay and discharge the entire indebtedness on
such Notes not theretofore delivered to the Trustee for
cancellation, for principal (and premium, if any) and interest
to the date of such deposit (in the case of Notes that have
become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums
payable hereunder by the Company; and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with. (Such Opinion of
Counsel may, as to all matters of fact, rely on, among other things,
such Officers' Certificate).
Notwithstanding the satisfaction and discharge of this
Indenture, the obligations of the Company to the Trustee under Section 608 and,
if money shall have been deposited with the Trustee pursuant to subclause (b) of
clause (1) of this Section, the obligations of the Trustee under Section 402 and
the last paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section
1003, all money deposited with the Trustee pursuant to Section 401 shall be held
in trust and applied by it, in accordance with the provisions of the Notes and
this Indenture, to the payment, either directly or through any Paying Agent
(including the Company acting as its own Paying Agent) as the Trustee may
determine, to the Persons entitled thereto, of the principal (and premium, if
any) and interest for whose payment such money has been deposited with the
Trustee; but such money need not be segregated from other funds except to the
extent required by law.
ARTICLE FIVE
REMEDIES
SECTION 501. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or
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50
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body):
(a) default in the payment of any installment of interest on
the Notes when it becomes due and payable and 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 Stated 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) failure by the Company to perform or comply with the
provisions of Article Eight of this Indenture;
(d) default in the performance, or breach, of any covenant or
warranty of the Company under this 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 at Stated Maturity of the Outstanding Notes;
(e) (A) there shall have occurred one or more defaults by the
Company or any Restricted Subsidiary in the payment of the principal of
(or premium, if any, on) Debt aggregating $15.0 million or more, when
the same becomes due and payable at the stated maturity thereof, and
such default or defaults shall have continued after any applicable
grace period and shall not have been cured or waived or (B) Debt of the
Company or any Restricted Subsidiary aggregating $15.0 million or more
shall have been accelerated in accordance with its terms or otherwise
declared due and payable, or required to be prepaid or repurchased
(other than by regularly scheduled required prepayment), prior to the
stated maturity thereof;
(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
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51
now or hereafter constituted, or any other applicable federal, state,
or foreign bankruptcy, insolvency, or other similar law or (ii) a
decree or order adjudging the Company or any Significant Restricted
Subsidiary of the Company a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company, or any
Significant Restricted Subsidiary of the Company under U.S. bankruptcy
laws, as now or hereafter constituted, or any other applicable federal,
state, or foreign bankruptcy, insolvency, or similar law, or appointing
a custodian, receiver, liquidator, assignee, trustee, sequestrator or
other similar official of the Company or any Significant Restricted
Subsidiary of the Company or of any substantial part of the property or
assets of the Company or any Significant Restricted Subsidiary of the
Company or ordering the winding up or liquidation of the affairs of the
Company or any Significant Restricted Subsidiary of the Company, and
the continuance of any such decree or order for relief or any such
other decree or order unstayed and in effect for a period of 60
consecutive days; or
(h) (i) the commencement by the Company or any Significant
Restricted Subsidiary of the Company of a voluntary case or proceeding
under U.S. bankruptcy laws, as now or hereafter constituted, or any
other applicable federal, state, or foreign bankruptcy, insolvency or
other similar law or of any other case or proceeding to be adjudicated
a bankrupt or insolvent, or (ii) the consent by the Company or any
Significant Restricted Subsidiary of the Company to the entry of a
decree or order for relief in respect of the Company or any Significant
Restricted Subsidiary of the Company in an involuntary case or
proceeding under U.S. bankruptcy laws, as now or hereafter constituted,
or any other applicable federal, state or foreign bankruptcy,
insolvency, or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against the Company or any
Significant Restricted Subsidiary of the Company, or (iii) the filing
by the Company or any Significant Restricted Subsidiary of the Company
of a petition or answer or consent seeking reorganization or relief
under U.S. bankruptcy laws, as now or hereafter constituted, or any
other applicable federal, state, or foreign bankruptcy, insolvency or
other similar law, or (iv) the consent by the Company or any
Significant Restricted Subsidiary of the Company to the filing of such
petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or similar
official of the Company or any Significant Restricted Subsidiary of the
Company or of any substantial part of the property or assets of the
Company or any Significant Restricted Subsidiary of the Company, or the
making by the Company or any Significant Restricted Subsidiary of the
Company of an assignment for the benefit of creditors, or (v) the
admission by the Company or any Significant Restricted 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.
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52
SECTION 502. Acceleration of Maturity; Rescission and
Annulment.
If an Event of Default (other than an Event of Default
specified in Section 501(g) or 501(h)) occurs and is continuing, then and in
every such case the Trustee or the Holders of not less than 25% in principal
amount at Stated Maturity of the Outstanding Notes may declare due and payable
immediately an amount equal to (i) the Accreted Value of the Notes as of the
date on which the Notes first become due and payable plus any accrued and unpaid
cash interest not otherwise included in the Accreted Value to such date, if such
date occurs prior to [________], 2002, or (ii) 100% of the principal amount at
Stated Maturity of the Notes as of the date on which the Notes first become due
and payable plus accrued and unpaid interest, if any, to such date, if such date
occurs on or after [________], 2002, by a notice in writing to the Company (and
to the Trustee if given by Holders), and upon any such declaration such
principal amount and any accrued and unpaid interest on all such Notes shall
become immediately due and payable. If an Event of Default specified in Section
501(g) or 501(h) occurs and is continuing, then the principal amount at of all
the Notes shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holder in an amount
equal to (i) the Accreted Value of the Notes as of the date on which the Notes
first become due and payable, if such date occurs prior to [________], 2002, or
(ii) 100% of the principal amount at Stated Maturity of the Notes as of the date
on which the Notes first become due and payable plus accrued and unpaid
interest, if any, to such date, if such date occurs on or after [________],
2002.
At any time after a declaration of acceleration has been made
and before a judgment or decree for payment of the money due has been obtained
by the Trustee as hereinafter provided in this Article, the Holders of a
majority in principal amount at Stated Maturity of the Notes Outstanding, by
written notice to the Company and the Trustee, may rescind and annul such
declaration and its consequences if
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay,
(A) all overdue interest on all Outstanding Notes,
(B) all unpaid principal of (and premium, if any, on)
any Outstanding Notes that has become due otherwise than by
such declaration of acceleration, and interest on such unpaid
principal at the rate borne by the Notes,
(C) to the extent that payment of such interest is
lawful, interest on overdue interest at the rate borne by the
Notes, and
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53
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel; and
(2) all Events of Default, other than the non-payment of
amounts of principal of (or premium, if any, on) or interest on Notes
that have become due solely by such declaration of acceleration, have
been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
SECTION 503. Collection of Debt and Suits for Enforcement
by Trustee.
The Company covenants that if an Event of Default specified in
Section 501(a) or (b) occurs, the Company will, upon demand of the Trustee, pay
to the Trustee for the benefit of the Holders of such Notes, the whole amount
then due and payable on such Notes for principal (and premium, if any) and
interest, and interest on any overdue principal (and premium, if any) and, to
the extent that payment of such interest shall be legally enforceable, upon any
overdue installment of interest, at the rate borne by the Notes, and, in
addition thereto, such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon the Notes and
collect the moneys adjudged or decreed to be payable in the manner provided by
law out of the property of the Company or any other obligor upon the Notes,
wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid of
the exercise of any power granted herein, or to enforce any other proper remedy.
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54
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other similar judicial proceeding relative to the Company or any other obligor
upon the Notes or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Notes shall
then be due and payable as therein expressed or by declaration or otherwise and
irrespective of whether the Trustee shall have made any demand on the Company
for the payment of overdue principal, premium, if any, or interest) shall be
entitled and empowered, by intervention in such proceeding or otherwise,
(i) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in
respect of the Notes and to file such other papers or documents as may
be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and
of the Holders allowed in such judicial proceeding, and
(ii) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 608.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Notes or the rights of any Holder thereof, or to authorize the Trustee to vote
in respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession
of Notes.
All rights of action and claims under this Indenture or the
Notes may be prosecuted and enforced by the Trustee without the possession of
any of the Notes or the production thereof in any proceeding relating thereto,
and any such proceeding instituted by the Trustee shall be brought in its own
name and as trustee of an express trust, and any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
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55
ratable benefit of the Holders of the Notes in respect of which such judgment
has been recovered.
SECTION 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal
(or premium, if any) or interest, upon presentation of the Notes and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 608;
SECOND: To the payment of the amounts then due and unpaid for
principal of (and premium, if any) and interest on the Notes in respect
of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Notes for principal (and premium, if
any) and interest, respectively; and
THIRD: The balance, if any, to the Company.
SECTION 507. Limitation on Suits.
No Holder of any Notes shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount at
Stated Maturity of the Outstanding Notes shall have made written
request to the Trustee to institute proceedings in respect of such
Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
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(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority or more in principal amount at Stated Maturity of the
Outstanding Notes;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive
Principal, Premium and Interest.
Notwithstanding any other provision in this Indenture, the
Holder of any Note shall have the right, which is absolute and unconditional, to
receive payment, as provided herein (including, if applicable, Article Thirteen)
and in such Note of the principal of (and premium, if any) and (subject to
Section 307) interest on such Note on the respective Stated Maturities expressed
in such Note (or, in the case of redemption, on the Redemption Date) and to
institute suit for the enforcement of any such payment, and such rights shall
not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Trustee and the Holders shall
be restored severally and respectively to their former positions hereunder and
thereafter all rights and remedies of the Trustee and the Holders shall continue
as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Notes in the last paragraph
of Section 306, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
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SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any
Note to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default or an acquiescence therein. Every right and remedy given by this Article
or by law to the Trustee or to the Holders may be exercised from time to time,
and as often as may be deemed expedient, by the Trustee or by the Holders, as
the case may be.
SECTION 512. Control by Holders.
The Holders of not less than a majority in principal amount at
Stated Maturity of the Outstanding Notes shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee, provided
that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture or any Note,
(2) the Trustee may take any other action deemed proper by the
Trustee that is not inconsistent with such direction, and
(3) the Trustee need not take any action that might involve it
in personal liability or be unjustly prejudicial to the Holders not
consenting.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount at
Stated Maturity of the Outstanding Notes may on behalf of the Holders of all the
Notes waive (including by way of consents obtained with a purchase of, or a
tender or exchange offer for, Notes) any past default hereunder and its
consequences, except a default
(1) in respect of the payment of the principal of (or premium,
if any) or interest on any Note, or
(2) in respect of a covenant or provision hereof that under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Note affected.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this
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Indenture; but no such waiver shall extend to any subsequent or other default or
Event of Default or impair any right consequent thereon.
SECTION 514. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, that may affect the
covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
SECTION 515. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any
Note by such Holder's acceptance thereof shall be deemed to have agreed, that
any court may in its discretion require in any suit for the enforcement of any
right or remedy under this Indenture or the Notes, or in any suit against the
Trustee for any action taken, suffered or omitted by it as Trustee, the filing
by any party litigant in such suit of an undertaking to pay the costs of such
suit, and that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in such suit,
having due regard to the merits and good faith of the claims or defenses made by
such party litigant; but the provisions of this Section 515 shall not apply to
any suit instituted by the Trustee, to any suit instituted by any Holder, or
group of Holders, holding in the aggregate more than 10% in principal amount of
the Outstanding Notes or to any suit instituted by any Holder for the
enforcement of the payment of the principal of, premium, if any, or interest on
any Note on or after the respective Stated Maturity expressed in such Note.
ARTICLE SIX
THE TRUSTEE
SECTION 601. Notice of Defaults.
Within 90 days after the occurrence of any Default hereunder,
the Trustee shall transmit in the manner and to the extent provided in TIA
Section 313(c), notice of such Default hereunder known to the Trustee, unless
such Default shall have been cured or waived; provided, however, that, except in
the case of a Default in the payment of the principal of (or premium, if any) or
interest on any Note, the Trustee shall be protected in
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withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of directors and/or Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interest of the Holders; and provided further that in the case of any Default of
the character specified in Section 501(d) no such notice to Holders shall be
given until at least 60 days after the occurrence thereof.
SECTION 602. Trustee's Duties Following Event of Default.
In case an Event of Default shall occur (that has not been
cured), the Trustee shall be required to exercise such of the rights and powers
vested in it by this 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.
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of TIA Sections 315(a) through
315(d):
(1) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document reasonably believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(2) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(3) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate;
(4) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(5) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee
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reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred by it in compliance with such
request or direction;
(6) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit;
(7) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
(other than an agent or attorney who is an employee of the Trustee)
appointed with due care by it hereunder; and
(8) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture; provided that no provision of this Indenture
shall be construed to relieve the Trustee from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct.
The Trustee shall not be required to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
SECTION 604. Trustee Not Responsible for Recitals or
Issuance of Notes.
The recitals contained herein and in the Notes, except for the
Trustees certificates of authentication, shall be taken as the statements of the
Company, and the Trustee assumes no responsibility for their correctness. The
Trustee makes no representations as to the validity or sufficiency of this
Indenture or of the Notes, except that the Trustee represents that it is duly
authorized to execute and deliver this Indenture, authenticate the Notes and
perform its obligations hereunder and that the statements made by it in a
Statement of Eligibility and Qualification on Form T-1 supplied to the Company
are true and accurate, subject to the qualifications set forth therein. The
Trustee shall not be accountable for the use or application by the Company of
Notes or the proceeds thereof.
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SECTION 605. Extension of Credit to Company.
The Trustee from time to time may extend credit to the Company
in the ordinary course of business.
SECTION 606. May Hold Notes.
The Trustee, any Paying Agent, any Note Registrar or any other
agent of the Company or of the Trustee, in its individual or any other capacity,
may become the owner or pledgee of Notes and, subject to TIA Sections 310(b) and
311, may otherwise deal with the Company with the same rights it would have if
it were not Trustee, Paying Agent, Note Registrar or such other agent.
SECTION 607. Money Held in Trust.
Money held by the Trustee in trust hereunder shall, until used
or applied as herein provided, be held in trust for the purposes for which it
was received, but need not be segregated from other funds except to the extent
required by law. The Trustee shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed with the Company.
SECTION 608. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may arise from or be attributable to its negligence or bad faith;
and
(3) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or
duties hereunder.
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The Trustee shall notify the Company promptly of any claim
asserted against the Trustee for which it may seek indemnity. The obligations of
the Company under this Section to compensate the Trustee, to pay or reimburse
the Trustee for expenses, disbursements and advances and to indemnify and hold
harmless the Trustee shall constitute additional indebtedness hereunder and
shall survive the satisfaction and discharge of this Indenture. As security for
the performance of such obligations of the Company, the Trustee shall have a
claim prior to the Notes upon all property and funds held or collected by the
Trustee as such, except funds held in trust for the payment of principal of (and
premium, if any) or interest on particular Notes.
When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 501(g) or (h), the
expenses (including the reasonable charges and expenses of its counsel) of and
the compensation for such services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination
of this Indenture.
SECTION 609. Corporate Trustee Required; Eligibility.
There shall be at all times a Trustee hereunder that shall be
eligible to act as Trustee under TIA Section 310(a)(1) and 310(a)(5) and shall
have a combined capital and surplus of at least $50,000,000. If such corporation
publishes reports of condition at least annually, pursuant to law or to the
requirements of Federal, State, territorial or District of Columbia supervising
or examining authority, then for the purposes of this Section, the combined
capital and surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of condition so
published. If at any time the Trustee shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately in the manner
and with the effect hereinafter specified in this Article.
SECTION 610. Resignation and Removal; Appointment of
Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee in
accordance with the applicable requirements of Section 611.
(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If the instrument of acceptance by a successor
Trustee required by Section 611 shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment of
a successor Trustee.
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(c) The Trustee may be removed at any time by Act of the
Holders of not less than a majority in principal amount at Stated Maturity of
the Outstanding Notes, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of
TIA Section 310(b) after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Note for at least six
months, or
(2) the Trustee shall cease to be eligible under Section 609
and shall fail to resign after written request therefor by the Company
or by any Holder who has been a bona fide Holder of a Note for at least
six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by a Board Resolution, may remove the
Trustee, or (ii) subject to TIA Section 315(e), any Holder who has been a bona
fide Holder of a Note for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount at Stated
Maturity of the Outstanding Notes delivered to the Company and the retiring
Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance
of such appointment, become the successor Trustee and supersede the successor
Trustee appointed by the Company. If no successor Trustee shall have been so
appointed by the Company or the Holders and accepted appointment in the manner
hereinafter provided, any Holder who has been a bona fide Holder of a Note for
at least six months may, on behalf of himself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee to the
Holders of Notes in the
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manner provided for in Section 106. Each notice shall include the name of the
successor Trustee and the address of its Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on request of the
Company or the successor Trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and money
held by such retiring Trustee hereunder. Upon reasonable request of any such
successor Trustee, the Company shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor Trustee all such
rights, powers and trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 612. Merger, Conversion, Consolidation or Succession
to Business.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all of the
corporate trust business of the Trustee, shall be the successor of the Trustee
hereunder, provided such corporation shall be otherwise qualified and eligible
under this Article, without the execution or filing of any paper or any further
act on the part of any of the parties hereto. In case any Notes shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Notes so authenticated with the same effect
as if such successor Trustee had itself authenticated such Notes. In case at
that time any of the Notes shall not have been authenticated, any successor
Trustee may authenticate such Notes either in the name of any predecessor
hereunder or in the name of the successor Trustee. In all such cases such
certificates shall have the full force and effect that this Indenture provides
for the certificate of authentication of the Trustee shall have; provided,
however, that the right to adopt the certificate of authentication of any
predecessor Trustee or to authenticate Notes in the name of any predecessor
Trustee shall apply only to its successor or successors by merger, conversion or
consolidation.
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SECTION 613. Conflicting Interests.
The Trustee shall be subject to and comply with the provisions
of Section 310(b) of the TIA.
SECTION 614. Preferential Collection of Claims Against
Issuers.
The Trustee shall comply with Section 311(a) of the TIA,
excluding any creditor relationship listed in Section 311(b) of the TIA. If the
present or any future Trustee shall resign or be removed, it shall be subject to
Section 311(a) of the TIA to the extent provided therein.
ARTICLE SEVEN
HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Disclosure of Names and Addresses of Holders.
Every Holder of Notes, by receiving and holding the same,
agrees with the Company and the Trustee that none of the Company or the Trustee
or any agent of either of them shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the Holders
in accordance with TIA Section 312, regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under TIA Section
312(b).
SECTION 702. Reports by Trustee.
Within 60 days after May 15 of each year commencing with the
first May 15 after the first issuance of Notes, the Trustee shall transmit to
the Holders, in the manner and to the extent provided in TIA Section 313(c), a
brief report dated as of such May 15 if required by TIA Section 313(a).
SECTION 703. Reports by Company.
The Company shall:
(1) whether or not the Company is subject to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended, or any successor
provision thereto, 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), 15(d)
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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;
(2) whether or not the Company is subject to Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended, or any successor
provision thereto, within 15 days of each Required Filing Date, 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 Securities Exchange Act of
1934, as amended, or any successor provisions thereto if the Company was subject
thereto;
(3) file with the Trustee and the Commission, in accordance
with rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by the
Company with the conditions and covenants of this Indenture as may be required
from time to time by such rules and regulations; and
(4) transmit by mail to all Holders, in the manner and to the
extent provided in TIA Section 313(c), within 15 days after the filing thereof
with the Commission, such summaries of any information, documents and reports
required to be filed by the Company pursuant to paragraphs (1), (2) and (3) of
this Section as may be required by rules and regulations prescribed from time to
time by the Commission.
If the Company is not permitted under the Exchange Act to file
with the Commission such reports and other information referred to in Section
703(1), the Company shall promptly upon written request supply copies of such
documents (without exhibits) to prospective purchasers of the Notes or their
representatives.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, etc., Only on Certain
Terms.
The Company shall 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 shall not permit any of its Restricted Subsidiaries to enter into any
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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 this Indenture;
(b) immediately before and after giving effect to
such transaction or series of transactions on a pro forma basis
(including, without limitation, any Debt incurred or anticipated to be
incurred in connection with or in respect of such transaction or series
of transactions), no Default or Event of Default shall have occurred
and be continuing or would result therefrom;
(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"; and
(d) the Company or such Person shall have delivered
to the Trustee an Officers' Certificate and an Opinion of Counsel, each
stating that such consolidation, merger, conveyance, transfer or lease
and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture, comply with this Article and
that all conditions precedent herein provided for relating to such
transaction have been complied with.
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), (b) and (d)
of the preceding paragraphs.
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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 this Indenture and the Notes with the same effect as if such Surviving
Entity had been named as the Company herein; and when a Surviving Person duly
assumes all of the obligations and covenants of the Company pursuant to this
Indenture and the Notes, except in the case of a lease, the predecessor Person
shall be relieved of all such obligations.
SECTION 802. Successor Substituted.
Upon any consolidation of the Company with or merger of the
Company with or into any other corporation or any conveyance, transfer or lease
of the properties and assets of the Company substantially as an entirety to any
Person in accordance with Section 801, the successor Person formed by such
consolidation or into which the Company is merged or to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein,
and in the event of any such conveyance or transfer, the Company (which term
shall for this purpose mean the Person named as the "Company" in the first
paragraph of this Indenture or any successor Person that shall theretofore
become such in the manner described in Section 801), except in the case of a
lease, shall be discharged of all obligations and covenants under this Indenture
and the Notes and may be dissolved and liquidated.
SECTION 803. Notes to Be Secured in Certain Events.
If, upon any such consolidation of the Company with or merger
of the Company into any other corporation, or upon any conveyance, lease or
transfer of the property of the Company substantially as an entirety to any
other Person, any property or assets of the Company would thereupon become
subject to any Lien, then unless such Lien could be created pursuant to Section
1011 without equally and ratably securing the Notes, the Company, prior to or
simultaneously with such consolidation, merger, conveyance, lease or transfer,
will as to such property or assets, secure the Notes Outstanding (together with,
if the Company shall so determine, any other Debt of the Company now existing or
hereinafter created that is not subordinate in right of payment to the Notes)
equally and ratably with (or prior to) the Debt that upon such consolidation,
merger, conveyance, lease or transfer is to become secured as to such property
or assets by such Lien, or will cause such Notes to be so secured.
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ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of
Holders.
Without notice to or the consent of any Holders, the Company,
when authorized by a Board Resolution, and the Trustee, at any time and from
time to time, may amend, waive or supplement this Indenture and the Notes and
(if necessary) enter into one or more indentures supplemental hereto, in form
reasonably satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of
the Company contained herein or in the Notes, or
(2) to add to the covenants of the Company for the benefit of
the Holders or to surrender any right or power herein conferred upon
the Company, or
(3) to add any additional Events of Default, or
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of
Section 611, or
(5) to cure any ambiguity, to correct or supplement any
provision herein that may be inconsistent with any other provision
herein or in the Notes, or to add any other provisions with respect to
matters or questions arising under this Indenture or the Notes;
provided that such action shall not adversely affect the interests of
the Holders in any material respect, or
(6) to secure the Notes pursuant to the requirements of
Section 803 or 1013 or otherwise, or
(7) to provide for uncertificated Notes in addition to or in
place of certificated Notes, or
(8) to change or eliminate any of the provisions herein or in
the Notes; provided that any such change or elimination shall 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, or
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(9) to comply with the requirements of the Commission in order
to effect or maintain the qualification of this Indenture under the
Trust Indenture Act.
SECTION 902. Supplemental Indentures with Consent of Holders.
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 at Stated Maturity of the Outstanding Notes, by Act
of said Holders delivered to the Company and the Trustee, the Company, when
authorized by a Board Resolution, and the Trustee may amend, waive or supplement
this Indenture and the Notes and (if necessary) enter into an indenture or
indentures supplemental hereto for the purpose of adding any provisions to or
changing in any manner or eliminating any of the provisions of this Indenture or
of modifying in any manner the rights of the Holders under this Indenture;
provided, however, that no such supplemental indenture shall, without the
consent (including consents obtained with a purchase of, or a tender or exchange
offer for, Notes) of the Holder of each Outstanding Note affected thereby:
(1) change the Stated Maturity of the principal of or any
installment of interest on any Note, or reduce the principal amount
thereof (or premium, if any) or the rate of interest thereon or reduce
the amount of the principal of the Notes that would be due and payable
upon a declaration of acceleration of the Maturity thereof pursuant to
Section 502 or the amount thereof provable in bankruptcy pursuant to
Section 504 or change the coin or currency in which any Note or any
premium or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment after the Stated
Maturity thereof (or, in the case of redemption, on or after the
Redemption Date), or
(2) reduce the percentage in principal amount at Stated
Maturity of the Outstanding Notes, the consent of whose Holders is
required for any such supplemental indenture, or the consent of whose
Holders is required for any waiver of compliance with certain
provisions of this Indenture or certain defaults hereunder and their
consequences provided for in this Indenture, or
(3) modify the obligations of the Company to make offers to
purchase Notes in accordance with Sections 1009 and 1016, or
(4) subordinate in right of payment, or otherwise subordinate,
the Notes to any other Debt, or
(5) modify any of the provisions of this Section or Sections
513 and 1018, except to increase any such percentage or to provide that
certain other provisions of
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this Indenture cannot be modified or waived without the consent of the
Holder of each Outstanding Note affected hereby.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and shall be fully protected in relying upon, an Opinion of Counsel
stating that the execution of such supplemental indenture is authorized or
permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture that affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Notes theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to the Article
shall conform to the requirements of the Trust Indenture Act as then in effect
if this Indenture shall then be required to be qualified under the TIA.
SECTION 906. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
replacement Notes so modified as to conform, in the opinion of the Trustee and
the Company, to any such supplemental indenture may be prepared and executed by
the Company and authenticated and delivered by the Trustee in exchange for
Outstanding Notes.
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SECTION 907. Notice of Supplemental Indentures.
Reasonably promptly after the execution by the Company and the
Trustee of any supplemental indenture pursuant to the provisions of Section 902,
the Company shall give notice thereof to the Holders of each Outstanding Note
affected, in the manner provided for in Section 106, setting forth in general
terms the substance of such supplemental indenture. Any failure of the Company
to mail such notice, or any defect therein, shall not, however, in any way
impair or affect the validity of any supplemental indenture or effectiveness of
any such amendment, supplement or waiver.
SECTION 908. Effect of Consents.
Until an amendment, supplement or waiver becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of that Note or portion of that Note that evidences the same
debt as the consenting Holder's Note, even if notation of the consent is not
made on any Note. After an amendment, supplement or waiver becomes effective, it
shall bind every Holder of Notes.
ARTICLE TEN
COVENANTS
SECTION 1001. Payment of Principal, Premium, if any, and
Interest.
The Company covenants and agrees for the benefit of the
Holders that it will duly and punctually pay the principal of (and premium, if
any) and interest on the Notes in accordance with the terms of the Notes and
this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in The City of New York, an office
or agency where Notes may be presented or surrendered for payment, where Notes
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Notes and this Indenture
may be served. The Trustee's New York Corporate Trust Office at [________] shall
be such office or agency of the Company, unless the Company shall designate and
maintain some other office or agency for one or more of such purposes. The
Company will give prompt written notice to the Trustee of any change in the
location of any such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served
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73
at the Corporate Trust Office of the Trustee, and the Company hereby appoints
the Trustee as its agent to receive all such presentations, surrenders, notices
and demands.
The Company may also from time to time designate one or more
other offices or agencies (in or outside of The City of New York) where the
Notes may be presented or surrendered for any or all such purposes and may from
time to time rescind any such designation; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York for such
purposes. The Company will give prompt written notice to the Trustee of any such
designation or rescission and any change in the location of any such other
office or agency.
SECTION 1003. Money for Note Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent,
it will, on or before each due date of the principal of (or premium, if any) or
interest on any of the Notes, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal of (or premium,
if any) or interest so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided and will promptly notify the
Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for
the Notes, it will, on or before each due date of the principal of (or premium,
if any) or interest on any Notes, deposit with a Paying Agent a sum sufficient
to pay the principal (and premium, if any) or interest so becoming due, such sum
to be held in trust for the benefit of the Persons entitled to such principal,
premium or interest, and (unless such Paying Agent is the Trustee) the Company
will promptly notify the Trustee of such action or any failure so to act.
The Company will cause each Paying Agent (other than the
Company or the Trustee) to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to the provisions
of this Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the principal
of (and premium, if any) or interest on Notes in trust for the benefit
of the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or
any other obligor upon the Notes) in the making of any payment of
principal (and premium, if any) or interest; and
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(3) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such sums.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of (or
premium, if any) or interest on any Note and remaining unclaimed for two years
after such principal, premium or interest has become due and payable shall be
paid to the Company on Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Note shall thereafter, as
an unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease.
SECTION 1004. Corporate Existence.
Subject to Article Eight, the Company will do or cause to be
done all things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises of the
Company and each Restricted Subsidiary of the Company; provided, however, that
the Company shall not be required to preserve any such right or franchise if the
Board of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its Restricted
Subsidiaries as a whole and that the loss thereof would not materially adversely
affect the Company's ability to perform its obligations under this Indenture and
the Notes; provided further, however, that the foregoing shall not prohibit a
liquidation, dissolution, merger, consolidation, sale, transfer, conveyance or
other disposition of a Restricted Subsidiary of the Company or any of its assets
or Capital Stock in compliance with the other terms of this Indenture.
SECTION 1005. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (a) all material taxes,
assessments and governmental charges levied or imposed upon the Company or any
of its Restricted Subsidiaries or upon the income, profits or property of the
Company or any of its Restricted Subsidiaries and
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75
(b) all material lawful claims for labor, materials and supplies that, if
unpaid, might by law become a lien upon the property of the Company or any of
its Restricted Subsidiaries (other than any Permitted Lien or other Lien
permitted by this Indenture); provided, however,hat the Company shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
SECTION 1006. Maintenance of Properties.
The Company will cause all material properties owned by the
Company or any of its Restricted Subsidiaries or used or held for use in the
conduct of its business or the business of any of its Restricted Subsidiaries to
be maintained and kept in good condition, repair and working order (reasonable
wear and tear excepted) and supplied with all reasonably necessary equipment and
will cause to be made all reasonably necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company
reasonably may be necessary so that the business carried on in connection
therewith may be conducted at all times in the ordinary course; provided,
however, that nothing in this Section shall prevent the Company from
discontinuing the maintenance of any of such properties if such discontinuance
is, in the judgment of the Company, desirable in the conduct of its business or
the business of any of its Restricted Subsidiaries or if such discontinuance or
disposal is not materially adverse to the ability of the Company to satisfy its
obligations hereunder.
SECTION 1007. Insurance.
The Company will at all times keep all of its and its
Restricted Subsidiaries' properties that are of an insurable nature insured with
insurers, believed by the Company to be responsible, against loss or damage to
the extent that property of similar character is usually so insured by
corporations similarly situated and owning like properties (which may include
self-insurance, if reasonable and in comparable form to that maintained by
companies similarly situated).
SECTION 1008. Statement by Officers as to Default.
(a) The Company will deliver to the Trustee, within 120 days
after the end of each fiscal year, a brief certificate from the principal
executive officer, principal financial officer or principal accounting officer
as to his or her knowledge of the Company's compliance with all conditions and
covenants under this Indenture. For purposes of this Section 1008(a), such
compliance shall be determined without regard to any period of grace or
requirement of notice under this Indenture.
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(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of Debt of
the Company or any Subsidiary gives any notice or takes any other action with
respect to a claimed default (other than with respect to Debt in the principal
amount of less than $15,000,000), the Company shall deliver to the Trustee by
registered or certified mail or by telegram, telex or facsimile transmission an
Officers' Certificate specifying such event, notice or other action within five
Business Days of its occurrence.
SECTION 1009. Purchase of Notes upon Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder
shall have the right to require that the Company repurchase such Holder's Notes
(the "Change of Control Offer") in whole or in part in integral multiples of
$1,000, at a purchase price (the "Purchase Price") in cash in an amount equal to
(i) 101% of the Accreted Value of such Notes as of the date of purchase, if such
date of purchase occurs prior to [_______], 2002 or (ii) 101% of the principal
amount at Stated Maturity of such Notes as of the date of purchase, if such date
of purchase occurs on or after [_______], 2002, plus accrued and unpaid
interest, if any, to such date of purchase, in accordance with the procedures
set forth in paragraphs (b) and (c) of this Section.
(b) Within 30 days following any Change of Control, the
Company shall give to each Holder of the Notes in the manner provided in Section
106 a notice stating:
(1) that a Change of Control has occurred and a Change of
Control Offer is being made as described in this Section 1009, and
that, although Holders are not required to tender their Notes, all
Notes that are tendered in accordance with paragraph (c) of this
Section 1009 shall be accepted for payment;
(2) the circumstances and relevant facts regarding such Change
of Control (including but not limited to information with respect to
pro forma historical income, cash flow and capitalization after giving
effect to such Change of Control);
(3) the Purchase Price and the date of purchase, which shall
be no earlier than 30 days nor later than 60 days from the date such
notice is mailed (the "Change of Control Payment Date");
(4) the instructions and any other information necessary to
enable Holders to tender their Notes and have such Notes repurchased in
accordance with paragraph (d) of this Section; and
(5) that, unless the Company defaults in the payment of the
Purchase Price for the Notes payable pursuant to such Change of Control
Offer, any Notes accepted
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for payment pursuant to such Change of Control Offer shall cease to
accrete or accrue interest after the Change of Control Payment Date.
(c) Holders electing to have Notes purchased will be required
to surrender such Notes to the Company at the address specified in the notice at
least five Business Days prior to the Change of Control Payment Date. Holders
will be entitled to withdraw their election if the Company receives, not later
than three Business Days prior to the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount at Stated Maturity of the Notes delivered for
purchase by the Holder as to which his election is to be withdrawn and a
statement that such Holder is withdrawing his election to have such Notes
purchased. Holders whose Notes are purchased only in part will be issued new
Notes equal in principal amount at Stated Maturity to the unpurchased portion of
the Notes surrendered.
In the event that a Change of Control occurs and the Company
is required to purchase Notes as described above, the Company will comply with
the applicable tender offer rules, including the requirements of Section 14(e)
and Rule 14e-1 under the Exchange Act and any other securities laws and
regulations to the extent such laws and regulations are applicable, and will be
deemed not to be in violation of any of its covenants under this Indenture to
the extent such compliance is in conflict with such covenants.
On and after a Change of Control Payment Date, the Notes or
portions thereof accepted for payment shall cease to accrete or accrue interest
unless the Company defaults in the payment of the purchase price therefor.
(d) Notwithstanding paragraphs (a) and (b), the Company shall
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 this Section 1009
applicable to a Change of Control Offer made by the Company and, in accordance
with paragraph (c) of this Section 1009, purchases all Notes validly tendered
under the Change of Control Offer and not withdrawn.
SECTION 1010. Limitation on Debt.
The Company shall not, and shall 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.
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SECTION 1011. Limitation on Liens.
The Company shall not, and shall 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 Restricted 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 shall 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.
SECTION 1012. Limitation on Restricted Payments.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, make any Restricted Payment
unless, at the time of 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
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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 this 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 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 Section 1009 or (y)
in the case of an Asset Sale, has applied the Net
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Cash Proceeds from such Asset Sale in accordance with Section 1016; (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 shall be
deemed to be Restricted Payments for the purposes of clause (iii) of the second
preceding paragraph.
For purposes of this Section 1012, 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 Board Resolution.
SECTION 1013. Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries.
The Company shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, 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:
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(a) any encumbrance or restriction pursuant to an agreement in
effect at the Issue Date (including, but not limited to, the Senior
Notes Indenture) 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;
(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
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(h) any encumbrance or restriction contained in contracts for
sales of assets permitted by Section 1016 with respect to the assets to
be sold pursuant to such contract.
Nothing contained in this Section 1013 shall prevent the
Company or any of its Restricted Subsidiaries from (1) creating, incurring,
assuming or suffering to exist any Liens otherwise permitted in Section 1011 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 this Indenture.
SECTION 1014. Limitation on Issuances of Certain Guarantees
by, and Debt Securities of, Restricted Subsidiaries.
The Company shall 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 Subsidiary
Guarantee of the 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 shall be limited to the maximum amount,
as shall, 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 shall 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.
SECTION 1015. Limitation on Issuances and Sales of Capital
Stock in Restricted Subsidiaries.
The Company (a) shall not permit any of its Restricted
Subsidiaries to issue any Capital Stock (other than to the Company or a
Restricted Subsidiary of the Company)
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unless the Company acquires at the same time not less than its Proportionate
Interest in such issuance of Capital Stock and (b) shall 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 Section 1015 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 this Indenture, (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 Section 1016, 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 Section 1012 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 Section 1016.
SECTION 1016. Limitation on Asset Sales.
The Company shall not, and shall 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
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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 Section 1016,
"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 shall take
longer than such 360 day period to complete, the Company 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 and the Senior 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 (an "Asset Sale Trigger Date"), 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 (i) 100% of the Accreted Value thereof on of any
Asset Sale Offer Purchase Date occurring prior to [________], 2002 or (ii) 100%
of the principal amount thereof at Stated Maturity on any Asset Sale Offer
Purchase Date occurring on or after [________], 2002, plus accrued and unpaid
interest, if any, to such
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Asset Sale Offer Purchase Date (as defined below), in accordance with the
procedures set forth below. Any Asset Sale Offer shall 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 (including, but not limited to, the
Senior Notes). 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 shall 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 Section 1012 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 shall 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.
Notice of an Asset Sale Offer shall be prepared and mailed by
the Company with a copy to the Trustee not later than the 20th business day
after the related Asset Sale Offer Trigger Date to each Holder of Notes at such
Holder's registered address, stating:
(1) that an Asset Sale Offer Trigger Date has occurred and
that the Company is offering to purchase the maximum principal amount
of Notes that may be purchased out of the Excess Proceeds to the extent
to be applied to an offer to purchase Notes (as provided in the
immediately preceding paragraph), at an offer price in cash in an
amount equal to 100% of the principal amount thereof, plus ac- crued
and unpaid interest, if any, to the date of the purchase (the "Asset
Sale Offer Purchase Date"), which shall be a Business Day, specified in
such notice, that is not earlier than 30 days or later than 60 days
from the date such notice is mailed;
(2) the amount of accrued and unpaid interest, if any, as of
the Asset Sale Offer Purchase Date;
(3) that any Note not tendered will continue to accrue
interest in accordance with the terms thereof;
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(4) that, unless the Company defaults in the payment of the
purchase price for the Notes payable pursuant to the Asset Sale Offer,
any Notes accepted for payment pursuant to the Asset Sale Offer shall
cease to accrue interest after the Asset Sale Offer Purchase Date;
(5) that Holders electing to have Notes purchased pursuant
to an Asset Sale Offer will be required to surrender their Notes to the
Paying Agent at the address specified in the notice prior to 5:00 p.m.,
New York City time, on the third Business Day prior to the Asset Sale
Offer Purchase Date and must complete any form letter of transmittal
proposed by the Company (which letter must be completed correctly by
such Holder) and which is reasonably acceptable to the Trustee and the
Paying Agent;
(6) that Holders of Notes will be entitled to withdraw their
election if the Paying Agent receives, not later than 5:00 p.m., New
York City time, on the third Business Day prior to the Asset Sale Offer
Purchase Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of Notes the
Holder delivered for purchase, the Note certificate number (if any) and
a statement that such Holder is withdrawing its election to have such
Notes purchased;
(7) that Holders whose Notes are purchased only in part will
be issued Notes equal in principal amount to the unpurchased portion of
the Notes surrendered; and
(8) the instructions that Holders must follow in order to
tender their Notes.
On the Asset Sale Offer Purchase Date, the Company will (i)
accept for payment the maximum principal amount of Notes or portions thereof
tendered pursuant to the Asset Sale Offer that can be purchased out of Excess
Proceeds from such Asset Sale that are to be applied to an Asset Sale Offer (to
the extent provided in the second preceding paragraph), (ii) deposit with the
Paying Agent an amount in cash equal to the aggregate purchase price of all
Notes or portions thereof accepted for payment and any accrued and unpaid
interest on such Notes as of the Asset Sale Offer Purchase Date, and (iii)
deliver or cause to be delivered to the Trustee all Notes tendered pursuant to
the Asset Sale Offer. If less than all Notes tendered pursuant to the Asset Sale
Offer are accepted for payment by the Company for any reason consistent with
this Indenture, selection of the Notes to be purchased by the Company shall be
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 so
listed, on a pro rata basis or by lot; provided, however, that Notes accepted
for payment in part shall only be purchased in integral multiples of $1,000. The
Paying Agent shall as promptly as practicable after the Asset Sale Offer
Purchase Date mail to each Holder of Notes or portions thereof accepted for
payment an amount in cash equal to the purchase price for such Notes plus any
accrued and unpaid interest thereon, and the Trustee shall promptly
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authenticate and mail to such Holder of Notes accepted for payment in part a new
Note equal in principal amount to any unpurchased portion of the Notes, and any
Note not accepted for payment in whole or in part shall be promptly returned to
the Holder of such Note.
On and after an Asset Sale Offer Purchase Date, interest will
cease to accrue on the Notes or portions thereof accepted for payment, unless
the Company defaults in the payment of the purchase price therefor. The Company
will announce the results of the Asset Sale Offer on or as soon as practicable
after the Asset Sale Offer Purchase Date.
The Company shall comply with the applicable tender offer
rules, including the requirements of Section 14(e) and Rule 14e-1 under the
Exchange Act, and all other applicable securities laws and regulations in
connection with any Asset Sale Offer and will be deemed not to be in violation
of any of its covenants under this Indenture to the extent such compliance is in
conflict with such covenants.
SECTION 1017. Transactions with Affiliates.
The Company shall not, and shall 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 Section 1017 shall 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 Section 1012, 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, Nippon Telegraph and Telephone Corporation 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.
SECTION 1018. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with
any term, provision or condition set forth in Section 803 or Sections 1007
through 1017, inclusive, if before or after the time for such compliance the
Holders of at least a majority in principal amount at Stated Maturity of the
Outstanding Notes, by Act of such Holders (including by way of consents obtained
with a purchase of, or a tender or exchange offer for, Notes), waive such
compliance in such instance with such term, provision or condition, but no such
waiver shall extend to or affect such term, provision or condition except to the
extent so expressly waived, and, until such waiver shall become effective, the
obligations of the Company and the duties of the Trustee in respect of any such
term, provision or condition shall remain in full force and effect.
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ARTICLE ELEVEN
REDEMPTION OF NOTES
SECTION 1101. Right of Redemption.
The Notes may be redeemed, at the election of the Company, as
a whole or from time to time in part, at any time after [_______], 2002 subject
to the conditions and at the Redemption Prices specified in the form of Note,
together with accrued and unpaid interest to the Redemption Date.
In addition, up to 35% of the originally issued principal
amount at Stated Maturity of Notes may be redeemed, at the election of the
Company, at any time on or prior to [_______], 2000 subject to the conditions
and at the Redemption Price specified in the form of Note, together with accrued
and unpaid interest to the Redemption Date, 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 Notes remains
Outstanding immediately after giving effect to such redemption.
SECTION 1102. Applicability of Article.
Redemption of Notes at the election of the Company or
otherwise, as permitted or required by any provision of this Indenture, shall be
made in accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Notes pursuant to
Section 1101 shall be evidenced by a Board Resolution. In case of any redemption
at the election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount at Stated Maturity of Notes to be redeemed and shall
deliver to the Trustee such documentation and records as shall enable the
Trustee to select the Notes to be redeemed pursuant to Section 1104.
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SECTION 1104. Selection by Trustee of Notes to Be Redeemed.
If less than all the Notes are to be redeemed, the particular
Notes to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Notes not previously called
for redemption 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 then listed on a national securities exchange, on a pro rata basis or by lot
or any other method as the Trustee shall deem fair and appropriate and which may
provide for the selection for redemption of portions of the principal of Notes;
provided, however, that no such partial redemption shall reduce the portion of
the principal amount at Stated Maturity of a Note not redeemed to less than
$1,000.
The Trustee shall promptly notify the Company in writing of
the Notes selected for redemption and, in the case of any Notes selected for
partial redemption, the principal amount at Stated Maturity thereof to be
redeemed.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to redemption of Notes shall relate,
in the case of any Note redeemed or to be redeemed only in part, to the portion
of the principal amount at Stated Maturity of such Note that has been or is to
be redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given in the manner provided for
in Section 106 not less than 30 nor more than 60 days prior to the Redemption
Date, to each Holder of Notes to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the Redemption Price and the amount of accrued interest to
the Redemption Date payable as provided in Section 1107, if any,
(3) if less than all Outstanding Notes are to be redeemed, the
identification (and, in the case of a partial redemption, the principal
amounts at Stated Maturity) of the particular Notes to be redeemed,
(4) in case any Note is to be redeemed in part only, the
notice that relates to such Note shall state that on and after the
Redemption Date, upon surrender of such Note, the holder will receive,
without charge, a new Note or Notes of authorized
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denominations for the principal amount at Stated Maturity thereof
remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and
accrued interest, if any, to the Redemption Date payable as provided in
Section 1107) will become due and payable upon each such Note, or the
portion thereof, to be redeemed, and that interest thereon will cease
to accrue on and after said date, and
(6) the place or places where such Notes are to be surrendered
for payment of the Redemption Price and accrued interest, if any.
Notice of redemption of Notes to be redeemed at the election
of the Company shall be given by the Company or, at the Company's request, by
the Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
Prior to 10:00 a.m., New York City time, on any Redemption
Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if
the Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 1003) an amount of money sufficient to pay the Redemption
Price of, and accrued interest on, all the Notes that are to be redeemed on that
date.
SECTION 1107. Notes Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Notes
so to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such Notes
shall cease to bear interest. Upon surrender of any such Note for redemption in
accordance with said notice, such Note shall be paid by the Company at the
Redemption Price, together with accrued interest, if any, to the Redemption
Date; provided, however, that installments of interest whose Stated Maturity is
on or prior to the Redemption Date shall be payable to the Holders of such
Notes, or one or more Predecessor Notes, registered as such at the close of
business on the relevant Record Dates according to their terms and the
provisions of Section 307.
On and after any Redemption Date, if money sufficient to pay
the Redemption Price of any accrued and unpaid interest on Notes called for
redemption shall have been made available in accordance with Section 1106, the
Notes called for redemption will cease to accrue interest and the only right of
the Holders of such Notes will be to receive payment
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of the Redemption Price of and, subject to the provision in the preceding
paragraph, any accrued and unpaid interest on such Notes to the Redemption Date.
If any Note called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Notes.
SECTION 1108. Notes Redeemed in Part.
Any Note that is to be redeemed only in part shall be
surrendered at the office or agency of the Company maintained for such purpose
pursuant to Section 1002 (with, if the Company or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Trustee duly executed by, the Holder thereof or such Holders
attorney duly authorized in writing), and the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Note without
service charge, a new Note or Notes, of any authorized denomination as requested
by such Holder, in aggregate principal amount at Stated Maturity equal to and in
exchange for the unredeemed portion of the principal of the Note so surrendered.
ARTICLE TWELVE
[Intentionally omitted]
ARTICLE THIRTEEN
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1301. Company's Option to Effect Defeasance or
Covenant Defeasance.
The Company may, at its option by Board Resolution, at any
time, with respect to the Notes, elect to have either Section 1302 or Section
1303 be applied to all Outstanding Notes and Subsidiary Guarantees upon
compliance with the conditions set forth below in this Article Thirteen. Either
Section 1302 or Section 1303 may be applied to the Notes to any Redemption Date
or the Stated Maturity of the Notes.
SECTION 1302. Defeasance and Discharge.
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1302, the Company shall be deemed to have been
discharged from its obligations
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with respect to all Outstanding Notes, and the Subsidiary Guarantors, if any,
shall be deemed to have been discharged from their respective obligations under
their respective Subsidiary Guarantees, on the date the conditions set forth in
Section 1304 are satisfied (hereinafter, "defeasance"). For this purpose, such
defeasance means that the Company shall be deemed to have paid and discharged
the entire indebtedness represented by the Outstanding Notes, which thereafter
shall be deemed to be "Outstanding" only for the purposes of Section 1305 and
the other Sections of this Indenture referred to in (A) and (B) below, and the
Company and the Subsidiary Guarantors, if any, shall be deemed to have satisfied
all its other obligations under such Notes and this Indenture insofar as such
Notes are concerned (and the Trustee, at the expense of the Company, shall
execute proper instruments acknowledging the same), except for the following,
which shall survive until otherwise terminated or discharged hereunder: (A) the
rights of Holders of Outstanding Notes to receive, solely from the trust fund
described in Section 1304 and as more fully set forth in such Section, payments
in respect of the principal of (and premium, if any, on) and interest on such
Notes when such payments are due, (B) the Company's obligations with respect to
such Notes under Sections 304, 305, 306, 1002 and 1003, (C) the rights, powers,
trusts, duties and immunities of the Trustee hereunder and (D) this Article
Thirteen; provided, however, that the Company's rights pursuant to Section 1101
shall not be terminated or discharged hereunder. Subject to compliance with this
Article Thirteen, the Company may exercise its option under this Section 1302
notwithstanding the prior exercise of its option under Section 1303 with respect
to the Notes.
SECTION 1303. Covenant Defeasance.
Upon the Company's exercise under Section 1301 of the option
applicable to this Section 1303, the Company and the Subsidiary Guarantors, if
any, shall be released from their respective obligations under any covenant
contained in Section 801(c) and Section 803 and in Sections 1007 through 1017
with respect to the Outstanding Notes on and after the date the conditions set
forth below are satisfied (hereinafter, "covenant defeasance"), and the Notes
shall thereafter be deemed not to be "Outstanding" for the purposes of any
direction, waiver, consent or declaration or Act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "Outstanding" for all other purposes hereunder. For this
purpose, such covenant defeasance means that, with respect to the Outstanding
Notes, the Company and the Subsidiary Guarantors, if any, may omit to comply
with and shall have no liability in respect of any term, condition or limitation
set forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference in
any such covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under Section 501, but, except as specified above, the remainder of this
Indenture and such Notes shall be unaffected thereby.
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SECTION 1304. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either
Section 1302 or Section 1303 to the Outstanding Notes:
(1) either (i) all Outstanding Notes (except lost, stolen or
destroyed Notes which have been replaced or paid) shall have been
delivered to the Trustee for cancellation or (ii) all such Notes not
theretofore delivered to the Trustee for cancellation shall have become
due and payable, shall 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 shall irrevocably have deposited or caused to be deposited with
the Trustee (or another trustee satisfying the requirements of Section
609 who shall agree to comply with the provisions of this Article
Thirteen applicable to it) as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for,
and dedicated solely to, the benefit of the Holders of such Notes, (A)
money in an amount, or (B) U.S. Government Obligations that through the
scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before
the due date of any payment, money in an amount, or (C) a combination
thereof, sufficient, in the opinion of a nationally recognized firm of
independent public accountants or a nationally recognized investment
banking firm expressed in a written certification thereof delivered to
the Trustee, to pay and discharge, and which shall be applied by the
Trustee (or other qualifying trustee) to pay and discharge, the
principal of (premium, if any) and interest on the Outstanding Notes at
the Stated Maturity (or Redmption Date, if applicable) of such
principal (and premium, if any) or installment of interest on the day
on which such payments are due and payable in accordance with the terms
of this Indenture and of such Notes; provided that the Trustee shall
have been irrevocably instructed to apply such money or the proceeds of
such U.S. Government Obligations to said payments with respect to the
Notes. Before such a deposit, the Company may give to the Trustee, in
accordance with Section 1103 hereof, a notice of its election to redeem
all of the Outstanding Notes at a future date in accordance with
Article Eleven hereof, which notice shall be irrevocable. Such
irrevocable redemption notice, if given, shall be given effect in
applying the foregoing.
(2) No Default or Event of Default with respect to the Notes
shall 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) or, insofar
as paragraphs (g) and (h) of Section 501 hereof are concerned, at any
time during the period ending on the 91st day after the date of such
<PAGE>
95
deposit (it being understood that this condition shall not be deemed
satisfied until the expiration of such period).
(3) Such defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a default under, this Indenture
(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
other material agreement or instrument to which the Company is a party
or by which it is bound.
(4) In the case of an election under Section 1302 and in the
event that such election shall occur more than twelve months prior to
the Stated Maturity of the Outstanding Notes, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (x) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling, or (y) since November __, 1997, there has
been a change in the applicable federal income tax law, in either
case to the effect that, and based thereon such opinion shall state to
the effect that, the Holders of the Outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a
result of such defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would
have been the case if such defeasance had not occurred.
(5) In the case of an election under Section 1303 and in the
event that such election shall occur more than twelve months prior to
the Stated Maturity of the Outstanding Notes, the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of the Outstanding Notes will not recognize income, gain or
loss for federal income tax purposes as a result of such covenant
defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such covenant defeasance had not occurred.
(6) The Company shall have delivered to the Trustee an Opinion
of Counsel to the effect that after the 91st day following the
Company's deposit, the trust funds shall not be subject to the effect
of any applicable bankruptcy, insolvency, reorganization, or similar
laws affecting creditors' rights generally.
(7) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the defeasance
under Section 1302 or the covenant defeasance under Section 1303 (as
the case may be) have been complied with. In rendering such Opinion of
Counsel, counsel may rely on such Officers' Certificate as to any
matters of fact (including as to compliance with the foregoing clauses
(1), (2) and (3)).
<PAGE>
96
SECTION 1305. Deposited Money and U.S. Government Obligations
to Be Held in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section
1003, all money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee (or other qualifying trustee, collectively for
purposes of this Section 1305, the "Trustee") pursuant to Section 1304 in
respect of the Outstanding Notes shall be held in trust and applied by the
Trustee, in accordance with the provisions of such Notes and this Indenture, to
the payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Notes of all sums due and to become due thereon in respect of the lesser of
Accreted Value or principal at Stated Maturity (and premium and interest, if
any), but such money need not be segregated from other funds except to the
extent required by law.
The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Governmental
Obligations deposited pursuant to Section 1304 or the principal and interest
received in respect thereof other than any such tax, fee or other charge that by
law is for the account of the Holders of the Outstanding Notes.
Anything in this Article Thirteen to the contrary
notwithstanding, the Trustee shall deliver or pay to the Company from time to
time upon Company Request any money or U.S. Government Obligations held by it as
provided in Section 1304 that, in the opinion of a nationally recognized firm of
independent public accountants or a nationally recognized investment banking
firm expressed in a written certification thereof delivered to the Trustee, are
in excess of the amount thereof that would then be required to be deposited to
effect an equivalent defeasance or covenant defeasance, as applicable, in
accordance with this Article.
SECTION 1306. Reinstatement.
If the Trustee or any Paying Agent is unable to apply any
money in accordance with Section 1305 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Notes shall be revived and reinstated as though no deposit had occurred pursuant
to Section 1302 or 1303, as the case may be, until such time as the Trustee or
Paying Agent is permitted to apply all such money in accordance with Section
1305; provided, however, that if the Company makes any payment of the Accreted
Value or principal at Stated Maturity (or premium, if any) or interest on any
Note following the reinstatement of its obligations, the Company shall be
subrogated to the rights of the Holders of such Notes to receive such payment
from the money held by the Trustee or Paying Agent.
<PAGE>
97
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed and attested, all as of the day and year first
above written.
TELIGENT, INC.
By ______________________________
Title:
Attest: ______________________________
Title:
FIRST UNION NATIONAL BANK
By ______________________________
Title:
Attest: ______________________________
Title:
<PAGE>
COLLATERAL PLEDGE AND SECURITY AGREEMENT
This COLLATERAL PLEDGE AND SECURITY AGREEMENT (this "Pledge
Agreement") is made and entered into as of November __, 1997 by TELIGENT, INC.,
a Delaware corporation (the "Pledgor"), having its principal office at 8065
Leesburg Pike, Vienna, VA 22183 in favor of FIRST UNION NATIONAL BANK, a banking
corporation duly organized and existing under the laws of the State of
____________, having an office at 901 E. Cary Street - 2nd Fl., Richmond, VA
23219, as trustee (the "Trustee") for the holders (the "Holders") of the Notes
(as defined herein) issued by the Pledgor under the Indenture referred to below.
W I T N E S S E T H
WHEREAS, the Pledgor and First Union National Bank, as
Trustee, have entered into that certain indenture dated as of the date hereof
(as amended, restated, supplemented or otherwise modified from time to time, the
"Indenture"), pursuant to which the Pledgor is issuing on the date hereof
$250,000,000 in aggregate principal amount of [___]% Senior Notes due 2007 (the
"Notes"); and
WHEREAS, the Pledgor has agreed, pursuant to the Indenture, to
(i) purchase or cause the purchase of Pledged Securities (as defined herein) in
an amount that will be sufficient upon receipt of scheduled interest and
principal payments in respect thereof to provide for the payment of the first
six scheduled interest payments due on the Notes and (ii) place such Pledged
Securities (as defined herein) (or cause them to be placed) in an account held
by the Trustee for the benefit of Holders of the Notes; and
WHEREAS, to secure the obligations of the Pledgor under the
Indenture and the Notes to pay in full each of the first six scheduled interest
payments on the Notes and to secure repayment of the principal, premium (if any)
and interest on the Notes in the event that the Notes become due and payable
prior to such time as the first six scheduled interest payments thereon shall
have been paid in full (the "Obligations"), the Pledgor has agreed to (i) pledge
to the Trustee for its benefit and the ratable benefit of the Holders of the
Notes, a security interest in the Pledged Securities (as defined herein) and
related collateral and (ii) execute and deliver this Pledge Agreement in order
to secure the payment and performance by the Pledgor of all the Obligations.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings given to such terms in the Indenture. Unless otherwise defined herein
or in the Indenture, terms used in Articles 8 or 9 of the Uniform Commercial
Code ("UCC") as in effect in the State of New York are used herein as therein
defined and terms used in Revised Article 8, as such term is defined in 31
C.F.R. ss.
<PAGE>
2
357.2, as modified by the amendments promulgated at 61 Fed. Reg. 43,628 (Aug.
23, 1996) ("Revised Article 8"), are used herein as therein defined.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and in order to induce the Holders of the Notes to purchase the
Notes, the Pledgor hereby agrees with the Trustee, for the benefit of the
Trustee and for the ratable benefit of the Holders of the Notes, as follows:
SECTION 1. Pledge and Grant of Security Interest. The Pledgor
hereby pledges to the Trustee for its benefit and for the ratable benefit of the
Holders of the Notes, and grants to the Trustee for its benefit and for the
ratable benefit of the Holders of the Notes, a continuing first priority
security interest in and to all of the Pledgor's right, title and interest in,
to and under the following (hereinafter collectively referred to as the
"Collateral"), whether characterized as investment property, general intangibles
or otherwise:
(a) the U.S. Government Obligations identified by CUSIP No. in
Annex 1 to Exhibit A to this Pledge Agreement (the "Pledged
Securities"),
(b) any and all applicable security entitlements to the
Pledged Securities,
(c) the First Union National Bank account in the name of
"First Union National Bank, as Trustee for the benefit of the holders
of the [___]% Senior Notes due 2007 of Teligent, Inc. Collateral Pledge
Account", Administrative Account No. [____] (the "Pledge Account")
established and maintained by the Trustee pursuant to this Pledge
Agreement,
(d) any and all related securities accounts in which security
entitlements to the Pledged Securities are carried,
(e) all notes, certificates of deposit, deposit accounts,
checks and other instruments from time to time hereafter delivered to
or otherwise possessed by the Trustee for or on behalf of the Pledgor
in substitution for or in addition to any or all the then existing
Collateral,
(f) all interest, dividends, cash, instruments and other
property or proceeds from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of
the then existing Collateral (including, without limitation, proceeds
that constitute property of the types described in clauses (a) through
(e) of this Section 1).
<PAGE>
3
SECTION 2. Security for Obligation. This Pledge Agreement
secures the prompt and complete payment and performance when due (whether at
stated maturity, by acceleration or otherwise) of all the Obligations.
SECTION 3. Delivery of Collateral; Pledge Account; Interest.
(a) The Pledged Securities shall be pledged and transferred to the Trustee and
the Trustee shall become the holder of a security entitlement to the Pledged
Securities, through action by the Federal Reserve Bank of New York ("FRBNY") or
another securities intermediary, as confirmed (in writing or electronically or
otherwise in accordance with standard industry practice) to the Trustee by FRBNY
or such other securities intermediary (i) indicating by book-entry that the
Pledged Securities or a security entitlement thereto has been credited to the
Trustee's account or (ii) acquiring the Pledged Securities or a security
entitlement thereto for the Trustee and accepting the same for credit to a
securities account of the Trustee.
(b) Prior to or concurrently with the execution and delivery
hereof and prior to the transfer to the Trustee of the Pledged Securities (or
acquisition by the Trustee of any security entitlement thereto), as provided in
subsection (a) of this Section 3, the Trustee shall establish the Pledge Account
on its books as an account segregated from all other custodial or collateral
accounts at its office at 901 E. Cary Street - 2nd fl., Richmond, VA 23219,
Attention: [Corporate Trustee Administration Department]. Upon transfer of the
Pledged Securities to the Trustee (or the Trustee's acquisition of a security
entitlement thereto), as confirmed to the Trustee by FRBNY or another securities
intermediary, the Trustee shall make appropriate book entries indicating that
the Pledged Securities and/or such security entitlement have been credited to
and are held in the Pledge Account. Subject to the other terms and conditions of
this Pledge Agreement, all funds or other property held by the Trustee pursuant
to this Pledge Agreement shall be held in the Pledge Account subject (except as
expressly provided in Sections 4(a), (b) and (c) hereof) to the exclusive
dominion and control of the Trustee and exclusively for the benefit of the
Trustee and for the ratable benefit of the Holders of the Notes and segregated
from all other funds or other property otherwise held by the Trustee.
(c) All Collateral shall be retained in the Pledge Account
pending disbursement pursuant to the terms hereof.
(d) Concurrently with the execution and delivery of this
Pledge Agreement the Trustee is delivering to the Pledgor, Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Salomon Brothers Inc, TD
Securities (USA) Inc. and Goldman, Sachs & Co., a duly executed certificate, in
the form of Exhibit A hereto, of an officer of the Trustee, confirming the
Trustee's establishment and maintenance of the Pledge Account and its receipt
and holding of the Pledged Securities or a security entitlement thereto and the
crediting of the Pledged Securities or such security entitlement to the Pledged
Account, all in accordance with this Pledge Agreement.
<PAGE>
4
(e) Concurrently with the execution and delivery of this
Pledge Agreement, the Pledgor is delivering to the Trustee acknowledgement
copies or stamped receipt copies of proper financing statements, duly filed on
or before the Closing Date (as defined in the Indenture) under the UCC of the
State of Virginia, covering the Collateral described in this Pledge Agreement.
SECTION 4. Disbursements. (a) At or prior to 10 a.m. on the
due date of any of the first six scheduled interest payments on the Notes, the
Pledgor may, pursuant to written instructions (an "Issuer Order"), direct the
Trustee to release from the Pledge Account and pay to the Holders of the Notes
proceeds sufficient to provide for payment in full of such interest then due on
the Notes. Upon receipt of an Issuer Order, the Trustee will take any action
necessary to provide for the payment of the interest on the Notes in accordance
with the payment provisions of the Indenture to the Holders of the Notes from
(and to the extent of) proceeds of the Pledged Securities in the Pledge Account.
Nothing in this Section 4 shall affect the Trustee's rights to apply the
Collateral to the payments of amounts due on the Notes upon acceleration
thereof.
(b) If the Pledgor makes any interest payment or portion of an
interest payment for which the Collateral is security from a source of funds
other than the Pledge Account ("Pledgor Funds"), the Pledgor may, after payment
in full of such interest payment, direct the Trustee pursuant to an Issuer Order
to release to the Pledgor or to another party at the direction of the Pledgor
(the "Pledgor's Designee") proceeds from the Pledge Account in an amount less
than or equal to the amount of Pledgor Funds applied to such interest payment.
Upon receipt by the Trustee of such Issuer Order and evidence reasonably
satisfactory to the Trustee that such interest payment has been paid in full,
the Trustee shall pay over to the Pledgor or the Pledgor's Designee, as the case
may be, the requested amount from proceeds in the Pledge Account.
(c) If at any time the principal of and interest on the
Pledged Securities exceeds 100% of the amount sufficient, in the written opinion
of a nationally recognized firm of independent public accountants or a
nationally recognized investment banking firm selected by the Pledgor and
delivered to the Trustee, to provide for payment in full of the remaining first
six scheduled interest payments due on the Notes, the Pledgor may direct the
Trustee to release any such excess amount to the Pledgor or to such other party
as the Pledgor may direct. Upon receipt of an Issuer Order (which shall include
a certificate from such nationally recognized firm of independent public
accountants or a nationally recognized investment banking firm stating the
amount by which the Pledged Securities exceeds the amount required to be held in
the Pledge Account) the Trustee shall pay over to the Pledgor or the Pledgor's
Designee, as the case may be, any such excess amount.
(d) Upon payment in full of the first six scheduled interest
payments on the Notes, the security interest in the Collateral evidenced by this
Pledge Agreement will
<PAGE>
5
automatically terminate and be of no further force and effect and the Collateral
shall promptly be paid over and transferred to the Pledgor. Furthermore, upon
the release of any Collateral from the Pledge Account in accordance with the
terms of this Pledge Agreement, whether upon release of Collateral to Holders as
payment of interest or otherwise, the security interest evidenced by this Pledge
Agreement in such released Collateral will automatically terminate and be of no
further force and effect, and the Trustee shall cooperate and shall deliver such
documents as may be necessary to discharge any security interest with respect to
the Collateral under the UCC.
(e) At least three Business Days prior to the due date of each
of the first six scheduled interest payments on the Notes, the Pledgor shall
give the Trustee notice (by Issuer Order) as to whether such interest payment
will be made pursuant to Section 4(a) or 4(b) and the respective amounts of
interest that will be paid from the Pledge Account and from Pledgor Funds. Any
Pledgor Funds to be used to make any interest payment shall be delivered to the
Trustee, in immediately available funds, at or prior to 10 a.m. on the day
immediately preceding such interest payment date. If no such notice is given or
such Pledgor Funds have not been so delivered, the Trustee will act pursuant to
Section 4(a) as if it had received an Issuer Order pursuant thereto for the
payment in full of the interest then due from the Pledge Account.
(f) The Trustee shall liquidate Collateral in the Pledge
Account in order to make any scheduled payment of interest unless there are
sufficient funds in the Pledge Account on such interest payment date.
(g) Except as otherwise provided in Sections 4(c) and (d)
hereof, nothing contained in Section 1, Section 3, this Section 4 or any other
provision of this Pledge Agreement shall (i) afford the Pledgor any right to
issue entitlement orders with respect to any security entitlement to the Pledged
Securities or any securities account in which any such security entitlement may
be carried, or otherwise afford the Pledgor control of any such security
entitlement or (ii) otherwise give rise to any rights of the Pledgor with
respect to the Pledged Securities, any security entitlement thereto or any
securities account in which any such security entitlement may be carried, other
than the Pledgor's rights under this Pledge Agreement as the beneficial owner of
collateral pledged to and subject to the exclusive dominion and control (except
as expressly provided in Sections 4(a), (b) and (c) hereof) of the Trustee in
its capacity as such (and not as a securities intermediary). The Pledgor
acknowledges, confirms and agrees that the Trustee holds a security entitlement
to the Pledged Securities solely as trustee for the Holders of the Notes and not
as a securities intermediary.
<PAGE>
6
SECTION 5. Representations and Warranties. The Pledgor hereby
represents and warrants that:
(a) The execution and delivery by the Pledgor of, and the
performance by the Pledgor of its obligations under, this Pledge
Agreement will not result in any violation of the provisions of the
charter or by-laws of the Pledgor or any of its Restricted Subsidiaries
or any applicable law, statute, rule, regulation, judgment, order, writ
or decree of any government, government instrumentality or court,
domestic or foreign, having jurisdiction over the Pledgor or any of its
Restricted Subsidiaries or any of its assets, properties or operations,
or result in the creation or imposition of any Lien on any assets of
the Pledgor, except for the security interests granted under this
Pledge Agreement, and no filing with, or authorization, approval,
consent, license, order, registration, qualification or decree of, any
court or governmental authority or agency, domestic or foreign
("Government Filings"), is necessary or required (i) for the
performance by the Pledgor of its obligations under this Pledge
Agreement, (ii) for the pledge by the Pledgor of the Collateral
pursuant to this Pledge Agreement or (iii) except for any such
consents, approvals, authorizations or orders required to be obtained
by the Trustee (or the Holders) for reasons other than the consummation
of this transaction, for the exercise by the Trustee of the rights
provided for in this Pledge Agreement or the remedies in respect of the
Collateral pursuant to this Pledge Agreement, except in each case for
such violations, creations, impositions and failures to make
Governmental Filings that would not have an adverse effect on the
performance by the Pledgor of its obligations hereunder or under the
Indenture or the Notes..
(b) The Pledgor is the beneficial owner of the Collateral,
free and clear of any Lien or claims of any person or entity (except
for the security interests granted under this Pledge Agreement). No
financing statement covering the Pledgor's interest in the Pledged
Securities is on file in any public office, other than the financing
statements filed pursuant to this Pledge Agreement.
(c) This Pledge Agreement has been duly authorized, validly
executed and delivered by the Pledgor and constitutes a valid and
binding agreement of the Pledgor, enforceable against the Pledgor in
accordance with its terms, except as (i) the enforceability hereof may
be limited by bankruptcy, insolvency, fraudulent conveyance,
preference, reorganization, moratorium or similar laws now or hereafter
in effect relating to or affecting creditors' rights or remedies
generally, (ii) the availability of equitable remedies may be limited
by equitable principles of general applicability, (iii) the exculpation
provisions and rights to indemnification hereunder may be limited by
U.S. federal and state securities laws and public policy considerations
and (iv) the waiver of rights and defenses contained in Section 11(b),
Section 14.11 and Section 14.15 hereof may be limited by applicable
law.
<PAGE>
7
(d) Upon transfer to the Trustee of the Pledged Securities and
the acquisition by the Trustee of a security entitlement thereto, in
accordance with Section 3, the pledge of and grant of a security
interest in the Collateral securing the payment of the Obligations for
the benefit of the Trustee and the Holders of the Notes will constitute
a first priority perfected security interest in such Collateral,
enforceable as such against all creditors of the Pledgor (and any
persons purporting to purchase any of the Collateral from the Pledgor).
(e) There are no legal or governmental proceedings pending or,
to the best of the Pledgor's knowledge, threatened to which the Pledgor
or any of its Restricted Subsidiaries is a party or to which any of the
properties of the Pledgor or any such Restricted Subsidiary is subject
that would materially adversely affect the power or ability of the
Pledgor to perform its obligations under this Pledge Agreement or to
consummate the transactions contemplated hereby.
(f) The pledge of the Collateral pursuant to this Pledge
Agreement is not prohibited by law or governmental regulation
(including, without limitation, Regulations G, T, U and X of the Board
of Governors of the Federal Reserve System) applicable to the Pledgor.
(g) No Event of Default (as defined herein) exists.
SECTION 6. Further Assurances. The Pledgor will, reasonably
promptly upon request by the Trustee, execute and deliver or cause to be
executed and delivered, or use its reasonable best efforts to procure, all
assignments, instruments and other documents, all in form and substance
reasonably satisfactory to the Trustee, deliver any instruments to the Trustee
and take any other actions that are reasonably necessary or, in the reasonable
opinion of the Trustee, desirable to perfect, continue the perfection of, or
protect the first priority of the Trustee's security interest in and to the
Collateral, to protect the Collateral against the rights, claims, or interests
of third persons (other than any such rights, claims or interests created by or
arising through the Trustee) or to effect the purposes of this Pledge Agreement.
The Pledgor also hereby authorizes the Trustee to file any financing or
continuation statements in the United States with respect to the Collateral
without the signature of the Pledgor (to the extent permitted by applicable
law). The Pledgor will promptly pay all reasonable costs, which costs will be
approved in advance by the Pledgor, incurred in connection with any of the
foregoing within 45 days of receipt of an invoice therefor. The Pledgor also
agrees, whether or not requested by the Trustee, to take all actions that are
reasonably necessary to perfect or continue the perfection of, or to protect the
first priority of, the Trustee's security interest in and to the Collateral,
including the filing of all reasonably necessary financing and continuation
statements, and to protect the Collateral against the rights, claims or
interests of third persons (other than any such rights, claims or interests
created by or arising through the Trustee).
<PAGE>
8
SECTION 7. Covenants. The Pledgor covenants and agrees with
the Trustee and the Holders of the Notes that from and after the date of this
Pledge Agreement until the earlier of the payment in full in cash of the
Obligations or the payment in full of the first scheduled interest payments on
the Notes:
(a) Other than as provided in Sections 4(c) and 4(d) hereof,
that (i) it will not (and will not purport to) sell or otherwise
dispose of, or grant any option or warrant with respect to, any of the
Collateral or (ii) it will not create or permit to exist any Lien upon
or with respect to any of the Collateral (except for the security
interests granted under this Pledge Agreement and any Lien created by
or arising through the Trustee) and at all times will be the sole
beneficial owner of the Collateral; and
(b) Other than as provided in Sections 4(c) and 4(d) hereof,
that it will not (i) enter into any agreement or understanding that
restricts or inhibits or purports to restrict or inhibit the Trustee's
rights or remedies hereunder, including, without limitation, the
Trustee's right to sell or otherwise dispose of the Collateral or (ii)
fail to pay or discharge any tax, assessment or levy of any nature with
respect to the Collateral not later than five days prior to the date of
any proposed sale under any judgment, writ or warrant of attachment
with respect to the Collateral.
SECTION 8. Power of Attorney. In addition to all of the powers
granted to the Trustee pursuant to the Indenture, the Pledgor hereby appoints
and constitutes the Trustee as the Pledgor's attorney-in-fact (with full power
of substitution) to exercise to the fullest extent permitted by law all of the
following powers upon and at any time after the occurrence and during the
continuance of an Event of Default: (a) collection of proceeds of any
Collateral; (b) conveyance of any item of Collateral to any purchaser thereof;
(c) giving of any notices or recording of any Liens under Section 6 hereof; and
(d) paying or discharging taxes or Liens levied or placed upon the Collateral,
the legality or validity thereof and the amounts necessary to discharge the same
to be determined by the Trustee in its sole reasonable discretion, and such
payments made by the Trustee to become part of the Obligations of the Pledgor to
the Trustee, due and payable upon demand. The Trustee's authority under this
Section 8 shall include, without limitation, the authority to endorse and
negotiate any checks or instruments representing proceeds of Collateral in the
name of the Pledgor, execute and give receipt for any certificate of ownership
or any document constituting Collateral, transfer title to any item of
Collateral, sign the Pledgor's name on all financing statements (to the extent
permitted by applicable law) or any other documents reasonably deemed necessary
or appropriate by the Trustee to preserve, protect or perfect the security
interest in the Collateral and to file the same, prepare, file and sign the
Pledgor's name on any notice of Lien, and to take any other reasonable actions
arising from or incident to the powers granted to the Trustee in this Pledge
Agreement. This power of attorney is coupled with an interest and is irrevocable
by the Pledgor.
<PAGE>
9
SECTION 9. No Assumption of Duties; Reasonable Care. The
rights and powers granted to the Trustee hereunder are being granted in order to
preserve and protect the security interest of the Trustee and the Holders of the
Notes in and to the Collateral granted hereby and shall not be interpreted to,
and shall not, impose any duties on the Trustee in connection therewith other
than those expressly provided herein or imposed under applicable law. Except as
provided by applicable law or by the Indenture, the Trustee shall be deemed to
have exercised reasonable care in the custody and preservation of the Collateral
in its possession if the Collateral is accorded treatment substantially equal to
that which the Trustee accords similar property held by the Trustee for similar
accounts, it being understood that the Trustee in its capacity as such shall not
have any responsibility for (a) ascertaining or taking action with respect to
calls, conversions, exchanges, maturities or other matters relative to any
Collateral, whether or not the Trustee has or is deemed to have knowledge of
such matters, (b) taking any necessary steps to preserve rights against any
parties with respect to any Collateral or (c) investing or reinvesting any of
the Collateral, provided, however, that nothing contained in this Pledge
Agreement shall relieve the Trustee of any responsibilities as a securities
intermediary under applicable law.
SECTION 10. Indemnity. The Pledgor shall indemnify, hold
harmless and defend the Trustee and its directors, officers, agents and
employees, from and against any and all claims, actions, obligations,
liabilities and expenses, including reasonable defense costs, reasonable
investigative fees and costs, and reasonable legal fees and damages arising from
the Trustee's performance as Trustee under this Pledge Agreement, except to the
extent that such claim, action, obligation, liability or expense is directly
attributable to the bad faith, negligence or wilful misconduct of such
indemnified person.
SECTION 11. Remedies upon Event of Default. If any Event of
Default under the Indenture or default hereunder (any such Event of Default or
default being referred to in this Pledge Agreement as an "Event of Default")
shall have occurred and be continuing:
(a) The Trustee and the Holders of the Notes shall have, in
addition to all other rights given by law or by this Pledge Agreement
or the Indenture, all of the rights and remedies with respect to the
Collateral of a secured party under the UCC in effect in the State of
New York at that time. In addition, with respect to any Collateral that
shall then be in or shall thereafter come into the possession or
custody of the Trustee, the Trustee may sell or cause the same to be
sold at any broker's board or at public or private sale, in one or more
sales or lots, at such price or prices as the Trustee reasonably may
deem best, for cash or on credit or for future delivery, without
assumption of any credit risk. The purchaser of any or all Collateral
so sold shall thereafter hold the same absolutely, free from any claim,
encumbrance or right of any kind whatsoever created by or through the
Pledgor. Unless any of the Collateral threatens, in the reasonable
judgment of the Trustee, to decline speedily in value or is or becomes
of a type sold on a recognized market, the Trustee will give
<PAGE>
10
the Pledgor reasonable notice of the time and place of any public sale
thereof, or of the time after which any private sale or other intended
disposition is to be made. Any sale of the Collateral conducted in
conformity with reasonable commercial practices of banks, insurance
companies, commercial finance companies, or other financial
institutions disposing of property similar to the Collateral shall be
deemed to be commercially reasonable. Any requirements of reasonable
notice shall be met if such notice is mailed to the Pledgor as provided
in Section 14.1 hereof at least ten (10) business days before the time
of the sale or disposition. The Trustee or any Holder of Notes may, in
its own name or in the name of a designee or nominee, buy any of the
Collateral at any public sale and, if permitted by applicable law, at
any private sale. All reasonable expenses (including court costs and
reasonable attorneys' fees, expenses and disbursements) of, or incident
to, the enforcement of any of the provisions hereof shall be
recoverable from the proceeds of the sale or other disposition of the
Collateral.
(b) The Pledgor further agrees to use its best efforts to do
or cause to be done all such other acts as may be reasonably necessary
to make such sale or sales of all or any portion of the Collateral
pursuant to this Section 11 valid and binding and in compliance with
any and all other applicable requirements of law. The Pledgor further
agrees that a breach of any of the covenants contained in this Section
11 will cause irreparable injury to the Trustee and the Holders of the
Notes, that the Trustee and the Holders of the Notes have no adequate
remedy at law in respect of such breach and, as a consequence, that
each and every covenant contained in this Section 11 shall be
specifically enforceable against the Pledgor, and the Pledgor hereby
waives and agrees not to assert any defenses against an action for
specific performance of such covenants except for a defense that no
Event of Default has occurred.
SECTION 12. Expenses. The Pledgor will upon demand pay to the
Trustee the amount of any and all reasonable expenses, including, without
limitation, the reasonable fees, expenses and disbursements of its counsel,
experts and agents retained by the Trustee, that the Trustee reasonably may
incur in connection with (a) the review, negotiation and administration of this
Pledge Agreement, (b) the custody or preservation of, or the sale of, collection
from, or other realization upon, any of the Collateral, (c) the exercise or
enforcement of any of the rights of the Trustee and the Holders of the Notes
hereunder or (d) the failure by the Pledgor to perform or observe any of the
provisions hereof.
SECTION 13. Security Interest Absolute. Except as otherwise
provided in Sections 4(c) and 4(d) hereof, all rights of the Trustee and the
Holders of the Notes and security interests hereunder, and all obligations of
the Pledgor hereunder, shall be absolute and unconditional irrespective of:
<PAGE>
11
(a) any lack of validity or enforceability of the Indenture or
any other agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Obligations, or any other
amendment or waiver of or any consent to any departure from the
Indenture;
(c) any exchange, surrender, release or non-perfection of any
Liens on any other collateral for all or any of the Obligations; or
(d) to the extent permitted by applicable law, any other
circumstance which might otherwise constitute a defense available to,
or a discharge of, the Pledgor in respect of the Obligations or of this
Pledge Agreement.
SECTION 14. Miscellaneous Provisions.
Section 14.1. Notices. Any notice or communication given
hereunder shall be sufficiently given if in writing and delivered in person or
mailed by first class mail, commercial courier service or telecopier
communication, addressed as follows:
if to the Pledgor:
Teligent, Inc.
8065 Leesburg Pike
Vienna, VA 22183
Fax: (703) 762-5235
Attention: Laurence E. Harris, Esq.
with a copy to:
Skadden, Arps, Slate, Meagher and Flom LLP
919 Third Avenue
New York, NY 10022
Fax: (212) 735-2000
Attention: Mark C. Smith, Esq.
if to the Trustee:
First Union National Bank
901 E. Cary Street - 2nd Fl.
Richmond, VA 23219
Fax: [(804) 788-9861]
<PAGE>
12
Attention: [Pat Welling]
Section 14.2. No Adverse Interpretation of Other Agreements.
This Pledge Agreement may not be used to interpret another pledge, security or
debt agreement of the Pledgor or any subsidiary thereof. No such pledge,
security or debt agreement (other than the Indenture) may be used to interpret
this Pledge Agreement.
Section 14.3. Severability. The provisions of this Pledge
Agreement are severable, and if any clause or provision shall be held invalid,
illegal or unenforceable in whole or in part in any jurisdiction, then such
invalidity or unenforceability shall affect in that jurisdiction only such
clause or provision, or part thereof, and shall not in any manner affect such
clause or provision in any other jurisdiction or any other clause or provision
of this Pledge Agreement in any jurisdiction.
Section 14.4. Headings. The headings in this Pledge Agreement
have been inserted for convenience of reference only, are not to be considered a
part hereof and shall in no way modify or restrict any of the terms or
provisions hereof.
Section 14.5. Counterpart Originals. This Pledge Agreement
may be signed in two or more counterparts, each of which shall be deemed an
original, but all of which shall together constitute one and the same agreement.
Section 14.6. Benefits of Pledge Agreement. Nothing in this
Pledge Agreement, express or implied, shall give to any person, other than the
parties hereto and their successors hereunder, and the Holders of the Notes, any
benefit or any legal or equitable right, remedy or claim under this Pledge
Agreement.
Section 14.7. Amendments, Waivers and Consents. Any amendment
or waiver of any provision of this Pledge Agreement and any consent to any
departure by the Pledgor from any provision of this Pledge Agreement shall be
effective only if made or duly given in compliance with all of the terms and
provisions of the Indenture, and neither the Trustee nor any Holder of Notes
shall be deemed, by any act, delay, indulgence, omission or otherwise, to have
waived any right or remedy hereunder or to have acquiesced in any Default or
Event of Default or in any breach of any of the terms and conditions hereof.
Failure of the Trustee or any Holder of Notes to exercise, or delay in
exercising, any right, power or privilege hereunder shall not preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Trustee or any Holder of Notes of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy that the Trustee or such Holder of Notes would otherwise have on any
future occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any rights or remedies
provided by law.
<PAGE>
13
Section 14.8. Interpretation of Agreement. To the extent a
term or provision of this Pledge Agreement conflicts with the Indenture, the
Indenture shall control with respect to the subject matter of such term or
provision. Acceptance of or acquiescence in a course of performance rendered
under this Pledge Agreement shall not be relevant to determine the meaning of
this Pledge Agreement even though the accepting or acquiescing party had
knowledge of the nature of the performance and opportunity for objection.
Section 14.9. Continuing Security Interest; Termination. (a)
This Pledge Agreement shall create a continuing security interest in and to the
Collateral and shall, unless otherwise provided in this Pledge Agreement, remain
in full force and effect until the earlier of the payment in full in cash of the
Obligations or the payment in full of the first scheduled interest payments on
the Notes. This Pledge Agreement shall be binding upon the Pledgor, its
successors, transferees and assigns, and shall inure, together with the rights
and remedies of the Trustee hereunder, to the benefit of the Trustee, the
Holders of the Notes and their respective successors, transferees and assigns.
(b) This Pledge Agreement (other than Pledgor's obligations
under Sections 10 and 12) shall terminate upon the payment in full in cash of
the Obligations. At such time, the Trustee shall, pursuant to an Issuer Order,
reassign and redeliver to the Pledgor all of the Collateral hereunder that has
not been sold, disposed of, retained or applied by the Trustee in accordance
with the terms of this Pledge Agreement and the Indenture, and take all actions
that are necessary to release the security interest created by this Pledge
Agreement in and to the Collateral, including the execution and delivery of all
termination statements necessary to terminate any financing or continuation
statements filed with respect to the Collateral. Such reassignment and
redelivery shall be without warranty by or recourse to the Trustee in its
capacity as such, except as to the absence of any Liens on the Collateral
created by or arising through the Trustee, and shall be at the reasonable
expense of the Pledgor.
Section 14.10. Survival of Representations and Covenants. All
representations, warranties and covenants of the Pledgor contained herein shall
survive the execution and delivery of this Pledge Agreement, and shall terminate
only upon the termination of this Pledge Agreement.
Section 14.11. Waivers. The Pledgor waives presentment and
demand for payment of any of the Obligations, protest and notice of dishonor or
default with respect to any of the Obligations, and all other notices to which
the Pledgor might otherwise be entitled, except as otherwise expressly provided
herein or in the Indenture.
<PAGE>
14
Section 14.12. Authority of the Trustee. (a) The Trustee shall
have and be entitled to exercise all powers hereunder that are specifically
granted to the Trustee by the terms hereof, together with such powers as are
reasonably incident thereto. The Trustee may perform any of its duties hereunder
or in connection with the Collateral by or through agents or employees and shall
be entitled to retain counsel and to act in reasonable reliance upon the written
advice of counsel, a copy of which written advice will be delivered to the
Pledgor, concerning all such matters. Except as otherwise expressly provided in
this Pledge Agreement or the Indenture, neither the Trustee nor any director,
officer, employee, attorney or agent of the Trustee shall be liable to the
Pledgor for any action taken or omitted to be taken by the Trustee, in its
capacity as Trustee, hereunder, except for its own bad faith, negligence or
willful misconduct, and the Trustee shall not be responsible for the validity,
effectiveness or sufficiency hereof or of any document or security furnished
pursuant hereto. The Trustee and its directors, officers, employees, attorneys
and agents shall be entitled to rely on any communication, instrument or
document reasonably believed by it or them to be genuine and correct and to have
been signed or sent by the proper person or persons.
(b) The Pledgor acknowledges that the rights and
responsibilities of the Trustee under this Pledge Agreement with respect to any
action taken by the Trustee or the exercise or non-exercise by the Trustee of
any option, right, request, judgment or other right or remedy provided for
herein or resulting or arising out of this Pledge Agreement shall, as between
the Trustee and the Holders of the Notes, be governed by the Indenture and by
such other agreements with respect thereto as may exist from time to time among
them, but, as between the Trustee and the Pledgor, the Trustee shall be
conclusively presumed to be acting as agent for the Holders of the Notes with
full and valid authority so to act or refrain from acting, and the Pledgor shall
not be obligated or entitled to make any inquiry respecting such authority.
Section 14.13. Final Expression. This Pledge Agreement,
together with the Indenture and any other agreement executed in connection
herewith, is intended by the parties as a final expression of this Pledge
Agreement and is intended as a complete and exclusive statement of the terms and
conditions thereof.
Section 14.14. Rights of Holders of the Notes. No Holder of
Notes shall have any independent rights hereunder other than those rights
granted to individual Holders of the Notes pursuant to Section 508 of the
Indenture; provided that nothing in this subsection shall limit any rights
granted to the Trustee under the Notes or the Indenture.
Section 14.15. GOVERNING LAW; SUBMISSION TO JURISDICTION;
WAIVER OF JURY TRIAL; WAIVER OF DAMAGES. (a) THIS PLEDGE AGREEMENT SHALL BE
GOVERNED BY AND INTERPRETED UNDER THE LAWS OF THE STATE OF NEW YORK, AND ANY
DISPUTE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP
<PAGE>
15
ESTABLISHED BETWEEN THE PLEDGOR, THE TRUSTEE AND THE HOLDERS OF THE NOTES IN
CONNECTION WITH THIS PLEDGE AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT,
EQUITY OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NEW YORK. NOTWITHSTANDING THE FOREGOING: THE MATTERS IDENTIFIED IN 31 C.F.R.
PART 357, 61 FED. REG. 43626 (AUG. 23, 1996) INCLUDING REVISED ARTICLE 8, SHALL
BE GOVERNED SOLELY BY THE LAWS SPECIFIED THEREIN.
(b) THE PLEDGOR HAS APPOINTED [___________] AS ITS AGENT FOR
SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS PLEDGE
AGREEMENT AND FOR ACTIONS BROUGHT UNDER U.S. FEDERAL OR STATE SECURITIES LAWS
BROUGHT IN ANY FEDERAL OR STATE COURT LOCATED IN THE CITY OF NEW YORK AND AGREES
TO SUBMIT TO THE JURISDICTION OF ANY SUCH COURT.
(c) THE TRUSTEE HAS APPOINTED [___________] AS ITS AGENT FOR
SERVICE OF PROCESS IN ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS PLEDGE
AGREEMENT AND FOR ACTIONS BROUGHT UNDER U.S. FEDERAL OR STATE SECURITIES LAWS
BROUGHT IN ANY FEDERAL OR STATE COURT LOCATED IN THE CITY OF NEW YORK AND AGREES
TO SUBMIT TO THE JURISDICTION OF ANY SUCH COURT.
(d) THE PLEDGOR AGREES THAT THE TRUSTEE SHALL, IN ITS CAPACITY
AS TRUSTEE OR IN THE NAME AND ON BEHALF OF ANY HOLDER OF NOTES, HAVE THE RIGHT,
TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE PLEDGOR OR THE
COLLATERAL IN A COURT IN ANY LOCATION REASONABLY SELECTED IN GOOD FAITH (AND
HAVING PERSONAL OR IN REM JURISDICTION OVER THE PLEDGOR OR THE COLLATERAL, AS
THE CASE MAY BE) TO ENABLE THE TRUSTEE TO REALIZE ON SUCH COLLATERAL, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF THE TRUSTEE. THE
PLEDGOR AGREES THAT IT WILL NOT ASSERT ANY COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS
IN ANY PROCEEDING BROUGHT BY THE TRUSTEE TO REALIZE ON SUCH PROPERTY OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE TRUSTEE, EXCEPT FOR SUCH
COUNTERCLAIMS, SETOFFS OR CROSSCLAIMS WHICH, IF NOT ASSERTED IN ANY SUCH
PROCEEDING, COULD NOT OTHERWISE BE BROUGHT OR ASSERTED. THE PLEDGOR WAIVES ANY
OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN THE CITY OF NEW YORK
ONCE THE TRUSTEE HAS COMMENCED A PROCEEDING DESCRIBED IN THIS PARAGRAPH
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS.
<PAGE>
16
(e) THE PLEDGOR AGREES THAT NEITHER ANY HOLDER OF NOTES NOR
(EXCEPT AS OTHERWISE PROVIDED IN THIS PLEDGE AGREEMENT OR THE INDENTURE) THE
TRUSTEE IN ITS CAPACITY AS TRUSTEE SHALL HAVE ANY LIABILITY TO THE PLEDGOR
(WHETHER ARISING IN TORT, CONTRACT OR OTHERWISE) FOR LOSSES SUFFERED BY THE
PLEDGOR IN CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO, THE
TRANSACTIONS CONTEMPLATED AND THE RELATIONSHIP ESTABLISHED BY THIS PLEDGE
AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH,
UNLESS IT IS DETERMINED BY A FINAL AND NONAPPEALABLE JUDGMENT OF A COURT THAT IS
BINDING ON THE TRUSTEE OR SUCH HOLDER OF NOTES, AS THE CASE MAY BE, THAT SUCH
LOSSES WERE THE RESULT OF ACTS OR OMISSIONS ON THE PART OF THE TRUSTEE OR SUCH
HOLDERS OF NOTES, AS THE CASE MAY BE, CONSTITUTING BAD FAITH, NEGLIGENCE OR
WILLFUL MISCONDUCT.
(f) TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PLEDGOR
WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF THE TRUSTEE OR ANY HOLDER
OF NOTES IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO ENFORCE ANY
JUDGMENT OR OTHER COURT ORDER PERTAINING TO THIS PLEDGE AGREEMENT OR ANY RELATED
AGREEMENT OR DOCUMENT ENTERED IN FAVOR OF THE TRUSTEE OR ANY HOLDER OF NOTES, OR
TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER OR PRELIMINARY
OR PERMANENT INJUNCTION, THIS PLEDGE AGREEMENT OR ANY RELATED AGREEMENT OR
DOCUMENT BETWEEN THE PLEDGOR ON THE ONE HAND AND THE TRUSTEE AND/OR THE HOLDERS
OF THE NOTES ON THE OTHER HAND.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Pledgor and the Trustee have each
caused this Pledge Agreement to be duly executed and delivered as of the date
first above written.
Pledgor:
TELIGENT, INC.
By:
---------------------------------
Name:
Title:
Trustee:
FIRST UNION NATIONAL BANK,
as Trustee
By:
---------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
FIRST UNION NATIONAL BANK
OFFICER'S CERTIFICATE
Pursuant to Section 3(d) of the Collateral Pledge and Security
Agreement (the "Pledge Agreement") dated as of November [__], 1997 between
Teligent, Inc. (the "Pledgor") and First Union National Bank as trustee (the
"Trustee") for the holders of the Pledgor's [___]% Senior Notes due 2007, the
undersigned officer of the Trustee, on behalf of the Trustee, makes the
following certifications to the Pledgor, Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Salomon Brothers Inc, TD Securities (USA)
Inc. and Goldman, Sachs & Co. Capitalized terms used and not defined in this
Officer's Certificate have the meanings set forth or referred to in the Pledge
Agreement.
1. Substantially contemporaneously with the execution and
delivery of this Officer's Certificate, the Trustee has established with
[___________], as securities intermediary ("[___]"), a securities account in the
name of "First Union National Bank, as Trustee for the benefit of the holders of
the [____]% Senior Notes due 2007 of Teligent, Inc., Collateral Pledge Account,"
with respect to which the Trustee is the entitlement holder and through which
the Trustee has acquired a security entitlement to the United States Treasury
securities identified in Annex 1 to this Officer's Certificate (the "Pledged
Securities") and has made appropriate book entries in its records establishing
that the Pledged Securities and the Trustee's securities entitlement thereto
have been credited to and are held in the First Union National Bank's
Administrative Account No. [_____] entitled "First Union National Bank, as
Trustee for the benefit of the holders of the [___]% Senior Notes due 2007 of
Teligent, Inc., Collateral Pledge Account" (the "Pledge Account").
2. The Trustee has established and maintained and will
maintain the Pledge Account and all securities entitlements and other positions
carried in the Pledge Account solely in its capacity as Trustee and has not
asserted and will not assert any claim to or interest in the Pledge Account or
any such securities entitlements or other positions except in such capacity.
3. The Trustee has acquired its security entitlement to the
Pledged Securities for value and without notice of any adverse claim thereto.
Without limiting the generality of the foregoing, the Pledged Securities are not
and the Trustee's security entitlement to the Pledged Securities is not, to the
Trustee's knowledge, subject to any Lien granted by or to or arising through or
in favor of any securities intermediary (including, without limitation, [Name of
securities' intermediary] or the Federal Reserve Bank of New York) through which
the Trustee derives its security entitlement to the Pledged Securities.
4. The Trustee has not caused or permitted the Pledged
Securities or its security entitlement thereto to become subject to any Lien
created by or arising through the Trustee.
<PAGE>
2
IN WITNESS WHEREOF, the undersigned officer has executed this
Officer's Certificate on behalf of First Union National Bank as Trustee this
______ day of November, 1997.
------------------------------
Name:
Title:
<PAGE>
ANNEX 1
[Insert CUSIP numbers of Pledged Securities]
<PAGE>
Technical Services Agreement
This AGREEMENT is entered into by and between NTT America, Inc. a New
York Corporation, ("NTT America"), and Teligent, L.L.C., a Delaware limited
liability company (the "Company"), as of October 22, 1997.
The Company has requested, and NTT America has agreed to provide,
technical assistance in respect of various aspects of the Company's current and
proposed communications business, on the terms and subject to the conditions set
forth below.
NOW, THEREFORE, NTT America and the Company hereby agree as follows:
1. Definitions. As used in this Agreement:
"Affiliate" shall mean any person or entity that, directly or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, such persons or entities. For the purposes of this
definition, "control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
person or entity, whether through the ownership of voting securities, by
contract or otherwise.
"Change of Control" shall have the meaning specified in Section 10.8.
"Chief Technical Advisor" shall have the meaning specified in Section
4.2.
"Commencement Date" shall have the meaning specified in Section 2.
"Company Confidential Information" shall have the meaning specified in
Section 6.2.
"Common Intellectual Property" shall have the meaning specified in
Section 6.3.
1
<PAGE>
"Company Subsidiaries" means (i) any direct or indirect wholly-owned
subsidiary of the Company and (ii) any corporation, limited liability company,
partnership or other business entity that is controlled by the Company.
"Initial Annual Fee" shall have the meaning specified in Section 5.1.
"Initial Phase" shall have the meaning specified in Section 3.2.
"Japan-Based Technical Personnel" shall have the meaning specified in
Section 4.1.
"LIBOR" shall have the meaning specified in Section 5.4.
"NTT Proprietary Information" shall have the meaning specified in
Section 6.1.
"RFP" shall have the meaning specified in Section 3.4.
"Specific Agreement" shall have the meaning specified in Section 3.3.
"Technical Meeting" shall have the meaning specified in Section 4.3.
"Technical Personnel" shall have the meaning specified in Section 4.1.
"Term" shall have the meaning specified in Section 2.
"U.S.-Based Technical Personnel" shall have the meaning specified in
Section 4.1.
"Work Plan" shall have the meaning specified in Section 3.1.
2. Term. The term of this Agreement shall commence on the later of
December 1, 1997 and the date of the closing under and the consummation of the
transactions provided pursuant to the Securities Purchase Agreement dated as of
September 30, 1997 between NTT America and the Company (such later date, the
"Commencement Date") and, except as set forth in Section 10.8 or elsewhere in
this Agreement, shall end on the fifth anniversary of the Commencement Date;
provided, however, that this Agreement shall be renewed automatically for
additional one (1)-year periods unless a party provides notice to the other
party of its intent not to renew the
2
<PAGE>
Agreement sixty (60) days prior to the anniversary of the Commencement Date on
which the Agreement is to be renewed pursuant to this Section 2. The term of
this Agreement as provided in this Section 2 is referred to as the "Term."
3. Scope of Services. During the Term and subject to performance by the
Company of its obligations hereunder, NTT America shall perform, or cause its
Affiliates to perform, the services set forth in each Work Plan (as defined in
Section 3.1 below) for the compensation provided for in Section 5 below.
3.1. Work Plan. The scope of the technical services to be rendered by
NTT America (and/or its Affiliates) to the Company during the Term shall be as
set forth on Schedule 1. All services to be rendered by NTT America hereunder
shall be documented in a plan of work, in reasonable detail and consistent with
Schedule 1 (each, a "Work Plan") prepared, discussed in good faith and agreed
upon by the parties. Each Work Plan shall, at a minimum, (i) include a
description of each of the tasks to be performed by NTT America, and a
description of any items to be delivered by NTT America, during such period,
with immediate and near-term tasks described in greater specificity than
longer-range tasks and goals, and (ii) establish a reasonable timetable for the
accomplishment of each of such tasks. Each Work Plan may be reviewed
periodically at the request of either party to adjust the specific tasks and/or
the timetable set forth therein in light of experience and developments in the
Company's business. Notwithstanding the foregoing, it is understood that each
Work Plan may be amended or otherwise modified by mutual written agreement of
the parties to make substantial changes in the services to be rendered,
including changes which may require an increase or a decrease in the
3
<PAGE>
number of Technical Personnel or the replacement of any of the Technical
Personnel (in addition to substitutions and home visits of Technical Personnel
as provided under Section 4 hereof), or which may substantially change the
content or the completion date of items to be delivered under a Work Plan, in
regular discussions held at six month intervals or otherwise by mutual written
agreement.
3.2. Initial Phase. Within sixty (60) days of the Commencement Date,
NTT America and the Company shall have prepared, discussed in good faith and
agreed upon the initial Work Plan for services to be rendered by NTT America
during the first two years following the Commencement Date (the "Initial
Phase"). The numbers of Technical Personnel contemplated to be utilized in
rendering services during the Initial Phase shall be as set forth on Schedule 2.
Unless the parties agree otherwise in writing, the number of Technical Personnel
specified in the initial Work Plan shall be, on average, as set forth on
Schedule 2.
3.3. Additional Services; Specific Agreements. (a) If the Company
desires to receive services or rights not contemplated by Schedule 1 (or, with
respect to periods after the Initial Phase, by a Work Plan for such period
agreed upon pursuant to Section 3.1), including but not limited to (i) rights to
use, in any jurisdiction in which NTT (or one of its Affiliates) shall have
perfected such rights, patents, utility models, design patents or copyrights (or
other similar property rights arising under Japanese or other laws) owned or
held under license by NTT America (or one of its Affiliates) (it being
understood that no such intellectual property rights have been or are
contemplated to be transferred under this Agreement, except as provided in this
Section 3.3), (ii) the
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<PAGE>
planning and execution of training programs, including the preparation of
technical training manuals and the conduct of training seminars or courses,
(iii) specific research and development projects to be undertaken by NTT America
(or one of its Affiliates) at the request of the Company and/or (iv) the
transfer of proprietary information or know-how outside the scope of services
contemplated by Schedule 1), then NTT America and the Company shall negotiate
the terms and conditions on which such additional services or rights will be
provided or granted and, if agreement is reached, NTT America (or one of its
Affiliates) shall enter into a separate written agreement or agreements, in an
appropriate and (if applicable) customary form, providing for the rendering of
such additional services and/or the granting of such rights (each such written
agreement a "Specific Agreement"), it being understood that each such Specific
Agreement providing for the license of rights shall contain appropriate
representations and warranties by NTT America (or an appropriate Affiliate
thereof) as to its ownership and right to license such rights (subject to such
limitations and/or qualifications as may be agreed to by the parties).
Notwithstanding the foregoing, (i) occasional specific requests for technical
assistance by the Company that will not require more than de minimis
expenditures of time and money by NTT or its Affiliates shall be provided
without additional payment or the entering into of a separate written agreement
or agreements and (ii) the Company shall be under no obligation to acquire any
such additional services and/or rights from NTT America or its Affiliates, and
NTT America and its Affiliates shall be under no obligation to provide or grant
the Company any such additional services and/or rights; provided, however, that
if and to the extent NTT America proposes and/or recommends to the Company, in
the course of rendering the services contemplated by Schedule 1, the
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use of certain patents, utility models, design patents and/or copyrighted
software or other works the rights to which are owned by or licensed to NTT
America or one of its Affiliates, or if the use thereof is necessary to carry
out the technological plans and strategies developed through a Work Plan, then,
subject to the parties' mutual agreement, NTT America or one of its Affiliates
will pursuant to a Specific Agreement license to the Company (on a non-exclusive
basis) such intellectual property rights, to the extent it may legally and
contractually do so, for a fee (or other compensation to be agreed upon) that is
mutually agreeable and that in no event is less favorable than the lowest fees
being charged by any of NTT America and its Affiliates to unaffiliated third
parties for such (or similar) rights (if NTT America and its Affiliates have
granted such rights to others in comparable circumstances), or (if none of NTT
America or any of its Affiliates have granted such rights to others in
comparable circumstances) that is reasonable in light of (i) NTT America's
intention to grant the most favorable rates to the Company, (ii) the fees being
charged by other licensors of rights to similar intellectual properties (if any)
to unaffiliated persons, (iii) the cost to NTT America or its Affiliates of
developing and maintaining such intellectual property rights, (iv) the benefits
to NTT America or its Affiliates (if any) of any experience or improvements
gained or developed by employing such intellectual properties hereunder, and (v)
other similar factors. For purposes of determining whether comparable
circumstances exist, upon the Company's reasonable request, NTT America shall
provide descriptive information concerning the terms and conditions of relevant
licenses granted by NTT America or its Affiliates, as appropriate, to others
(without being required to provide actual copies of such licenses) to the extent
NTT America or the relevant Affiliate is permitted to do so consistent with
applicable
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confidentiality undertakings. If NTT America or the relevant Affiliate is not
permitted by applicable confidentiality undertakings to provide such
information, upon the Company's reasonable request, NTT America shall, or shall
cause the appropriate Affiliate to, make a reasonable request of the counterpart
to the relevant license agreement (or a small number of relevant counterparts if
there is more than one) for permission to disclose to the Company for such
purposes such information (not including the name of the counterpart or other
identifying or highly sensitive non-economic information).
(b) If the parties mutually agree to the use of any patents, utility
models, design patents and/or copyrighted software or other works the rights to
which are owned by or licensed to NTT America or one of its Affiliates ("NTT
Proprietary Rights") as provided in Section 3.3(a), NTT America shall, to the
extent reasonably practicable, propose and/or recommend a range of alternatives
involving NTT Proprietary Rights and, to the extent any of the Technical
Personnel is, in the due exercise of his professional obligations, aware of such
rights, comparable rights of third parties or non-proprietary technology, in
each case presenting different price/performance characteristics and tradeoffs
(including the least expensive alternative) and the Company shall determine
which, if any, alternative to employ. It is contemplated that each Specific
Agreement covering NTT Proprietary Rights proposed or recommended by NTT America
hereunder will ordinarily contain a provision allowing the Company at its
discretion to terminate without penalty such Specific Agreement at any time that
a less expensive or better performing form of technology becomes available,
whether from NTT America or one of its Affiliates or from a third party. The
Company shall not be obligated to pay any
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additional royalties or to license any NTT Proprietary Rights in connection with
the creation of the Work Plan for the Initial Phase or any planning, design or
other advisory work pursuant thereto (excluding NTT costs incurred in the
implementation of any system, operational improvement or the like called for
under a Specific Agreement).
3.4. Company Requests for Proposals; etc. The Company shall include NTT
America and its Affiliates on its list of vendors to whom it sends requests for
proposal ("RFPs") for the provision of material products and/or technical
services to the Company if such products and/or services are ones that NTT
America or its Affiliates are reasonably capable of providing as described in
the RFP, and shall use all reasonable efforts to ensure that NTT America and its
Affiliates are, subject to rights of third parties in existence on the date of
such RFP or bid, offered a reasonable opportunity to bid for and/or compete to
provide such products and/or services under any such RFP. Notwithstanding the
foregoing, however, it is understood that (i) any such provision of products
and/or services shall be pursuant to a separate Specific Agreement containing
terms and conditions to be agreed upon through the RFP bid process or through
separate arm's-length negotiations and (ii) nothing herein shall restrict the
Company's right in its sole discretion to select another party to provide the
products and/or services requested in any RFP.
3.5. Recipients of Services. The services required to be rendered by
NTT America (or, at its option, by one or more of its Affiliates) hereunder
shall be rendered to the Company or to such of the Company Subsidiaries engaged
primarily in the
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telecommunications business as the Company may request from time to time in its
sole discretion.
4. Personnel Commitment; Supervision and Status.
4.1. General. NTT America shall make available to the Company two (2)
teams of engineers and other technical support personnel to provide the
technical services contemplated by Section 3.1 and Section 3.2 (collectively,
the "Technical Personnel"). One such team (the "U.S.-Based Technical Personnel")
shall be based at NTT America's offices, and shall also be available to attend
meetings or perform services at the Company's headquarters or at other locations
within the United States, in accordance with the Company's reasonable request.
The other team (the "Japan-Based Technical Personnel") will remain based in
Japan, and will both work in Japan on the various projects contemplated by a
Work Plan and travel when necessary to the United States. All such Technical
Personnel shall be employees of NTT America or one of its Affiliates.
4.2. Status and Supervision. The services to be rendered under this
Agreement may be performed directly by NTT America and/or, at NTT America's
option, may be performed by one or more Affiliates thereof. The Technical
Personnel shall remain employees of NTT America (or its Affiliates) for all
purposes, and NTT America (or such Affiliates) shall be solely responsible for,
and shall indemnify and hold
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the Company harmless from and against any claims for, the payment of any and all
salary, bonuses, living expenses, travel expenses and other compensation, and
the provision of all retirement, health care, insurance and other benefits, to
such Technical Personnel. NTT America (or such Affiliates) shall be solely
responsible for, and shall indemnify and hold the Company harmless from and
against any claims for, the payment of any taxes or governmental charges of any
kind, including, without limitation, withholding taxes, payroll taxes or
unemployment or workman's compensation insurance, with respect to any such
Technical Personnel. Notwithstanding the foregoing, the Technical Personnel
while serving as such may be characterized by the Company as "Senior Technical
Advisers" to the Company (or any reasonably equivalent business title) in
dealings with third parties, on business cards, etc. While performing services
under this Agreement, the Technical Personnel shall perform their duties under
the direction of NTT America's senior project manager (the "Chief Technical
Advisor"), who shall in turn coordinate with the Company's Chief Technical
Officer to assure that the activities of the Technical Personnel are consistent
with a Work Plan. The U.S.-Based Personnel shall, upon the request of NTT
America and Company's approval of such request (not to be unreasonably
withheld), and at the Company's expense, be provided with facilities at the
Company's offices adequate to perform their responsibilities effectively,
including office space, telephone and fax communications, and access to ordinary
office machines and appropriate computer systems. In such event, secretarial and
other reasonable ordinary and appropriate support services for the Technical
Personnel, including a minimum of one secretary dedicated to the secretarial
needs of all such Technical Personnel, shall be provided by the Company (at its
expense).
4.3. Responsibilities and Participation. The Company shall invite the
Chief Technical Advisor to attend all material meetings of key managerial or
technical personnel or both, whether in the form of a technical committee or
similar committee (if
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the Company shall create such a committee) or otherwise, at which material
matters relating to a Work Plan are to be discussed (a "Technical Meeting");
provided, however, that the Company may exclude the Chief Technical Advisor from
any such Technical Meeting if the Company reasonably determines that his
presence would be adverse to the Company's interests and the Company either (i)
provides the Chief Technical Advisor at the time a written statement of the
reasons for his exclusion or (ii) provides the Chief Technical Advisor at the
time an oral explanation of such reasons and, if requested by the Chief
Technical Advisor, also with a written statement thereof within five (5) days
following such meeting. Subject to the Company's nondisclosure agreements with
third parties (which the Company shall use its reasonable best efforts to ensure
do not, in the aggregate, materially impair NTT America's ability to perform a
Work Plan), all of the Technical Personnel shall be given sufficient access to
information regarding technical matters at the Company to permit the Technical
Personnel effectively to perform their duties under this Agreement.
4.4. Personnel Substitutions; Home Visits.
(a) In view of the long-term nature of this Agreement, NTT America
shall have the right, from time to time and at NTT America's expense, to
substitute particular engineers and other technical personnel included among the
Technical Personnel; provided, however, that NTT America shall (absent exigent
circumstances such as death or illness) effect any such substitution in a way
that will avoid any disruption to any ongoing project.
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(b) U.S.-Based Technical Personnel shall be entitled to leave in
accordance with NTT America's standard policies. In addition, it is understood
that U.S.-Based Technical Personnel may return from time to time to Japan for
periodic home leaves at NTT America's expense, business of NTT America or its
Affiliates or family emergencies consistent with the policies and practices of
NTT America.
(c) The Company shall have the right to have Technical Personnel
replaced in accordance with the terms and conditions set forth below.
(i) The Company shall have the right to request that any of the
Technical Personnel be replaced if the person involved (1) consistently fails to
perform his duties contemplated by this Agreement and Schedule 1, (2) becomes
unable to continue to perform such duties by reason of mental or physical
incapacity which continues for a period exceeding one (1) month, (3) commits a
material dishonest act, or engages in behavior that is disruptive to the Company
in any material respect, or (4) does not, in the reasonable judgment of Company,
demonstrate the skills or knowledge reasonably required of him or her pursuant
to the Work Plan.
(ii) If the Company wishes to replace any of the Technical
Personnel, it shall give NTT America written notice thereof specifying in
reasonable detail the facts and circumstances giving rise to the right to
request replacement of such person as specified in Section 4.4(c)(i). NTT
America shall promptly investigate the facts and circumstances so specified and
discuss them with the Company. NTT America's consent shall be required to
replace any of the Technical Personnel, but such consent shall not be
unreasonably withheld or delayed.
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(iii) If NTT America consents to any such replacement, it shall
promptly propose a replacement to the Company and shall dispatch such person to
the Company promptly following the date of NTT America's or its Affiliate's, as
appropriate, next regularly scheduled semiannual personnel reassignment and the
obtaining of any required U.S. immigration visas or work permits and any other
required governmental approvals. In the interim, NTT America or its Affiliates
shall cooperate reasonably to minimize any disruption to the Company's business
until a replacement has been dispatched to the Company.
5. Fees and Other Compensation.
5.1. Initial Phase. During the Initial Phase, the Company will pay NTT
America an annual fee of U.S.$4,000,000.00 , paid quarterly in arrears (the
"Initial Annual Fee"), in compensation for all technical services provided
hereunder pursuant to Section 3.2 and the initial Work Plan and the license
granted pursuant to Section 6.1. The first quarterly payment of the Initial
Annual Fee shall be made on the date three (3) months following the Commencement
Date and thereafter each quarterly payment shall be made on the next following
June 30, September 30, December 31 or March 31, as the case may be (or on the
next succeeding business day if such day be not a business day). Quarterly
payments shall be prorated for quarters during which this Agreement was in
effect for only part of the quarter (if any).
5.2. Future Services. The fees (and, if appropriate, reimbursement of
expenses) for technical services to be rendered by NTT America hereunder and the
grant of the license pursuant to Section 6.1 after the Initial Phase shall be
determined based upon the Work Plan prepared therefor (including without
limitation the number of
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Technical Personnel called for in such Work Plan) in accordance with Section 3.1
and Section 3.2. The Company and NTT America shall negotiate such fees and other
financial arrangements in good faith. The parties will set compensation for
one-year periods during the Term following the Initial Phase in discussions that
will be held immediately following the second, third, and fourth anniversaries
of the Commencement Date or subsequent anniversaries during the Term.
5.3. Other Services. Fees and/or other compensation for any additional
services to be provided or rights to be granted outside the scope of this
Agreement or under any Specific Agreement shall be determined by negotiation
between the parties and, in the case of any such Specific Agreement, as set
forth therein.
5.4. Method of Payment. Payments shall be made in U.S. dollars by wire
transfer of same day funds to such account as NTT America may from time to time
designate to the Company in writing, and shall be made after deduction or
withholding of any United States federal taxes if at any time any becomes
applicable to payment of such amounts, but without deduction for or withholding
of any other taxes, levies, duties or other charges imposed by any state or
local law, regulation or governmental authority. The Company shall have the
responsibility for payment to the appropriate authority of all federal taxes
that are deducted or withheld and for paying for its own account all other
amounts payable pursuant to the preceding sentence. The foregoing allocation of
the responsibility for taxes, levies, duties, or other charges shall apply to
all payments made to NTT America pursuant to this Agreement. The responsibility
for any of the foregoing applicable to payments to be made under any Specific
Agreements shall be separately negotiated and agreed as part of the relevant
Specific Agreement. The Company shall
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compensate NTT America for any delay in payment of any portion of the Initial
Annual Fee or any other fees subsequently agreed to by paying interest on the
delayed payment from the date which is thirty (30) days after the due date to
but not including the date of payment at an interest rate of LIBOR plus three
per cent (3%) per annum. For purposes of this Agreement, "LIBOR" shall mean an
interest rate per annum equal to the rate for U.S. dollar deposits for periods
of six (6) months which appears on the Telerate Page 3750 as of 11:00 a.m.,
London time, on each day, and as such rate shall change from time to time,
during which a payment to NTT America is overdue. If any day for determination
of LIBOR is not a banking day in both London and New York City or if such rate
is not so reported on any relevant day the applicable rate for any such day
shall be the last rate so reported. LIBOR shall be calculated on the basis of a
year of three hundred and sixty (360) days and the actual number of days
elapsed.
6. Confidentiality; Intellectual Property.
6.1. NTT America Proprietary Information. It is contemplated that
pursuant to this Agreement NTT America and/or its Affiliates will (through the
Technical Personnel or otherwise) provide, the Company with certain proprietary
technical data, trade secrets, and other confidential information and know-how
that has been developed or acquired by NTT America and/or its Affiliates
independently of this Agreement (including such information provided prior to
the date hereof or prior to the commencement of services hereunder, "NTT
Proprietary Information"). NTT America hereby grants, and (if applicable) will
cause its Affiliates to grant, the Company a non-exclusive perpetual license to
use (in its own business and in that of the Company Subsidiaries that are
primarily involved in the telecommunications business) NTT Proprietary
Information in
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the United States of America, without the payment of any further royalty or fee
of any kind (except for the fees contemplated to be paid pursuant to Sections
5.1 and 5.2), provided that (i) NTT Proprietary Information shall for purposes
of this Agreement not be deemed to include any NTT Proprietary Rights (or other
similar property rights arising under Japanese or other laws) relating to
specific inventions, technical devices, software, publications or other works,
the rights to which shall only be licensed pursuant to a Specific Agreement with
respect thereto, and (ii) the Company shall protect the confidentiality of all
such NTT Proprietary Information, and shall not sell, license, sublicense,
transfer or otherwise disclose any such NTT Proprietary Information to any third
party except as expressly permitted below. Notwithstanding the foregoing, the
Company will have no liability for any use or disclosure of NTT Proprietary
Information of the following nature: (v) disclosure to any Company Subsidiaries
that are primarily involved in the Company's telecommunications business, and to
the Company's and such subsidiaries, directors, officers, employees, and
advisors, provided that the Company shall have informed such subsidiaries and
other persons of the confidentiality provisions of this Agreement and shall have
taken adequate steps to ensure their compliance herewith; (w) disclosure
required by law or by an order of a court of competent jurisdiction, provided
that the Company promptly notifies NTT America of any such required disclosure
so that NTT America or its Affiliates may seek a protective order or other
appropriate remedy or waive compliance with the provisions of this Section 6.1,
and uses reasonable efforts to avoid or limit such disclosure by obtaining a
protective order, entering into a confidentiality agreement, or otherwise; (x)
use or disclosure of NTT Proprietary Information that becomes part of the public
domain without violation of
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this Agreement by the Company; (y) use or disclosure of information obtained by
the Company from third parties without violation of this Agreement or
independently developed by the Company without use of NTT Proprietary
Information; or (z) confidential disclosure of NTT Proprietary Information to
vendors, suppliers, potential network participants, advisors and other business
counterparts to the extent consented to by NTT America in writing (which consent
shall not be unreasonably withheld or delayed, it being understood that such
disclosure to third parties will ordinarily only be made pursuant to a
confidentiality agreement in a form reasonably satisfactory to NTT). In addition
to the foregoing, if the Company acquires during the term of this Agreement,
through the Technical Personnel or otherwise, any confidential information
regarding the business, organization, financial position or results of
operations or services of NTT America or its Affiliates (other than NTT
Proprietary Information), the Company shall keep such information secret and
confidential, and will not disclose such information except as required by law,
government regulation, or court order or on a confidential basis to its own
legal and financial advisors; provided that such information shall not be deemed
confidential to the extent it becomes publicly available prior to the Company's
receipt of such information or thereafter became publicly available. Information
shall be deemed "publicly available" if it becomes a matter of public knowledge
or is contained in materials available to the public (other than as a result of
disclosure by NTT America or its Affiliates in violation of this Agreement) or
is obtained or obtainable from any source other than NTT America, its Affiliates
or their respective directors, officers, employees, agents or advisors, provided
that such source has not to the Company's knowledge entered into a
confidentiality agreement with NTT America (or one of its Affiliates) with
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respect to such information or obtained the information from an entity or person
party to a confidentiality agreement with NTT America (or one of its Affiliates)
with respect to such information. NTT Proprietary Information (and/or other
confidential information) provided to the Company or its subsidiaries after the
date hereof that is conveyed or expressed in written or documentary form shall
be identified by NTT America (or its Affiliate) by a written legend or notation
on the face of the writing or document, or by other written notification
reasonably designed to inform the Company of the transfer of NTT Proprietary
Information (and/or other confidential information) and to identify the same,
and NTT America shall also provide the Company, within 30 days of the date of
such disclosure, with written confirmation of any NTT Proprietary Information
(and/or other confidential information) disclosed orally or in any other
non-documentary format. All NTT Proprietary Information and other confidential
information of NTT America and its Affiliates in tangible form that the Company
does not have a license to use following termination of this Agreement shall be
returned by the Company to NTT America upon termination of this Agreement, and
no copies thereof or materials containing any NTT Proprietary Information or
such other confidential information shall be retained by the Company.
6.2. Company Confidential Information. It is contemplated that in
connection with this Agreement the Company will (through the Technical Personnel
and otherwise) provide, NTT America and/or its Affiliates certain proprietary
product, service, financial, marketing, organizational, technical and other
information related to the Company (including such information provided prior to
the date hereof or prior to the commencement of services hereunder, the "Company
Confidential Information"). NTT
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America hereby agrees to keep, and (if applicable) to cause its Affiliates to
keep, all Company Confidential Information secret and confidential, and not to
use or disclose such Company Confidential Information, except (x) for disclosure
required by law or by an order of a court of competent jurisdiction, provided
that NTT America promptly notifies the Company of any such required disclosure
and uses reasonable efforts to avoid or limit such disclosure by obtaining a
protective order, entering into a confidentiality agreement, or otherwise, (y)
NTT America and its Affiliates may disclose such Company Confidential
Information on a confidential basis to their own legal and financial advisers
and to appropriate Japanese governmental regulatory authorities, and (z) NTT
America and its Affiliates may use such Company Confidential Information in the
course of performing NTT America's obligations hereunder. Company Confidential
Information shall in no event include any information that was publicly
available prior to the receipt by NTT America or its Affiliates of such
information or thereafter became publicly available. Such information shall be
deemed "publicly available" if it becomes a matter of public knowledge or is
contained in materials available to the public or is obtained or obtainable from
any source other than the Company or its directors, officers, employees, agents
or advisors, provided that such source has not to the knowledge of NTT America
entered into a confidentiality agreement with the Company with respect to such
information or obtained the information from an entity or person party to a
confidentiality agreement with the Company with respect to such information.
Company Confidential Information provided to NTT America or its Affiliates after
the date hereof that is conveyed or expressed in written or documentary form
shall be identified by the Company by written legend or notation on the face of
the writing or document, or by
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other written notification reasonably designed to inform NTT America of the
transfer of such confidential information and to identify the same, and the
Company shall also provide NTT America, within 30 days of the date of such
disclosure, with written confirmation of any such confidential information
disclosed orally or in any other non-documentary format. If the Company
Confidential Information (whether disclosed to Technical Personnel or other
employees or agents of NTT America or its Affiliates) pursuant to this Agreement
or to any other agreement between NTT America or its Affiliates and the Company)
includes any proprietary technical data, trade secrets, other technical or
operational know-how which have been developed or acquired by the Company
independently of this Agreement, the Company hereby grants NTT America and its
Affiliates a non-exclusive, perpetual license to use such Company Confidential
Information, solely for internal business purposes (including but not limited to
performing its obligations under this Agreement), without the payment of any
further royalty or fee of any kind, provided that (i) Company Confidential
Information shall for these purposes not be deemed to include any patent,
utility model, design patent, copyright, trademark or trade name (or other
similar property rights arising under Japanese or other laws) relating to
specific inventions, technical devices, software, publications or other works,
and (ii) such Company Confidential Information shall nevertheless be held in
confidence in accordance with the provisions set forth above, except that NTT
America and its Affiliates can make confidential disclosure of such proprietary
information to vendors, suppliers, potential network participants, advisors and
other business counterparts to the extent consented to in writing by the Company
(which consent shall not be unreasonably withheld or delayed, it being
understood that such
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disclosure to third parties will ordinarily only be made pursuant to a
confidentiality agreement in a form reasonably satisfactory to the Company).
Notwithstanding the limited nature of the foregoing license, it is understood
and agreed that persons employed by NTT America or its Affiliates who serve as
Technical Personnel may, following their service as such, or any termination or
expiration of this Agreement for any reason, be reassigned by NTT America or
such Affiliates without restriction, and shall be free to use any mentally
retained know-how or other technical information that may constitute Company
Confidential Information for any lawful purpose. All Company Confidential
Information in tangible form that NTT America or one of its Affiliates does not
have a license to use following termination of this Agreement shall be returned
by NTT America or its relevant Affiliate to the Company upon termination of this
Agreement, and no copies thereof or materials containing Company Confidential
Information shall be retained by NTT America or any of its Affiliates.
6.3. Common Intellectual Property. All intellectual property
(including, without limitation, patent rights, utility models, design patents,
copyrights and software copyrights, but excluding trade names or trademarks) in
any inventions, methods, processes, formulas, designs, diagrams, models, mask
works, computer programs, software, hardware, technology or know-how
("Intellectual Property") created, discovered, developed or otherwise generated
(whether or not reduced to practice) in the course of the performance of
services by NTT America and its Affiliates shall be jointly owned by NTT America
or its Affiliates and the Company ("Common Intellectual Property"), there being
a rebuttable presumption that any Intellectual Property created, discovered,
developed, or otherwise generated (whether or not reduced to practice) by
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(a) Technical Personnel in the course of performing services for the Company
hereunder, within six (6) months following termination of their service or (b)
employees and agents of the Company or its subsidiaries working with the
Technical Personnel, as such are Common Intellectual Property (subject to rights
retained or reserved by agents of the Company pursuant to the terms of a written
agency or consulting agreement with the Company; provided, that the Company
shall use its reasonable best efforts to ensure that no such agreement purports
to grant or grants any such agent any such rights to Common Intellectual
Property). Each of NTT America or its Affiliates and the Company (and their
respective subsidiaries) shall have the free and irrevocable right to use and
practice without restriction anywhere in the world within their own businesses
and operations (including, without limitation, the right to manufacture products
for sale or lease to third parties or to have such products manufactured by
third parties under specifications set by NTT America or the Company, as the
case may be) all Common Intellectual Property Rights. Each Specific Agreement
shall make provision for the respective rights of the parties with regard to the
manufacture, sale, transfer assignment and lease of products incorporating
Common Intellectual Property that is created, developed, invented or devised in
the course of performing that Specific Agreement. Each of the Company and NTT
America agrees to execute and file, and/or to cause its Affiliates and/or their
respective employees to execute and file, all documents and other instruments
necessary to effectuate the joint ownership and permit the joint use
contemplated by this Section 6.3. Each of the parties shall cooperate, and shall
cause its employees to cooperate, in taking all steps (including the execution
and filing of all documents and other instruments) reasonably necessary to
obtain and maintain property rights in the
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Common Intellectual Property in the United States, Japan and such other
countries as the parties shall mutually agree. Without limiting the foregoing,
each of the parties agrees to consult with the other prior to making any
material filings or taking any other material actions with respect to the Common
Intellectual Property. If the parties cannot agree on whether to make such
filings or take such other steps as may be required to establish or protect
property rights in any Common Intellectual Property in any country other than
the United States and Japan, the party wishing to make such filings or take such
other steps may timely do so at its sole expense, and thereafter (although title
to such Common Intellectual Property shall remain joint) any royalties derived
from the licensing of such Common Intellectual Property within such country
shall belong exclusively to the party who timely made such required filings or
took such other steps. Unless otherwise agreed in writing the costs (including
registration fees and other reasonable expenses, and attorneys' fees incurred in
connection with filings and applications) of obtaining and maintaining such
rights (i) in Japan shall be paid by NTT America or one of its Affiliates, (ii)
in the United States shall be paid by the Company and (iii) in any third country
shall be shared equally by the parties (except as contemplated by the preceding
sentence). Each of the parties shall have the right to license (but not
otherwise to transfer or assign) Common Intellectual Property or to manufacture,
sell, transfer, assign or lease any product derived therefrom which consists
principally of Common Intellectual Property to third parties subject to the
prior written consent of the other party, which consent may not be unreasonably
withheld or delayed (it being agreed that it would be reasonable to withhold
consent to the granting of any license to any competitor of the party being
asked to consent or any license that would permit sublicensing without the
consent of the party
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being asked to consent); provided, however, that the foregoing consent
requirement shall not apply to the manufacture, sale, transfer, assignment or
lease of products that do not consist principally of Common Intellectual
Property; and provided further that each Specific Agreement shall make provision
for the respective rights of the parties with regard to the manufacture, sale,
transfer, assignment or lease of products incorporating Common Intellectual
Property that is created, developed, invented or devised in the course of
performing that Specific Agreement. Terms and conditions of any license of
Common Intellectual Property shall be communicated to the other party promptly
after the license has been granted. Any such license shall include
confidentiality provisions in a form reasonably satisfactory to the Company and
NTT America or any of its relevant Affiliates. Unless otherwise agreed by the
parties in writing (and except as otherwise provided herein), the parties shall
share equally in any revenues derived under any such license, net of any
expenses incurred in the negotiation, creation, maintenance and performance of
such license, which shall be reimbursed first to the party incurring such
expenses; provided, however, that although revenues derived under any license of
Common Intellectual Property shall be shared in such manner, each Specific
Agreement shall address whether or not the parties wish to share revenues or
other economic benefits arising from the manufacture, sale, transfer, assignment
or lease of products incorporating any Common Intellectual Property that is
created, developed, invented or devised in the course of performing that
Specific Agreement. Each of the Company and NTT America will promptly notify the
other of any infringement of rights in Common Intellectual Property that may
come to its attention. The parties shall cooperate in taking such steps as are
reasonably necessary to prevent the infringement by third parties of the
parties'
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rights in Common Intellectual Property. Either of the Company or NTT America (or
their respective Affiliates) may initiate and pursue, at its own expense,
litigation to prevent or remedy such infringement. If either party (or in NTT
America's case, its Affiliate) wishes to commence such litigation, it shall
promptly so notify the other party hereto in writing prior to the commencement
of such litigation. The party receiving such notice shall have the right to
participate in the litigation commenced by the other party, and the right to
share in the proceeds of any recovery or settlement arising from such litigation
only if it agrees in writing within thirty (30) days of receipt of such notice
to share the costs, including reasonable attorneys fees and disbursements
therefor, in which case its share in such proceeds shall be in proportion to its
share of such costs. If the party receiving such notice agrees to share the
litigation costs, neither party shall settle or terminate such litigation
without the other party's written consent (which consent shall not be
unreasonably withheld or delayed). If the party receiving such notice does not
so agree to share the litigation costs for such suit or proceeding, then the
party that commenced the litigation shall be entitled to retain one hundred per
cent (100%) of the proceeds of any recovery or settlement arising therefrom to
the extent of such party's costs incurred in connection with the enforcement of
such rights plus interest at the rate of LIBOR plus three per cent (3%) per
annum; any remaining damages shall be shared equally to the extent such damages
represent past royalties or compelled use payments; and any remaining damages
(including punitive damages) shall be the sole property of the party that
commenced the litigation. If either party commences litigation to enforce rights
in Common Intellectual Property without the agreement of the other party to
share costs and the other party objects in writing within sixty (60) days of
receipt of notice
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thereof to the commencement of such litigation and provides as part of such
objection reasonable grounds therefor, then the party that commences the
litigation shall indemnify and hold harmless the other party from and against
any determination by the court in such case that adversely affects such other
party's interest in the Common Intellectual Property, including, without
limitation, any determination of patent invalidity; provided, however, that both
parties shall continue to share equally in any royalties derived under any
license of Common Intellectual Property, as set forth above. Each of the Company
and NTT America shall cooperate in the execution and filing of all documents and
instruments reasonably necessary to permit the other party to pursue such
litigation. Notwithstanding anything herein to the contrary, (i) any
intellectual property developed independently by either of the parties outside
the scope of this Agreement or without access to and reliance on the data and
experience derived from the technical cooperation contemplated hereby shall in
no event constitute Common Intellectual Property, and no rights thereto shall be
granted or deemed granted by this Section 6.3; (ii) any and all intellectual
property (including, without limitation, patent rights, utility models, design
patents, copyrights software, copyrights, trademarks and trade names) in any
inventions, methods, processes, formulas, designs, diagrams, models, mask works,
computer programs, software, hardware, technology or know-how created,
discovered, developed or otherwise generated (whether or
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not reduced to practice) by the Company without the involvement of NTT America
or its Affiliates and which is not an extension of or improvement to any
proprietary information provided by NTT America or its Affiliates hereunder
shall be the sole property of the Company; and (iii) any and all such
intellectual property created, discovered, developed or otherwise generated
(whether or not reduced to practice) by NTT America or its Affiliates, other
than by the Technical Personnel acting as such or within six (6) months
following reassignment of such personnel to NTT America or one of its
Affiliates, without the involvement of the Company and which is not an extension
of or improvement to the Company's proprietary information shall be the sole
property of NTT America or its relevant Affiliate.
6.4. Protection of Personnel. The Company shall not, directly or
indirectly, during the term of this Agreement and for a period of two (2) years
thereafter, employ or solicit for employment any of the Technical Personnel.
Neither NTT America nor its Affiliates shall, directly or indirectly, during the
term of this Agreement and for a period of two (2) years thereafter, employ or
solicit for employment any person employed by the Company or any Company
Subsidiary who works with any of the Technical Personnel.
6.5. Temporary Relief: Equitable Remedies. Each of the Company and NTT
America hereby acknowledges that a breach of its obligations under this Section
6 may cause irreparable harm for which there is no adequate remedy at law.
Accordingly, in the event of any breach of this Section 6 by either NTT America
or the Company, the other party shall be entitled, (i) notwithstanding the
provisions of Section 8.2, to seek from a court or other judicial authority a
temporary restraining order, preliminary injunction or similar preliminary or
provisional relief pending resolution of the dispute by arbitration pursuant to
Section 8.2 and (ii) in such arbitration, to be awarded injunctive relief,
specific performance or other equitable relief, if the arbitrators determine
such relief to be appropriate.
6.6. Term of Confidentiality Provisions. The Company shall maintain the
confidentiality of NTT Proprietary Information and all other confidential
information of
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NTT America and its Affiliates pursuant to Section 6.1, and NTT America shall
and shall cause its Affiliates to maintain the confidentiality of Company
Confidential Information pursuant to Section 6.2, for a period of three (3)
years from the date of receipt thereof or, in special circumstances, such longer
period as the party providing such information shall reasonably request prior to
the provision thereof.
7. Limitation of Liability. NTT America hereby warrants that it will
perform, and will cause its Affiliates to perform, the services required to be
performed by it hereunder with such skill and care as it devotes to its own
business. EXCEPT AS EXPRESSLY PROVIDED IN THE IMMEDIATELY PRECEDING SENTENCE, NO
WARRANTY OF ANY KIND IS EXPRESSED HEREIN OR SHOULD BE IMPLIED WITH RESPECT TO
ANY ADVICE OR SERVICES OR ANY NTT AMERICA PROPRIETARY INFORMATION THAT MAY BE
PROVIDED BY NTT AMERICA OR ITS AFFILIATES (THROUGH THE TECHNICAL PERSONNEL OR
OTHERWISE) TO THE COMPANY HEREUNDER, INCLUDING WITHOUT LIMITATION ANY IMPLIED
WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR
NON-INFRINGEMENT, AND ANY SUCH WARRANTY IS HEREBY EXPRESSLY DISCLAIMED. The
Company hereby agrees that neither NTT America nor any Affiliate, employee
(including the Technical Personnel) or agent thereof shall have any liability to
the Company or any third party for any damages arising out of or resulting from
any such advice, services or information provided hereunder, or any activities
or business of the Company relating thereto, excluding tort claims for personal
injury or property damage occurring in Japan and caused by Japan-Based Technical
Personnel and except in any such case to the extent that
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such liabilities shall have been found in a final judgment rendered by a court
of competent jurisdiction or by the arbitral panel provided for hereunder to
have arisen from the gross negligence or willful misconduct of NTT America, any
Affiliate, or any of the Technical Personnel. In furtherance and not in
limitation of the foregoing, the parties agree that under no circumstances shall
either party have any liability whatsoever for any incidental, consequential or
special damages (including any lost profits or lost cost savings) and that in no
event shall either party's liability to the other for damages exceed the
aggregate fees paid hereunder.
8. Governing Law; Disputes.
8.1. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York, without regard to that state's choice
of law principles which may direct the application of the laws of another
jurisdiction.
8.2. All disputes, controversies, or differences which may arise
between the parties, out of or in relation to or in connection with this
Agreement, or the breach thereof, shall be finally settled by arbitration in
accordance with the International Chamber of Commerce Arbitration Rules as then
in force; provided that the foregoing shall not prevent NTT America or the
Company from seeking injunctive or similar preliminary or provisional relief
pursuant to Section 6.5. The place of arbitration shall be London. The
arbitration proceeding shall be conducted in both English and Japanese. All
direct costs of the arbitration proceeding, including fees and expenses of the
arbitrators and the costs of translation, shall be borne equally by the parties;
other costs, including counsel and witness fees, shall be borne by the party
incurring them. An award by the arbitrators shall be final and binding upon the
parties, and not subject to further
29
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appeal, and an order confirming the award or judgment upon the award may be
entered and enforced by any court having jurisdiction.
9. Representations and Warranties.
9.1. NTT AMERICA. NTT America represents and warrants to the Company as
follows:
(a) NTT America has the corporate power to enter into and perform this
Agreement and the transactions contemplated hereby; NTT America has taken all
requisite corporate action to authorize the execution and performance of this
Agreement and the transactions contemplated hereby; this Agreement has been duly
executed and delivered by NTT America and constitutes the legal, valid and
binding obligation of NTT America enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors rights generally and general equitable principles.
(b) Neither the execution and delivery by NTT America of this Agreement
nor the performance by NTT America of its obligations hereunder violates or will
violate the articles of incorporation, by-laws or other organizational or
governing documents of NTT America, or any law, or the determination of any
arbitrator, court or other governmental authority, in each case applicable to or
binding upon NTT America or any of its properties or to which NTT America or any
of its property is subject, or conflicts with or will conflict with or results
or will result in any breach of any terms, conditions or provisions of, or
constitutes or will constitute (with due notice or lapse of time or both) a
default under any mortgage, deed of trust or other agreement or
30
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instrument to which NTT America is a party or by which it or any of their
properties is bound, other than such violations, conflicts, defaults or breaches
which, individually or in the aggregate, do not and will not materially and
adversely impair NTT America's ability to perform its obligations hereunder.
(c) No consent, approval, waiver or other actions by any other person
(other than approvals of governmental authorities that have been received) under
any contract, agreement, indenture, lease, instrument or other document to which
NTT America or any of its Affiliates is a party or by which any of them is bound
is required or necessary for the execution, delivery and performance by NTT
America of this Agreement.
9.2. Company. The Company represents and warrants to NTT America as
follows:
(a) The Company has the corporate power to enter into and perform this
Agreement and the transactions contemplated hereby; the Company has taken all
requisite corporate action to authorize the execution and performance of this
Agreement and the transactions contemplated hereby; this Agreement has been duly
executed and delivered by the Company and constitutes a legal, valid and binding
obligation of the Company enforceable against it in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
and general equitable principles.
(b) Neither the execution and delivery by the Company of this Agreement
nor the performance by the Company of its obligations hereunder violates or will
violate the organizational or governing documents of the Company, or any law, or
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the determination of any arbitrator, court or other governmental authority, in
each case applicable to or binding upon the Company or any of its properties or
to which the Company or any of its property is subject, or conflicts with or
will conflict with or results of will result in any breach of any terms,
conditions or provisions of, or constitutes or will constitute (with due notice
or lapse of time or both) a default under any mortgage, deed of trust or other
agreement or instrument to which the Company is a party or by which it or any of
its properties is bound, other than such violations, conflicts, defaults or
breaches which, individually or in the aggregate, do not and will not materially
and adversely impair the Company's ability to perform its obligations hereunder.
(c) No consent, approval, waiver or other actions by any other person
under any contract, agreement, indenture, lease, instrument or other document to
which the Company or any of its subsidiaries is a party or by which any of them
is bound is required or necessary for the execution, delivery and performance by
the Company of this Agreement.
10. Miscellaneous.
10.1. Rights of Third Parties. Notwithstanding anything to the contrary
set forth herein, nothing herein shall obligate either party to provide to the
other any technical data, trade secrets or other confidential information or
know-how that is proprietary to any third party or that such party hereto is
prohibited by law or contract from transferring or otherwise disclosing.
10.2. Amendments: Successors and Assigns. This Agreement shall be
binding upon the successors and permitted assigns of either party hereto, but
shall not be assignable by either party without the prior written consent of the
other party. This
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agreement may be amended or modified only by an instrument in writing executed
by both parties hereto, and no provision hereof may be waived by any party
except by an instrument in writing executed by the party waiving compliance by
the other party.
10.3. 10.3.1.Notices. All notices under this Agreement shall be given
in writing and shall be deemed to have been given upon delivery, if delivered by
hand or air courier, upon receipt, if sent by facsimile transmission, or on the
eighth business day after mailing, if sent by air mail, postage prepaid, in each
case to the address set forth below (or to such other address or addressee as a
party may specify by notice given hereunder):
If to the Company:
Teligent L.L.C.
8065 Leesburg Pike, Suite 400
Vienna, VA 22182
Attention: Laurence E. Harris
Facsimile: (703) 762-5227
If to NTT America:
NTT America, Inc.
101 Park Avenue, 41st Floor
New York, NY 10178
Attention: Mitsuo Murakami
Facsimile: (212) 661-1078
with a copy to
Nippon Telegraph and Telephone Corporation
Tokyo Opera City Tower
20-2 Nishi-shinjuku 3-chome Shinjuku-ku
Tokyo 163-14
JAPAN
Attention: Osamu Inoue
Facsimile: 81-3-5353-5503
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10.4. Nature of Relationship. This Agreement is not intended by the
parties to, and shall not, constitute, create or otherwise imply a joint
venture, partnership or fiduciary relationship of any kind between the parties
hereto or evidence or establish any employment arrangement between the Company
or any of the Company Subsidiaries and any of the Technical Personnel who, in
relation to the Company and the Company Subsidiaries, are intended to be and
remain in the nature of independent contractors. Nothing herein shall constitute
either party an agent of the other or otherwise grant to either party the right
to make commitments for or on behalf of the other party.
10.5. Cooperation. The Company shall use all reasonable efforts to
assist NTT America and, if applicable, its Affiliates in expeditiously obtaining
all visas, work permits and other governmental approvals that may be required in
connection with the performance of services, or the relocation of the Technical
Personnel, contemplated hereunder.
10.6. Export Controls. The parties agree to comply fully with all
applicable laws and regulations of the U.S. Government and the Japanese
Government regarding restrictions on, and prohibitions of, exportation of
technical data from the United States and Japan.
10.7. Force Majeure. Neither party shall be liable to the other party
for any failure to perform any of its obligations under this Agreement if such
failure is caused by any war, riot, civil disturbance, natural calamity, strike,
lockout, disruption of communications, change in law or other governmental
action or other similar cause beyond the control of the party failing to
perform; provided, however, that the Company's obligation to pay fees under this
Agreement shall be suspended during any
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period in which, and to the extent that, NTT America's obligations to provide
services are suspended under this Section 10.7.
10.8. Term of Agreement: Survival. (a) The provision of services under
this Agreement shall terminate as provided in Section 2 unless earlier
terminated by either party pursuant to Section 10.8(b) below. Notwithstanding
any such termination, the provisions of Sections 6, 7 and 8 shall thereafter
remain in effect, as follows: (i) the Company shall maintain the confidentiality
of NTT Proprietary Information and all other confidential information of NTT
America, and NTT America shall maintain the confidentiality of Company
Confidential Information, for the applicable period specified in Section 6.6;
(ii) the restriction on the employment or solicitation of certain personnel set
forth in Section 6.4 shall remain in effect for the period specified therein;
(iii) the provisions of Section 6.3, 7 and 8 shall survive indefinitely; and
(iv) the non-exclusive license granted pursuant to Section 6.1 shall continue
indefinitely unless the Company intentionally or willfully breaches in any
material respect (A) the restrictions on licensing or transfer of the NTT
Proprietary Information or Common Intellectual Property contained herein or the
confidentiality provisions of Section 6 or (B) defaults in the payment of any
fee or royalty due hereunder and fails to make payment thereof within ninety
(90) days following written notice to the Company by NTT America, in which case,
upon written notice from NTT America to the Company specifying the relevant
event contemplated by the preceding clause (A) or (B), the non-exclusive
licenses shall be thereby terminated; and upon termination for any other
material breach of the Agreement, the non-exclusive license granted pursuant to
Section 6.1 shall continue so long as the Company continues to make payment in
equal quarterly installments of a
35
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commercially reasonable royalty, which royalty shall be determined on an annual
basis. Notwithstanding the provisions of clause (iv) of the preceding sentence,
each Specific Agreement shall specify the consequences of termination of such
Specific Agreement upon a material breach thereof and the effect thereon on any
license granted pursuant thereto. No termination of this Agreement for any
reasons shall eliminate any liability of either party for any breach occurring
prior to termination.
(b) Each of the Company, on the one hand, and NTT America, on the
other, shall have the right to terminate this Agreement upon written notice if
the Company and NTT America cannot agree on a Work Plan, or the fees to be paid
to NTT America therefor, for any one-year period following the Initial Phase
within sixty (60) days of the last day of the period covered by any
then-existing Work Plan; provided, however, that at the request of the
non-terminating party, both parties shall negotiate in good faith for a period
of thirty (30) days from the giving of the termination notice to attempt to
reach agreement on terms that would permit the continuation of the Agreement and
such termination shall only take effect if no such agreement can be reached
within such period; and provided, further, that notwithstanding the foregoing
NTT America shall have no obligation to render technical services hereunder, and
the Company shall have no obligation to pay any fees, during and in respect of
any period for which a Work Plan and the fees to be paid therefor have not been
agreed upon by the parties. The Company shall have the right to terminate this
Agreement upon written notice to NTT America in the event that (A) NTT America
fails in any material respect to perform its obligations under a Work Plan,
unless such failure is a result of the Company's lack of reasonable cooperation,
including the Company's failure to provide NTT America or any
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relevant Affiliate access to material information regarding the Company
necessary in order to perform a Work Plan, (B) NTT America breaches in any
material respect the restrictions on the use of the Company Confidential
Information or on the licensing or transfer of the Common Intellectual Property
contained herein or the confidentiality obligations set forth in Section 6
hereunder or (C) an investment action which, under Section 8.7(a) of the Amended
and Restated Limited Liability Company Agreement (the "Amended Operating
Agreement") of the Company to be entered into in connection with the Securities
Purchase Agreement, would cause the New Member (as such term is defined in the
Amended Operating Agreement) to lose its right to nominate the New Member
Director (as such term is defined in the Amended Operating Agreement), occurs.
NTT America shall have the right to terminate this Agreement upon written notice
to the Company in the event that (A) the Company fails in any material respect
to perform its obligations hereunder or (B) the Company breaches in any material
respect the restrictions on licensing or transfer of the NTT Proprietary
Information or Common Intellectual Property contained herein or the
confidentiality obligations set forth in Section 6 hereunder. Notwithstanding
the foregoing, neither party may terminate this agreement under clauses (A) or
(B) of the immediately preceding two sentences unless it shall have first given
notice to the other party of the breach or failure giving rise to the right to
terminate and the other party fails to cure such breach or failure within thirty
(30) days of such notice. Upon thirty (30) days prior written notice, NTT
America may terminate this Agreement in the event that the Company consummates a
merger, consolidation or similar extraordinary transaction (or series of related
transactions) which results in a change of beneficial ownership of over fifty
per cent (50%) of its common
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stock then outstanding (or membership interest as long as the Company is a
limited liability company), or in another person or group beneficially owning in
excess of fifty per cent (50%) of such common stock which did not own such an
interest immediately prior to such transaction (or membership interest) or
otherwise in a change of control of the Company; or pursuant to a tender offer,
exchange offer or other stock purchase (or series of such transactions) another
person or group acquires beneficial ownership of in excess of fifty per cent
(50%) of such common stock (any of the foregoing referred to as a "Change of
Control"); provided, that such termination notice is given within sixty (60)
days of NTT America's receipt of notice of the consummation of such Change of
Control. Any person or group beneficially owning or controlling in excess of
fifty per cent (50%) of the common stock of or beneficial interests in the
Company as a result of a Change of Control may terminate this Agreement upon (A)
giving thirty (30) days' prior written notice to NTT America, which notice must
be given within sixty (60) days of the consummation of such Change of Control,
and (B) the payment, simultaneously with the giving of such notice, of (1) all
amounts owing to NTT America hereunder to the date of termination and (2) an
additional amount equal to the present value discounted at a commercially
reasonable rate of the unpaid balance of the fees payable hereunder to NTT
America for the period from the date of termination to the last day of the
period covered by a Work Plan then in effect. Each of the parties shall also
have the right to terminate this Agreement by giving written notice to the other
if one or more conditions of force majeure specified in Section 10.7 shall
continue in effect continuously for a period exceeding ninety (90) days.
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10.9. Entire Agreement; Counterparts. This Agreement represents the
entire agreement of the parties hereto with respect to the subject matter
hereof, and shall supersede all prior oral and/or written agreements and/or
communications and/or course of conduct between the parties with respect
thereto. This Agreement may be executed in counterparts, each of which shall be
deemed an original but all of which shall together constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
NTT AMERICA, INC.
By:_____________________________________________
TELIGENT, L.L.C.
By:_____________________________________________
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Schedule 1
SCOPE OF TECHNICAL SERVICES
1. Implementation Planning
(Voice traffic delivery network, SS7 signaling network, backhaul network,
information transfer network, Intelligent Network and HighSpeed backbone
network)
-Develop network models
-Estimate traffic
-Clarify network architecture and network evolution plan
-Assist in establishing network
2. Planning for Advanced Services
-Assist in developing Teligent's strategy for advanced services
including Intelligent Network/Data/Video services
-Assist in defining target services, their specifications and service
evolution plan
-Clarify implementation methods for defined services
-Assist in implementing target services
3. Quality Measurements
-Perform measurements and evaluate results of audio performance
-Estimate Mean Opinion Score (MOS)
-Clarify target quality for Teligent's Point-to-Multipoint System
4. Network Management
-Clarify operational scenario
-Clarify functions for Teligent's network management system
-Clarify network architecture and network evolution plan
-Assist in establishing network management system
-Clarify capacity planning method.
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Schedule 2
THE NUMBERS OF TECHNICAL PERSONNEL
The numbers of Technical Personnel rendering services contemplated in the
initial Work Plan during the Initial Phase on average are as follows:
NUMBER
U.S.-Based Technical Personnel
(including the Chief Technical Advisor) 4
Japan-Based Technical Personnel 3
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AGREEMENT
AGREEMENT dated as of September 29, 1997, among Teligent,
L.L.C., a Delaware limited liability company (together with any corporation
resulting from, or which is the successor to Teligent, L.L.C. upon, the
conversion of Teligent, L.L.C. to a corporation, the "Company"), Digital
Services Corporation, a Virginia corporation and a Member of the Company
("DSC"), Telcom-DTS Investors, L.L.C., a Delaware limited liability company and
an Affiliate of DSC ("Telcom"), the members of Telcom, all of whom are listed on
Schedule I hereto (collectively, the "Telcom Members"), Microwave Services,
Inc., a Delaware corporation and a Member of the Company ("MSI"), and The
Associated Group, Inc., a Delaware corporation and the owner of all of the
outstanding capital stock of MSI ("AGI").
The Company has substantially negotiated a Securities Purchase
Agreement to be entered into by the Company, DSC and MSI with Nippon Telegraph
and Telephone Corporation (the "Investor"), providing for the purchase by the
Investor of a Member Interest (the "Securities Purchase Agreement"), and for the
execution and delivery by MSI, DSC and the Investor at the First Closing under
the Securities Purchase Agreement (the "First Closing") of an Amended and
Restated Limited Liability Company Agreement of the Company (the "Amended LLC
Agreement").
In connection with entering into the Securities Purchase
Agreement and the Amended LLC Agreement and the consummation of the transactions
contemplated thereby, the parties desire to provide for certain rights and
obligations of DSC, Telcom, MSI and AGI relating to their ownership interests in
the Company.
In consideration of the foregoing, and the agreements set
forth herein, and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Registration Rights. The Company agrees that DSC will have the registration
rights set forth in this Section 1 with respect to equity interests or
securities of the Company held by DSC at the time of consummation of the
Company's initial public offering of equity securities ("Registrable
Securities").
(a) "Piggyback" Registration Rights. (i) After
the consummation by the Company of an initial public offering of equity
securities (the "IPO"), if the Company at any time proposes to register under
the Securities Act of 1933, as amended (the "Securities Act") (other than a
registration on Form S-4 or S-8 or any successor or similar forms thereto and
other than a registration
<PAGE>
pursuant to paragraph 1(b) below), whether or not for sale for its own account
(including, without limitation, pursuant to the exercise by any other person or
entity of any registration rights granted by the Company), on a form and in a
manner that would permit registration of Registrable Securities for sale to the
public under the Securities Act, it will give written notice to DSC 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 equity 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 such equity securities are reasonably expected to be sold
to the public). Upon the written request of DSC delivered to the Company within
15 calendar days after the receipt of any such notice (which request shall
specify the Registrable Securities intended to be disposed of by DSC and the
intended method of disposition thereof), the Company will use reasonable best
efforts to effect the registration under the Securities Act of the Registrable
Securities that the Company has been so requested to register, subject to the
further provisions of this agreement;
(ii) If a registration pursuant to this Section 1
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 1(a) pro rata, based on the respective numbers of
Registrable Securities as to which registration has been so requested by each
holder of Registrable Securities.
(iii) In connection with any underwritten offering
with respect to which holders of Registrable Securities shall have requested
registration pursuant to this Section 1, the Company shall have the right to
select the managing underwriter with respect to the offering.
(b) Demand Registration Rights. (i) In addition to the
registration rights afforded by Section 1(a) above, at any time commencing six
months after the closing of the IPO (the "Demand Date"), DSC shall be entitled
to demand in writing that the Company effect a registration under the Securities
Act and under such state securities laws as DSC 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) in respect of all or part
of the Registrable Securities held by DSC, provided that (A) such demand
registration right shall apply only if the amount of Registrable Securities to
be registered (1) constitutes at least 20% of the amount of Registrable
Securities owned by DSC or (2) has an anticipated aggregate offering price
(before underwriters' fees, commissions and discounts) of at least $20,000,000,
(B) the Company shall not be
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obligated to use its reasonable best efforts to cause to become effective a
registration statement pursuant to this Section 1(b) until a period shall have
elapsed from the effective date of the most recent previous registration
statement under the Securities Act with respect to a public offering of equity
securities of the Company (a "Prior Public Offering") equal to the greater of
(1) 120 days and (2) the shortest period of any lockup of shareholders of the
Company required by the lead managing underwriter of such Prior Public Offering
(the "Holdback Period") and (C) if, while a registration request is pending
pursuant to this Section 1(b), 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 1(b) until such
material information is disclosed to the public or ceases to be mate rial;
provided, further, however, that the foregoing delay shall in no event exceed
120 days. Notwithstanding the foregoing provisions of Section 1(b), the Company
shall not be obligated to effect more than three registrations pursuant to this
Section 1(b)(i).
(ii) At any time after the Demand Date, DSC shall
be entitled to demand in writing that the Company effect a registration under
the Securities Act of all or part of its Registrable Securities on Form S-3 or
any similar short-form ("Short-Form") registration statement ("Short-Form
Registrations"), if available, specifying in the request the number of
Registrable Securities to be registered by DSC 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 1(b)(ii) 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 1(b) until a period
equal to the Holdback Period shall have elapsed from the effective date of the
Prior Public Offering. 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 Securities Exchange Act of
1934, the Company will use its reasonable best efforts to make Short-Form
Registrations on Form S-3 available for the sale of Registrable Securities.
(iii) If, in connection with any underwritten
offering pursuant to this Section 1(b), the managing underwriter thereof advises
the Company in writing that in its opinion the number of securities (including,
for purposes of this Section 1(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
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all holders seeking to participate in such offering, and securities shall be
excluded from such offering in the following order until such limitation has
been met: (A) securities requested to be included in such offering by holders
other than DSC, if any, shall be excluded until all such other securities shall
be so excluded, (B) securities that the Company has elected to include in such
offering, if any, shall be excluded until all such securities have been
excluded, and, (C) thereafter, any Registrable Securities requested to be
included in such offering shall be excluded pro rata, based on the respective
number of Registrable Securities as to which registration has been so requested
by each holder thereof.
(iv) If a requested registration pursuant to this
Section 1(b) involves an underwritten offering, the holders of 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 for such offering.
(c) [Intentionally Omitted]
(d) Registration Procedures.
(i) 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 Section 1(a) or
1(b), the Company will, as expeditiously as possible:
(A) Prepare and promptly file with the
Securities and Exchange Commission (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;
(B) 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 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.
(C) 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,
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and such other documents, as such Person may reasonably request, in order to
facilitate the public sale or other disposition of the Registrable Securities.
(D) 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 thereof 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 disposi tion 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 1(d)(i)(D)), 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.
(E) 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.
(F) Immediately notify each holder of
Registrable Securities covered by such registration statement, at any time when
a prospectus thereto is required to be delivered under the Securities Act within
the appropriate period mentioned in Section 1(d)(i)(B), if the Company becomes
aware that the prospectus included in such registration statement, as ten 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 statements
therein not misleading in the light of the circumstances then existing, and, at
the request of any such holder, deliver 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.
(G) 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.
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(H) Use its reasonable best efforts in
connection with the underwriters of list such Registrable Securities on each
securities exchange as they may reasonably designate.
(I) 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.
(J) Execute and deliver all instruments
and documents (including in an underwritten offering an underwriting agreement
in customary form) and taken such other actions and obtain such certificates and
opinions as are customary in an underwritten public offering.
(ii) 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 1(d)(i)(F), 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 1(d)(i)(F).
(iii) If a registration pursuant hereto involves
an underwritten offering, the Company agrees, if so required by the managing
underwriter of such offering, 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.
(iv) If a registration pursuant hereto involves
an underwritten offering, each holder of Registrable Securities, whether or
not such holder's Registrable Securities are included in such registration,
will, if and to the extent request by the managing underwriter in such offering,
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 n such offering), of any of the Company's excluding
those Registrable Securities sold in such offering), of any of the Company's
equity securities owned by such holder or securities, without the consent of
such 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 such managing underwriter shall reasonably determine is required to
effect a successful offering; provided such agreement is substantially identical
in form and substance to other
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"lock-up" agreements of the Company's other stockholders who execute such
agreements in connection with such offering.
(e) Indemnification.
(i) In the event of any registration of any
securities of the Company under the Securities Act pursuant hereto, the Company
will, and it hereby agreed 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:
(A) 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 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 o ut 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;
(B) 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
(C) 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 (A) or (B) 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 made in reliance upon and in
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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 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 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.
(ii) The Company may require, as a condition to
including any Registrable Securities in any registration statement filed in
accordance herewith 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 1(e)(i) 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 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 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 1(e) are to be several and not joint; provided, however, that
with respect to each claim pursuant to this Section 1(e)(ii), each such holder's
liability under this Section 1(e)(ii) 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.
(iii) 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 1(e), such indemnified
party will, if a claim in respect thereof is to be made against an indemnifying
party, give written
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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 1(e), 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 and for which an indemnifying party may have indemnification
liability hereunder with the consent of such indemnifying party.
(iv) 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.
(f) Contribution. In order to provide for just and equitable
contribution in circumstances under which the indemnity contemplated by Section
1(e) 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 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 of omission and any other equitable considerations
appropriate under the circum-
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stances. The Company and each Seller of Registrable 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 1(e)(ii) 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 1(f),
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.
(g) Expenses. The Company shall bear all registration expenses
(exclusive of underwriting fees, discounts and commissions) in connection with
the registrations effected by it pursuant to Section 1(b) and such registration
expenses incurred in connection with up to three fully completed registrations
of Registrable Securities pursuant to Section 1(a).
(h) Transfer of Registration Rights. DSC may assign its rights
under this Section 1 to any person or entity to whom or which DSC sells,
transfers or assigns not less than 20% of the Registrable Securities; provided
that such person or entity agrees in writing with the Company to be bound by
this Agreement to the same extent as DSC was bound at the time of such sale,
transfer or assignment.
(i) Cessation of Registrable Security Status. 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 under the
Securities Act, (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 such securities 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.
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2. Change in Control Covenants.
(a) Pre-IPO. MSI covenants and agrees with DSC
that if, prior to an IPO, there is a "Change in Control" of MSI or AGI (as
defined below), it will promptly take all action available to it to cause
Section 4.1(c) of the Amended LLC Agreement to be amended in a manner such that
(i) MSI will no longer have the right and power to elect a majority of the
members of the Board of Directors of the Company and (ii) MSI's voting power as
a Member (as defined in Amended LLC Agreement) will be proportionate to its
Membership Percentage (as defined in the Amended LLC Agreement).
(b) Post-IPO. AGI covenants and agrees with DSC
that if, from and after the consummation of an IPO, there is a Change in Control
of AGI or MSI, AGI will immediately convert, and will cause all of its
controlled Affiliates to convert, all of the Class B Common Stock of the Company
beneficially owned by AGI and such Affiliates into shares of Class A Common
Stock of the Company such that, under the Company's Certificate of Incorporation
as then in effect, AGI, alone or together with its controlled Affiliates, will
no longer have the right to elect a majority of the Company's Board of
Directors.
(c) Shareholder Meeting; Resignations. Promptly
upon a Change in Control of MSI or AGI, MSI agrees with DSC that it will (i)
cause the MSI Directors to cause the Company's Board of Directors to convene a
meeting of Members (in the case of such a Change in Control of MSI or AGI
referred to in Section 2(a)) or of the Company's stockholders (in the case of
such a Change in Control of MSI or AGI, referred to in Section 2(b)) and (ii)
promptly after taking the action required by clause (i) above, cause such number
of the MSI Directors to resign from the Company's Board of Directors so that the
MSI Directors will no longer constitute a majority thereof.
(d) Definition of "Change in Control" of MSI or
AGI. For purposes of this Section 2, a "Change in Control" of MSI or AGI shall
occur (i) in the case of MSI, if (A) any person or entity, or group of
affiliated persons or entities, other than AGI and its controlled Affiliates,
(1) acquires voting securities of MSI representing a majority of the voting
power of all outstanding voting securities of MSI or (2) otherwise acquires,
directly or indirectly, the power to direct the management and policies of MSI,
(B) AGI and its controlled Affiliates shall cease to be, directly or indirectly,
the sole beneficial owners of voting securities representing at least 50.1% of
the voting power of all outstanding voting securities of MSI and at least 50.1%
of the equity ownership in MSI or (C) individuals who, as of the date hereof,
constitute the board of directors of MSI (the "Incumbent MSI Board") cease for
any reason to constitute a majority of the board of directors of MSI, provided,
however, that any individual becoming a director of MSI after the date hereof
whose election, or nomination for
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election by MSI's shareholder(s), was approved by a vote of a majority of the
directors of MSI then comprising the Incumbent MSI Board shall be considered as
though such individual were a member of the Incumbent MSI Board, but excluding
for this purpose any such individual whose initial assumption of office occurs
as a result of an actual or threatened election contest with respect to the
election or removal of directors of MSI or other actual or threatened
solicitation of proxies or consents by or on behalf of a person, entity or group
other than the board of directors of MSI, and (ii) in the case of AGI, if (A)
any person or entity, or group of affiliated persons or entities, other than any
person or entity, or group of affiliated persons or entities (including for this
purpose any director of AGI as of the date hereof, their respective spouses and
children, any estates or trusts (and the executors, trustees or legal
representatives thereof) of which such directors, spouses or children are an
executor, trustee or beneficiary and any entities controlled by any of such
persons) (such persons, entity or group being referred to as the "Current
Control Group") who or which, individually or taken together, as of the date
hereof, own or have the right to acquire voting securities of AGI representing
15% or more of the voting power of all outstanding voting securities of AGI, (1)
acquires voting securities of AGI representing a majority of the voting power of
all outstanding voting securities of AGI or (2) otherwise acquires, directly or
indirectly, the power to direct the management and policies of AGI; (B)
individuals who are either (1) members of the Current Control Group or (2)
persons whose election, or nomination for election by the stockholders of AGI,
was requested, directly or indirectly, by a member of the Current Control Group
and who have a fiduciary, employment or similar relationship with the Company or
a member of the Current Control Group (the "Incumbent AGI Board"), cease for any
reason (other than death) to constitute at least 50% of the board of directors
of AGI, provided, however, that any individual becoming a director of AGI after
the date hereof whose election, or nomination for election by AGI's
shareholder(s), was approved by a vote of a majority of the directors of AGI
then comprising the Incumbent AGI Board shall be considered as though such
individual were a member of the Incumbent AGI Board, but excluding, for this
purpose, (y) any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors of AGI or other actual or threatened solicitation of
proxies or consents by or on behalf of a person, entity or group other than the
board of directors of AGI and (z) any such individual nominated for election to
the board of directors of AGI by any stockholder or group of affiliated
stockholders of AGI other than a member or members of the Current Control Group;
or (C) the members of the Current Control Group cease to beneficially hold (and
retain the right to exercise all voting and dispositive rights with respect to)
voting securities of AGI representing at least 10% of the voting power of all
outstanding voting securities of AGI and any other person or entity, or group of
affiliated persons or entities, beneficially owns voting securities of AGI
representing 40% or more of the voting power of all outstanding voting
securities of AGI. Notwithstanding the
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foregoing, a Change in Control of MSI or AGI shall not be deemed to have
occurred if, at the time of determination, Telcom and its Affiliates do not have
the Telcom Threshold Membership Percentage. For this purpose, Telcom and its
Affiliates shall be deemed not to have the Telcom Threshold Membership
Percentage if (i) any person or entity, or group of affiliated persons or
entities, other than Rajendra Singh, Neera Singh, any estates or trusts (and the
executors, trustees or legal representatives thereof) of which such persons are
an executor, trustee or beneficiary and any entities controlled by any of such
persons) (such persons, entity or group being referred to as the "Singh Control
Group"), (A) acquires voting securities (or other interests) of Telcom
representing a majority of the voting power of all outstanding voting securities
(or other interests) of Telcom or (B) otherwise acquires, directly or
indirectly, the power to direct the management and policies of Telcom; (ii)
individuals who are either (A) members of the Singh Control Group or (B) persons
whose election, or nomination for election by the stockholders (or members) of
Telcom, was requested, directly or indirectly, by a member of the Singh Control
Group, and who have a fiduciary, employment or similar relationship with the
Company or a member of the Singh Control Group (the "Incumbent Telcom Board"),
cease for any reason (other than death) to constitute at least 50% of the board
of directors (or other governing body) of Telcom, provided, however, that any
individual becoming a director (or member of the governing body) of Telcom after
the date hereof whose election, or nomination for election by Telcom's
shareholder(s) (or members), was approved by a vote of a majority of the
directors (or persons comprising the governing body of Telcom) then comprising
the Incumbent Telcom Board shall be considered as though such individual were a
member of the Incumbent Telcom Board, but excluding, for this purpose, (y) any
such individual whose initial assumption of office occurs as a result of an
actual or threatened election contest with respect to the election or removal of
directors (or persons comprising the governing body) of Telcom, or other actual
or threatened solicitation of proxies or consents by or on behalf of a person,
entity or group other than the board of directors (or other governing body) of
Telcom and (z) any such individual nominated for election to the board of
directors (or other governing body) of Telcom by any stockholder (or member) or
group of affiliated stockholders (or members) of Telcom other than a member or
members of the Singh Control Group; or (C) the members of the Singh Control
Group cease to beneficially hold (and retain the right to exercise all voting
and dispositive rights with respect to) voting securities (or other interests of
Telcom) representing at least 10% of the voting power of all outstanding voting
securities (or other interests) of Telcom and any other person or entity, or
group of affiliated persons or entities, beneficially owns voting securities (or
other interests) of Telcom representing 40% or more of the voting power of all
outstanding voting securities (or other interests) of Telcom.
3. Other Agreements. DSC irrevocably agrees with MSI
and AGI that it will (i) execute and deliver the Securities Purchase Agreement
substan-
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tially in the form reviewed by DSC and its counsel through the date hereof, and
will cause Telcom, at the First Closing, to execute and deliver the Amended LLC
Agreement substantially in the form reviewed by DSC and its counsel through the
date hereof, (ii) cause the DSC Director (as defined in the LLC Agreement) to
vote to approve the Securities Purchase Agreement, the Amended LLC Agreement,
the Registration Rights Agreement contemplated by the Securities Purchase
Agreement and the transactions contemplated by such agreements and (iii)
otherwise fully support such transactions and not take, or cause or allow any of
its Affiliates to take, any action inconsistent with its agreements contained in
this Section 3. Each of MSI and DSC irrevocably agrees with the other that it
will not exercise its rights under Section 5.1(d)(i) of the LLC Agreement with
respect to the $100 million capital contribution to be made by the Investor
pursuant to the Securities Purchase Agreement. Each of AGI and MSI agrees with
DSC that it will not transfer control of any entity which holds a member
interest in, or Class B Common Stock of, the Company to any third party (other
than an Affiliate of AGI, provided such Affiliate agrees to be bound by the
provisions of this Agreement applicable to MSI) without the consent of DSC
unless, concurrently with or prior to such transfer, AGI and MSI take the steps
contemplated by Section 2(a) (in the case of such a transfer prior to an IPO) or
Section 2(b) (in the case of such a transfer concurrently with or after an IPO).
4. Rights of First Refusal and Co-Sale; Certain
Representations. MSI and Telcom agree with the other that, from and after the
consummation of the IPO, each will have right of refusal and co-sale rights,
respectively, with respect to any sale or transfer by the other or its
Affiliates of Class A Common Stock, Class B Common Stock or other class of
common stock of the Company (collectively, "Common Stock") (and AGI, on the one
hand, and each of the Telcom Members, on the other, agree with each other that
such right of first refusal and co-sale rights shall also apply to any sale or
transfer by them of shares of MSI, or member or other equity interests of
Telcom, respectively, if, at the time of such sale or transfer, shares of Common
Stock constitute all or substantially all of the assets of MSI or Telcom,
respectively), to the same extent and exercisable in accordance with the same
procedures as set forth in Sections 10.3(a) and 10.3(b), respectively, of the
Amended LLC Agreement (as if such Sections were in effect and references in such
Sections to an "Interest" being deemed for this purpose to refer to Common Stock
or to shares of MSI, or member or other equity interests of Telcom,
respectively, as contemplated above). Notwithstanding the foregoing, it is
acknowledged and agreed that (i) pursuant to Section 5.8 of the Amended LLC
Agreement, upon the conversion of Teligent, L.L.C. to a corporation in
connection with the IPO (the "Conversion"), the Company will cease to have any
rights pursuant to such Sections 10.3(a) and 10.3(b) of the LLC Agreement, and
(ii) the right of first refusal and co-sale rights provided for in this Section
4 will in any event not apply with respect to (A) any sale or transfer of Common
Stock (or of shares of MSI, or member or other
14
<PAGE>
equity interests of Telcom, respectively) which was acquired pursuant to a
public market transaction, (B) any public sale or distribution of Common Stock
(or of shares of MSI, or member or other equity interests of Telcom,
respectively), whether pursuant to a registration statement under the Securities
Act, Rule 144 thereunder or otherwise, (C) any sale or transfer of Common Stock
(or of shares of MSI, or member or other equity interests of Telcom,
respectively) to an Affiliate of the selling or transferring party, provided
such Affiliate executes and delivers to the parties hereto an instrument
agreeing to be bound hereby or (D) any pledge of, or grant of a security
interest in, Common Stock (or shares of MSI, or member or other equity interests
of Telcom, respectively), provided such pledge or grant meets the requirements
set forth in Section 10.2(a)(ii), (a)(iii) and (a)(iv) of the Amended LLC
Agreement (as if such Section were still in effect). Associated hereby
represents and warrants to Telcom that, as of the date hereof, it is the owner
of all of the outstanding capital stock of MSI. MSI hereby represents and
warrants to Telcom that, immediately after the Conversion, MSI will be the sole
record and beneficial owner of the shares of Common Stock into which the member
interest in Teligent, L.L.C. currently held by MSI is converted pursuant to the
Conversion. Each of the Telcom Members, severally and not jointly, hereby
represent and warrant to AGI and MSI that, as of the date hereof, they are the
owners of the respective percentage membership interests in Telcom set forth on
Schedule I hereto. DSC and Telcom hereby represent and warrant to AGI and MSI
that, immediately after the Conversion, Telcom will be the sole record and
beneficial owner of the shares of Common Stock into which the member interest in
Teligent, L.L.C. currently held by DSC is converted pursuant to the Conversion.
Each party hereto represents and warrants to the other parties that such party
has the full legal right, power and authority to execute, deliver and perform
this Agreement, and that this Agreement constitutes the valid and binding
obligation of such party enforceable against such party in accordance with its
terms.
5. Miscellaneous.
(a) Effectiveness. Except for Section 3 hereof
and this Section 5, which shall be effective immediately upon the execution and
delivery hereof, this Agreement shall not be effective, and no party shall have
any rights or obligations hereunder, until the First Closing has occurred,
whereupon this Agreement shall automatically be in full force and effect.
(b) Definitions. Capitalized terms used by not
defined herein have the respective meanings ascribed thereto in the Amended LLC
Agreement.
(c) Successors and Assigns. Except as otherwise
provided herein, all of the terms and provisions of this Agreement (to the
extent they are or have become effective pursuant to Section 5(a)) shall be
binding upon, shall
15
<PAGE>
inure to the benefit of and shall be enforceable by and against the respective
successors and assigns of the parties hereto, including without limitation, in
the case of DSC, Telcom upon consummation of the transfer and assignment
contemplated by Section 5.9 of the Amended LLC Agreement.
(d) Amendment, Waiver. This Agreement may be
amended only by a written instrument duly executed by the parties hereto. 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.
(e) Notices. Any notice, request, claim,
demand, docureceipt (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 by reputable
overnight courier or other similar means of communication, as follows:
i) If to the Company, addressed to the
Company at 8065 Leesburg Pike, Vienna, VA 22182, to
the attention of the Company's General Counsel
(Facsimile No. 703-762-5227);
ii) If to MSI or AGI, addressed to it at 3
Bala Plaza East, Suite 300, Bala Cynwyd, PA 19004, to
the attention of AGI's General Counsel;
iii) If to DSC, Telcom or any of the parties
listed on Schedule I hereto, addressed to such party
c/o Telcom Ventures, L.L.C., 211 North Union Street,
Suite 300, Alexandria, VA 22314, to the attention
of President and General Counsel (Facsimile No.
703-706-3801);
or, in each case, to such other address or telex or telecopy
number as such party may designate in writing to the other by
written notice given in the manner specified in this Section
5(e).
(f) Entire Agreement. This Agreement contains
the entire agreement between the parties hereto with respect to the subject
matter hereof, and supersedes all prior oral and written agreements and
memoranda and undertakings between the parties hereto with regard to such
subject matter.
16
<PAGE>
(g) Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
without giving effect to its conflicts of laws principles.
(h) Counterparts. This Agreement may be
executed in counterparts, each of which shall be deemed an original, but which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties as of the day and year first written.
TELIGENT, L.L.C.
By:/s/ Laurence E. Harris
-----------------------------------
Name: Laurence E. Harris
Title: Senior Vice President
MICROWAVE SERVICES, INC.
By:/s/ David J. Berkman
-----------------------------------
Name: David J. Berkman
Title: Executive Vice President
THE ASSOCIATED GROUP, 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
TELCOM-DTS INVESTORS, L.L.C.
17
<PAGE>
By:/s/ Rajendra Singh
-----------------------------------
Name: Rajendra Singh
Title: President
FOR PURPOSES OF SECTION 4 ONLY:
TELCOM VENTURES, L.L.C.
By: /s/ Rajendra Singh
------------------------------
Name: Rajendra Singh
Title: President
CHERRYWOOD HOLDINGS, INC.
By: /s/ Rajendra Singh
------------------------------
Name: Rajendra Singh
Title: President
TC GROUP, L.L.C.
By: /s/ Mark Ein
------------------------------
Name: Mark Ein
Title: Vice President
BIG BEND INVESTMENTS, L.P.
By: /s/ Morton H. Meyerson
------------------------------
Name: Morton H. Meyerson
Title: General Partner
/s/ Vandana Tandon
- ------------------------------
VANDANA TANDON
18
<PAGE>
SCHEDULE I
Members of Telcom-DTS Investors, L.L.C.
<TABLE>
<CAPTION>
Percentage
Name Interest
- ---- ----------
<S> <C>
Telcom Ventures, L.L.C., a Delaware limited liability company 98.01%
Cherrywood Holdings Inc., a Kansas corporation 0.75%
TC Group, L.L.C., a Delaware limited liability company 0.25%
Big Bend Investments, L.P., a Texas limited partnership 0.89%
Vandana Tandon 0.10%
---------------
100.00%
19
</TABLE>
<PAGE>
FAIRFAX SQUARE
OFFICE LEASE AGREEMENT
by and between
FAIRFAX SQUARE ASSOCIATES II
(Landlord)
and
TELIGENT, L.L.C.
(Tenant)
Date: As of October 1, 1997
<PAGE>
FAIRFAX SQUARE
OFFICE LEASE AGREEMENT
THIS LEASE AGREEMENT ("this Lease"), is executed in five (5)
counterparts and made as of the 1st day of October, 1997, by and between FAIRFAX
SQUARE ASSOCIATES II ("Landlord"), a Virginia general partnership, and TELIGENT,
L.L.C., a Delaware limited liability company ("Tenant"), Landlord and Tenant
having the following notice addresses on the date of this Lease:
Landlord: with a copy to:
Fairfax Square Associates II Landlord's partner,
8075 Leesburg Pike MAV Properties, Inc.
Suite 120 c/o Teachers Insurance and
Vienna, Virginia 22182 Annuity Association of
Attn: C. Michael Duncan, CPM, America
Director of Property 730 Third Avenue
Management New York, New York 10017
Attn: Director, Mortgage
and Real Estate
With an additional copy to:
Teachers Insurance and
Annuity Association of America
730 Third Avenue
New York, New York 10017
Attn: Vice President and Manager,
Real Estate and Mortgage Law
Tenant: with a copy to:
Teligent, L.L.C. Stefan F. Tucker, Esquire
Suite 400 Tucker, Flyer & Lewis
8065 Leesburg Pike 1615 L Street, N.W.
Vienna, Virginia 22182 Suite 400
Attn: Laurence G. Harris, Washington, D.C. 20036
Senior Vice President
and General Counsel
SUMMARY OF FUNDAMENTAL LEASE PROVISIONS
The provisions set forth below represent the agreement of the parties
hereto as to certain fundamental lease provisions ("Fundamental Lease
Provisions"). Specified Section, Schedule and Article references designate where
in this Lease provisions corresponding to Fundamental Lease provisions appear.
The monetary charges payable by Tenant set forth in the Summary of Fundamental
Lease Provisions shall not be construed to constitute
i
<PAGE>
an exhaustive list of all amounts which may become payable under this Lease.
(a) Main Term: 7 years and 2 months (See Section 3.3)
(b) Premises Number: Suite 400 (See Sch. A)
(8065 Leesburg Pike)
(c) Gross Leasable
Area in Premises: 73,589 sq. ft. (See Section 1.2)
(i) Gross Leasable
Area in the
Building: 188,913 sq. ft. (See Section 1.2)
(office - 124,909 sq. ft.)
(ii) Gross Leasable
Area in the
Project: 513,607.1 sq. ft. (See Section 1.2)
(d) [INTENTIONALLY DELETED]
(e) [INTENTIONALLY DELETED]
(f) [INTENTIONALLY DELETED]
(g) Base Rent: (See Section 4.3)
Year Base Rent
---- ---------
1 (and 2 months) $26.00/s.f.
2 $26.65/s.f.
3 $27.32/s.f.
4 $28.00/s.f.
5 $29.00/s.f.
6 $29.73/s.f.
7 $30.47/s.f.
(h) Security Deposit: $500,000 (See Section 4.6)
(i) Permitted Use: General Office Purposes (See Art. 5)
(j) Tenant's
Occupancy Date: October 1, 1997 (See Section 2.4)
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
ARTICLE 1 INTRODUCTORY PROVISIONS......................................................... 1
Section 1.1. General Definitions.................................... 1
Section 1.2. Determination of GLA of Premises, Building
and Project............................................ 3
Section 1.3. Changes to Project..................................... 3
Section 1.4. Status of Landlord and Project......................... 4
ARTICLE 2 PREMISES AND TENANT'S WORK...................................................... 4
Section 2.1. Lease of Premises...................................... 4
Section 2.2. Roof Equipment......................................... 6
Section 2.3. Condition of Premises.................................. 8
Section 2.4. ADA Compliance......................................... 8
Section 2.5. Confirmation of Occupancy.............................. 10
Section 2.6. Delivery of Premises................................... 10
Section 2.7. Right of First Offer (Recurring)....................... 10
Section 2.8. Right of First Offer (Secondary)....................... 12
Section 2.9. Mechanics' and other Liens............................. 14
Section 2.10. Tenant's Property; Landlord's Lien..................... 16
ARTICLE 3 TERM............................................................................ 16
Section 3.1. Term................................................... 16
Section 3.2. [INTENTIONALLY DELETED]................................ 16
Section 3.3. "Main Term," "Lease Year" Defined...................... 16
Section 3.4 Renewal Term........................................... 17
Section 3.5 Termination............................................ 19
Section 3.6. Holding Over........................................... 19
ARTICLE 4 RENT............................................................................ 19
Section 4.1. Tenant's Agreement to Pay Rent......................... 19
Section 4.2. Rent Commencement Date................................. 20
Section 4.3. Base Rent.............................................. 20
Section 4.4. Additional Rent........................................ 20
Section 4.5. Payment of Rent........................................ 20
Section 4.6. Security Deposit....................................... 21
Section 4.7. Interest Charge........................................ 22
ARTICLE 5 USE............................................................................. 23
Section 5.1. Prompt Occupancy and Use............................... 23
Section 5.2. Operating Hours........................................ 23
Section 5.3. Operational Requirements............................... 23
Section 5.4. Signs; Painting; Displays.............................. 24
Section 5.5. Access Keys............................................ 25
</TABLE>
iii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
ARTICLE 6 TAXES........................................................................... 26
Section 6.1. Real Estate Taxes...................................... 26
Section 6.2. Payment of Tenant's Taxes.............................. 27
Section 6.3. Refund of Taxes........................................ 27
Section 6.4. Taxes on Rent and Other Taxes.......................... 28
ARTICLE 7 COMMON AREAS.................................................................... 28
Section 7.1. Use and Management..................................... 28
Section 7.2. Operating Costs Defined................................ 29
Section 7.3. Tenant's Operating Costs Charge........................ 33
Section 7.4. Parking Validation System.............................. 35
ARTICLE 8 ENVIRONMENTAL COVENANT.......................................................... 36
Section 8.1. Environmental Covenant................................. 36
Section 8.2. Environmental Laws..................................... 37
Section 8.3. Indemnity.............................................. 37
Section 8.4. Survival............................................... 37
ARTICLE 9 MAINTENANCE, REPAIRS AND ALTERATIONS............................................ 38
Section 9.1. Landlord's Duty to Maintain Structure and
Building Systems....................................... 38
Section 9.2. Tenant's Duty to Maintain Premises..................... 38
Section 9.3. Tenant's Duty to Repair Damage......................... 39
Section 9.4. Alterations by Tenant.................................. 39
Section 9.5. Landlord's Right of Access............................. 40
ARTICLE 10 INDEMNITY AND INSURANCE........................................................ 41
Section 10.1. Tenant's Insurance..................................... 41
Section 10.2. Tenant's Contractor's Insurance........................ 41
Section 10.3. Policy Requirements.................................... 42
Section 10.4. Indemnities by Tenant and Landlord..................... 43
Section 10.5. Landlord Not Responsible for Acts of Others............ 44
Section 10.6. Landlord's Insurance................................... 44
Section 10.7. Increase in Insurance Premiums......................... 45
Section 10.8. Mutual Waiver.......................................... 45
ARTICLE 11 CASUALTY....................................................................... 45
Section 11.1. Obligation to Repair and Reconstruct................... 45
Section 11.2. Landlord's Option to Terminate Lease................... 47
Section 11.3. Insurance Proceeds..................................... 47
</TABLE>
iv
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
ARTICLE 12 CONDEMNATION................................................................... 47
Section 12.1. Effect of Taking....................................... 47
Section 12.2. Condemnation Awards.................................... 48
ARTICLE 13 ASSIGNMENT AND SUBLETTING...................................................... 48
Section 13.1. Landlord's Consent Required............................ 48
Section 13.2. Transfer; Issuance of Corporate Shares................. 49
Section 13.3. Acceptance of Rent from Transferee..................... 49
Section 13.4. Conditions of Consent.................................. 49
Section 13.5. Profits from Use or Transfer........................... 50
ARTICLE 14 DEFAULT........................................................................ 51
Section 14.1. "Event of Default" Defined............................. 51
Section 14.2. Remedies............................................... 52
Section 14.3. Damages................................................ 54
ARTICLE 15 SUBORDINATION, NONDISTURBANCE AND ATTORNMENT................................... 55
Section 15.1. Subordination.......................................... 55
Section 15.2. Mortgagee's Unilateral Subordination................... 56
Section 15.3. Attornment and Non-disturbance......................... 56
ARTICLE 16 QUIET ENJOYMENT................................................................ 57
ARTICLE 17 NOTICES........................................................................ 57
Section 17.1. Sending of Notices..................................... 57
Section 17.2. Notices to Mortgagees.................................. 58
Section 17.3. Estoppel Certificate................................... 58
ARTICLE 18 MISCELLANEOUS.................................................................. 58
Section 18.1. Modification........................................... 58
Section 18.2. No Recordation......................................... 58
Section 18.3. Remedies Cumulative.................................... 59
Section 18.4. Successors and Assigns................................. 59
Section 18.5. Compliance with Laws and Regulations................... 59
Section 18.6. Captions and Headings.................................. 60
Section 18.7. Joint and Several Liability............................ 60
Section 18.8. Broker's Commissions................................... 61
Section 18.9. No Discrimination...................................... 61
Section 18.10. No Joint Venture....................................... 61
</TABLE>
v
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Section 18.11. Schedules............................................. 62
Section 18.12. Severability.......................................... 62
Section 18.13. No Third Party Beneficiary............................ 62
Section 18.14. Corporate Tenants..................................... 62
Section 18.15. Applicable Law........................................ 62
Section 18.16 Waiver of Jury Trial.................................. 62
Section 18.17 Limitation of Liability............................... 63
Section 18.18 No Accord and Satisfaction............................ 65
Section 18.19 Time of Essence....................................... 65
Section 18.20 "Person(s)" Defined................................... 65
Section 18.21 Net Lease............................................. 65
Section 18.22 Consents.............................................. 66
Section 18.23 Unilateral Amendment.................................. 66
Section 18.24 Integration of all Prior Agreements and
Execution of Lease.................................... 66
</TABLE>
vi
<PAGE>
SCHEDULES
A Drawing showing approximate location of the Premises
A-1 Legal Description
A-2 Drawing of Antenna Location
A-3 Drawing showing approximate location of Second Floor Space
A-4 Drawing showing approximate location of Storage Space
B Landlord Services
C Form of Current Fitness Facility Waiver
D [INTENTIONALLY DELETED]
E Form of Term Commencement Letter
F Rules and Regulations
G Form of Subordination, Non-disturbance and Attornment
Agreement
H Form of Tenant Estoppel
I [INTENTIONALLY DELETED]
J [INTENTIONALLY DELETED]
K [INTENTIONALLY DELETED]
L Prior Rights of Current Tenants
vii
<PAGE>
TABLE OF DEFINED TERMS
Defined In
Defined Term Section
- ------------ -----------
ADA.......................................................................2.4
Additional Rent...........................................................4.4
Antenna................................................................2.2(a)
Base Rent.................................................................4.3
Building...............................................................1.1(a)
Casualty.................................................................11.1
Common Areas...........................................................1.1(b)
Computer Area..........................................................1.1(c)
Costs Base Year........................................................7.3(a)
Default Rate...........................................................1.1(d)
Event of Default.........................................................14.1
Expansion Space...........................................................2.6
Fairfax Square.........................................................1.1(a)
Fourth Floor Space.....................................................1.1(e)
GLA....................................................................1.1(f)
GLA Fraction...........................................................1.1(g)
GLA Tax Fraction.......................................................1.1(h)
Landlord's Management Agent............................................1.1(i)
Lease Year.............................................................3.3(b)
Liquidated Damages....................................................14.3(a)
Main Term..............................................................3.3(a)
Market Rent............................................................3.4(c)
Mortgage..............................................................15.1(a)
Mortgagee.............................................................15.1(a)
Operating Costs...........................................................7.2
Parking Garage............................................................7.4
Parking Validation System..............................................7.4(c)
Permitted Use.............................................................5.1
Person(s)...............................................................18.20
Preliminary Term..........................................................3.2
Premises...............................................................1.1(j)
Project................................................................1.1(a)
viii
<PAGE>
TABLE OF DEFINED TERMS (continued)
Defined In
Defined Term Section
- ------------ ----------
Recurring ROFO........................................................2.7(a)
Renewal Term..........................................................3.4(a)
Rent.....................................................................4.1
Rent Commencement Date...................................................4.2
Rental Tax...............................................................6.2
Secondary ROFO........................................................2.8(a)
Security Deposit.........................................................4.6
Second Floor Space....................................................1.1(k)
Sixth Floor Space.....................................................1.1(l)
Storage Space.........................................................2.1(b)
Substantial Completion................................................2.7(e)
Taxes.................................................................6.1(a)
Tax Base Year.........................................................6.1(a)
Tenant's Occupancy Date..................................................2.5
Tenant's Operating Costs Charge..........................................7.3
Tenant's Property....................................................2.10(a)
Tenant's Taxes........................................................6.1(b)
Term.....................................................................3.1
Termination Damages..................................................14.3(a)
Third Floor Space.....................................................1.1(m)
Transfer.............................................................13.1(a)
Warranty........................................................7.2(b)(xxiv)
ix
<PAGE>
ARTICLE 1
INTRODUCTORY PROVISIONS
Section 1.1. General Definitions.
As used herein, the term:
(a) "Building" means the referenced tower of a three-building
multi-story office and retail towers located in Fairfax County, Virginia. The
"Project" consists of three office/retail towers and a multi-level parking
facility, plus surface parking. The Project is known as "Fairfax Square," and is
located at 8045, 8065 and 8075 Leesburg Pike, Vienna, Virginia 22182. The
estates and improvements therein comprising the Building and the Project are
owned by the Landlord in fee simple. The Landlord's fee simple estate is subject
to a mortgage (defined below) securing debt to Teachers Insurance and Annuity
Association of America.
(b) "Common Areas" means those areas and facilities which may
be furnished, from time to time, by Landlord at the Building, for the
non-exclusive general or limited common use of Landlord, Tenant, other tenants,
subtenants and other occupants of the Building, their officers, agents,
employees, customers, suppliers and materialmen, and those areas and facilities
used for maintenance, management and marketing of the Building, and all loading
docks, ramps and areas and access roadways thereto, delivery passages, freight
elevators, package pick-up stations, service corridors, sidewalks, walkways,
roadways, alleyways, parking areas, courts, courtyards, ramps, fountains,
retaining walls, stairways, escalators, elevators, fire corridors, fire escapes,
park areas, bus stops, bicycle parking areas, first-aid stations, maintenance
and mechanical areas, rest rooms, meeting rooms, management offices, promotional
offices, utility plants, distribution equipment, fire command centers and
security systems equipment and service lines, pipes, tanks, pumps, exhaust fans,
transformers and conduits for heat, ventilation, light and air conditioning, and
other similar areas, facilities or improvements serving the Building.
(c) "Computer Area" means a portion of the Third Floor Space
containing approximately 1,056 square feet of GLA, as depicted on Schedule A
hereto
(d) "Default Rate" means an annual rate of interest equal to
the lesser of (i) the maximum rate of interest for which Tenant may lawfully
contract in the Commonwealth of Virginia from time to time, or (ii) the prime
rate charged from time to time by Citibank, New York City, plus two percent (2%)
per annum.
<PAGE>
(e) "Fourth Floor Space" means approximately 22,645 square
feet of GLA comprising the entire fourth (4th) floor of the Building, as
depicted on Schedule A hereto.
(f) "GLA" means with respect to the area being measured, the
number of square feet of area measured in accordance with the Washington, D.C.
Association of Realtors Standard Method of Measurement (the "WDCAR"), January 1,
1989, edition. The core factor is 9.45% on a full floor user and 13.70% on a
multi-floor user, based on the WDCAR method.
The GLA in the Premises and in all other areas set aside for tenants within the
Building shall be utilized to calculate the GLA Fraction and to make any other
calculations required to determine Tenant's proportionate share of certain
charges set forth in this Lease.
(g) "GLA Fraction" means a fraction, the numerator of
which shall be the GLA in the Premises and the denominator of
which shall be the total GLA in the Building.
(h) "GLA Tax Fraction" means a fraction, the numerator
of which shall be the GLA in the Premises and the denominator of
which shall be the total GLA in the Project.
(i) "Landlord's Management Agent" means the person or persons
designated by Landlord from time to time to lease, manage, operate, and/or
supervise the operations of the Building for and on behalf of Landlord.
(j) "Premises" means that portion of the Building as shown
outlined in red on Schedule A, having the GLA specified in clause (c) of the
Fundamental Lease Provisions (subject to Landlord's revised measurement thereof
as provided in Section 1.2). The Premises consists of the Second Floor Space,
the Third Floor Space, the Fourth Floor Space and the Sixth Floor Space, as
defined below, and the Storage Space, as defined in Section 2.1(b) below.
(k) "Second Floor Space" means approximately 19,739 square
feet of GLA located on the second (2nd) floor of the Building, as depicted on
Schedule A hereto.
(l) "Sixth Floor Space" means approximately 8,436 square feet
of GLA located on the sixth (6th) floor of the Building, as depicted on Schedule
A hereto.
(m) "Third Floor Space" means approximately 22,645 square feet
of GLA comprising the entire third (3rd) floor of the Building, as depicted on
Schedule A hereto, which space includes the Computer Area.
2
<PAGE>
The section references for definitions of all other capitalized terms
used in this Lease are contained in the Table of Defined Terms immediately
following the Table of Contents.
Section 1.2. Determination of GLA of Premises, Building and Project.
The GLA in the Premises, the Building, and the Project have been
calculated by Landlord's architect in accordance with the WDCAR and shall be as
set forth in clause (c) of the Fundamental Lease Provisions for all purposes of
this Lease. The parties agree that the GLA of the Premises is as stated in
Section 1.1 above. More specifically: (i) the GLA for the Fourth Floor Space and
the Sixth Floor Space, which are to be occupied by Tenant as of October 1, 1997,
is 31,081 square feet; (ii) the GLA for the Third Floor Space excluding the
Common Area, which is to be occupied by Tenant on December 1, 1997, is 21,589
square feet; (iii) the GLA for the Computer Area which is to be occupied by
Tenant on February 1, 1998, is 1,056 square feet; and (iv) the GLA of the Second
Floor Space, which is to be occupied by Tenant on February 1, 1998, is 19,739
square feet. The occupancy dates set forth above shall be subject to the
provisions of Section 2.6 below.
Section 1.3. Changes to Project.
As between Landlord and Tenant, Landlord may at any time and from time
to time eliminate or add any improvements, or change or consent to a change in
the shape, size, location, number, height or extent of the improvements to any
portion of the Building. Nothing herein contained, however, shall be deemed to
permit Landlord to change the dimensions or location of the Premises or the
lobby of the Building or materially adversely affect the access to the Premises
from the Common Areas adjacent thereto, if any, without Tenant's consent, unless
any such changes are required by reason of any federal, state or local
environmental or other law, rule, regulation, guideline, judgment, order or
action.
Section 1.4. Status of Landlord and Project.
Landlord has good and marketable fee simple title to the Project.
Landlord is a general partnership duly organized and in good standing in the
Commonwealth of Virginia, has full right, power, and authority to execute,
deliver, and perform this Lease, and the person signing on behalf of Landlord is
authorized to do so by any and all necessary partnership and corporate actions.
No litigation has been initiated or, to the knowledge of Landlord, threatened
against Landlord or against the Project which, if adversely determined, would
impair Landlord's ability to execute, deliver, and perform this Lease. Neither
Landlord,
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any affiliate of Landlord, the Project, nor the Building is subject to or
otherwise bound by any legal requirements or agreement (written or oral) which
would be breached, or which would result in the creation or imposition of any
title exception applicable to the Building, by Landlord's execution, delivery,
or performance of this Lease. Landlord will not seek or consent to any street or
alley closing or other action that would eliminate or shut off light, air, or
view to or from the Premises (provided that Landlord shall not be required to
initiate judicial action to prevent others from so doing).
ARTICLE 2
PREMISES AND TENANT'S WORK
Section 2.1. Lease of Premises.
(a) Office Premises. Landlord, in consideration of the Rent to be paid
and the covenants to be performed by Tenant, hereby leases to Tenant, and Tenant
hereby leases and takes from Landlord, for the Term, the Premises, at the
rental, and upon the covenants and conditions, herein set forth. Portions of the
Premises shall be delivered by Landlord to Tenant pursuant to the timetable and
the terms and conditions set forth in Section 2.6 below.
(b) Storage Space. Effective as of the Second Floor Commencement Date,
Landlord hereby leases to Tenant certain additional space containing
approximately 1,000 rentable square feet in such areas as more particularly
designated on Schedule A- 4 attached hereto. In addition, Landlord hereby grants
to Tenant the right to lease certain additional storage space in such areas of
the Project as are designated for storage by Landlord on a first-come,
first-served basis (the initial storage space and additional storage space
leased to Tenant by Landlord, if any, are collectively the "Storage Space").
Tenant may exercise its option to lease additional Storage Space from time to
time throughout the term of the Lease by giving written notice to Landlord of
its desire to lease the same, which notice shall be conditioned upon the
availability of the desired space.
Tenant shall pay Landlord an annual rental for the Storage Space (the
"Storage Rent") equal to $10.25 per rentable square foot of GLA of the Storage
Space, adjusted annually at the rate of 2 1/2% per annum. The Lease Years for
Storage Space shall be concurrent with the Lease Years for the Premises. No
janitorial or trash removal services shall be provided to the Storage Space. No
other charges shall be applied, as Additional Rent or otherwise, to the Storage
Space, except for charges incurred by Landlord in enforcing its rights relating
to the Storage Space under this Lease, in accordance with the terms of this
Lease.
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The Tenant shall have the option, exercisable at any time during the Term, to
cancel its lease of the Storage Space, upon thirty (30) days' prior written
notice to the Landlord. Except as provided in this Section 2.1(b), the terms and
conditions of Tenant's occupancy of the Storage Space shall be as set forth in
this Lease.
The Storage Space shall be leased in its absolute "AS IS" condition.
There shall also be no core factor for the Storage Space (i.e., the usable areas
shall be equal to the rentable area).
(c) Common Areas. Tenant, its partners, employees, and invitees shall
have the right during the entire Term to use in common with others, in
accordance with the covenants and obligation of Tenant contained in this Lease,
the lobbies, entrances, exits, stairs, corridors, elevators, off-street loading
areas, men's and women's rest rooms, and other public portions or facilities
(including the right to use the fitness facility located at the Project) from
time to time provided by Landlord for use in common by Tenant and other tenant
located in the Building.
(c) Fitness Facility. In furtherance of the provisions of Section
2.1(c), above, the parties agree that for so long as Landlord continues to
operate a fitness facility within the Project (the "Fitness Facility"), Tenant's
employees shall be entitled to use the same. In this regard, the parties
acknowledge and agree that: (i) Landlord is under no obligation to staff the
Fitness Facility and, accordingly, Tenant's employees shall use the Fitness
Facility at their sole risk; (ii) Landlord may require that Tenant procure
certain insurance coverage prior to the use of the Fitness Facility by any of
Tenant's employees; (iii) Landlord may require Tenant's employees to participate
in an orientation program prior to using the Fitness Facility and to sign
waivers for the same (a copy of the waiver form currently in use is attached to
this Lease as Schedule B); and (iv) Landlord may restrict the number of Tenant's
employees that may use the Fitness Facility, which number shall be based
proportionately on the total square feet of Premises occupied by Tenant.
Landlord reserves the right to impose a membership fee for the use of the
Fitness Facility (although no such fee is currently being charged); however, in
such event, for each Lease Year in which such a fee is charged, the "Costs Base
Year" shall be deemed increased by the amount paid by Tenant and/or its
employees to Landlord on account of the use of the Fitness Facility during such
Lease Year (the "Tenant's Membership Payments"). To the extent that Tenant's
Operating Cost Charge for any Lease Year is not reduced by the full amount of
the Tenant's Membership Payments made in such Lease Year, any
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unused portion shall accrue and be added to the Costs Base Year for the
following Lease Year until the same is fully utilized.
Section 2.2. Roof Equipment.
(a) Tenant shall have the right during the Main Term, at no additional
rental, to install, operate, maintain and modify telecommunications equipment
(collectively, the "Antenna") on the roof of the Building, consisting of
antennas, poles, dishes, masts, posts, cabling, wires and accessories, including
any upgrades or replacements thereof and thereto. The Antenna shall be
installed, maintained and used strictly at the Tenant's sole cost and expense.
(b) Landlord approves the size, location, design and manner of
installation of the Antenna currently located on the Building roof, drawings for
which are attached hereto as Schedule A-2. Prior to initiating any additions or
changes to the Antenna, Tenant shall submit to Landlord for its review and
approval all drawings and specifications therefor. Landlord reserves the right
to have any drawings and load calculations reviewed by Landlord's third party
engineer at Tenant's expense. Landlord's review and approval of any changes to
the Antenna shall be made within five (5) business days after Tenant's request
therefore; and shall not be unreasonably withheld, conditioned or delayed;
provided, that any changes in the location of the Antenna shall be in Landlord's
sole but reasonable discretion.
(c) Landlord reserves the right to review and approve any contractors
providing services that affect the Building. All contractors shall carry
insurance that complies with the requirements of Section 10.2 of this Lease.
(d) After obtaining written approval of the Landlord, Tenant shall have
reasonable access 24 hours per day, 365 days per year, to the roof for
installation and maintenance of the Antenna and shall have the right to install
all reasonable wiring related thereto. Tenant shall be solely responsible for
obtaining any necessary permits and licenses required to install, maintain and
operate the Antenna. Copies of such permits and licenses shall be provided by
the Tenant to the Landlord prior to the installation of the Antenna.
(e) Unless otherwise approved by Landlord in writing, Tenant shall not
be permitted to penetrate the roof membrane in connection with the installation
or maintenance of the Antenna. Tenant shall not be permitted to install,
maintain or use the Antenna in any manner that would cause any damage to the
structural portions of the Property. Tenant, upon written notice from the
Landlord of any damage, shall repair any such damage, at
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its sole cost and expense, within thirty (30) days after the date of such
notice.
(f) Tenant shall install, maintain and use the Antenna is accordance
with all applicable federal, state and local laws and regulations. The Tenant
shall institute corrective maintenance within five (5) business days after its
receipt of written notice from the Landlord as to the necessity for the same. If
the Tenant has not instituted corrective measures within the five (5) business
day period, and does not diligently complete the same, then the Landlord shall
have the right to take corrective measures on the Tenant's behalf, the cost of
which shall be reimbursed by the Tenant upon the Landlord's demand for the same.
Notwithstanding the foregoing, the Landlord may take, at the Tenant's expense,
any reasonable maintenance measures it deems necessary in the event of an
emergency.
(g) Upon the termination of this Lease, Tenant shall be responsible for
all costs of removal of the Antenna and for the restoration of the roof area in
which the Antenna was installed to original condition. Landlord reserves the
right upon the expiration of this Lease to reasonably require, by written notice
to Tenant, that Tenant remove the Antenna within ten (10) days from Tenant's
receipt of such notice, unless Landlord waives such right in writing at the time
of granting its consent to the installation of the Antenna. If Tenant elects not
to remove the Antenna from the Property upon the expiration or earlier
termination of this Lease, or after expiration of the 10-day notice period
provided for in this Lease, then the Antenna shall be deemed abandoned by Tenant
and shall become the property of the Landlord.
(h) Tenant's right to install, maintain and use such Antenna shall be
subject and subordinate to the rights of any and all existing tenants at the
Property that have been previously granted the right to install and maintain
antenna or other telecommunications equipment within the roof area of the
Property.
(i) Landlord shall take such actions as may be reasonably necessary to
ensure that no other antennae, satellite dishes or other roof devices installed
after the installation of the Antenna interfere with the use of the Antenna by
Tenant or the reception thereof. Landlord agrees to provide a continuous source
of power sufficient to operate the Antenna.
(j) Without limiting Landlord's access to the balance of the Building
roof, Landlord shall not have access to the Antenna and shall not handle or have
any contact with the same or any of its related wires, conduits or other
facilities without the prior consent of Tenant, except in emergency situations
pursuant to the
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last paragraph of Section 2.2(f)7, and any such access or contact must be
supervised by a representative of Tenant. In no event may the Antenna be
relocated without Tenant's prior written consent.
Section 2.3. Condition of Premises.
(a) The parties acknowledge that portions of the Premises have been (up
through the date immediately prior to the effective date of this Lease) occupied
by Tenant under that certain sublease dated July 22, 1997, as amended by that
First Amendment dated August 18, 1997 (the "Sublease") between Tenant and NHP
Incorporated ("NHP"), a then-existing space tenant of the Premises. Pursuant to
the provisions of the Sublease, NHP is required to deliver the Third Floor Space
(excluding the Computer Area) to Tenant on December 1, 1997, and to deliver the
Computer Area, the Storage Space and the Second Floor Space to Tenant on
February 1, 1998. The parties acknowledge that the Fourth Floor Space and the
Sixth Floor Space have previously been delivered to Tenant in compliance with
the provisions of the Sublease. Further, the Sublease required NHP to deliver
all of such space to Tenant on the dates set forth above in broom-clean
condition, free of all furniture, fixtures and equipment other than those
purchased by Tenant from NHP. Landlord agrees to deliver the Third Floor Space,
Computer Area, Storage Space and Second Floor Space to Tenant on the dates set
forth above in the condition contemplated pursuant to the immediately preceding
sentence. The mechanical, electrical and other systems in the Premises shall be
delivered in good working order. The parties acknowledge that the lease with NHP
(the "NHP Lease") is subject to a binding termination agreement, a copy of which
has been furnished to Tenant, pursuant to which portions of the Premises are
deleted from the space demised to NHP under the NHP Lease on or prior to the
dates upon which Tenant is entitled to lease such portion of the Premises
pursuant to this Lease, and that NHP shall have no right to occupy any portion
of the Premises on the delivery dates set forth above.
(b) Subject to the provisions of Sections 2.3, 2.6 and 18.5(b), Tenant
acknowledges that it has had the opportunity to inspect the Premises, that
Landlord has no obligations to perform any work to the Premises as a condition
to Tenant's occupancy, and that Tenant is accepting the Premises in their
absolute "AS IS" condition.
Section 2.4. ADA Compliance.
As used in this Lease, the Americans with Disabilities Act ("ADA")
shall mean the Americans with Disabilities Act of 1990, 42 U.S.C. ss. 1201 et
seq., and all implementing regulations. Landlord and Tenant intend to comply
with the requirements of the
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ADA and the parties hereby mutually agree to allocate responsibility for such
compliance as follows:
(a) Subject to the provisions of Section 18.5(b), Landlord shall have
the responsibility to comply with the requirements of the ADA in all Common
Areas and common elements, including all restrooms located within the Premises.
Such compliance responsibility shall include, but shall not be limited to, the
obligation to remove architectural and communication barriers in the Common
Areas and common elements where such removal is readily achievable. Landlord
represents that the Building is in compliance with the ADA and agrees to
indemnify Tenant from any claims arising from Building non-compliance and shall
remedy the same at no cost to Tenant, unless such non-compliance results from
Tenant's actions.
(b) Tenant shall have the responsibility to comply with the
requirements of the ADA in the Premises. Such responsibility shall include, but
shall not be limited to, the obligation to remove architectural and
communication barriers in the Premises created by Tenant's trade fixtures and
leasehold improvements made by Tenant, where such removal is readily achievable.
(c) Where Building alterations involve the Common Areas or common
elements which are under Landlord's control, it shall be the Landlord's
responsibility to comply with the standards of accessibility required under the
ADA.
(d) Each party shall be responsible for the ADA compliance of its own
standards, criteria, administrative methods, eligibility criteria, policies,
practices, and procedures.
(e) Tenant shall be responsible for the provision of any "auxiliary
aids and services," as such term is defined and used in the ADA, to its
customers, clients, or patrons if and to the extent required in connection with
the operation of its business or occupancy of the Premises.
(f) To the extent permitted by the ADA, where either Landlord or Tenant
can demonstrate that barrier removal is not readily achievable in an area in
which either party has responsibility for ADA compliance, the party responsible
for compliance, as herein provided, shall make use of alternatives to barrier
removal, if such alternatives area readily achievable.
(g) Where alterations made by either party trigger "path of travel"
requirements under the ADA, the party making such alterations shall be
responsible for satisfying such requirements.
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Section 2.5. Confirmation of Occupancy.
The parties acknowledge that Tenant is occupying the Fourth Floor Space
and the Sixth Floor Space as of October 1, 1997. In furtherance thereof, Tenant
has executed and delivered to Landlord a fully executed "Term Commencement
Letter" in the form attached hereto as Exhibit E with respect to such space. In
addition, within fifteen (15) days following the date Tenant takes occupancy of
each of the Second Floor Space, the Computer Area and the balance of the Third
Floor Space, Tenant shall deliver to Landlord a fully executed Term Commencement
Letter for the option space so occupied.
Section 2.6. Delivery of Premises.
(a) Landlord shall deliver the Fourth Floor Space to Tenant on
October 1, 1997 (the "Fourth Floor Commencement Date").
(b) Landlord shall deliver the Sixth Floor Space to Tenant on
October 1, 1997 (the "Sixth Floor Commencement Date").
(c) Landlord shall deliver the Third Floor Space (excluding the
Computer Area) to Tenant on December 1, 1997 (the "Third Floor Commencement
Date").
(d) Landlord shall deliver the Computer Area, the Storage Space and the
Second Floor Space to Tenant on February 1, 1998 (the "Second Floor Commencement
Date").
(e) All portions of the Premises shall be delivered by Landlord to
Tenant on the dates set forth above in broom-clean condition, free of any other
occupants and free from all furniture, fixtures and equipment other than those
purchased by Tenant from NHP.
(f) The Rent Commencement Date for each portion of the Premises shall
occur upon the "Commencement Date" for such space as set forth in clauses (a)
through (d) above.
Section 2.7. Right of First Offer (Recurring).
(a) Provided that Tenant is not in default under this Lease beyond any
applicable grace, notice or cure period or is diligently pursuing a good faith
cure of any default hereunder at the time that Tenant exercises such option, and
is not subletting more than fifty percent (50%) of the Premises or assigned its
interests under the Lease, Tenant shall have an ongoing right of first offer
(the "Recurring ROFO"), subject in all respects to the prior rights of current
tenants at the Project (which rights are described on Schedule L), to lease any
office space not initially leased by Tenant within Floor 2 of the Building, as
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hereinafter provided. This Recurring ROFO may not be offered more than two (2)
times in any twelve (12) month period, and is not contingent upon Tenant's
exercise of any other right or option under this Lease except that Tenant shall
not be entitled to exercise its ROFO during the last twelve (12) months of the
Main Term unless it has exercised its renewal option under Section 3.4.
(b) Landlord shall provide written notice to Tenant as early as
reasonably possible in advance of the date that any such space may become
available, and shall use its commercially reasonable efforts to provide notice
simultaneously with any notice provided to any tenants with prior rights.
Landlord's notice shall contain the rent and allowances that will apply to the
proposed ROFO space (both calculated as provided in paragraph (c) below). If
Tenant elects to exercise its Recurring ROFO with respect to the proposed ROFO
space, it shall give written notice thereof within ten (10) business days after
receipt of Landlord's notice of availability. If Landlord does not receive
Tenant's election to exercise its Recurring ROFO within such ten (10) business
day period, then Landlord shall be entitled to lease the proposed ROFO space to
another tenant. If Tenant elects to exercise its Recurring ROFO, then in its
notice to Landlord of that election, Tenant shall inform Landlord as to whether
Tenant accepts or does not accept Landlord's calculation of Market Rent for the
ROFO space. If Tenant does not accept Landlord's calculation of Market Rent,
then the parties shall proceed directly to a "three-broker" determination.
Immediately after Tenant initially rejects Landlord's determination of Market
Rent, then Landlord's broker and Tenant's broker together shall select a third
licensed real estate broker with at least five (5) years experience in the
Tysons Corner, Virginia office market. The three brokers shall then, within ten
(10) days of Tenant's initial notice of rejection to Landlord, calculate the
Market Rent for the ROFO space by taking the average of those two (2) of the
three (3) brokers' rent calculations that are the closest together. The brokers'
calculation of Market Rent shall be irrevocable and binding upon Landlord and
Tenant; provided, however, that Tenant's exercise of its Recurring ROFO is
conditioned upon, and shall be revocable by Tenant in its sole discretion until,
three (3) business days after the final determination (as set forth in this
Section 2.7(b)) of the Base Rent for the ROFO space.
(c) If Tenant exercises its Recurring ROFO, Tenant shall thereafter
enter into a lease of the proposed ROFO space on the terms and conditions as are
set forth in this Lease (except the Rent and any allowance). If Tenant exercises
the Recurring ROFO during the first two (2) Lease Years, Tenant shall pay the
then-escalated Base Rent for its occupancy of the proposed ROFO space. If Tenant
exercises the Recurring ROFO during the remaining five
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(5) Lease Years, the Base Rent shall be ninety-five percent (95%) of the
then-current Market Rent (defined in the first paragraph of Section 3.4(c)). The
allowance applicable to the proposed ROFO space shall be the then-market
allowance provided by landlords in the Tysons Corner, Virginia area for
expansion space in properties similar to the Project, taking into consideration
the then-existing condition of the expansion space and the premises, the time
period remaining in the Term and the Rent then paid by Tenant. The market rate
for the allowance shall be determined in the same manner and at the same times
as the Market Rent is determined for such ROFO space. Base Rent shall commence
ten (10) business days after the delivery of the ROFO space to Tenant (the "ROFO
Rent Commencement Date") with the leasehold improvements substantially completed
(defined below). If the leasehold improvements for the ROFO space consist of
retrofit such as painting and carpeting, they shall be completed by Tenant in
accordance with the provisions of Section 9.4. If the leasehold improvements
require more than simple retrofit, then the parties shall agree in good faith on
the process to bid the work and have it completed by Landlord's contractors.
(d) Upon the rent commencement date of any ROFO space, the ROFO space
shall be added to and constitute a part of the Premises, and the GLA of the
Premises shall be increased accordingly. The term of the lease for any ROFO
space shall be coterminous with the Term of this Lease. In addition, Tenant
shall be entitled to additional non-reserved parking spaces on the same basis as
described in Section 7.4.
(e) As used in this Lease, the term "Substantial Completion" shall mean
the date of which (i) all leasehold improvements to the ROFO space have been
completed in accordance with the plans and specifications therefor, subject only
to minor punch-list items of work which do not substantially interfere with
Tenant and with Tenant's use of the ROFO space, (ii) when all governmental or
quasi-governmental requirements applicable to the construction and occupy of
such leasehold improvements are satisfied (it being understood that the
obligation to obtain the certificate of occupancy shall be borne by Tenant,
provided that Landlord shall cooperate with Tenant and be available as necessary
to obtain the same), (iii) Tenant, its employees, agents, and invitees, have
ready access to and ingress from the ROFO space and the Common Areas and such
areas of installed, clean, free of construction equipment and materials, (iv)
all major equipment and mechanical systems are in good working order, and (v)
the ROFO space is broom clean.
Section 2.8. Right of First Offer (Secondary).
(a) Provided the Tenant is not in default under this Lease
beyond any applicable grace, notice or cure period or is
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diligently pursuing a good faith cure of any default hereunder at the time that
Tenant exercises such option, and is not subletting more than fifty percent
(50%) of the Premises or assigned its interest under the Lease, Tenant shall
have a one-time right of first offer subject in all respects to the prior rights
of current tenants at the Project (which rights are described on Schedule L), to
lease the entire 5th floor of the Building (approximately 22,645 square feet of
GLA), plus a recurring right of first offer, not to exceed two times per year,
on the entire 7th floor (14,537 square feet of GLA) and approximately 14,209
square feet of GLA on the balance of the 6th floor, both spaces currently being
occupied by Informix, as the leases shall expire, but subject to the existing
tenants' renewal and expansion options (the "Secondary ROFO"). This Secondary
ROFO is not contingent upon Tenant's exercise of any other right or option under
this Lease, except the Tenant shall not be entitled to exercise its ROFO during
the last twelve (12) months of the Main Term unless it has exercised its renewal
option under Section 3.4 of this Lease.
(b) Landlord shall provide written notice to Tenant as early as
reasonably possible in advance of the date that any such space may become
available, and shall use its commercially reasonable efforts to provide notice
simultaneously with any notice given to any tenant with prior rights. Landlord's
notice shall contain the Rent and allowances that will apply to the proposed
ROFO space (both calculated as provided in paragraph (c), below). If Tenant
elects to exercise its Secondary ROFO with respect to the proposed ROFO space,
it shall give written notice thereof within ten (10) business days after receipt
of Landlord's notice of availability. If Landlord does not receive Tenant's
election to exercise its Secondary ROFO within such ten (10) business day
period, then Landlord shall be entitled to lease the proposed ROFO space to
another tenant. If Tenant elects to exercise its Secondary ROFO, then in its
notice to Landlord of that election, Tenant shall inform Landlord as to whether
Tenant accepts or does not accept Landlord's calculation of Market Rent for the
ROFO space. If Tenant does not accept Landlord's calculation of Market Rent,
then the parties shall proceed directly to a "three-broker" determination.
Immediately after Tenant initially rejects Landlord's determination of Market
Rent, then Landlord's broker and Tenant's broker together shall select a third
licensed real estate broker with at least five (5) years experience in the
Tysons Corner, Virginia office market. The three brokers shall then, within ten
(10) days of Tenant's initial notice of rejection to Landlord, calculate the
Market Rent for the Premises, in accordance with the method set forth in Section
2.7(b) above. The brokers' calculation of Market Rent shall be irrevocable and
binding upon Landlord and Tenant; provided, however, that Tenant's exercise of
its Secondary ROFO is conditioned upon, and shall be revocable by Tenant in its
sole
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discretion until, three (3) business days after the final determination (as set
forth in this Section 2.8(b)) of the Base Rent for the ROFO space.
(c) If Tenant exercises any one or more of its Secondary ROFOs, Tenant
shall thereafter enter into a lease of the proposed ROFO space on the terms and
conditions as are set forth in this Lease (except the Rent and the allowance).
If Tenant exercises a Secondary ROFO, the Base Rent shall be ninety-five percent
(95%) of the then current Market Rent (defined in the first paragraph of Section
3.4(c)). The allowance applicable to the proposed ROFO space shall be the
then-market allowance provided by landlords in the Tysons Corner, Virginia area
for expansion space in properties similar to the Project, taking into
consideration the then-existing condition of the expansion space and the
premises, the time period remaining in the Term and the tent then paid by
Tenant. The market rate for the allowance shall be determined in the same manner
and at the same times as the Market Rent is determined for such ROFO space. Base
Rent shall commence on ten (10) business days after the delivery of the ROFO
space to Tenant with the leasehold improvements Substantially Completed. If the
leasehold improvements for the ROFO space consist of retrofit such as painting
and carpeting, they shall be completed by Tenant in accordance with the
provisions of Section 9.4. If the leasehold improvements require more than
simple retrofit, then the parties shall agree in good faith on the process to
bid the work and have it completed by Landlord's contractors.
(d) Upon the rent commencement date of any ROFO space, the ROFO space
shall be added to and constitute a part of the Premises, and the GLA of the
Premises shall be increased accordingly. The term of the lease for any ROFO
space shall be coterminous with the term of this Lease. In addition, Tenant
shall be entitled to additional non-reserved parking spaces on the same basis as
described in Section 7.4.
Section 2.9. Mechanics' and other Liens.
(a) With respect to any work performed by Tenant in furnishing or
equipping the Premises hereunder, and with respect to any alterations performed
pursuant to Section 10.4, Tenant will not permit to be created and has no
authority to permit to be created or to remain undischarged any lien,
encumbrance or charge (arising out of any work done or materials or supplies
furnished by a contractor, subcontractor, mechanic, laborer or materialman, or
any mortgage, security agreement or otherwise by or for Tenant), which might be
or become a lien or encumbrance or charge upon the Premises, or Tenant's
leasehold estate therein, the Project or any income therefrom. Tenant will not
suffer any other matter or thing whereby the estate, rights and interests of
Landlord in the Project might be encumbered or impaired.
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(b) If any mechanics' lien on account of any alleged debt of Tenant, or
any person acting on Tenant's behalf, shall be filed against the Premises, the
Project or any income therefrom, Tenant shall take and diligently prosecute
appropriate action to have the same discharged or bonded and released of record
at Tenant's sole expense within thirty (30) days of the filing of such lien.
Upon Tenant's failure so to do, Landlord, in addition to any other right or
remedy that it may have, may cause said lien to be discharged or bonded and take
such other action as may be reasonably necessary to protect its interest, and
Tenant shall pay any amounts paid by Landlord in connection with such action,
and all reasonable legal and other costs and expenses incurred by Landlord in
connection therewith (including reasonable attorneys' fees, court costs (if
awarded post-judgment) and other necessary disbursements). Any such amounts paid
by Landlord and the amount of any such expenses or costs incurred by Landlord,
if not paid by Tenant to Landlord within thirty (30) days after the date Tenant
receives written notice and verification from Landlord of the amount thereof and
demand for payment of the same, shall, together with interest thereon at the
Default Rate from the date of the receipt by Tenant of the aforesaid written
notice to the date of payment thereof by Tenant, be treated as Additional Rent,
and shall be payable by Tenant to Landlord not later than thirty (30) days after
the giving of such written notice and demand. Nothing herein contained shall
obligate Tenant to pay or discharge any lien created by Landlord.
(c) Tenant shall promptly pay all persons furnishing labor or materials
with respect to any work performed by or on behalf of Tenant in, on or about the
Premises. No work which Landlord permits Tenant to perform shall be deemed to be
for the immediate use and benefit of Landlord so that no mechanics or other lien
shall be allowed against the estate of Landlord by reason of any consent given
by Landlord to Tenant to improve the Premises. This Lease expressly provides
that the interest of Landlord shall not be subject to liens for improvements
made for or on behalf of Tenant, and Tenant shall notify each of Tenant's
contractors of the foregoing provisions.
(d) To the extent permitted by law, Landlord shall have the right to
post such other notices as Landlord may reasonably deem to be appropriate for
the protection of its interests in the Premises. The provisions of this Section
2.9 shall apply with respect to any work performed by or on behalf of Tenant in,
on or about the Premises during the Term thereof. Nothing contained in this
Section 2.9 shall be deemed to relieve Landlord from its responsibility for any
liens resulting from Landlord's (or its affiliate's or agent's) performance of
any construction at the Project.
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Section 2.10. Tenant's Property; Landlord's Lien.
(a) All trade fixtures, furniture, equipment apparatus (as
distinguished from leasehold improvements) owned by Tenant and installed in the
Premises ("Tenant's Property") shall be and remain the property of Tenant and
shall be removable at any time, including upon the expiration of the Term,
provided Tenant shall repair to the reasonable satisfaction of Landlord any
damage to the Premises caused by the removal of any of Tenant's Property.
(b) If Tenant's Property, or any portion thereof, is not removed from
the Premises upon the expiration of the Term or any earlier termination of this
Lease in accordance with the foregoing, such remaining Tenant's Property shall,
at the election of Landlord, become the personal property of Landlord, and
Tenant's rights therein shall cease upon the exercise of such election by
Landlord.
(c) Landlord hereby waives any statutory or other lien Landlord may
have on any of Tenant's personal property located at the Premises.
ARTICLE 3
TERM
Section 3.1. Term.
The term of this Lease ("Term") shall mean the Main Term; provided,
that if Tenant exercises its renewal option provided in Section 3.4 of this
Lease, then "Term" shall include (where the context is appropriate) the
Preliminary Term, the Main Term and the Renewal Term.
Section 3.2. [INTENTIONALLY DELETED].
Section 3.3. "Main Term," "Lease Year" Defined.
(a) "Main Term" means the period commencing on the Fourth Floor
Commencement Date (i.e., October 1, 1997) and, subject to the provisions of
Article 15 and the other terms and conditions of this Lease, continuing for
seven (7) years and two (2) months, such that the Main Term shall expire at
11:59 p.m. on November 30, 2004.
(b) The First Lease Year shall be that period running from October 1,
1997 through November 30, 1998. Each successive Lease Year shall commence on the
expiration of the previous Lease Year and run for the next twelve (12)
successive calendar months. "Lease Year" means the first or any following Lease
Year.
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(c) It is intended that Base Rent and any other payments required to be
made by Tenant hereunder be calculated with reference to the Lease Year. All
other charges for which Tenant is responsible are to be based upon the calendar
year or partial calendar year, whichever is applicable.
Section 3.4 Renewal Term.
(a) Tenant shall have and is hereby granted one (1) option to extend
the Main Term, for an additional five (5) year term (the "Renewal Term"),
commencing at the expiration of the Main Term and terminating on the fifth (5th)
anniversary of the expiration of the Main Term. At least nine (9) months before
the expiration of the Main Term, Tenant shall provide written notice to the
Landlord of its desire to renew the Lease; provided, that the renewal option
shall be exercisable only if the Tenant (i) is not in default under the Lease
beyond any applicable grace, notice or cure period or is diligently pursuing a
good faith cure of any outstanding default, and (ii) has not sublet more than
fifty percent (50%) of the Premises or assigned its interests under the Lease.
(b) Except as provided as follows, the Renewal Term shall be upon the
same terms, covenants and conditions as are set forth in this Lease, except for
the provision of parking at no cost to Tenant (which parking during any Renewal
Term shall be at a rate not higher than the most favorable rate [which may be
zero] being given at that time to any office tenant within the Project). For the
purposes of this Lease, no distinction is made between the terms "extend" or
"renew" or any variations thereof.
(c) The Base Rent for the first (1st) Lease Year of the Renewal Term
shall be ninety-five percent (95%) of Market Rent.
"Market Rent" means the annual fair market rental for comparable office
premises in comparable buildings for a comparable term that would be agreed upon
by a landlord and a tenant located in the Tysons Corner, Virginia area, taking
into consideration the following: (a) the landlord and tenant are well informed
and well advised and each is acting in what it considers its own best interests;
(b) Landlord will not be providing to Tenant any market concessions, including
without limitation rental abatement, tenant improvement allowance and additional
tenant concessions, if any, being offered at comparable buildings (which would
serve to reduce what would otherwise be the Market Rent); (c) the Premises are
to be let substantially subject to the provisions of this Lease for a five (5)
year term; and (d) there is no broker's or finder's fee or commission payable by
either party, unless Tenant has retained a broker, in which case Landlord shall
pay Tenant's broker a market rate commission or
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less if applicable, and the fact that Landlord is paying such a commission shall
be taken into account in determining Market Rent; and (e) the Premises are being
demised in their then "as-is" condition. Any determination of Market Rent shall
also include the rent escalation applicable during the Renewal Term.
Within thirty (30) days of its receipt of Tenant's notice of its desire
to exercise a renewal option, the Landlord shall send to the Tenant a written
notice specifying its good faith determination of the Market Rent, including
rent escalations, for the Premises. In its determination of Market Rent,
Landlord shall provide its estimate, in its commercial good faith, of the
Operating Costs and Taxes. The Base Years for Building Operating Costs and for
Taxes shall also be updated to the twelve (12) month period following the
commencement date of the Renewal Term. Within thirty (30) days of its receipt of
notice from Landlord, Tenant shall accept or challenge, in writing, Landlord's
determination of Market Rent. If Tenant challenges Landlord's determination of
Market Rent, (i) the parties shall attempt to negotiate mutually acceptable
renewal terms, or Tenant may elect to proceed directly to a "three-broker"
determination and (ii) Tenant shall have the right to rescind its exercise of
said renewal option within five (5) business days following the final
determination of Market Rent. If Landlord and Tenant are unable to agree on
Market Rent within ten (10) days after Tenant initially rejects Landlord's
determination of Market Rent, then Landlord and Tenant shall each, within ten
(10) days thereafter, select a licensed real estate broker with at least five
(5) years experience in the Tysons Corner, Virginia area office market, who
shall each determine the Market Rent for the Premises in accordance with this
paragraph.
If the higher determination of the Market Rent submitted by one of the
brokers is equal to or less than one hundred ten percent (110%) of the
determination of the Market Rent submitted by the other broker, the Market Rent
shall be the average of the two determinations. If the determination of the
Market Rent submitted by one of the brokers exceeds one hundred ten percent
(110%) of the determination of the Market Rent submitted by the other broker,
the two brokers shall jointly, within five (5) days after notice from either
Landlord or Tenant, appoint a third broker with similar qualifications to
determine the Market Rent. If the two brokers cannot agree as to the selection
of a third broker within five (5) days after the request that they do so, either
party may request that any officer of the Board of Realtors for Fairfax County
appoint the third broker, which appointment shall be made within ten (10) days
thereafter. The third broker shall complete its determination of the Market Rent
within thirty (30) days after its appointment. The Market Rent shall be that
determination which provides for a net effective rental rate that is neither
highest or lowest of the three
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determinations, unless two determinations are the same, in which
event it shall be that amount.
Landlord and Tenant shall each bear the cost of their respective
brokers, and one-half (1/2) the cost of the third broker, if any.
Section 3.5 Termination.
Unless sooner terminated pursuant to the provisions hereof, this Lease
shall terminate on the expiration of the Term without the necessity of any
notice from either Landlord or Tenant to terminate the same, and Tenant hereby
waives notice to vacate or quit the Premises and agrees that Landlord shall be
entitled to the benefit of all remedies at law or equity respecting the summary
recovery of possession of the Premises from a Tenant holding over, to the same
extent as if statutory notice had been given. For a period of six (6) months
prior to the expiration of the Term, upon reasonable prior notice to Tenant,
Landlord shall have the right to show the Premises and all parts thereof to
prospective tenants during normal business hours.
Section 3.6. Holding Over.
If Tenant shall be in possession of the Premises after the termination
of this Lease, in the absence of any written agreement extending the Term, the
tenancy under this Lease shall become one from month-to-month, terminable by
Landlord or Tenant on thirty (30) days' prior written notice, at a monthly
rental equal to one hundred fifty percent (150%) of the sum of (i) the monthly
installment of Base Rent payable during the last calendar month of the Term and
(ii) one twelfth (1/12) of the average annual Operating Charge, Tenant's Utility
Charge and Tenant's Taxes payable thereunder for the last two (2) Lease Years.
Tenant shall also pay as Additional Rent all other charges payable under the
terms of this Lease, prorated for each month during which Tenant remains in
possession. Such month-to-month tenancy shall be subject to all other
conditions, provisions and obligations of this Lease. Tenant shall not interpose
any counterclaims in a summary proceeding or other action based on holdover;
provided, however, that Tenant may assert all applicable defenses in any such
proceeding.
ARTICLE 4
RENT
Section 4.1. Tenant's Agreement to Pay Rent.
Tenant hereby agrees to pay to Landlord during the Term, at the times
and in the manner herein provided, Base Rent, as may be
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increased from time to time, and Additional Rent (collectively, "Rent").
Tenant's obligation to pay Rent accrued and payable during the Term shall
survive the termination of this Lease.
Section 4.2. Rent Commencement Date. "Rent Commencement
Date" for each portion of the Premises shall occur upon the
Commencement Date appropriate to such space, as specified in
Section 2.6.
Section 4.3. Base Rent. Tenant shall pay Landlord the Base Rent set
forth in clause (g) of the Fundamental Lease Provisions, in twelve (12) equal
monthly installments, on the first (1st) day of each calendar month. If the Main
Term should begin on a date other than the first (1st) day of a calendar month,
Tenant shall pay Landlord as Base Rent for such days remaining in the partial
month the product obtained by multiplying 1/365th of the Base Rent for the first
Lease Year by the number of days remaining in such partial month.
Section 4.4. Additional Rent.
In addition to Base Rent, Tenant shall pay all other sums of money or
charges of whatever nature required to be paid by Tenant to Landlord pursuant to
this Lease (collectively, "Additional Rent"), whether or not the same are
designated as Additional Rent.
Section 4.5. Payment of Rent.
Tenant shall pay all Rent when due and payable, without any set-off,
deduction, notice or prior demand therefor whatsoever. If Tenant shall fail to
pay any Rent within five (5) days after notice that the same is due, Tenant
shall be obligated to pay a late payment charge equal to five percent (5%) of
any Rent payment not paid when due, to reimburse Landlord for its additional
administrative costs. Unless otherwise provided herein, any Additional Rent
which shall become due shall be payable with the next installment of Base Rent,
and if none is thereafter due, upon Landlord's demand therefor. Rent and any
reports and statements required of Tenant shall be paid and delivered to
Landlord at the designated management office in the Building between the hours
of 8:00 a.m. and 6:00 p.m., Monday through Friday, or at such other place
reasonably acceptable to Tenant as Landlord may, from time to time, designate in
a notice to Tenant. Any payment by Tenant or acceptance by Landlord of a lesser
amount than shall be due from Tenant to Landlord shall be treated as a payment
on account. The acceptance by Landlord of a check for a lesser amount with an
endorsement or statement thereon, or upon any letter accompanying such check,
that such lesser amount is payment in full shall be given no effect, and
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Landlord may accept such check without prejudice to any other rights or remedies
which Landlord may have against Tenant.
Section 4.6. Security Deposit. (a) Upon execution of this Lease,
Tenant shall deliver to Landlord the funds described below to serve as the
security deposit hereunder (the "Security Deposit"). The Security Deposit, if
posted in the form of cash (in whole or in part), shall be held in an
interest-bearing savings account and all interest on the Security Deposit shall
be added to the Security Deposit, deemed part of the Security Deposit. Tenant
shall also be entitled to post the Security Deposit in the form of letter of
credit and/or marketable securities, if posted in a form and in accordance with
the documentation accepted and requested by Landlord. Notwithstanding the
foregoing, all interest, dividends or other proceeds on or from the Security
Deposit (if posted, in whole or in part, in the form of cash and/or marketable
securities) which causes the aggregate balance of the Security Deposit to exceed
the maximum required amount of $500,000 (as may be reduced from time to time)
shall be returned to Tenant on a quarterly basis.
(b) The Security Deposit shall be security for the payment and
performance by Tenant of all of Tenant's obligations, covenants, conditions, and
agreements under this Lease.
(c) The Security Deposit for the entire Premises shall be in the amount
of $500,000.00. Because only a portion of the Premises will be initially
occupied by Tenant, the Security Deposit shall be delivered by Tenant to
Landlord in accordance with the following: (i) the portion of the Security
Deposit applicable to the Fourth Floor Space and the Sixth Floor Space, in the
amount of $215,000.00, shall be delivered to Landlord as of the Fourth Floor
Commencement Date; (ii) the portion of the Security Deposit applicable to the
Third Floor Space, in the amount of $155,000.00, shall be paid to Landlord on
the Third Floor Commencement Date; and (iii) the portion of the Security Deposit
applicable to the Second Floor Space, in the amount of $130,000.00, shall be
delivered to Landlord on the Second Floor Commencement Date.(c)
(d) Provided that Tenant is not in default under the terms and
conditions hereof (beyond any applicable notice and cure period), as of the date
Tenant has obtained $300,000,000.00 in equity, bank loans or proceeds from
public debt offerings (which proceeds are used for working capital or repayment
of existing obligations) (the "300 Million Test"), that portion of the Security
Deposit then posted which exceeds $320,000.00 shall be returned to Tenant, and
Tenant shall not be required to post additional security unless Tenant no longer
satisfies the 300 Million Test. If Tenant no longer satisfies the 300 Million
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Test, then Tenant shall restore the Security Deposit to the full $500,000.00
initially required under Section 4.6(a).
(e) Landlord may at any time request appropriate financial information
and statements to verify whether Tenant has or is satisfying the 300 Million
Test, and to confirm, as part of satisfying the 300 Million Test, in Landlord's
reasonable discretion that Tenant is using the proceeds of such public debt
offerings for working capital and the repayment of existing obligations. Tenant
shall respond and supply Landlord with financial information with respect to the
foregoing confirmation within ten (10) business days after Landlord's request.
(f) If, on the expiration of this Lease, Tenant is not in default under
the terms and conditions hereof (beyond any applicable notice and cure periods)
and is current in all of its monetary obligations hereunder, then within thirty
(30) days following the expiration date of the Term, Landlord shall return the
Security Deposit to Tenant, less such portion thereof as shall reasonably be
necessary to repair such damage caused by Tenant to the Premises in connection
with (i) removing its goods and effects, and (ii) Tenant's use and occupancy of
the Premises, ordinary wear and tear excepted, and which causes Tenant to be in
default of its obligation under this Lease. In the event of any default (beyond
any applicable notice or cure periods) by Tenant hereunder, Landlord shall have
the right, but shall not be obligated, to apply all or any portion of the
Security Deposit as shall reasonably be necessary to cure such default, in which
event Tenant shall be obligated to deposit promptly with Landlord the amount
necessary to restore the Security Deposit to its original amount.
Section 4.7. Interest Charge.
In addition to any late payment charge which might otherwise be due,
any Rent payable by Tenant under this Lease which is not paid within five (5)
days after the same is due shall bear interest at the Default Rate from the
first day due until such Rent, plus all interest accrued thereon, are paid in
full; provided, however, that the terms of this Section 4.7 shall be waived the
first (1st) two (2) times in any twelve (12) month period that Tenant fails
timely to pay any Rent within such five (5) day period.
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ARTICLE 5
USE
Section 5.1. Prompt Occupancy and Use.
Tenant shall occupy the Premises upon commencement of the Main Term and
thereafter shall continuously occupy and use the Premises for the permitted use
as set forth in clause (i) of the Fundamental Lease Provisions ("Permitted Use")
and for no other purpose whatsoever without the prior written consent of
Landlord. If Tenant vacates the Premises for a period exceeding three (3)
consecutive calendar months at any time during the Term, unless due to a
Casualty or approved Transfer, Landlord shall have the right (but not the
obligation) to terminate this Lease and recapture the Premises, but if Tenant is
not otherwise in default under this Lease, Landlord shall not be entitled to
recover damages or collect Rent (beyond the date of Landlord's termination) as a
result thereof.
Section 5.2. Operating Hours.
The operating hours for office tenants at the Building are 8:00 a.m.
until 6:00 p.m. Mondays through Fridays and 8:00 a.m. until 1:00 p.m. Saturdays
(excepting, however, Sundays and legal holidays). If Tenant is operating within
the Premises for hours in excess of the stated operating hours and requests
additional HVAC service for such periods, then Tenant shall pay to Landlord as
Additional Rent, upon demand, any additional costs actually incurred by Landlord
in connection therewith. The current costs to Landlord for after hours HVAC is
$48.00 per floor per hour.
Section 5.3. Operational Requirements.
(a) Landlord shall perform or provide certain standard building
services at, to or within the Building, a schedule of which is attached hereto
as Schedule B, in accordance with the standards of a modern, first-class office
building. The cost of providing or performing the services are included within
the "Operating Costs" of the Building, a proportionate share of the increase to
which over those for calendar year 1997 shall be paid by Tenant in accordance
with the terms of this Lease.
(b) In regard to the use and occupancy of the Premises, Tenant shall,
at its expense: (i) keep the inside and outside of all glass doors of the
Premises clean; (ii) replace promptly any cracked or broken glass (except
exterior glass) with glass of like kind and quality; (iii) maintain the Premises
in a clean, orderly and sanitary condition; (iv) keep all mechanical apparatus
free of vibration and noise which may be transmitted beyond the interior of the
Premises; (v) comply with all federal,
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state, county and city laws, ordinances, codes, rules, regulations and
reasonable recommendations of Landlords's insurer or applicable fire insurance
rating organizations now or hereafter in effect; (vi) comply with and observe
all reasonable rules and regulations established by Landlord from time to time
for the Building, a copy of which current rules and regulations are attached
hereto as Schedule F, provided the same are applied equally to all tenants of
the Building; and (vii) conduct its business in all respects in a dignified
manner in accordance with the highest standards of a first-class office project
in the Tysons Corner, Virginia area.
(c) In regard to the use and occupancy of the Premises and the Common
Areas, Tenant shall not: (i) place or maintain any trash, refuse or other
articles in any vestibule, service corridor or entry way of the Premises, on the
footwalks or any corridors adjacent thereto or elsewhere on the exterior of the
Premises so as to obstruct any driveway, corridor or any other Common Areas;
(ii) permit the parking of vehicles so as to unreasonably interfere with the use
of any Common Area or other area within the Project; (iii) receive or ship
articles of any kind, except mail and packages, outside the designated loading
area for the Project; (iv) obstruct the Common Areas adjacent to the Premises;
(v) use or permit the use of any portion of the Premises in a manner likely to
injure the reputation of the Project or which will be in violation of law, nor
permit any part of the Premises to be used for any unlawful, disreputable or
immoral purpose whatsoever or for any other activity of a type which is not
generally considered appropriate for urban office centers conducted in
accordance with the highest standards of operation; (vi) use or permit the use
of any portion of the Premises for any activity which constitutes a nuisance or
is hazardous; (vii) place a load upon any floor which exceeds the floor load
which the floor was designed to carry; or (viii) operate its heating or
air-conditioning in such a manner as to drain heat or air-conditioning from the
Common Areas or from the premises of any other tenant or other occupant of the
Project.
Section 5.4. Signs; Painting; Displays.
(a) Tenant shall not place or suffer to be placed or maintained on the
exterior of the Premises any signs, advertising matter or any other thing of any
kind, and will not place or maintain any matter on the glass of any window, door
or other portions of the Premises in such a manner as to be visible from the
exterior of the Premises, unless and to the extent approved by Landlord as part
of Tenant's Plans or as otherwise approved in writing by Landlord. Tenant shall,
at its expense, maintain such sign, decoration, lettering, advertising matter or
other thing as may be permitted hereunder in good condition and repair at all
times.
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(b) Tenant shall not paint or decorate any part of the exterior of the
Premises, or any part of the interior visible from the exterior thereof, without
first obtaining Landlord's approval.
(c) Tenant shall have the right, at its sole cost and expense, to
manufacture and affix and install a sign on one side of the exterior of the
Building, which both parties agree shall be the Route 7 side of Leesburg Pike at
the approximate location of the current "NHP" sign, which sign shall be subject
to the approval of any governmental or civic authority which has jurisdiction
thereover. Landlord shall remove or cause NHP to remove the existing NHP sign,
at no cost to Tenant, on or before December 1, 1997. The design, locations,
materials, size and manner in which the name is attached to the Building shall
be acceptable in all respects to the Landlord in its reasonable discretion.
Tenant shall at its sole cost and expense cause the sign to be maintained, and
the contractors or workmen responsible for maintaining the same must perform
their work in a manner which does not cause any damage to the Building or
unreasonably interfere with Landlord's maintenance of the Building. Tenant shall
obtain, at its cost, all permits and governmental consents necessary for the
sign. Tenant shall be permitted to display the sign for so long as Tenant
occupies at least 43,398 square feet of GLA within the Building; provided, that
Tenant shall be permitted to install its sign simultaneously with the removal by
NHP of the NHP sign.
(d) Tenant shall receive, at no charge to Tenant, up to eight (8)
strips for names and suite numbers on the directory in the lobby of the
Building, which number of strips will be increased proportionately if and as
Tenant occupies the Third Floor Space and the Second Floor Space. Any subsequent
changes to the names on the directory shall be made at Tenant's sole cost.
Section 5.5. Access Keys.
Tenant shall have the right, at Tenant's cost, to install security key
locks and readers on the inside of both stairwells on the second (2nd), third
(3rd) and fourth (4th) floors so that Tenant's employees will be able to use the
stairs for internal access. If permitted, all such systems shall be installed
and maintained in compliance with applicable Fairfax County and/or Virginia law;
provided, that Tenant shall provide Landlord with all keys or cards necessary to
provide Landlord with access to the Premises.
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ARTICLE 6
TAXES
Section 6.1. Real Estate Taxes.
(a) Beginning with the second (2nd) Lease Year during the Main Term,
and continuing for each successive Lease Year thereafter, Tenant shall pay in
each Tax Year, or portion thereof occurring during the Term, as Additional Rent,
Tenant's proportionate share of the increase to all Taxes over those Taxes
incurred by Landlord for the Project during calendar year 1997 (the "Tax Base
Year"), grossed up to reflect one hundred percent (100%) assessment at full
occupancy. As used herein, "Taxes" shall mean amounts payable by Landlord with
respect to personal property taxes, intangible taxes, real estate taxes, ad
valorem taxes, general and special assessments, taxes on real estate rental
receipts, taxes on Landlord's gross receipts, or any other Tax imposed upon or
levied against real estate or upon owners of real estate rather than persons
generally, payable with respect to or allocable to the Project (including, but
not limited to, any payments in lieu of any Taxes, and reasonable fees of
attorneys, consultants and appraisers in contesting any Taxes). Taxes shall not
include, nor shall Tenant be obligated to pay pursuant to this Section, such
taxes as capital gains, corporation, unincorporated business, income, profit,
excess profit, inheritance, transfer, recordation, estate, gift, or franchise
taxes, or license fees, or any taxes, fees, or charges imposed, assessed,
levied, or charged which are directly associated with construction of
improvements on the Project, or any vault rental or other vault charges, or any
fines, penalties, and interest on late payments of any taxes, or any personal
property taxes of Landlord for equipment or items not used directly in the
operation or maintenance of the Project or any withholding tax in the event the
Building is sold to a non-United States entity.
(b) The amount of Tenant's proportionate share of the increase in Taxes
("Tenant's Taxes") for the second (2nd) and each successive Lease Year shall be
computed by multiplying the amount of such increase in Taxes over those incurred
in the Tax Base Year by the GLA Tax Fraction. In the last Lease Year of the Term
the provisions of this Section shall apply, but Tenant's liability for its
proportionate share of any increase in Taxes for such year shall be subject to a
pro rata adjustment based upon the number of days of such Lease Year falling
within the calendar year in question. Tenant expressly agrees that Tenant shall
have no right to appear or contest any Taxes assessed, allocated or imposed with
respect to the Project and Tenant hereby expressly waives any and all rights now
or hereafter conferred upon it by law to independently contest any Taxes.
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(c) Landlord shall contest any Taxes imposed upon the Project if
requested to do so in writing by tenants occupying at least fifty percent (50%)
of the then-leased space within the Project.
Section 6.2. Payment of Tenant's Taxes.
Tenant's Taxes shall be paid by Tenant in twelve (12) equal monthly
installments in advance in such amounts as are estimated and billed for each
applicable Lease Year by Landlord at the commencement of the second (2nd) Lease
Year during the Main Term. Each installment is due on the first (1st) day of
each calendar month. At any time or times during any Lease Year, Landlord may
reasonably revise its estimate of Tenant's Taxes and adjust Tenant's equal
monthly installments payable thereafter during such Lease Year to reflect such
revised estimate. Any revised estimate shall include a reasonably detailed
explanation of the revision. Within sixty (60) days after the date upon which
Landlord shall be obligated to pay any Tax, or such reasonable (in Landlord's
determination) time thereafter, Landlord shall certify to Tenant the amount of
Taxes allocated and assessed for the Lease Year in question and the amount of
Tenant's proportionate share thereof, which certification shall include a copy
of the tax bill at issue. The proportionate share paid or payable for each such
Lease Year shall be adjusted between Landlord and Tenant, the parties hereby
agreeing that Tenant shall pay Landlord or Landlord shall credit to Tenant's
account, or (if such adjustment is at the end of the Term), pay Tenant, as the
case may be, within thirty (30) days of Tenant's receipt of such certification,
such amounts as may be necessary to effect such adjustment to the agreed upon
proportionate share for each such Lease Year. The failure of Landlord to provide
such certification within the time prescribed above shall not relieve Tenant of
its obligations generally or for the specific Lease Year in which any such
failure occurs. Notwithstanding anything herein to the contrary, if it should
thereafter be determined by a court of competent jurisdiction that any
abatement, waiver or release of any Taxes shall have been invalid, the amount,
if any, due from Tenant on account of Tenant's Taxes during the then current and
each prior Lease Year shall be redetermined for purposes of this Lease as if
such Taxes had been assessed and imposed without regard to the effect of any
such abatement, waiver or release thus determined to be invalid, and any
Additional Rent thereby determined to be due from Tenant shall be paid to
Landlord within thirty (30) days after receipt of notice from Landlord.
Section 6.3. Refund of Taxes.
Notwithstanding anything in Sections 6.1 or 6.2 to the contrary, if any
Taxes paid by Landlord and previously included
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in payments made by Tenant pursuant to this Article are refunded, Landlord shall
promptly pay to Tenant Tenant's proportionate share of such refund (less the
reasonable expenses incurred by Landlord in obtaining such refund to the extent
not otherwise included in Taxes) based upon the proportion that the Taxes paid
by Tenant as part of Tenant's share of Taxes for the period to which such refund
relates bears to the total amount of Taxes paid by Tenant during the calendar
year to which such refund relates.
Section 6.4. Taxes on Rent and Other Taxes.
In addition to Tenant's proportionate share of the increase in Taxes
over those paid by Landlord for the Tax Base Year and to the extent not included
in Taxes, Tenant shall pay to Landlord (if Landlord is required by law to
collect, or has any liability for the payment of, such taxes), any excise or
other tax, levied, imposed or assessed by any governmental authority or other
taxing authority upon any Rent payable hereunder (collectively, "Rental Tax");
provided, that such Rental Tax is in addition to and not substitution of
existing Taxes. Tenant shall pay such Rental Tax to Landlord with each payment
of Rent (including payments of Base Rent and Additional Rent). Tenant shall also
pay, prior to the time the same shall become delinquent or payable with penalty,
all personal property taxes imposed on its furniture, trade fixtures, apparatus,
equipment or leasehold improvements installed by Tenant or by Landlord on behalf
of Tenant (except to the extent such leasehold improvements shall be covered by
Taxes referred to in Section 6.1 hereof), and any other property of Tenant;
provided that Tenant shall have the right to contest any such taxes. Landlord
may require that Tenant's leasehold improvements be separately assessed by the
taxing authority.
ARTICLE 7
COMMON AREAS
Section 7.1. Use and Management.
(a) Upon the express agreement of Tenant that it will use the Common
Areas in harmony with Landlord, other tenants and licensees of other portions of
the Project, Landlord grants to Tenant and its agents, employees and customers,
a non-exclusive license to use the Common Areas, subject to the exclusive
control and management thereof at all times by Landlord, and subject further to
the rights of Landlord set forth in the next paragraph, which in no way shall
adversely or materially affect Tenant's use of the Common Areas.
(b) Landlord shall operate and maintain, or cause to be
operated and maintained, any areas designated by Landlord as
Common Areas in a manner in the best interests of the Project and
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consistent with the highest standards of maintenance for a first-class office
building in Fairfax County, Virginia. Landlord shall have the right from time to
time to take the following actions; provided, with respect to clauses (ii)
through (vi), that such changes do not adversely or materially affect Tenant's
use and occupancy of the Premises: (i) to establish, modify and enforce rules
and regulations governing the use and operation by all tenants, including but
not limited to Tenant, in, on, about, or with respect to the Common Areas which
Landlord shall reasonably deem necessary or desirable in order to assure the
highest level of quality and character of operation of the Common Areas; (ii) to
add to or subtract from the Common Areas; (iii) to enter into, modify and
terminate easements and other agreements pertaining to the use and maintenance
of the Common Areas, and any portions thereof; (iv) to close any or all portions
of the Common Areas to such extent as may, in the reasonable opinion of
Landlord, be necessary to prevent a dedication thereof or the opinion of
Landlord, be necessary to prevent a dedication thereof or the accrual of any
rights by any person or by the public therein; provided, that if such closing
will adversely or materially affect Tenant's use and occupancy of the Premises,
Landlord may exercise this right if it provides Tenant with reasonable
alternative access or egress to and from the Premises; (v) to close temporarily
any or all portions of the Common Areas; and (vi) to do and perform such other
acts in, on, to and with respect to the Common Areas and improvements therein
as, in the exercise of good business judgment, Landlord shall reasonably
determine to be advisable or necessary.
Section 7.2. Operating Costs Defined.
(a) "Operating Costs" means any and all costs and expenses incurred by
Landlord for services performed by Landlord or by others on behalf of Landlord
with respect to the operation and maintenance of the Building (including the
Premises) and the Common Areas located therein or within the Building and
serving or allocable to the Building, determined in accordance with generally
accepted accounting principles consistently applied from year to year,
including, without limitation, except as specifically set forth herein, all
costs and expenses of:
(i) operating, maintaining, repairing, lighting, signing,
cleaning, removing trash, painting, striping, controlling of traffic,
controlling of rodents, and policing and securing the Common Areas (including,
without limitation, the costs of uniforms, equipment, assembly permits, supplies
and alarm systems);
(ii) purchasing and maintaining in full force insurance for
the Building (including, without limitation, liability insurance for personal
injury, death and property damage, rent
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insurance, insurance against fire, extended coverage, theft or other casualties,
worker's compensation insurance covering personnel, fidelity bonds for
personnel, insurance against liability for defamation and claims of false arrest
occurring on or about the Building, and plate glass insurance) (excluding,
however, any costs for all insurance purchased by Landlord on leasehold
improvements in the premises of other tenants);
(iii) removing snow, ice, water and debris;
(iv) operating, maintaining and repairing machinery,
furniture, accessories and equipment used in the operation and maintenance of
the Building, and the personal property taxes and other charges incurred in
connection with such machinery, furniture, accessories and equipment except as
otherwise specifically excluded herein;
(v) maintaining and repairing paving, curbs, walkways,
drainage, pipes, ducts, conduits, grease traps, and lighting
fixtures throughout the Building;
(vi) lanting and replanting flowers, shrubbery, trees,
grass and planters;
(vii) providing, electricity and heating, ventilation and air
conditioning to the Building and operating, maintaining and repairing any
equipment used in connection therewith (to the extent not specifically excluded
from Operating Costs); no replacement costs for major components of the heating,
ventilating or air conditioning system or energy costs are included in this
category;
(viii) water and sanitary sewer services and other services, if
any, furnished to the Building for the non-exclusive use of tenants;
(ix) enforcing any operating agreements pertaining to the
Building or any portions thereof, and any easement and/or rights agreements
entered into by Landlord for the benefit and use of all tenants of the Building,
or any arbitration or judicial actions undertaken with respect to the same;
(x) maintaining and repairing the Building, including,
without limitation, exhaust systems, sprinkler systems, pumps, fans, switchgear,
loading docks and ramps, freight elevators, passenger elevators, stairways,
services corridors, delivery passage, utility plants, transformers, doors,
walls, floors, skylights, ceiling and windows; and
(xi) management fees (not to exceed four percent (4%) of
gross receipts generated from the operation of the Building;
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provided, however, that if the management fee is increased, then the Base Year
Operating Costs shall be recalculated to include the amount of such increase)
and expenses and payroll and employee benefits of on-site personnel, (below the
level of property manager).
(b) Notwithstanding anything contained herein to the contrary, and by
way of illustration and not limitation, Operating Costs (for the Building,
Common Areas or the Building, whether or not specifically set forth) shall not
include, among other expenses or costs, any expenses or costs incurred or paid
by Landlord for the following items:
(i) Capital Expenditures, including any capital replacement,
capital repair or capital improvement made to the Building, the Common Areas,
the land or the Project and any other expense which would be deemed to be a
capital expenditure under generally accepted accounting principles, consistently
applied. Replacement of an item or of a major component of an item and major
repairs to such items in lieu of replacement shall each be considered a Capital
Expenditure if the original item or a subsequent improvement to such item was,
or could have been capitalized.
Capital Expenditures of $1,000 or less may be included in
Operating Costs. For purposes of this clause, a group of expenditures related to
the same capital project shall be considered a single expenditure;
(ii) Depreciation or amortization of the Building or
its contents or components;
(iii) Expenses for the preparation of space or other work which
Landlord performs for any tenant or prospective tenant of the Building.
(iv) Expenses incurred in leasing or obtaining new
tenants or retaining existing tenants, including leasing
commissions, legal expenses, advertising or promotion;
(v) Interest, amortization or other costs, including
legal fees, associated with any mortgage, loan or refinancing of
the land, the Building, or the Common Areas;
(vi) The cost of any item or service which Tenant separately
reimburses Landlord or pays to third parties, or that Landlord provides
selectively to one or more tenants of the Building, other than Tenant, whether
or not Landlord is reimbursed by such other tenant(s);
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(vii) Any amount paid to an entity or individual related to
Landlord which exceeds the amount which would be paid for similar goods or
services on an arms-length basis between unrelated parties or for which Landlord
is reimbursed by other tenants or third parties, including insurance proceeds;
(viii) The cost of correcting defects in the construction of
the Building, the Common Areas or the land; repairs resulting from ordinary wear
and tear shall not be deemed to be defects;
(ix) Any costs of complying with any governmental laws, rules,
regulations, or other requirements applicable to the Land, the Building, the
Common Areas or the Premises;
(x) The cost of correcting any applicable building or fire
code violation(s) or violations of any other applicable law relating to the
Building, the Common Areas or the land; or the cost of any penalty or fine
incurred for non-compliance with the same;
(xi) Any costs incurred to test, survey, cleanup, contain
abate, remove or otherwise remedy Hazardous Materials, as defined herein or
asbestos containing materials from the Building, the Common Areas, the Project
or the land (provided, that this exclusion from Operating Costs shall not affect
the provisions of this Lease or any other space lease at the Building with
respect to Tenant's or any other tenant's possible liability for all or a
portion of such costs);
(xii) Any personal property taxes of Landlord for equipment or
items not used directly in the operation or maintenance of the Building;
(xiii) Contributions to Operating Costs reserves;
(xiv) All bad debt loss, rent loss, or reserve for bad debt or
rent loss;
(xv) Costs incurred in connection with the sale, financing,
refinancing, mortgaging, selling, or change of ownership of the Building;
(xvi) Rentals and other related expenses incurred in leasing
air conditioning systems, elevators, or other equipment ordinarily considered to
be of a capital nature, except equipment not affixed to the Building which is
used in providing janitorial or similar services;
(xvii) Costs, other than those incurred in ordinary maintenance
(for such objects as may be located within the Common Areas), for sculpture,
paintings, or other objects of art;
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(xviii) Taxes;
(xix) Costs of repairs, restoration, replacements or other
work occasioned by (A) fire, windstorm or other casualty (whether such
destruction be total or partial) and (B) the exercise by governmental
authorities of the right of eminent domain (whether such taking be total or
partial);
(xx) Costs incurred in connection with disputes with tenants,
other occupants, or prospective tenants, or costs and expenses incurred in
connection with negotiations or disputes with employees, consultants, management
agents, purchasers or mortgagees of the Building;
(xxi) Costs incurred by Landlord which are associated with the
operation of the business of the legal entity which constitutes Landlord as the
same is separate and apart from the cost of the operation of the Building,
including legal entity formation and legal entity accounting (including the
incremental accounting fees relating to the operation of the Building to the
extent incurred separately in reporting operating results to the Building's
owners or lenders);
(xxii) Any compensation paid to clerks, attendants or other
persons in commercial concessions operated for profit by Landlord;
(xxiii) Fees or expenses for management of the Building in
excess of the management fees provided for in Section 7.2(k);
(xxiv) Costs incurred for any items to the extent covered by a
manufacturer's, materialman's, vendor's or contractor's warranty (a "Warranty")
and the costs of any items that are not covered by a Warranty but for which a
reasonable, prudent landlord would have obtained a Warranty;
(xxv) Any costs associated with retail space, unless such
space is not separately metered, including without limitation, electricity, HVAC
and other utilities; and
(xxvi) Any other cost or expense which, under generally
accepted accounting principles consistently applied, would not be considered to
be an Operating Cost of the Building.
Section 7.3. Tenant's Operating Costs Charge.
(a) Beginning with the second Lease Year during the Main Term and
continuing for each successive Lease Year thereafter, Tenant shall pay to
Landlord, as Additional Rent, a proportionate share of the increases to
Operating Costs over those Operating Costs incurred by Landlord for the Project
during calendar year
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1997 (the "Costs Base Year"), which share of such increases ("Tenant's Operating
Costs Charge") shall be computed by multiplying the increases in Operating Costs
for the period in question over those Operating Costs incurred for the Costs
Base Year by the GLA Fraction. Tenant's Operating Costs Charge shall be paid by
Tenant in monthly installments in such amounts as are reasonably estimated and
billed by Landlord at the beginning of each applicable Lease Year, each
installment being due with the monthly rent installment. Landlord's bill to
Tenant shall specify those Operating Costs that are determined on a Project
basis and those that are determined on a Building basis. Those Operating Costs
that are determined on a Project basis shall be allocated to the individual
buildings comprising the Project on a fair and reasonable basis. The estimates
provided at the beginning of each Lease Year shall not exceed one hundred eight
percent (108%) of the previous Lease Year's allowable Operating Costs Charge,
unless extraordinary events cause an excess increase in a costs category, and
evidence supporting the excess increase is provided with such estimate. From
time to time during each Lease Year, Landlord may reasonably revise its estimate
of Tenant's Operating Costs Charge and adjust Tenant's monthly installments
payable thereafter during such Lease Year to reflect such revised estimate.
(b) Notwithstanding any provisions of this Lease to the contrary,
Tenant shall not be obligated for pay for any annual increase in controllable
Operating Costs over the Base Year that exceeds one hundred eight percent (108%)
of the controllable Operating Costs for the previous year. "Controllable"
Operating Costs are all Operating Costs except for Taxes, insurance and
utilities.
(c) If at any time during the Lease Term, including calendar year 1997,
less than 95% of the total rentable area of the Building is occupied by tenants,
or the Landlord is not supplying services to 95% of the total rentable area of
the Building at any time during any calendar year, the Operating Costs for such
calendar year shall be an amount equal to the expenses that would normally be
expected to be incurred had such occupancy been 95% of the total rentable area
of the Building and had Landlord been supplying services to 95% of the total
rentable area of the Building throughout the calendar year. The only costs which
shall be adjusted in this manner shall be variable expenses where the amount is
directly related to the level of occupancy or square foot area receiving a
particular service. Landlord will indicate which expenses were adjusted in this
manner in the Operating Expense statement.
(d) Within one hundred twenty (120) days (or such additional time as is
reasonable under the circumstances) after the end of each such Lease Year,
Landlord shall deliver to Tenant
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an itemized statement broken down in categories with reasonable detail of the
Operating Costs for such period, and the monthly installments paid or payable
shall be adjusted between Landlord and Tenant, the parties hereby agreeing that
Tenant shall pay Landlord or Landlord shall credit Tenant's account, (or if such
adjustment is at the end of the Term, pay Tenant, as the case may be,) within
thirty (30) days of receipt of such statement, such amounts as may be necessary
to effect adjustment to the agreed proportionate share for such Lease Year. The
failure of Landlord to provide such statement within the time prescribed above
shall not relieve Tenant of its obligations generally or for such period in
which any such failure occurs.
(e) Upon at least ten (10) days' prior notice to Landlord and as
further described herein, Landlord shall permit Tenant's certified public
accountant or other representative to inspect, at Landlord's designated
management office during normal business hours, Landlord's records in regard to
Operating Costs for such preceding Lease Year; provided, however, that if Tenant
shall not have requested such inspection by written notice within two (2) years
following Tenant's receipt of the statement of Operating Costs for such billing
period, Tenant shall be conclusively deemed to have accepted such statement and
to have waived any further right to inspection. If such records relating to
Operating Costs for the second or third preceding Lease Year are not located
within the Washington, D.C. metropolitan area, Landlord, at Tenant's sole cost
and expense, shall cause such records to be available therein within ten (10)
days after Tenant's request therefor, at Tenant's cost. If Tenant's audit of the
Operating Costs indicates that Tenant was overcharged for the same, Landlord
shall promptly repay all such overpayments to Tenant, and adjust Tenant's Cost
Base Year, if necessary. If any Tenant's audit of the Operating Costs indicates
that Tenant was overcharged for the Operating Cost Charge, by an amount which
exceeds $4,500.00, Landlord shall promptly reimburse Tenant for all of Tenant's
expenses incurred for the audit.
Section 7.4. Parking Validation System.
(a) Tenant acknowledges that it has been advised by Landlord that the
Building includes a multi-level parking garage operated by a third party other
than Landlord ("the Parking Garage").
(b) (i) During the Term, Landlord shall cause the parking garage
operator to provide to Tenant (at no additional cost to Tenant during the Main
Term), parking spaces based on the parking ratio of 3.5 spaces per 1,000 square
feet of GLA in the Premises leased by Tenant. The parking spaces shall be
located within the Parking Garage as for Tenant's exclusive (with respect to the
three (3) reserved spaces as of October 1, 1997, and an
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additional three (3) reserved spaces as of December 1, 1997) or non-exclusive
(with respect to the remainder of the spaces) use. Parking spaces shall be
available and accessible to Tenant for Tenant's use twenty-four (24) hours per
day, seven (7) days per week. The cost of designating the reserved spaces shall
be paid by Tenant. Landlord shall use its commercially reasonable efforts to
cause the Parking Garage operator to charge competitive hourly rates for paid
parking within the Parking Garage; provided, that Tenant's visitors and invitees
shall never be required to pay rates higher than the most favorable rates
charged to visitors and invitees of any other tenant within the Project.
(ii) As Tenant takes occupancy of the Third Floor Space and
the Second Floor Space, and to the extent Tenant leases any additional space at
the Project, then its allocation of non-reserved parking spaces shall adjust
pursuant to the formula in Section 7.4(b)(i).
(c) Landlord hereby reserves the right, but shall have no obligation,
to establish a parking validation system ("the Parking Validation System") for
the Project pursuant to which customers and patrons of all tenants in the
Project shall be entitled to park within the Parking Garage at reduced rates,
provided that they obtain a validation stamp from one or more of the tenants
within the Project. In the event that Landlord shall establish such a Parking
Validation System, Tenant hereby agrees to participate in such Parking
Validation System in accordance with the rules and regulations established by
Landlord, and to pay to Landlord its proportionate share of the costs and
expenses thereof, which costs and expenses shall be included in Operating Costs.
If a Parking Validation System is established, then the Operating Costs for the
Costs Base Year shall be recalculated as though the costs of such Parking
Validation System were imposed during the Costs Base Year.
ARTICLE 8
ENVIRONMENTAL COVENANT
Section 8.1. Environmental Covenant.
In its use of the Premises and the remainder of the Building, the
Tenant shall not (either with or without negligence) cause or permit the escape,
disposal or release of any biologically or chemically active or other hazardous
substances or materials, or allow the storage or use of such substances or
materials in any manner, or allow any such materials or substances to be brought
onto the Property, other than in accordance with applicable law.
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Section 8.2. Environmental Laws.
(a) For the purposes of this Lease, "hazardous substances and
materials" shall include, without limitation those described in the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (42 U.S.C. Sections 9601 et seq.), the Resource Conservation and
Recovery Act, as amended (42 U.S.C. sections 6901 et seq.), any applicable state
or local laws, and the regulations adopted under these acts.
(b) The Landlord has not caused or explicitly consented to the unlawful
storage or disposal of any hazardous substances or materials within the Project.
The Landlord has not received notice of any decree, judgment, or order of an
actual or alleged environmental contamination within the Project. If the
Premises become contaminated by any hazardous materials, which contamination
shall not have resulted from any action or cause of Tenant, then Landlord shall
pay for the cost of any required decontamination, removal and replacement of
such items.
Section 8.3. Indemnity.
If any governmental agency ever requires testing to ascertain whether
or not there has been any release of hazardous materials within the Premises
during the term of this Lease, then Tenant's proportional share of the
reasonable costs thereof shall be reimbursed by the Tenant to the Landlord upon
ten (10) days' demand as additional charges if such requirement applies to the
Premises. The Tenant shall execute affidavits, representations and the like from
time to time at the Landlord's request concerning the Tenant's best knowledge
and belief regarding the presence of hazardous substances or materials on the
Premises. Landlord and Tenant shall each defend, indemnify and hold harmless the
other against and from any liability, claim of liability or expense arising out
of any release of hazardous materials on the Premises or Building occurring
while each is in possession thereof, or if incurred by Landlord elsewhere in the
Project if caused by the Tenant.
Section 8.4. Survival.
The foregoing covenants shall survive the expiration or earlier
termination of this Lease.
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ARTICLE 9
MAINTENANCE, REPAIRS AND ALTERATIONS
Section 9.1. Landlord's Duty to Maintain Structure and Building
Systems.
Landlord shall maintain or cause to be maintained the structure of the
Building and shall be responsible for: (a) repairs to any mechanical,
electrical, plumbing, sprinkler system or other life saving systems or HVAC
system installed by or on behalf of Landlord and serving the Premises and Common
Areas, and (b) structural repairs to the exterior walls, structural columns and
structural floors which collectively enclose the Premises (excluding, however,
all doors, door frames, sliding doors, windows and any glass therein); provided
Tenant shall give Landlord notice of, or Landlord has actual knowledge of, the
necessity for such repairs (which notice may be given telephonically to
Landlord's on-site management agent). If the necessity for such repairs shall
have arisen, in whole or in part, from the willful acts or omissions of Tenant
or entities for which Tenant is responsible and the insurance that Landlord is
required to carry excludes from coverage any casualty willfully caused by Tenant
or entities for which Tenant is responsible, then Tenant shall pay any amount
not covered by Landlord's insurance.
Section 9.2. Tenant's Duty to Maintain Premises.
(a) Tenant shall at all times from and after delivery of possession of
the Premises to Tenant, at its own cost and expense, maintain the Premises in
good and tenantable condition, and make all repairs to the Premises or any
installations, equipment or facilities therein (except for any maintenance and
repairs required to be made by Landlord pursuant to Section 9.1 or
reconstruction required to be made by Landlord pursuant to Section 11.1 and
Article 12 and subject to the terms of Section 10.8). Without limiting the
generality of the foregoing, Tenant shall: (i) keep the interior of the
Premises, together with all of its specialized systems and its installations
therein, in good order and repair and shall make all replacements thereof from
time to time required by any governmental agency having jurisdiction thereover;
and (ii) surrender the Premises at the expiration of the Term or at such other
time as Tenant may vacate the Premises in as good condition as when received,
except for (A) ordinary wear and tear, (B) damage by Casualty other than as
provided in the last sentence of Section 9.1 above, or condemnation, or (C) acts
of God; and (iii) take care not to overload the electrical wiring serving the
Premises or within the Premises, and install at its expense, subject to the
provision of Section 9.4, any additional electrical, mechanical, plumbing or
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any other equipment which may be required in connection with the Permitted Use.
Landlord acknowledges, after due inquiry, that if used in the normal course of
business, the electrical equipment installed as part of Tenant's Plans for the
initial improvements to the Premises will not overload the electrical wiring
system. If the necessity for such repairs shall have arisen, in whole or in
part, from the willful acts or omissions of Landlord or entities for which
Landlord is responsible and the insurance that Tenant is required to carry
excludes from coverage any casualty willfully caused by Landlord or entities for
which Landlord is responsible, then Landlord shall pay any amount not covered by
Tenant's insurance.
(b) Any damage or injury sustained by any person because of any
equipment or installation, the maintenance and repair of which is the
responsibility of Tenant pursuant to this Section, shall be paid for by Tenant.
(c) Notwithstanding anything contained in this Article 9 to the
contrary, Tenant's duties under this Section 9.2 and Section 9.3, below, are
subject to Landlord's maintenance and repair obligations under this Article 9,
the terms of Section 10.8, below, and Landlord's obligations under Articles 11
and 12, below.
Section 9.3. Tenant's Duty to Repair Damage.
Any repairs or alterations to the Premises which may affect the
structure or external appearance of the Premises, any Common Areas or any
portion of the Building, shall require the prior written consent thereto by
Landlord. Landlord shall have the absolute right to withhold its consent and
require alternative methods of repair and alteration if the making thereof will,
in Landlord's reasonable opinion, adversely affect the Premises, the Common
Areas or the Building outside of the Premises. In default of the making of such
repairs by Tenant, at the expiration of thirty (30) days after notice to Tenant
(which notice shall not be required in emergency situations), Landlord may make
such repairs or cause the same to be made, and Tenant agrees to pay to Landlord
promptly upon Landlord's demand, as Additional Rent, with interest at the
Default Rate until paid, the reasonable amount incurred by Landlord. Any repairs
made by Landlord, without notice due to an emergency situation shall not incur
interest at the Default Rate.
Section 9.4. Alterations by Tenant.
Tenant shall not make any alterations, renovations, improvements or
other installations to the Premises (including, without limitation, any
alterations of the signs, structural alterations or any cutting or drilling into
any part of the
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Premises) unless and until (i) Tenant shall have caused detailed plans and
specifications therefor to have been prepared and delivered, at Tenant's
expense, by a licensed architect or other duly qualified person, and (ii) Tenant
shall have obtained Landlord's prior written approval thereof, which approval
shall not be unreasonably withheld, conditioned or delayed. If approval is
granted, Tenant shall cause the work described in such plans and specifications
to be performed, at its expense, promptly, efficiently and competently by duly
qualified or licensed persons or entities without interference with or
disruption of the operations of tenants or other users and occupants of the
Building. All such work shall comply with all applicable governmental codes,
rules, regulations and ordinances. Notwithstanding the foregoing, Tenant shall
have the right, without Landlord's consent (Tenant must, however, provide notice
to Landlord in accordance with the terms of this Section), to repaint and/or
recarpet all or any portion of the Premises at any time or from time to time or
to make any non-structural alteration the cost of which does not exceed $10,000
for any alteration project.
Section 9.5. Landlord's Right of Access.
Except in case of an emergency (in which case Landlord may enter the
Premises at any time without notice) and provided Landlord provides Tenant with
reasonable prior notice, minimizes the interference of Tenant's business, and is
accompanied by a representative of Tenant, if requested, Landlord and its
authorized representatives may: (a) enter the Premises (i) during normal
business hours for the purpose of inspecting any repairs and alterations being
made or required to be made by Tenant hereunder, or (ii) at any other time
Landlord deems reasonably necessary to prevent waste and deterioration of the
Premises or the Building; (b) use portions of the roof, if any, of the Premises
for any purpose, including, without limitation, the erecting of temporary
scaffolds and other aids to construction on the exterior of the Premises,
provided access to the Premises shall not be denied, except that nothing shall
interfere with Tenant's roof rights as set forth in Section 2.2; (c) install,
maintain, use, repair and replace within the Premises pipes, ducts, conduits,
wires, access doors and all other mechanical equipment serving other parts of
the Building, the same to be at such locations within the Premises as will not
unreasonably deny Tenant's use thereof; and (d) make any use it desires of the
side or rear walls of the Premises, provided that such use shall not encroach on
the interior of the Premises.
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ARTICLE 10
INDEMNITY AND INSURANCE
Section 10.1. Tenant's Insurance.
At all times from and after entry by the Tenant into the Premises for
the purpose of completing the equipping or furnishing of the Premises prior to
the commencement of occupancy, Tenant shall take out and keep in full force and
effect, at its expense:
(a) Commercial general liability insurance, including Blanket
Contractual Liability, Broad Form Property Damage, Completed Operations/Products
Liability, Coverage for Employees as insureds, and Broad Form General Liability
Endorsement, with a combined single limit of not less than Three Million Dollars
($3,000,000) per occurrence and Four Million Dollars ($4,000,000) in the
aggregate;
(b) All-risk casualty insurance (including but not limited to
burglary and theft insurance) written at full replacement cost value and with
replacement cost endorsement covering (i) all of Tenant's Property, including,
without limitation, inventory, trade fixtures, floor covering, furniture,
electronic data processing equipment and any other property removable by Tenant
under the provisions of this Lease, (ii) personal injury, medical expenses and
property damage to the Antenna, and coverage over and acknowledgement of the
Antenna equipment owned and operated by Tenant, and (iii) all leasehold
improvements installed in the Premises by or on behalf of Tenant pursuant to
Schedule C or otherwise, regardless of the source of funding thereof;
(c) Worker's compensation or similar insurance to the
extent and in the amounts required by law;
(d) Employer's Liability insurance, including All States
Endorsement in an amount not less than Five Hundred Thousand Dollars ($500,000);
and
(e) Comprehensive automobile liability coverage on all owned,
non-owned or hired automobiles to be used by Tenant, with a combined single
limit of not less than One Million Dollars ($1,000,000).
Section 10.2. Tenant's Contractor's Insurance.
Tenant shall require any contractor of Tenant performing physical
improvements and/or changes in, on or about the Premises
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to take out and keep in full force and effect, at no expense to Landlord:
(a) Commercial general liability insurance, including
Contractor's Liability coverage, Blanket Contractual Liability coverage, Broad
Form Property Damage Endorsement, Contractor's Protective Liability, Completed
Operations/Products Liability Interest of Employees as insureds, and Broad Form
General Liability Endorsement, in an amount not less than One Million Dollars
($1,000,000) Endorsement, in an amount not less than One Million Dollars
($1,000,000) combined single limit per occurrence and One Million Dollars
($1,000,000) in the aggregate;
(b) Comprehensive automobile liability insurance, with a
combined single limit of not less than One Million Dollars ($1,000,000) covering
all owned, non-owned or hired automobiles to be used by the contractor;
(c) Worker's compensation or similar insurance in form
and amounts required by law; and
(d) Employers liability coverage, including All States
Endorsement in an amount not less than One Million Dollars ($1,000,000).
Section 10.3. Policy Requirements.
(a) The company or companies writing any insurance which Tenant is
required to take out and maintain or cause to be taken out or maintained
pursuant to Sections 10.1 and 10.2, shall be written by companies licensed to do
business in the Commonwealth of Virginia and have a Best rating of at least
A-VII with respect to Tenant or A-VI with respect to contractors or
subcontractors. Public liability and all-risk casualty insurance policies
evidencing such insurance shall name Landlord and/or its designees (including,
without limitation, any Mortgagee) as additional insureds, and shall also
contain a provision by which the insurer agrees that such policy shall not be
cancelled, materially changed, terminated or not renewed except after thirty
(30) days' advance written notice to Landlord and/or such designees. All such
policies, or certificates thereof, shall be deposited with Landlord promptly
upon commencement of Tenant's obligation to procure the same. None of the
insurance which Tenant is required to carry shall contain deductible provisions
in excess of $2,500, unless approved in writing in advance by Landlord. If
Tenant shall fail to perform any of its obligations pursuant to this Section
10.1, Landlord may perform the same and the cost thereof shall be payable upon
Landlord's demand therefor as Additional Rent, with interest thereon at the
Default Rate until paid in full.
(b) Landlord and Tenant agree that on January 1 of the second (2nd)
full Lease Year and on January 1 of every second
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(2nd) Lease Year thereafter, Landlord will have the right to request a
reasonable change in the character and/or amounts of insurance required to be
carried by Tenant pursuant to the provisions of this Article 10. Provided that
such changes are consistent with insurance required to be carried by tenants in
first-class office projects in the Washington, D.C. - Northern Virginia area,
the Tenant shall comply with the requested change in character and/or amount
within sixty (60) days of Landlord's request therefor.
Section 10.4. Indemnities by Tenant and Landlord.
(a) Notwithstanding any policy or policies of insurance required of
Tenant, Tenant, for itself and its successors and assigns, to the extent
permitted by law, shall defend, indemnify and hold harmless Landlord, Landlord's
Management Agent, and any Mortgagee against and from any and all liability or
claims of liability asserted against or incurred by Landlord in connection with
(i) the use, occupancy, conduct, operation or management of the Premises by
Tenant or any of its agents, contractors, servants, employees, licensees,
concessionaires, suppliers or materialmen during the Term; or (ii) any breach or
default in performing any of the obligations under the provisions of this Lease
and/or applicable law by Tenant or any of its agents, contractors, servants,
employees, licensees, concessionaires, suppliers or materialmen during the Term;
or (iii) any negligent, intentionally tortious or other act or omission by
Tenant or any of its agents, contractors, servants, employees, licensees,
concessionaires, suppliers, materialmen or invitees during the Term unless
caused by the negligence or willful misconduct of Landlord, its agents or
employees.
(b) Notwithstanding any policy or policies of insurance required of
Landlord, Landlord, for itself, and its successors and assigns, to the extent
permitted by law, shall defend, indemnify and hold harmless Tenant against and
from any and all liability or claims of liability asserted against or incurred
by Tenant in connection with (i) the use, occupancy, conduct, operation or
management of the Project by Landlord or any of its agents, contractors,
servants, employees, licensees, concessionaires, suppliers or materialmen during
the Term; or (ii) any breach or default in performing any of the obligations
under the provisions of this Lease and/or applicable law by Landlord or any of
its agents, contractors, servants, employees, licensees, concessionaires,
suppliers or materialmen during the Term; or (iii) any negligent, intentionally
tortious or other act or omission by Landlord or any of its agents, contractors,
servants, employees, licensees, concessionaires, suppliers, materialmen or
invitees during the Term, unless caused by the negligence or willful misconduct
of Tenant, its agents or employees.
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(c) If any such claim, action or proceeding is brought against Landlord
and/or any Mortgagee, Tenant shall promptly if requested by Landlord or such
Mortgagee, and at Tenant's expense, resist or defend such claim, action or
proceeding or cause it to be resisted or defended by an insurer. Landlord shall,
at its option, be entitled to participate in the selection of counsel,
settlement and all other matters pertaining to such claim, action or proceeding,
all of which shall be subject, in any case, to the prior written approval of
Landlord.
Section 10.5. Landlord Not Responsible for Acts of Others.
Landlord shall not be responsible or liable to Tenant, or to those
claiming by, through or under Tenant, for any loss or damage which may be
occasioned by or through the acts or omissions of persons occupying or using
space adjoining the Premises or any part of the premises adjacent to or
connecting with the Premises or any other part of the Building, or for any loss
or damage resulting to Tenant (or those claiming by, through or under Tenant),
or its or their property, from the breaking, bursting, stoppage or leaking of
electrical cable and wires, and water, gas, sewer or steam pipes. To the maximum
extent permitted by law, Tenant agrees to use and occupy the Premises, and to
use such other portions of the Building as Tenant is herein given the right to
use, at Tenant's own risk (provided, that this sentence shall not be deemed to
negate Landlord's indemnification contained in Section 10.4(b)).
Section 10.6. Landlord's Insurance.
During the Term, to the extent deemed reasonable or necessary in
Landlord's sole discretion, Landlord shall maintain (a) insurance on the
Building against loss or caused by all risks perils on a replacement cost
valuation basis in an amount deemed reasonable by Landlord, (b) commercial
liability insurance including property damage insurance against claims for
personal injury or death, or property damage suffered by others occurring in, on
or about the Building, such public liability insurance to afford protection in
limits deemed reasonable by Landlord but in no event less than $10,000,000 in
the aggregate for this location, and (c) any other insurance, in such form and
in such amounts as are deemed reasonable by Landlord, including, without
limitation, rent continuation and business interruption insurance for up to
twelve (12) months in each instance, theft insurance and worker's compensation,
flood and earthquake, and boiler and machinery insurance. Landlord's insurance
shall be written with companies licensed to do business in the Commonwealth of
Virginia having a Best rate of at least A-VII. The costs and expenses of any and
all insurance carried by Landlord pursuant to the provisions of this Section
10.6 shall be deemed a part of Operating Costs.
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Section 10.7. Increase in Insurance Premiums.
Tenant shall not do or suffer to be done, or keep or suffer to be kept,
anything in, upon or about the Premises which will contravene Landlord's
policies of hazard or liability insurance or which will prevent Landlord from
procuring such policies from companies acceptable to Landlord. If anything done,
omitted to be done or suffered by Tenant to be kept in, upon or about the
Premises shall cause the rate of fire or other insurance on the Premises or on
other property of Landlord or of others within the Building to be increased
beyond the average rate from time to time applicable to the Premises or to any
such other property for the use or uses made thereof, Tenant shall pay to
Landlord, as Additional Rent, the amount of any such increase upon Landlord's
demand therefor.
Section 10.8. Mutual Waiver.
All policies covering real or personal property which either party
obtains affecting the Premises or the Building shall include a clause or
endorsement denying the insurer any rights of subrogation against the other
party to the extent rights have been waived by the insured before the occurrence
of injury or loss. Notwithstanding anything herein contained to the contrary,
Landlord and Tenant waive any rights of subrogation or recovery against the
other for damage or loss to their respective property due to hazards covered or
which should be covered by policies of insurance obtained or which should be or
have been obtained pursuant to this Lease, to the extent of the injury or loss
covered or which should have been covered thereby, assuming that any deductible
shall be deemed to be insurance coverage.
ARTICLE 11
CASUALTY
Section 11.1. Obligation to Repair and Reconstruct.
If the Building shall be damaged by fire, the elements, accident or
other casualty (collectively, "Casualty"), but the Premises shall not thereby be
rendered wholly or partially untenantable, then, subject to the provisions of
Section 11.2, Landlord shall promptly cause such damage to be repaired and there
shall be no abatement of Rent unless Tenant cannot use the Premises during such
repair period, or if the Premises are not reasonably accessible, in which event
Rent shall be abated retroactive to the date of the occurrence. If as the result
of Casualty, the Premises shall be rendered wholly or partially untenantable or
not reasonably accessible, or the parking area was damaged to the extent that
Tenant could not use the same (and no proximate comparable alternate facility in
the Fairfax County,
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Virginia area was offered), then, subject to the provisions of Section 11.2,
Landlord shall cause such damage to be repaired to the condition which existed
immediately prior to such Casualty, provided that Tenant provides Landlord with
all insurance proceeds applicable to Tenant's improvements within the Premises
received by Tenant as a result of such Casualty, and all Rent (other than any
Additional Rent due Landlord by reason of Tenant's prior failure to perform any
of its obligations hereunder) shall be abated proportionately as to the portion
of the Premises rendered untenantable during the period of such untenantability.
All such repairs shall be made at the expense of Landlord. In performing its
rebuilding obligations hereunder, Landlord shall have the right to make
modifications to the structures comprising the Building and the Premises
provided that such modifications do not materially adversely affect Tenant's use
and occupancy of the same. Landlord shall not be liable for interruption to
Tenant's business or for damage to or replacement or repair of Tenant's
Property, all of which damage, replacement or repair shall be undertaken and
completed promptly by Tenant at Tenant's expense.
In addition to the foregoing, if the Premises or the Building are
totally destroyed by fire or any other casualty, this Lease shall automatically
terminate as of the date of such destruction. If the Building or any portion of
the Common Areas or Premises are damaged by fire, casualty, or any other cause,
and such damage is repairable, then Landlord, at Landlord's sole cost and
expense (except for Tenant's personal property), shall commence repairs within
sixty (60) days of the date of the casualty, and shall thereafter diligently
complete the repairs in accordance with the requirements of this Article 11.
Until such repairs and restoration are completed, the Rent, as defined herein,
and any other sums due to Landlord, shall be abated. If the damage cannot be
pag
repaired, or if such damage is in fact not repaired, within nine (9) months from
the date of such casualty (in the reasonable judgment of an independent
architect), due to any reason within or outside of the Landlord's control, then
Tenant shall have the option to terminate this Lease, without penalty or
default, by giving Landlord written notice of such termination; provided,
however, that if Landlord, within thirty (30) days of the expiration of the nine
(9) month period, shall notify Tenant that the repairs and restoration shall be
complete within thirty (30) days after the expiration of the nine (9) month
period and the repairs and restoration are, in fact, so completed, Tenant shall
have no termination right under this section. Tenant shall vacate the Premises
within thirty (30) days after the date of such termination.
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Section 11.2. Landlord's Option to Terminate Lease.
If (a) the Premises or Building or Project are rendered wholly
untenantable and cannot be repaired within nine (9) months, or (b) the Premises
are damaged as a result of any cause which is not covered by Landlord's
insurance and the cost to repair the Premises would reasonably exceed $500,000,
or (c) the Premises are damaged or destroyed in whole or in part during the last
twelve (12) months of the Term (unless Tenant exercises its renewal option, if
applicable), or (d) the Building is so substantially damaged that Landlord
determines, in Landlord's sole judgment, to demolish the Building, then and in
any of such events, Landlord may elect to terminate this Lease by giving Tenant
notice of such election within sixty (60) days after the occurrence of such
event. If such notice is given, the rights and obligations of the parties shall
cease as of the date of such notice, and Rent (other than any Additional Rent
due Landlord by reason of Tenant's failure to perform any of its obligations
hereunder) shall be adjusted as of the date of such termination. Tenant shall
vacate the Premises within thirty (30) days after the date of such termination.
Section 11.3. Insurance Proceeds.
If Landlord does not elect to terminate this Lease pursuant to Section
11.2, then, subject to the prior rights of any Mortgagee, Landlord shall
disburse and apply any net insurance proceeds received by Landlord to the
restoration and rebuilding of the Building in accordance with Section 11.1. All
insurance proceeds payable with respect to the Premises (excluding proceeds
payable to Tenant pursuant to Section 10.1), shall belong to and shall be
payable to Landlord.
ARTICLE 12
CONDEMNATION
Section 12.1. Effect of Taking.
If the whole or any part of the Premises shall be taken pursuant to the
power of eminent domain, whether by condemnation or deed in lieu thereof, this
Lease shall terminate as to the part so taken as of the date of such taking.
Landlord shall make such repairs and alterations as may be necessary in order to
restore the part of the Premises not taken to a useful condition and all Rent
(other than any Additional Rent due Landlord by reason of Tenant's prior failure
to perform any of its obligations hereunder) shall be reduced in the same
proportion as the portion of the Premises so taken. If any partial taking
renders the remainder of the Premises unusable for the Permitted Use, either
party may terminate this Lease as of the date of such
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taking by giving notice to the other party within thirty (30) days after such
date. If ten percent (10%) or more of the Building is taken as aforesaid,
Landlord may elect to terminate this Lease as of the date of such taking by
giving notice of such election to Tenant within ninety (90) days after such
date. If twenty-five percent (25%) or more of the Premises is taken (and in
Tenant's good faith judgment the balance is not suitable for Tenant's business
operations), Tenant may elect to terminate this Lease as of the date of such
taking by giving notice of that election to Landlord within ninety (90) days
after the date of the taking. If any notice of termination is given pursuant to
this Section, this Lease and the rights and obligations of the parties hereunder
shall cease on the date specified in such notice and all Rent (other than any
Additional Rent due Landlord by reason of Tenant's prior failure to perform any
of its obligations hereunder) shall be adjusted as of the date of such
termination.
Section 12.2. Condemnation Awards.
All compensation awarded for any taking of the Premises or any portion
of the Building or any interest in any of them shall belong to and be the
property of Landlord or any Mortgagee, and Tenant hereby assigns to Landlord all
rights with respect thereto; provided, however, nothing contained herein shall
prevent Tenant from seeking in a separate action reimbursement from the
condemning authority (if permitted by law) for moving expenses, expenses for
removal of Tenant's Property or loss of Tenant's business good will, but if and
only if such action shall not reduce the amount of the award or other
compensation otherwise recoverable from the condemning authority by Landlord or
any Mortgagee.
ARTICLE 13
ASSIGNMENT AND SUBLETTING
Section 13.1. Landlord's Consent Required.
(a) Tenant shall not assign this Lease, in whole or in part, nor sublet
all or any part of the Premises, nor license concessions or lease departments
therein, nor otherwise permit any other person to occupy or use any portion of
the Premises (collectively, "a Transfer"), without in each instance first
obtaining the written consent of Landlord, which consent shall not be
unreasonably withheld, conditioned or delayed. This prohibition includes any
subletting or assignment to or by a receiver or trustee in any Federal or State
bankruptcy, insolvency, or other similar proceedings. Consent by Landlord to any
assignment, subletting, licensing or other transfer shall not constitute a
waiver of the requirement for consent to any
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subsequent assignment, subletting, licensing or other Transfer or relieve Tenant
from its duties, responsibilities and obligations under this Lease.
(b) Notwithstanding any provision herein to the contrary, Tenant shall
have the right, without Landlord's consent, to assign the Lease or to sublet all
or any part of the Premises to an entity which controls, is controlled by, or is
under common control with, Tenant or to an entity with which Tenant merges or
consolidates or which acquires all or substantially all of Tenant's assets. In
addition, Tenant shall have the right without the consent of Landlord to allow
any affiliate of Tenant to use or occupy any portion of the Premises, provided
that such use or occupancy is pursuant to a written agreement between Tenant and
its applicable affiliate.
Section 13.2. Transfer; Issuance of Corporate Shares.
If Tenant is or becomes a corporation (other than a corporation the
outstanding voting stock of which is listed on a "national securities exchange,"
as defined in the Securities Exchange Act of 1934), or other form of organized
entity, then Tenant shall give Landlord notice within fifteen (15) days
following the date upon which additional voting stock shall be issued by Tenant
or any part of the organizational interests of Tenant shall be Transferred by
sale, assignment, inheritance, operation of law or otherwise (including a
Transfer in any bankruptcy or other similar proceedings), in the event that such
Transfer results in a change in the present control of the organizational entity
or if 51% or more of the organizational interests are Transferred. In the event
of a Transfer, and whether or not Tenant has given such notice, Landlord may
elect, in Landlord's commercially reasonable discretion, to terminate this Lease
by giving Tenant notice of the same (and all Rent [other than any Additional
Rent due Landlord resulting from Tenant's prior failure to perform any of its
obligations hereunder] shall be adjusted as of the date of such termination).
Section 13.3. Acceptance of Rent from Transferee.
The acceptance by Landlord of the payment of Rent from any person
following any act, assignment or other Transfer prohibited by this Article other
Transfer, nor shall the same be deemed to be a waiver of any right or remedy of
Landlord's hereunder.
Section 13.4. Conditions of Consent.
(a) If Tenant receives consent to a Transfer other than a sublet under
Section 13.1 above, then, in addition to any other terms and conditions imposed
by Landlord in the giving of such consent, Tenant and the transferee shall
execute and deliver, on
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demand, an agreement prepared by Landlord agreeing that the transferee shall be
directly bound to Landlord to perform all obligations of Tenant hereunder
including, without limitation, the obligation to pay all Rent and other amounts
provided for therein; acknowledging and agreeing that there shall be no
subsequent Transfer other than a sublet of this Lease or of the Premises or of
any interest therein without the prior consent of Landlord pursuant to Section
13.1 above; acknowledging that Tenant as originally named herein shall remain
fully liable for all obligations of Tenant hereunder, jointly and severally with
the transferee; and such other provisions as Landlord shall reasonably require.
If Tenant receives a consent to a Transfer under Section 13.1, above, that
results in a sublease of all or any portion of the Premises for all or any
portion of the then-remaining Term, then Tenant shall execute and deliver, on
demand, an agreement prepared by Landlord under which Tenant shall acknowledge
its continued liability for all of its obligations under this Lease, acknowledge
that there shall be no further Transfers by Tenant or its subtenants without the
prior written consent of Landlord, and such other provisions as Landlord may
reasonably request.
(b) All reasonable costs incurred by Landlord in connection with any
request for consent to a Transfer, including costs of investigation and the fees
of Landlord's counsel, shall be paid by Tenant on demand as a further condition
of any consent which may be given.
Section 13.5. Profits from Use or Transfer.
(a) Up to and including December 31, 1997,] neither the Tenant nor by
any other person having an interest in the use, occupancy or other utilization
of space in the Premises shall enter into any lease, sublease, license,
concession or other Transfer which provides for rent or other payment for such
use, occupancy or utilization based in whole or in part on the net income or
profits derived from the Premises (other than an amount based on a fixed
percentage of receipts or sales), and any such purported lease, sublease,
license, concession or other Transfer shall be absolutely void and ineffective
as a conveyance or creation of any right or interest in the possession, use,
occupancy or utilization of any part of the Premises.
(b) Up to and including December 31, 1997, Tenant agrees that in the
event of a Transfer, Tenant shall pay Landlord thirty percent (30%) of any and
all consideration, money or thing of value received by Tenant or payable to
Tenant in connection with such Transfer and in excess of the rent payable by
Tenant under the Lease (but not including any consideration for the sale of any
personal property of Tenant). From and after January 1, 1998, Tenant agrees that
in the event of a Transfer, Tenant shall
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pay to Landlord fifty percent (50%) of the net profits received by Tenant or
payable to Tenant in connection with such Transfer generated from such
transaction during each Lease Year. For purposes hereof, the term "net profits"
means: (i) with respect to assignment, the amount paid by the assignee to
acquire Tenant's rights under the Lease, less (1) the portion of such sum fairly
attributable to the acquisition of Tenant's leasehold improvements or personal
property which paid for by Tenant and (2) all reasonable and actual
out-of-pocket expenses incurred and paid by Tenant in procuring such assignment,
including, without limitation, brokerage fees, advertising costs, legal fees,
allowances, the cost of leasehold improvements and other concessions; and (ii)
with respect to a sublease, the amount, if any by which the rent, any additional
rent and any other sums payable by the subtenant to Tenant under such sublease
exceeds the sum of (x) that portion of the Rent plus increases in Operating
Costs and Taxes and other additional rent payable by Tenant hereunder which is
allocable to the portion of the Premises which is the subject of any such
sublease, (y) all reasonable and actual out-of-pocket expenses incurred by
Tenant in procuring such sublease, including without limitation, brokerage fees,
advertising costs, legal fees, allowances, the cost of leasehold improvements
and other concessions, and (z) the amortized costs of any leasehold improvements
or personal property provided as a part of such transaction and existing prior
to the commencement of the sublease term to the extent funded by Tenant. The
foregoing payments shall be made on a quarterly basis by Tenant.
ARTICLE 14
DEFAULT
Section 14.1. "Event of Default" Defined.
Any one or more of the following events shall constitute a default
under the terms of this Lease ("Event of Default"):
(a) failure of Tenant to pay any Rent or other sum of money
due hereunder to Landlord or any other person within five (5) days after written
notice that the same is due;
(b) sale of Tenant's interest in the Premises under
attachment, execution or similar legal process;
(c) filing of a petition proposing the adjudication of Tenant
as a bankrupt or insolvent, or the reorganization of Tenant, or an arrangement
by Tenant with its creditors, whether pursuant to the Federal Bankruptcy Act or
any similar Federal or state proceeding, unless such petition is filed by a
party other
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than Tenant or any such guarantor and is withdrawn or dismissed
within ninety (90) days after the date of its filing;
(d) admission in writing by Tenant of its inability to
pay its debts when due;
(e) appointment of a receiver or trustee for the business or
property of Tenant unless such appointment shall be vacated within thirty (30)
days of its entry;
(f) making by Tenant of an assignment for the benefit
of its creditors; and
(g) default by Tenant in the performance or observance of any
covenant or agreement of this Lease to be performed or observed by Tenant (other
than as set forth in clauses (a) through (f) above), which default is not cured
within thirty (30) days after the giving of written notice thereof by Landlord,
unless such default is of such nature that it cannot be cured within said thirty
(30) day period, in which event an Event of Default shall not be deemed to have
occurred if Tenant institutes a cure within the thirty (30) day period and
thereafter diligently and continuously prosecutes the same until completion.
Notwithstanding the foregoing, if Tenant shall default in the
performance of any covenant or agreement two (2) or more times in any twelve
(12) month period, then, unless such default(s) shall have been cured within the
applicable notice and grace period, any further similar defaults shall be deemed
an Event of Default without the ability to cure.
Section 14.2. Remedies.
Upon the occurrence of an Event of Default, Landlord, without
additional notice to Tenant in any instance (except where expressly provided for
below), may do any one or more of the following:
(a) Landlord may accelerate the Rent and any other charges,
whether or not stated to be Additional Rent hereunder as more particularly
described in Section 14.3(a) below; and/or
(b) Landlord may elect to terminate this Lease and the tenancy
created hereby by giving notice of such election to Tenant without any right on
the part of Tenant to save the forfeiture by payment of any sum due or by other
performance of condition, term, agreement or covenant broken. Landlord may also
elect to terminate Tenant's possessory rights and all other rights of Tenant
without thereby terminating this Lease, and Landlord may without notice reenter
the Premises, breaking open locked doors, if necessary, to effect entrance, for
the purpose
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of recovering possession of the Premises, and may proceed to recover possession
of the Premises by process of law, any notice to quit or of intention to
re-enter the Premises being expressly waived by Tenant. Landlord may remove
Tenant and, for the purpose of exercising Landlord's lien against Tenant's
property, remove all other persons and property from the Premises, and store
such property in a public warehouse or elsewhere at the cost of and for the
account of Tenant without resort to legal process and without Landlord being
deemed guilty of trespass or becoming liable in any way for any loss or damage
occasioned thereby, and take possession of and sell under such lien the goods
and chattels found in the Premises; and/or
(c) When this Lease shall be terminated by covenant or
condition broken, either during the original Term or any renewal or extension
thereof, and, also when and after the Term shall have expired, any attorney for
Landlord may proceed in any competent court for judgment in ejectment against
Tenant and all persons claiming under Tenant for the recovery by Landlord of
possession of the Premises. If for any reason after such action shall have been
commenced, it shall be cancelled or suspended and possession of the Premises
remains in or is restored to Tenant, Landlord shall have the right upon any
subsequent default or upon the expiration or termination of this Lease, or any
renewal or extension hereof, to bring one or more actions to recover possession
of the Premises; and/or
(d) If a true copy of this Lease (and of the truth of the
copy, an affidavit shall be sufficient proof) is required to be filed in any
action for possession or enforcement or monetary damages, it shall not be
necessary to file the original, notwithstanding any law, rule of court, custom
or practice to the contrary. Tenant hereby waives all procedural errors in any
proceedings taken by Landlord, other than service of process, whether by virtue
of the powers of attorney contained in this Lease or not, and all liability
therefor; and/or
(e) Landlord may perform, on behalf and at the expense of
Tenant, any obligation of Tenant under this Lease which Tenant has failed to
perform and of which Landlord shall have given Tenant notice, the cost of which
performance by Landlord, together with interest thereon at the Default Rate from
the date of such expenditure, shall be deemed Additional Rent and shall be
payable by Tenant to Landlord upon demand therefor. Notwithstanding anything to
the contrary contained herein, regardless of whether an Event of Default shall
have occurred, Landlord may exercise the remedy described in this clause (f)
without any notice to Tenant if Landlord, in its good faith judgment, believes
it would be materially injured by failure to take rapid action or if the
unperformed obligation of Tenant constitutes an emergency.
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(f) Landlord may exercise any other legal or equitable right
or remedy which it may have at law or in equity, including rights of specific
performance and/or injunctive relief, where appropriate.
Section 14.3. Damages.
(a) If this Lease is terminated by Landlord pursuant to Section 14.2,
Tenant nevertheless shall remain liable for any Rent and damages which may be
due or sustained prior to such termination, and all reasonable costs, fees and
expenses, including, without limitation, sheriffs' or other officers commissions
whether chargeable to Landlord or Tenant, watchmen's wages, brokers' and
reasonable attorneys' fees, and repair and renovation costs incurred by Landlord
in pursuit of its remedies hereunder, and/or in connection with any bankruptcy
proceedings of Tenant, and/or in connection with renting the Premises to others
from time to time (which costs and expenses shall be prorated based on the term
of the new lease and the then remaining term of this Lease) (all such Rent,
damages, costs, fees and expenses being referred to herein as "Termination
Damages"), plus additional damages for all Rent treated as in arrears
("Liquidated Damages") which, at the election of Landlord, shall be an amount
equal to either:
(i) the Rent which, but for the termination of this Lease,
would have become due during the remainder of the Term, less the amount or
amounts of rent, if any, which Landlord shall receive during such period from
others to whom the Premises may be rented (other than any additional rent
received by Landlord as a result of any failure of such other person to perform
any of its obligations to Landlord), in which case Liquidated Damages shall be
computed and payable in monthly installments, in advance, on the first day of
each calendar month following the termination of this Lease and shall continue
until the date on which the Term would have expired but for such termination,
and any action or suit brought to collect any such Liquidated Damages for any
month shall not in any manner prejudice the right of Landlord to collect any
Liquidated Damages for any subsequent months by similar preceding, or
(ii) the amount, if any, by which (i) the present worth (as of
the date of such termination) of the Rent which, but for the termination of this
Lease, would have become due during the remainder of the Term, exceeds (ii) the
present worth (as of the date of such termination) of the fair rental value of
the Premises, as reasonably determined by an independent real estate appraiser
selected by Landlord, in which case such Liquidated Damages shall be payable to
Landlord in one lump sum on demand and shall bear interest at the Default Rate
until paid. "Present worth" shall be computed by discounting such amount to
present
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worth at a rate equal to one percentage point above the discount rate then in
effect at the Federal Reserve Bank. In no event shall Landlord be required to
account to Tenant for any amounts by which the fair rental value shall have
exceeded the stipulated Rent at the time of such termination.
(b) If this Lease is terminated pursuant to Section 14.2, Landlord
shall make reasonable efforts to relet the Premises or any part thereof
(provided that Landlord shall not be obligated to relet the Premises in
preference to any other available space within the Project or within other
projects owned by Landlord's shareholder), alone or together with other
premises, for such term or terms (which may be greater or less than the period
which otherwise would have constituted the balance of the Term) and on such
terms and conditions (which may include concessions or free rent and alterations
of the Premises) as Landlord may determine, in its sole discretion, but, so long
as Landlord makes reasonable efforts to relet the Premises, Landlord shall not
be liable for, nor shall Tenant's obligations hereunder be diminished by reason
of, any failure by Landlord to relet the Premises or any failure by Landlord to
collect any rent due upon such reletting.
(c) Notwithstanding anything to the contrary set forth in this
subsection 14.3, in the event following and during the continuance of an Event
of Default, (i) Landlord must initiate legal action to enforce any one or more
of the provisions of this Lease against Tenant, its successors or assigns, or
(ii) Landlord must consult with and/or engage an attorney(s) in order (A) to
enforce any one or more of the provisions of this Lease against Tenant, any
guarantor of Tenant, their successors or assigns, or (B) in connection with any
bankruptcy proceeding of Tenant or any guarantor of Tenant, whether or not such
consultation and/or engagement results in the initiation of any judicial action
or termination of this Lease, then and in any of such events, Tenant, its
successors and assigns, undertakes and agrees to pay any and all costs incurred
by Landlord in connection therewith, including, by way of illustration and not
of limitation, all reasonable attorneys' fees (inclusive of consultation fees,
research costs, and correspondence fees), court costs (if awarded post-judgment)
and any similar professional fees or costs associated therewith, which costs
shall accrue interest at the Default Rate until paid in full.
ARTICLE 15
SUBORDINATION, NONDISTURBANCE AND ATTORNMENT
Section 15.1. Subordination.
(a) Unless a Mortgagee shall otherwise elect as provided in Section
15.2, Tenant's rights under this Lease are and shall
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remain subject and subordinate to the operation and effect of any mortgage, deed
of trust or other security instrument constituting a lien upon the Building,
whether the same shall be in existence at the date hereof or created hereafter
(any such lease, mortgage, deed of trust or other security instrument being
referred to herein as a "Mortgage," and the party or parties having the benefit
of the same, whether as mortgagee, beneficiary or noteholder, being referred to
hereinafter collectively as a "Mortgagee"). Landlord and all existing Mortgagees
shall execute and deliver the Subordination, Non-Disturbance and Attornment
Agreement in the form attached as Schedule G at the time of the execution of
this Lease. For any future Mortgage, as a condition to Tenant's obligation to
subordinate the Lease to any future Mortgage, such Mortgagee shall execute,
acknowledge and deliver to Tenant a similar non-disturbance agreement as part of
such subordination. Upon receipt of such non-disturbance agreement for such
future Mortgage, Tenant's acknowledgment and agreement of subordination as
provided for in this Section shall be self-operative and no further instrument
of subordination shall be required. Tenant shall execute, within ten (10) days
after request therefor, such further assurances thereof as shall be requisite or
as may be requested from time to time by Landlord or any Mortgagee. On the date
hereof, the only Mortgagee is Teachers Insurance and Annuity Association of
America.
(b) Landlord hereby directs Tenant, upon (i) the occurrence of an event
of default by Landlord, as mortgagor under any Mortgage, (ii) the receipt by
Tenant of a notice of the occurrence of such event of default under such
Mortgage from Landlord or such Mortgagee, and (iii) a direction by the Mortgagee
under such Mortgage to Tenant to pay all Rent thereafter to such Mortgagee, to
make such payments to such Mortgagee, and Landlord agrees that in the event that
Tenant makes such payments to such Mortgagee, as aforesaid, Tenant shall not be
liable to Landlord for the same.
Section 15.2. Mortgagee's Unilateral Subordination.
If a Mortgagee shall so elect by notice to Tenant or by the recording
of a unilateral declaration of subordination, this Lease and Tenant's rights
hereunder shall be superior and prior in right to the Mortgage of which such
Mortgagee has the benefit, with the same force and effect as if this Lease had
been executed, delivered and recorded prior to the execution, delivery and
recording of such Mortgage, subject, nevertheless, to such conditions as may be
set forth in any such notice or declaration.
Section 15.3. Attornment and Non-disturbance.
If any person shall succeed to all or any part of Landlord's interest
in the Premises, whether by purchase, foreclosure, deed
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in lieu of foreclosure, power of sale, termination of lease, or otherwise, and
if such successor-in-interest requests or requires, Tenant shall attorn to such
successor-in-interest and shall execute within ten (10) days after receipt
thereof such agreement in confirmation of such attornment as is reasonably
acceptable to such successor-in-interest. Failure to respond within such (10)
day period shall be deemed to be a confirmation by Tenant of the facts and
matters set forth therein. Tenant hereby agrees that any suit, action or other
proceeding commenced by any Mortgagee in order to realize upon Landlord's
interest in, under and to this Lease, or any part of the Building shall not, by
operation of law or otherwise, result in the cancellation or termination of this
Lease or of the obligations of Tenant hereunder.
ARTICLE 16
QUIET ENJOYMENT
Landlord covenants and agrees with Tenant that, except as otherwise
provided in this Lease, upon the continuing compliance by Tenant with all of the
terms, covenants and provisions of this Lease to be performed by Tenant, Tenant
shall and may peaceably and quietly have, hold and enjoy the Premises for the
Term, free from any interference whatsoever by, from or through Landlord or
anyone claiming by, from or through Landlord, except as may be otherwise
provided herein.
ARTICLE 17
NOTICES
Section 17.1. Sending of Notices.
Any notice or other communication given or required to be given under
this Lease shall be in writing and shall be deemed to have been given (i) on the
third (3rd) day following the day on which the same shall have been mailed by
United States registered or certified mail, return receipt requested, with all
postal charges prepaid, or (ii) the next day if sent by national overnight
courier service with receipt acknowledged in writing, or (iii) on the day
received if sent by facsimile with printed confirmation of receipt (and with a
hard copy sent by U.S. mail) in either case addressed to Landlord or Tenant to
the respective notice addresses set forth in the preamble paragraph of this
Lease and/or such other addresses as either party may designate to the other by
notice in accordance with this Section.
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Section 17.2. Notices to Mortgagees.
If any Mortgagee shall notify Tenant that it is the holder of a
Mortgage affecting the Premises, and shall thereby request copies of all notices
from Tenant, no default notice or demand thereafter sent by Tenant to Landlord
shall be effective unless and until a copy of the same shall also be sent to
such Mortgagee in the manner prescribed in Section 17.1 and to such address as
such Mortgagee shall designate.
Section 17.3. Estoppel Certificate.
Tenant agrees from time to time, upon not less than ten (10) days'
prior written request by Landlord, to execute, acknowledge and deliver to
Landlord a statement in writing, in the form attached as Schedule H, certifying
that this Lease is unmodified and in full force and effect and that Tenant has
no defenses, offsets or counterclaims against its obligations to pay the Base
Rent, and Additional Rent and to perform its other obligations under this Lease,
and that there are no uncured defaults of Landlord or Tenant under this Lease,
and the dates through which all Rent has been paid, and all such other or
further matters as are set forth therein. The statement delivered pursuant to
this Section 17.3 may be relied upon by any purchaser or Mortgagee, or
prospective Purchaser or Mortgagee, of the Building. Landlord agrees to provide
a similar certificate to Tenant on the same terms.
ARTICLE 18
MISCELLANEOUS
Section 18.1. Modification.
It is a condition that this Lease is subject to the approval of
Teachers Insurance and Annuity Association of America. In addition, if in the
future and in connection with obtaining any financing for the Building, a Lender
shall request reasonable modifications in this Lease as a condition to such
financing, Tenant will not on unreasonably withhold, delay or defer Tenant's
consent thereto; provided, that the modification would not increase the
obligations of Tenant hereunder or materially adversely affect the leasehold
interest hereby created or Tenant's rights granted hereunder.
Section 18.2. No Recordation.
Tenant hereby agrees that Tenant shall not record this Lease or any
memorandum of this Lease, unless expressly consented to in writing by Landlord.
The recordation of this Lease or memorandum hereof by Tenant in derogation of
this Section 18.2 shall be
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deemed an Event of Default hereunder, and Landlord shall have all of the rights
and remedies set forth in Section 14.2, including, but not limited to, the right
to terminate this Lease and declare all sums of Rent accruing under this Lease
immediately due and payable. In addition, Tenant hereby appoints Landlord as its
attorney-in-fact for the purpose of executing such documents as may be required
to nullify and/or release this Lease or any memorandum hereof from the public
records.
Section 18.3. Remedies Cumulative.
No reference to any specified right or remedy shall preclude either
party from exercising any other right or from having any other remedy or from
maintaining any action to which it may otherwise be entitled at law or in
equity. No failure by either party to insist upon the strict performance of any
agreement, term, covenant or condition hereof, or to exercise any right remedy
consequent upon a breach hereof, and no acceptance of full or partial Rent
during the continuance of any such breach, shall constitute a waiver of any such
breach, agreement, term, covenant or condition. No waiver by either party any
breach by the other party under this Lease (or any waiver by Landlord of any
breach by any other tenant under any other lease of any portion of the Building)
shall affect or alter this Lease in any way whatsoever.
Section 18.4. Successors and Assigns.
Landlord may, at any time, assign collaterally or otherwise transfer
any or all of its right, title and interest in the Building, or any portion
thereof, and this Lease and the covenants and conditions herein contained shall
inure to the benefit of and be binding upon Landlord, its successors and
assigns, and shall be binding upon Tenant, its successors and assigns and shall
inure to the benefit of Tenant, and, subject to the provisions of Article 13,
only such assigns of Tenant to whom the assignment of this Lease by Tenant has
been consented to by Landlord. Upon any sale or other transfer by Landlord of
its interest in the premises, Landlord shall be relieved of any obligations
under this Lease accruing thereafter.
Section 18.5. Compliance with Laws and Regulations.
(a) Tenant, at its expense, shall comply with and shall cause the
Premises to comply with all federal, state, municipal and other governmental
statutes, laws, rules, orders, regulations and ordinances (including, without
limitation, environmental laws, rules, orders, regulations and ordinances)
relating to Tenant's particular use and occupancy of the Premises or any part
thereof, or the use thereof, including those which require the making of any
unforeseen or extraordinary changes, whether or not any such statutes, laws,
rules, orders, regulations or ordinances
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which may be hereafter enacted involve a change of policy on the part of the
governmental body enacting the same. Tenant's construction and design of the
improvements (as described in Article 2) shall be in compliance with, inter alia
the ADA. Tenant shall also, at its expense, comply and cause the Premises to
comply with all rules, orders and regulations of the National Board of Fire
Underwriters or Landlord's fire insurance rating organization or other bodies
exercising similar functions in connection with the prevention of fire or the
correction of hazardous conditions, which apply to the Premises. In addition,
subject to Section 2.5(a) above, Tenant shall be solely responsible for
obtaining, at its sole cost and expense, all occupational or business licenses
or permits necessary to operate the Premises for the Permitted Use, and the
inability to obtain the same shall not relieve Tenant from liability hereunder.
(b) Landlord, at its expense, shall comply with and shall cause the
Common Areas to comply with all federal, state, municipal and other governmental
statutes, laws, rules, orders, regulations and ordinances (including, without
limitation, environmental laws, rules, orders, regulations and ordinances)
affecting the Common Areas or any part thereof, or the use thereof, including
those which require the making of any unforeseen or extraordinary changes
whether or not any such statutes, laws, rules, orders, regulations or ordinances
which may be hereafter enacted involve a change of policy on the part of the
governmental body enacting the same. Landlord shall also, at its expense, comply
with all rules, orders and regulations of the National Board of Fire
Underwriters or the Landlord's fire insurance rating organization or other
bodies exercising similar functions in connection with the prevention of fire or
correction of hazardous conditions, which apply to the Building.
Section 18.6. Captions and Headings.
The Table of Contents, the Table of Defined Terms and the Article and
Section captions and headings are for convenience of reference only and in no
way shall be used to construe or modify the provisions set forth in this Lease.
Section 18.7. Joint and Several Liability.
If two or more individuals, corporations, limited liability companies,
partnerships or other business associations (or any combination of two or more
thereof) shall sign this Lease as Tenant, the liability of each individual,
corporation, limited liability company, partnership or other business
association to pay Rent and perform all other obligations hereunder shall be
deemed to be joint and several, and all notices, payments and agreements given
or made by, with or to any one of such individuals, corporations, limited
liability companies,
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partnerships or other business associations shall be deemed to have been given
or made by, with or to all of them. In like manner, if Tenant shall be a
partnership or other business association, the members of which are, by virtue
of any statute or federal law, subject to personal liability, the liability of
each such member shall be joint and several.
Section 18.8. Broker's Commissions.
Tenant represents and warrants to Landlord that it has dealt directly
with and only with Carey Winston ("CW") as Tenant's authorized representative,
and Landlord and Landlord's leasing agent recognize CW as Tenant's authorized
representative. Landlord shall pay CW for its services in connection with this
Lease pursuant to a separate agreement. Landlord represents that Landlord has
dealt directly with and only with Faison & Associates, Inc. ("Faison") as its
authorized representative, and Tenant and C&W recognize Faison as Landlord's
authorized representative. Landlord shall pay Faison for its services in
connection with this Lease pursuant to a separate agreement. Each party further
represents to the other that it has dealt with no other broker, finder or other
person who may be entitled to brokerage commissions or finders fees in
connection with the execution of this Lease other than as specifically set forth
above. Each party hereby agrees to defend, indemnify and hold harmless the other
against and from all liability arising from any breach of such representation or
obligation by the indemnifying party, including without limitation the costs of
reasonable attorneys' fees in connection therewith.
Section 18.9. No Discrimination.
It is intended that the Building shall be developed so that all
prospective tenants thereof and all customers, employees, licensees and invitees
of all tenants hereof shall have the opportunity to obtain all of the goods,
services, accommodations, advantages, facilities and privileges of the Building
without discrimination because of race, color, religion, sex or national origin.
To that end, Tenant shall not discriminate in the conduct and operation of its
business in the Premises against any person or group of persons because of the
race, color, religion, sex or national origin of such person or group of
persons.
Section 18.10. No Joint Venture.
Any intention to create a joint venture or partnership relationship
between the parties hereto is expressly disclaimed.
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Section 18.11. Schedules.
Any documents attached hereto as Schedules, together with all drawings
and documents prepared pursuant thereto or referred to therein are hereby
incorporated herein and made a part hereof.
Section 18.12. Severability.
If any term or provisions, or any portion thereof, of this Lease, or
the application thereof to any person or circumstances shall, to any extent, be
rendered invalid or unenforceable, the remainder of this Lease, or the
application of such term or provision to persons or circumstances other than
those as to which it is held specifically invalid or unenforceable, shall not be
affected thereby, and each term and provision of this Lease shall be valid and
enforceable to the fullest extent permitted by law.
Section 18.13. No Third Party Beneficiary.
Nothing contained in this Lease shall be construed so as to confer upon
any other party the rights of a third party beneficiary, except rights contained
herein for the benefit of any Mortgagee.
Section 18.14. Corporate Tenants.
In the event Tenant is a corporation, the person executing this Lease
on behalf of Tenant hereby covenants and warrants that: (a) Tenant is a duly
constituted corporation qualified to do business in the Commonwealth of
Virginia; (b) all of Tenant's franchise and corporate taxes have been paid to
date; (c) all future forms, reports, fees and other documents necessary for
Tenant to comply with applicable laws shall be filed by Tenant when due; and (d)
such persons are duly authorized by the board of directors of such corporation
to execute and deliver this Lease on behalf of the corporation.
Section 18.15. Applicable Law.
This Lease and the rights and obligations of the parties hereunder
shall be construed in accordance with the laws of the Commonwealth of Virginia,
and any action or proceeding arising hereunder shall be brought in the United
States District Court for the Commonwealth of Virginia or any successor court
thereto.
Section 18.16 Waiver of Jury Trial.
With respect to any and all issues arising under or in any manner
connected with the entry into or performance under this Lease, Tenant and
Landlord, on behalf of themselves and their
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successors and assigns, hereby mutually waive the right to request a trial by
jury, in any action or proceeding between the parties or in which the parties
hereto and other persons have been joined.
Section 18.17 Limitation of Liability.
(a) Anything contained in any provisions of this Lease to the contrary
notwithstanding, in consideration of the benefits accruing hereunder, Tenant,
for itself, and its successors and assigns, covenants and agrees that in the
event of any actual or alleged failure, breach or default hereunder by Landlord,
its successors or assigns (and with respect to items (ii) through (vii), except
in each instance for any act or omission taken by any below-named person in an
individual capacity, acting outside of the scope of such person's corporate
authority where such act or omission would subject such person to personal
liability under applicable law):
(i) the sole and exclusive remedy shall be against the
entity then constituting Landlord and shall be limited to
Landlord's equity interest in and to the Building;
(ii) no partner, officer, director or stockholder of Landlord,
or partner, trustee, officer, director or stockholder of any entity having a
direct or indirect financial interest in Landlord, and no employees or agents of
any such entities, shall be sued or named as a party in any suit or action
(except when required for procedural purposes);
(iii) no service of process shall be made against any partner,
officer, director or stockholder of Landlord, or partner, trustee, officer,
director or stockholder of any entity having a direct or indirect financial
interest in Landlord (except when required for procedural purposes);
(iv) no partner, officer, director or stockholder of Landlord,
or partner, trustee, officer, director or stockholder of any entity having a
direct or indirect financial interest in Landlord, and no employees or agents of
any such entities, shall be required to answer or otherwise plead to any service
of process (except when required for procedural purposes);
(v) no judgment shall be taken against any partner, officer,
director or stockholder of Landlord, or partner, trustee, officer, director or
stockholder of any entity having a direct or indirect financial interest in
Landlord, or against any employee or agent of any such entities;
(vi) any judgment taken against any partner, officer, director,
or stockholder of Landlord, or partner, trustee,
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officer, director or stockholder of any entity having a direct or indirect
financial interest in Landlord, or against any employee or agent of any such
entities, may be vacated and set aside at any time nunc pro tunc;
(vii) no writ of execution shall ever be levied against the assets
of any partner, officer, director or stockholder of Landlord or any assets of
Landlord, or of any partner, trustee, officer, director or stockholder of any
entity having a direct or indirect financial interest in Landlord, or against
the assets of any trustee, employee or agent of any such entities, other than as
specified in clause (i) of this Section 18.17(a); and
Landlord shall, in no event, be in default in the performance of its
obligations hereunder unless and until Landlord shall have failed to perform
such obligations within thirty (30) days, or such additional time as is
reasonably required to correct any default, after notice to Landlord specifying
the notice of such alleged default. In no event shall either party be liable to
the other for indirect or consequential damages.
(b) Anything contained in any provision of this Lease to the contrary
notwithstanding, in consideration of the benefits accruing hereunder, Landlord,
for itself and its successors and assigns, covenants and agrees that in the
event of any actual or alleged failure, breach, or default hereunder by Tenant,
its successors or assigns (and except in each instance for any act or omission
taken by any below-named person in an individual capacity, acting outside of the
scope of such person's corporate authority where such act or omission would
subject such person to personal liability under applicable law):
(i) no partner, officer, director, member or stockholder of
Tenant or partner, trustee, officer, director, member or stockholder of any
entity having a direct or indirect financial interest in Tenant, and no
employees or agents of any such entities, shall be sued or named as a party in
any suit or action (except when required for procedural purposes);
(ii) no service of process shall be made against any partner,
officer, director, member or stockholder of Tenant or against any partner,
trustee, officer, director, member or stockholder of any entity having a direct
or indirect financial interest in Tenant (except when required for procedural
purposes);
(iii) no partner, officer, director, member or stockholder of
Tenant or partner, trustee, officer, director, member or stockholder of any
entity having a direct or indirect financial interest in Tenant, and no
employees or agents of any
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such entities, shall be required to answer or otherwise plead to any service of
process (except when required for procedural purposes);
(iv) no judgment shall be taken against any partner, officer,
director, member or stockholder of Tenant or against any partner, trustee,
officer, director, member or stockholder of any entity having a direct or
indirect financial interest in Tenant or any employee or agent of any such
entities;
(v) any judgment taken against any partner, officer, director,
member or stockholder of Tenant, or against any partner, trustee, officer,
director, member or stockholder of any entity having a direct or indirect
financial interest in Tenant, or against any employee or agent of any such
entities, may be vacated and set aside at any time nunc pro tunc; and
(vi) no writ of execution shall ever be levied against the assets
of any partner, officer, director, member or stockholder of Tenant, or against
the assets of any partner, trustee, officer, director, member or stockholder of
any entity having a direct or indirect financial interest in Tenant, or against
the assets of any trustee, employee, or agent of any such entities.
Section 18.18 No Accord and Satisfaction.
The acceptance by Landlord of any sums from Tenant (whether as Rent or
otherwise) in amounts which are less than the amounts due and payable by Tenant
hereunder is not intended, nor shall be construed, to constitute an accord and
satisfaction of any dispute between Landlord and Tenant regarding sums due and
payable by Tenant hereunder, unless Landlord specifically deems it as such in
writing.
Section 18.19 Time of Essence.
Time is of the essence in each and every instance hereunder with
respect to the covenants, undertakings and conditions to be performed hereunder
by Tenant.
Section 18.20 "Person(s)" Defined.
The words "person" or "persons" as used herein, shall mean
individual(s), corporation(s), limited liability company(ies) partnership(s),
firm(s), other business association(s), or governmental entity or entities,
whichever is required by the context, or all of the foregoing if the context so
requires.
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Section 18.21 Net Lease. INTENTIONALLY DELETED.
Section 18.22 Consents. In any instance in which either Landlord or
Tenant shall be requested to consent or approve any matter with respect to which
such party's consent or approval is required by any of the provisions of this
Lease, such consent or approval shall not be unreasonably withheld, conditioned,
delayed, or exercised except as may otherwise be expressly set forth to the
contrary in this Lease.
Section 18.23 Unilateral Amendment.
Through and until December 31, 1997, Landlord shall have the right at
any time, and from time to time, during the Term of this Lease, to unilaterally
amend the provisions of this Lease if Landlord is advised by its counsel that
all or any portion of the monies paid by Tenant to Landlord hereunder are, or
may be deemed to be, unrelated business income within the meaning of the United
States Internal Revenue Code or regulations issued thereunder, and Tenant agrees
that it will execute all documents or instruments necessary to effect such
amendment or amendments, provided that no such amendment shall result in Tenant
having to pay in the aggregate a larger sum of money on account of its occupancy
of the Premises under the terms of this Lease as so amended, and provided
further that no such amendment or amendments shall result in Tenant receiving
under the provisions of this Lease less services than it is entitled to receive,
nor services of a lesser quality; provided, however, that Tenant shall suffer no
material or adverse effect as a result of any such amendment.
Section 18.24 Integration of all Prior Agreements and
Execution of Lease.
THIS WRITING IS INTENDED BY THE PARTIES AS A FINAL EXPRESSION OF THEIR
AGREEMENT AND AS A COMPLETE AND EXCLUSIVE STATEMENT OF THE TERMS THEREOF, WITH
ALL NEGOTIATIONS, CONSIDERATIONS AND REPRESENTATIONS BETWEEN THE PARTIES HAVING
BEEN INCORPORATED HEREIN. NO COURSE OF PRIOR DEALINGS BETWEEN THE PARTIES OR
THEIR OFFICERS, EMPLOYEES, AGENTS OR AFFILIATES SHALL BE RELEVANT OR ADMISSIBLE
TO SUPPLEMENT, EXPLAIN, OR VARY ANY OF THE TERMS OF THIS LEASE. ACCEPTANCE OF,
OR ACQUIESCENCE IN, A COURSE OF PERFORMANCE RENDERED UNDER THIS LEASE OR ANY
PRIOR AGREEMENT BETWEEN THE PARTIES OR THEIR AFFILIATES SHALL NOT BE RELEVANT OR
ADMISSIBLE TO DETERMINE THE MEANING OF ANY OF THE TERMS OF THIS LEASE. NO
REPRESENTATIONS, UNDERSTANDINGS OR AGREEMENTS HAVE BEEN MADE OR RELIED UPON IN
THE MAKING OF THIS LEASE OTHER THAN THOSE SPECIFICALLY SET FORTH HEREIN. ALL
PRIOR COMMUNICATIONS FROM LANDLORD WITH RESPECT TO ESTIMATED CHARGES PAYABLE BY
TENANT HEREUNDER ARE FOR INFORMATION ONLY AND ARE NOT TO BE CONSTRUED AS
REPRESENTATIONS OF THE ACTUAL CHARGES WHICH
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TENANT IS REQUIRED TO PAY HEREUNDER, OR AS BINDING UPON LANDLORD IN ANY MANNER
WHATSOEVER. THIS LEASE CAN BE MODIFIED ONLY BY A WRITING SIGNED BY EACH OF THE
PARTIES HERETO.
THE SUBMISSION OF THIS LEASE FOR EXAMINATION DOES NOT CONSTITUTE A
RESERVATION OF OR OPTION FOR THE PREMISES OR ANY OTHER SPACE WITHIN THE
BUILDING. THIS LEASE SHALL BECOME EFFECTIVE ONLY UPON EXECUTION AND LEGAL
DELIVERY THEREOF BY THE PARTIES HERETO. THIS LEASE MAY BE EXECUTED IN MORE THAN
ONE COUNTERPART, AND EACH SUCH COUNTERPART SHALL BE DEEMED AN ORIGINAL DOCUMENT.
If Tenant is a corporation, the authorized officers must sign on behalf
of the corporation, and by doing so such officers make the covenants and
warranties contained in Section 19.14. This Lease must be executed for Tenant,
if a corporation, by the president or a vice-president and by the secretary or
an assistant secretary, unless the by-laws or a resolution of the board of
directors shall provide that other officers are authorized to execute this
Lease, in which event, a certified copy of the by-laws and resolutions must be
furnished.
IN WITNESS WHEREOF, intending to be legally bound hereby, the parties
hereto, by their duly authorized representatives, have executed this Lease as of
the day and year first above written.
ATTEST OR WITNESS: LANDLORD:
FAIRFAX SQUARE ASSOCIATES II,
a Virginia general partnership
By: MAV Properties, Inc., a
general partner
___________________________ By:_____________________(SEAL)
ATTEST OR WITNESS: TENANT:
TELIGENT, L.L.C., a Delaware
limited liability company
___________________________ By:_____________________(SEAL)
67
<PAGE>
APPROVED, this ___ day of _____________, 1997, as Mortgagee hereunder, pursuant
to Section 18.1 of this Lease.
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By:________________________(SEAL)
ACKNOWLEDGMENTS
STATE OF ___________________ )
) TO WIT:
CITY/COUNTY OF _____________ )
I HEREBY CERTIFY that on this ______ day of _______________, 1997,
before me, the subscriber, a Notary Public in and for the State referenced
above, personally appeared ____________________ _________________________, who
acknowledged himself to be the __________________ of MAV Properties, Inc., a
general partner of Fairfax Square Associates II, a Virginia general partnership,
and did acknowledge that he as such ___________________ of MAV Properties, Inc.,
a general partner of Fairfax Square Associates II, executed the foregoing Office
Lease Agreement for the purposes therein contained, and further acknowledged the
foregoing Office Lease Agreement to be the act of the said MAV Properties, Inc.,
a general partner of Fairfax Square Associates II.
AS WITNESS my hand and notarial seal.
-----------------------------------
Notary Public
My Commission Expires: _______________________
68
<PAGE>
STATE OF ___________________ )
) TO WIT:
CITY/COUNTY OF _____________ )
I HEREBY CERTIFY that on this ______ day of _______________, 1997,
before me, the subscriber, a Notary Public in and for the jurisdiction
referenced above, personally appeared ___________________________________, who
acknowledged himself/herself to be the __________________ of Teligent, L.L.C., a
Delaware limited liability company, and did acknowledge that he/she as such
___________________ of Teligent, L.L.C., executed the foregoing Office Lease
Agreement for the purposes therein contained, and further acknowledged the
foregoing Office Lease Agreement to be the act of the said Teligent, L.L.C.
AS WITNESS my hand and notarial seal.
-----------------------------------
Notary Public
My Commission Expires: _______________________
69
<PAGE>
FAIRFAX SQUARE
SCHEDULE A-1
LEGAL DESCRIPTION OF PROJECT
ALL of that certain property located in Fairfax County, Virginia,
described as follows, subject to a Deed of Trust:
Beginning at a point on the Southeasterly side of Aline Avenue (Route
3402) said point marking the P.C. of a return at the Southeasterly corner of the
intersection of Aline Avenue and Leesburg Pike (Route #7) as recorded among the
land records of Fairfax County, Virginia, in Deed Book 3578 at page 478; thence
with the Southwesterly side of Leesburg Pike the following courses: with a curve
to the right whose radius is 25.00 feet (and whose chord is N 88 degrees 58'57"
E, 36.27 feet) an arc distance of 40.58 feet; S 44 degrees 30'41" E, 111.47
feet; with a curve to the left whose radius is 1945.08 feet (and whose chord is
S 46 degrees 17'41"E, 121.06 feet) an arc distance of 121.08 feet and S 48
degrees 04'41" E, 316.79 feet to a point on the Westerly line of Builder of
Northern Virginia, Inc.; thence with the Westerly and Southerly lines of
Builders of Northern Virginia, Inc., S 30 degrees 57'53" W, 431.98 feet and S 56
degrees 22'15" E, 20.74 feet to a point; thence running through the property
Freedom Hill Limited Partnership S 42 degrees 28'33" W, 295.93 feet N 47 degrees
31' 27" W, 682.15 feet to a point on the aforementioned Southeasterly side of
Aline Avenue; thence with the Southeasterly side of Aline Avenue N 42 degrees
28'33" E, 696.46 feet to the point of beginning, containing 10.58441 acres of
land.
<PAGE>
FAIRFAX SQUARE
SCHEDULE A-2
[DRAWING OF ANTENNA LOCATION]
<PAGE>
FAIRFAX SQUARE
SCHEDULE A-3
[DRAWING SHOWING APPROXIMATE LOCATION
OF SECOND FLOOR SPACE]
<PAGE>
FAIRFAX SQUARE
SCHEDULE G
AGREEMENT OF SUBORDINATION
NON-DISTURBANCE AND ATTORNMENT
Attached to and made part of Lease dated as of October 1, 1997
Between
FAIRFAX SQUARE ASSOCIATES II, Landlord
and
TELIGENT, L.L.C., Tenant
THIS AGREEMENT MADE AS OF THE 1st day of October, 1997, by and among
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, a New York corporation,
having its principal office and post office address at 730 Third Avenue, New
York, New York 10017 ("Teachers") and TELIGENT, L.L.C., having its principle
office and post office address at 8065 Leesburg Pike, Suite 400, Vienna,
Virginia 22182 ("Tenant"),
W I T N E S S E T H:
WHEREAS, FAIRFAX SQUARE ASSOCIATES II, a Virginia general partnership
("Landlord") is the owner in fee simple of those certain premises situate, lying
and being in Fairfax County, Virginia, as more particularly described in Exhibit
A attached hereto (the "Property"); and
WHEREAS, Teachers is the holder of and payee under certain promissory
notes dated September 29, 1989, April 3, 1991, and February 18, 1992, secured by
a Deed of Trust of even date therewith, recorded in Book 7439 at Page 524, in
the Office of the Land Records, Fairfax County, Virginia, with amendments
recorded therein in Book 7781 at Page 547, and in Book 8025 at Page 1836 (as
amended, the "Deed of Trust") constituting a first lien upon the fee simple
estate of Landlord;
WHEREAS under the terms of a certain lease dated as of October 1, 1997
("Lease"), Landlord did lease, let and demise, subject to the Deed of Trust, a
portion of the Property as therein more particularly described ("Premises");
WHEREAS, the parties hereto desire to establish additional rights of
quiet and peaceful possession for the benefit of Tenant under the Lease and
further to define the terms, covenants and conditions precedent for such
additional rights.
<PAGE>
NOW, THEREFORE, in consideration of the respective demises and of the
sum of One Dollar ($1.00) and other good and valuable consideration, each to the
other in hand paid, it is hereby mutually covenanted and agreed as follows:
1. That Teachers (in its capacity as the beneficiary
under the Deed of Trust) does hereby represent, covenant and
warrant:
(a) That the Deed of Trust is in full force and effect
and unmodified.
(b) That there is no existing default under the
provisions of the Deed of Trust or in the performance
of any of the terms, covenants, conditions or
warranties thereof on the part of either Teachers or
Landlord to be observed and performed thereunder.
2. That Teachers (in its capacity as beneficiary under the Deed of
Trust) consents to and approves the Lease.
3. That Teachers (in its capacity as beneficiary under the Deed of
Trust) and Tenant do hereby covenant and agree that the Deed of Trust shall be
and the same is hereby made SUBORDINATE to the Lease with the same force and
effect as if the Lease had been executed, delivered and recorded prior to the
execution, delivery and recordation of the Deed of Trust,
EXCEPT, HOWEVER, that this Subordination shall not affect nor
be applicable to and does hereby expressly exclude:
(a) The prior right and claim under and the prior lien of
the Deed of Trust in, to and upon any award or other
compensation heretofore or hereafter to be made for
any taking by eminent domain of any part of the
Premises, and as to the right of disposition thereof
in accordance with the provisions of the Deed of
Trust, and
(b) Any lien, right, power or interest, if any, which may
have arisen or intervened in the period between the
recording of the Deed of Trust and the execution of
the Lease.
2
<PAGE>
4. That in the event of foreclosure under the Deed of Trust or sale in
lieu thereof, or the exercise of any other rights thereunder or under the note
which it secures or any related documents prior to the expiration date of the
Lease, including any extensions and renewals of the Lease now provided
thereunder, and subject to the observance and performance by Tenant of all of
the terms, covenants and conditions of the Lease on the part of Tenant to be
observed and performed, Teachers does hereby covenant and warrant as follows:
(a) The quiet and peaceful possession by Tenant of the
Premises under the Lease.
(b) That the Lease shall continue in full force and
effect and Teachers shall recognize the Lease and
the Tenant's rights thereunder and will thereby
establish direct privity of estate and contract as
between Teachers and Tenant, with the same force
and effect and with the same relative priority in
time and right as though the Lease were originally
made directly from Teachers in favor of Tenant,
but not in respect of any amendment to such Lease
not previously approved in writing by Teachers.
(c) To assume such of the obligations on the part of the
Landlord under the Lease for so long as Teachers
shall be the owner in fee of the Premises; provided,
however, Teachers shall not in any way or to any
extent be liable to Tenant:
(1) For restoration of improvements following
any casualty not required to be insured
under the Lease or for the costs of any
restoration in excess of the proceeds
recovered under any insurance required to be
carried under the Lease;
(2) For any prepayment of rent or deposit,
rental security or any other sums deposited
with the original or any prior landlord
under the Lease and not delivered to
Teachers; or
(3) For any restrictions on competition beyond
the Premises, if applicable.
5. That in the event of default under the Deed of Trust and upon notice
from Teachers to Tenant, prior to the expiration date of the Lease, including
any extensions and renewals of the Lease now provided thereunder, Tenant hereby
covenants and agrees
3
<PAGE>
to make full and complete attornment to Teachers, for the balance of the term of
the Lease, including any extensions and renewals thereof, now provided
thereunder, upon the same terms, covenants and conditions as therein provided,
so as to establish direct privity of estate and contract as between Teachers and
Tenant and with the same force and effect and relative priority in time and
right as though the Lease were originally made directly from Teachers to Tenant,
and Tenant will thereafter make all rent payments thereafter directly to
Teachers.
6. That the terms, covenants and conditions hereof shall inure to the
benefit of and be binding upon the respective parties hereto, their respective
heirs, executors, administrators, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this writing to be
signed, sealed and delivered in their respective names and behalf, and, if a
corporation, by its officers duly authorized, the day and year first above
written.
Very truly yours,
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By:
-------------------------------
Name:
------------------------------
Title:
-----------------------------
STATE OF NEW YORK )
) To Wit:
COUNTY OF ____________ )
I HEREBY CERTIFY that on this ______ day of _______________ 1997,
before me, the undersigned, a Notary Public of said State, personally appeared
_____________________ known to me to be the person whose name is subscribed to
the within instrument, and acknowledged that he executed the same for the
purposes contained therein.
WITNESS my hand and Notarial Seal.
------------------------------
Notary Public
My Commission Expires:
- ----------------------------
4
<PAGE>
TENANT'S AGREEMENT
The undersigned, as Tenant under the Lease herein described, does
hereby accept and agree to the terms of the foregoing Subordination, which shall
inure to the benefit of and be binding upon the undersigned and the heirs,
executors, administrators, legal representatives, successors and assigns of the
undersigned.
TELIGENT, L.L.C.
By: [SEAL]
-------------------------
Name:
-------------------------
Title:
------------------------
COUNTY OF __________)
) To Wit:
STATE OF ___________)
I HEREBY CERTIFY that on this _____ day of ___________ 1997, before me,
the undersigned, a Notary Public of said State, personally appeared
_____________________ known to me to be the person whose name is subscribed to
the within instrument, and acknowledged that he executed the same for the
purposes contained therein.
WITNESS my hand and Notarial Seal.
------------------------------
Notary Public
My Commission Expires:
- ----------------------------
5
<PAGE>
FAIRFAX SQUARE
SCHEDULE H
STATEMENT OF TENANT IN RE: LEASE
Teachers Insurance and Annuity Date:_____________
Association of America
730 Third Avenue
New York, NY 10017
Re: Address:
---------------------------------------
Your Appl. No.:
-------------------------------------
Gentlemen:
It is our understanding that you have committed to place a mortgage
upon the subject premises and as a condition precedent thereof have required
this certification by the undersigned.
The undersigned, as Lessee, under that certain lease dated
____________________, made with FAIRFAX SQUARE ASSOCIATES II, as Lessor, hereby
certifies that:
1. the undersigned has entered into occupancy of the
premises described in said lease on ________________;
and
2. the undersigned is presently open and conducting
business with the public in the premises; and
3. the base rental in the annual amount of $___________
was payable from the date of occupancy;
4. said lease is in full force and effect and has not
been assigned, modified, supplemented or amended in
any way (except by agreement(s) dated ____________),
and neither party thereto is in default thereunder;
and
5. the same represents the entire agreement between the
parties as to this leasing; and
6. the Term of said lease expires on _______________;
and
<PAGE>
7. all conditions under said lease to be performed by
the Lessor have been satisfied, including but without
limitation, all co-tenancy requirements thereunder;
and,
8. all required contributions by Lessor to Lessee on
account of Lessee's improvements have been received;
and,
9. on this date there are no existing defenses or
offsets which the undersigned has against the
enforcement of said lease by the Lessor; and,
10. no rental has been paid through ___________, 19___,
and no security (or in the amount of $____________)
has been deposited with the lessor; and,
11. rental for ___________, 19___, has been paid.
Very truly yours,
(Tenant)
-----------------------------
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
2
<PAGE>
October 28, 1997
NORTEL
Teligent, Inc. NORTHERN TELECOM
8065 Leesburg Pike, Suite 400
Vienna, Virginia 22182
Attention: Abraham L. Morris
Senior Vice President, Chief Financial Officer
Gentlemen:
You have advised us that you desire to enter into a $780 million multiple
advance term facility (the "Facility") with Northern Telecom Inc. ("Nortel").
Nortel is pleased to confirm to you its commitment to provide Teligent, Inc.
(the "Borrower") with the Facility on the terms and subject to the conditions
contained in this letter and the attached terms and conditions (together, the
"Commitment Letter"). Our arrangement with respect to the fees for the Facility
is set forth in a separate letter agreement (the "Fee Letter") of even date
herewith by and between Nortel and the Borrower.
Nortel's commitment is subject, in its discretion, to the following conditions:
(i) there shall not have been, since the date of the most recent audited
financial statements of the Borrower furnished to Nortel, any material adverse
change in the business, condition (financial or otherwise), operations,
performance, prospects or properties of the Borrower and its subsidiaries, taken
as a whole, and (ii) there shall not have been any disruption or adverse change
in the U S. financial or capital markets generally or in the market for loan
syndications of transactions generally comparable to the Facility in particular,
which in any such case under clause (i) or (ii) Nortel, in its reasonable
judgment, deems material. Nortel's commitment is also subject, in its
discretion, to the satisfactory negotiation, execution and delivery of
appropriate loan documents relating to the Facility, including, without
limitation, (a) a Credit Agreement, (b) promissory notes, (c) security
documents, including, without limitation, guaranties, security agreements,
pledge agreements, mortgages, and financing statements, (d) opinions of counsel,
and (e) other related agreements, certificates, documents and instruments
(collectively, the "Loan Documents") to be based upon and substantially
consistent with the terms set forth in this Commitment Letter. Nortel's
commitment is subject to Nortel's being satisfied with the results of its due
diligence with respect to the prospects of the Borrower and its subsidiaries,
material agreements between or among the Borrower and its affiliates relating to
the Borrower, and the tax, accounting, legal, regulatory and other issues
relevant to the Borrower. Nortel will exercise its best commercially reasonable
efforts to complete its due diligence as promptly as reasonably practicable
following the execution of this Commitment Letter by the Borrower.
The terms of this Commitment Letter are intended as an outline of certain of the
material terms of the Facility, but do not include all of the terms, conditions,
covenants, representations, warranties, events of default and other provisions
that will be contained in the Loan Documents. In addition, the Loan Documents
shall include provisions that are customary or typical for financings of this
type and other provisions that Nortel may determine to be appropriate in the
context of the proposed transactions.
<PAGE>
Teligent, Inc.
October 28, 1997
Page 2
This Commitment Letter, the Fee Letter and any written or oral advice provided
by Nortel in connection with this arrangement are exclusively for the
information of senior management of the Borrower and its advisors and agents and
except as may otherwise be required by law or judicial process may not be
disclosed to any third party or circulated or referred to publicly without
Nortel's prior written consent.
Nortel's commitment hereunder shall terminate on February 24, 1998, unless the
closing of the Facility, on the terms and subject to the conditions contained
herein, shall have been consummated by such date.
This Commitment Letter may be executed in any number of counterparts and by the
parties hereto on separate counterparts, all of which when taken together shall
constitute one agreement.
This written Commitment Letter and the Fee Letter constitute the entire
agreement of the parties with respect to the subject matter hereof and supersede
any and all prior or contemporaneous written or oral discussions or agreements
of the parties relating to the subject matter hereof. There are no other
agreements, written or oral, among the parties relating to the subject matter
hereof.
Please confirm that the foregoing is in accordance with your understanding by
signing and returning to Nortel the enclosed copy of this Commitment Letter
together with the Fee Letter on or before the close of business on October 31,
1997, whereupon this Commitment Letter and the Fee Letter shall become binding
agreements between Nortel and the Borrower. If this Commitment Letter and the
Fee Letter are not signed and returned by the close of business on October 31,
1997, this offer will terminate at that time.
Sincerely,
NORTHERN TELECOM INC.
By: /s/ Stephen R.S. Martin
-----------------------------
Name: Stephen R. S. Martin
Title: Vice President Customer Finance
North America
Agreed to and accepted this 28th day of October, 1997.
TELIGENT, INC.
By: /s/ Abraham L. Morris
------------------------------
Name: Abraham L. Morris
Title: Senior Vice President &
Chief Financial Officer
<PAGE>
October 28, 1997
NORTEL
Teligent, Inc. NORTHERN TELECOM
8065 Leesburg Pike, Suite 400
Vienna, Virginia 22182
Attention: Abraham L. Morris
Senior Vice President, Chief Financial Officer
Re: Proposed $780 Million Teligent, Inc. Credit Facility
Gentlemen:
Reference is made to the Commitment Letter dated October 28, 1997 (the
"Commitment Letter") between Northern Telecom Inc. ("Nortel") and Teligent, Inc.
(the "Borrower") relating to a proposed $780 million multiple advance term loan
facility. Capitalized terms use herein and not otherwise defined herein shall
have the meanings assigned to such terms in the Commitment Letter
The Borrower hereby agrees to pay to Nortel (individually and/or as
Administrative Agent, as applicable) the following fees in connection with the
credit facility contemplated by the Commitment Letter:
A. Arrangement Fee: An amount equal to 2% of the committed amount of
Tranches A, B and C (without duplication), payable at the earlier of
the date of the initial Advance or the successful completion of a
syndication of the loans and commitments under the Financing Agreement.
B. Commitment Fees: An amount equal to .5% per annum (determined on a
360-day year/actual-days-elapsed basis) of the Borrower's average
unused and available Facility Amount for Tranche A, B or C (without
duplication) during each calendar quarter, payable in arrears at the
end of such quarter. No commitment fees shall be due on commitments
held by Nortel during the time they are held by Nortel. Facilities A-1
and B-1 shall be deemed available for purposes of payment of
commitment fees when the Initial Capital has been raised, and
Facilities A-2 and B-2 shall be deemed available for purposes of
payment of commitment fees when the Additional Capital has been raised.
C. Annual Agent's Fee: On each the date upon which the Financing Agreement
has been executed by all parties thereto and annually thereafter on
each anniversary of that date until all indebtedness and obligations
under the Financing Agreement have been paid in full and the
commitments thereunder have terminated or expired, an Administrative
Agent's fee in an amount equal to the greater of (i) $50,000 or (ii)
the product of $5,000 multiplied by the number of Lenders who are, at
the time of such payment, Lenders under the Credit Agreement, but in
no event in excess of $100,000 per year.
<PAGE>
Teligent, Inc.
October 28, 1997
Page 2
If the terms and conditions of this letter agreement are acceptable to
you, please indicate your acceptance by signing in the indicated space below.
Sincerely,
NORTHERN TELCOM INC.
By: /s/ Stephen R.S. Martin
------------------------------------
Name: Stephen R.S. Martin
Title: Vice President Customer Finance
North America
ACCEPTED AND AGREED:
TELIGENT, INC.
By: /s/ Abraham L. Morris
---------------------
Name: Abraham L. Morris
Title: Senior Vice President &
Chief Financial Officer
Date: October 28, 1997
<PAGE>
TELIGENT, INC.
Financing Terms and Conditions
This Term Sheet sets forth the terms and conditions under which Northern Telecom
Inc. ("Nortel") proposes to provide advances ("Advances") to Teligent, Inc.
("Teligent" or the "Borrower") to finance, pursuant to an initial financing
agreement (the "Financing Agreement"), the purchase and installation of
equipment, and the provision of related services, pursuant to a definitive
equipment purchase agreement (the "Definitive Agreement") between Nortel and
Teligent.
Lender(s): Nortel, its affiliates, successors and assigns,
subject to the assignment provisions outlined below.
Administrative Agent: Nortel or another entity satisfactory to Nortel.
Collateral Trustee: An independent entity satisfactory to Nortel
and the Borrower.
Borrower: Teligent, Inc., a Delaware corporation.
Restricted Subsidiaries: Subsidiaries of the Borrower which (i)
have all of their issued and outstanding capital
stock pledged as security for the obligations of the
Borrower under the Financing Agreement, (ii) have
guaranteed payment of the amounts owing under the
Financing Agreement, and (iii) have pledged all of
their assets as security for the obligations of the
Borrower under the Financing Agreement
Unrestricted
Subsidiaries: Any subsidiary of the Borrower which does not qualify
as a Restricted Subsidiary, Loans and advances to,
and investments by the Borrower in, Unrestricted
Subsidiaries shall be limited.
Facility Amount: $780 million divided into tranches, each available
for multiple drawdowns, as follows:
Tranche A-l = $150 million
Tranche A-2 = $450 million
Tranche B-1 = $45 million
Tranche B-2 = $135 million
Tranche C = $180 million less amounts
outstanding under Tranches
B-1 and B-2
The Lender retains the right, with the prior written
agreement of the Borrower with respect to the
economics and terms, to designate and convert up to
$195 million of the drawings under Tranches A-1 and
B-1 into a nine year senior secured term loan (the
"Long Tranche").
Availability: Tranche A-1 and Tranche B-1 become available when the
Borrower has received net cash proceeds which total
at least $100 million from equity contribution after
August 1997 (the "Initial Capital").
1
<PAGE>
Thereafter, Tranche A-2 and Tranche B-2 become
available on the following conditions: (i) the
Borrower has terminated its existing Toronto Dominion
credit facility (the "Bridge Facility"), (ii) the
Borrower has received net cash proceeds together with
legally binding commitments to provide additional
equity or Other Debt (which commitments are pledged
to the Lenders, provided that the Lenders are
intended beneficiaries thereof, and are enforceable
by the Lenders following the occurrence of an Event
of Default) above and beyond the Initial Capital (the
"Additional Capital"), (iii) for each $1.000 of
Additional Capital received or committed, an
additional $2.000 shall be made available, consisting
of $1.538 from Tranche A-2 and $0.462 from Tranche
B-2 and (iii) upon the receipt or commitment of $185
million in aggregate Additional Capital, all of
Tranche A-2 and all of the remainder of Tranche B-2
become available. As used herein, "Other Debt" means
debt which is on terms acceptable to the Lenders
including, without limitation, that such debt is
unsecured, matures after the credit facility, and
requires no debt service other than the payment of
current interest so long as no default exists under
the Financing Agreement.
Tranche C shall be available in an amount equal to
the amount of accrued and unpaid interest owing on
the Advances, but not in excess of $180 million less
the outstanding principal balance of Tranches B-1 and
B-2.
Use of Proceeds: The Advances from Tranche A-1 and Tranche A-2 of a
"Tranche A" facility will be used to finance the full
payments due Nortel for "Deliverables" as defined in
the Definitive Agreement.
In addition, Advances from Tranche B-1 and Tranche
B-2 of a "Tranche B" facility may be used by Teligent
at its discretion to fund its working capital needs,
including payment of the fees due on Tranches A-1,
A-2, B-l, and B-2. Such "Additional Advances" shall
be made available to Teligent on identical conditions
and terms as the Tranche A Advances. Tranche B-1
shall be available on the Closing Date in an amount
equal to the Arrangement Fee.
For other uses of Tranche B-1 and for Advances under
Tranche B-2, the cumulative draws under the Tranche B
Facility and the Tranche C Facility (including any
Advance used to pay interest or the Arrangement Fee)
shall not exceed 30% of the cumulative Advances made
under Tranches A-1 and A-2.
Advances for Tranche C shall be used to pay interest
due on Advances during the first two years following
the initial Advance whether or not at the time of
such Advances the Tranche B Facility is available.
Non-Recourse: The Advances are to be made without recourse to any
of the shareholders of the Borrower (the
"Shareholders"), or their assets (except to the
extent provided under the heading "Collateral" below
and
2
<PAGE>
to the extent of their equity commitments).
Availability Period: The availability period to make Advances will
expire on the earlier of (i) the fourth anniversary
of the date of the initial Advance under the
Financing Agreement and (ii) December 31, 2001 (the
"Commitment Termination Date").
The Financing Agreement will contain provisions
specifying (a) the minimum principal amount of any
Advance to the Borrower, (b) that no more than two
Advances may be made in any one month period, and (c)
the invoices and other evidence that the Borrower
must provide supporting the use of the proceeds of
each Advance.
Principal Repayment: Principal shall be repaid by the Borrower in 20
consecutive quarterly installments commencing on the
last day of the calendar quarter immediately
following the fourth anniversary of the date of the
initial Advance under the Financing Agreement (such
period being the "Initial Period") in amounts equal
to the percentage of the principal amount of the
Advances then outstanding set forth below:
<TABLE>
<CAPTION>
<S> <C>
Year 1 following the Initial Period 2.50% per quarter
Year 2 following the Initial Period 3.75% per quarter
Year 3 following the Initial Period 5.00% per quarter
Year 4 following the Initial Period 6.25% per quarter
Year 5 following the Initial Period 7.50% per quarter
</TABLE>
Any amounts outstanding under the Long Tranche option
shall be subject to limited amortization, with the
balance to be paid in full at maturity.
Mandatory
Prepayment: The Borrower shall be required to prepay
outstanding Advances in an amount equal to:
(i) Net proceeds in excess of $250,000 from the
direct or indirect sale of assets of the
Borrower or its Restricted Subsidiaries,
insurance recoveries and condemnation
proceeds, unless the Borrower notifies the
Lenders that it plans to reinvest such amounts
in capital assets directly related to and to
be used in the Borrower's telecommunications
business as soon as practicable but in no
event later than within 180 days of such sale
and so reinvests such proceeds, provided that
any such prepayment shall be made on a pro
rata basis to the Lenders and the Other
Secured Lenders (as defined below under the
caption "Security Sharing") of the Borrower,
and until such reinvestment or repayment all
proceeds which in the aggregate exceed $1
million shall be deposited into an account
which is pledged to the Collateral Trustee;
(ii) The pro-rata amount of any mandatory or
voluntary
3
<PAGE>
prepayment, redemption, purchase, defeasance
or other satisfaction prior to maturity of any
Secured Debt held by Other Secured Lenders (as
such terms are hereinafter defined), provided
such prepayments are not in connection with
the refinancing of: (i) the outstanding amount
under the Bridge Facility, or (ii) such debt
or trade payables not overdue by more than
120 days incurred in the ordinary course of
the Borrower's business;
(iii) Beginning on the Commitment Termination Date,
50% of Excess Cash Flow shall be used to
prepay the Lenders and, to the extent
permitted, the Other Secured Lenders on a
pro-rata basis. "Excess Cash Flow" to be
defined as EBITDA less all cash interest
expenses, cash income taxes, scheduled
principal payments and the capital expenditures
plus any permitted capital expenditure amounts
which carry over to the following year; and
(iv) Any pension plan reversions which occur
following the creation of any pension plans
shall be used to prepay the Lenders and the
Other Secured Lenders on a pro-rata basis.
All mandatory prepayments shall be applied to the
outstanding Advances in the inverse order of
maturity.
Optional Prepayment: At any time, on three business days' notice.
All mandatory and optional prepayments shall be made
without premium, provided that the Borrower shall pay
to the Lenders any breakage costs arising in
connection with any prepayment made prior to the end
of the applicable interest period. All optional
prepayments shall be applied pro-rata to the
then-remaining installments of principal.
Interest Rate: At the option of the Borrower, the rate will float
at (a) the highest of (i) the rate of interest
publicly announced by Citibank N.A. as its prime or
base rate in effect at its principal office in New
York City, and (ii) the federal funds effective
rate from time to time plus 0.5%) (the "Base Rate"),
or (b) the one, two, three or six-month LIBOR,
adjusted for reserves, with the relevant period to
be selected by the Borrower (the "Adjusted LIBOR"),
plus an applicable margin. The applicable margin
will be based upon the following capitalization
targets:
<TABLE>
<CAPTION>
<S> <C>
Amount of New Capital Applicable Margin for
Base Rate Loans/Adjusted LIBOR Loans
--------------------- ------------------------------------
$100 to $300 million 2.75%/4.00%
$300 million to $500 million 2.25%/3.50%
More than $500 million 2.00%/3.25%
</TABLE>
If more than $500 million in New Capital is raised
and the Borrower has a ratio of Total Debt to
annualized EBITDA of 10:1 or less, then
4
<PAGE>
the applicable margin for Base Rate Loans shall be
1.75% and the applicable margin for LIBOR Loans
shall be 3.00%.
"New Capital" will represent the aggregate of equity
and Other Debt contributed to the Borrower after
August 1997, with the proportion to be discussed.
Default interest on all amounts not paid when due
will accrue at the rate per annum otherwise
applicable to the Advances, plus 200 basis points.
Interest will be computed on the basis of a 360-day
year and actual days elapsed. Interest rates shall be
subject to usury limitations.
Interest Payments: Interest on Base Rate Loans shall be paid quarterly
in arrears, and interest on Adjusted LIBOR Loans
shall bc paid at the end of each interest period
(and, for six-month interest periods, three months
after the commencement of the interest period).
Prior to the second anniversary of the date of the
initial Advance under the Financing Agreement,
interest payments on the Tranche A Facility, the
Tranche B Facility and the Tranche C Facility may
be made by advances under the Tranche C Facility.
Expenses: The Borrower shall pay all of the reasonable costs
and expenses incurred by the Lenders and the
Administrative Agent (including the fees and
expenses of legal counsel to the Lenders and the
Administrative Agent) in connection with the
preparation, execution and delivery of the loan
documentation up to a maximum amount of $200,000 and
shall also pay the reasonable costs and expenses
incurred by the Collateral Trustee (including the
fees and expenses of legal counsel to the Collateral
Trustee) in connection with the preparation,
execution and delivery of the loan documentation,
provided, however, that the Borrower shall pay in
full and directly all recording costs and related
taxes or charges and filing fees incurred in
connection with the closing. Such fees and expenses
shall be payable by the Borrower whether or not any
of the transactions contemplated hereby are
consummated, unless the transactions are not
consummated because Nortel is unwilling to go
forward, in which case Nortel shall bear its own
costs, including all fees and expenses of its
attorneys and advisors.
The Borrower will also pay all reasonable ongoing
costs including third-party legal fees and expenses
and other costs and expenses of the Lenders, the
Administrative Agent and the Collateral Trustee
related to the enforcement and/or protection of their
rights/collateral position, the administration of the
Financing Agreement and any amendments, waivers or
supplements related to the Financing Agreement or the
loan documentation.
Increased Costs: Standard yield protection, increased costs and
other similar provisions for bank credit agreements
and customary withholding tax indemnity.
Other Costs: The Borrower shall be responsible for all reasonable
maintenance, taxes
5
<PAGE>
and insurance related to all equipment acquired with
the proceeds of the Advances. The Collateral Trustee
shall also be named as an additional insured,
mortgagee and/or loss payee, as appropriate, with
respect to such insurance.
Indemnity: The Borrower will indemnify and hold harmless the
Administrative Agent, the Collateral Trustee, the
Lenders and their respective affiliates and their
officers, directors, employees, agents and advisors
(each, an "Indemnified Party") from and against any
and all claims, damages, losses, liabilities and
expenses (including without limitation reasonable
fees and expenses of counsel) that may be incurred
by or asserted or awarded against any Indemnified
Party, in each case arising out of or in connection
with or by reason of, or in connection with the
preparation for a defense of, any investigation,
litigation or proceeding arising out of, related to
or in connection with the transactions contemplated
by the Financing Agreement or any other loan
document, whether or not such investigation,
litigation or proceeding is brought by the Borrower,
its shareholders or creditors or an Indemnified
Party or an Indemnified Party is otherwise a party
thereto and whether or not such transactions are
consummated, except to the extent such claim.
damage, loss, liability or expense resulted from
such Indemnified Party's gross negligence or willful
misconduct. The Borrower will also indemnify the
Indemnified Parties with respect to environmental
liabilities and obligations of the Borrower and its
Restricted Subsidiaries, any of their affiliates or
any of their properties.
Collateral: As security for the Borrower's obligations under the
Financing Agreement and related documents, liens
(subject to security sharing arrangements described
below) on all existing and future assets of the
Borrower and its Restricted Subsidiaries, real and
personal, tangible and intangible, including,
without limitation the following: (i) all stock of a
special-purpose company formed to hold the real and
personal property interests relating to the
Borrowers' network including any switches, nodes and
other equipment of a value in excess of an amount to
be agreed (the "Property Company"); (ii) a lien as
perfected by filings related to all equipment,
receivables and inventory, material contract rights
and other material tangible and intangible assets;
(iii) all stock of any special-purpose
license-holding company (each a "License Company"),
provided, however, that such interest shall be
subordinated to the existing lien of the Bridge
Facility for the period that such remains in effect;
and (iv) all stock of any other Restricted
Subsidiary of the Borrower. All of the foregoing is
referred as the "Collateral." The Borrower's
standard form lease agreements shall contain landlord
waivers and consents in form and substance
acceptable to the Administrative Agent, and the
Borrower shall in good faith attempt to ensure that
such provisions are contained in all such leases when
executed.
Security Sharing: The above-described Collateral is subject to security
sharing arrangements, on terms and conditions
reasonably satisfactory to the
6
<PAGE>
Lenders, to be entered into by the Lenders under the
Financing Agreement and the commercial bank(s),
financial institutions or other vendors (excluding
Purchase Money Lenders as hereinafter defined) which
are lenders ("Other Secured Lenders") to the
Borrower of the Secured Debt (as defined below).
"Secured Debt" shall mean the aggregate of (i) the
amount of the Advances incurred by the Borrower under
the Financing Agreement or other debt which meets the
definition of Telecommunication Assets Debt set
forth in the Borrower's Form S-1 filed with the
Securities and Exchange Commission on October 7,
1997 (the "S-1") in its discussion of the terms of
the Notes proposed to be issued by the Borrower, so
long as no vendor providing Telecommunication Assets
Debt advances more than 130% of the purchase price
of the Telecommunications Assets, and no non-vendor
lender advances more than 100% of the purchase price
of the Telecommunications Assets (collectively
"Vendor Debt"), (ii) Debt incurred under the Bridge
Facility (without increase in the principal balance
thereof), (iii) Debt incurred under any other
working capital facilities (the "Working Capital
Facilities") and other Debt, in an aggregate amount
not greater than U.S. $175 million as to both such
Working Capital Facilities and other Debt, and (iv)
any refinancings of the Debt described above on
terms no less favorable to the Borrower. No debt
shall qualify as Secured Debt unless the holders
thereof have committed or advanced an aggregate of
$15,000,000. The Collateral specifically excludes
assets which secure Debt owing to Purchase Money
Lenders who have financed the acquisition of such as
sets. All such Other Secured Lenders of the Borrower
will share in the above-described Security on a pro
rata pari passu basis that will require them to
become party to the Collateral Trust Agreement. In
the event that the Borrower shall grant a security
interest in any other assets to any Other Secured
Lender, such lender will share such Collateral on a
pro rata pari passu basis.
"Debt" is defined as indebtedness in the form of
borrowed moneys, reimbursement obligations
(contingent or otherwise) under letters of credit or
similar facilities, guarantees, deferred purchase
price of property and services (other than trade
payables not overdue more than 60 days incurred in
the ordinary course of business), obligations
evidenced by notes, bonds, debentures or similar
instruments, obligations created or arising under any
conditional sale or other title retention agreement,
capitalized lease obligations and obligations under
hedging agreements; provided, however, that Debt
shall not include any hedging agreements entered into
with one or more financial institutions in the
ordinary course of business and not for speculation
that are designed to protect the Borrower against
fluctuation in interest rates with respect to the
underlying obligations or assets being hedged and
which shall have a notional amount no greater than
the payments due with respect to such underlying
obligations or assets.
"Purchase Money Lenders" are defined as those lenders
providing financing for the acquisition of assets by
the Borrower, who may or
7
<PAGE>
may not be the sellers of such assets, who provide
no more than 100% of the purchase price of such
assets including freight and sales taxes, and whose
Debt is secured only by the assets the acquisition
of which is being financed.
Prior to December 31, 1997, the Administrative Agent
shall enter into an intercreditor agreement with
Toronto Dominion with respect to the Bridge Facility
which shall be in form and substance satisfactory to
the Administrative Agent and shall provide, inter
alia, that the Lenders shall have the option to
purchase the Bridge Facility at a price equal to the
outstanding principal balance of the Bridge Facility
plus accrued but unpaid interest, both before and
after an event of default under the Bridge Facility,
and that Toronto Dominion will give the Lenders
notice and reasonable opportunity to cure any default
under the Bridge Facility prior to exercising any
rights with respect to the Borrower or the collateral
for the Bridge Facility.
Conditions Precedent
to Closing: The following conditions precedent and such others
as the parties may mutually agree:
(a) All documentation relating to the Advances,
including a Financing Agreement
incorporating the terms and conditions
outlined herein, shall be in form and
substance reasonably satisfactory to the
Lenders and the Borrower and all
documentation relating to the transaction
shall be in form and substance reasonably
satisfactory to the Lenders and the
Borrower.
(b) The Lenders shall be satisfied with the
corporate and legal structure and
capitalization of the Borrower and its
Restricted Subsidiaries, including without
limitation the charter and bylaws of the
Borrower and its Restricted Subsidiaries and
each agreement or instrument relating
thereto.
(c) All rights, title and interest in the
Federal Communications Commission ("FCC")
licenses (the "Licenses") held by the
Shareholders shall have been duly
transferred to the Borrower or special
purpose Restricted Subsidiaries of the
Borrower.
(d) The Borrower shall have: (i) entered into a
satisfactory Collateral Trust Agreement
pursuant to which an independent trustee
(the "Collateral Trustee") shall act as
collateral trustee to hold all of the
Collateral for the benefit of the holders
of the Secured Debt as outlined above; (ii)
executed and delivered to the Trustee
satisfactory documents to create a valid
and perfected first-priority lien on the
Collateral described above; (iii) all
filings, recordations and searches
necessary or reasonably deemed desirable in
connection with such liens and security
interests shall have been duly made or, if
not made
8
<PAGE>
shall be in final form for filing and be
filed prior to the date of the initial
Advance; (iv) and all filing and recording
fees and taxes shall have been fully paid.
The terms and provisions of such an
agreement shall contain provisions with
regard to collateral sharing, voting rights,
amendments and waivers and such other
matters as the parties shall reasonably
agree.
(e) The Lenders shall have received endorsements
naming the Collateral Trustee as an
additional insured and loss payee under all
insurance policies to be maintained with
respect to the properties of the Borrower
and its Restricted Subsidiaries forming part
of the Collateral securing the Advances.
(f) Since the date of the last audited
financial statements delivered to the
Lenders, there shall have occurred no
material adverse change in the business,
condition (financial or otherwise),
operations, performance, prospects or
properties of the Borrower and its
Restricted Subsidiaries, taken as a whole
(a "Material Adverse Effect"), and all
information provided by or on behalf of the
Borrower to the Lenders prior to the date
of the initial Advance shall be true and
correct in all material aspects. The
Borrower shall not have failed to disclose
to the Administrative Agent or any Lender
any material fact with respect to its
business or financial condition (including
any contingent liabilities), and shall not
have failed to disclose any information,
the absence of which makes any information
previously disclosed to the Administrative
Agent or any Lender materially misleading.
(g) Except as otherwise disclosed to, and
consented to by, the Administrative Agent
and the Lenders, there shall exist no
action, suit, investigation, litigation or
proceeding pending or to the knowledge of
the Borrower threatened in any court or
before any arbitrator or governmental
instrumentality that could reasonably be
expected to have a Material Adverse Effect,
or that purports to affect the legality,
validity or enforceability of the loan
documentation or the transactions
contemplated thereby or the Lenders'
rights thereunder.
(h) All governmental and third-party consents,
approvals and licenses necessary in
connection with the transactions
contemplated hereby and the making of the
Advances shall have been obtained (without
the imposition of any conditions that are
not reasonably acceptable to the Lenders)
and shall remain in effect; all applicable
waiting periods shall have expired without
any action being taken by any competent
authority; and no law or regulation shall
be applicable in the judgment of the
Lenders that restrains, prevents or imposes
materially adverse conditions upon the
transaction or the Advances.
9
<PAGE>
(i) The Lenders shall have been given reasonable
access to the management, records, books of
account, contacts and properties of the
Borrower and its Restricted Subsidiaries and
shall have received such financial, business
and other information regarding the Borrower
and its Restricted Subsidiaries as they
shall have reasonably requested.
(j) The Lenders shall have received (i)
reasonably satisfactory opinions of (x) New
York counsel, FCC counsel and local counsel
to the Borrower, (y) New York counsel and
FCC counsel to the Lenders as to the
transactions contemplated hereby and (ii)
such corporate resolutions, certificates and
other documents as the Lenders shall
reasonably request.
(k) There shall exist no default under any of
the loan documentation, and all
representations and warranties of the
Borrower and its Restricted Subsidiaries
shall be true and correct in all material
respects immediately prior to, and after
giving effect to, the extension of credit.
(l) All accrued reasonable fees and expenses of
the Lenders for which invoices have been
presented (including the fees and expenses
of New York counsel, FCC and local counsel
to the Lenders) shall have been paid.
(m) All Licenses which are required by the
Borrower in connection with the operation
of the Deliverables and the activities of
the Borrower being conducted at such date
shall have been issued to the License
Companies and no event shall have occurred
that would subject such Licenses to
revocation by the FCC, except for such
Licenses the loss of which could not
reasonably be expected to have a Material
Adverse Effect.
(n) The Lenders shall have received the
Borrower's most recent Business Plan and
there shall have been no material changes
in the Business Plan.
(o) The Definitive Agreement shall be executed
no later than concurrently with the
Financing Agreement and there shall exist no
default by the Borrower thereunder.
(p) The making of the Advances and other aspects
of the transaction shall comply with all
applicable laws, rules and regulations.
(q) Any tax sharing, management fee or
servicing fee agreements among the Borrower
and other affiliates of the Borrower shall
be on terms reasonably satisfactory to the
Lenders. (Among other things, each
management-fee and servicing-fee
10
<PAGE>
agreement will provide for the
subordination, on terms acceptable to the
Lenders, of the obligations to pay fees
thereunder, to the obligations arising
under the loan documentation.)
(r) The Lenders shall have completed their due
diligence review of the Borrower and the
results shall be satisfactory to the
Lenders.
Conditions Precedent to
Each Advance: For any Advance to the Borrower, there shall exist
no default under any of the loan documentation, no
Material Adverse Effect shall have occurred since
the date of the most recent quarterly financial
statements delivered to the Administrative Agent by
the Borrower in accordance with the Financing
Agreement, the Definitive Agreement shall remain in
full force and effect and there shall exist no
material default by the Borrower thereunder, and the
representations and warranties of the Borrower shall
be true and correct in all material respects
immediately prior to, and after giving effect to,
such Advance, except for such representations and
warranties which by their terms are made as of a
specific prior date.
Representations and
Warranties: Those customarily found in bank credit agreements
with similar borrowers and such others as may be
agreed by the parties, including without limitation
absence of any Material Adverse Effect since the date
of the most recent quarterly financial statements
delivered to the Administrative Agent by the
Borrower.
Affirmative Covenants: The following affirmative covenants (with
materiality and other exceptions to be negotiated)
and such others as may be agreed by the parties,
including without limitation the following:
(a) Comply with laws (including, without
limitation, ERISA and environmental laws),
pay taxes, maintain appropriate and adequate
insurance in accordance with industry
standards, preserve corporate existence,
keep books in accordance with GAAP and
maintain properties subject to ordinary wear
and tear.
(b) Permit inspection of properties, books and
records during normal business hours and
without unreasonable interference with the
Borrower's business.
(c) Perform obligations under leases, related
documents, material contracts and other
agreements except where the failure to so
perform could not reasonably be expected to
have a Material Adverse Effect.
11
<PAGE>
(d) (i) Within 45 days after the end of
each fiscal quarter, furnish
quarterly consolidated balance
sheets, income statements and
statements of cash flow of the
Borrower and its Restricted
Subsidiaries certified by the
Borrower's chief financial officer
(which certification may be subject
to year-end audit adjustments) and
certificates as to compliance with
the loan documents, as well as
operating reports to be discussed.
(ii) Within 90 days after the end of each
fiscal year, furnish audited
financial statements of the Borrower
and its Restricted Subsidiaries.
(iii) As soon as available but in no event
later than 90 days after the
beginning of each fiscal year, the
annual business plan of the Borrower
and its Restricted Subsidiaries for
the current fiscal year.
(iv) Promptly after request, furnish all
other business and financial
information that the Lenders may
reasonably request.
(v) Provide notices of default,
litigation and other material
events.
(e) Enter into swap agreements or other interest
rate hedging arrangements satisfactory to
the Lenders providing for the swapping of a
notional amount of the Advances which when
combined with any other fixed rate financing
of the Borrower is at least 50% of the total
debt.
(f) Maintain each License held by it or any of
its Restricted Subsidiaries in full force
and effect except for such Licenses the loss
of which could not reasonably be expected to
have a Material Adverse Effect.
(g) The Borrower's obligations to the
Administrative Agent and the Lenders shall
be absolute and unconditional and shall not
be subject to any delay, reduction, set off,
defense, counterclaim or recoupment for any
reason, including any failure of the
Collateral or any assets making up the
Borrower's communications network (the
"Network"), or any part thereof, or any
representation or service of any supplier,
manufacturer, installer, vendor or
distributor including without exception
Nortel.
(h) The Borrower shall cooperate with the
Administrative Agent and the Lenders in
connection with their respective efforts in
syndicating the credit facility; provided
Borrower is given 30
12
<PAGE>
days prior notice of any intent to commence
a syndication and shall not be required to
support more than one syndication in any
twelve month period or more than three such
syndications over the term of the Financing
Agreement. Such cooperation will include
making senior officers of the Borrower
available for meetings with potential
Lenders, providing, in a timely manner, such
assistance as may be reasonably requested by
the Administrative Agent or the Lenders,
including providing information to and
responding to inquiries from prospective
Lenders with respect to the business,
operations, business plan, results and other
matters relating to the business of the
Borrower.
(i) The Borrower shall terminate the Bridge
Facility by no later than the earlier of (i)
June 30, 1999, or (ii) the date which is
thirty (30) days after the Borrower receives
net cash proceeds from debt and equity
offerings of at least $400 million in excess
of the amount received by the Borrower prior
to August 1997.
(j) The Borrower shall raise $285 million in new
equity capital and Other Debt, of which at
least $100 million must be in the form of
equity, subsequent to August 1997 and no
later than June 30, 1999.
Negative Covenants: The following negative covenants (with materiality
and other exceptions to be negotiated) and such
others as may be agreed by the parties, including
without limitation the following:
(a) Not create or permit any liens, other than
liens securing the Advances, liens securing
other Debt permitted to share in the
Collateral, liens on assets securing Debt
not in excess of an amount to be agreed,
purchase money security interests,and
customary inchoate and statutory lien
exceptions.
(b) Not create or permit any Debt or other
contingent or guaranty obligations, other
than (A) the Advances, (B) Other Debt, (C)
Debt owed to Other Secured Lenders, (D) Debt
owed to Purchase Money Lenders not to exceed
$50 million, (E) unsecured Debt not to
exceed in the aggregate an amount to be
agreed and (F) refinancings of Debt
permitted above on terms no less favorable
to the Borrower.
(c) Not create or permit equipment operating
lease obligations beyond limits to be
mutually agreed.
(d) Not merge or consolidate (with such
exceptions as may be mutually agreed upon)
with any person; dispose of assets other
than sales in the ordinary course of
business, subject to the reinvestment
exceptions outlined above and other
permitted
13
<PAGE>
asset sales to be mutually agreed.
(e) Not make investments beyond limits to be set
forth in the loan documentation (including
limits on investments in Unrestricted
Subsidiaries, both foreign and domestic),
except, among other things, investments made
with registered financial institutions with
a deposit period of less than 12 months,
investments in bank certificates of deposit
having a final maturity not more than 365
days after the date of their issuance, open
market commercial paper maturing within one
year, or short-term obligations issues or
guaranteed by the U.S. government or any
agency of either thereof and other
investments acceptable to the Lenders.
(f) Not pay any dividends or distributions to
Shareholders except from Excess Cash Flow
remaining after any mandatory prepayments so
long as at the time of payment such
dividends or distributions the Borrower has
a ratio of Total Debt (as of the end of the
preceding fiscal quarter) to EBITDA (for the
preceding fiscal quarter annualized) of no
greater than 8 to 1.
(g) Not modify any tax-sharing or management or
servicing fee agreement if such modification
could reasonably be expected to have a
Material Adverse Effect.
(h) Not change the nature of its business, its
charter or bylaws or its accounting policies
or reporting policies if such modification
could reasonably be expected to have a
Material Adverse Effect.
(i) Not prepay, redeem, purchase, defease or
otherwise satisfy prior to maturity, or make
any payment in violation of any
subordination terms of, any debt for
borrowed money (other than (i) prepayment of
any Other Secured Debt, provided that the
Advances shall also be prepaid pro rata,
(ii) prepayments in connection with
refinancings of any such debt or (iii) trade
payables not overdue by more than 120 days
incurred in the ordinary course of the
Borrower's business).
(j) Not amend or modify the material terms of
the Bridge Facility and any related
documents other than amendments or
modifications thereof that could not
reasonably be expected to have a Material
Adverse Effect on the Borrower, provided
that the Borrower shall give to the Lenders
prior written notice of any such amendments
or modifications.
(k) Not enter into any agreement prohibiting the
creation or maintenance of the lien of the
Lenders under the loan documentation on the
properties or assets of the Borrower.
14
<PAGE>
(1) Not become a general partner in any
partnership, other than through an
Unrestricted Subsidiary or create any
subsidiaries other than subsidiaries the
stock of which is pledged to the Lenders and
Unrestricted Subsidiaries.
(m) Not conduct any business through any License
Company or the Property Company other than
as incidental to their formation and stated
function.
(n) Not dispose of assets except for the
disposition of obsolete, uneconomic or
surplus assets in the ordinary course of
business or sales of immaterial assets,
provided no default or event of default has
occurred or would result therefrom and
Borrower applies the net proceeds as set
forth above under the heading "Mandatory
Prepayments" or on such other terms to be
discussed.
(o) Not engage in transactions with affiliates
other than Restricted Subsidiaries except
(i) with respect to purchases of equipment
and provision of services for the Network,
at cost, and (ii) with respect to other
transactions, on terms at least as
advantageous to the Borrower as could be
obtained from a third party.
(p) Not engage in any business other than the
telecommunications business and businesses
related thereto.
Financial Covenants: Financial and other covenants to be mutually agreed
with respect to the Borrower and its Restricted
Subsidiaries, including but not limited to:
During the Initial Years of the Business Plan:
o Secured debt to total capitalization
o Total debt to total capitalization
o Capital expenditures
o Minimum Revenue
o Minimum Lines
During the Later Years of the Business Plan:
o All of preceding, plus
o Total debt to annualized EBITDA
o Fixed charge coverage
Events of Default: The following events of default (with such
materiality, grace periods and other exceptions to be
negotiated) and such others as may be agreed to by
the parties:
(a) The Borrower shall fail to pay any sum when
due in accordance with the loan
documentation and subject to
customary grace periods.
(b) Any representation or warranty of the
Borrower or any of its
15
<PAGE>
Restricted Subsidiaries in any of the loan
documentation or certificate or financial
information delivered pursuant thereto shall
not be correct in all material respects when
made or confirmed.
(c) The Borrower or any of its Restricted
Subsidiaries shall fail to perform or
comply with (within a specified period of
time, where customary and appropriate, after
notice or knowledge of such failure) any
term or covenant in any of the loan
documentation; it being agreed that the
Shareholders of the Borrower shall have the
right (but not the obligation) in their own
discretion to cure financial defaults on no
more than two occasions during the term of
the Financing Agreement by investing
additional capital or making subordinated
loans prior to the date the financial
statements showing such breach have been
delivered by the Borrower to the Lenders.
(d) The Borrower or any of its Restricted
Subsidiaries shall default under any debt
obligation in excess of $1,000,000 and such
default shall be continuing.
(e) Any bankruptcy, insolvency or similar
proceeding shall be instituted by or, unless
stayed within 60 days, against the Borrower
or any of its Restricted Subsidiaries.
(f) Any judgment in excess of $1,000,000 or any
material non-monetary judgment shall be
entered against the Borrower or any of its
Restricted Subsidiaries and shall remain
unsatisfied or unstayed for 30 days or
enforcement action shall be taken.
(g) Any of the loan documentation shall cease to
be enforceable against the Borrower or any
of its Restricted Subsidiaries.
(h) Any security document shall (other than to
the extent permitted by the terms thereof)
cease to create a valid and perfected
first-priority security interest in any
collateral purported to be covered thereby.
(i) A Change of Control (as defined below) of
the Borrower or any Restricted Subsidiary
shall have occurred. "Change of Control"
with respect to the Borrower shall have the
meaning provided in the S-1 with respect to
the terms of the Notes proposed to be issued
by the Borrower, and with respect to any
Restricted Subsidiary shall mean the
Borrower shall cease to own 100% of the
voting and economic interest in that
Restricted Subsidiary.
(j) Standard ERISA defaults.
Required Lenders: Holders of at least a majority in aggregate
outstanding principal amount
16
<PAGE>
of the outstanding Advances or, if no Advances are
outstanding, the outstanding commitments. No changes
may be made to certain provisions of the Financing
Agreement, including the use of proceeds, without the
consent of Nortel (even if Nortel is no longer a
Lender), which consent shall not unreasonably be
withheld. Nortel may enter into agreements with
assignees or other Lenders with respect to the manner
in which it will vote its share of the credit
facility evidenced by the Financing Agreement.
Assignments and
Participations: Assignments shall be in a minimum amount of
$5,000,000 unless the assignee is an existing Lender
or is being assigned the entirety of a Lender's
interest under the Financing Agreement. Nortel shall
have the right to assemble a group of financial
institutions to underwrite a syndication of the
credit facility, but no actual syndication will
commence until January 1, 1998. The Borrower shall
have the right to consent to the underwriters, the
Lenders, and any subsequent assignees, which consent
shall not unreasonably be withheld. Lenders may
assign outstanding Advances and commitments to lend
separately, and may assign separate tranches,
portions thereof and commitments to make Advances
thereunder separately. The Assignor shall have no
liability to the Borrower if any Assignee does not
honor its commitment to make an Advance. The Lenders
agree not to assign any amount to a competitor of the
Borrower unless there is a continuing event of
default. Each Lender will have the unlimited right to
enter into participations in the credit subject only
to customary voting limitations.
Most Favored Lender: If the Borrower enters into any senior secured
financing which is pari passu with the debt evidenced
by the Financing Agreement with any other lender that
provides for collateral, guarantees or other security
which are more favorable than those contained in the
Financing Agreement, such collateral, guarantees or
other security will be made available to the
Administrative Agent and the Lenders. At closing, the
Borrower will represent and warrant (which
representation and warranty shall be continuing) that
no financing of the Borrower contains any such more
favorable collateral, guarantees or other security.
Governing Law: New York.
17
<PAGE>
PROMISSORY NOTE
$1,000,000 February 1, 1997
FOR VALUE RECEIVED, the undersigned, Kirby G. Pickle, Jr. (the
"Borrower"), hereby promises to pay to Associated Communications, L.L.C., a
Delaware limited liability company (the "Company"), the principal sum (the
"Principal Sum") of One Million Dollars ($1,000,000) in lawful money of the
United States of America. The Borrower also agrees to pay interest (computed on
the basis of a 365 or 366 day year, as the case may be) on any unpaid amount of
the Principal Sum, from and after the date of this Promissory Note set forth
above (the "Effective Date") until the entire Principal Sum has been paid in
full, at a rate equal to 5.73% per annum; provided that in no event shall such
interest be charged to the extent it would violate any applicable usury law.
Payment of the Principal Sum of, and accrued interest on, this Promissory Note
shall not be secured. Borrower shall be personally liable for the Principal Sum
and the accrued interest thereon, calculated in accordance with this Promissory
Note.
This Promissory Note is subject to the following further terms and
conditions:
1. Payment Upon Maturity. The Principal Sum and all accrued interest
thereon will become due and payable on the third anniversary of the Effective
Date (the "Maturity Date"). If the Maturity Date is a Saturday, Sunday or legal
holiday, then such payment shall be made on the next succeeding business day.
2. Payment and Prepayment. All payments and prepayments of the
Principal Sum of, and the accrued interest on, this Promissory Note shall be
made to the Company or its order, in lawful money of the United States of
America at the principal offices of the Company (or at such other place as the
Company shall notify the Borrower in writing). The Borrower may, at his option,
prepay this Promissory Note in whole or in part at any time from time to time
without penalty or premium. Any prepayments of any portion of the Principal Sum
of this Promissory Note shall be accompanied by payment of all interest accrued
but unpaid hereunder. Upon full and
<PAGE>
final payment, or forgiveness, of the Principal Sum of, and interest accrued on,
this Promissory Note, it shall be cancelled by the Company and surrendered to
the Borrower.
3. Loan Forgiveness; Acceleration. Notwithstanding the foregoing, all
or part of the Principal Sums and accrued and unpaid interest thereon, shall be
automatically forgiven upon the following terms. On the third anniversary of the
Effective Date, if, and only if, the Borrower shall be employed by the Company
on such date, all interest then accrued on such loan and all of the principal
amount of such loan shall automatically be forgiven. Upon any termination of the
Borrower's employment for Cause (as defined in the Company's Long-Term Incentive
Compensation Plan) prior to the third 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 third anniversary of the Effective Date (if, and only if the borrower shall
be employed by the Company on such date), or any termination by the Company of
the Borrower's employment prior to the third anniversary of the Effective Date
(other than for Cause), or by reason of the Executive's disability (determined
at the sole discretion of the Board of Directors of the Company) or death, the
entire outstanding principal balance of such loans and the accrued interest
thereon shall automatically be forgiven. If the Borrower's employment is
terminated by the Borrower prior to the third anniversary of the Effective Date
(other than 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 second sentence of this Section 3) shall not occur, and
the remaining principal and accrued interest of such loans shall immediately
become due and payable. Upon any such acceleration, the entire outstanding
Principal Sum, and any accrued and unpaid interest thereon, shall become
immediately due and payable without presentment, demand, protest, notice of
dishonor and all other demands and notices of any kind, all of which are hereby
expressly waived.
4. Notice. For the purposes of this Promissory Note, notices, demands
and all other communications provided for herein shall be in writing and shall
be
2
<PAGE>
deemed to have been duly given when delivered in person or (unless otherwise
specified) five business days after being mailed by United States certified or
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Borrower:
Kirby G. Pickle, Jr.
If to the Company:
Associated Communications, L.L.C.
11 Canal Center Plaza
Suite 300
Alexandria, VA 22314
Attn: Alex J. Mandl, Chairman and CEO
or to such other address as any party (or such party's successor or assign) may
have furnished to the others in writing in accordance herewith, except that
notices of change of address shall be effective only upon receipt.
5. Miscellaneous.
(a) No delay or failure by the Company or the legal holder of
this Promissory Note in the exercise of any right or remedy shall constitute a
waiver thereof, and no single or partial exercise by the legal holder hereof of
any right or remedy shall preclude other or future exercise thereof, or the
exercise of any other right or remedy.
(b) The headings contained in this Promissory Note are for
reference purposes only and shall not affect in any way the meaning or
interpretation of the provisions hereof.
(c) No provisions hereof shall confer upon the Borrower the
right to continue in the employment of the Company, any of its subsidiaries or
any of their respective successors or affect any rights which the Company or any
of such subsidiaries or successors may have to terminate the employment of the
Borrower.
3
<PAGE>
(d) The provisions of this Promissory Note shall be governed
and construed in accordance with the laws of the State of Delaware, without
giving effect to the choice of law principles thereof.
(e) This Promissory Note may be not be as-
signed or transferred.
IN WITNESS WHEREOF, this Promissory Note has been duly
executed and delivered to the Company by the Borrower on the date first above
written.
/s/ Kirby G. Pickle, Jr.
---------------------
Kirby G. Pickle, Jr.
4
<PAGE>
PROMISSORY NOTE
$600,000 August 5, 1997
FOR VALUE RECEIVED, the undersigned, Laurence, E. Harris (the
"Borrower"), hereby promises to pay to Associated Communications, L.L.C., a
Delaware limited liability company (the "Company"), the principal sum (the
"Principal Sum") of Six Hundred Thousand Dollars ($600,000) in lawful money of
the United States of America. The Borrower also agrees to pay interest
(computed on the basis of a 365 or 366 day year, as the case may be) on any
unpaid amount of the Principal Sum, from and after the date of this Promissory
Note set forth above (the "Effective Date") until the entire Principal Sum has
been paid in full, at a rate equal to 6.54% per annum; provided that in no event
shall such interest be charged to the extent it would violate any applicable
usury law. Payment of the Principal Sum of, and accrued interest on, this
Promissory Note shall not be secured. Borrower shall be personally liable for
the Principal Sum and the accrued interest thereon, calculated in accordance
with this Promissory Note.
This Promissory Note is subject to the following further terms and
conditions:
1. Payment Upon Maturity. The Principal Sum and all accrued interest
thereon will become due and payable on June 8, 2000 (the "Maturity Date"). If
the Maturity Date is a Saturday, Sunday or legal holiday, then such payment
shall be made on the next succeeding business day.
2. Payment and Prepayment. All payments and prepayments of the
Principal Sum of, and the accrued interest on, this Promissory Note shall be
made to the Company or its order, in lawful money of the United States of
America at the principal offices of the Company (or at such other place as the
Company shall notify the Borrower in writing). The Borrower may, at his option,
prepay this Promissory Note in whole or in part at any time from time to time
without penalty or premium. Any prepayments of any portion of the Principal Sum
of this Promissory Note shall be accompanied by payment of all interest accrued
but unpaid hereunder. Upon full and
<PAGE>
final payment, or forgiveness, of the Principal Sum of, and interest accrued on,
this Promissory Note, it shall be cancelled by the Company and surrendered to
the Borrower.
3. Loan Forgiveness; Acceleration. The entire outstanding principal
balance of such loan and the accrued interest thereon shall automatically be
forgiven upon termination by the Company of the Borrower's employment (other
than for Cause) during the third year of Borrower's employment (December 10,
1998 through December 9, 1999). Upon any termination of the Borrower's
employment for Cause (as defined in the Company's Long-Term Incentive
Compensation Plan) prior to the Maturity Date, the entire outstanding principal
balance of such loans and all accrued interest thereon shall become due and
payable immediately. If the Borrower's employment is terminated by the Borrower
prior to the Maturity Date, any outstanding principal and accrued interest of
such loans shall immediately become due and payable. Upon any such acceleration,
the entire outstanding Principal Sum, and any accrued and unpaid interest
thereon, shall become immediately due and payable without presentment, demand,
protest, notice of dishonor and all other demands and notices of any kind, all
of which are hereby expressly waived.
4. Notice. For the purposes of this Promissory Note, notices, demands
and all other communications provided for herein shall be in writing and shall
be deemed to have been duly given when delivered in person or (unless otherwise
specified) five business days after being mailed by United States certified or
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Borrower:
Laurence E. Harris
If to the Company:
Associated Communications, L.L.C.
11 Canal Center Plaza
2
<PAGE>
Suite 300
Alexandria, VA 22314
Attn: Alex J. Mandl, Chairman and CEO
or to such other address as any party (or such party's successor or assign) may
have furnished to the others in writing in accordance herewith, except that
notices of change of address shall be effective only upon receipt.
5. Miscellaneous.
(a) No delay or failure by the Company or the legal holder of
this Promissory Note in the exercise of any right or remedy shall constitute a
waiver thereof, and no single or partial exercise by the legal holder hereof of
any right or remedy shall preclude other or future exercise thereof, or the
exercise of any other right or remedy.
(b) The headings contained in this Promissory Note are for
reference purposes only and shall not affect in any way the meaning or
interpretation of the provisions hereof.
(c) No provisions hereof shall confer upon the Borrower the
right to continue in the employment of the Company, any of its subsidiaries or
any of their respective successors or affect any rights which the Company or any
of such subsidiaries or successors may have to terminate the employment of the
Borrower.
(d) The provisions of this Promissory Note shall be governed
and construed in accordance with the laws of the State of Delaware, without
giving effect to the choice of law principles thereof.
(e) This Promissory Note may be not be assigned or
transferred.
IN WITNESS WHEREOF, this Promissory Note has been duly
executed and delivered to the Company by the Borrower on the date first above
written.
/s/ Laurence E. Harris
---------------------
Laurence E. Harris
3
<PAGE>
PROMISSORY NOTE
$1,000,000 April 7, 1997
FOR VALUE RECEIVED, the undersigned, Steven Bell (the "Borrower"),
hereby promises to pay to Associated Communications, L.L.C., a Delaware limited
liability company (the "Company"), the principal sum (the "Principal Sum") of
One Million Dollars ($1,000,000) in lawful money of the United States of
America. The Borrower also agrees to pay interest (computed on the basis of a
365 or 366 day year, as the case may be) on any unpaid amount of the Principal
Sum, from and after the date of this Promissory Note set forth above (the
"Effective Date") until the entire Principal Sum has been paid in full, at a
rate equal to 5.83% per annum; provided that in no event shall such interest be
charged to the extent it would violate any applicable usury law. Payment of the
Principal Sum of, and accrued interest on, this Promissory Note shall not be
secured. Borrower shall be personally liable for the Principal Sum and the
accrued interest thereon, calculated in accordance with this Promissory Note.
This Promissory Note is subject to the following further terms and
conditions:
1. Payment Upon Maturity. The Principal Sum and all accrued interest
thereon will become due and payable on the third anniversary of the Effective
Date (the "Maturity Date"). If the Maturity Datae is a Saturday, Sunday or legal
holiday, then such payment shall be made on the next succeeding business day.
2. Payment and Prepayment. All payments and prepayments of the
Principal Sum of, and the accrued interest on, this Promissory Note shall be
made to the Company or its order, in lawful money of the United States of
America at the principal offices of the Company (or at such other place as the
Company shall notify the Borrower in writing). The Borrower may, at his option,
prepay this Promissory Note in whole or in part at any time from time to time
without penalty or premium. Any prepayments for any portion of the Principal Sum
of this Promissory Note shall be accompanied by payment of all interest accrued
but unpaid hereunder. Upon full and
<PAGE>
final payment, or forgiveness, of the Principal Sum of, and interest accrued on,
this Promissory Note, it shall be cancelled by the Company and surrendered to
the Borrower.
3. Loan Forgiveness; Acceleration. Notwithstanding the foregoing, all
or part of the Principal Sum, and accrued and unpaid interest thereon, shall be
automatically forgiven upon the following terms. On the first anniversary of the
Effective Date, if, and only if, the Borrower shall be employed by the Company
on such date, all interest then accrued on such loan and one-third of the
principal amount of such loan shall automatically be forgiven. On the second
anniversary of the Effective Date, if, and only if, the Borrower shall be
employed by the Company on such date, all interest then accrued on such loan and
one-third of the principal amount of such loan shall automatically be forgiven.
On the third anniversary of the Effective Date, if, and only if, the Borrower
shall be employed by the Company on such date, all interest then accrued on such
loan and the remaining one-third of the principal amount of such loan shall
automatically be forgiven. Upon any termination of the Borrower's employment for
Cause (as defined in the Company's Long-Term Incentive Compensation Plan) prior
to the third 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 third anniversary of the
Effective Date (if, and only if the Borrower shall be employed by the Company on
such date), or any termination by the Company of the Borrower's employment prior
to the third anniversary of the Effective Date (other than for Cause), or by
reason of the Executive's disability (determined at the sole discretion of the
Board of Directors of the Company) or death, the entire outstanding principal
balance of such loans and the accrued interest thereon shall automatically be
forgiven. If the Borrower's employment is terminated by the Borrower prior to
the third anniversary of the Effective Date (other than by reason of his death
or disability), forgiveness of outstanding principal and accrued interest of
such loans shall not occur, and the remaining principal and accrued interest of
such loans shall immediately become due and payable. Upon any such acceleration,
the entire outstanding Principal Sum, and any accrued and unpaid interest
thereon, shall become immedi-
2
<PAGE>
ately due and payable without presentment, demand, protest, notice of dishonor
and all other demands and notices of any kind, all of which are hereby expressly
waived.
3. Notice. For the purposes of this Promissory Note, notices, demands
and all other communications provided for herein shall be in writing and shall
be deemed to have been duly given when delivered in person or (unless otherwise
specified) five business days after being mailed by United States certified or
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Borrower:
Steven Bell
If to the Company:
Associated Communications, L.L.C.
11 Canal Center Plaza
Suite 300
Alexandria, VA 22314
Attn: Alex J. Mandl, Chairman and CEO
or to such other address as any party (or such party's successor or assign) may
have furnished to the others in writing in accordance herewith, except that
notices of change of address shall be effective only upon receipt.
6. Miscellaneous.
(a) No delay or failure by the Company or the legal holder of
this Promissory Note in the exercise of any right or remedy shall constitute a
waiver thereof, and no single or partial exercise by the legal holder hereof of
any right or remedy shall preclude other or future exercise thereof, or the
exercise of any other right or remedy.
(b) The headings contained in this Promissory Note are for
reference purposes only and shall not affect in any way the meaning or
interpretation of the provisions hereof.
3
<PAGE>
(c) No provisions hereof shall confer upon the Borrower the
right to continue in the employment of the Company, any of its subsidiaries or
any of their respective successors or affect any rights which the Company or any
of such subsidiaries or successors amy have to terminate the employment of the
Borrower.
(d) The provisions of this Promissory Note shall be governed
and construed in accordance with the laws of the State of Delaware, without
giving effect to the choice of law principles thereof.
(e) This Promissory Note may be not be as-
signed or transferred.
IN WITNESS WHEREOF, this Promissory Note has been duly
executed and delivered to the Company by the Borrower on the date first above
written.
/s/ Steven Bell
--------------------------
Steven Bell
4
<PAGE>
STATEMENT REGARDING COMPUTATION OF NET LOSS PER SHARE
<TABLE>
<CAPTION>
March 5, 1996 Nine Months March 5, 1996
(date of inception) to Ended (date of inception) to
December 31, 1996 September 30, 1997 September 30, 1997
---------------------- ------------------ ----------------------
<S> <C> <C> <C>
(Dollars in thousands, except per share data)
PRIMARY
Net Loss $(13,633) $(78,825) $(92,458)
Weighted average Common Shares Outstanding 46,257,709 46,257,709 46,257,709
Net Loss Per Share $(.30) $(1.70) $(2.00)
FULLY DILUTED
Net Loss $(13,633) $(78,825) $(92,458)
Weighted average Common Shares Outstanding 46,257,709 46,257,709 46,257,709
Net effect of stock options granted during
the 12 month period prior to the Company's
filing of its initial public offering at
less than the offering price, calculated
using the treasury stock method at the
assumed offering price of $20.50 per
share, and treated as outstanding for
all periods presented 7,742,291 7,742,291 7,742,291
---------- ---------- ----------
Shares used in computation of fully
diluted net loss per share 54,000,000 54,000,000 54,000,000
---------- ---------- ----------
Net Loss Per Share $(.25) $(1.46) $(1.71)
=========== ========== ==========
</TABLE>
<PAGE>
EXHIBIT 21.1
SIGNIFICANT SUBSIDIARIES OF TELIGENT, INC.
State of Formation
Teligent Licensing Company I, L.L.C. Delaware
Teligent Licensing Company II, L.L.C. Delaware
FirstMark Communications, Inc. Delaware
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
November 10, 1997
